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  • 1. 2011 Know Your Region Webinar SeriesPart 7: Global TP t 7 Gl b l Trends in Competitiveness d i C titi and Productivity Growth Webinar | April 7, 2011 McKinsey & Company |
  • 2. How to compete and grow:A sector guide to policyMcKinsey Global InstituteMay 5, 2010CONFIDENTIAL AND PROPRIETARYAny use of this material without specific permission of McKinsey & Company is strictly prohibited
  • 3. More than ever before, the U.S. now relies onproductivity gains for GDP growthContributions to growth in real U.S. GDP, overall economyShare of compound annual growth rate, 1960-2008, % 100% = 4.1 41 3.1 31 3.2 32 3.3 33 2.1 21 2.2 22 Increases in 35 value added 47 54 53 per worker (productivity) 80 77 Increases in 65 53 the workforce 46 47 (labor inputs) 20 23 1960s 1970s 1980s 1990s 2000s1 2010 20E 2010-20E1 2000-08 data used for 2000sSOURCE: U.S. Bureau of Economic Analysis; U.S. Bureau of Labor Statistics; McKinsey Global Institute analysis McKinsey & Company | 2
  • 4. Without a productivity boost, younger generations willexperience slower increases in their standard of living Growth in perImprovement in per capita GDP by year of birth Forecast Birth capita GDPIndexed to 100 year Multiplier260 1960 2.54x240220 1970 2.04x200 1980 1.96x180 1990 1.78x160 2000 1.63x 1 63140120100 0 5 10 15 20 25 30 35 40 Years from birthSOURCE: U.S. Bureau of Economic Analysis; U.S. Census Bureau; Moody’s Economy.com; McKinsey analysis McKinsey & Company | 3
  • 5. The productivity gains needed to sustain historicGDP growth rates are ambitiousProductivity growth ratesCompound annual growth rate, %2000s1 1.6 161990s 1.81980s 1.51970s 1.11960s 2.2 2.1 2.3 Productivity gain to sustain historical to sustain required . . . 1.7% GDP per historical 2.8% capita growth GDP growth1 Includes 2000-08SOURCE: U.S. Bureau of Economic Analysis; Census 2009 population estimates; McKinsey Global Institute analysis McKinsey & Company | 4
  • 6. The U.S. can achieve historic levels of GDP growth,or betterPotential GDP growthCompound annual growth rate, 2010-20, % 0.2-0.5+ (not quantified) GDP growth 1990-2008 = 2.8 0.7-1-1 1.2 0.6 0.4 1.0 Population Change in Adoption of Next-wave Increases in Changes in Productivity Potential increase share of best practice innovation labor regulated enablers GDP growth working-age (productivity) (productivity) utilization and sectors (productivity) population immigration (productivity) (labor input) Demographic changes Levers available to Levers involving multiple actors companiesSOURCE: Organisation for Economic Co-operation and Development; Central Intelligence Agency; World Bank; McKinsey Global Institute analysis McKinsey & Company | 5
  • 7. At the national level, the “trade-off” between aggregateemployment and productivity levels is at best short-termRolling periods of employment and productivity change, 1929-2009%; periods 80 78 76 71 Employment 1 4 5 3 Productivity 6 3 8 Employment 15 Productivity 21 Employment E l t Productivity 99 Employment 89 Productivity 77 69 Annual A l Three-year Th Five-year Fi Ten-year T periods periods periodsSOURCE: U.S. Bureau of Economic Analysis; McKinsey Global Institute Analysis McKinsey & Company | 6
  • 8. Summary▪ Our sector approach – and why it matters▪ Patterns in sector contributions to growth▪ How can governments tailor p g policies to each sector McKinsey & Company | 7
  • 9. MGI categorizes sectors into six groups according todegrees of differentiation and tradabilityDifferentiation index Size of circle = relative amount0 = average of sector value added in 2005High 1.6 Pharma R&D Computer and p Radio, TV, and Business related activities communication 1.2 equipment services Chemicals entiation of products Other Aircraft and spacecraft 0.8 Local Wholesale and Medical services Resource- Real estate Real-estate instruments p retail trade activities Post and intensive R&D-intensive 0.4 telecommunication Finance and industries manufacturing insurance Pulp, paper, printing, Other and publishing 0 Fabricated metals Differe Rubber and plastics Electricity Basic metals Motor vehicles Infrastructure -0.4 Construction Land Machinery and Hotels and restaurants transport Agriculture, equipment y forestry, Wood products Manufacturing and fishingLow -0.8 1 10 100 Imports plus exports divided by sector gross output % Low Tradability of products HighSOURCE: EU KLEMS growth and productivity accounts; OECD input-output tables; McKinsey Global Institute analysis McKinsey & Company | 8
  • 10. Summary▪ Our sector approach – and why it matters▪ Patterns in sector contributions to growth▪ How can governments tailor p g policies to each sector McKinsey & Company | 9
  • 11. Three lessons learned for governments to keep in mindas they seek to enable growth LESSON 1 Success in emerging, i S i i innovative ti sectors alone is not enough to sustain growth LESSON 2 The mix of sectors in an economy i l is less i important th t t than the competitiveness of sectors LESSON 3 Service sector growth is critical – and particularly so for job growth hSOURCE: McKinsey Global Institute analysis McKinsey & Company | 10
  • 12. Competitiveness in new innovative sectors is not enoughEven in the United States, innovative new sectors make asmall direct economic contributionShare of US employment, August 2009 (percent of nonfarm employment)100% = 130 million New innovative sectors Existing large employment sectors Semi- Construc- Financial Retail Biotech conductor Cleantech tion activities trade 11.3 5.9 4.9 0.6 06 0.2 02 0.3 03SOURCE: The Clean Energy Economy, PEW, 2009; Bureau of Labor Statistics; Haver analytics McKinsey & Company | 11
  • 13. Three lessons learned for governments to keep in mind asthey seek to enable growth LESSON 1 Success in emerging innovative emerging, sectors alone is not enough to sustain growth LESSON 2 The mix of sectors in an economy i l is less i important th t t than the competitiveness of sectors LESSON 3 Service sector growth is critical – and particularly so for job growth hSOURCE: McKinsey Global Institute analysis McKinsey & Company | 12
  • 14. Sector competitiveness matters more than sector mixSector performance has mattered more than the mix ofsectors for overall GDP growth in developed countriesContribution to total value added, 1995–2005Compound annual growth rate, % Growth momentum Differences in (growth predicted performanceGrowth Total growth by initial sector mix) of sectors United High States 3.3 33 2.3 23 0.9 09 S. Korea 2.6 1.8 0.7 United U it d Kingdom 2.6 2.2 0.4 France 2.1 2.3 -0.2 Germany 0.8 2.3 -1.5 Low Japan 0.4 04 2.1 21 -1.7 -1 7SOURCE: Global Insight; McKinsey Global Institute analysis McKinsey & Company | 13
  • 15. Three lessons learned for governments to keep in mind asthey seek to enable growth LESSON 1 Success in emerging, innovative g g sectors is not enough to sustain growth; existing sectors need attention, too LESSON 2 The mix of sectors in an economy i l is less i important th t t than the competitiveness of sectors LESSON 3 Service sector growth is critical – and particularly so for job growth hSOURCE: McKinsey Global Institute analysis McKinsey & Company | 14
  • 16. For jobs, service sector competitiveness is keyServices have contributed 87 percent of GDP growth inhigh-income countries in the last decadesSector contribution to growth of value added in high-income countries,1985–2005100% = $10.4 trillion 100 R&D-intensive mfg 4 Goods Manufacturing 2 13 Resource-intensive 6 18 Business services Services Local services 87 58 12 InfrastructureSOURCE: Global Insight; International Labor Organization; National Statistics; McKinsey Global Institute analysis McKinsey & Company | 15
  • 17. For jobs, service sector competitiveness is keyService sectors generate most net new jobs across allincome groups – and over 100% in high income countriesSector contribution to a countrys net growth of employment, 1985–2005%, million employees Low-income Medium-income High-income g countries countries countries 100% = 324 100% = 50 100% = 74 29 100% 9Goods 32 129 91Services 68SOURCE: International Labor Organization; National Statistics; McKinsey Global Institute analysis McKinsey & Company | 16
  • 18. Summary▪ Our sector approach – and why it matters▪ Patterns in sector contributions to growth▪ How can governments tailor policies to g each sector McKinsey & Company | 17
  • 19. Our policy approach – frameworkDifferentiating sector-level policies by the degree of intervention Degree of interventionLow High Setting ground Tilting the playing Government as rules/direction Building enablers field principal actorGovernments can limit Without interfering with Governments can Governments cansector policies to market mechanisms, choose to create play a direct role by▪ Setting the governments can favorable conditions for ▪ Establishing state- regulation covering support private-sector local production owned or labor, capital and activities by through: subsidized land markets; ▪ Expanding hard and ▪ Trade protection from companies;▪ Establishing the soft infrastructure; global competition ▪ Funding existing general business ▪ Helping to ensure ▪ Providing financial businesses to environment, adequate skills q incentives for local ensure their▪ Setting broad through education operations survival national priorities and training, ▪ Shaping local ▪ Imposing and road maps. ▪ Supporting R&D demand growth restructuring on activities. through p g public certain industries. purchasing or regulation.SOURCE: MGI/PSO Sector Competitiveness Project McKinsey & Company | 18
  • 20. To be effective, policy tools need to be tailoredto sector characteristics Degree of interventionLow High Setting ground Tilting the playing Government as rules/direction Building enablers field principal actor Business R&D-intensive R&D i t i services manufacturing Local Manufacturing services Infrastructure Resource-intensive Infrastructure industriesSOURCE: McKinsey Global Institute/Public Sector Office Sector Competitiveness Project McKinsey & Company | 19
  • 21. Policy can determine domestic sector performance –retail sector performance varies widely around the worldRetail sector performance in developed countries, 2005 Employment Hours worked per capita 100 90 80 70 60 50 40 0 0 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Labor productivity Value added (dollars per hour worked)SOURCE: EU KLEMS; McKinsey Global Institute analysis McKinsey & Company | 20
  • 22. To be effective, policy tools need to be tailoredto sector characteristics Degree of interventionLow High Setting ground Tilting the playing Government as rules/direction Building enablers field principal actor Business R&D-intensive R&D i t i services manufacturing Local Manufacturing services Infrastructure Resource-intensive Infrastructure industriesSOURCE: McKinsey Global Institute/Public Sector Office Sector Competitiveness Project McKinsey & Company | 21
  • 23. The majority of recent attempts to ROUGH ESTIMATESestablish local semiconductor industries $ Estimated cumulative country- wide government incentivesor clusters have failed l t h f il d (USD billion)Successes and failures of semiconductor clusters Sustainable competitive edge Present Currently not presentEstimated d t f i d tE ti t d date of industry reaching significant size hi i ifi t i1970 1980 1990 2000 United States, $12–36 Taiwan Semiconductor Manufacturing Company M f t i C Japan, $19–54 (TSMC) first to introduce novel business model of Taiwan, $15–43 foundry-only semiconductor player South Korea, $9–26 Singapore, $5–16 Germany, $2–7 China, $6–17 Malaysia, $1–3SOURCE: SEMI World Fab Watch; expert estimates; McKinsey Global Institute analysis McKinsey & Company | 22
  • 24. To be effective, policy tools need to be tailoredto sector characteristics Degree of interventionLow High Setting ground Tilting the playing Government as rules/direction Building enablers field principal actor Business R&D-intensive R&D i t i services manufacturing Local Manufacturing services Infrastructure Resource-intensive Infrastructure industriesSOURCE: McKinsey Global Institute/Public Sector Office Sector Competitiveness Project McKinsey & Company | 23
  • 25. A sector perspective on competitiveness and growth ▪ Growth aspirations need to be grounded on a realistic view of sector contributions to growth – Success in emerging, innovative sectors is not enough emerging – The mix of sectors matters less than their competitiveness – Service sector growth is critical – particularly for job growth ▪ Effective growth policies are tailored to the levers that matter in each sector, yet odds of success vary – Policy can determine sector performance in local sectors… – … but cannot guarantee success in globally traded industries ▪ In tradable sectors, odds improve if policies target economic activities with a strong business case for local production; and are executed in collaboration with the private sector McKinsey & Company | 24
  • 26. Thank you This report and other MGI research are available at: www.mckinsey.com/MGI McKinsey & Company | 25

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