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Competitiveness: New Approaches, Make in India and Lessons from China

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This presentation was delivered by Micael Enright at India's National Competitiveness Forum 2015, the flagship event of India Council on Competitiveness.

Institute for Competitiveness (India) the Indian knot in the global network of the Institute for Strategy and Competitiveness at Harvard Business School has initiated the India Council on Competitiveness. The Council, created in collaboration with the U.S. Council on Competitiveness; is based in Gurgaon, India and is an association of distinguished members from industry, academia, think tanks, media and researchers. The mission of the India Council is to set an action agenda to drive Indian competitiveness, productivity and leadership in world markets to raise the standard of living for all Indians. For more information, visit www.compete.org.in

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Competitiveness: New Approaches, Make in India and Lessons from China

  1. 1. Competitiveness: New Approaches, Make in India: Lessons from China Professor Michael J. Enright Enright, Scott & Associates University of Hong Kong Hong Kong Institute for Economics and Business Strategy September 2015 2015-09 © Copyright Michael Enright, 2015 1 © Copyright Michael J. Enright , 2015 This presentation is incomplete without the spoken commentary. Please do not duplicate, store, or transmit in any form without the permission of the author.
  2. 2. ESA and Competitiveness • Professor Michael Enright helped design and then managed the Competitive Advantage of Nations Project at Harvard Business School in the 1980s • ESA undertook the first competitiveness project in a developing country based on modern competitiveness methodology • ESA has undertaken detailed competitiveness assessments all around the world, usually in conjunction with local partners • ESA has made major enhancements over the years to focus on the practical aspects of improving competitiveness, advanced use of these tools remains proprietary to ESA 2015-09 © Copyright Michael Enright, 2015 2
  3. 3. Our approach to competitiveness 1. Generate a proper overall competitiveness index 2. Use data and benchmarks creatively 3. Bring business into the frame 4. Organize the pieces into a useful framework 5. Develop strategies and policies appropriately • The steps can be used individually or together 2015-09 © Copyright Michael Enright, 2015 3
  4. 4. A new competitiveness index • Existing competitiveness indices like WEF, IMD – Mix up “explanatory” and performance variables – Use “explanatory” variables based on opinion – Use inadequate samples (30+ responses in some nations) – Are complex, inconsistent, shift over time, don’t cover enough places – Do not measure what drives competitiveness – productivity • The ESA Productivity Competitiveness Index (EPCI)TM – GNI / Pop(15-64) with highest value scaled to 100 – One year snapshot and 3 year rolling average – Coverage 172 countries 1990-2014 – Simple, performance only, measures productivity 2015-09 © Copyright Michael Enright, 2015 4 “ESA Productivity Competitiveness Index” and “EPCI” are both trademarks of Enright, Scott & Associates, Ltd.
  5. 5. ESA Competitiveness Index, EPCI1TM, 2014 Country Rank Index Country Rank Index Norway 1 100.00 Singapore 13 46.71 Switzerland 2 80.37 Austria 14 46.40 Luxembourg 3 65.90 Netherlands 15 46.01 Qatar 4 65.77 Germany 16 45.07 Australia 5 63.30 Belgium 17 44.58 Macao 6 62.48 Iceland 18 42.32 Denmark 7 60.69 France 19 42.21 Sweden 8 60.11 Ireland 20 41.45 Kuwait 9 55.11 Japan 21 41.24 United States 10 51.91 United Kingdom 22 38.30 Canada 11 47.89 Israel 23 36.87 Finland 12 47.09 New Zealand 24 36.03 2015-09 © Copyright Michael Enright, 2015 5 Source: Enright, Scott & Associates
  6. 6. Rank comparisons, 2014 Country ESA EPCI1 (of 135) WEF (of 135) Country ESA EPCI1 (of 135) WEF (of 135) Norway* 1 11 Germany* 15 5 Switzerland 2 1 France 18 22 Luxembourg* 3 18 United Kingdom* 21 9 Qatar* 4 15 Ireland 19 24 Australia* 5 21 Japan* 20 6 Denmark 6 13 New Zealand 23 16 Sweden 7 10 Hong Kong* 25 7 Kuwait* 8 39 Korea 29 25 United States 9 3 Kazakhstan 51 47 Canada 10 14 Brazil 54 53 Finland 11 4 Malaysia* 56 19 Singapore* 12 2 China* 70 27 Austria 13 20 India* 110 66 2015-09 © Copyright Michael Enright, 2015 6 Comparison just of the 135 economies in both databases. Source: Enright, Scott & Associates
  7. 7. Comparison EPCI1 and WEF comparisons, 2014 0 20 40 60 80 100 0 20 40 60 80 100 NormalizedWEF EPCI1 2015-09 © Copyright Michael Enright, 2015 7 WEF = EPCI1 line Source: Enright, Scott & Associates 0 20 40 60 80 100 120 140 160 0 20 40 60 80 100120140160 WEF EPCI1 WEF Rank “Too High” WEF Rank “Too Low” Index Values Rankings
  8. 8. Average deviation in rank from EPCI1 and WEF indices EPCI1 vs WEF Year Ave Deviation Out of 2014 17 135 2013 17 138 2012 16 134 2011 16 135 2010 16 136 2009 14 129 2008 14 129 2007 14 124 2006 13 117 2015-09 © Copyright Michael Enright, 2015 8 Source: Enright, Scott & Associates
  9. 9. Use data and benchmarks creatively • We use the raw data from multiple sources, compare with relevant benchmarks, map against real trade and investment performance, and use this as input to policy and strategy • We identify unique sets of comparators, competitors, customers, and complementors for each country • For each set of benchmarks: – Where do we have advantages to exploit / disadvantages to overcome? – What pattern of trade and investment should we see apparent advantages / disadvantages? Is this seen in reality? If not, why not? – What are the specific issues that prevent us from realizing our potential? – What set of strategies and policies can deal with these issues? 2015-09 © Copyright Michael Enright, 2015 9
  10. 10. Australia versus traditional benchmarks in “Knowledge Economy” variables 2015-09 © Copyright Michael Enright, 2015 Above 90th percentile Below 30th percentile Adult Literacy Rate (10.00) Gross Secondary Enrolment Rate (10.00) Difficulty of Hiring (10.00) Rigidity of Hours (10.00) School Enrolment, Secondary, Female (10.00), Soundness of Banks (9.77) Days to Start a Business (9.76) Gender Development Index (9.76) ICT Expenditures as percentage of GDP (9.70) Employment to Population Ratio (9.55) Human Development Index (9.53) Life Expectancy at Birth (9.32) Reliance on Professional Management (9.32) Firing Costs (9.02). Manufacturing Trade as percentage of GDP (0.47), Trade as percentage of GDP (0.70) Export of Goods and Services as percentage of GDP (0.70) Value Chain Presence (0.91) Daily Newspapers per 1000 people (1.79) Share of Unemployment with Secondary Education (1.89) Employment in Industry (2.14) Foreign Direct Investment Outflows as percentage of GDP (2.33) Science and Engineering Articles with Foreign Co- authorship (2.33) Interest Rate Spread (2.58) Mobile Phones per 1000 people (2.89) Labor Force with Secondary Education (2.97) 10 Source: Enright, Scott & Associates
  11. 11. 2015-09 © Copyright Michael Enright, 2015 Australia: Top competitors by sector Rank Agriculture, Forestry, and Fishing (A0) Mining (B0) Manufacturing (C0) Electricity, Gas, Water, Waste Services (D0) and Construction (E0) Service Sectors (F0 to S0) 1 United States China China United States United States 2 New Zealand United States United States China United Kingdom 3 China Canada Germany United Kingdom China 4 Canada Brazil United Kingdom Germany New Zealand 5 Argentina United Kingdom Japan New Zealand Hong Kong 6 United Kingdom South Africa Indonesia Japan Canada 7 Indonesia Indonesia India Canada Germany 8 Brazil India Hong Kong Hong Kong Singapore 9 Japan Chile Korea India Japan 10 Hong Kong Argentina New Zealand Singapore India 11 Source: Enright, Scott & Associates
  12. 12. Australia versus Asia-Pacific 2015-09 © Copyright Michael Enright, 2015 Above 90th percentile Below 30th percentile Human Development Index (10.00) Soundness of Banks (10.00) Average Number of Citations per S&E Articles (10.00) Adult Literacy Rate (10.00) Gross Secondary Enrolment Rate (10.00) Difficulty of Hiring (10.00) Rigidity of Hours (10.00) Labor Force with Tertiary Education (10.00) Gender Development (10.00) School Enrolment, Secondary, Female (10.00) Rule of Law (9.41) Government Effectiveness (9.41) Voice and Accountability (9.41) Life Expectancy at Birth (9.41) Employment to Population Ratio, Ages 15– 24 (9.41) Days to Start a Business (9.38) ICT Expenditure, % of GDP (9.17) Science and Engineering Journal Articles per million people (9.38) Firing Costs (9.38) Intellectual Property Protection (9.29) Availability of Venture Capital (9.29) Quality of Management Schools (9.29), Professional and Technical Workers % of Labor Force (9.29) Reliance on Professional Management (9.29) Local Availability of Specialized Research and Training Services (9.29) Average Years of Schooling (9.23) Employment in Services (9.23) Seats in Parliament Held by Women (9.23) School Enrolment, Tertiary, Female (9.23) External Business Internet Use (9.23) Royalty and License Fees Receipts (9.17) Trade as percentage of GDP (0.63) Exports of Goods and Services as percentage of GDP (0.63) Manufacturing Trade as percentage of GDP (0.67) Annual GDP Growth (1.76) Labor Tax and Contributions (1.88) Share of Unemployment with Secondary Education (2.50) Price Basket for Internet (2.94) 12 Source: Enright, Scott & Associates
  13. 13. The ESA sequenced approach • Most competitiveness sources say – Identify the “biggest gaps” to the world leaders – Filling those gaps is the most important • Unfortunately – This only works for countries in the top 10 or 20 – The “recipes” for others can be misguided • ESA uses a sequenced approach – Use the ESA Index to identify economies performing 10%, 20%, 30%, etc. better / also identify customers, competitors, – Use multiple sources of data, “how to match the benchmarks” • This allows for a tailored, sequenced approach 2015-09 © Copyright Michael Enright, 2015 13
  14. 14. A sequenced approach to development 0% 20% 40% 60% 80% 100% Status Quo Step 1 Step 2 Step 3 Step 4 ESA Index P6 P5 P4 P3 P2 P1 2015-09 © Copyright Michael Enright, 2015 14 Change to match P2 Change to match P3 Change to match P4 Change to match P5 Source: Enright, Scott & Associates
  15. 15. Bringing business into the frame • Much national competitiveness work ignores the business and industrial makeup of the country in question • Some “drivers of competitiveness” will be relevant in some industries (and countries) and irrelevant in others • We need to focus on the drivers that are important in the specific industries in the economy and how the economy performs in these drivers versus relevant competitors • ESA Business Survey – 20,000 responses to global survey on drivers important to competitiveness in specific industries – Nation-specific surveys: who are the relevant competitors, what drivers are important, how does our country perform on the drivers 2015-09 © Copyright Michael Enright, 2015 15
  16. 16. 2015-09 © Copyright Michael Enright, 2015 Importance-Performance Competitiveness AnalysisTM 2 Good performance, but not so beneficial 1 Leverage, market, exploit, further develop 3 Poor performance, but does not matter much 4 Fix, mitigate, overcome Importance Performance Low Low High High 16 “Importance-Performance Competitiveness Analysis” and “IPCA” are both trademarks of Enright, Scott & Associates, Ltd. Source: Enright, Scott & Associates
  17. 17. IPCATM Australian industries 11/10/2014 © Copyright Michael Enright, 2014 Importance Performance 8 6 474849 76 69 3 15 462 18 71 75 50 17 68 19 58 46 70 40 61 42 74 5 45 24 73 39 72 714 23 55 29 22 35 59 56 54 13 34 16 575364 512563 3352 4112 4365 28 2767 26 30 36 66 37 38 32 60 31 21 9 11 44 10 20 1 2 1.00 4.00 7.00 1.00 4.00 7.00 17 Source: Enright, Scott & Associates 8 6 4748 49 76 69 3 15 4 62 18 71 75 50 17 68 19 58 46 70 40 61 42 74 5 45 24 73 39 72 7 14 23 5529 22 35 59 56 54 13 34 16 57 53 64 51 25 63 33 52 411243 6528 27 67 26 30 36 66 3738 32 60 31 21 9 11 44 10 20 1 2 1.00 4.00 7.00 1.00 4.00 7.00 Importance Higher Education Automobiles
  18. 18. From the business survey • One-page “competitiveness maps” for the major industries in an economy that can be tracked over time • Features that are important across multiple industries become the focal points for policy and strategy • Can map “importance” / “performance” in competitiveness drivers to actual industry growth, trade data, etc. • Can apply the approach to emerging industries in early stages to forecast national potential 2015-09 © Copyright Michael Enright, 2015 18
  19. 19. Organize the pieces in a useful framework Competitive Industries/ Activities Potential Industries/ Activities Supranational Cluster FirmNational Industry 2015-09 © Copyright Michael Enright, 2015 Source: Michael Enright 19 Competitiveness is not additive. No single level can make a nation, region, or city competitive, any single level can make it uncompetitive.
  20. 20. Our approach to competitiveness 1. Generate a proper overall competitiveness index 2. Use data and benchmarks creatively 3. Bring business into the frame 4. Organize the pieces into a useful framework 5. Develop strategies and policies appropriately 2015-09 © Copyright Michael Enright, 2015 20
  21. 21. “Make in India”: Some Lessons from China 2015-09 © Copyright Michael Enright, 2015 21
  22. 22. Supply chains are global 2015-09 © Copyright Michael Enright, 2015 22 Source: http://comparecamp.com/ 349 China 11 Vietnam 2 Brazil 139 Japan 7 Mexico 2 Costa Rica 60 USA 6 Indonesia 2 Austria 42 Taiwan 6 Israel 2 Netherlands 32 S. Korea 5 France 1 Canada 24 Philippines 5 Czech Rep 1 Portugal 21 Malaysia 3 Belgium 1 Spain 21 Thailand 3 Italy 1 Morocco 17 Singapore 3 Ireland 1 Puerto Rico 13 Germany 3 UK 1 Malta 1 Hungary iPhone6, Suppliers per Country
  23. 23. China is part of an East Asian production system Technology Capital goods Components Subassemblies Finished goods ASEAN China “Advanced Economies” NICS 2015-09 © Copyright Michael Enright, 2015 23 Source: ESA
  24. 24. South Asia does not have the trade networks of SE and E Asia 2015-09 © Copyright Michael Enright, 2015 24 0 10 20 30 40 50 60 70 2000 2002 2004 2006 2008 2010 2012 E Asia Exports, % SE Asia S Asia E Asia C-W Asia 0 10 20 30 40 50 60 70 2000 2002 2004 2006 2008 2010 2012 SE Asia Exports, % SE Asia S Asia E Asia C-W Asia Source: ADB 0 10 20 30 40 50 60 70 2000 2002 2004 2006 2008 2010 2012 S Asia Exports, % SE Asia S Asia E Asia C-W Asia
  25. 25. Export processing is key to China’s exports 0% 10% 20% 30% 40% 50% 60% 0 200 400 600 800 1000 1200 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 US$billion Processing Trade Exports % of Total Exports 2015-09 © Copyright Michael Enright, 2015 25 Export Processing Trade in China
  26. 26. Nearly 75% of China’s exports come from 3% of its land mass 2015-09 © Copyright Michael Enright, 2015 26 This meant that world-class infrastructure only had to be provided initially for ~200 km inland from three major port areas for China to become a manufacturing powerhouse. It also meant that labor had to be mobile to move to the places that had the infrastructure and access to markets.
  27. 27. FIEs are key to China’s trade 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 US$Trillions FIE Exports FIE Imports 2015-09 © Copyright Michael Enright, 2015 27 0% 10% 20% 30% 40% 50% 60% 70% 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 China's Exports by FIEs (%) China's Imports by FIEs (%)
  28. 28. FIE’s are also key to China’s industrial output 0% 10% 20% 30% 40% 50% 60% 70% 80% Manufacture of Computers, Communication and Other Electronic… Manufacture of Automobiles Production and Supply of Gas Manufacture of Leather, Fur, Feather and Related Products and… Manufacture of Articles for Culture, Education, Arts and Crafts, Sport… Manufacture of Textile, Wearing Apparel and Accessories Manufacture of Foods Manufacture of Measuring Instruments and Machinery Manufacture of Chemical Fibers Repair Service of Metal Products, Machinery and Equipment Manufacture of Electrical Machinery and Apparatus Manufacture of Rubber and Plastic Products Manufacture of Liquor, Beverages and Refined Tea Manufacture of Paper and Paper Products Manufacture of Furniture Manufacture of General Purpose Machinery Manufacture of Raw Chemical Materials and Chemical Products Manufacture of Medicines Other Manufacture Printing and Reproduction of Recording Media Manufacture of Special Purpose Machinery TOTAL 2015-09 © Copyright Michael Enright, 2015 28 FIEs% of Revenue, Selected Industries, China 2013
  29. 29. Hong Kong retains a crucial role 2015-09 © Copyright Michael Enright, 2015 29 - 200 400 600 800 Hong Kong Japan United States Singapore Taiwan Korea Germany UK Netherland France Macao Canada Australia Malaysia Italy Sources of FDI into China, US$ billion, 1985-2013 0 50 100 150 200 250 300 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Hong Kong Re-exports from China, US$ billion, 2003-2012
  30. 30. Questions for “Make in India” 2015-09 © Copyright Michael Enright, 2015 30 • What is the supply chain strategy for “Make in India”? • What regional production chains and trade networks will India join as part of “Make in India”? • What is the export strategy for “Make in India”? • What is the import strategy for “Make in India”? • What is the infrastructure strategy for “Make in India”? • What is the labor and labor mobility strategy for “Make in India”? • What is the foreign investment strategy for “Make in India”? • Where is India’s Hong Kong, or Hong Kong substitute?
  31. 31. For more information contact © Copyright Michael J. Enright, 2015 This presentation is incomplete without the spoken commentary. Please do not duplicate, store, or transmit in any form without the permission of the author. Michael Enright Enright, Scott & Associates Phone: 852-3101-8650 Fax: 852-3101-9635 michaelenright@enrightscott.com 2015-09 © Copyright Michael Enright, 2015 31

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