Assessing and benchmarking industrial Performance: the UNIDO Scoreboard

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Assessing and benchmarking industrial
Performance the UNIDO Scoreboard
Sanjaya Lall, Oxford University

• UNIDO/DTI competitiveness conference, South
  Africa, June 2004

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Successful industrial and competitive performance
must be analysed in the new global context.
This is changing rapidly and in ways that call
for new types of strategic responses
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International rather than national
competitiveness is now the bottom line

• Widespread liberalization means that all firms
  face global competition domestically and, of
  course, in export markets
• Competition arises from new (and often
  unexpected) sources as more countries enter world
  markets and liberalize policies
• Competition is not only for markets but also for
  scarce mobile resources capital, technology,
  skills and value chains
• Competition is more intense than ever because of
  shrinking economic distance

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This is driven by rapid and pervasive technical
change
The death of distance opens opportunities new
markets and inputs and allows narrower forms of
specialization in fragmented production
Innovation changes structure of industrial and
export activity, shifting it towards
technology-intensive products and industries
constant upgrading becomes critical
The pace of innovation makes it imperative for
all activities to access new technologies, while
raising entry levels for competitiveness in
skills, capabilities, institutions and
infrastructure
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The organisation of production, innovation and
trade are also changing
Thus Globalization offers new markets and
resources but building competitiveness needs more
than primary resources or cheap labour it needs
STRATEGY
It leads to tightly knit global value chains,
with stronger role for lead players (MNCs or
buyers) and higher minimum entry levels

• Globalization raises the role of MNCs in
  innovation, technology transfer, production and
  particularly exports. Around 2/3 of world trade
  is handled by MNCs, about 1/3 is within companies
  

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Slippery slopes and sticky places

• Increasing mobility of information and productive
  factors, and the unremitting search for new (low
  cost and efficient) locations for production,
  RD, marketing or procurement slippery slopes
  does not mean that factors spread evenly over
  lower wage countries
• Efficient production requires local capabilities
  to complement the mobile factors and make them
  take root sticky places
• Host countries must meet the technological,
  skill, flexibility, quality and reliability needs
  of competitive production this does not happen
  automatically with liberalization

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Some indicators of changing industrial and trade
structures
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Technological structures

• Primary products
• Manufactured products
• RB (Resource based) e.g. food, wood forestry
  products, processed minerals, petroleum products
• LT (Low technology) e.g. textiles, clothing,
  footwear, toys, sports goods, simple metal
  products
• MT (Medium technology) e.g. automotive products,
  TVs, machinery, chemicals, steel
• HT (High technology) Advanced ICT and
  electricals, pharmaceuticals, aerospace,
  precision instruments

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US National Science Board growth of hi-tech and
other manufacturing production in 1980-98
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The 5 fastest and 5 slowest growing industrial
activities in 1980-2000
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Exports growth rates by technology
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Shares of manufactured products in world exports
by technology levels from 1976 to 2000 ()
Resource based
High Technology
Medium Technology
Low Technology
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Technology composition of 50 fastest growing
exports, 1990-2000 (percentage shares)
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How are developing countries doing in this
evolving scene?
Surprisingly well overall
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Growth rates of developing countries are higher
in complex MT and HT exports
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So its world shares of complex exports is rising
rapidly and is already significant
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In fact, developing world values of HT exports
now far exceed those of LT and RB exports (
billion)
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But industrial and export success is highly
uneven in the developing world
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Regional shares of global manufacturing value
added in 1980, 1990 2000
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And changes in MVA shares, 1980-2000
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(No Transcript)
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East Asia (with and without China) also dominates
manufactured exports
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Changes in world market shares for manufactures
in 1980s and 1990s show evolving dynamism
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Regional market shares of developing world
manufactured exports, 1985 and 2000
1985
2000
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Leading 10 developing country exporters of
manufactures
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At the country level, export concentration in
developing world is rising
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Leading developing HT exporters
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Leading medium technology exporters
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Leading low technology exporters
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Leading resource based exporters
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A few words on service exports, not traditional
services but the new set of outsourced or, more
correctly, offshored services
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What are offshored services?
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Service exports (call centres, shared service
centres and IT services) new FDI projects in
2002/3
Developed countries 620
The total market for offshored services was 32
b. in 2001
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Service exports by country
RD offshoring is starting WIPRO of India is now
the worlds biggest RD services provider, with
about 300 million in earnings selling RD
services, with 6,500 researchers. It is one of
several RD contractors in India
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Benchmarking competitive industrial performance
at the national levelThe UNIDO Scoreboard
provides a transparent and flexible way to
compare critical aspects of performance, focusing
on measurable variables It provides a first
cut at mapping the strategic dimensions of
performance and its major structural drivers
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What is the UNIDO Scoreboard?

• National benchmarking of industrial performance
  and drivers for all countries with sizeable
  industrial sectors (and data)
• The Competitive Industrial Performance Index
  (CIP) benchmarks ability of countries to produce
  manufactures competitively
• The drivers benchmark selected structural
  capabilities that affect sustainable and
  competitive industrial performance

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Components of Competitive Industrial Performance
(CIP) Index
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CIP indices at the regional level, 1980 to 2000
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Components of CIP index
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CIP ranks in 1998
17 to 30
18. Korea
19. Spain
9 to 16
20. Israel
9. Belgium
10. UK
21. Norway
11. France
4 to 8
22. Malaysia
12. Austria
4. Japan
23. Mexico
13. Denmark
5. Germany
Top 3
24. Czech Republic
6. USA
1. Singapore 2. Switzerland 3. Ireland
14. Netherlands
7. Sweden
25. Philippines
15. Taiwan
8. Finland
26. Portugal
16. Canada
30. Hong Kong
27. Hungary
28. Slovenia
29. Australia
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CIP ranks in 2000
17 to 30
18. Canada
19. Denmark
9 to 16
20. Hungary
9. Taiwan
10. Korea
21. Israel
11. USA
4 to 8
22. Spain
12. Austria
4. Finland
23. Thailand
13. Netherlands
5. Sweden
Top 3
24. China
6. Japan
1. Singapore 2. Ireland 3. Switzerland
14. France
7. Germany
25. Philippines
15. Malaysia
8. Belgium
26. Mexico
16. Italy
30. Norway
27. Hong Kong
28. Portugal
29. Poland
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What drives competitive success? First, the
ability to produce/export efficiently

• Ability to raise MVA and exports depends on
• Access to best practice technology and
  organizational techniques
• Availability of natural resources for processing
  and capabilities to undertake capital intensive
  processing
• Availability of low cost but skilled labour,
  complemented by technical managerial skills
• Efficient infrastructure and low business costs
• Supportive policies and institutions
• Access to world markets on fair, predictable
  terms
• Access to global value chains at arms length or
  within companies

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Industrial performance is diverging, but why?

• Insufficient liberalization, macro instability
  and poor governance account for part
• But they dont account for it completely the
  data dont suggest that liberalization by itself
  leads to competitive success
• Export growth and upgrading require other
  factors careful strategy to build domestic
  capabilities by creating appropriate skills,
  raising technological effort, and tapping into
  global production systems via FDI. Service
  exports are slightly different but not entirely

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Some indicators of these structural drivers of
industrial competitiveness
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RD financed by productive enterprises ( per
capita)
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RD financed by productive enterprises at the
national level ( of GDP, 1997-2000)
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Skills tertiary technical enrolments (per 1000
people)
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National tertiary technical enrolments (1985-98,
population)
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Annual inward FDI (US per capita)
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Developing world FDI distribution
10 COUNTRIES GET 80 OF FDI IN THE DEVELOPING
WORLD AND THEIR SHARE IS RISING OVER TIME LARGE
PART OF RECENT FDI, PARTICULARLY IN LAC, IS NOT
IN MANUFACTURING OR EXPORT-ORIENTED ACTIVITIES
THE MAJOR EXCEPTION IS MEXICO
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Reliance on FDI varies greatly in EA (FDI of
gross domestic investment)
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Conclusions East Asian lessons

• There are many ways to build export
  competitiveness
• MNCs play a critical role in all strategies but
  countries access their technologies, skills and
  marketing prowess in different ways
• Korea and Taiwan used arms length strategies to
  tap FDI, building domestic skills, innovation and
  institutions by coherent industrial and
  technology strategies. Singapore used FDI
  targeting with skill infrastructure
  development to plug into global production and
  upgrade rapidly. These have the best technology
  systems
• New Asian Tigers had weak capabilities, shallow
  technology base, inadequate skill creation
  systems. They are upgrading rapidly but many gaps
  remain
• All strategies have worked well so far, but their
  sustainability remains to be seen

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• Autonomous strategies are less feasible, more
  risky
• Acceleration of technical change
• Spread of global production networks
• Problems in managing selective industrial
  strategies
• New international rules of the game
• FDI dependent countries are becoming less passive
  as policies grow more standardized and
  governments realize need to target
• Importance of building strong technology systems
  is increasingly accepted as need to move up
  technology ladder and stay ahead of competition
  mounts (threat of China galvanizing EA and other
  regions)
• Least developed countries unduly neglect
  technology policy and institutions even low
  technology and resource based industrialization
  needs higher capabilities and stronger technology
  bases