smart specialization strategies: lessons from slovenia for...
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Smart specialization strategies: lessons
from Slovenia for Croatia
Prof. Slavo Radosevic
Seminar on smart specialization
12 February 2013 Zagreb
2
Issues
1. SSS: discovering latent comparative advantages
vs. Research + Innovation strategies
2. A country’s position on the ladder of industrial
and technology upgrading
3. Methodologies for identifying priorities
4. International linkages and leverages in SSS
5. Ownership of SSS: stakeholders involvement
6. Governance reforms: the major challenge of SS
SSS: latent comparative advantages vs.
Research + Innovation strategies
• SSS: ‘1what a country or region does best in terms of
R&D and innovation’ (?)
• vs.
• EU: ‘a poor correlation between R&D specialisations and
the dominant structures of the economy’
• SSS conditionality goes beyond sectoral strategies
• Innovation is a market process: R&D/Innovation +
complementary assets (micro perspective)
• SS>Complementarity of RDI with the country’s other
productive assets to create future domestic capability
(macro perspective)
3
What is ‘latent’ comparative advantage
• Latent: Short term vs. Long term drivers
• Current drivers of industry upgrading in NMS (production
capability vs. technology capability)
– Quality (ISO9000 etc is precondition to export) and vocational
training (key to developed production capability)
– Support for domestic firms to become quality suppliers for MNEs
(cf. CzechInvest old programs vs technology and strategic service
centres)
• Future drivers of technology upgrading
– ...but still a great danger of irrelevant RDI infrastructure (S&T Parks
as ‘surrogates of modernization’)
• Slovenia vs. Croatia: differences in degree
4
5
SEE countries: basic factors and their
efficient use as drivers of growth
Factor
driven (FD)
stage
Transition
from FD to ED
stage
Efficiency driven
(ED) stage
Transition
from ED to
ID stage
Innovation
driven (ID)
stage
Albania Bulgaria Croatia Greece
Bosnia and
Herzegovina
Macedonia, FYR Slovenia
Montenegro
Romania
Serbia
Turkey
Source: WEF (2007)
SI and HR: differences in capacity to grow based on world frontier
innovation
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7
The sources of productivity improvements in
CEE: Global value chains and production
capability improvements
• Productivity of FDI subsidiaries in central Europe is
significantly explained by ‘quality control’ (production
capability) (Majcen et al, 2009)
• Some CEECs (Hungary, Croatia, Lithuania, Romania,
Slovenia) have lesser scope for further quality
improvements and must instead move to new products
(EBRD, 2008)
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Production capability as driver of
productivity growth in CEECs
• EBRD countries sample: ISO certification as a
proxy for production capability significantly
contributes to explaining the differences in
productivity.
• In a catching up context, R&D denotes absorptive
rather than innovative capability
• A shift from production to innovation capability is
not automatic and linear process
Slovenia: a transformation from the position of
moderate innovator to innovation follower requires
structural change in the R&D and IS
� Intensive innovation activities are largely focused on factors of cost
competition and are not complemented by competition in terms of
value added, knowledge and other intangibles (organisational
capital, brand, trademarks, etc).
�A lacking technology dynamism especially one based on new
technology based firms
�Based on EIS alone it seems that Slovenia would need to improve its
financial system, especially access to finance of SMES and new
technology based firms, further increase R&D in the business
sector, and make a stronger shift towards knowledge intensive
services.
9
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Missing levers to growth?
EU Centers of excellence MNCs: parents and other subsidaries
weak horizontal linkages
National centres of excellence Local FDI subsidaries
Vertical integration & horizontal fragmentation
Policy focus:
- Support to the weakest agent: local business R&D
- Transfer function on supply side (R&D)
- Transfer function on demand side (FDI/local firms)
Czech R and Slovakia vs. Slovenia and Croatia (missing right side)
Upgrading paths are industry specific 0..
• Apparel: from only CTM (42%) services to gradual
introduction of VA services (OEM/OBM) + beyond imitation
(design schools)
• Automotive suppliers: to move out of subcontracting
‘cost trap’ towards improved quality standards, design and
supply chain management skills
• BPIT Outsourcing: from fragmented, diversified and local
market oriented firms towards focus on core competencies
(specialization) and creation of BPITO champions
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0 and so should policies
• A gap between traditional S&T policy and requirements for industry/technology upgrading
• EU FP7 without other supportive activities may de facto increase the existing structural gap (cf. Greek case)
• But identifying technology/industry specific constrains and patterns of upgrading is not trivial task 1. But is doable (see OECD study on sectoral competitiveness in Western Balkans)
12
Methodologies for identifying priorities
• Looking for “smart specialization” through research paper
databases (WoS)
• Looking for “smart specialization” through patent database
(EPO)
• Looking for “smart specialization” through business
demand (Priority branches of industry/Knowledge intensive
services)
• Only a few areas in NMS are amenable to these indicators
(cf.pharmaceuticals and a few high tech niches)
14
A marginal world frontier technology effort in
European latecomers
USPTO Patents by Inventor's Country, 2000 - 2007
Country / Territory 2000 2001 2002 2003 2004 2005 2006 2007
1 Albania
2 Bosnia Herzegovina
3 Croatia 6 10 13 14 11 13 22 17
4 Montenegro
5 Republic of Moldova 2 1
6 Serbia 5 6 8 5 2 4 2 8
7 The former Yugoslav Republic of Macedonia
Neighbouring countries
1 Bulgaria 3 5 11 15 7 6 7 10
2 Greece 25 36 33 34 26 23 39 37
3 Romania 7 11 5 10 13 15 22 21
4 Slovenia 19 26 17 19 24 13 25 25
Source : data from Thomson Reuters (Scientific) Inc. Web of Science, (Science Citation Index Expanded - SCI Expanded, Social Sciences Citation Index -
SSCI and Arts & Humanities Citation Index - AHCI), compiled by Canadian Observatoire des sciences et des technologies for UIS.
Broader criteria to be used for identification of areas of
local current and potential strengths
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Generic indicators Industry specific indicators and
expert assessments*
Skills of labor force Education and skill levels of
labour force, continuous
vocational training data,
productivity per hour
Production and service
quality
ISO9001 and ISO1400
certificates, trademarks and
design, export and export unit
prices
Software capabilities and
skills
CMM Certificates
Engineering capabilities
and skills
Value of engineering services
including export
R&D capabilities Publications, patents, utility
patents, R&D contracts
Industry specific indicators could be developed once industries or sub-areas are identified in steps 1, 2 and 3.
These criteria should be developed in consultation with industry experts
Matrix for assessing business sector
potential
Unexploited potential / threats to
competitiveness
Specialization strategies:
restructuring, modernization
Emerging / niche economy sectors
Specialization strategies:
breakthrough, diversification
Current strengths
Specialization strategies:
strengthening the strengths
Declining economy sectors / losing
competitiveness
Level of R&D and innovation, engineering and software capabilities, quality,
Cri
tica
l m
ass
Source: Based on ‘A contribution to priority setting for future research, studies and innovation in Lithuania’, 18 October 2012,
Report of an expert group to the Ministry of Education and Science and Ministry of Economy of the Republic of Lithuania
In search of relevant methodologies for
‘catching up’ countries
• Well established methodologies for establishing
priorities may not be the most relevant for
countries whose productivity growth is not yet
driven by RDI
• Why not entertain alternatives 1.. provided that
there are analytical capacities and stakeholder
involvement
• See Lifu Yin New Structural Economics approach
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Growth Identification and Facilitation according to NSE
Step 1:Find fast-growing
countries with a similar
endowment structure and
with about 100% higher per
capita income. Identify
dynamically growing
tradable industries that
have grown well in those
countries for the last 20
years
. Step 2:
See if some private
domestic firms are already
in those industries (of
which may be existing or
nascent). Identify
constraints to quality
upgrading or further firm
entry. Take action to
remove constraints
18
Growth Identification and Facilitation according to NSE
Step 3:
In industries where no
domestic firms are currently
present, seek FDI from
countries examined in step
1, or organize new firm
incubation programs.
Step 4:
In addition to the industries
identified in step 1, the
government should also
pay attention to
spontaneous self discovery
by private enterprises and
give support to scale up
the successful private
innovations in new industries.
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Growth Identification and Facilitation according to NSE
Step 5
In countries with poor
infrastructure and bad
business environment,
special economic zones or
industrial parks may be
used to overcome these
barriers to firm entry and
FDI and encourage
industrial clusters
Step 6:
The government may
compensate pioneer firms
in the list identified above
with tax incentives for a
limited period,
Direct credits for
investments, Access to
foreign exchanges (?????)
20
Austria 35
Germany 33
Potential ‘SEE flying
geese’
Italy 27
Slovenia 25
Greece 24
Hungary 17
Croatia 16
Turkey 13
Bulgaria 11GDP pc PPP const
2005$ Romania 11
Serbia 10
Albania 8
Bosnia and
Herzegovina 7
21
HR and SI are largely outside of German MNCs
value chains but are part of Austrian VC
Source: Marin 2011 22
Germany’s MNCs relocations to CEE: boost to
productivity improvements and decreased unit
labour costs in Germany
• Productivity gains from offshoring to CEE > Germany and Austria experienced only minor job losses
• German offshoring to CEE boosted not only the productivity of its subsidiaries in CEE by almost threefold compared to local firms, but it also increased the productivity of the parent companies in Germany by more than 20% (estimates by Hansen 2010 and Marin 2010).
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Linkages and leverages in SSS
• Complementarities are at the core of SSS
• SS as an opportunity to integrate EU2020, FDI
and subcontracting/value chains with the national
innovation policy
• A big income gap should enable mixing up of
different ‘production functions’ or integration
through increasingly fragmented industrial
networks and value chains.
• 1 but 11..
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Governance reforms: the key challenge of SS !!
From “public policy” to “petty politics”
• All stakeholders will agree that public resources should focus on actions with strong social added value...... until final beneficiaries are chosen, (cf. saving existing jobs and activities/a clearly defined constituency).
• ‘Oversubscribed’ vs. ‘missing’ stakeholders: Croatia vs Slovenia
Governance reforms: the major challenge of
SS
• Slovenia:
– Reform of universities
– Internationalization of R&D system
– Restructure roles and overlaps among five agencies
– Reform criteria of R&D evaluations
– Introduce active FDI policy: (cf. unlikely despite obvious need/.
OECD, 2012)
– Introduce incentives for life long learning and vocational training
• Is there enough political capital to use SSS to overcome
governance challenges ?
• Croatia: governance challenges?
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