competitiveness: new approaches, make in india and lessons from china

© Copyright Michael Enright, 2015 1

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

Professor Michael J. Enright

Enright, Scott & AssociatesUniversity of Hong Kong

Hong Kong Institute for Economics and Business Strategy

September 2015

2015-09

© 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.


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

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Our approach to competitiveness

1. Generate a proper overall competitiveness index2. Use data and benchmarks creatively3. Bring business into the frame4. Organize the pieces into a useful framework5. Develop strategies and policies appropriately

• The steps can be used individually or together

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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

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“ESA Productivity Competitiveness Index” and “EPCI” are both trademarks of Enright, Scott & Associates, Ltd.


ESA Competitiveness Index, EPCI1TM, 2014

Country Rank Index Country Rank IndexNorway 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

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Source: Enright, Scott & Associates


Rank comparisons, 2014

CountryESA

EPCI1 (of 135)

WEF (of 135) Country

ESA EPCI1 (of 135)

WEF (of 135)

Norway* 1 11 Germany* 15 5Switzerland 2 1 France 18 22Luxembourg* 3 18 United Kingdom* 21 9Qatar* 4 15 Ireland 19 24Australia* 5 21 Japan* 20 6Denmark 6 13 New Zealand 23 16Sweden 7 10 Hong Kong* 25 7Kuwait* 8 39 Korea 29 25United States 9 3 Kazakhstan 51 47Canada 10 14 Brazil 54 53Finland 11 4 Malaysia* 56 19Singapore* 12 2 China* 70 27Austria 13 20 India* 110 66

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Comparison just of the 135 economies in both databases.



Comparison EPCI1 and WEF comparisons, 2014

0 20 40 60 80 1000

20

40

60

80

100

EPCI1

Nor

mal

ized

WEF

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WEF = EPCI1 line


0 20 40 60 80 100 120 140 1600

20

40

60

80

100

120

140

160

EPCI1

WEF

WEF Rank “Too High”

WEF Rank “Too Low”

Index Values Rankings


Average deviation in rank from EPCI1 and WEF indices

EPCI1 vs WEFYear Ave Deviation Out of2014 17 1352013 17 1382012 16 1342011 16 1352010 16 1362009 14 1292008 14 1292007 14 1242006 13 117

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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?

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Australia versus traditional benchmarks in “Knowledge Economy” variables

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Above 90th percentile Below 30th percentileAdult 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)


© Copyright Michael Enright, 2015 112015-09

Australia: Top competitors by sector

RankAgriculture,

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



Australia versus Asia-Pacific

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Above 90th percentile Below 30th percentileHuman 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)



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

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A sequenced approach to development

Status Quo Step 1 Step 2 Step 3 Step 40%

20%

40%

60%

80%

100%

P6P5P4P3P2P1

ESA Index

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Change to match P2

Change to match P3

Change to match P4

Change to match P5



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

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© Copyright Michael Enright, 2015 162015-09

Importance-Performance Competitiveness AnalysisTM

2Good performance,

but not so beneficial

1Leverage, market,

exploit, further develop

3Poor performance, but does not matter

much

4Fix, mitigate,

overcome

Importance

Per

form

ance

Low

Low

High

High

“Importance-Performance Competitiveness Analysis” and “IPCA” are both trademarks of Enright, Scott & Associates, Ltd.



IPCATM Australian industries

11/10/2014

Importance

Per

form

ance

1.00 4.00 7.001.00

4.00

7.00

4.854.62

5.185.185.08

4.65

5.02

4.504.75

4.364.434.14

5.60

4.65

5.18

4.49

5.12

3.98

4.50

4.96

5.48

5.08

4.514.18

4.82

4.434.80

4.33

5.02 4.965.14

4.684.73

4.164.374.20

4.044.18 4.224.56

4.194.314.49

4.684.544.464.44 4.524.514.47 4.474.40 4.494.52 4.544.48 4.544.714.62 4.624.48

4.33

4.74

4.334.63

4.434.72 4.65

4.20

5.13

4.60

4.04

4.77

4.23 4.224.06


1.00 4.00 7.001.00

4.00

7.00

4.67

4.11

5.115.00

4.564.334.67

4.22

4.674.33 4.33

2.44

5.44

4.334.334.11

4.67

2.56

3.22

4.33

4.894.67

4.33

2.88

4.334.11

3.33

3.78

5.11

4.33

4.89

4.33

4.78

3.00

3.633.56

2.78

4.44

3.78

3.333.63

3.44

4.44

4.00

3.11

3.633.78

4.003.67

3.22

3.893.753.443.443.563.783.67

3.11

4.22

3.00

3.783.44

4.22 4.224.33

3.56

4.22

3.783.44

4.56

3.112.78

4.56

3.003.33

4.56

Importance

Higher Education Automobiles


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

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Organize the pieces in a useful frameworkCompetitiveIndustries/Activities

PotentialIndustries/Activities

Supranational Cluster FirmNational Industry

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Source: Michael Enright

Competitiveness is not additive. No single level can make a nation, region, or city competitive, any single level can make it uncompetitive.


Our approach to competitiveness

1. Generate a proper overall competitiveness index2. Use data and benchmarks creatively3. Bring business into the frame4. Organize the pieces into a useful framework5. Develop strategies and policies appropriately

2015-09


“Make in India”: Some Lessons from China

2015-09


Supply chains are global

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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


China is part of an East Asian production system

TechnologyCapital goodsComponentsSubassembliesFinished goods

ASEAN

China “AdvancedEconomies”

NICS

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Source: ESA


South Asia does not have the trade networks of SE and E Asia

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2000

2002

2004

2006

2008

2010

2012

010203040506070

E Asia Exports, %

SE Asia S AsiaE Asia C-W Asia

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

010203040506070

SE Asia Exports, %


Source: ADB

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

010203040506070

S Asia Exports, %



Export processing is key to China’s exports

1983

1986

1989

1992

1995

1998

2001

2004

2007

2010

0

200

400

600

800

1000

1200

0%

10%

20%

30%

40%

50%

60%

Processing Trade Exports

% of Total Exports

US$

bill

ion

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Export Processing Trade in China


Nearly 75% of China’s exports come from 3% of its land mass

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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.


FIEs are key to China’s trade

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

0.0

200,000.0

400,000.0

600,000.0

800,000.0

1,000,000.0

1,200,000.0

FIE Exports

FIE Imports

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1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

0%

10%

20%

30%

40%

50%

60%

70%

China's Exports by FIEs (%)China's Imports by FIEs (%)


FIE’s are also key to China’s industrial output

Manufacture of Computers, Communication and Other Electronic Equipment

Production and Supply of Gas

Manufacture of Articles for Culture, Education, Arts and Crafts, Sport and Entertainment Activities

Manufacture of Foods

Manufacture of Chemical Fibers

Manufacture of Electrical Machinery and Apparatus

Manufacture of Liquor, Beverages and Refined Tea

Manufacture of Furniture

Manufacture of Raw Chemical Materials and Chemical Products

Other Manufacture

Manufacture of Special Purpose Machinery

0% 20% 40% 60% 80%

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FIEs% of Revenue, Selected Industries, China 2013


Hong Kong retains a crucial role

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Hong Kong

United States

Taiwan

Germany

Netherland

Macao

Australia

Italy - 200,000 400,000 600,000 800,000

Sources of FDI into China, US$ billion, 1985-2013

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

0

50000

100000

150000

200000

250000

300000

Hong Kong Re-exports from China, US$ billion, 2003-2012


Questions for “Make in India”

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• 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?

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 EnrightEnright, Scott & AssociatesPhone: 852-3101-8650Fax: [email protected]

2015-09 © Copyright Michael Enright, 2015 31

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