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Exploiting Global-value Chains and Knowledge-Based Capital for Growth
Andrew WyckoffDirectorate for Science, Technology &
IndustryNordic Conference
5 March 2013
OECD Reviews of Innovation Policy Completed: Luxembourg,
Switzerland, New Zealand, South Africa, Chile, Norway, China, Hungary, Korea, Greece, Mexico, Russian Federation, Peru, Slovenia, Sweden
Ongoing : Vietnam, Croatia, Colombia
Under launch / discussion: Netherlands, France
Regional reviews: Southeast Asia, Latin America Innovation
www.oecd.org/sti/innovation/reviews
OECD Reviews of Innovation Policy: Sweden
Changing global conditions• Fundamental shifts in the world
economy driven by institutional, societal and technological change.
• Emergence of new global actors new market opportunities and new competition (including in high-end markets / segments of GVCs).
• Global corporate restructuring – offshoring of MNE production activities and corporate research centres.
www.oecd.org/sti/innovation/reviews
• Rise due to technology (ICT & transportation); modular production, trade & investment liberalisation;
• Growing complexity, fragmentation and specialisation of production, leading to networks of activities,
• Shift in factors of competitiveness towards tacit factors – knowledge-based capital – R&D, IP, software, data, supply-chain mngt.
The rise of Global Value Chains
Airline industry: Boeing 787 Dreamliner
Escape slides: Air Cruisers (USA)
Horizontal Stabiliser:Alenia Aeronautica (Italy)
Centre fuselage: Alenia Aeronautica (Italy)
Final assembly: BoeingCommercial Airplanes (USA)
Vertical Stabiliser: BoeingCommercial Airplanes (USA)
Landing gear: Messier-Dowti (France)Electric brakes: Messier-Bugatti (France)Tires: Bridgestone Tires (Japan)
Doors & windows:Zodiac Aerospace (USA)PPG Aerospace (USA)
Tools/Software: Dassault Systemes (France)Navigation: Honeywell (USA)Pilot control system: Rockwell Colins (USA)Wiring: Safran (France)
Centre wing box:Fuji Heavy Industries (Japan)
Engines: GE Engines (USA),Rolls Royce (UK)
Wing box: Mitsubishi Heavy Industries (Japan)Wing ice protection: GKN Aerospace (UK)
Engine nacelles: Goodrich (USA)Aux. power unit: HamiltonSundstrand (USA)
Flight deck seats:Ipeco (UK)
Lavatories:Jamco (Japan)
Cargo doors: Saab (Sweden)
Forward fuselage:Kawasaki Heavy Industries (Japan)Spirit Aerosystems (USA)
Raked wing tips: Korean AirlinesAerospace division (Korea)
Passenger doors:Latécoère Aéroservices (France)
Prepreg composites:Toray (Japan)
Rear fuselage:Boeing South Carolina (USA)
Source: www.newairplane.com
Design: California, USA
Body material: Chinese Taipei
Nylon hair: Japan
Clothing: China
Moulds, paint pigments: USA
Assembly: Indonesia and Malaysia
Quality testing: USA
Marketing: USASource: Grossman and Rossi-Hansberg (2006)
Toys: Barbie doll
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Apple’s iPodDistribution of the
value added• 299 US$
– 75$ profit to US (Apple)– 73$ whls/retail US
(Apple)– 75$ to Japan (Toshiba)– 60$ 400 parts from Asia– 15$ 16 parts from the
US– 2$ assembly by China
• iTunes Music Store (2003)– 70% digital market share– Platform for everything– Data flow to the
consumer
The Apple iPod = 299$ of Chinese exports to US
1. Measurement of GVCs: Trade in Value Added (TiVA)
2. GVCs and trade policy3. GVCs and national
competitiveness… the recurring discussion on industrial policy
4. GVCs and global systemic risk5. GVCs and upgrading – knowledge
based assets
5 Key Policy Issues
1. Measurement: Issues with current trade statistics
• Three issues:
1. Multiple counting of intermediate goods and services
2. Tends to conceal the actual patterns of trade & beneficiaries
3.Incomplete picture as knowledge and income flows are not measured.
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OECD-WTO TiVA Database
January 16, 2013 7:20 pm
Trade’s added value: New statistics reveal glorious interdependence of countries
Statistics is not always the bedfellow of lies and damned lies. At its best, it brings epiphanies.
An initiative by the OECD and the World Trade Organisation to map the value added embodied in international trade flows should be an eye-opener for policy makers
OECD work on GVCs and TiVA
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Final consumption
3
7
5
62
Final assembly
1
4
0%10%20%30%40%50%60%70%80%90%
100%
1
234567
Value added in the country of final production
Value added by first tier suppliers
Value added by second tier suppliers
Trade in inputs (first
tier suppliers)
Trade in inputs(second tier
suppliers)
Decomposition of gross exports
TiVA: Value-added chains (by product)
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Germany- automotive China - electronics
Trade in Services: Gross vs. Value Added
% total exports of gross flows
% total exports of value-added
0
10
20
30
40
50
60
70
China UnitedStates
Germany Japan UnitedKingdom
France Italy Canada Rest ofWorld
1995 2009
Gross flows%
0
10
20
30
40
50
60
70
China UnitedStates
Germany Japan UnitedKingdom
France Italy Canada Rest ofWorld
1995 2009
Value-added flows %
Services matter
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0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
Indo
nesi
aCh
ina
Mex
ico
Chile
Norw
ayRu
ssia
n Fe
dera
tion
Kore
aSo
uth
Afric
aCa
nada
Braz
ilAu
stra
liaJa
pan
Slova
k Re
publ
icCz
ech
Repu
blic
Pola
ndNe
w Z
eala
ndH
unga
ryTu
rkey
Net
herla
nds
Slov
enia
Ger
man
yAu
stria
Switz
erla
ndIta
lyPo
rtug
alIn
dia
Icel
and
Uni
ted
Stat
esFi
nlan
dSw
eden
Esto
nia
Isra
elFr
ance
Den
mar
kBe
lgiu
mSp
ain
Uni
ted
King
dom
Irel
and
Gree
ceLu
xem
bour
g
Services value added as a % of exports, 2009Domestic content Foreign content
Foreign value-added in exports by country of origin
www.oecd.org/trade/valueadded
www.oecd.org/trade/valueadded
www.oecd.org/trade/valueadded
What does the first release tell us?
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0
10
20
30
40
50
60
70
80
90
100
Luxe
mbo
urg
Slov
ak R
epub
licH
unga
ryIr
elan
dKo
rea
Czec
h Re
publ
icEs
toni
aN
ethe
rland
sIc
elan
dFi
nlan
dSw
eden
Belg
ium
Isra
elPo
rtug
alM
exic
oSl
oven
iaSw
itzer
land
Den
mar
kCh
ina
Pola
ndFr
ance
Ger
man
yAu
stria
Indi
aG
reec
eTu
rkey
Cana
daN
ew Z
eala
nd Spai
nCh
ileIt
aly
Unite
d Ki
ngdo
mSo
uth
Afric
aJa
pan
Indo
nesi
aN
orw
ayAu
stra
liaU
nite
d St
ates
Braz
ilRu
ssia
n Fed
erati
on
Domestic value added to gross export ratio, %, 2009
Large and mineral rich
countries have typically higher
ratios
Who trades with whom?
19
-15000
-10000
-5000
0
5000
10000
15000
20000
Germany Netherlands Norway France United Kingdom
Italy China Spain United States
Sweden Rest of the World
Gross Trade Balance Value Added Trade Balance
Denmark trade balance, USD millions, 2009
Who trades with whom?
20
-10000
-5000
0
5000
10000
15000
Russian federation
Germany United States
France Sweden Japan Italy Norway United Kingdom
China Rest of the World
Gross Trade Balance Value Added Trade Balance
Finland trade balance, USD millions, 2009
Who trades with whom?
21
-10000
-5000
0
5000
10000
15000
20000
25000
Korea China Denmark Sweden Italy United States
France Germany Netherlands Rest of the World
United Kingdom
Gross Trade Balance Value Added Trade Balance
Norwegian trade balance, USD millions, 2009
Who trades with whom?
22
-15000
-10000
-5000
0
5000
10000
15000
20000
25000
30000
Germany Denmark Norway France Finland Italy United Kingdom
Japan China United States
Rest of the World
Gross Trade Balance Value Added Trade Balance
Swedish trade balance, USD millions, 2009
GVCs and national competitiveness • Imports increasingly important for
exports (no mercantilist approach: ‘exports are good, imports are bad’)
• Better understanding the direct link between:o trade and income & jobso manufacturing and services;
• New opportunities for SMEs to gain access to global markets & new demands: timeliness, standards,
A GVC perspective is also important for upgrading, i.e. increasing value creation
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Old paradigm:From low to high value-added sectors
New paradigm:From low to high value-added activitieswithin sectors
Value creation along the value chain
Source: Presentation G. Gereffi , GVC workshop ‘GVCs and emerging countries’ workshop , Paris (2010)
Moving up the value chain – capturing more value
What is knowledge-based capital (KBC)?
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Three main types of assets: Computerised information
• software & Databases
Innovative property• patents, copyrights, trademarks & designs
Economic competencies:• brand equity, firm-specific human capital, business networks, organisational know-how that increases enterprise efficiency, etc.)
27Source: IMD (2000) Innovation and Rennovation: The Nespresso Story, IMD046, 03/2003
The rise of GVCs and the role of KBCs
Nordic Strengths
KBC accounts for over half of all business investment in several countries …
Business investment in KBC and tangible assets as a share of GDP, 2010
Source: OECD calculations based on INTAN-Invest and National Sources.
Top/bottom 5 OECD values Middle range of OECD values OECD median
Science Business R&D and innovation
Entrepreneurship
Top half OECD
Bottom half OECD
100
0
200
150
50
Competences and capacity to innovate
Source: OECD Science, Technology and Industry Outlook 2012.
Comparative performance of national science and innovation systems, (OECD median =100), 2011
Interactions and human resources for innovation
Source: OECD Science, Technology and Industry Outlook 2012.
Comparative performance of national science and innovation systems, (OECD median =100), 2011
Top/bottom 5 OECD values Middle range of OECD values OECD median
Knowledge flows and commercialisation
Internet for innovation Human resources
100
0
200
150
50
0
50Bottom half
OECD
Top half OECD
Framework Conditions 2.0
Knowledge-BasedCapital
TaxPersonal data
Corporate reporting
Skills Intellectual property rights
Global value chains
Inequality Entrepreneurship
Improving measurement
Competition
33Source: Images.com/Corbis
Base Erosion & Profit Shifting
Relevant to many policy issues
Knowledge-BasedCapital
TaxPersonal data
Corporate reporting
Skills Intellectual property rights
Global value chains
Inequality Entrepreneurship
Improving measurement
Competition
What is an asset?
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• GVCs– Imports are essential for exports;– Services are key: 50% of VA generated by
GVCs– Activities not industries;– Importance of tacit / “sticky” KBC
• KBC– Innovation: more than R&D; reassess R&D Tax
credits; recognise the importance of design– Entrepreneurship: young ≠ small;– Finance: debt is poorly suited to KBC.
Upgrading Policies for GVCs and KBC
• Watch the video: www.youtube.com/watch?v=RZKX-0SK41U&feature=player_embedded
• Use the interactive map:www.oecd.org/trade/valueadded
• Contact us: – [email protected]– [email protected]
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Contact Information