UK Competitiveness: Entering a New Stage Christian H. M. Ketels, PhD Institute for Strategy and Competitiveness Harvard Business School Smith Institute London, United Kingdom 16 March 2004 This presentation draws on ideas from Professor Porter’s articles and books, in particular, The Competitive Advantage of Nations (The Free Press, 1990), “The Microeconomic Foundations of Economic Development,” in The Global Competitiveness Report 2003, (World Economic Forum, 2003), “Clusters and the New Competitive Agenda for Companies and Governments” in On Competition (Harvard Business School Press, 1998), and our joint ESRC/DTI report “UK Competitiveness: Entering a New Stage, 2003. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means - electronic, mechanical, photocopying, recording, or otherwise - without the permission of the author. Additional information may be found at the website of the Institute for Strategy and Competitiveness, www.isc.hbs.edu UK Competitiveness Smith Institute 03-16-04 CK 1 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels UK Competitiveness Entering a New Phase Key Issues • The economic performance of the UK in recent years has been positive but past reforms are now reaching diminishing returns – Past growth has been driven by increasing labor participation and efficiency, sources of growth that are inherently limited • The past policy approach was based on open markets and macroeconomic stabilization – Catch-up by others and increasing European integration have reduced the UK’s relative advantage in these fields • The new policy approach needs to mobilize additional sources of growth: Assets, skills, and innovation • Changes are needed in policy content as well as policy process for the new approach to be effective – Invest efficiently – Define the new positioning of the UK as a place to do business – Reform the roles of the private and public sector in economic policy formulation and execution – Strengthen institutions for collaboration, especially on the regional level UK Competitiveness Smith Institute 03-16-04 CK 2 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels Prosperity 35,000 US 30,000 GDP per capita (PPP adjusted) in US-$, 2002 Iceland Denmark Switzerland Japan 25,000 Singapore* Australia France UK Germany Ireland Norway Canada Finland Taiwan* Italy New Zealand Spain 20,000 Portugal South Korea 15,000 0% 1% 2% 3% 4% 5% 6% 7% 8% Compound annual growth rate of real GDP per capita, 1990-2002 Note: Singapore and Taiwan data from EIU (2004) Source: World Development Indicators, World Bank (2003) UK Competitiveness Smith Institute 03-16-04 CK 3 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels Labor Productivity OECD 80,000 US Ireland 70,000 Belgium Norway Germany Italy Canada Australia France GDP per employee in US-$, 2003 60,000 50,000 Denmark UK Sweden Japan Netherlands Switzerland Iceland Spain Finland Singapore* Taiwan* New Zealand 40,000 South Korea Portugal 30,000 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% Compound annual growth rate of real GDP per employee, 1993-2003 Note: Singapore and Taiwan data from EIU Source: Groningen Growth and Development Centre, 2004 UK Competitiveness Smith Institute 03-16-04 CK 4 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels UK Labor Productivity Gap Selected Countries Relative level of real GDP per Employee, UK = 100 140% US 130% 120% France 110% Germany 100% UK 90% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Source: Groningen Growth and Development Centre, 2004 UK Competitiveness Smith Institute 03-16-04 CK 5 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels Labor Productivity Level UK & Selected Countries, 2003 Relative level of real GDP per Employee, UK = 100 140% 130% 120% GDP per employee GDP per hour 110% UK = 100 100% 90% 80% US France Germany Source: Groningen Growth and Development Centre, 2004 UK Competitiveness Smith Institute 03-16-04 CK 6 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels Labor Productivity Growth Annual change in real GDP per Employee UK & Selected Countries 4.5% 4.0% 3.5% 3.0% US Germany France UK 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Source: Groningen Growth and Development Centre, 2004 UK Competitiveness Smith Institute 03-16-04 CK 7 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels Decomposing Prosperity: Past Priorities Prosperity Prosperity Labor Labor Productivity Productivity Capital CapitalIntensity Intensity Unemployment Unemployment Skills Skills Workforce/Population Workforce/Population TFP TFP Hours/Employee Hours/Employee Efficiency Efficiency UK Competitiveness Smith Institute 03-16-04 CK Labor Labor Participation Participation Innovation Innovation 8 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels Past UK Economic Strategy • Past policy reforms in the UK where first targeted on market opening, the most pressing barriers to competitiveness at that time – Low flexibility of product and labor markets – High costs of doing business – High tax burden • More recently, macroeconomic stabilization become a second cornerstone of economic policy • These reforms were successful in making the UK a more flexible and relatively low cost location for doing business in Europe – Strong foreign direct investment inflows – Increase of prosperity, productivity, and wages • However, the potential of these policies is inherently limited and other countries have taken similar steps UK Competitiveness Smith Institute 03-16-04 CK 9 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels Decomposing Prosperity: New Priorities Prosperity Prosperity Labor Labor Productivity Productivity Capital CapitalIntensity Intensity Unemployment Unemployment Skills Skills Workforce/Population Workforce/Population TFP TFP Hours/Employee Hours/Employee Efficiency Efficiency UK Competitiveness Smith Institute 03-16-04 CK Labor Labor Participation Participation Innovation Innovation 10 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels UK Economic Strategy: New Priorities Capital Intensity • Long debate about the effect of short-termism due to pressure from equity markets • However, little hard evidence on relative costs and benefits – New studies suggest that Germany and France with their bank-based systems might have over-invested in capital because of artificially low interest rates on loans, driving value-destroying labor substitution Skills • UK effective in getting educational quality for investments made; now efforts to increase spending as well • However, effects will take time to feed through as low skills are essentially a stock problem Innovation • Clearly an area of UK underperformance • Skill base at universities is fundamentally good and public spending is ratcheting up, but so far too little commercialization and private sector R&D – Existing R&D over-extended on pharmaceuticals and aerospace/defense UK Competitiveness Smith Institute 03-16-04 CK 11 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels Models of Competitive Strengths Sweden Sweden Germany Germany U.S. U.S. France France Assets Enabling Innovation and Productivity UK UK Competition Enforcing Innovation and Productivity UK Competitiveness Smith Institute 03-16-04 CK 12 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels The UK Competitiveness Agenda 2004 Key Priorities Content Content Process Process •• Invest Investininphysical physicalinfrastructure, infrastructure, skill skillupgrading, upgrading,and andscientific scientificand and technological technologicalcapacity capacity •• Define Defineaanew newpartnership partnershipof of private privateand andpublic publicsector sectorininsetting setting and andexecuting executingeconomic economicpolicy policy --Cluster Clusterefforts effortscan canbe bean an engine engineto tomake makethis thistransition transition •• Continue Continueto toupgrade upgradeproductivityproductivitydriven drivenregulatory regulatoryregimes regimes •• Strengthen Strengthenregional regionalinstitutions institutions with withcredible credibleauthority authorityto tomake make policy policychoices choices •• Reach Reachconsensus consensuson onthe thenew new positioning positioningof ofthe theUK UKas asaa location locationfor fordoing doingbusiness business UK Competitiveness Smith Institute 03-16-04 CK 13 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels Back-Up: Additional Data UK Competitiveness Smith Institute 03-16-04 CK 14 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels Comparative Economic Performance Annual growth rate of real GDP Real GDP Growth Rates 15% Countries sorted by 19902002 annual real GDP growth rate (CAGR) Ireland Singapore 10% S Korea Taiwan Australia 5% US Canada Spain Germany 0% UK Finland France Japan Switzerland -5% -10% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Source: EIU (2003) UK Competitiveness Smith Institute 03-16-04 CK 15 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels Labor Productivity Gap to the United States UK & Select Countries US 100% 95% 90% 85% France 80% Germany 75% UK 70% 65% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Source: Groningen Growth and Development Centre, 2004 UK Competitiveness Smith Institute 03-16-04 CK 16 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels Decomposing the UK Labor Productivity Gap Market Sector, 1999 % of UK level 150% 140% 130% Total Factor Productivity Labor Force Skills Capital Intensity UK Level 120% 110% 100% 90% 80% UK Germany France U.S. • The UK lags all competitors in capital intensity. It lags France and Germany in labor force skills, and the US in total factor productivity Source: Mahoney, de Boer (2002) UK Competitiveness Smith Institute 03-16-04 CK 17 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels Comparative Capital Intensity and Investment Selected Countries Capital Stock per Hour worked, 1996-2000, UK = 100% 180% Germany 160% Italy Netherlands Belgium France Norway 140% Denmark Finland Ireland Iceland 120% Sweden Japan US Spain Canada UK 100% 80% -1.5% Australia New Zealand -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% Growth Rate of Capital Stock per Hour worked, 1996-2000 Source: IMF (2003) UK Competitiveness Smith Institute 03-16-04 CK 18 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels Total Factor Productivity UK & Select Countries Total Factor Productivity Level, US = 100 85 81 80 80 78 78 77 77 76 75 75 77 75 74 73 73 72 72 72 71 70 70 67 67 65 66 1992 1993 67 66 66 66 69 66 69 65 65 60 1990 1991 1994 1995 United Kingdom Germany 1996 1997 1998 1999 France Source: OECD UK Competitiveness Smith Institute 03-16-04 CK 19 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels Productivity Performance Selected OECD Countries Total Factor Productivity Growth, 1990-98 4.0% 3.5% Efficiencydriven Ireland Finland 3.0% 2.5% Australia 2.0% Sweden 1.5% New Zealand US 1.0% UK Germany France Canada 0.0% 0.0% Spain Japan 0.5% 0.5% 1.0% Investmentdriven 1.5% 2.0% 2.5% 3.0% 3.5% Labor Productivity Growth, 1990-98 Source: IMF, 2001 UK Competitiveness Smith Institute 03-16-04 CK 20 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels Total Factor Productivity Performance Selected OECD Countries Total Factor Productivity Level, 1995-97, US = 100 100 US 95 90 85 80 75 70 Spain Japan 65 Australia Canada France Netherlands Italy Ireland UK Finland Germany 60 New Zealand Denmark 55 Norway 50 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% Total Factor Productivity Growth, 1990-98 Source: IMF, 2001 UK Competitiveness Smith Institute 03-16-04 CK 21 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels Unemployment in OECD Countries Unemployment Rate, 2002 12% Spain Germany France Finland 8% Canada Australia US Japan UK Ireland 4% Taiwan Singapore Sweden South Korea Netherlands 0% -12% -10% -8% -6% -4% -2% 0% 2% 4% Change of Unemployment Rate in Percentage Points, 1995 - 2002 Source: EIU (2003) UK Competitiveness Smith Institute 03-16-04 CK 22 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels Employees as Share of Population Labor Force Participation 60% 55% 50% 45% 40% 35% 30% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Singapore Japan Switzerland Canada Australia New Zealand US Sweden Germany Netherlands UK S Korea Finland Ireland Taiwan France Spain Italy Source: EIU (2003) UK Competitiveness Smith Institute 03-16-04 CK 23 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels UK Export Performance World Export Market Shares 9% 8% 7% 6% 5% UK Goods UK Services UK Total 4% 3% 2% 1% 0% 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Source: WTO (2004) UK Competitiveness Smith Institute 03-16-04 CK 24 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels UK’s Export Performance By Broad Sector, 1995-2000 UK’s change in world average export share: +0.7% World Export Share, 2000 12% Defense Personal 10% Telecommunications (8.5%, +5.6%) Health Care 8% 6% Petroleum/ Chemicals Transportation Entertainment Services UK’s average export share: 4.88% Office 4% Power Multiple Business Food/Beverages Materials/Metals Textiles/Apparel 2% Semiconductors/ Computers Forest Products 0% -2% -1% 0% + 1% + 2% +3% Change in UK’s World Export Share, 1995 - 2000 Source: UNCTAD Trade Data. Author’s analysis. UK Competitiveness Smith Institute 03-16-04 CK 25 +4% D D = $15 billion export volume in 2000 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels Export Performance European Countries and Regions Exports per capita, in 1,000 ECU, 1998 16 14 14 11.4 12 10.6 10 7.6 8 7.9 6.8 5.7 6 4.6 4 2.3 2.8 3.3 5 4.8 4.7 3.4 2 Fi nl an d Sw ed en Au st ria D en m ar k Ire la nd N et he rla nd s Be lg iu m y er m an K G U l F Ba ra nc sq e ue Co un try Po rtu ga Ita ly Sp ai n G re ec e 0 Source: Basque Statistical Office UK Competitiveness Smith Institute 03-16-04 CK 26 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels Comparative Inward Foreign Investment Selected Advanced Economies Ireland (68%, 77.5%) FDI Stocks as % of GDP, Average 1998-2000 45% 40% Netherlands New Zealand 35% Brazil 30% Australia 25% UK 20% China 15% France 10% Sweden (18%, 89%) Spain Germany Finland US Italy 5% Japan 0% 0% 10% 20% 30% 40% 50% 60% FDI Inflows as % of Gross Fixed Capital Formation, Average 1998-2000 Note: Germany’s FDI inflows in this period were exceptionally high due to the Vodafone-Mannesmann takeover in 2000 Source: World Investment Report 2002 UK Competitiveness Smith Institute 03-16-04 CK 27 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels Global Competitiveness Report 2003 The Relationship Between Business Competitiveness and GDP Per Capita Norway 35,000 USA Iceland Denmark Austria Canada Switzerland Ireland Germany Finland Italy UK Sweden Taiwan Singapore 30,000 2002 GDP per Capita 25,000 (Purchasing Power Adjusted) Spain 20,000 Greece Malta 15,000 New Zealand Israel Czech Rep Slovenia S Korea Portugal Hungary Estonia 10,000 Argentina South Africa Malaysia Russia Brazil Thailand China Jordan Vietnam India 5,000 0 Kenya Tanzania Business Competitiveness Index Source:Global Competitiveness Report 2003 UK Competitiveness Smith Institute 03-16-04 CK 28 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels Current Competitiveness Index UK Position over Time Rank 1 1998 1999 2000 2001 2002 2003 5 10 15 BCI Rank Company Operation & Strategy Rank National Business Environment Rank Source: Global Competitiveness Report 2003 UK Competitiveness Smith Institute 03-16-04 CK 29 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels Determinants of Productivity and Productivity Growth Macroeconomic, Macroeconomic, Political, Political, Legal, Legal, and and Social Social Context Context for for Development Development Microeconomic Microeconomic Foundations Foundations of of Development Development Sophistication Sophistication of ofCompany Company Operations Operationsand and Strategy Strategy UK Competitiveness Smith Institute 03-16-04 CK Quality Qualityof ofthe the Microeconomic Microeconomic Business Business Environment Environment 30 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels Company Operations and Strategy UK’s Relative Position 2003 Competitive Advantages Relative to GDP per Capita Competitive Disadvantages Relative to GDP per Capita Country Ranking, Arrows indicate a change of 2 or more ranks since 2001 Country Ranking, Arrows indicate a change of 2 or more ranks since 2001 Extent of Incentive Compensation 2 Extent of Regional Sales 22 Reliance on Professional Management 2 Degree of Customer Orientation 14 Extent of Marketing 3 Production Process Sophistication 13 Breadth of International Markets 4 Company Spending on R&D 11 Extent of Branding 5 Extent of Staff Training 11 Nature of Competitive Advantage 7 Willingness to Delegate Authority 9 Control of International Distribution 9 Note: Rank by countries; overall UK ranks 6 (8 on Company Operations and Strategy, 16 on GDP pc 2002) Source: Global Competitiveness Report 2003 UK Competitiveness Smith Institute 03-16-04 CK 31 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels Determinants of Productivity and Productivity Growth Macroeconomic, Macroeconomic, Political, Political, Legal, Legal, and and Social Social Context Context for for Development Development Microeconomic Microeconomic Foundations Foundations of of Development Development Sophistication Sophistication of ofCompany Company Operations Operationsand and Strategy Strategy UK Competitiveness Smith Institute 03-16-04 CK Quality Qualityof ofthe the Microeconomic Microeconomic Business Business Environment Environment 32 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels National Business Environment Overview UK’s Relative Strengths and Weaknesses Rank BETTER 1 WORSE 5 Overall rank: 6 10 15 20 rc e ou es s R H um an In f ys ica l Ph an ce Sc ie n s ct ur e ra s ch n Te d d an es Ru l e m in i st ra tiv tru ol og y ur es Pr oc di Co n d an em D Ad Factor Conditions Context for Firm Strategy and Rivalry Demand Conditions Related and Supporting Industries ed tio ns s lu st er en t M ar ke tI nc om pe of C Vi ta lity C ive on tit i et s ar k M ta l ap i C s 25 Source:Global Competitiveness Report 2003 UK Competitiveness Smith Institute 03-16-04 CK 33 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels Factor Factor (Input) (Input) Conditions Conditions Factor (Input) Conditions UK’s Relative Position Competitive Advantages Relative to GDP per Capita Competitive Disadvantages Relative to GDP per Capita Country Ranking, Arrows indicate a change of 2 or more ranks since 2001 Country Ranking, Arrows indicate a change of 2 or more ranks since 2001 Financial Market Sophistication 1 Extent of Bureaucratic Red Tape Venture Capital Availability 2 Quality of Math and Science Education 42 Ease of Access to Loans 2 Availability of Scientists and Engineers 36 Quality of Scientific Research Institutions 5 Quality of Public Schools 34 Adequacy of Public Sector Legal Recourse 5 Railroad Infrastructure Quality 29 Quality of Management Schools Overall Infrastructure Quality 25 Quality of Educational System 25 Port Infrastructure Quality 24 Telephone/Fax Infrastructure Quality 21 Local Equity Market Access 18 Internet users per 100 people (2002) 18 Patents per million Population (2002) 17 Police Protection of Businesses 17 Administrative Burden for Start-Ups 15 5 44 Note: Rank by countries; overall UK ranks 6 (6 on National Business Environment, 16 on GDP pc 2002) Source: Global Competitiveness Report 2003 UK Competitiveness Smith Institute 03-16-04 CK 34 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels Factor Factor (Input) (Input) Conditions Conditions Factor (Input) Conditions Continued UK’s Relative Position Competitive Advantages Relative to GDP per Capita Competitive Disadvantages Relative to GDP per Capita Country Ranking, Arrows indicate a change of 2 or more ranks since 2001 Country Ranking, Arrows indicate a change of 2 or more ranks since 2001 Quality of Electricity Supply 14 Judicial Independence 10 Air Transport Infrastructure Quality 10 Cell phones per 100 people (2002) 9 University/Industry Research Collaboration 8 Note: Rank by countries; overall UK ranks 6 (6 on National Business Environment, 16 on GDP pc 2002) Source: Global Competitiveness Report 2003 UK Competitiveness Smith Institute 03-16-04 CK 35 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels International Patenting Output Annual U.S. patents per 1 million population, 2001 400 350 USA 300 250 Japan Switzerland 200 Taiwan Sweden = 10,000 patents granted in 2001 Germany 150 Israel Finland Canada Netherlands Denmark 100 France UK 50 Italy Singapore South Korea Norway Australia New Zealand 0 0% 10% 20% 30% 40% Compound annual growth rate of US-registered patents, 1990 - 2001 UK Competitiveness Smith Institute 03-16-04 CK 36 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels Innovation Quantity and Quality Selected Countries Annual U.S. patents per 1 million population, 2000 400 350 USA 300 Japan 250 Switzerland 200 150 Sweden Germany Denmark 100 Austria South Korea 50 Norway Canada Finland Netherlands France Israel Singapore UK Italy 0 6% 8% 10% 12% 14% 16% 18% 20% Share of country’s patents that are highly cited* Note: * The share of a country’s patents filed between 1994 and 1998 that were highly cited in 1999. Source: CHI Patent, National Science Foundation and Council on Competitiveness data. Author’s analysis. UK Competitiveness Smith Institute 03-16-04 CK 37 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels Factor Factor (Input) (Input) Conditions Conditions U.S. Patenting by UK Institutions Organization Patents Issued from 1997 to 2001 1 ZENECA LIMITED 398 2 BRITISH TELECOMMUNICATION, PLC 335 3 INTERNATIONAL BUSINESS MACHINES CORPORATION 280 4 U.S. PHILIPS CORPORATION 257 5 SMITHKLINE BEECHAM PLC 244 6 EASTMAN KODAK COMPANY 206 7 204 9 LUCAS INDUSTRIES PUBLIC LTD. COMPANY SECRETARY OF STATE FOR DEFENCE IN HER BRITANNIC MAJESTY'S GOVERNMENT OF THE UNITED KINGDOM ROLLS-ROYCE PLC 10 MERCK SHARP & DOHME LIMITED 167 11 IMPERIAL CHEMICAL INDUSTRIES PLC 160 12 PROCTER + GAMBLE COMPANY 154 12 NORTHERN TELECOM LIMITED 154 8 183 174 14 NORTEL NETWORKS CORPORATION 135 15 THE BOC GROUP PLC 131 16 SHARP KABUSHIKI KAISHA (SHARP CORPORATION) 117 17 PFIZER INC. 115 18 BRITISH TECHNOLOGY GROUP LIMITED 109 19 HEWLETT-PACKARD COMPANY 103 19 BP CHEMICALS LIMITED 103 21 NOKIA MOBILE PHONES LTD. 92 22 SONY CORPORATION 91 23 NCR CORPORATION 89 24 BRITISH NUCLEAR FUELS PLC 88 25 GLAXO GROUP LIMITED 83 Note: Shading indicates universities, research institutions, and other government agencies Source: US Patent and Trademark Office (www.uspto.gov). Author’s analysis. UK Competitiveness Smith Institute 03-16-04 CK 38 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels Innovative Capacity Index 2003 Rankings Rank Rank Scientists & Engineers Index Innovation Policy Index Cluster Environment Index Linkages Index Operations and Strategy Index 11 22 33 44 55 66 77 88 99 10 10 11 11 12 12 13 13 14 14 15 15 16 16 17 17 18 18 19 19 20 20 21 21 22 22 23 23 Iceland Japan Finland USA Sweden Singapore Norway Switzerland Russian Fed. Denmark Australia Germany Canada Belgium France Taiwan United Kingdom Netherlands Austria Korea New Zealand Ireland Slovenia Singapore Luxembourg Taiwan Finland USA Australia Canada Israel France United Kingdom Germany Netherlands Belgium Austria Ireland Japan Malaysia Denmark Sweden Tunisia Spain Portugal Iceland Japan USA Finland Germany Italy Taiwan Denmark France Canada Switzerland Singapore United Kingdom Austria Hong Kong Sweden Korea Netherlands Malaysia Australia New Zealand South Africa Luxembourg Ireland USA Finland United Kingdom Israel Netherlands Sweden Canada Denmark France Australia Germany Switzerland Japan Singapore Belgium Ireland New Zealand Korea Italy Norway Taiwan Austria Iceland USA Switzerland United Kingdom Denmark Japan Singapore Finland Germany Sweden Hong Kong France Israel Taiwan Luxembourg Netherlands Austria Belgium Iceland Canada Ireland Italy Korea Australia Source: Global Competitiveness Report 2003, forthcoming UK Competitiveness Smith Institute 03-16-04 CK 39 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels Educational Spending and Performance 70,000 US Switzerland 60,000 Sweden Spending per 50,000 student, 2000 Japan France Australia Finland UK Germany 40,000 Spain Ireland South Korea 30,000 475 500 525 550 Average student test score, 2000 Source: PISA-Study, OECD UK Competitiveness Smith Institute 03-16-04 CK 40 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels Education in Science & Technology Selected Countries Share of Science & Technology graduates in the age 20 – 29 population, 2000 or latest 25% 20% 15% EU average: 10.3% 10% 5% Ir e la F r nd an F i ce nl an d Sl U K ov en i Ja a p S w an ed en U S Sp Be ain lg Li ium th ua ni a Is D l an en d m G ar er k m a N ny or w A u ay st Es ria to Po nia rtu ga P N ol l et an he d rla nd s Ita La ly t C ze H u vi a ch n g R ary S w e pu itz blic er la nd 0% Source: EU Scoreboard 2002 UK Competitiveness Smith Institute 03-16-04 CK 41 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels Total R&D Spending Selected Countries Total R&D Spending as % of GDP, 2001 (or last available) 4.5% Sweden 4.0% 3.5% Finland Japan US Germany 3.0% 2.5% France Netherlands Norway Australia 2.0% 1.5% 0.5% UK Canada Austria Ireland New Zealand 1.0% Slovakia 0.0% -0.4% Poland -0.2% Iceland S Korea Czech Rep. Italy Spain Hungary Portugal 0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% Change of Public R&D Spending as % of GDP, last three years Source: OECD UK Competitiveness Smith Institute 03-16-04 CK 42 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels Context Contextfor for Firm Strategy Firm Strategy and andRivalry Rivalry Context for Firm Strategy and Rivalry UK’s Relative Position Competitive Advantages Relative to GDP per Capita Competitive Disadvantages Relative to GDP per Capita Country Ranking, Arrows indicate a change of 2 or more ranks since 2001 Country Ranking, Arrows indicate a change of 2 or more ranks since 2001 Prevalence of mergers and acquisitions 1 Centralization of Economic Policy-making 46 Efficacy of Corporate Boards 1 Cooperation in Labor-Employer Relations 21 Foreign Ownership of Companies 1 Extent of Locally Based Competitors Intensity of Local Competition 1 Extent of Distortive Government Subsidies 14 Protection of Minority Shareholders 2 12 Effectiveness of Anti-Trust Policy 2 Favoritism in Decisions of Government Officials Existence of Bankruptcy Law 2 Tariff Liberalization 12 Regulation of Securities Exchanges 2 Business Costs of Corruption 10 Decentralization of Corporate Activity 3 Hidden Trade Barrier Liberalization 8 Intellectual Property Protection 3 19 Note: Rank by countries; overall UK ranks 6 (6 on National Business Environment, 16 on GDP pc 2002) Source: Global Competitiveness Report 2003 UK Competitiveness Smith Institute 03-16-04 CK 43 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels Demand Demand Conditions Conditions Demand Conditions UK’s Relative Position Competitive Advantages Relative to GDP per Capita Competitive Disadvantages Relative to GDP per Capita Country Ranking, Arrows indicate a change of 2 or more ranks since 2001 Buyer Sophistication Country Ranking, Arrows indicate a change of 2 or more ranks since 2001 1 Government Procurement of Advanced Technology Products 37 Stringency of Environmental Regulations 14 Presence of Demanding Regulatory Standards 11 Laws Relating to Information Technology 8 Consumer Adoption of Latest Products 7 Note: Rank by countries; overall UK ranks 6 (6 on National Business Environment, 16 on GDP pc 2002) Source: Global Competitiveness Report 2003 UK Competitiveness Smith Institute 03-16-04 CK 44 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels Related Relatedand and Supporting Supporting Industries Industries Related and Supporting Industries UK’s Relative Position Competitive Advantages Relative to GDP per Capita Competitive Disadvantages Relative to GDP per Capita Country Ranking, Arrows indicate a change of 2 or more ranks since 2001 Country Ranking, Arrows indicate a change of 2 or more ranks since 2001 Local Availability of Specialized Research 4 and Training Services Extent of Product and Process Collaboration 22 Local Supplier Quantity Local Availability of Process Machinery 15 State of Cluster Development 14 5 Local Availability of Components and Parts 12 Local Supplier Quality 8 Note: Rank by countries; overall UK ranks 6 (6 on National Business Environment, 16 on GDP pc 2002) Source: Global Competitiveness Report 2003 UK Competitiveness Smith Institute 03-16-04 CK 45 Copyright 2004 © Professor Michael E. Porter, Christian H. M. Ketels