global competitiveness report 2004-05: sweden’s business ......in the global competitiveness...

Global Competitiveness Report 2004-05:Sweden’s Business Competitiveness

Christian H.M. Ketels, PhDInstitute for Strategy and Competitiveness

Harvard Business School

GCR Launch - SwedenChamber of Commerce, Stockholm

13 October 2004

This presentation draws on ideas from Professor Porter’s books and articles, in particular, “Building the Microeconomic Foundations of Prosperity,”in The Global Competitiveness Report 2004-05 (World Economic Forum, 2004); “Clusters and the New Competitive Agenda for Companies and Governments,” in On Competition (Harvard Business School Press, 1998); Clusters of Innovation Initiative (www.compete.org), a joint effort of the Council on Competitiveness, Monitor Group, and ongoing research. 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

2 Copyright 2004 © Professor Michael E. PorterGCR Press Conference 2004 10-13-03.ppt

Global Competitiveness Report

• Annual publication of the World Economic Forum since 1979; in recent years academic guidance from– Professor Michael E. Porter, Harvard Business School– Professor Jeffrey Sachs (until 2002)/Professor Xavier Sala-i-Martin

(since 2003), Columbia University • Covers 104 economies; based on statistical data and global Executive

Opinion Survey of 8,729 respondents (84 per country)

Content• Core chapters present the Growth Competitiveness Index and the

Business Competitiveness Index• Nine other chapters by leading researchers on key competitiveness

issues• Extensive data sheets on all economies covered


Focus of this presentation

Ranking Competitiveness

Business CompetitivenessBusiness Competitiveness

The set of institutions, market structures, and economic policies supportive of high current levels of

prosperity

Michael E. Porter

The set of institutions, market structures, and economic policies supportive of high current levels of

prosperity

Michael E. Porter

Growth CompetitivenessGrowth Competitiveness

The set of institutions and economic policies supportive of high rates of economic growth in the medium

term (coming five years)

Xavier Sala-i-Martin

The set of institutions and economic policies supportive of high rates of economic growth in the medium

term (coming five years)

Xavier Sala-i-Martin


Competitiveness and Prosperity

ProductivityProductivity

Innovative CapacityInnovative CapacityInnovative Capacity

ProsperityProsperityProsperity • The Business Competitiveness Index measures the level of prosperity(GDP per capita) that an economy can sustain

• Sustainable prosperity is set by the underlying competitiveness of the economy, which is determined by the level of productivity and – over time – innovation achievable by companies

• Countries can overperform or underperform true competitiveness for substantial periods of time


Microeconomic Foundations of CompetitivenessMicroeconomic Foundations of Competitiveness

The Quality of the Microeconomic

BusinessEnvironment

The Quality of the The Quality of the MicroeconomicMicroeconomic

BusinessBusinessEnvironmentEnvironment

The Sophisticationof Company

Operations andStrategy

The SophisticationThe Sophisticationof Companyof Company

Operations andOperations andStrategyStrategy

Determinants of Productivity and Productivity Growth

Macroeconomic, Political, Legal, and Social Context for Competitiveness

Macroeconomic, Political, Legal, and Social Macroeconomic, Political, Legal, and Social Context for CompetitivenessContext for Competitiveness

• Nations or regions compete in offering the most productive environment for business

• A sound macroeconomic, political, legal, and social context creates the potential for competitiveness, but is not sufficient


Company Operations and StrategyCompany Operations and Strategy National Business EnvironmentNational Business Environment

• Nature of Firm’s Competitive Advantages

• Extent of Innovation• Sophistication of Production• Sophistication of Marketing• Sophistication of Organizational

Structures and Incentives• Extent of Internationalization

• Nature of Firm’s Competitive Advantages

• Extent of Innovation• Sophistication of Production• Sophistication of Marketing• Sophistication of Organizational

Structures and Incentives• Extent of Internationalization

• Factor Conditions– Physical Infrastructure– Administrative Infrastructure– Human Resources– Technology Infrastructure– Capital Markets

• Context for Firm Strategy and Rivalry– Incentives – Policies affecting competition

• Demand Conditions• Related and Supporting Industries

• Factor Conditions– Physical Infrastructure– Administrative Infrastructure– Human Resources– Technology Infrastructure– Capital Markets

• Context for Firm Strategy and Rivalry– Incentives – Policies affecting competition

• Demand Conditions• Related and Supporting Industries

The Business Competitiveness Index, 2004Measured Elements


0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Business Competitiveness Index 2004Relationship with GDP Per Capita

United States

Switzerland

UK

Denmark

Singapore

New Zealand

Taiwan

Norway

IcelandIreland

GreeceIsrael

Italy

S Korea

Hungary

India

Netherlands

Spain

Czech RepPortugal

Business Competitiveness Index

2003 GDP per Capita

(Purchasing Power Adjusted)

BrazilMalaysia

China

Russia

VietnamJordan

Uruguay

ArgentinaSouth Africa

Source:Global Competitiveness Report 2004

Estonia

Indonesia

Sweden

Malta

Kenya

Austria

Paraguay

Croatia

Slovak Rep.

Tunisia

PolandLithuania

Bulgaria

Canada

France FinlandBelgium

Cyprus Slovenia

Chile

GhanaEthiopia

Bolivia

Malawi

TurkeyMexico

JamaicaBosnia

y = 1549.9x2 + 8603.4x + 11188

R2 = 0.8064


Japan

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

0% 1% 2% 3% 4% 5% 6%

Prosperity

Norway

Netherlands

United States

Compound annual growth rate of real GDP per capita, 1998-2003

GDP per capita (PPP

adjusted) in US-$,

2003

Source: EIU (2004)

IrelandCanada

South Korea

Hungary

Greece

SlovakiaPoland

Czech Republic

MexicoTurkey

Portugal

Spain New ZealandSwitzerland

DenmarkIceland

SwedenFinland

UKGermany

Italy


Sweden’s Economic Performance

• Swedish prosperity continues to be high but lags leading OECD peers

Key drivers of Swedish prosperity

• Key strength is Sweden’s high labor productivity, among the best in the world although the gap to the United States has widened in recent years

• Labor input is also high – Sweden reports a high share of employees in the population that is still compensating for low and falling work hours

• Key weakness is the high level of local prices in Sweden, among the highest in the world, that are reducing the benefits Swedes derive from high productivity


Sweden’s Economic PerformanceOther Indicators

• Sweden has a strong position in international patenting

• FDI stocks and inflows are substantial

• Sweden’s world export market share has stayed roughly stable over the last decade

• Sweden continues to be home to a relatively high number of multinational companies

• Patenting is reflecting high R&D spending

• FDI inflows are at the level predicted given the structure of the Swedish economy

• Sweden has lost ground on world markets in some key clusters

• Increasing concerns and reports about relocations, not only by large companies

Strong Or not so strong?


The Microeconomic Foundations of Economic PerformanceUsing the Business Competitiveness Index

• Overall level of sustainable prosperity that can be supported given a country’s current competitiveness

• Strengths and weaknesses of a country’s business environment relative to its overall level of competitiveness

• Developments in the overall competitiveness and the strengths and weaknesses of individual countries

• Overall patterns in the competitive environment for locations in the world economy


Business Competitiveness Index Rankings123456789

10111213141516171819202122232425

123456789

10111213141516171819202122232425

Top 25Top 25 Country

+1-1+2-1+20-3+50-2+8-2-2+1-3+1-10-5+2-1-1+3-1+2

United StatesFinland

GermanySweden

SwitzerlandUnited Kingdom

DenmarkJapan

NetherlandsSingapore

Hong Kong SARFrance

AustraliaBelgiumCanadaAustriaTaiwan

New ZealandIcelandNorwayIsrael

IrelandMalaysia

KoreaSouth Africa

Change

Business Competitiveness Index 2004

Note: Constant sampleof countries


High IncomeMiddle IncomeLow Income

Business Competitiveness Report 2004BCI Rank Versus Value

BCI Score

High

LowBCI Rank93 1

India

Norway

IrelandIsrael

JapanNetherlands

S KoreaSpain

MalaysiaSouth Africa

Estonia

IndonesiaGreece

Italy

Malta

Portugal

Cyprus

Slovenia Chile


Singapore

USGermany

Sweden

MexicoRomania

China

Paraguay

Bosnia

RussiaKenya

Sri Lanka Ghana

Pakistan

TanzaniaVenezuela

Denmark

Argentina

Brazil

VietnamSerbia

Switzerland

UK

DenmarkSwedenGermany

Finland US

JapanNetherlands


Business Competitiveness Report 2004The Prediction Gap: High Income Countries

-$10,000

-$5,000

$0

$5,000

$10,000

$15,000

Italy

Norway

Irelan

dMalt

aCyp

rusGree

ceIce

land

Spain

Sloven

iaCan

ada

Austria

Portug

al

United

States

Austra

liaBelg

ium

Hong K

ong S

ARFran

ceKore

aNeth

erlan

dsDen

markTaiw

anSwitz

erlan

dJa

pan

Israe

lSing

apore

New Zea

land

United

Kingdo

mSwed

enGerm

any

Finlan

d

Current prosperity above sustainable level

Current prosperity below sustainable level

17% of GDP



Business Competitiveness Report 2004Explaining the Prediction Gap

Actual GDP per Capita

Predicted GDP per Capita

Factors Influencing the Prediction Gap

• Location– Prosperity of neighbors – Population with access to ocean

• Governance– Government Accountability – Government Effectiveness

• Natural resources (NR)– NR export revenues

Other• Transitory impact of macroeconomic or

political climate• Structural factors with no simple relationship to

prosperity, e.g. taxation, imbalance of competitiveness profile


Business Competitiveness Report 2004Explaining the Prediction Gap: Examples

Note: Effect of each factor normalized by the average of all countries Source: Global Competitiveness Report 2004

OverperformerWhy is prosperity so high

UnderperformerWhy is prosperity so low

MixWhat are the countervailing forces

Norway Italy

China India

Sweden Germany

Location Governance Natural resources Other factors


Sweden

Hong K

ong S

ARSing

apore

Icelan

dEsto

nia

Slovak

Rep

ublic

Taiwan

Irelan

dMala

ysia

Switzerl

and

United

States

United

Kingdo

mNeth

erlan

ds

New Zea

land

Portug

alAus

triaNorw

ayLa

tvia

Canad

aJa

pan

Lithu

ania

Sloven

iaAus

tralia

Denmark

Finlan

dGerm

any

France Ita

lyPola

ndGeo

rgia

Ukraine

Brazil

Belgium

Incentive EffectComplexity

Positive

Negative

Source: Global Competitiveness Report 2004

Business Competitiveness Report 2004Explaining the Prediction Gap: Taxation


Global Competitiveness Report 2004Business Environment and Company Sophistication

The national business environmenthas advanced beyond company

sophistication

The national business environmenthas advanced beyond company

sophistication

EstoniaTunisiaNorwayCyprus

PortugalAustraliaMalaysiaJordan

BotswanaHungary

New ZealandAlgeria

Hong Kong SARChile

Singapore

EstoniaTunisiaNorwayCyprus

PortugalAustraliaMalaysiaJordan

BotswanaHungary

New ZealandAlgeria

Hong Kong SARChile

Singapore

Company sophistication is more advanced than the

national business environment

Company sophistication is more advanced than the

national business environment

PhilippinesJapan

GermanyKoreaItaly

GuatemalaVenezuelaSwitzerlandCosta Rica

FranceBrazil

PolandHondurasArgentinaSweden

PhilippinesJapan

GermanyKoreaItaly

GuatemalaVenezuelaSwitzerlandCosta Rica

FranceBrazil

PolandHondurasArgentinaSweden

Note: Sorted by strength of imbalance Source: Global Competitiveness Report 2004

Sweden




BusinessEnvironment


BusinessEnvironment





Sweden’s Competitiveness ProfileStrengths and Weaknesses



• Relative strengths in areas of innovation, investment, and organizational structures

• Relative weaknesses in marketing and the presence along the value chain


Company Operations and StrategySweden’s Relative Position 2004

Willingness to delegate authority 1

Capacity for innovation 2

Production process sophistication 3

Extent of staff training 3

Company spending on research and 4 development

Extent of branding 4

Competitive Disadvantages Relative to GDP per Capita

Competitive Advantages Relative to GDP per Capita

Country Ranking, Arrows indicate a change of 5 or more

ranks since 1998


ranks since 1998

Extent of regional sales 16

Extent of marketing 12

Value chain presence 10

Extent of incentive compensation 10

Nature of competitive advantage 9

Reliance on professional management 9

Breadth of international markets 8

Degree of customer orientation 6

Control of international distribution 6

Note: Rank by countries; overall Sweden ranks 4 (5 on Company Operations and Strategy, 19 on GDP pc 2003)Source: Global Competitiveness Report 2004




BusinessEnvironment


BusinessEnvironment







• Relative strengths in technology and innovation, level playing field for competition, administrative infrastructure, physical infrastructure, and basic financial market conditions

• Relative weaknesses in competition, human resources, advanced demand conditions, and basic cluster conditions

Sweden’s Competitiveness ProfileStrengths and Weaknesses


Factor (Input) ConditionsSweden’s Relative Position

Factor(Input)

Conditions

Factor(Input)

Conditions

Quality of scientific research institutions 2

Internet users per 10,000 people (2003) 3

University/industry research collaboration 3

Efficiency of legal framework 3

Ease of access to loans 4

Patents per million population (2003) 6

Availability of scientists and engineers 6



Extent of bureaucratic red tape 23

Quality of math and science education 21

Local equity market access 18

Air transport infrastructure quality 17

Quality of public schools 15

Quality of electricity supply 14

Venture capital availability 13

Quality of management schools 12

Reliability of police services 11

Cell phones per 100 people (2003) 11

Overall infrastructure quality 10

Telephone/fax infrastructure quality 9

Administrative burden for startups 9


ranks since 1998


ranks since 1998

Note: Rank by countries; overall Sweden ranks 4 (6 on National Business Environment, 19 on GDP pc 2003)Source: Global Competitiveness Report 2004


Context for Firm Strategy and RivalrySweden’s Relative Position

Intellectual property protection 1

Tariff liberalization 2

Hidden trade barrier liberalization 4

Cooperation in labor-employer relations 5

Favoritism in decisions of government 5officials

Business costs of corruption 6

Effectiveness of bankruptcy law 6



Intensity of local competition 39

Extent of locally based competitors 33

Decentralization of corporate activity 24

Centralization of economic policy-making 22

Prevalence of mergers and acquisitions 20

Effectiveness of anti-trust policy 19

Efficacy of corporate boards 17

Foreign ownership restrictions 13

Regulation of securities exchanges 10

Protection of minority shareholders’ 9interests

Context for Firm Strategy and Rivalry

Context for Firm Strategy and Rivalry


ranks since 1998


ranks since 1998



Demand ConditionsSweden’s Relative Position

Stringency of environmental regulations 6



Government procurement of advanced 19 technology products

Buyer sophistication 13

Laws relating to ICT 12

Presence of demanding regulatory 11standards

Demand ConditionsDemand

Conditions


ranks since 1998


ranks since 1998



Related and Supporting IndustriesSweden’s Relative Position



Related and Supporting Industries

Related and Supporting Industries

Extent of collaboration among clusters 6

Local supplier quality 6


ranks since 1998

Local availability of components and parts 21

Local supplier quantity 20

Local availability of process machinery 14

State of cluster development 9

Local availability of specialized research 8and training services


ranks since 1998



Business Competitiveness IndexSweden’s Position over Time

BCI Rank Company Operation &Strategy Rank

National BusinessEnvironment Rank

1998199920002001200220032004

Rank

1

Note: Constant sample of countries Source: Global Competitiveness Report 2004

5

15

10

• Sweden’s overall BCI index value has dropped slightly (32 advancing/39 falling indicators), balanced across all elements of competitiveness


Swedish Competitiveness 2004 Key Observations

Level of competitiveness• High and should support higher prosperity• Prosperity held back by taxes and imbalance between company

sophistication and business environment quality

Strengths and weaknesses• Strengths in areas related to technology and innovation, level playing

field for competition, administrative infrastructure, physical infrastructure, and basic financial market conditions

• Weaknesses in areas related to competition, human resources, advanced demand conditions, and basic cluster conditions

Trend• Slightly positive development in the last few years• But 2004 seems to have been a lost year for competitiveness upgrading


Appendix


Japan

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

0% 1% 2% 3% 4% 5% 6%

Prosperity

Norway

Netherlands

United States

Compound annual growth rate of real GDP per capita, 1998-2003

GDP per capita (PPP

adjusted) in US-$,

2003

Source: EIU (2004)

IrelandCanada

South Korea

Hungary

Greece

SlovakiaPoland

Czech Republic

MexicoTurkey

Portugal

Spain New ZealandSwitzerland

DenmarkIceland

SwedenFinland

UKGermany

Italy


Decomposing Prosperity

IncomeIncomeIncome

Labor Productivity

Labor Productivity

Labor Utilization

Labor Utilization

Domestic Purchasing

Power

Domestic Purchasing

Power

• Consumption taxes• Level of local market

competition• Efficiency of local industries

ProsperityProsperityProsperity

• Skills• Capital stock• TFP

• Working hours• Unemployment• Participation rate• Population age profile


Productivity

Compound annual growth rate (CAGR) of real GDP per employee, 1997-2002

GDP per employee

(PPP adjusted) in US-$,

2003

Source: EIU (2004), Groningen Growth and Development Centre and The Conference Board (2004)

Spain

NetherlandsItaly

Switzerland

Portugal

Mexico

Turkey

Czech Rep.Hungary

South Korea

Greece

Slovakia

IrelandUnited StatesAustria

NorwayFranceBelgium

CanadaFinland

GermanyJapan Iceland

DenmarkUK

New Zealand

Sweden

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

-1% 0% 1% 2% 3% 4%


Swedish Labor Productivity Growth Versus the U.S.

$-

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

$50,000

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 200368

69

70

71

72

73

74

75

76

77

US $Relative

Real GDP per Employee(1990 prices)

Source: Groningen Growth and Development Centre and The Conference Board (2004)

Relative Real GDP per Employee

(US=100)


1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

-2.0% -1.5% -1.0% -0.5% 0.0% 0.5%

Norway

DenmarkGermany

PolandLatvia

Finland

Lithuania

Sweden

Annual Hours Worked per Employee, 2003

Growth of Annual Hours Worked per Employee, CAGR, 2000-2003

Labor UtilizationSelected Countries

Source: Groningen Growth and Development Centre and The Conference Board (2004), authors’ calculations

Estonia

US

UKIrelandPortugal

Czech Republic

Slovak RepublicSlovenia

Hungary

Austria

France

JapanCanada

Spain


0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Lithu

ania

Slovak

Rep

ublic

Czech

Rep

ublic

Latvi

aHun

gary

Estonia

Russia

Poland

Slov

enia

Spain UK

United

Stat

esAus

triaFinl

and

German

y Norw

ayDen

markSwed

en

Purchasing PowerParity Factor, 2003

Domestic Purchasing Power of IncomeSelected European Countries

Source: Groningen Growth and Development Centre and The Conference Board (2004), authors’ calculations

Higher local prices relative to the United States

Lower local prices relative to the United States


0

50

100

150

200

250

300

350

400

0% 2% 4% 6% 8% 10%

Source: US Patent and Trademark Office (www.uspto.gov). Author’s analysis.

Annual U.S. patents per 1 million population, 2003

Compound annual growth rate of US-registered patents, 1998 - 2003

Innovation

= 10,000 patents granted in 2003

Japan

United States

Switzerland Sweden

Germany

Canada Denmark

New Zealand

France

ItalyAustralia

AustriaUKSouth Korea

NetherlandsNorway

Spain

Finland

HungaryIreland

(17.5%, 42)

Singapore(28.9%, 102)

Taiwan(11.3%, 234)


R&D Spending Effectiveness

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

Japa

n USSwitz

erlan

dGerm

any

Canad

aFinl

and

S Korea

New Zea

land

Denmark

Netherl

ands

Sweden

Austria UK

Belgium

Irelan

dIta

lyFran

ceAus

tralia

Norway

Hunga

ryIce

land

Spain

Czech

Rep

.

Slovak

Rep

.Port

ugal

Poland

US Patents in 2003 per 1 Mio. R&D Spending in 2001

(or latest available)

Source: OECD, USPTO, author’s calculation


0%

10%

20%

30%

40%

50%

60%

70%

80%

0% 10% 20% 30% 40% 50% 60%

Comparative Inward Foreign InvestmentOECD Countries

FDI Stocks as % of GDP, Average 2000-2002

FDI Inflows as % of Gross Fixed Capital Formation, Average 2000-2002

Source: UNCTAD (2004)

Ireland (84%, 130%)

Netherlands

Italy

Czech Republic

DenmarkSweden

SlovakiaUK

New Zealand

Switzerland

CanadaFinland

PortugalSpain

Germany

Australia

Greece United States

Norway MexicoPoland France


Comparative Inward Foreign InvestmentInward FDI Performance versus Potential

-80

-60

-40

-20

0

20

40

Czech

Rep

ublic

Slovak

iaEsto

nia UKSpa

inDen

markLa

tvia

Sweden

Lithu

ania

Poland

Hunga

ryGerm

any

Finlan

dAus

triaNorw

ayRus

siaRank Difference:

FDI Performance – FDI Potential, 2001

Source: UNCTAD (2004), author’s analysis.


Sweden’s Export PerformanceWorld Export Market Shares

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

GoodsServicesTotal

Source: WTO (2004), Institute for Strategy and Competitiveness (2004)

World export share in %


Change in Swedish World Export Market Share, 1992 - 2002: -0.2%

Source: UNCTAD Trade Data. Author’s analysis.

Swedish Cluster PortfolioGoods Exports, 1992-2002

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

-2.5% -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0%Compound annual growth rate of Swedish world export market share, 1992 – 2002

Swedish World Export Market Share, 2002: 1.46%

Forest Products

Communications Equipment

Furniture

Pharmaceuticals

Automotive

AerospaceEngines

EntertainmentProducts

PrefabricatedEnclosures

Fish & Fishing Products

ProductionTechnology

Metal Manufacturing


Multinational Companies’ Home Base

Business Week 1000Business Week 1000

• United States 423• United Kingdom 73• Canada 37• Germany 35• Sweden 15• Spain 10• Finland 5• Norway 5• Denmark 4• Ireland 4• Austria 3• Portugal 3• Poland 2• Hungary 1

• United States 423• United Kingdom 73• Canada 37• Germany 35• Sweden 15• Spain 10• Finland 5• Norway 5• Denmark 4• Ireland 4• Austria 3• Portugal 3• Poland 2• Hungary 1

Note: Business Week ranks by Market Value Source: Business Week (2004), author’s analysis.

global competitiveness report 2004-05: sweden’s business ......in the global competitiveness...

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