how to compete and grow: a sector guide to policy · 2021. 4. 30. · three lessons learned for...

How to compete and grow: A sector guide to policy

McKinsey Global Institute

May 5, 2010

CONFIDENTIAL AND PROPRIETARY

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McKinsey & Company | 1

McKinsey Global Institute

▪ The McKinsey Global Institute (MGI),

founded in 1990, is McKinsey & Company’s

business and economics research arm.

▪ MGI’s research is a unique combination of

two disciplines: economics and

management. By integrating these two

perspectives, MGI is able to gain insights into

the microeconomic underpinnings of the broad

trends shaping the global economy.

▪ MGI’s research is funded by the partners of

McKinsey & Company and not

commissioned by any business, government,

or other institution


To provide a fact base, our research sought to answer two questions

How do sectors differ in what

matters for competitiveness?

How do government policies

impact sector competitiveness

and growth?


Summary

▪ Our sector approach – and why it matters

▪ Patterns in sector contributions to growth

▪ How can governments tailor policies to each

sector


1.6

1.2

0

100101

0.4

0.8

-0.8

-0.4 Infrastructure

Local

services

Business

services

Resource-

intensive

industries

Manufacturing

R&D-intensive

manufacturing

MGI categorizes sectors into six groups according to degrees of differentiation and tradability

SOURCE: EU KLEMS growth and productivity accounts; OECD input-output tables; McKinsey Global Institute analysis

Size of circle = relative amount

of sector value added in 2005Differentiation index

0 = average

Dif

fere

nti

ati

on

of

pro

du

cts

High

Low

Tradability of products

Imports plus exports divided by sector gross output

%

Low High

Electricity

Construction

Hotels and restaurants

Land

transport

Wholesale and

retail trade

Post and

telecommunication Finance and

insurance

Real-estate

activities

Computer and

related activities

R&D

Pulp, paper, printing,

and publishing

Agriculture,

forestry,

and fishing

Wood

products

Rubber and plastics

Basic

metals

Fabricated metals

Machinery and

equipment

Motor vehicles

Pharma

Chemicals

Radio, TV, and

communication

equipment

Medical

instruments

Aircraft and spacecraft

Other

Other


Summary



▪ How can governments tailor policies to each

sector


Three lessons learned for governments to keep in mind as they seek to enable growth

SOURCE: McKinsey Global Institute analysis

LESSON 3

Service sector growth is critical

– and particularly so for job

growth

LESSON 1

Success in emerging, innovative

sectors alone is not enough to

sustain growth

LESSON 2

The mix of sectors in an

economy is less important than

the competitiveness of sectors


Even in the United States, innovative new sectors make a small direct economic contribution

SOURCE: The Clean Energy Economy, PEW, 2009; Bureau of Labor Statistics; Haver analytics

Share of US employment, August 2009 (percent of nonfarm employment)

100% = 130 million

New innovative sectors

0.60.30.2

11.3

5.94.9

Existing large employment sectors

Competitiveness in new innovative sectors is not enough

Biotech

Semi-

conductor Cleantech

Construc-

tion

Financial

activities

Retail

trade




LESSON 3



growth

LESSON 1


sectors alone is not enough to

sustain growth

LESSON 2





Sector performance has mattered more than the mix of sectors for overall GDP growth in developed countries

SOURCE: Global Insight; McKinsey Global Institute analysis

Growth Total growth

Contribution to total value added, 1995–2005

Compound annual growth rate, %

United States

S. Korea

United Kingdom

France

Germany

Japan

High

Low

Sector competitiveness matters more than sector mix

Growth momentum

(growth predicted

by initial sector mix)

Differences in

performance

of sectors

2.1

2.3

2.3

2.2

1.8

2.3

0.4

0.8

2.1

3.3

2.6

2.6

-1.7

0.7

0.9

-1.5

-0.2

0.4




LESSON 3



growth

LESSON 1


sectors is not enough to sustain

growth; existing sectors need

attention, too

LESSON 2




McKinsey & Company | 11SOURCE: Global Insight; International Labor Organization; National Statistics; McKinsey Global Institute analysis

Sector contribution to growth of value added in high-income countries,

1985–2005

100% = $10.4 trillion

Services have contributed 87 percent of GDP growth in high-income countries in the last decades

For jobs, service sector competitiveness is key

58

18

12

62

413

87

100R&D-intensive mfgManufacturingResource-intensive

Business services

Local services

Infrastructure

Goods

Services


Low-income

countries

100% = 324

Medium-income

countries

100% = 50

High-income

countries

100% = 74

Service sectors generate most net new jobs across all income groups – and over 100% in high income countries

32

68

SOURCE: International Labor Organization; National Statistics; McKinsey Global Institute analysis

Sector contribution to a country's net growth of employment, 1985–2005

%, million employees

Goods

Services

9

91

29

129

100%

For jobs, service sector competitiveness is key


Summary



▪ How can governments tailor policies to

each sector


Our policy approach – framework

Degree of intervention

HighLow

Government as

principal actor

Tilting the playing

fieldBuilding enablers

Setting ground

rules/direction

Governments can limit

sector policies to

▪ Setting the

regulation covering

labor, capital and

land markets;

▪ Establishing the

general business

environment,

▪ Setting broad

national priorities

and road maps.

Without interfering with

market mechanisms,

governments can

support private-sector

activities by

▪ Expanding hard and

soft infrastructure;

▪ Helping to ensure

adequate skills

through education

and training,

▪ Supporting R&D

activities.

Governments can

choose to create

favorable conditions for

local production

through:

▪ Trade protection from

global competition

▪ Providing financial

incentives for local

operations

▪ Shaping local

demand growth

through public

purchasing or

regulation.

Governments can

play a direct role by

▪ Establishing state-

owned or

subsidized

companies;

▪ Funding existing

businesses to

ensure their

survival

▪ Imposing

restructuring on

certain industries.

SOURCE: MGI/PSO Sector Competitiveness Project

Differentiating sector-level policies by the degree of intervention


To be effective, policy tools need to be tailored to sector characteristics

SOURCE: McKinsey Global Institute/Public Sector Office Sector Competitiveness Project

InfrastructureResource-intensive

industriesInfrastructure

R&D-intensive

manufacturing

Business

services

Local

servicesManufacturing


HighLow

Government as

principal actor

Tilting the playing


Setting ground

rules/direction


2018 1916 17

EmploymentHours worked per capita

90

Labor productivityValue added (dollars per hour worked)

60

70

40

0

100

80

50

0 22111098 217 12 14 1513 24236

Policy can determine domestic sector performance –retail sector performance varies widely around the worldRetail sector performance in developed countries, 2005

SOURCE: EU KLEMS; McKinsey Global Institute analysis






R&D-intensive

manufacturing

Business

services

Local



HighLow

Government as

principal actor

Tilting the playing


Setting ground

rules/direction


The majority of recent attempts to establish local semiconductor industries or clusters have failed

SOURCE: SEMI World Fab Watch; expert estimates; McKinsey Global Institute analysis

Successes and failures of semiconductor clustersPresent

Currently not present

Sustainable competitive edge

ROUGH ESTIMATES

Estimated cumulative country-

wide government incentives

(USD billion)

$

20001980 19901970

United States, $12–36

Japan, $19–54

Taiwan, $15–43

South Korea, $9–26

Singapore, $5–16

Germany, $2–7

Malaysia, $1–3

China, $6–17

Estimated date of industry reaching significant size

Taiwan Semiconductor

Manufacturing Company

(TSMC) first to introduce

novel business model of

foundry-only

semiconductor player






R&D-intensive

manufacturing

Business

services

Local



HighLow

Government as

principal actor

Tilting the playing


Setting ground

rules/direction


Steel demand is strongly dependent on growth in per capita GDP

SOURCE: J.F. King; World Bank; McKinsey Quarterly; McKinsey Global Institute analysis

1 General steel intensity curve based on findings by Louis Schorsch. See for example Schorsch and Ueyama, “New game, new rules,” McKinsey

Quarterly, May 1993.

Country population

Observed historical

consumption curve

0

100

200

300

400

500

600

700

800

900

1,000

1,100

1,200

1,300

1,400

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000

Argentina

China

Mexico

India

United States

Brazil

2007 steel consumptionKg/capita

Ukraine

Russia

Japan

Vietnam

Austria

Portugal

Taiwan

Sweden

Germany

Saudi ArabiaTurkey

Egypt

Iran

Thailand

United KingdomFrance

Italy

Korea Republic

South Africa

Greece

Czech Republic

AustraliaPoland

2007 GDP at PPP/capita$

Spain Canada

Growth economies Inflection economies Mature economies


A sector perspective on competitiveness and growth

▪ Growth aspirations need to be grounded on a realistic view of sector

contributions to growth

– Success in emerging, innovative sectors is not enough

– The mix of sectors matters less than their competitiveness

– Service sector growth is critical – particularly for job growth

▪ Effective growth policies are tailored to the levers that matter in each

sector, yet odds of success vary

– Policy can determine sector performance in local sectors…

– … but cannot guarantee success in globally traded industries

▪ In tradable sectors, odds improve if policies target economic activities

with a strong business case for local production; and are executed in

collaboration with the private sector


Thank you

This report and

other MGI research are

available at:

www.mckinsey.com/MGI

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