Competitiveness in the Global Economy: Sweden’s Position

Competitiveness in the Global Economy: Sweden’s Position
Professor Michael E. Porter Dr Christian Ketels Institute for Strategy and Competitiveness Harvard Business School Globalization Council Stockholm, Sweden April 27, 2007
This presentation draws on ideas from Professor Porter’s articles and books, in particular, The Competitive Advantage of Nations (The Free Press, 1990), “Building the Microeconomic Foundations of Competitiveness,” in The Global Competitiveness Report 2006 (World Economic Forum, 2006), “Clusters and the New Competitive Agenda for Companies and Governments” in On Competition (Harvard Business School Press, 1998), and ongoing research on clusters and competitiveness. 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 Michael E. Porter. Further information on Professor Porter’s work and the Institute for Strategy and Competitiveness is available at www.isc.hbs.edu
Sweden Globalization Council 2007 04-17-07.ppt
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Copyright 2007 © Professor Michael E. Porter
A Changing Global Competitive Environment
•
Driver
Fewer barriers to trade and investment Rapidly increasing stock and diffusion of knowledge Competitiveness upgrading in many countries Globalization of markets Globalization of value chains Internationalization of capital, especially portfolio investment Increasing knowledge and skill intensity of competition Value increasingly in the service component of activities
• • • •
Market reaction
• • •
•
Implications
Productivity increasingly determines success Competition among nations need not be zero-sum Economic success depends on providing unique value, not just meeting best practice benchmarks
2
• •
Swedish Competitiveness in 2007
•
Sweden is one of the primary beneficiaries of globalization
HOWEVER
• •
Other countries are catching up, exposing remaining weaknesses in Swedish competitiveness Recent policy changes are a move in the right direction but they are not sufficient
3
Long-Term Trends in Prosperity
GDP per capita, US-$, PPP-adjusted
45,000
40,000
35,000
30,000
25,000
Sweden United States EU-15
20,000
15,000
10,000
Countries that have surpassed Sweden in terms of prosperity: 1970s: Canada, Iceland, Norway 1980s: Austria, Denmark 1990s: Australia, Ireland, UK
5,000
0 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Source: Groningen Growth and Development Center, The Conference Board, 2006
4
What Creates Sustainable Prosperity?
Prosperity Prosperity
Productivity Productivity
Competitiveness
Innovative Capacity Innovative Capacity
5
Determinants of Productivity and Productivity Growth
Macroeconomic, Political, Legal, and Social Context Macroeconomic, Political, Legal, and Social Context
Microeconomic Capabilities Microeconomic Capabilities
Sophistication Sophistication of Company of Company Operations and Operations and Strategy Strategy Quality of the Quality of the Business Business Environment Environment
• A sound context creates the potential for competitiveness, but is not sufficient • Competitiveness ultimately depends on improving the microeconomic capability of the economy and the sophistication of local companies and local competition
6
Improving the Business Environment
Context for Context for Firm Firm Strategy Strategy and Rivalry and Rivalry
A local context and rules that encourage investment and sustained upgrading –e.g., Intellectual property protection Meritocratic incentive systems across all major institutions Open and vigorous competition among locally based rivals
Factor Factor (Input) (Input) Conditions Conditions
Presence of high quality, specialized inputs available to firms –Human resources –Capital resources –Physical infrastructure –Administrative infrastructure –Information infrastructure –Scientific and technological infrastructure –Natural resources
Demand Demand Conditions Conditions
Sophisticated and demanding local customer(s) Local customer needs that anticipate those elsewhere Unusual local demand in specialized segments that can be served nationally and globally
Related and Related and Supporting Supporting Industries Industries
Access to capable, locally based suppliers and firms in related fields Presence of clusters instead of isolated industries
• Successful economic development is a process of successive economic upgrading, in which the business environment in a nation evolves to support and encourage increasingly sophisticated ways of competing 7
The Boston Life Sciences Cluster
Health and Beauty Health and Beauty Products Products Surgical Instruments Surgical Instruments and Suppliers and Suppliers Medical Equipment Medical Equipment
Cluster Organizations Cluster Organizations Teaching and Specialized Hospitals Teaching and Specialized Hospitals
MassMedic, MassBio, others MassMedic, MassBio, others
Dental Instruments Dental Instruments and Suppliers and Suppliers Ophthalmic Goods Ophthalmic Goods
Biological Biological Products Products
BiopharmaBiopharmaceutical ceutical Products Products
Specialized Business Specialized Business Services Services
Banking, Accounting, Legal Banking, Accounting, Legal
Specialized Risk Capital Specialized Risk Capital
VC Firms, Angel Networks VC Firms, Angel Networks
Diagnostic Substances Diagnostic Substances
Containers Containers
Research Organizations Research Organizations
Specialized Research Specialized Research Service Providers Service Providers
Laboratory, Clinical Testing Laboratory, Clinical Testing
Analytical Instruments Analytical Instruments
Educational Institutions Educational Institutions
Harvard University, MIT, Tufts University, Harvard University, MIT, Tufts University, Boston University, UMass Boston University, UMass
8
Institutions for Collaboration
Selected Massachusetts Organizations, Life Sciences
Life Sciences Industry Associations Life Sciences Industry Associations
Massachusetts Biotechnology Council Massachusetts Biotechnology Council Massachusetts Medical Device Industry Massachusetts Medical Device Industry Council Council Massachusetts Hospital Association Massachusetts Hospital Association
University Initiatives University Initiatives
Harvard Biomedical Community Harvard Biomedical Community MIT Enterprise Forum MIT Enterprise Forum Biotech Club at Harvard Medical School Biotech Club at Harvard Medical School Technology Transfer offices Technology Transfer offices
General Industry Associations General Industry Associations
Associated Industries of Massachusetts Associated Industries of Massachusetts Greater Boston Chamber of Commerce Greater Boston Chamber of Commerce High Tech Council of Massachusetts High Tech Council of Massachusetts
Informal networks Informal networks
Company alumni groups Company alumni groups Venture capital community Venture capital community University alumni groups University alumni groups
Economic Development Initiatives Economic Development Initiatives
Massachusetts Technology Collaborative Massachusetts Technology Collaborative Mass Biomedical Initiatives Mass Biomedical Initiatives Mass Development Mass Development Massachusetts Alliance for Economic Massachusetts Alliance for Economic Development Development
Joint Research Initiatives Joint Research Initiatives
New England Healthcare Institute New England Healthcare Institute Whitehead Institute For Biomedical Whitehead Institute For Biomedical Research Research Center for Integration of Medicine and Center for Integration of Medicine and Innovative Technology (CIMIT) Innovative Technology (CIMIT)
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The Composition of Regional Economies
United States, 2004
Traded Traded
Local Local
Natural Natural Resource-Driven Resource-Driven
Share of Employment Employment Growth Rate, 1990 to 2004 Average Wage Relative Wage Wage Growth
29.3% 29.3% 0.7% 0.7% $49,367 $49,367 137.2% 137.2% 4.2% 4.2% 144.1 144.1 23.0 23.0 590 590
70.0% 70.0% 2.4% 2.4% $30,416 $30,416 84.5 84.5 3.4% 3.4% 79.3 79.3 0.4 0.4 241 241
0.7% 0.7% -1.2% -1.2% $35,815 $35,815 99.5 99.5 2.1% 2.1% 140.1 140.1 3.3 3.3 48 48
Relative Productivity Patents per 10,000 Employees Number of SIC Industries
Note: 2004 data, except relative productivity which uses 1997 data. Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School
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Specialization of Regional Economies
Select U.S. Geographic Areas
Denver, CO Denver, CO Leather and Sporting Goods Leather and Sporting Goods Oil and Gas Oil and Gas Aerospace Vehicles and Defense Aerospace Vehicles and Defense Chicago Chicago Communications Equipment Communications Equipment Processed Food Processed Food Heavy Machinery Heavy Machinery Pittsburgh, PA Pittsburgh, PA Construction Materials Construction Materials Metal Manufacturing Metal Manufacturing Education and Knowledge Education and Knowledge Creation Creation Boston Boston Analytical Instruments Analytical Instruments Education and Knowledge Creation Education and Knowledge Creation Communications Equipment Communications Equipment
Seattle-BellevueSeattle-BellevueEverett, WA Everett, WA Aerospace Vehicles Aerospace Vehicles and Defense and Defense Fishing and Fishing Fishing and Fishing Products Products Analytical Instruments Analytical Instruments
Wichita, KS Wichita, KS Aerospace Vehicles and Aerospace Vehicles and Defense Defense Heavy Machinery Heavy Machinery Oil and Gas Oil and Gas
San FranciscoSan FranciscoOakland-San Jose Oakland-San Jose Bay Area Bay Area Communications Communications Equipment Equipment Agricultural Agricultural Products Products Information Information Technology Technology
Raleigh-Durham, NC Raleigh-Durham, NC Communications Equipment Communications Equipment Information Technology Information Technology Education and Education and Knowledge Creation Knowledge Creation
Los Angeles Area Los Angeles Area Apparel Apparel Building Fixtures, Building Fixtures, Equipment and Equipment and Services Services Entertainment Entertainment
San Diego San Diego Leather and Sporting Goods Leather and Sporting Goods Power Generation Power Generation Education and Knowledge Education and Knowledge Creation Creation
Houston Houston Heavy Construction Services Heavy Construction Services Oil and Gas Oil and Gas Aerospace Vehicles and Defense Aerospace Vehicles and Defense
Atlanta, GA Atlanta, GA Construction Materials Construction Materials Transportation and Logistics Transportation and Logistics Business Services Business Services
Note: Clusters listed are the three highest ranking clusters in terms of share of national employment Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School
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Related Clusters in the U.S. Economy
Jewelry & Precious Metals Apparel Leather and Related Products
Schematic Representation
Footwear Construction Materials Oil and Gas
Forest Products
Plastics
Furniture Building Fixtures, Equipment and Services
Textiles Sporting and Recreation Goods
Chemical Products
Financial Services
Pharmaceutical
Publishing Education and and Printing Knowledge Creation
Tobacco Agricultural Products
Heavy Construction Services
Medical Devices
Prefabricated Enclosures
Analytical Aerospace InformationInstruments Vehicles &
Tech.
Defense
Fishing & Fishing Products
Processed Food
Transportation and Logistics Hospitality and Tourism
Communications Equipment
Lightning & Electrical Equipment Power Generation
Aerospace Engines Automotive Metal Manufacturing
Production Technology
Heavy Machinery
Entertainment
Distribution Services
Business Services
Motor Driven Products
Note: Clusters with overlapping borders or identical shading have at least 20% overlap (by number of industries) in both directions. Clusters in which Stockholm has a strong position within Sweden are in bold
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Cross-National Collaboration of Cluster Initiatives
SWEDEN SWEDEN Biotech Umeå Biotech Umeå Uppsala BIO Uppsala BIO Biomedical Development, West Sweden Biomedical Development, West Sweden Livets Nya Verktyg Livets Nya Verktyg Healthcare Technology Alliance Healthcare Technology Alliance BioMedley BioMedley FINLAND FINLAND Centre of Expertise, Gene Technology Centre of Expertise, Gene Technology and Molecular Biology and Molecular Biology FIVDIC, In Vitro Diagnostics Industry Cluster FIVDIC, In Vitro Diagnostics Industry Cluster Culminatum, Medical &Welfare Technologies Culminatum, Medical &Welfare Technologies Technology Centre Teknia Ltd Technology Centre Teknia Ltd
NORWAY NORWAY BIOINN BIOINN BCNorth BCNorth
ESTONIA ESTONIA Estonian Biotechnology Association Estonian Biotechnology Association Tartu Biotech Cluster Tartu Biotech Cluster
DENMARK DENMARK bioTEAMsouth bioTEAMsouth BioMedico Forum BioMedico Forum CROSS-BORDER EFFORTS CROSS-BORDER EFFORTS ScanBalt ScanBalt Medicon Valley Academy Medicon Valley Academy MedCoast Scandinavia MedCoast Scandinavia
NORTHERN GERMANY NORTHERN GERMANY Life Sciences SH & HH Life Sciences SH & HH BioCon Valley BioCon Valley medRegio Luebeck medRegio Luebeck
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The Process of Economic Development
Shifting Roles and Responsibilities
Old Model Old Model
New Model New Model
•• Government drives economic Government drives economic development through policy development through policy decisions and incentives decisions and incentives
•• Economic development is a Economic development is a collaborative process involving collaborative process involving government at multiple levels, government at multiple levels, companies, teaching and companies, teaching and research institutions, and research institutions, and institutions for collaboration institutions for collaboration
• Competitiveness must become a bottom-up process in which many individuals, companies, clusters, and institutions take responsibility • Every region and cluster can take steps to enhance competitiveness • Successful competitiveness efforts set clear priorities reflecting the specific barriers companies face
14
Swedish Competitiveness 2007
• Prosperity driven by solid levels of productivity and labor mobilization – Labor productivity still below EU-15 average but closing the gap – Labor mobilization advantage relative to EU-15 stable after significant drop in 1990s; little job creation in the private sector Strong integration into global markets, driven by core of multinationals – Export market share broadly stable, shifting to services – Significant presence of foreign companies – Strong outward investment, especially in the Baltic Sea Region Low domestic investment rate High but falling patenting rate – Universities leading in the region, but not globally
•
• •
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Productivity versus Working Hours
Selected Countries
Real GDP per Hour Worked, PPP adjusted, 2005
70
Norway*
60
France Belgium Germany NL Ireland United States
50
40
SWEDEN Denmark UK Italy Finland Canada Switzerland
Greece Spain
Australia Japan
Iceland
30
Hungary
New Zealand Portugal Slovakia Slovenia Czech Republic Estonia Lithuania Latvia Mexico S Korea
20
Poland
10
Russia*
0 500
600
700
800
900
1000
1100
1200
Hours worked per Capita, 2005
Note: Affected by oil revenues Source: Groningen Growth and Development Centre and The Conference Board (2006), authors’ calculations
16
Long-Term Trends in Labor Productivity
GDP per hour worked US-$, PPP-adjusted
60
Catch-Up
50
Stagnation
New Growth
40
30
Sweden United States
20
EU-15
10
0 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
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Long-Term Trends in Labor Mobilization
Gap in %, Sweden versus EU-15
Sweden versus EU-15
35% 30% 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% 1950 1955 1960 1965 1970 1975
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Net Gap
Unemployment
Employees as % of Population
Hours per Employee
1980
1985
1990
1995
2000
2005
Sweden Globalization Council 2007 04-17-07.ppt Copyright 2007 © Professor Michael E. Porter
10%
15%
20%
25%
30%
Source: NUTEK (2007)
Share of Entrepreneurs in the Labor Force, 2005
G
0%
5%
Entrepreneurship
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re ec e Ita Po l rtu y g Po a l C l en yp er Sp n C ze a ch Ire in R lan ep d Li ubl th i c ua n M ia H al t un a Be gar lg y Sl ium ov ak ia Au UK s Fi tri a N nl et an he d G rlan er d m a Fr ny a Sw nc ed e e La n Lu Slo tvia xe ve m nia b D ou en rg m Es ark to N nia or wa y
Sweden
Cluster Export Portfolio, 1997-2005
8%
Forest Products
7%
Sweden’s world export market share, 2005
6%
Change In Sweden’s Overall World Export Share: -0.05%
5%
Furniture
4%
Communications Equipment Business Services Communications Services
3%
Biopharmaceuticals
2%
Sweden’s Average World Export Share: 1.44% Construction Services
(1.32%,-4.37%)
Medical Devices
Power and Power Generation Equipment Fishing and Fishing Products
Aerospace Engines Publishing and Printing Aerospace Vehicles and Defense Financial Services
1%
0% -3.5% -2.5% -1.5% -0.5% 0.5% 1.5% 2.5%
Change in Sweden’s world export market share, 1997 – 2005
Source: Prof. Michael E. Porter, International Cluster Competitiveness Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. Underlying data drawn from the UN Commodity Trade Statistics Database and the IMF BOP statistics. 20 Sweden Globalization Council 2007 04-17-07.ppt
Exports of US$2 Billion =
Sweden
Cluster Export Portfolio, 1997-2005 (continued)
2.5%
Change In Sweden’s Overall World Export Share: -0.05% Prefabricated Enclosures and Structures Production Technology
Sweden’s world export market share, 2005
2.0%
Metal Mining and Manufacturing
Automotive Heavy Machinery Transportation and Logistics Sweden’s Average World Export Share: 1.44% Plastics Processed Food Marine Equipment
Motor Driven Products
1.5%
Building Fixtures and Equipment Lighting and Electrical Equipment
Construction Materials Analytical Instruments
1.0%
Publishing and Printing
Hospitality and Tourism Entertainment and Oil and Gas Products Reproduction Equipment Sporting, Recreational and Children's Goods Chemical Products Leather and Related Products Agricultural Products Apparel Footwear Jewelry, Precious Metals and Collectibles Tobacco
0.5%
Textiles Information Technology
0.0% -0.5% -0.3% -0.1% 0.1% 0.3% 0.5%
Exports of US$2 Billion =
Change in Sweden’s world export market share, 1997 – 2005
Source: Prof. Michael E. Porter, International Cluster Competitiveness Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. Underlying data drawn from the UN Commodity Trade Statistics Database and the IMF BOP statistics. 21 Sweden Globalization Council 2007 04-17-07.ppt
Foreign Direct Investment
Stock of Foreign Direct Investment, in % of GDP, 2005
Selected Countries
Belgium
140%
120%
Ireland
100%
Estonia
80%
Chile
60%
New Zealand Denmark Thailand
Hungary
Netherlands
SWEDEN
UK Czech Republic Slovakia Iceland
40%
Switzerland
Australia Finland Germany 20% US Italy China Japan India 0% 0% 5% 10% 15% 20%
25%
30%
35%
40%
45%
50%
Inflows of Foreign Direct Investment, in % of Domestic Capital Formation, 2001 - 2005
Source: World Investment Report (2006), author’s analysis.
22
Capital Investment Intensity
Selected Countries
Gross Investment in % of GDP, 2005
31% 29% 27% 25% 23% 21% 19% 17% 15% -4%
Japan Singapore Taiwan Poland Germany US Brazil Norway Finland New Zealand Chile Denmark Canada Lithuania S Korea India Ireland Australia Iceland Estonia Latvia
SWEDEN
Russia
-2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
Growth Rate of Real Gross Investment, CAGR, 2000 - 2005
Source: EIU (2006), author’s analysis.
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Innovation Performance
Patenting in the United States
Patents per 1000 Capita, 2005
300
250
Japan Taiwan
200
United States
150
Israel
SWEDEN
100
Switzerland Canada Germany Denmark Austria Iceland UK Norway
Finland South Korea
Singapore Australia China (.3, +27%) Ireland Hong Kong India (.3, +22%) New Zealand Malaysia Hungary
50
France
NL
0 -10%
Italy South Africa Russia Spain
-5%
0%
5%
10%
15%
Growth of Patents per Capita, CAGR, 2000-2005
Source: USPTO (2006), author’s analysis.
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Sweden in the Business Competitiveness Index
Key Observations • Sweden ranks 7 on the Business Competitiveness Index and has been consistently among the top 10 in most years
Changes over time • Sweden has in the medium-term lost ground on critical competitiveness factors relative to its peers, despite the positive current results Wages • Swedish wages are broadly in line with the level of competitiveness but wage growth has recently been stronger than the speed of competitiveness upgrading Challenges • Sweden continues to suffer from an imbalance between sound macroeconomic policies and strong companies on the one hand and a weaker business environment conditions on the other • Key weaknesses are educational quality, government efficiency, and infrastructure
25
Medium-Term Dynamism in Competitiveness
BCI Value, 2006 High United States Finland Germany Switzerland Iceland New Zealand Spain Italy Japan Hong Kong Norway Malaysia India High-income Middle-income Low-income
SWEDEN
Australia
Ireland Chile Estonia Portugal
South Africa Thailand Slovak Republic Slovenia Greece Lithuania Turkey Jordan Mauritius Brazil Uruguay El Salvador Colombia Trinidad China Pakistan Peru Russia Dominican Rep. Argentina Nigeria Vietnam Ukraine Mali Nicaragua Malawi Mozambique Zimbabwe Honduras Bolivia Bangladesh Paraguay Ethiopia Low Below average Average Dynamism Score, 2002 - 2006
Source: Global Competitiveness Report (2006)
Chad Above average
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Locational Value: Competitiveness and Wages
Hourly Wage in Manufacturing, 2004
$40 $35 $30 $25
Italy Ireland Spain Greece Cyprus Japan Canada Belgium Norway Denmark Germany
Netherlands Finland Switzerland Austria SWEDEN Iceland France UK Australia United States
$20 $15 $10 $5 $0
Low Poland
Bulgaria
Slovenia Malta Portugal Hungary Czech Republic Slovakia Estonia Mexico Lithuania Latvia Brazil Romania
Korea
Israel
New Zealand Singapore Taiwan Hong Kong
Sri Lanka
Business Competitiveness Index 2004
High
Source: Global Competitiveness Report 2006, Eurostat, Bureau of Labor Statistics
27
Factor Factor (Input) (Input) Conditions Conditions
Factor (Input) Conditions
Sweden’s Relative Position 2006
Competitive Disadvantages Relative to GDP per Capita
Country Ranking, Arrows indicate a change of 5 or more ranks since 2001
Competitive Advantages Relative to GDP per Capita
University/industry research collaboration Local equity market access Ease of access to loans Efficiency of legal framework Venture capital availability Quality of scientific research institutions Financial market sophistication Availability of scientists and engineers Telephone/fax infrastructure quality Railroad infrastructure development Port infrastructure quality
3 3 5 6 9 9 10 10 11 12 14
Quality of math and science education Reliability of police services Quality of public schools Quality of management schools Air transport infrastructure quality Quality of electricity supply Overall infrastructure quality
35 26 25 25 23 18 17
Note: Rank versus 121 countries; overall, Sweden ranks 7th in Business Competitiveness and 18th in 2005 PPP adjusted GDP per capita. Source: Global Competitiveness Report 2006-2007.
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Context for Context for Firm Strategy Firm Strategy and Rivalry and Rivalry
Context for Firm Strategy and Rivalry
Efficacy of corporate boards Prevalence of trade barriers Intellectual property protection Business costs of corruption Intensity of local competition Favoritism in decisions of government officials Effectiveness of antitrust policy
2 4 8 9 11 11 14
Centralization of economic policymaking Decentralization of corporate activity Cooperation in labor-employer relations
65 25 18
29
Demand Demand Conditions Conditions
Demand Conditions
Competitive Disadvantages Relative to GDP per Capita
Stringency of environmental regulations Presence of demanding regulatory standards
5 5
Laws relating to ICT Government procurement advanced technology products Buyer sophistication
18 18 16
30
Related and Related and Supporting Supporting Industries Industries
Related and Supporting Industries
Local supplier quality Local availability of specialized research and training services Local availability of process machinery Local supplier quantity
7 9 10 11
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Action Priorities
• • • • • • • • •
Further strengthen physical and communication infrastructure to connect better to the neighborhood and the world Educate the public on the benefits of globalization for Sweden Sustain focus on education and skill upgrading Increase attractiveness for human capital from abroad Create a better environment for entrepreneurship Achieve world-class in science areas tied to cluster strengths Integrate the environmental and competitiveness agendas Create a strategy for economic integration of immigrant groups Pursue deep integration in the Baltic Sea Region
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Moving Towards a New Model for Sweden
Key Themes • Sound macroeconomic policies, solid institutions, and high skills are the basis of competitiveness Capital-intensive multinationals drive the economy Innovation is based on large company R&D, drawing on university research National government defines and executes policy • Strong microeconomic foundations and regional specialization add critical strengths to competitiveness Knowledge-intensive clusters of entrepreneurs drive the economy Innovation emerges in open networks of academia and firms of all sizes Policy design and execution in triple helix partnership
•
•
•
•
•
•
33
Competitiveness Councils
Finnish Science and Technology Council
Internal coordination of government policies
Danish Globalization Council
Public debate of sources of competitiveness
Encourage collaboration and consensus across public and private sectors
U.S. Council on Competitiveness
34
Background Data
35
Comparative Economic Performance
Selected Countries
$45,000
$40,000
$35,000
$30,000
GDP per capita $25,000 (PPP adjusted) in US-$, 2005 $20,000
$15,000
$10,000
U.S. Norway Ireland Denmark Switzerland Iceland Austria SWEDEN NL France Finland Japan Spain Germany Italy New Zealand Australia, Greece Canada, Slovenia S Korea U.K. Czech Rep. Portugal Hungary Slovakia Poland Lithuania Mexico Turkey
Estonia Latvia
$5,000
China India
$0 0% 1% 2% 3% 4% 5% 6% 7% 8% 9%
Compound annual growth rate of real GDP per capita, 1998-2005
Source: Groningen Growth and Development Centre and The Conference Board (2006), authors’ calculations
36
Long-Term Trends in Labor Mobilization
Annual hours worked per capita
1200
1000
United States
800
Sweden EU-15
600
400
200
0 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
37
Purchasing Power Factor, 2005
0
1
2
3
4
5
6
Source: IMF (2006), authors’ calculations
Domestic Purchasing Power
Normalized Purchasing Power Across Countries
38
In d Ch ia So R ina ut u s h si Sl Ko a ov a k B rea Re raz p u il b La lic tv C ia Hu h i n le Es gar y Li ton t h ia ua M nia Cz e ec P xic h ol o Re an pu d Ta blic Sl iwa ov n G e nia r Po e ec Ho rtu e ng g Ko Sp a l ng ain SA Un R ite d Ita St ly a Ne Ca te s w na Ze da Au ala n Si stra d ng li Lu xe ap a m ore bo Ire urg l Au an d st Ne Be ria th lgiu er m G lan er d s Un m ite F an d ra y Ki n ng ce d Fi om nl Sw an d De ed en nm Ic ark el a Ja nd p Sw No an itz rwa er y la nd
Sweden’s Export Performance
World Export Market Shares
World export share in %
1.8% 1.6% 1.4% 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Source: WTO (2006)
Goods Services Total
39
Sweden
Leading Goods Export Industries, 2005
Industry
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Passenger transport vehicles Miscellaneous medicaments Petroleum Oils Parts for telecommunication equipment TV, radio transmitters Flat-rolled products of alloy steel Wood of conifer, sawn Line telephone or telegraph equipment Miscellaneous paper and paperboard, coated Kraft paper and paperboard, uncoated Paper and paperboard, uncoated Chemical wood pulp, soda, bleached Other parts for motor vehicles Internal combustion engines for vehicles Road tractors, semi-trailers Iron Ore and Concentrates Iron or steel bars, rods, angles, shapes and sections Medicaments containing hormones Other parts of vehicle bodies Newsprint, rolls, sheets Motor vehicle bodies Fish, fresh, chilled, or frozen Polymers of ethylene Work trucks, tractors, and parts Other plastics in primary forms
Cluster
Automotive Biopharmaceuticals Oil and Gas Products Communications Equipment Communications Equipment Metal Mining and Manufacturing Furniture Communications Equipment Forest Products Forest Products Forest Products Forest Products Automotive Automotive Automotive Metal Mining and Manufacturing Metal Mining and Manufacturing Biopharmaceuticals Automotive Forest Products Automotive Fishing and Fishing Products Plastics Production Technology Plastics
World Export Share
1.72% 3.18% 1.58% 4.47% 3.06% 8.74% 12.63% 6.21% 10.66% 20.19% 8.48% 9.65% 1.32% 2.81% 6.14% 4.18% 2.24% 5.57% 2.52% 9.99% 15.43% 2.77% 2.19% 6.54% 1.26%
Change in Share, 1997-2005
0.19% -2.49% 0.01% -4.10% -10.94% 1.09% -0.69% 3.48% 1.31% -0.83% 1.08% 0.38% -1.09% -0.23% 1.49% -1.68% -0.94% -1.04% -0.67% -1.74% -1.00% 1.68% 2.02% 0.87% 0.70%
Export Value (in US$1,000)
$8,122,269 $5,321,590 $5,095,941 $4,693,454 $4,242,399 $3,532,018 $2,808,103 $2,182,022 $2,051,603 $1,726,457 $1,678,481 $1,580,115 $1,562,860 $1,443,783 $1,240,373 $1,123,839 $1,120,379 $1,100,424 $1,085,385 $938,702 $868,325 $850,010 $788,119 $778,778 $764,654
Source: Prof. Michael E. Porter, International Cluster Competitiveness Project, Institute for Strategy and Competitiveness, Harvard Business School; 40 Richard Bryden, Project Director. Underlying data drawn from the UN Commodity Trade Statistics Database and the IMF BOP statistics. Sweden Globalization Council 2007 04-17-07.ppt
Sweden
Leading Goods Export Industries, 2005 (continued)
Industry
26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 Insulted wire, cable and conductors Ball or roller bearings Flat-rolled iron, not clad, plated or coated Electric current Miscellaneous goods vehicles Paper and paperboard, coated, other Other medical instruments Industrial washing, bottling machinery Motor vehicle chassis Spirits Miscellaneous articles of pulp, paper and paperboard Other recorded media Parts of jet, gas turbine engines Seamless tubes, pipes and hollow profiles of iron or steel Construction, mining machinery Miscellaneous machinery with individual functions Builders joinery and carpentry of wood
Cluster
Communications Equipment Production Technology Metal Mining and Manufacturing Power and Power Generation Equipment Automotive Forest Products Medical Devices Production Technology Automotive Agricultural Products Forest Products Entertainment and Reproduction Equipment Aerospace Engines Metal Mining and Manufacturing Heavy Machinery Production Technology Furniture Automotive Medical Devices Entertainment and Reproduction Equipment Plastics Heavy Machinery Analytical Instruments Production Technology Metal Mining and Manufacturing
World Export Share
1.45% 3.85% 1.17% 3.35% 0.93% 7.51% 1.61% 3.99% 20.92% 3.85% 4.49% 2.47% 1.60% 2.52% 11.62% 1.40% 4.51% 1.99% 2.10% 0.93% 3.19% 1.62% 2.60% 5.86% 1.61%
Change in Share, 1997-2005
-0.51% -0.72% -0.49% 3.35% 0.65% 2.42% -0.66% 0.00% 7.14% 1.87% 0.20% 1.26% -1.11% -1.46% -1.27% 0.05% -2.60% -0.49% -2.47% 0.46% 0.52% 1.60% -0.35% -0.34% 0.01%
Export Value (in US$1,000)
$752,156 $726,793 $722,591 $719,514 $716,505 $654,918 $650,456 $616,407 $612,510 $592,975 $589,734 $584,794 $568,076 $521,242 $515,621 $512,652 $498,075 $496,631 $489,379 $481,866 $481,749 $480,504 $479,735 $467,533 $465,437
Gear boxes Artificial aids, disabled Color television receivers Paints, varnishes Miscellaneous parts of civil engineering machinery Instruments for analysis, measuring viscosity, expansion Electric, laser or plasma arc soldering, welding, brazing machines Miscellaneous articles of iron or steel
Top 50 Industries as % of Sweden’s total goods exports: 58.3%
Source: Prof. Michael E. Porter, International Cluster Competitiveness Project, Institute for Strategy and Competitiveness, Harvard Business School; 41 Richard Bryden, Project Director. Underlying data drawn from the UN Commodity Trade Statistics Database and the IMF BOP statistics. Sweden Globalization Council 2007 04-17-07.ppt
FDI Inflows over Time
FDI Inflows as % of Gross Domestic Investment
160% 140% 120% 100% 80% 60% 40% 20%
Inward FDI Stock as % of GDP, 2006 SWEDEN: European Union: World: U.S.: 47.8% 33.5% 22.7% 13.0%
SWEDEN
European Union
World U.S.
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
0%
Source: UNCTAD (2006), author’s analysis.
42
Regional Integration
Foreign Direct Investment Flows
Share of inward FDI from other BSR countries, 1999 - 2004
80% 70% 60% 50% 40% 30%
BSR average
Source country
20% 10% 0%
Sweden Finland Denmark Estonia N Germany Norway Latvia Iceland Lithuania NW Russia N Poland
Li th ua ni a
or wa y
Fi nl an d
Po la nd
ar k
us si a
ia
Ic el an d
en
Es to n
Sw ed
en m
N
D
N
W
Source: UNCTAD, national statistical offices, author’s calculations
43
N
N
G
er m an
R
y
Prosperity
GDP per Capita, Euro (PPP adjusted), 2002 70,000
Swedish regions Other EU-15 regions EU accession country regions
European Regions
Sweden
60,000
50,000
40,000
Stockholm
30,000
Sweden
20,000
10,000
0 0%
Source: Eurostat, 2005
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
Annual Growth Rate of GDP per Capita (PPP adjusted), CAGR, 1995 – 2002
44
Composition of the Traded Economy
Stockholm Cluster Portfolio
Share in National Cluster Employment, 2003
Change in Stockholm’s overall share of National Cluster Employment: -0.5%
60%
Financial Services
50%
Biopharmaceuticals Communication Equipment Business Services
40%
Information Technology Distribution Services
Publishing & Printing Tourism Transportation & Logistics
Stockholm Share of National Cluster Employment, 2003: 22.9%
30%
Education & Knowledge Creation Analytical Instruments
20%
Heavy Construction Services
10%
0% -15%
-10%
-5%
0%
5%
Change of Share in National Cluster Employment, 1995-2003
Note: Bubble size is proportional to employment levels Source: Statistics Sweden (2005), author’s calculations
45
Global Competitiveness Report 2006-07
Sweden
Rank 1
5
3 7 7
2005 2006
10
11
15
20
Global Competitiveness Index
Business Competitiveness Index
46
Sweden’s Profile in the Global Competitiveness Report
Rank 1
Global Competitiveness Index
Business Competitiveness Index
5
3
2 5 7 7
2 8
10
15
20
GCI Efficiency Enhancers Innovation Drivers Basic Requirments BCI Company Operations & Sophistication Business Environment Quality
Source: Global Competitiveness Report (2006)
47
Global Competitiveness Index
Sweden
Rank 1
5
10
15
20
n Re qu irm H en ea ts lth ,E du ca tio n In fra st ru ct ur e In st itu tio M ac ns ro ec on om ic s
En ha nc er s Te ch no H lo ig gy he rE du ca tio n
riv er s
ke ts
ss Bu sin e
M ar
nc y
ov at io
In n
48
n
Ef fic ie
In n
Ba
sic
ov at io
D
Country Context
49
Business Competitiveness Index 2006
Top 25 Top 25
Country
United States Germany Finland Switzerland Denmark Netherlands SWEDEN United Kingdom Japan Hong Kong SAR Singapore Austria Iceland Norway Canada France Belgium Australia Israel Malaysia Taiwan Ireland New Zealand Estonia Korea, Rep.
50
Change
0 0 0 +4 -1 +1 +4 -3 0 +7 -5 0 +3 +5 -1 -6 +1 -5 +3 +3 -6 -1 -3 +3 -1
Note: Constant sample of countries
1 1 2 2 3 3 4 4 5 5 6 6 7 7 8 8 9 9 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 24 24 25 25
Business Competitiveness Index 2006
2005 GDP per Capita (Purchasing Power Adjusted) 45,000
Relationship with GDP Per Capita
Norway
40,000
Variation in BCI score explains more than 80% of variation in GDP per capita
Iceland Canada Qatar Ireland Australia Taiwan
United States
Denmark Switzerland Finland Germany
35,000
30,000
Italy UAE Spain
SWEDEN
Singapore
25,000 20,000
Greece Cyprus Bahrain Trinidad & Tobago Argentina Slovenia S Korea
New Zealand Israel
Estonia South Africa Chile Turkey Thailand Brazil
15,000
Malaysia
10,000
China
5,000
Jordan
Indonesia
Jamaica
India
0
Low
Source: Global Competitiveness Report 2006
Business Competitiveness Index
51
High
Economic Sustainability of Current Prosperity
BCI Value, 2006
Untapped potential
Sustainability in question
United States High-income Middle-income Low-income
Germany Finland
SWEDEN
Iceland Malaysia Tunisia Indonesia Greece Kenya Tanzania Argentina Chile Estonia Spain U.A.E. Qatar Italy Ireland Norwa y
India
-15000
-10000
-5000
0
5000
10000
15000
20000
GAP (Actual – Expected GDP per Capita), 2006
52
Business Competitiveness Ranking Over Time
Sweden
Rank 1
5
BCI NBE COS
10
15
2001
2002
2003
2004
2005
2006
53
Estimated absolute gap in hourly wage in manufacturing, US-$, 2004
Be
-$20 $10 $15 $20 -$5 $0 $5
-$15
-$10
Source: Business Competitiveness Index, 2006
Wages higher than justified by competitiveness
Wage Differentials by Country
54
Wage advantage given competitiveness
lg iu m N Ita D or w ly en a m y A u ar N Ic str k et e ia he l a G rla nd er nd m G an s re y S w F ec itz ran e e ce Fi rlan nl d a S p nd Ire ain U C lan ni te S ypr d d w u Ki ed s ng e n Podom la n Sl Ma d ov l t C en a a Bu na ia d Au lga a Sr st ria r Sl ov Ri La alia ak om nk R an a e Ko H pubia re ung lic a, a r M Repy ex . U P Ja ico C nit o pa ze ed rt n ch S ug Re tat al pu es b Li Isr lic th a u e N ew an l B i Ze ra a al zil L an Es atv d Si t ia ng on H on g Tapo ia Ko a re ng iwa SA n R
Company Operations and Strategy
Competitive Advantages Relative to GDP per Capita
Competitive Disadvantages Relative to GDP per Capita
Willingness to delegate authority Reliance on professional management Capacity for innovation Breadth of international markets Extent of staff training Company spending on research and development Extent of regional sales Extent of incentive compensation Nature of competitive advantage Production process sophistication Value chain presence Degree of customer orientation Control of international distribution Extent of marketing
1 1 2 3 3 5 5 5 7 7 9 9 9 10
Note: Rank versus 121 countries; overall, Sweden ranks 7th in Business Competitiveness and 18th in 2005 PPP adjusted GDP per capita. Source: Global Competitiveness Report 2006-2007. 55
Wage gap 2004: Actual versus expected wage
Wage Gap – EU data
20 15 10 5 0 -5 -10 -15 -20 -15 -10 -5 0 5 10 15
Change in wage gap 2001 - 2004
Note: Countries in the grey area have changed their sign between 201 and 2004 Source: Global Competitiveness Report 2006 and Eurostat
Belgium
Italy
Wages above productivity level indicated by BCI
Austria Greece Denmark
France Netherlands SWEDEN Germany Iceland Poland Spain Finland
Changed sign since 2001
Bulgaria
Slovenia
Romania Slovakia Changed sign Portugal since 2001 Lithuania Latvia Estonia
Malta UK Hungary
Czech Republic
Wages rising more quickly than productivity growth indicated by BCI
56
Business Environment and Company Sophistication
Germany
SWEDEN
Japan
United States
Stronger on company sophistication
France S Korea Ireland Indonesia India
Switzerland Finland
Hong Kong Singapore Australia New Zealand
Philippines Nigeria Venezuela Zimbabwe
Portugal Qatar Malta Cyprus Jordan Morocco Botswana Bulgaria Algeria Stronger on business
Costa Rica Brazil Mexico
U.A.E.
Estonia
environment quality
Zambia Chad High-income Middle-income Low-income
Source: Global Competitiveness Report 2006
57
Patenting Intensity: 1996 – 2005
U.S. Patents per 1000 Capita
Selected Countries
United States Japan Taiwan Finland Israel Switzerland Sweden Germany S Korea Canada Singapore Iceland Denmark Norway Estonia Russia Lithuania Latvia Poland Brazil India China
350
300
250
200
150
100
50
0 1996 1997 1998 1999 2000 2001
58
2002
2003
2004
2005
Source: USPTO (2006), author’s analysis.
Sweden Globalization Council 2007 04-17-07.ppt Copyright 2007 © Professor Michael E. Porter
U.S. Patents by Sweden-based Institutions
Patentor
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 16 18 18 20 21 22 22 24 25 TELEFONAKTIEBOLAGET LM ERICSSON SANDVIK AKTIEBOLAG ASEA BROWN BOVERI AB SCA HYGIENE PRODUCTS AB ASTRAZENECA AB TETRA LAVAL HOLDINGS & FINANCE S.A. SIEMENS ELEMA AB AKTIEBOLAGET ASTRA VOLVO LASTVAGNAR AB AB VOLVO AKTIEBOLAGET ELECTROLUX KVAERNER PULPING AKTIEBOLAG AKZO NOBEL NV SCANIA CV AKTIEBOLAG PHARMACIA AKTIEBOLAG VALMET FIBERTECH AKTIEBOLAG VOLVO CAR CORPORATION AB ALLGON AB VOLVO PERSONVAGNAR AB DELAVAL HOLDING AB ALFA-LAVAL AB AUTOLIV DEVELOPMENT AB SECO TOOLS AB PACESETTER AB ERICSSON, Inc.
59
Number of patents, 2000-04
1698 226 179 164 142 121 90 88 75 74 64 64 57 56 51 50 50 49 49 48 47 43 43 39 38
Source: USPTO (2006), author’s analysis.
Knowledge Creation
Top Universities in the Baltic Sea Region
Copyright © 2005 Institute of Higher Education,60 Shanghai Jiao Tong University
Doing Business 2006 Ranking
Sweden
Category Enforcing Contracts Registering Property Trading Across Borders OVERALL Closing a Business Dealing with Licenses Starting a Business Getting Credit Paying Taxes Protecting Investors Employing Workers
Rank 2 7 9 13 17 17 20 33 39 46 94
Source: World Bank – Doing Business (2007), author’s analysis.
61
Index of Economic Freedom
1996 - 2006
Free
Hong Kong Singapore Ireland Iceland UK Estonia Denmark United States Canada Finland Chile Switzerland Germany Sweden Lithuania Japan Norway Spain Slovakia Taiwan Slovenia Latvia Poland
Source: Index of Economic Freedom (2006), author’s analysis.
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
62
Business Competitiveness
Effectiveness of Public Spending, Selected Countries
Positive
34
Negative
Note: Number refers to rank among 124 countries Source: Global Competitiveness Report (2006), author’s analysis.
63
In di a La tv ia C hi na Ja pa n Li th ua ni R us a Po si an la nd Fe de ra tio n Br az il
Ic el an d Fi nl an d D en m ar k N or wa y G er m an y C U hi ni le te d St at es Es to ni Sw a ed en
Business Competitiveness
Incentive Effect of Taxation, Selected Countries
Positive
111
Negative
Note: Number refers to rank among 124 countries Source: Global Competitiveness Report (2006), author’s analysis.
Ko Ic ng Si el a ng nd ap o Ire re la U Es nd ni te ton d St ia at es In U d ni te Ta ia d i Ki wa ng n do m C hi l La e t N via o G rwa er y m a C ny an a M da e Li xico Ko thu r e an a, i a R e Po p. la Fi nd nl a R nd us Sw sia e D de en n m ar k Br az il
64
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