Research, innovation, education & skills

development, industry and social policies.

Prof. Göran Roos

 Some concerns

Vietnam is thus seemingly at a critical juncture. Decisions at this stage matter for meeting long-
term income aspirations.
Vietnam’s per capita growth slips to around 4 percent a year, that will be good enough only to take
its average income close to that of Thailand or Brazil today, and its chances of catching up with the
neighboring wealthier middle-income countries would be lower.
Productivity isn’t everything, but in the long run it is almost everything.
A country’s ability to improve its standard of living over time depends
almost entirely on its ability to raise its output per worker

Productivity Growth
Vietnamese private firms are overwhelmingly small and informal, which prevents productivity gains through specialization
and economies of scale.
And the relatively few large domestic private firms (especially those with more than 300 employees) tend to be even less
productive than the smaller private firms (on both asset and labor productivity).
Driven by multiple objectives (profit not high among them) and by distorted incentives, SOEs have stayed unproductive.
Measures of firm-level asset (capital and land) productivity and labor productivity throughout the 2000s capture their
inefficiencies.
Excerpts from: International Bank for Reconstruction and Development / The World Bank and
the Ministry of Planning and Investment of Vietnam. (2016). Vietnam 2035: Toward Prosperity,
Creativity, Equity, and Democracy, p. 6.
Labor productivity (output per worker) growth has been on a declining trend since the end of the 1990s, seen across most
industrial subsectors, as well as in mining, finance, and real estate.
In agriculture, labor productivity has grown robustly, but its level is still lower than in most of the region’s middle-income
countries.

©Göran Roos, 2017

 What is to be done – it depends on which economic lens you use

Neo-classical
Neo-Keynesian
Neo-Schumpeterian
Evolutionary
Institutional
Complexity

Economics is not a science it is an internally consistent

point of view that depends on the assumptions you make

©Göran Roos, 2017

 What generates Prosperity?

©Göran Roos, 2017

 The role of Economic Complexity in generating national prosperity
Prosperity is driven by Economic Complexity, Endowment Resources, Relational
Resources and Organisational Resources.
Changes of Economic Complexity explains about 70% of changes in Prosperity

High Economic Complexity is achieved if an economy produce a diverse portfolio of

offering of which a very high share is exported and that there are very few other
economies that can produce these exported offerings

©Göran Roos, 2017

 Complexity ranking of selected countries and distribution of exports across six
complexity categories

©Göran Roos, 2017 Felipe, J., Kumar, U., Abdon, A., & Bacate, M. (2012). Product complexity and economic development. Structural Change and Economic Dynamics,23(1), 36-68.
 Vietnam’s 2015 export pattern

©Göran Roos, 2017

 Vietnam’s Product Space with RCA ≥1
Non-Knit Men’s Suits; Non-Knot Men’s Suits; Non-Knit Active
Wear; Knit Sweaters; Non-Knot Women’s Shirts; Non-Knit
Phosphoric Acid
Women’s Suits; Knit Men’s Suits, Knit T-Shirts; Packing Bags;
Knit Active Wear; Non-Knit Women’s Coats; Non-Knit Women’s
Undergarments; Knit Women’s Undergarments; Knit Men’s
Coats; Knit Men’s Shirts; Felt or Coated Fabric Garments; Other
Feldspar Women’s Undergarments; Non-Knit Baby’s Garments; Non-Knit
Wheel Chairs Leather Apparel Men’s Shirts; Other Knit Garments; Knit Women’s Coats; Knit
n
Candles Iro Men’s Undergarments; Knit Women’s Suits Knit Women’s Shirts;
ed
Non-Retail Artificial -Roll Non-Knit Men’s Undergarments; House Linens; Non-Retail
ld
Staple Fibres Yarn
Saddlery Co Synthetic Staple Fibres Yarn; Artificial Filament Sewing Thread
Wood
Frames Coated Flat-Rolled Iron
Ornamental Ceramics
Hydrogen
Stranded Iron Wire
Oxometallic or Peroxometalic Salts Awnings, Tents & Sails
Rubber Inner Tubes Unprocessed
Plywood Honey
Razor Blades Synthetic
Titanium Ore Staple Fibre
Polyamide Fabric Bran Window Dressings
Hot-Rolled Iron Bars
Float Glass Garden Tools
Sewing Machines Other Cloth Articles
Twine & Rope Rubber
Steam Boilers Veneer Sheets
Wheat Flours Tanned Equine & B
Utility Meters Bedspreads
Coffee & Tea Extract
Tanned Furskinns Footwear Parts Coconuts, Bra

Rosin Other Plastic Products Coated Metal Soldering Products

Fuel Wood
Other Footwear
Basketwork
Steel Wire Other Wood ArticlesOther Small Iron Pipes Paper Notebooks
Electric Prefabricated Pickled Foods Wood Ornaments
Motors Buildings Cements
Frozen Fruits & Nuts Tug Boats
Nickel Ore Bathroom Ceramics
Other Furniture
Copper Pipes Pasta
Insulated Wire
Imitation Jewellery Narrow Woven Fab
Aluminium Structures Plastic Lids
Compounded Unvulcanized Rubber Cement
Articles Leather Light Rubberized
Other Processed Fruits & Nuts Footwear
Other Mineral
Broadcasting Labels
Equipment Synthetic Non-Retail Pu
Electrical Filament Yarn
Telephones Parts Woven Fabric
Integrated Knit Textile Footwear
Circuits Gloves Gravel &
Cameras Large Coated Flat-Rolled Iron
Electric Batteries Crushed R
Computers Other Fruits Rubber Footwear
Industrial Printers Stone
Office Machine Parts Dyeing Finishing Agents Knitted Hats Tea
Other Domestic Non-Retail Synthetic Filament Yarn
Electric Housewares Mirrors
& Lenses Other Glass Articles
Knives Printed Circuit Boards
Glass With Edge Other Headwear Other Sea Vessels
Workings Starches Cutlery Sets
Video Sports Equipment Dried Fruits Sand
Recording Unglazed Ceramics
Equipment Microphones & Headphones Non-Fillet Frozen Fish Fish Fillets
Rubber Bi-Wheel Vehicle Parts Curbstones
Apparel Neck Ties Animal Meal & Pellets Other Ceramic Articles
Models & Stuffed Animals Trunks & Cases Processed Fish
Calculators Processed Fish
Motorcycles Netting
Molluscs
Crustaceans
Processed Crustaceans
Pepper
Coffee Fish Oil
Cassava

©Göran Roos, 2017

The Vietnamese electronics industry

Key production Disruptors

IC, semiconductor, PCBs Robotics and automation
Contribution to GDP Additive manufacturing (3D printing)
23.4% (2014) Printed electronics
Contribution to total exports (2014)
25.4%
Major export markets
China,
Malaysia,
Singapore
Major players
Intel,
Microsoft,
LG, Opportunities
Panasonic, Digitalisation and specifically IoT
Samsung, Increasing volumes of increasingly smart consumer
Hitachi, goods
Active-Semi,
Hanel, Fuji
Xerox Threats
Skills mismatch - Targeted policy focus on education
and skills is essential to climb the value chain
The Vietnamese Textiles, clothing and footwear industry
Key production
the world’s third largest footwear exporter (world
market share: 7.6 per cent)
fifth largest textile and garment exporter.
Contribution to total exports (2014)
US$36.9 billion.
US 39% of total export value
Major export markets
US,
Europe,
Disruptors
Product customization technology: additive
manufacturing, body scanners and computer-aided
design (CAD).
Wearable technology, nanotechnology and more
sustainable, environmentally friendly manufacturing
techniques.
Computerized TCF manufacturing processes, namely
automated cutting machines and sewbots.
Opportunities or Threats
Technology transfer is made to increase labour
productivity, product quality and reduce waste
Digitalisation and automation
Increasing volumes of increasingly smart consumer
goods
Cost Reduction
Mass customization coming at a grand scale
Technology-rich production can become widespread
across the ASEAN region but today there are noted
differences in adoption
Localized production in major markets and
heightened need to target domestic consumption
Technology means both deskilling and upskilling of
operations
Threats
Skills mismatch - Targeted policy focus on education
and skills is essential to climb the value chain
The economics of offshoring will be less attractive:
Reduction in Vietnam’s TCF sector labour force is
inevitable
The TCF sector will enter into an intense competition
for higher skills
First Policy Objective

Increase economic complexity

 Services vs Products

Countries create prosperity out of relative productivity improvement performance:

Manufacturing increases its productivity around 6-10 times faster than services – on
average
Technology embracing organisations increase productivity faster than non-technology
embracing firms – although there is a short term price of reduced productivity for up
to 5 years whilst the organisation adjusts it structure and way of working to ensure
that it can extract the benefit from the embraced technology
Most high paying service jobs are directly or indirectly linked to manufacturing:
“There is no internet of things without things”
The reason why services employ an increasing share of the workforce is because the
productivity improvement [as opposed to manufacturing] is lower than the growth in
the underlying market demand – but this is now set to change
This is also why most of the employment growth is in sectors which are not
embracing new technology in their operations.

©Göran Roos, 2017

Second Policy Objective

Increase (digital) technology adoption across all sectors

 Services vs Products

Manufacturing is the key driver of productivity improvement with spillover effects into the rest
of the economy
Manufacturing makes up the biggest share of world trade and hence is critical for export
earnings that pays for the cost of importing things (the service share of world trade is still
unchanged at around 20%)
Manufacturing is the largest driver of high value services so is critical for the high end of the
service economy
In Sweden 77% of all service export is related to manufacturing activities and would not exist
without this manufacturing
Manufacturing generate job growth and economic activity in the rest of the economy
Each job in manufacturing generates on average between 2 and 3 jobs in the rest of the
economy [although the range is from 0 to 15]. The highest numbers can be found in
knowledge intensive manufacturing jobs in firms that also have knowledge intensive service
activities and that are located in a cluster of associated activities i.e. In a geography with high
economic complexity.
Manufacturing jobs also pays better than non-manufacturing jobs
Manufacturing firms also on average directly contribute 40-60 percent of all corporate taxes

©Göran Roos, 2017

 Third Policy Objective

Focus on Manufacturing and services linked directly or

indirectly to manufacturing
And remember that most products today span the
cyberphysical divide

©Göran Roos, 2017

 Fourth Policy Objective

Have a balanced approach to sector sophistication

©Göran Roos, 2017

 Productivity is Key

Labour productivity in the TCF sector and manufacturing for selected ASEAN countries (current US$), latest year

©Göran Roos 2013

 Productivity Drivers
Managerial competence and capability together with
managerial practices
Innovation
Learning by Doing, Using and Interacting
Firm Structure in combination with the industry
structure and ecosystem in which it operates as well as
the firm’s absolute and relative size
Productivity Spillovers
Competition
Deregulation or Smarter Regulation
Flexible Input Markets
Demand
High Firm Level Absorptive capacity
Global Outlook and Global Business but Local Operations
©Göran Roos, 2017
Firms must have/be:
High managerial competence.
Managers with experience from international high performing firms.
Experienced, Educated and Entrepreneurial Leadership with Ambitious Goals
Modern managerial practices.
A high performance work system operating in their business.
A well educated and well trained workforce.
Knowledgeable, Loyal, Low turnover employees
Up to date capital equipment embodying the latest proven productivity
improving technology.
Competence in relevant key enabling technology domains.
Well functioning and continuous R&D.
Well functioning integrated innovation management system with all its
components.
A strategy that requires 5 percent productivity improvement annually.
Skills in coopetition.
A high performing cluster that it can be part of.
A high absorptive capacity.
A combined and integrated product-service-systems offering portfolio.
High Performing Product-Service-System Offerings Anchored in Customer and
Consumer Insight
Masters at Incremental Integrated Innovation
A focused niche strategy with a balanced resource and market orientation.
A Focused Niche Strategy & Deep in-house knowledge in the underpinning
knowledge domains
Local lead customers.
A strategy that requires global leadership in the selected niche.
 Assessment Criteria for where in the value chain Vietnam should aim to
participate

©Göran Roos, 2017

 Industrial Readiness Assessment for Vietnam
Local players scan

Skills/Knowledge Industrial assets Value chain readiness

Ownership of patents Scale/output of

Coverage of the
and/or certifications in existing plants in
industry value chain
the industry Vietnam

Scope of products
Length of experience in Availability of raw
covered by the local
the industry materials
players

Equipment
Exposure to global sophistication Existence of training
players compared to the centers
industry state of art

Partnerships or JVs
with global players to
After sale support
allow technology
transfer

Supply chain
development

©Göran Roos, 2017

 Assessment of the Opportunity Ownership for Vietnam

Private sector led

Financially attractive
Profit
Profit margin
margin and not strategic

Internal
Internal return
return rate
rate
Financial
Financial
attractiveness
attractiveness
Capital
Capital intensity
intensity

Payback
Payback period
period
Evaluation
Evaluation criteria
criteria

Value
Value chain
chain
interdependency
interdependency

Role
Role of
of the
the
Strategic
Strategic relevance
relevance opportunity
opportunity in
in
achieving
achieving self-reliance
self-reliance

Public
Public safety
safety concerns
concerns Government led
Highly strategic

©Göran Roos, 2017

 Value Chain Activation Plan

©Göran Roos, 2017

 National Innovation System

©Göran Roos, 2017

 Available policy tools for the industry, innovation and research domain

©Göran Roos, 2017

 Government is responsible for good Policy
A consistent and predictable policy environment. As capital investment and workforce hiring decisions have long term
consequences – often 10- to 20-year or more time horizons – establishing policy predictability over longer time periods
facilitates the setting of business and investment strategies with greater confidence and enhances the ability to commit
to stakeholders.
Establishing policies that are globally competitive with other nations and which do not create competitive disadvantages
for businesses (“do no harm”). Aim for free trade and a trade policy that ensure fairness along multiple dimensions and
is considerate of broader elements than are normally included, addressing labour practices and working conditions for
example. Further, policies should strive to help level the playing field and be rigorously enforced for all global
competitors. Policy-makers have a critical role to play regarding the establishment of fair and competitive global
markets. Strong enforcement is essential particularly in the areas of intellectual property protection, currency
manipulation and trade violations.
The development of policies based on meaningful dialogue and collaboration between business leaders and policy-
makers contributing to more informed and thoughtful policy development, limiting unintended negative consequences.
Policy that creates institutional legitimacy
Policy-makers should strive to reduce the fragmentation and complexity of today’s policy environment through the
synchronisation and harmonisation of national, and/or local policies and across agencies and branches of government.
Individual polices and the overall policy bundle must be financially affordable and reasonable for business and society.
The costs associated with policies – even those that may be well intentioned and arguably necessary – should not
outweigh the benefits.
Business tax policy and complex national tax systems should not negatively impact competitiveness.
Energy policy that addresses cost, security, stability of supply. The policy should manage the transition phase towards
low carbon energy sources. It is incumbent on policy-makers to develop comprehensive national energy policies that
effectively and responsibly build a portfolio of strategic sources of energy, ensured efficient delivery through world class
infrastructure, and supported appropriate R&D efforts into alternative sources of low carbon energy.
An education policy that delivers STEM educated, multidisciplinary thinkers that are also creative and can problem solve
in a team environment.
A highly educated workforce with strong STEM and creativity skills combined with policies that consistently promote
superior science and technology research and development through to commercialisation - including the development
of advanced manufacturing processes - are essential to national competitiveness. Policies which support long term
funding for research institutions and public-private research partnerships as well as promote the strong connectivity
between research institutions and enterprises are considered key ingredients to the development of powerful
ecosystems, enhancing overall workforce productivity and competitiveness and driving prosperity for the citizens of a
nation.
©Göran Roos, 2017 Roos, G. (2013). The innovation ecosystem. Section 3.2 in Australia Adjusting: Optimising national prosperity. Committee for Economic Development of Australia (CEDA). November, pp. 107-122
 Nothing New – Everything is New

The way we work and the way organisations divide up the necessary tasks between
technological artefacts and people is constantly evolving with the continuous technological
development.
This technological development is also continuously modifying the structures that emerges for
holding and combining the distributed diversity of useful technical expertise, specialised capital
equipment with its co-specialised relationships, processes, systems, information and knowledge
(of which a large amount is tacit and therefore difficult to acquire) all of which contribute to
higher efficiency, effectiveness as well as increased productivity of both the labour and capital
that make use of it

The ongoing development and introduction of ICT enabled productivity improvements is

resulting in a combination of skill-biased technological change, routine-biased technological
change and capital-biased technological change
These changes will be dramatic for both the internal structure of the institutions that make up an
economy as well as in their interaction that forms the workings of the economy

©Göran Roos, 2017

 skill-biased and routine-biased technological change
Increasing demand for individuals with the combined skills around:
• Domain specific skills
• Creative Problem Solving Capability
• Interpersonal Skills
Path
for
most
Possible development path for some Possible development path for few
Higher
Demand

Medium skilled Jobs

Low skilled Jobs High skilled Jobs

Lower
Demand

Everybody else is getting substituted by the combined development of:

• Processing Power
• Access to Data
• Algorithms for Data Processing

©Göran Roos, 2017

 Capital-biased technological change

Overall, what is expected is a continuation of past trends in that economic sectors that are slow
or poor users of ICT enabled productivity improving tools (e.g. personal services, public sector,
health care, etc.) will have the overwhelming share of all jobs created due to the large increase
in demand matched to a substantially lower increase in productivity (as identified in Spence &
Hlatshwayo, 2012).
Most of the remaining job growth will come from sectors that are fast or good users of ICT
enabled productivity improving tools but where the underlying market growth exceeds the
productivity improvements achieved using these new ICT enabled productivity improving tools
(e.g. most but not all service industries).
The number of new jobs created by new sectors enabled by new technology will be minuscule
and highly specialised.
As some of the sectors that traditionally have been slow or poor users of ICT enabled
productivity improving tools become fast or good users of ICT enabled productivity improving
tools (e.g. health care) the job creation will decline rapidly resulting in fewer available jobs in the
economy.

©Göran Roos, 2017

 Share of workforce at
risk of being automated
○

©Göran Roos, 2017

Productivity gain from the
substitution plus market share gain
minus the underlying market growth
Net change
In Employment
So what will happen?

○
○
Economic Complexity

Productivity gain from the

Entrepreneurial Propensity

substitution plus market share gain

minus the underlying market growth
Time

Economic Complexity
○
Capability to Fill Structural Holes
○
Net outcome of the sustained
productivity gains compared to the world
average from the substitution plus the
increase in global market share for the
exported products minus the underlying
market growth for these products
 It is clear from our data that while forecasts vary by industry
and region, momentous change is underway and that,
ultimately, it is our actions today that will determine whether
that change mainly results in massive displacement of workers
or the emergence of new opportunities. Without urgent and
targeted action today to manage the near-term transition and
build a workforce with futureproof skills, governments will have
to cope with ever-growing unemployment and inequality, and
businesses with a shrinking consumer base. (WEF)

©Göran Roos, 2017

 The outcome of the deployment of technology enabled productivity improvements on our lives
is a function of the choices made by economic and political institutions since technology itself
does not dictate a given outcome.

So far it is safe to say that these institutions have not been up to the task given the increasing
unequal distribution of wealth, meaningful work and opportunity in our societies.

The development above requires changes by individuals, organisations and government to

ensure a positive outcome for society.

Economic growth, increased prosperity, reduced environmental and resource footprint,

increased societal cohesion and inclusion must become complementary, not contradictory, goals
for meaningful economic development.

©Göran Roos, 2017