JAPAN’S GROWTH STRATEGY –What can be learned from ... · USA AUS NLD CAN DEU GBR FRA JPN ITA NZL ESP KOR ISR PRT CHL POL MEX TUR Gap in GDP per capita 80 ... • Global Input-Output

JAPAN’S GROWTH STRATEGY –WHAT CAN BE LEARNED FROM

INTERNATIONAL GOOD PRACTICES?

Dirk Pilat, Deputy DirectorDirectorate for Science, Technology and Industry, [email protected]

RIETI BBLTokyo, 20 December 2013

Outline

– Japan’s productivity performance

– Some important drivers of productivity• Globalisation - Engagement in global value chains• Investment in knowledge, upgrading and

competitiveness• The role of entrepreneurship• Other key drivers: human resources, science,

innovation and ICT

– Conclusions2

Japan’s income gap is primarily due to low productivity levels ..

Differences in GDP per capita levels compared with OECD average, 2012

Source: OECD Compendium of Productivity Indicators 2013, http://dx.doi.org/10.1787.888932936522

-80 -60 -40 -20 0 20 40 60 80

NOR

CHE

USA

AUS

NLD

CAN

DEU

GBR

FRA

JPN

ITA

NZL

ESP

KOR

ISR

PRT

CHL

POL

MEX

TUR

Gap in GDP per capita

80

-80 -60 -40 -20 0 20 40 60 80

= Gap in GDP per hour worked

89

-80 -60 -40 -20 0 20 40 60 80

+ Gap in hours worked per capita

3

… that have grown only little in recent years

Growth in GDP per hour worked, total economy, annual percentage change

Source: OECD Compendium of Productivity Indicators 2013, http://dx.doi.org/10.1787.888932936522

-1

0

1

2

3

4

5

6

7

8

POL

KOR IRL

TUR

CHL

SWE

USA

AUS

FIN

GBR

JPN

DEU

FRA

NZL

NLD

MEX

CAN

CHE

ESP

ISR ITA

1995-2012 2001-07 2007-12

4

Japan’s positioning in global value chains

5

US trade balance CHN TWN DEU KOR ROW WorldGross -1,646 0 0 0 0 -1,646

Value added -65 -207 -161 -800 -413 -1,646

USA CHN

Final good1,875

Components229

TWN

DEU

KOR

ROW

207

161

800

413Assembly65

Upstream input

suppliers?

Global Value Chains and Measuring Trade in Value Added: the iPhone

10 million units exported from China to the US

The analysis takes only into account the direct suppliers of the Chinese assembler 6

• Global Input-Output Model: national IO tables linked by bilateral trade statistics

• Based on official statistics• Large and growing coverage

– 57 countries (all OECD, BRIICS, SE Asia)– > 95% of GDP, > 90% of world trade– China; distinction between processing and non-processing trade

• First release (of results) on 16 January 2013 – second release at OECD Ministerial Meeting (May 2013)

• Trade flows in value added and applied indicators• Further work: employment and skills, income, firm heterogeneity…

7

OECD-WTO database on Trade in Value Added

Japan is a strong participant in GVCs …

8

For a large economy, Japan is a strong participant in global value chains, 2009 …

Source: OECD-WTO, Trade in Value Added database, www.oecd.org/trade/valueadded

15

28

0%10%20%30%40%50%60%70%80%

Backward participation Forward participation

.. in particular in some sectors

9

… in particular in heavy and high-tech manufacturing, 2009


0%

5%

10%

15%

20%

25%

Backward participation Forward participation Korea

… though value creation through services is lagging …

10

A growing share of value creation in trade is due to services, especially business services(Services value added embodied in manufacturing exports, 1995 and 2009)


0%5%

10%15%20%25%30%35%40%45%

Wholesale, retail, hotels & rest. Transport, storage & telecom. Finance & Insurance Business services Other services 1995 total

… and Japan has lost ground as a manufacturing exporter, also in value added terms

11

Percentage shares of total world manufacturing goods, 1995 and 2009

Source: OECD-WTO, Trade in Value Added (TiVA) database, May 2013.

0

4

8

12

16

% Gross exports Value added

0

4

8

12

16%

1995

Jobs in the business sector sustained by foreign final demand, 1995 and 2008As a percentage of total business sector employment

Source: OECD Science, Technology and Industry Scoreboard 2013. http://dx.doi.org/10.1787/888932904469

0

10

20

30

40

% 2008 1995

Employment in Japan has benefited from engagement in GVCs …

12

… with demand from many regions affecting jobs in Japan

Jobs sustained by foreign final demand, by region of demand, 2008As a percentage of total jobs embodied in foreign final demand

Source: OECD Science, Technology and Industry Scoreboard 2013. http://dx.doi.org/10.1787/888932904507 13

GVCs: what they mean for policy

• Trade and investment:

– GVCS depend on the easy/smooth circulation of productive resources– No more mercantilism: GVCs are about imports and exports; – Barriers to import = tax on exports– Trade facilitation + efficient services

• Competitiveness:– Competitiveness is about activities instead of industries: in GVCs, what you

do (the value you create) matters more than what you sell.– Competitiveness depends on exports and imports; offshoring and

outsourcing can reinforce competitiveness.– The manufacturing of goods remains core in GVCs but is increasingly

dependent on efficient services that enable customisation to demand.

14

The role of innovation for upgrading in global value chains

15

16

Pre‐productionIntangible

Pre‐productionTangible activities

Post‐productionIntangible

R&D

Design

Logistics: purchase

Production

Logistics

Marketing

Services

Value chainactivities

Value added

Value Chain in the 1970s

Global Value Chain in the 2000s

Value creation in global value chains is often linked to knowledge and services ..

The smiley curve; value creation in the value chain

Business investment in KBC and tangible assets (% adjusted GDP, 2010)

Source: OECD calculations based on INTAN-Invest, Eurostat and multiple national sources. 17

.. and investment in knowledge-based capital now accounts for close to half of all business

investment in several OECD countries

0

5

10

15

20

25

30

35

% Non-residential physical assets Software and databases R&D and other intellectual property products Brand equity, firm-specific human capital, organisational capital

18

What is knowledge-based capital (KBC) ?

Computerised information

Innovative property

Economic competencies

19



Innovative property


Software and databases

20



Innovative property


Copyrights, patents, trademarks, designs

T M

Japan is a strong performer in IP, though mainly in patents(IP bundle of top applicants, 2010-2012)

Statlink 2: http://dx.doi.org/10.1787/888932892575

Source: OECD (2013), OECD Science, Technology and Industry Scoreboard 2013: Innovation for Growth, OECD Publishing, www.oecd.org/sti/scoreboard.htm.

0

25

50

75

100

125

150

EPO Patents OHIM Trademarks OHIM Designs

Thousands of applications

21

22



Innovative property


(brand equity, firm-specific human capital, business networks, organisational know-how that increases enterprise efficiency, etc.)

23

Knowledge based capital – adding value to production and enabling differentiation

Source: IMD (2000) Innovation and Renovation: The Nespresso Story, IMD046, 03/2003. © Nespresso

Retaining value in GVCs: knowledge-based capital and the role of “sticky” factors

• Policies that can make value ‘stick’ to a location (or country), e.g.:

– Quality of institutional and policy frameworks

– A sound business environment, adapted to the growing importance of investment in knowledge, i.e. beyond R&D

– Sufficient public investment in skills, research, infrastructure –possibly with some strategic choices

– Strong domestic capabilities, including a strong SME supplier base

– Links between stages of the value chain, e.g. R&D, design, production, services, etc. – enabling the co-location of activities

– Efficient support for innovation and entrepreneurship

– The social fabric of society (ability to change)

– Services, but with a strong link to manufacturing

24

Entrepreneurship - How does Japan compare?

25

26

Where are the new opportunities coming from? Young firms …

The contribution of firms to job creation, average over 15 countries, 2001-2011


-6

-4

-2

0

2

4

6

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11

%Young firms (5 years old or less) Old firms (6 years old or more) Total

27

… independent of their size …

Average over 15 countries, 2001-2011

0

5

10

15

20

25

30

35

40

45

Small young Small old Medium young Medium old Large young Large old

% Employment Job destruction Job creation

0

5

10

15

20

25

30

35

40

45



0

5

10

15

20

25

30

35

40

45



Source: OECD Science, Technology and Industry Scoreboard 2013.http://dx.doi.org/10.1787/888932889402

… and across most countriesEmployment, job creation and job destruction in young firms, 2001-11

Percentage shares, non-financial business sector (firms of 5 years old or less)

Source: OECD Science, Technology and Industry Scoreboard 2013.http://dx.doi.org/10.1787/888932892917

0

10

20

30

40

50

60

70

80%

Employment Job destruction Job creation

28

But growth of young firms is a challenge in many OECD countries

Average size of firms less than 3 years old and 11 years old or more, 2001-2010

0

20

40

60

80

100Employees

11 years old or more Less than 3 years old

Manufacturing Services


Investment in risk capital is a challenge …(Venture capital investment, 2012, as a percentage of GDP)

Source: OECD, Entrepreneurship at a Glance 2013, http://dx.doi.org/10.1787/888932892993

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

%Early stage Later stage Breakdown not available

0.000

0.005

0.010

0.015

0.020

0.025

0.030

0.035Magnified

30

31

… and regulation could be further improved

Scale of 0 to 6 from least to most restrictive

Source: OECD, Product Market Regulation Database, www.oecd.org/economy/pmr, June 2013

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Index Administrative burdens on start-ups Regulatory and administrative opacity Barriers to competition Barriers to entrepreneurship in 1998

Policies to enable entrepreneurship

• Allow for experimentation: Reduce barriers to the entry (e.g. administrative regulation), growth (e.g. size-specific regulations), and exit/failure of firms (e.g. penalising bankruptcy legislation).

• Level the playing field for new and innovative firms: Some policies may end up favouring incumbents and MNEs, that often also have greater influence on policy making.

• Strengthen the innovation system for young and innovative firms, e.g. through enhanced access to (risk) capital, network development, mentoring of entrepreneurs, skills development, further improvement in technology transfer from universities and PROs, etc.

• Policies for SMEs are not the same as policies for young firms.

32

How does Japan compare on some key drivers of growth – human resources, science,

innovation and ICT?

33

Human resources are a concern …Graduation rates at doctoral level, 2000 and 2011

As a percentage of the population in the reference cohort

Source: OECD, STI Scoreboard 2013, http://dx.doi.org//10.1787/888932890789

43 47 45 51 45 46 45 42 50 46 49 49 51 44 53 46 47 43 43 43 32 51 57 53 52 44 47 30 38 44 47 52 51 47 45 46 42 42 40

0

1

1

2

2

3

3

4

4

CH

ES

WE

DE

UF

ING

BR

CH

ND

NK

AU

TN

ZL

NO

RIR

LA

US

SV

KN

LDU

SA

SV

NO

EC

DF

RA

BE

LC

ZE

KO

RIS

RP

RT

ITA

ES

TC

AN

ES

PJP

NG

RC

ISL

HU

NP

OL

BR

AR

US

TU

RM

EX

CH

LZ

AF

IDN

2011 2000

%

Percentage of doctorate degrees awarded to women

34

… and the number of new doctorates may not be sufficient …

New doctorates in science and engineering, 2007-2011Countries with largest number of average annual counts


0

20,000

40,000

60,000

80,000

Graduates

All degrees Science and engineering degrees

0

2,000

4,000

6,000

8,000

35

36

… and education and training are a challenge in many OECD countries

Participation in job-related education and training by level of problem solving in technology-rich environments, 2012 (as % of adult population at relevant level)

Source: OECD, Survey of Adult Skills Database, PIAAC, April 2013

0

10

20

30

40

50

60

70

80

90% Most proficient (Level 3) Least proficient (below Level 1) No ICT experience / Failed core ICT test

The quality of science could be improved …Quantity and quality of scientific production, 2003-2011

Number of documents and percentage of world’s top-cited


0

500

1 000

1 500

2 000

0

5

10

15

20

US

AC

HN

GB

RD

EU

JPN

FRA

CA

NIT

AE

SP

IND

AU

SK

OR

NLD

BR

AR

US

CH

EP

OL

SW

ETU

RB

EL

ISR

AU

TD

NK

GR

CFI

NM

EX

CZE

NO

RP

RT

NZL

ZAF

IRL

HU

NC

HL

SV

KS

VN

IDN

ES

TIS

LLU

X

% Number of publications (Thousands) Percentage of excellence Number of publications (thousands)

37

… with international cooperation low …Quality of scientific production and international collaboration, 2003-

2011 (as a percentage of scientific publications)


0

20

40

60

80

0

5

10

15

20

%Top cited publications, domestic leading author Top cited publications, other leading author International collaborations

(right-hand scale) %%

38

… and international mobility lower than in other advanced economies;

International mobility of scientific authors, 1996-2011 As a percentage of authors with two or more publications, by last reported affiliation

0

10

20

30

40

%New inflows Returnees Stayers

100

0

10

20

30

40


100

0

10

20

30

40


100


… increasing it could help enhance the impact of research

Impact of scientific authors, by category of mobility, 1996-2011Based on the median source-normalized impact per paper (SNIP)


0.0

0.5

1.0

1.5

Stayers Returnees New inflows Outflows

Impact factor

40

Support for business R&D is relatively modest …

As a percentage of GDP, 2011


… the R&D tax credit could be better adapted to young firms ..

Implied tax subsidy on R&D expenditures, 2013


42

… Japan is a strong investor in business R&D …(R&D intensity and support, as a percentage of GDP, 2011)


USA

FRA

CHN

JPN

KOR

CANGBR NLD

BRA

AUS BEL

RUS

TUR

ESP

AUT

IRL

PRT HUNNOR CZE

ZAF

DNK

ITA

SVN

CHL

POL

SVK

EST

FIN

DEU

ISR

LUX

MEX

NZL

SWE

CHE

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45

BERD

, as

% o

f GDP

Total government support (direct and tax) to business R&D, as % of GDP

Volume of tax support to business R&D, 2011 (million USD PPP)

USD 75 million USD 250 million USD 2 500 million No incentive






















USD 75 million USD 250 million USD 2 500 million No incentive No data available

43

… but scores relatively low in innovation surveys …(Innovation in the manufacturing sector, as a percentage of all

manufacturing firms, 2008-10)


0

20

40

60

80

%

Product or process innovation only Product or process & marketing or organisational innovation Marketing or organisational innovation only

44

… and international collaboration is low …(firms engaged in international collaboration, 2008-10, as % of product

and/or process innovative firms)


0

10

20

30

40

50

60

70% Large firms SMEs

45

… and almost completely absent in patentingInternational co-inventions in patents, 1999-2001 and 2009-11

As % of the economy’s total patents


0

5

10

15

20

25

BE

L

CH

E

TW

N

IRL

CA

N

SG

P

GB

R

IND

DN

K

RU

S

ME

X

SW

E

EU

28

NZ

L

FIN

FR

A

NL

D

NO

R

DE

U

AU

S

CH

L

BR

A

ISR

ZA

F

ES

P

ITA

OE

CD

US

A

BR

IIC

S

CH

N

TU

R

KO

R

JPN

%

46

47

Big data is offering new opportunities for growth …

… as costs of data are falling …

Estimated worldwide data storage

Source: OECD based on IDC Digital Universe research project.

in e

xaby

tes

(bill

ions

of g

igab

ytes

)

56.30

0.05

40

10

10

20

30

40

50

60

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

HHD SSD

CAGR 1998‐2012: ‐39% CAGR 2007‐12: ‐51%

Source: OECD based on Pingdom (2011)

Average data storage cost for consumers, 1998-2012

US

D p

er G

B

48

… but Japanese firms are not yet as active in ICT than firms in other OECD countries …

Enterprises selling on-line, 2009 and 2012, as % of enterprises in the same size category)


0

10

20

30

40

50

60

DN

K

SW

E

CH

E

NO

R

FIN

GB

R

DE

U

NL

D

FR

A

AU

S

IRL

KO

R

ES

P

CA

N

JP

N

ITA

%

2012 large 2009

49

… , not yet as well connected to broadband …Enterprises with broadband connection, by employment size, 2012

Fixed and mobile connections, as % of all enterprises

Source: OECD, STI Scoreboard 2013, http://dx.doi.org//10.1787/888932892176 50

… and Japan has little presence in ICT servicesOECD and major exporters of ICT services, 2000 and 2012

Billions of USD and percentages of total world exports of ICT services

Source: OECD, STI Scoreboard 2013.

13.5

12.7 8.0

7.3

7.0

4.4

3.1

2.8

2.8

2.7

2.7

2.5

2.4

2.3

1.9

1.3

1.2

1.0

1.0

0.8

0.8

0.7

0.7

0.6

0.4

0.4

0.3

0.2

0.2

0.2

0.1

0.1

0.1

0.1

0.1

0.0

0

10

20

30

40

50

USD billions

Computer and information Communication Total value, 2000

0

1

2

3Magnified

51

Drivers of growth

• Human resources:– A major concern for the future, with low participation of women and rapid

ageing

• Science:– Strong public investment, but quality could be further improved– Little international mobility of scientists, little international cooperation

• Innovation:– Strong investment in R&D – but will need to be turned into growth– Support for business R&D: some redesign?– Lack of internationalisation of innovation, little cooperation

• ICT:– Big data recognised as future driver– But Japanese firms don’t use ICT yet to its full potential– Strong in hardware, but little presence in services

52

In sum: some key issues for Japan

• Global Value Chains:– Performance has deteriorated, services content is relatively low and has not

increased in recent years– GVCs are highly dynamic – preparing for their future evolution

• Entrepreneurship:– Risk capital and regulation– Some strong SMEs – but a sufficiently strong role of young firms and

sufficient structural change to develop new areas of strength?

• Innovation and investment in knowledge:– Reflect on necessary policies for full range of investments in knowledge– Human resources a major concern– Scientific research could be strengthened– Lack of internationalisation

– ICT – services and applications are lagging

53

Relevant OECD work

Tiny url:oe.cd/kbc

Tiny urls:oe.cd/tivaoe.cd/gvc 54

Thank you

Contact:[email protected]

For more data:www.oecd.org/sti/scoreboard

55

Documents

JAPAN’S GROWTH STRATEGY –What can be learned from ... · USA AUS NLD CAN DEU GBR FRA JPN ITA NZL ESP KOR ISR PRT CHL POL MEX TUR Gap in GDP per capita 80 ... • Global Input-Output