State of the Region Report 2006 The Top of Europe in Global Competition Christian H.M. Ketels, PhD Institute for Strategy and Competitiveness Harvard Business

State of the Region Report 2006

The Top of Europe in Global Competition

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

Harvard Business Schooland

Centre for Strategy and CompetitivenessStockholm School of Economics

This presentation draws on joint work with Professor Örjan Sölvell and has benefited strongly from ideas developed by Professor Michael E. Porter. The State of the Region Report has been prepared for the Baltic Development Forum with financial support from the Nordic Investment Bank (NIB) and the Nordic Council of Ministers NCM). The full Report is available at www.bdforum.org

Additional information on competitiveness research can be found at the website of the Institute for Strategy and Competitiveness, www.isc.hbs.edu

http://www.bdforum.org/

http://www.isc.hbs.edu/

2 Copyright 2006 © Christian H. M. KetelsState of the Region Report 2006

The 2006 State of the Region Report

Context for Competition

Current Policy

Current Competitiveness

• Global competitive environment

• Geographic profile of the Baltic Sea Region

• Macroeconomic climate

• Economic performance

• Global markets, knowledge, integration

• Microeconomic capacity

• Lisbon-Agenda

• General business environment upgrading

• Innovation

• Cluster development

• Special focus: Russia

• Branding


Context for Competition: Impact on the Baltic Sea Region

Nature of globalCompetition

POSITIVE,BUT LOSING

POWER

Macroeconomicclimate

POSITIVE,

BUT EMERGINGRISKS

Location and

geographic profile

NEGATIVE

• Globalization has provided huge opportunities for the Baltic Sea Region

• The tailwind is going to be weaker in the future,exposing some underlying challenges of the Region


Lisbon Agenda

Current Competitiveness:The Position of the Baltic Sea Region

Prosperity

Prosperity generation

Microeconomic capacity

Knowledge creation

Investment, exports

Integration

x

x

Strong

Weak


0

50

100

150

200

250

300

-6% -4% -2% 0% 2% 4% 6%

Patents per 1000 Capita, 2005

Growth of Patents per Capita, CAGR, 2000-2005

Innovation PerformancePatenting in the United States

Source: USPTO (2006), author’s analysis. State of the Region-Report 2006

Baltic Sea Region

NAFTA

EU-15 British Isles

Iberian Peninsula

Oceania

ASEANCentral European Region


Patenting Intensity over TimeBaltic Sea Region Countries

0

20

40

60

80

100

120

140

160

180

200

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Finland

Sweden

Germany

Iceland

Denmark

Norway

Estonia

Russian Federation

Lithuania

Latvia

Poland

Source: USPTO (2006), author’s analysis. State of the Region-Report 2006

Patents per 1000 Capita


Knowledge CreationTop Universities in the Baltic Sea Region

Copyright © 2005 Institute of Higher Education, Shanghai Jiao Tong University


Integration

0%

5%

10%

15%

20%

25%

30%

Exports2000

Exports2005

Migration2000

Migration2005

FDI 2000- 2004

East-East

East-West

West-East

West-West

Regional integration level

Source: WTO, UNCTAD, national agencies, author’s calculations

+0.1%

+2.1%


Microeconomic CapacityBusiness Competitiveness Index Ranking over Time

2001 2002 2003 2004 2005 2006

Central Europe

Baltic Sea Region

Source: Global Competitiveness Report (2006), author’s analysis.

Rank5

15

25

BCI – Overall IndexNBE – Business Environment QualityCOS – Company Sophistication


Business Environment Quality: Science


Microeconomic CapacityInnovative Capacity

NAFTA British Isles BSR Oceania CER Iberia

OVERALL

Column 2

Inputs

Policy

Cluster

Linkages

Companies

Source: Porter, Stern, Delgado (2006), author’s analysis.

Rank1

40

30

20

10


Policies for Competitiveness Upgrading

General Business Environment Upgrading

Innovation Cluster

Integration with Russia

Brandingthe Region

National and regional efforts

Efforts by cross-national institutions

Cross-national co-operation by national

institutions


Innovation: Issues

• Universities: Do we need presence at the global top?

• Companies: Do we understand the R&D strategy of the private sector in the Baltic Sea Region? Does it influence policies?

• Non-research driven innovation: How to measure/how to mobilize?

• Demand-driven innovation: How to systematically leverage regional demand?

• Policy mix: How to integrate policies with an impact on innovation across instruments and geographic levels?

• Communication: Who knows what the Baltic Sea Region is doing for innovation?


Back-Up


ProsperityCross-National Regions and BSR Countries

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

0% 1% 2% 3% 4% 5% 6% 7% 8% 9%

Baltic Sea RegionIberia

NAFTA

Central Europe

EU-15

EU-10

GDP per Capita, US-Dollar, PPP, 2005

Growth of Prosperity, CAGR, 2000 - 2005

Source: Groningen Growth and Development Centre and The Conference Board (2006), IMF (2006), authors’ calculations

ASEAN BRIC

OceaniaBritish IslesDenmark

Estonia

Iceland

Latvia

Norway

Lithuania

Sweden

N PolandN Russia

FinlandN Germany


Prosperity GenerationCross-National Regions

GDP per Capita (PPP)

Purchasing Power-Factor

Productivity- Factor

NAFTAB ISLES

OCEANIAEU-15IBERIA

Baltic Sea RegionCER

EU-10ASEANBRIC

BRICASEANEU-10CER

IBERIANAFTA

OCEANIAEU-15

Baltic Sea RegionB ISLES

BRICASEAN

OCEANIANAFTAIBERIA

Baltic Sea Region EU-10

B ISLESCER

EU-15

EU-15B ISLESNAFTA

OCEANIABaltic Sea Region

IBERIACER

EU-10ASEANBRIC

Employment-Factor

= x x

Source: Groningen Growth and Development Centre and The Conference Board (2006), authors’ calculations


Investment and ExportsWorld Export Market Share over Time

2%

3%

4%

5%

6%

7%

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Central Europe

Baltic Sea Region

Source: WTO (2006), author’s analysis.

World Export Market Shares

TotalGoodsServices


Investment and ExportsFDI Inflows over Time

-10%

0%

10%

20%

30%

40%

50%

60%

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

European Union

Baltic Sea Region

Source: UNCTAD (2006), author’s analysis.

FDI Inflows as % of Gross Domestic Investment

WorldCentral European Region

Inward FDI Stock as % of GDP, 2004

European Union: 32%

Baltic Sea Region: 32%

Central European Region: 23%

World: 22%


0

50

100

150

200

250

300

-10% -5% 0% 5% 10% 15%

Patents per 1000 Capita, 2005

Growth of Patents per Capita, CAGR, 2000-2005

Knowledge CreationPatenting in the United States

Source: USPTO (2006), author’s analysis.

Denmark

FinlandGermany

Russia

Sweden

Norway

United States

Japan

Taiwan

France UK

Canada

Switzerland

Italy

South Korea

Australia

Israel

Singapore

Hong KongIreland

Baltic Sea RegionAustria

NL Iceland

New ZealandSpain MalaysiaSouth Africa Hungary

China (.3, +27%)

India (.3, +22%)


IntegrationForeign Direct Investment Flows

0%

10%

20%

30%

40%

50%

60%

70%

80%

Sweden

Finland

Denmark

Estonia

N Germany

Norway

Latvia

Iceland

Lithuania

NW Russia

N Poland

Share of inward FDI from other BSR countries, 1999 - 2004

Source country

Source: UNCTAD, national statistical offices, author’s calculations

BSR average


BCI Value, 2006

Dynamism Score, 2002 - 2006

India

China Pakistan

Italy

Finland

Australia

Sweden

Norway

Hong KongJapan

Portugal

Malaysia

Turkey

El Salvador

Peru

United StatesGermany

Chad

MaliVietnam

MalawiZimbabwe

Other European countries

EstoniaChile

Switzerland

Iceland

Ireland

Paraguay

Dominican Rep.

EthiopiaBolivia

Mozambique NicaraguaHonduras

Bangladesh

Nigeria

Brazil

Trinidad

Slovenia

Russia

Spain

New Zealand

ColombiaJordan

Greece

South Africa

Ukraine

Thailand

Argentina

Slovak RepublicLithuania

High

Low

Below average Above averageAverage

Baltic Sea Region

Denmark

Latvia

Poland

Baltic Sea Region

Microeconomic CapacityCompetitiveness Dynamism

Other countries

Source: Global Competitiveness Report (2006), author’s analysis.


Hiring and Firing

Paying Taxes

Protecting Investors

Getting Credit

Dealing with Licenses

Starting a Business

Registering Property

Closing a Business

Enforcing Contracts

OVERALL

Trading Across Borders

Microeconomic CapacityDoing Business in the Baltic Sea Region

Ease of Doing Business by Element

Source: World Bank – Doing Business (2006), author’s analysis.

15

23

23

24

24

29

35

43

52

53

74


Russia: Opportunity and Challenge

50%

100%

150%

200%

2001 2002 2003 2004 2005 2006

Competitiveness

Prosperity

Note: Prosperity – GDP per capita (PPP adjusted); Competitiveness – Business Competitiveness Index rankSource: Groningen Growth and Development Centre and The Conference Board (2006), Global Competitiveness Report (2006), authors’ calculations

2001 = 100%


Lisbon Agenda-Performance

20

25

30

35

40

45

-1.0 -0.5 0.0 0.5 1.0 1.5 2.0

Lisbon Agenda Score, Last Available Year

Change of Lisbon Agenda Score, Last to Previous Year

Source: EU Structural Indicators (2006), author’s calculations

Baltic Sea Region

NorwayDenmark

Ireland

Lithuania

LatviaGermany

Iceland

Finland

Sweden

Czech Rep.

AustriaSlovenia

Luxembourg

UK NL

BelgiumFrance

EU-25

CER

Cyprus

Hungary

Greece

ItalyPortugal

Slovakia

Estonia

Other countriesBaltic Sea RegionPoland

Malta

Spain


National Lisbon Agendas from the Baltic Sea Region


Public Risk and Loan Capital Providers - Examples


…but the external environment is getting more challenging

…but low investment and stagnant export shares are a concern

…but especially non-European regions have been more dynamic

…that need to move to the next level of consistency and ambition

The Top of Europe in Global Competition

The Baltic Sea Region

• Is a prime beneficiary of globalization….

• Continues to deliver strong prosperity growth….

• Is one of the most competitive locations of the world

• Is home to many efforts to upgrade competitiveness

Documents

State of the Region Report 2006 The Top of Europe in Global Competition Christian H.M. Ketels, PhD Institute for Strategy and Competitiveness Harvard Business