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Global best practice in productivity improvement – lessons for Northern Ireland May 2009 Contents 1 ▪ What we have done 2 ▪ Discussion of case studies – Singapore (in depth) – – – – – – Republic of Ireland Costa Rica Finland Sweden Portland, Oregon Others 3 ▪ Implications for Northern Ireland | 1 Contents 1 ▪ What we have done 2 ▪ Discussion of case studies – Singapore – – – – – – Republic of Ireland Costa Rica Finland Sweden Portland, Oregon Others 3 ▪ Implications for Northern Ireland | 2 To develop a long-list of examples to examine we used a simple ‘funnel’ NUTS 2 regions in Germany, France, Italy, US, Korea and Canada Countries of the world Regions with GDP per capita <85% of Northern Ireland Germany: Sachsen Germany: Sachsen-Anhalt Germany: Thueringen Germany: Brandenburg Germany: M-burg-Vorp. Italy: Molise Italy: Basilicata Italy: Puglia Italy: Calabria Italy: Sicilia Italy: Capania Korea: Gyeonbuk Korea: Capital region Korea: Jeolla Korea: Gangwon Korea: Jeju Regions that have not recently achieved >2% CAGR GDP per worker improvement in a 5 year period1 All French regions All other German regions Italy: Lombardia Italy: Toscana Italy: Abruzzo Italy: Veneto Italy: Emilia-Romagna Italy: Sardegna Italy: Valle D’Aosta Italy: Marche Italy: Lazio Korea: Chungcheong US: South Dakota US: Oregon US: Colorado US: Arizona US: Massachusetts Countries with GDP per capita <85% of Northern Ireland or total GDP greater than Spain Relevance Performance Italy: Liguria Italy: Piemonte Italy: Friuli-Venezia G. Italy: Umbria Italy: PA di Trento Italy: PA do B-Bozen Korea: Gyeongnam All other US states All other Canadian provinces US: New York US: California US: District of Columbia US: North Carolina US: Vermont US: Louisiana US: Virginia United States China India Japan Germany UK France Russia Poland Barbados Hungary Russia Croatia Saudi Arabia Bulgaria Thailand +67 others Countries that have not recently achieved >2% CAGR GDP per worker improvement in a 5 year period1 Kuwait New Zealand Norway Argentina Netherlands Austria Malta Australia US: New Hampshire US: Washington US: Idaho Canada: Newfoundland Canada: Alberta Canada: Nova Scotia Canada: Saskatchewan Brazil Italy Indonesia South Korea Mexico Canada Venezuela Malaysia Iceland Estonia Slovenia Latvia Slovak Republic Czech Republic Belarus Azerbaijan Armenia Lithuania Kazakhstan Hong Kong Singapore Ireland Luxembourg Denmark Cyprus Chile Switzerland Belgium Portugal Spain Uruguay Sweden Finland Taiwan South Korea Israel Greece United Arab Emirates Qatar 1 Based on the area’s best results from either 2003-2008 or 1998-2003 for countries and either 1996-2001 or 2001-2006 for regions SOURCE: ConferenceBoard, OECD, US Department of Commerce | 3 These are the six cases that have been examined in detail Singapore Success founded in establishing pro-business environment and aggressively pursuing FDI through a high performance agency Republic of Ireland Built on low tax rate with flexible approach to attract FDI, bring in anchor investors and move up the value chain Costa Rica* Targeted approach to capturing FDI through independent marketing agency Finland Built R&D capability around Nokia as an anchor and successfully developed Sweden Deregulation and creation of pro-business environment to drive competition and productivity Oregon Built on anchor firms and proximity to West Coast to create hot spot for entrepreneurial spinoffs * Originally filtered out on income SOURCE: Literature review; press search; expert interviews | 4 Disadvantage/ worst performer Which have different sources of advantage and disadvantage (1/2) Corporation tax rate, % Best in class/ Advantage 18 12.5 10-30 26 28 US: 35 28 Use of Zonal tax exemptions YES YES YES NO NO NO NO Ease of doing business rank 1 7 117 14 17 3 6 R&D expenditure, % GDP 2.3** 1.3** <1.0** 3.5** 3.7** 2.6** 1.8** Students graduating p.a., %* N/A** 1.40** N/A** 0.77** 0.67** 0.9** 1.06** Engineers graduating p.a., %* 0.13** 0.17** N/A** 0.16** 0.13** 0.06** 0.09** Note: Data for Oregon (US) data is for United States as a whole. Oregon offers tax exemptions and other fiscal incentives lowering the effective tax rate * % of total population ** 2006 SOURCE: WMM; IMF Global Insight; OECD; World Economic Outlook database | 5 Which have different sources of advantage and disadvantage (2/2) Disadvantage/ worst performer Best in class/ Advantage Size of public sector (% GDP) 13.70 35.44 n/a 47.24 52.57 35.36** 43.13** Average wage (manufacturing, GBP per hour) 4.64** 14.07** 2.27** 16.21** 17.25** 12.93** 14.68** Average wage (engineer, GBP annual) 36,447 62,308 25,000*** 60,385 59,717 54,048 61,054 English-speaking (% population) 71* 98* n/a 63* 89* 96* 98* Electricity costs (GBP per KWH) 0.05 0.07 0.06 0.04 n/a 0.03 0.06 Broadband penetration, % 42** 19** 3** 31** 32** 26** 28** * No consistent datasource for languages ** 2006 *** Annual Wage 2009 for Chief Computer Analyst SOURCE: IMD; WDI, CINDE, Costarica.com, Language data: Eurobarometer 2005, US Census Data, EU Commission, Singapore 2000 census data | 6 For each example we have built a case study around four questions 1. What was the context for this region’s productivity improvement? 2. What institutions, programmes and policies were used to drive it? 3. What were the key success factors for these institutions, policies and programmes? – Strategically? – Organisationally? – Operationally? 4. What are the lessons for Northern Ireland from this region? SOURCE: Literature review; press search; expert interviews | 7 To address these questions we carried out primary and secondary research Over 30 interviews conducted Country experts Agency employees Functional experts Investor perspective Northern Ireland ▪ ▪ Conducted 8 interviews with experts for Singapore, Finland, Sweden, Ireland, US, Israel Country specific information 2 Offshoring specialists 3 Productivity experts Industrial policy expert ▪ 6 Investor perspectives on Ireland, Singapore, Eastern Europe and Northern Ireland ▪ Economic strategy literature MGI Conducted interviews with Invest NI, Bombardier, Citigroup, Almac, All State SOURCE: Literature review; press search; expert interviews ▪ ▪ ▪ 7 interviews with current or former employees of government agencies (FDI/Export promotion) in Costa Rica, Singapore, Finland, Ireland ▪ ▪ ▪ ▪ Literature and Research reviews Government and agency reports for 6 case study countries from 20002009) National press searches Business school case studies on country competitiveness (Ireland, Costa Rica, Estonia) Academic literature ▪ OECD, World Bank, IMF reports and academic research on – FDI policies – Country competitiveness – R&D and Cluster strategy – Industrial policy – Government efficiency ▪ McKinsey Global Institute knowledge incl. 15 country productivity reviews | 8 Contents 1 ▪ What we have done 2 ▪ Discussion of case studies – Singapore – – – – – – Republic of Ireland Costa Rica Finland Sweden Portland, Oregon Others 3 ▪ Implications for Northern Ireland | 9 Introduction to Singapore Background Key achievements ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ Small city-state situated on 63 islands and connected to the Malaysian peninsula Population 4.8m (~70% of Chinese origin) Land area 710.2 km2 (~5% of NI) Official languages: English, Malay, Mandarin, Tamil 5th wealthiest country in the world in terms of purchasing power adjusted GDP per capita Self-governed since 1959, independent from Malaysia since 1965 Parliamentary Republic Single Party (People’s Action Party PAP) dominates political process Limited natural resources (no freshwater) SOURCE: Literature review; press search; expert interviews ▪ ▪ ▪ ▪ Real GDP growth has averaged 8.1 percent since independence in 1965 Productivity grew by a 4.0% between 1980 and 2008, over three times faster than the OECD Attracted major > 7,000 international investors from broad range of industries, including for example Infineon, Exxon, GSK, Merck Succeeded in building sectors “from scratch” such as Health Care Rated #1 in Ease of Doing Business by World Bank in 2008 | 10 Why are we interested in Singapore? Relevance Small island economy ▪ 2007 GDP 250% of NI Applicability Openness to investment and trade ▪ 2007 Exports 246% of GDP Developed ▪ 2007 GDP per capita 90% of NI Successful ▪ Achieved 3.0% productivity growth from 1995-2008 compared to UK average of 1.7% Aspects NI could learn from ▪ Integrated economic strategy of Singapore where “packages” to attract FDI aims at creating lasting benefits ▪ Customer-focus of the EDB through tailoring to individual investor needs and efficient end-to end process ▪ Focus of government agencies in serving all customer needs conveniently (online) and through “one-stopshops” Aspects NI is unlikely to learn from ▪ Semi-authoritarian government in Singapore facilitated alignment and “top down” implementation ▪ Creation of state-owned enterprises ▪ Strong use of trade policy and financial incentives – Early import substitution phase to industrialise – Customised financial incentive package to attract FDI SOURCE: Economist Intelligence Unit; UNESCO Statistics; World Bank “Ease of doing business” reports; IMF International financial statistics; WMM/Global Insight; World Economic Outlook database; IMD World Competitiveness online | 11 Singapore developed through ambitious planning and outwardorientation 1959 - Self-government of Singapore, led by the People’s Action Party (PAP) Became independent from Malaysia is in 1965. Lee Kuan Yew is first Prime Minister. Government declares itself “pragmatic” (~capitalist and semiauthoritarian) 1960s 1970s 1961 - Creation of the Economic Development Board (EDB). Created the Jurong Industrial Estate, Singapore’s first industrial estate. EDB open offices in NY and Hong Kong. Attract Shell, National Iron and Steel Mills 1980s - Singapore’s high-wage policy to force move to knowledge economy fails in context of world economic crisis. Economic review by MTI recommends PCs and disk drives as “sunrise sectors” 1980s 1970s - Start of the electronics industry in Singapore – Texas Instruments investment of 6m USD is secured within 6 months and operations start 90 days after investment decision SOURCE: Literature review; press search; expert interviews 1997 - Asian Crisis hits Singapore, but country recovers already starting in 1999. Re-orientation of economic policy with more focus on knowledge economy 1990s 1983 - Creation of the Trade Development Board (TDB) to promote Singapore’s exports. Rebranded IE Singapore in the early new millennium 1991 - Creation of EDBI - the independent equity investment arms of the EDB which invests in companies in new strategic industries Has invested in 240 companies since its creation 2000s Continuing emphasis R&D and knowledge economy. Focus on attraction of foreign talent to Singapore and positioning of Singapore as destination for R&D research facilities and regional headquarters of multinationals 2000 2009 2001- Creation of A*STAR- The agency of Science Technology and Research focusing on Biomedical Sciences and Engineering/Science, promoting research and public-private collaboration | 12 Singapore’s productivity growth was associated with FDI, export and R&D growth FDI Exports Total stock inward FDI, % GDP % GDP, excluding tariffs 200 250 Singapore 150 150 100 100 UK 50 0 1980 Singapore 200 1985 1990 1995 2000 2005 2010 50 0 1980 UK 1985 1990 1995 2000 R&D Productivity growth % GDP, all R&D Change in real GDP per employed worker, % p.a.* 2.5 Singapore 2.0 UK 1.5 1.0 0.5 0 1980 1985 1990 1995 2000 2005 2010 2005 6 5 4 3 2 1 0 1980 2010 Singapore UK 1985 1990 1995 2000 2005 2010 * 10-year rolling average SOURCE: WMM / Global Insight (GDP, exports, productivity); OECD (R&D expenditure); IMF | 13 Singapore’s success is built on strategic planning and the creation of a business-friendly environment that enabled FDI-driven growth ▪ Rigorous policy planning ▪ ▪ ▪ Prioritisation of FDI ▪ ▪ Creation of a business-friendly environment inc. low taxation Government agencies as efficient one stop shops Culture of excellence Long-term analysis and planning for direction of economic policy carried out by MTI, economic reviews led to re-orientation (e.g. focus on PC and disk drives in 80s post oil crisis) Dedicated planning unit in the EDB with ~10 employees in Strategic Planning and Knowledge and 60 in Planning and Policies EDB Annual reviews help to bring together market intelligence and trends, identify focus sectors and areas and re-allocate resources accordingly Strategic clarity that FDI matters for growth as Singapore’s lack of natural resources and small insular position constrained endogenous wealth creation EDB “makes things happen” to attract FDI, e.g. set-up of university courses, infrastructure investment Strong support by leadership to attract investors - Lee Kuan Yew used to gather CEOs of potential investors to reassure about doubts and assert commitment ▪ Singapore comes top in the World Bank’s Ease of doing business rankings 2007 and 2008 ▪ Eliminating unnecessary red tape is constant government concern. For example, businesses can ▪ ▪ ▪ ▪ ▪ ▪ ▪ submit suggestions online to Pro Enterprise Panel to cut red tape (e.g. outdated regulations) Effort to create a pro-businesses environment: EnterpriseOne Portal which centralises all relevant information, e-services, walk-in centers of government agencies Public services mainly provided through government agencies (e.g. EDB ~500 employees, IE ~370 employees vs. 200 employees in the MTI) which are operated similarly to private entities Government agencies (EDB, Spring, IE) set up as “one-stop-shops” where all customer needs can be addressed (capital, capability-building, advisory services, market intelligence) Customer services centre for initial point of contact Talent recruitment – high performing students and graduated are attracted to public sector Talent retention – incentives through performance-based pay (15-50% performance-dependent bonus) and fast promotions Talent development – emphasis on functional and managerial training. Early on-job responsibilities including client relationships SOURCE: Literature review; press search; expert interviews | 14 Four major agencies drive Singapore’s development, lead roles are taken by the EDB and IE Singapore ROLE STATUS FUNDING ▪ Key government agency in charge of attracting FDI and creation of favourable business environment EDBI is Investment arm investing in new industries ▪ ▪ Government agency One-stop-shop for foreign investors 500 employees of which ~ 100 in one of 19 international offices ▪ ▪ Government 2008 Expenditure: USD 400m Promotion of exports of Singapore-based enterprises Financing options and capability building focus (skillbuilding) ▪ ▪ Government agency One-stop-shop for firms seeking to export ~500 employees of which ~50 in 30 offices abroad ▪ ▪ ▪ Government 2008 Expenditure: USD 117m Payment by companies for selected customised services Agency supporting SMEs and start-ups with overall mission to “Enable Enterprises” and create a competitive SME sector through financing Skill building ▪ ▪ Government agency ~370 employees ▪ ▪ ▪ Government 2008 Expenditure: USD 96m Payment by companies for selected customised services Agency for Science, Technology and Research in charge of promotion of research and innovation Focus on life science and engineering/IT ▪ ▪ Government agency ~ 150 employees ▪ ▪ ▪ Government 2008 Expenditure: USD 710m Payment by companies for selected customised services Online information portal serving the business community by centralising all relevant information to start, sustain and grow a business ▪ SPRING (Government agency) in collaboration with 44 partner agencies involved in the Enterprise One project ▪ Government ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ SOURCE: EDB, MTI, Spring, A*Star ▪ ▪ | 15 The EDB is a high-performing, customer-focussed government agency delivering significant benefits to Singapore’s economy SCOPE AND APPROACH ▪ ▪ ▪ ▪ ▪ PROGRAMMES AND POLICIES ORGANISATION AND CULTURE 500 employees, budget of 410m USD (0.3% of GDP) of which $330m is spent on grants Provides input to other government agencies on how to make Singapore an attractive business location has led Singapore’s to be first in ease of doing business worldwide (World Bank) ~15% of staff located in 19 international offices which develop mainly contacts with new potential investors Headquarter staff manages relationships with foreign and domestic companies within a “cluster” Annual strategic reviews of targeted sectors and companies serve to re-focus efforts and identify opportunities based on existing strengths. ▪ Customised assistance and incentives schemes are provided throughout the investment process – Working in Singapore and registering business: easy access to visas, step-by-step guides – Business location: List of science parks provided, EDB staff will look for suitable land – Setting up the business - Financial incentives and assistance schemes* range from assistance in manpower development, technological/equipment upgrading, to R&D, intellectual property and industry development. – Recruitment and Staff – EDB funds on the job training and overseas training of Singaporeans in MNCs – Attractive taxation policy: 17% corporate income tax, capital gains not taxed, GST 7% – Conditional grants: payments against milestones, if conditions not met re-negotiation or claw-back ▪ EDB recruitment targeted at high potentials – scholarships are offered to high performing high school students to study abroad and then return to work for the EDB Incentives for EDB employees are significant: financial incentives (15-50% of salary) and fast promotions The organisation is focused around seven vales: Care, Integrity, Team, Imagination, Courage, Excellence and Nation - losing a deal to another country is seen as shameful Junior staff get responsibilities for managing day-to-day client relationships early on and account directors own client relationships and are empowered to create flexible deals to meet investor needs and to start deals moving while formal processes and approvals get completed Focus on training programmes. EDB employees learn financial and other functional skills as well as managerial skills in workshops on creativity, teamwork and risk-taking ▪ ▪ ▪ ▪ * Detail on different schemes available in Back-Up SOURCE: EDB, expert interviews | 16 The organisation of the Economic Development Board is aligned with its key tasks and emphasizes importance of planning EDBI International Advisory Council ▪ ▪ EDB Board Senior executives from MNCs advising EDB (e.g. COO of P&G, CEO of 3M) International Operations ▪ ▪ 4 Executive Directors lead division with area responsibility 19 international offices with ~ 100 EDB employees Development of sector clusters of local firms and foreign investors in Singapore Clear dedicated support functions (Admin, HR, CIO) account for ~40 employees but additional support staff is probably within divisions SOURCE: EDB, expert interviews Enterprise Ecosystem and Planning Cluster Development ▪ ▪ Independent investment arm created in 1991 Invests in companies in new strategic industries (over 250 to date) ▪ ▪ ▪ ▪ ▪ ▪ Enterprise Ecosystem Incubation Unit Intellectual Property International Policies Planning Resource Development Corporate Services ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ Business Knowledge Group Client Services Finance & Administration Human Resources Information Systems Legal Marketing Communications Organisation Excellence | 17 Members Chairmen Structure of the EDB Board brings together international private sector expertise and public sector leadership Name Job/Background Lim Siong Guan EDB Chairman (full time), former Permanent Secretary to the Primer Minister Leo Yip Seng Cheong EDB Deputy Chair (full time) Ashwin Muthiah Beh Swan Gin Chairman Proteus Petrochemicals Pte Ltd. Managing Director, EDB Deborah Henretta Group President Asia, Procter&Gamble Erik Peyrer VP, Business Development APME Francois Guibert Corporate CP, CEO Asia/Pac ST Microelectronics Gautam Banerjee Exec. Chairman, PWC George Goh Executive Chairman, MeibanGroup Goh Chye Boon Deputy Secretary Ministry of Trade Iain John Lo VP New BD Ventures, Shell Jonathan Asherson Regional Director SE Asia, Rolls Royce Jon Niermann President Asia, Electronic Arts Lui Pao Chuen Advisor National Research Foundation Shunsuke Ohtsu Chief Executive Asia and Chair, Hitachi Asia SOURCE: EDB, Expert interviews Board members and roles ▪ Mixed group ▪ ▪ ▪ of private and public sector professionals Executives from foreign companies Singaporians and nonSingaporians Role is to give strategic guidance, external perspective, industry expertise | 18 Singapore’s financial assistance and other incentive schemes Equipment and Technology Business Development Innovation, R&D and Intellectual Property Examples Purpose of the schemes Benefits ▪ ▪ Approved Foreign Loan Incentive (AFL) Investment Allowance (IA) ▪ AFL provides full/partial exemption on interest payments to non-residents IA provides capital allowance for new equipment on the condition that it introduces new technology or contributes to industry efficiency ▪ Investors pay lower taxes in Singapore; reduces tax liability ▪ ▪ Development Expansion Incentive (DEI) Script to Screen (S2S) ▪ ▪ DEI provides preferential corporate tax rates S2S provides grants to support the development of creative and technical talents in content production ▪ Reduces tax liability/Assist companies to move towards higher value-added business activities ▪ ▪ Approved Royalties Incentive Further Deduction for R&D Expenses (S14E) Innovation Development Scheme Research Incentive Scheme for Companies Technology for Enterprise Capability Upgrading Writing Down Allowance for Cost Sharing Agreement ▪ Tax incentives and grants are given to promote R&D capability (technical + manpower) Technology transfer must take place R&D should be conducted in Singapore (S14E) In many cases, schemes are open to companies with at least 30% local equity or ones registered in Singapore ▪ Non-resident recipients of payments pay lower taxes Meets the cost of R&D; assists companies in technology and knowhow transfers Helps local enterprises build in-house R&D capabilities Regional/International Headquarters Award (RHQ/IHQ) ▪ Encourage companies to use Singapore as a base Customised package of tax incentives or grants are provided ▪ Customised support for qualifying projects Development Expansion Incentive Initiatives in New Technology Local Industry Upgrading Programme Locally-based Enterprise Advancement Programme Pioneer Incentive Venture Capital Fund Incentive ▪ Activities must lead to the development or introduction of new capabilities for companies or industry Projects must generate significant economic benefits for Singapore ▪ ▪ Reduces tax liability Helps meet costs of technology transfer, introduction of new capabilities, manpower and operating costs etc Foster closer ties with industry contacts Programmes cater to the needs of startup, local enterprises, global companies with large-scale needs such as the set up of regional headquarters in Singapore ▪ Help businesses improve efficiency, strengthen capabilities and explore new opportunities in their business ▪ ▪ ▪ ▪ ▪ ▪ Headquarters Management Industry Development ▪ ▪ ▪ ▪ ▪ ▪ ▪ Local Government Incentives SOURCE: EDB Website ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ Loans, grants, tax incentives, equity financing and non-financial assistance etc | 19 International Enterprise offers a one-stop-shop service to promote exports SCOPE AND APPROACH ▪ ▪ ▪ ▪ ▪ ▪ PROGRAMMES AND POLICIES ▪ ▪ ▪ ▪ ▪ ORGANISATION AND CULTURE SOURCE: IE Singapore ▪ ▪ ▪ ▪ ~ 370 employees of which ~50 in the 30 offices worldwide (IE employee sometimes in embassy) Objective to provide a “one-stop-shop” services to all Singapore-based companies seeking to export IE Advisory Centre as a point of contact for businesses serves and as shop where firms get generic information (general enquiries, access to databases) and customised services Important information and range of services can be accessed online via Enterprise One Portal Customised services are available to all companies (no minimum size or export potential) 35,000 companies benefited from IE Singapore services in 2007 across all activities (+60% vs. the previous year) Activities of IE are within three areas: CONNECTIONS, CAPABILITIES and CAPITAL CONNECTIONS: – Organisation of Singapore’s participation in major trade fairs in key sectors including 50-70% subsidy to Trade Associations’ costs (all companies eligible, subject to approval by involved trade association) – Facilitation of search for export partners base through online platform BuySingapore which automatically matches exporters and buyers across over 100,000 business members, basic membership is free but enhanced membership has annual subscription fee (250 SD) COMPETENCY: – Development of managerial capabilities of business to operate abroad (e.g. Scholarships for international management courses abroad for Singaporean executives) – Identification of selected areas where companies need help (Manpower, appropriate branding and design for international expansion, intellectual property) CAPITAL: – Provides top up trade insurance and subsidies for firms purchasing commercial trade insurancee – Subsidised credit for purchases of overseas facilities – Subsidised loan insurance Most services are provided for free to companies (IE Concierge service, use of databases and portals (BuySingapore), seminars but payment for customised services Competitive pay levels for employees 5-year career plan and attractive incentive schemes Design of training roadmaps Participation in Singapore-wide competitions for service-level quality of agencies/public institutions | 20 Enterprise One is the online portal for Singapore’s business community CONCEPT CONTENT ▪ ▪ ▪ ▪ Key features of the online portal ▪ Industry Guides: Topics are grouped by industries and organised in sections so that information relevant to business sector is easy to find. ▪ Quick Find (Online Interactive Tools) for – Funding options customised for one’s business – Government assistance based on needs – Market statistics released by Government agencies – Business-related Government e-Services – Licences and permits based on relevant business needs ▪ Frequently Asked Questions (FAQs) ▪ How-To Guides: More than 150 How-To Guides, Checklists and Flowcharts to make it easier to apply for government assistance schemes, licences, permits, approvals and other registrations. ▪ Case Stories ▪ RSS Feed ▪ OPERATION AND MANAGEMENT Online-Portal launched in 2006 which centralises information required by businesses Aims to help local enterprises find the answers they need to start, sustain and grow their businesses Points towards available e-services and relevant government agencies 44 participating partners (government agencies and Ministries) ▪ ▪ ▪ Managed by the government agency SPRING in close conjunction with 44 partners (including EDB, A*STAR, SPRING, MTI) Available 24/7 Phone hotline offers additional support Constantly updated FAQ database SOURCE: SPRING SINGAPORE, Enterprise One Portal | 21 Enterprise One is the online portal for Singapore’s business community SOURCE: Enterprise One Single web presence across all agencies and government departments Sophisticated online help system and single helpdesk contact point Complete listing of policies and incentives (over 70 schemes) Questionnaire to identify government schemes applicable to your business | 22 Potential lessons from Singapore for Northern Ireland ▪ Foresight in economic policy making and long term approach of EDB in measuring FDI benefits ▪ Relentless focus on creation of a business-friendly environment through “Onestop-shop” government agencies (EDB, International Enterprise, Spring), eservices and online portal for businesses ▪ Performance-oriented agency attracting FDI with incentive schemes for talent recruitment, development and retention based on financial and non-financial incentives SOURCE: Literature review; press search; expert interviews | 23 These are the six cases that have been examined in detail Singapore Success founded in establishing pro-business environment and aggressively pursuing FDI through a high performance agency Republic of Ireland Built on low tax rate with flexible approach to attract FDI, bring in anchor investors and move up the value chain Costa Rica* Targeted approach to capturing FDI through independent marketing agency Finland Built R&D capability around Nokia as an anchor and successfully developed Sweden Deregulation and creation of pro-business environment to drive competition and productivity Oregon Built on anchor firms and proximity to West Coast to create hot spot for entrepreneurial spinoffs * Originally filtered out on income SOURCE: Literature review; press search; expert interviews | 24 Contents 1 ▪ What we have done 2 ▪ Discussion of case studies – Singapore – – – – – – Republic of Ireland Costa Rica Finland Sweden Portland, Oregon Others 3 ▪ Implications for Northern Ireland | 25 Introduction to the Republic of Ireland Background Key achievements ▪ ▪ ▪ ▪ ▪ ▪ GDP per capita trebled between 1985 and ▪ Small country on edge of Europe Population 4 million Total land area 82,000km2 Member of the EEC/EU since 1973 Member of single currency zone (using the Euro) since 1999 Youngest population in Europe ▪ ▪ ▪ SOURCE: Literature review; press search; expert interviews 2008 Strong productivity growth of 3.2% between 1990 and 2007, as opposed to 1.3% in OECD Rapid FDI growth, of 10x EU 15 average, resulting in 4x UK FDI level as % of GDP by 2003 Attracted major global multi-nationals in pharmaceuticals and IT, including Intel, Microsoft, Google, Pfizer and Wyeth | 26 Why are we interested in Ireland? Relevance? Applicability? Small? ▪ 2007 GDP 380% of NI Open? ▪ 2007 Exports 80% of GDP Developed? ▪ 2007 GDP per capita 140% of NI Successful? ▪ Achieved 3.2% productivity growth from 1990-2007 compared to UK average of 2.0% Aspects NI could learn from ▪ Long term focus on targeting anchor investors ▪ FDI-driven growth performance ▪ Entrepreneurial as opposed to compliance oriented agency Aspects NI is unlikely to learn from ▪ Ability to use corporate tax rate to encourage inward investment and establishment of profit centres SOURCE: Economist Intelligence Unit; UNESCO Statistics; World Bank “Ease of doing business” reports; IMF International financial statistics; WMM/Global Insight; World Economic Outlook database; IMD World Competitiveness online | 27 Early on, the Republic of Ireland succeeded in attracting anchor companies 1970: Pfizer sets up its first manufacturing plant in Cork harbour 1970 1973: Ireland joings the European Economic Community 1985: Microsoft founds first European base in Ireland 1989: Intel establishes first operations in Ireland – both after many years’ cultivation as IDA’s policies became more focussed on key targets 1992: Culliton report 1999: Euro published encouraging established increased focus on areas including RoI increasing productivity, reduced reliance on grants and a bringing together of multiple factors/institutions across the economy (e.g. role of education, infrastructure) 1985 1987: Ratification of the Single European Act to join the Single Market 1995 1994: Enterprise Ireland spun off from IDA to increase focus on developing indigenous firms SOURCE: Literature review; press search; expert interviews 2003: 12.5% corporate tax rate established on universal basis 2000 1998-1991 Creation of “Programmes for Advanced Technology” to support key areas of R&D through partnership between government, business and universities 2003: Google invest in RoI 2005 2000: Technology Foresight fund and Science Foundation Ireland created giving €646m over five years to R&D | 28 The Republic of Ireland’s productivity growth has been driven by FDI FDI Exports Total stock inward FDI, % GDP % GDP, excluding tariffs 150 100 RoI UK 50 0 1980 1985 1990 1995 2000 2005 2010 R&D 120 Productivity 100 80 RoI 60 40 20 0 1980 UK 1985 1990 1995 2000 2005 2010 Productivity growth % GDP, all R&D Change in real GDP per employed worker, % p.a.* 2.5 5 2.0 4 UK 1.5 3 RoI 1.0 2 UK 0.5 1 0 1980 RoI 1985 1990 1995 2000 2005 2010 0 1980 1985 1990 1995 2000 2005 2010 * 10-year rolling average SOURCE: WMM / Global Insight (GDP, exports, productivity); OECD (R&D expenditure); IMF | 29 The Republic of Ireland was successful in attracting FDI combining a customer-oriented agency with attractive financial incentives Moved early on FDI and focussed on attracting key anchors Overall economic system aligned to attract the right investment ▪ Ireland focussed early on FDI and maintained this focus despite growing calls to provide ▪ ▪ ▪ more support to indigenous firms, which meant it was able to attract key anchor investors early on (Intel, Microsoft) and establish itself in the FDI market Key anchor investors were pursued over very long periods (10 years plus) and the IDA dedicated high levels of resource to attracting them (e.g. interviewing 300 Irish semiconductor engineers working abroad within 5 weeks for Intel) Long term success of the Republic as a destination for FDI has required an increasing focus on R&D support and building collaborative research projects (for example with government support of up to 80% for R&D expenditure carried out in partnership) Skills have also been aligned to investor needs, with colleges creating new courses specifically to meet local investors’ skills gaps ▪ The Republic of Ireland was able to build on its strength as an EU member with low corporation tax rate to encourage MNCs to establish their European base in the Republic and to book profits there Low corporation tax combined with EU membership ▪ Dedicated, dynamic investment agency ▪ ▪ ▪ The IDA, despite being a government agency, has developed its own, customer-focussed culture based on pride in attracting companies to Ireland and respect from across the political system Culture is focussed on “seizing opportunities” and “creating jobs” which has helped gain political alignment The IDA’s customer-focussed culture and risk-taking of employees has been enforced by staff being measured based on outcomes of work rather than targets Technologists have been recruited to enhance capability to attract R&D intensive firms SOURCE: Literature review; press search; expert interviews | 30 Institutions in the Republic of Ireland GOAL STATUS FUNDING ▪ ▪ Government agency with considerable autonomy 16 international offices situated across 4 continents 10 offices across the Republic ▪ ▪ 2007 turnover of €180m, Of this, €80m was given to firms in grant funding Policy advisory body in the Department of Enterprise, Trade and Employment Sits at heart of national-level planning of enterprise and science strategy ▪ - Attracting and embedding FDI in the Republic of Ireland ▪ ▪ ▪ National advisory body for Enterprise and Science ▪ ▪ ▪ Promoting the indigenous business sector, with a particular focus on exporting firms ▪ ▪ Government agency with 31 international offices in 24 countries, with support services provided in another 39 countries ▪ 2007 turnover of around €270m, of which €150m was spent on financial support to industry ▪ Attracting and supporting world class scientific researchers in the Republic of Ireland ▪ Public organisation responsible for distributing research grants to recruit and retain research groups ▪ Awarded €157m in grants in 2007 SOURCE: Literature review; press search; expert interviews | 31 The IDA helps attract investors to the Republic of Ireland ▪ SCOPE AND APPROACH ▪ ▪ ▪ ▪ ▪ ▪ PROGRAMMES AND POLICIES ▪ ▪ ▪ ▪ ▪ ▪ ORGANISATION AND CULTURE ▪ ▪ Created in 1949, state-sponsored agency that is funded through a government grant under the National Development Plan Focused entirely on attracting and embedding FDI to the Republic of Ireland (incl. marketing the Shannon Free Zone abroad) 2007 turnover of €180m, of which around €80m was given to firms in grant funding 16 international offices situated across the US, Europe, Asia and Australia, 10 offices across the Republic – 48% of projects in 2007 came from US companies Initially the IDA initially was responsible for both the attraction of foreign inward investment and the development of indigenous firms; the spin-off of Enterprise Ireland from the IDA in 1994 was aimed at separating the development of indigenous firms (through Enterprise Ireland) from FDI activities. The separation was driven by a need for greater transparency of the different performance of the two sides and a perceived need for greater focus on indigenous firms In 2007 26% of projects were with new clients Identifies and builds long-term relationships with firms it wishes to attract to the Republic, and maintains an ongoing dialogue with companies. Opportunity-driven in its targeting Builds on incentives including: – 12.5% corporation tax rate – 25% R&D tax credit applicable to R&D and buildings where at least 35% of activity is R&D – Grants to R&D (52%), capital (15%), employment (28%) and training (1%) that are capped overall on an amount per job and amount per unit capital basis Is responsive to the needs of target firms. To “seal the deal” with Intel for example, the IDA interviewed 300 Irish engineers within 5 weeks who were living abroad and presented Intel a list of 85 qualified candidates Follows a rigorous evaluation process for investment, taking into account cash flows to the state as well as broader economic benefits of the project. Algorithm updated constantly (e.g. in times of full employment, job creation of project is less important). Purchases and develops Business & Technology Parks with (e.g.) broadband telecommunications network, on site childcare facility, new office & production buildings Lobbies other government organisations on policies to support its mission, such as the maintenance of a low rate of corporation tax Highly entrepreneurial culture, with a pragmatic focus on “getting things done” within the overall grants cap rather than adhering to strict processes and rule Staff are incentivised through strong mission and sense of purpose and through recognition of past success of IDA Staff performance is measured on results rather than fix targets giving them more autonomy (no bonuses paid, public sector pay) SOURCE: Literature review; press search; expert interviews | 32 Structure of the IDA CEO ▪ Total ~300 staff Business Development ▪ ▪ ▪ Structured by division, “hub of operations”, responsible for new and existing investors Each division also paired with a region to ensure close connection Staff lead identification of priority sectors/firms, negotiations with investors As of 2006 SOURCE: IDA Marketing ~50 heads ▪ ▪ Structured by region of the world Staff make presentations, attend conferences, liaise with other Irish agencies overseas, monitor competitors Marketing, Personnel and Org Dev ▪ Works in partnership with skills development and R&D organisations to meet investor needs Influencing agenda, planning and regions ~90 heads ▪ ▪ ▪ ▪ Structured by region of Ireland Staff refine regional messages, work with infrastructure providers, represent IDA on regional bodies Includes property department that buys and sells property Also contains Planning & Ecosystem division that develops IDA strategy Corp Services ▪ Handles communications, legal, IT, accounts etc | 33 Enterprise Ireland is responsible for supporting indigenous firms ▪ SCOPE AND APPROACH ▪ ▪ ▪ ▪ PROGRAMMES AND POLICIES ▪ ▪ ▪ Enterprise Ireland is the government agency responsible for the development and promotion of the indigenous business sector 31 international offices in 24 countries, with support services provided in a further 39 countries 10 offices across Ireland 2007 turnover of around €270m, of which €150m was spent on financial support to industry Increasing sales from exports (key priority) – Provides firms with customised support, ▫ Helping new exporters validate market opportunities and secure first sale reference customers (EI initiated 7,724 client-buyer meetings in 2007, 405 large sales contracts signed with EI support) ▫ Supporting clients in establishing an in-market presence and providing advice on acquisition and partnering strategies (83 international mentors appointed to provide expertise and advice to clients) – Support is primarily practical (export credit guarantees are provided privately by Irish Exporters Association) with the exception of the Going Global Fund launched in 2008– grants up to €50,000 to fund 50% of expansion costs given out competitively Investing in research and innovation through multiple grants programmes including: – R&D fund supplies grants of up to €450,000 to fund up to 45% (depending on firm size) of R&D expenditure, with an additional 5% funding available for collaborative projects – Innovation Partnership initiative, funding 80% of costs for collaborative research projects led by HE institutions – Pilot funding for small R&D projects from firms who have not previously undertaken R&D Competing through productivity – Training grants to support (e.g.) supply chain management training Encouraging foreign firms to use indigenous firms as suppliers (use of local suppliers is never condition for FDI investment deals, e.g. through grant conditionalities) SOURCE: Literature review; press search; expert interviews | 34 Potential implications for Northern Ireland ▪ Illustrates the potential benefits of a long term focus on FDI and attracting major anchor investors ▪ Provides a possible institutional model in the IDA – closely linked to central government but with a sales-oriented culture and flexible mindset ▪ Demonstrates some success in government R&D expenditure driving R&D excellence in the economy SOURCE: Literature review; press search; expert interviews | 35 Contents 1 ▪ What we have done 2 ▪ Discussion of case studies – Singapore – – – – – – Republic of Ireland Costa Rica Finland Sweden Portland, Oregon Others 3 ▪ Implications for Northern Ireland | 36 Introduction to Costa Rica Background Key achievements ▪ ▪ Productivity grew by 2.5% between 1990 and 2000, as opposed to 1.8% OECD average ▪ Growing higher value-add sector (high-tech, electronics) through attraction of FDI. 51 foreign companies operate in electronics sector in 2006 ▪ Increasing enrolment of students in engineering and science degrees ▪ Attracted major investors including Intel, GlaxoSmithKline, Procter & Gamble and Amazon to Costa Rica ▪ Development of local supplier base and clusters around foreign companies through government programs ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ Central American country with borders to Panama and Nicaragua, coastlines with Pacific and Carribean sea Capital: San Jose Population 4.1m Land area 51,100 km2 Official language: Spanish Constitutional democracy since 1953 4th country in Latin America based on the Human Development Index but 16% of population living below poverty line Natural resources: coffee, bananas and other tropical plants First country in the world to abolish its army President: Oscar Arias 1986-1990 and 2006present (Nobel Peace Prize winner) SOURCE: Literature review; press search; expert interviews | 37 Why are we interested in Costa Rica? Relevance? Applicability? Small? ▪ 2007 GDP 110% of NI Open? ▪ 2007 Exports 48% of GDP Developed? ▪ 2007 GDP per capita 46% of NI Successful? ▪ Achieved 2.0% productivity growth from 2000-2008 compared to UK average of 1.7% ~ Aspects NI could learn from ▪ Focus of a small agency on selected sectors and priority companies where Costa Rica is competitive to attract FDI ▪ Positive externalities on domestic economy by limited number of FDI investments Aspects NI is unlikely to learn from ▪ Use of special export processing zones as financial incentives to attract FDI ▪ Workforce at very low cost ▪ Relatively unproductive labour force in sectors with no/low FDI SOURCE: Economist Intelligence Unit; UNESCO Statistics; World Bank “Ease of doing business” reports; IMF International financial statistics; WMM/Global Insight; World Economic Outlook database; IMD World Competitiveness online | 38 Costa Rica’s strategy to attract higher value FDI was supported by strong leadership Early 1980s – Costa Rica creates several Export Processing Zones (Zonas Francas) where importers can import inputs free of duties and are exempted of tax for 812 years 1980s 1994 – Election of President Figueres gives new momentum to Costa Rica’s economic policy. Priority is shifted towards higher value add economic sector while deprioritising investments seeking lowcost manufacturing. 1996 – FIAS report on competitiveness of Costa Rican electronics sector recommends pursuing FDI in sub-sectors requiring relatively high inputs of skilled labour: power technologies, PC cards and surface mount technologies, system integration technologies and call centres (to the electronics industry). 1990s 1982 – Creation of CINDE as a non-profit, nongovernmental agency by businessmen in collaboration with US-Aid to attract foreign investment to Costa Rica. 1984 – government acknowledges CINDE to be of public interest. Initial focus on a broad range of sectors Early 1990s – CINDE loses part of US-Aid funding and has to focus efforts (higher value add) 1995 – Active pursuit of Intel investment and involvement or President. Creation of “Intel task force”. SOURCE: Literature review; press search; expert interviews Today - Assessment of . HC capabilities and existing private and public research in Costa Rica on which R&D intensive FDI can be built. Led by CINDE with other institutions. 2000s 1997 – 300m Intel Investment is secured 1996 – Creation of Procomer as government agency aimed at promoting exports 2000 Creation of PROVEE program aimed at developing local supplier base for foreign companies and creating linkages in the economy. 2000 - Creation of R&D matching grants system Fondo de Recursos Concursables to develop Costa Rica’s focus on knowledge economy | 39 Costa Rica’s performance was driven by rapid growth in FDI and exports FDI Exports Total stock inward FDI, % GDP % GDP, excluding tariffs 60 50 UK 40 Costa Rica 60 50 30 30 20 20 10 10 0 1980 1985 1990 1995 2000 2005 2010 R&D*** 0 1980 UK 1985 1990 1995 2000 2005 2010 Productivity growth % GDP, all R&D Change in real GDP per employed worker, % p.a.* 3.0 2.0 UK 1.5 1.0 0.5 0 1996 Costa Rica 40 Costa Rica 2.5 2.0 Costa Rica 1.5 UK 1.0 0.5 1998 2000 2002 2004 2006 0 -0.51980 1985 1990 1995 2000 2005 2010 * 10-year rolling average ** Recent fall in productivity may be due to falling agricultural productivity and dependence on performance of US economy *** Gaps in Costa Rican R&D Data sourced from WDI SOURCE: WMM / Global Insight (GDP, exports, productivity); OECD (R&D expenditure); IMF, WDI | 40 What were the key success factors for Costa Rica? ▪ Identifying opportunities based on existing strengths ▪ ▪ ▪ Agency focus on a small set of sectors ▪ ▪ ▪ Strong leadership ▪ When losing competitiveness as a low cost manufacturer in the early 1990s Costa Rica made the conscious effort to understand its existing strengths and identify development opportunities The FIAS study was commissioned to assess competitiveness and opportunities in the electronics sector, CINDE carried out significant market intelligence and identified market trends Focus on building on existing strengths – Anchor companies: Use of Motorola, Intel for high tech sector, Baxter for medical devices for “reference selling”: CINDE refers to large companies on its website and provides details on “investment story”, gives possibility to talk to large investors in country – Existing human capital: Use of relatively skilled labour to build electronics/high tech sector; CINDE assesses available current and future capital and skill levels – Leverage quality of life: Marketing of political stability, democracy quality of life and proximity to the US CINDE adapted its 1997 strategy on recommendations of the FIAS study and its internal market intelligence and focussed on selected sub-sectors – Services (Shared services, Advertising & Marketing, Software, Design) – Advanced Manufacturing (Telecommunications, Electric Assemblies, Electronic Components, Semiconductors, Engineering and Software, Consumer Electronics, Engineering and PCB Repair) – Medical devices Strong focus: 29 out of 30 companies that invested in Costa Rica with CINDE support were in these sectors, 99% of employment created with CINDE in these sectors President Figueres shifts focus to higher value add sector priority of economic policy Intel investment: When CINDE’s focus allows Costa Rica to be on Intel’s long list, attracting Intel to Costa Rica becomes a government priority – Creation of an Intel task force includes Minister of Foreign Trade – President meets Intel team in person for 3 hours to discuss the project Today: CINDE has Minister of Trade or President attend important meetings 3-5 times per year. Requests for “VIP” are informal and Minister and President are highly responsive SOURCE: Literature review; press search; expert interviews | 41 Costa Rica has a set of institutions to support development ROLE STATUS FUNDING ▪ Attracting investment to Costa Rica Policy advocacy to create a business friendly environment for investors ▪ Independent non profit, nongovernment agency 30 employees, one international office in New York ▪ ▪ ▪ Private. Originally from USAID, now partly from CRUSA foundation Budget 2.2m USD Services provided for free Trade promotion and supporting exporting firms ▪ Non governmental public agency, linked to the Foreign Trade Ministry (COMEX) 5 offices in regions, 5 offices at major customs posts, 8 offices abroad ▪ Government ▪ ▪ ▪ ▪ ▪ Supporting SMEs and encouraging entrepreneurship ▪ Part of Ministry of Economy, Industry and Trade ▪ Government ▪ Supporting technology startups and firms with high innovative content ▪ ? Part of Ministry of Economy, Industry and Trade ▪ Government ▪ Financing R&D ▪ Part of Ministry of Science and Technology ▪ Government CONCIT SOURCE: CINDE, Procomer, Literature review | 42 CINDE is an independent, non-profit organisation SCOPE AND APPROACH ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ PROGRAMMES AND POLICIES ▪ ▪ ORGANISATION AND CULTURE Independent non profit, non-government agency 30 employees International office in New York Budget: 2.2m USD Focus on promotion of sub-sectors where strong growth is expected: advanced manufacturing, medical devices, services Constantly develops and refines sector focus. In 2008 orthopaedics and cardiology added as sub-sectors in medical devices. Aim to reach a mix of stable and volatile industries to improve stability of investments Focus: Targeting of companies based on a list of potential investors (metrics are used to prioritise, based on match with strategy and investment potential). 50% of presentations are result of cold calls. In 2008 29 out of 30 new investments that had CINDE support and 99% of employment created through these investments were within target sectors. Trade fairs and investor targeting is limited to identified subsectors Policy advocacy work in collaboration with Presidency to create favourable domestic environment to retain FDI. After-care: Assistance in establishment process and “after-care” to boos re-investment that is higher up in value chain. Relationship are cultivated “forever” with potential investors Two key service areas for potential investors – Information on Costa Rica (free of charge and highly customised) – Preparation of detailed and customised investment agendas ▫ Meetings with service providers, Government organisations, universities, real estate brokers, attorneys, accountants, industrial parks, and office parks. For large companies President of Minister of trade attend whenever possible Support to foreign companies post-establishment in the country – Policy Advocacy to improve business climate in Costa Rica (CINDE-supported initiatives are training programs for bilingual workforce, technical training, ease of doing business: improvement in administrative processes) – After-care for businesses: help through establishment process, connect with institutions (universities to secure human capital in the long run), encourage re-investment (e.g. Procter&Gamble upgraded from a shared service centre to its Business Transformation Centre) Performance culture created through incentives. Financial incentive package (private sector pay levels) for employees depends on: – – Internal evaluation: performance against agreed annual targets External evaluation: performance assessment by companies served in investment process (detailed survey) ▪ Credibility of institution: Independence, stability and success in attracting FDI isolates CINDE from political pressures but creates strong links to Presidency and Ministry of Trade ▪ Ability to gain leadership support: Minister of Trade and President highly responsive to CINDE’s request to attend investor meetings “We ask them and they come unless they have a major crisis to solve.” SOURCE: CINDE, Expert Interviews | 43 CINDE – Organisation Status : Private. Independent, recognised of public interest to Costa Rica. Funded by endowment fund. Head of CINDE is former Minister of Trade CINDE Board Investment promotion department ▪ ▪ Investment promotion activities (targeting, presenting) Identification of new sectors and niche markets “After-Care” department Investment Intelligence ▪ ▪ Analytics and statistics Response to customised request for potential investors ▪ ▪ ▪ ▪ SOURCE: CINDE, Expert interview Policy Advocacy – cooperation with Presidency to improve business climate Establishment process Inter-institutional coordination After-care process to promote re-investment International relations ▪ ▪ ▪ ▪ Contacts with potential investors abroad Media relations Public relations to public and private sector (e.g. consultants, research institutes) Identification of conferences CINDE should attend | 44 PROCOMER provides practical support to exporters SCOPE AND APPROACH PROGRAMMES AND POLICIES ▪ ▪ ▪ Run as non-governmental public agency linked to the Foreign Trade Ministry COMEX International offices in New York, Miami, Houston, Los Angeles, Mexico, Guatemala, Panama, Puerto Rico, Dominican Republic, China, Germany, Chile Operates the Free Trade Zones (zones of temporary tax exemption for large investments by exporting companies requiring $150m in fixed asset investment if physically inside the zone or $2m if physically outside the zone) ▪ Training support to exporting firms – Runs programmes on trade logistics and to improve trade capacity – Set-up of meetings with potential importers (e.g. provides addresses, phone numbers, schedules ▪ ▪ ▪ ▪ ▪ meetings) in market of interest Trade promotion for Costa Rica – Organises participation in trade fairs etc; combining this with training and support for firms, e.g. exporters are offered lectures and fora on specific topics (negotiation, getting to know the market, access standards) one week prior to an event where they will be meeting a group of buyers – Organises market visits for groups of exporters, with market studies are offered to provide participants with data about the region they will visit in order to plan their negotiation strategies prior to travelling and their subsequent sales follow-up. Market and trade research – Market research on sectors and products in specific markets (accessible online) for exporters Logistical support with exporting and investment – An online-portal (SIVUCE) for exporters to provide a “one-stop shop” for export administration and documentation Manages the 12 Free Trade Zones in Costa Rica in collaboration with COMEX Close collaboration with CINDE on FDI investments in Free Trade Zones SOURCE: PROCOMER, expert interview | 45 PROCOMER has recently expanded to include support to suppliers of MNCs through PROVEE SCOPE AND APPROACH ▪ PROVEE (Supplier Development Project for High-Technology Multinational Companies) ▪ Mission is to facilitate business deals between export companies and those with export potential and ▪ ▪ ▪ PROGRAMMES AND POLICIES Business-making – Potential suppliers can register online – PROCOMER checks suitability and quality of suppliers and connects them with MNCs – ▪ ▪ ▪ SOURCE: Procomer domestic suppliers, thus contributing to enhance value added from Costa Rican industries, as well as the country's global competitiveness. 186 MNCs and >250 suppliers work through PROVEE Focuses on three sectors: – Communications & Information Technology / Electrical - Electronics / Metal Mechanics Sector – Medical / Chemical / Pharmaceutical Sector – Agribusiness / Textiles / Other Sector Introduction of suppliers identified and analysed by Costa Rica Provee. TNCs are given the suppliers' diagnoses carried out by the Management Office. After-care – Issue resolution Training – Manufacturing and supply chain training for suppliers Close collaboration with government institutions and CINDE in the PROVEE program, e.g. CINDE provides a potential investor with a list of qualified local suppliers | 46 Multiple organisations work to support R&D and enterprise ▪ ▪ ▪ CIE-TEC Enterprise Incubator of the Technology Institute of Costa Rica (in collaboration with the Ministry of Science and Technology). Focus on technology start-ups and firms with high innovative content – Provides management, communication and other training – Access to financing from international sources and national projects (World Bank, Proyecto Mermas, connected ministries) ▪ PROPYME (administered by CONICIT) – Financing of research to develop new products, technology, processes and patents – 80% of R&D costs covered, non reimbursable – Financing from government budget on demand FORINVES (funded and administered by CONICIT – Venture fund, non-profit for investment in research and innovation. – Clear eligibility criteria for grants (academic qualification, past achievements, project, link to research institutions) CONICIT ▪ SOURCE: Government websites DIGEPYME Costa Rica (Support to SMEs) is an entity of the Ministry offering different types of support programs to SMEs, in cooperation with other ministries and with national banks – BN PYMEX program to for exporting SMEs (in cooperation with national development bank). 140 offices in Costa Rica as “one stop shops” ▫ Technical assistance and market research, Logistical support, International payment support, International finance, Loans DIGEPYME Costa Rica (Support to SMEs) (cont.) – CAAP-IMPROSA in cooperation with Banco Improsa offers financial services to SMEs. Legal, accounting, tax services, help with financial transaction, HR and financial advisory services. – FODEMIPYME Development fund for SMEs ▫ Provides guarantees for SMEs who seek loans ▫ Provides credit to SMEs who want to invest in R&D, technical development, research and training | 47 What were the key success factors for Costa Rica that Northern Ireland could learn from? ▪ Success of small agency with limited resources in attracting FDI through clear focus and support from senior leadership ▪ Beneficial use of small number of foreign investors (Motorola, Intel) to create benefits in the economy and use of “reference-selling” to attract further investments ▪ Policy focus on embedding FDI through close collaboration of institutions and agencies in creation of a local supplier networks SOURCE: Literature review; press search; expert interviews | 48 Contents 1 ▪ What we have done 2 ▪ Discussion of case studies – Singapore – – – – – – Republic of Ireland Costa Rica Finland Sweden Portland, Oregon Others 3 ▪ Implications for Northern Ireland | 49 Introduction to Finland Background Key achievements ▪ Small country bordering Russia, Norway ▪ Productivity grew by 2.8% between 1985 ▪ ▪ and Sweden Population 5.25m, land area 338,000 km2 Languages: Finnish, Swedish, English ▪ Limited natural resources (forests) ▪ Member of the EU since 1995 ▪ Elected president and independent ▪ ▪ and 1995 – more than twice the OECD average ▪ R&D more than trebled in 25 years from 1981 to 2006 ▪ Exports doubled from 1991 to 2008 assembly with legislative powers History of excellence in education and training GDP/capita of $36,000 – 20th highest in the world * On nominal basis SOURCE: Literature review; press search; expert interviews | 50 Why are we interested in Finland? Relevance? Applicability? Small? ▪ 2007 GDP 380% of NI Open? ▪ 2007 Exports 46% of GDP Developed? ▪ 2007 GDP per capita 125% of NI Successful? ▪ Achieved 2.8% productivity growth from 1995-2005 compared to UK average of 1.9% Aspects NI could learn from ▪ Close collaboration between companies, governments, and universities in all public efforts to promote growth ▪ Government was very responsive to local company needs and looked for targeted support opportunities to embed and retail companies in local economy ▪ Creation of successful clusters through the use of formal mechanisms to encourage co-operation between sectors Aspects NI is unlikely to learn from ▪ Choice of sector and subsequent policies driven very strongly by presence of Nokia ▪ Finnish high-tech growth supported by skilled labour available from world’s best education system SOURCE: Economist Intelligence Unit; UNESCO Statistics; World Bank “Ease of doing business” reports; IMF International financial statistics; WMM/Global Insight; World Economic Outlook database; IMD World Competitiveness online | 51 Finland used R&D agencies to build a successful cluster around Nokia Oulu development began in 1972 when Nokia was offered a government radio-technology contract on the condition it located in a “peripheral” area of Finland – a key factor in winning the contract was the promise to work alongside the University of Oulu in solving the technical issues In 1983, Government R&D subsidies were reorganised from the “politically” controlled Ministry of Industry, favouring heavy industry, into a separate agency, TEKES, that allocated subsidies based on the anticipated innovation and growth benefits, and tended to favour hightech firms. Early on, almost 30% of TEKES’ funding went to Nokia alone 1970 1980 In 1974, Government-owned Research Institute VTT opened a Laboratory of Electronics in Oulu. This was to become a centre for innovation over the next 3 decades, with significant cooperation between Oulu University, Nokia and other firms, and VTT. A number of key figures in the development of the ICT industry in Finland moved between these three organisations SOURCE: Literature review; press search; expert interviews High tech employment in the municipality of Oulu, Northern Finland reaches 18,000 jobs (nearly 10% of the population), an increase from <1,000 high-tech jobs in 1975, making Oulu the fastest growing region in Finland. Oulu voted the “Best place to live in Finland” in 2003 by leading newspaper Helsingin Sanomat 1990 Government began to align around a hightech strategy. The Science & Technology Council, featuring the Prime Minister and several key Ministers, was founded in 1983, to provide central leadership Collapse of Soviet Union contributes to deep recession in 1990 and 1991. Government R&D subsidies through TEKES and other channels credited with saving Nokia from bankruptcy 2000 Mid-1990s – Nokia becomes one of the world’s largest mobile telecoms players. By 2004, the firm accounted for 3.5% of Finland’s GDP and almost 25% of its exports | 52 Finland’s success has primarily been driven by R&D and export growth FDI Exports Total stock inward FDI, % GDP % GDP, excluding tariffs 60 50 50 UK 40 Finland Finland 40 30 UK 30 20 20 10 10 0 1980 1985 1990 1995 2000 2005 2010 R&D 0 1980 1990 1995 2000 2005 2010 Productivity growth % GDP, all R&D 3.5 Finland Change in real GDP per employed worker, % p.a.* 3.5 3.0 3.0 2.5 2.5 2.0 UK 1.5 2.0 Finland 1.5 UK 1.0 1.0 0.5 0.5 0 1980 1985 1985 1990 1995 2000 2005 2010 0 1980 1985 1990 1995 2000 2005 2010 * 10-year rolling average SOURCE: WMM / Global Insight (GDP, exports, productivity); OECD (R&D expenditure); IMF | 53 Central leadership and the intelligent use of R&D subsidies to promote co-operative research were key to Finland’s success ▪ Committed to support Nokia’s development ▪ ▪ Explicit co-operation requirements placed on R&D incentives ▪ ▪ ▪ ▪ Technology policy at heart of national political agenda ▪ ▪ Practical support services for exporters ▪ Nokia’s radio-telephone development in Oulu stemmed from the award of a government defence contract. In awarding the contract, the government required Nokia to work closely with Oulu University, encouraging links to be forged The government continued to support Nokia, in particular during the recession of the early 1990s, when its R&D subsidies of up to 40% of Nokia’s total spend were credited with helping the company avoid bankruptcy R&D support in Finland is explicitly focussed on driving co-operation, e.g. VTT encourages smooth moves of staff between research and private sector (e.g. Nokia) Tekes funding prioritises firms who are co-operating with academic institutions Over half of funding goes to companies who are subcontracting research to academic institutions or SMEs (there is no straight tax incentive for R&D) The government contract that drew Nokia to Oulu was conditional on their commitment to work with the university The Science & Technology Council (now Research and Innovation Council) drives national policy and is led by the Prime Minister, publishing reports every two years on the entire Finnish “national innovation system” and drives policy across departments of education and the economy, with a remit that encompasses education, infrastructure, research and industrial support Ministry of Employment and the Economy controls Research Institute VTT which has 660 research projects and 2,700 staff in key sectors Finpro provides consultancy services to clients on a paid for, demand-led basis, with a resulting strongly customer-oriented culture including the aggressive pursuit of feedback and a deep network of 300 staff (mostly overseas) Finpro’s services are separate from the financial support (export credit guarantees) provided by Finnvera SOURCE: Literature review; press search; expert interviews | 54 Finland has a set of institutions to support development GOAL STATUS FUNDING ▪ Provide central strategy and direction on Finland’s “Technology Policy” ▪ ▪ Government funded ▪ Government council including Prime Minister 3 full-time secretariat members Support ability of Finnish firms to export ▪ ▪ ▪ Private registered association 300+ employees 52 international offices ▪ ▪ Spend of €20m 60% government funded, 40% privately funded 70% of private funding comes from consultancy fees ▪ ▪ ▪ Funding for Finnish R&D ▪ ▪ ▪ Government body 290 employees 6 international offices and 16 locations across Finland ▪ ▪ Spend of €300m Government funded ▪ Conducts R&D activity on behalf of government, universities and firms ▪ ▪ State-owned, non-profit, Research Institute 2,900 employees (mostly researchers) ▪ ▪ Spend of €250m Funding is 30% commercial, 20% direct from government, 50% from other sources Investment promotion agency for FDI ▪ N/A ▪ N/A ▪ SOURCE: Expert interviews; “What Next? Finnish ICT Sector and Globalisation”, Steinbock; “the Oulu Phenomenon”, Morris; “Oulu: A Five Star Technology Cluster”; “Finland and Nokia”, HBS case; “Ease of doing business” report, 2008 | 55 Finpro is a fee-charging export promotion organisation ▪ SCOPE AND APPROACH ▪ ▪ ▪ ▪ ▪ PROGRAMMES AND POLICIES ▪ ▪ ORGANISATION AND CULTURE ▪ ▪ ▪ ▪ SOURCE: Run as private registered association with requirement to meet cost recovery targets set by Minister of Finance Over 300 “internationalisation professionals” located in 52 offices around the world, with two-thirds of personnel based overseas Government provides support-in-kind, such as: – Locations in Finnish embassies and diplomatic support – Funded graduate interns Support concentrated in seven broad sectors: Energy and Environment, Life Sciences, Forest, Software and Digital Media, Services, Construction and Logistics, Machinery “A small economy [such as Finland’s] is like a mouse surrounded by big fat cats. The key to success does not lie in volume or efficiency, but in the ability to move more quickly than the others.” Consultancy services: provides internationalisation strategies, market research and partner searches and project consultancy report (e.g. helping company prepare a business plan for new market entry) Support to ~550 firms per year, with ~800 subscribing members Larger firms receive support at cost, SMEs at subsidised rates (~50% discount) “Charges have brought about better relationships with customers who see them as more professional and customer focussed”. Breakdown of charges: ▫ Annual membership fee of ~£350. Membership grants access to a newsletter and networking events ▫ Finpro charges for services that require a tangible investment of time. SME’s pay around £600 for a senior consultant and around £350 for a market analyst per day. Lareg companies pay £700 £1,100 per day Customer oriented culture based on requirement to provide value for money “Finpro is a multicultural and multi-disciplinary team of professional experts. By definition, it is a complicated set of individuals to manage, requiring plenty of room for professional individualism at the same time as it is vital to glue the team together into an organisational backbone” Highly competitive salaries to attract talent such as top graduates and many Nokia alumni Feedback culture with 6 monthly performance reviews for all staff (including two-way feedback with managers) which determine bonus supported by Balance Scorecard around “Client Relationships”, “Services and processes”, “Competence”, “Financial efficiency” Expert interviews; “What Next? Finnish ICT Sector and Globalisation”, Steinbock; “the Oulu Phenomenon”, Morris; “Oulu: A Five Star Technology Cluster”; “Finland and Nokia”, HBS case; Expert interviews; “Ease of doing business” report, 2008 | 56 Tekes is oriented to promoting co-operation through R&D SCOPE AND APPROACH ▪ ▪ ▪ ▪ ▪ ▪ PROGRAMMES AND POLICIES ▪ ▪ ▪ • ORGANISATION AND CULTURE • • • SOURCE: Government organisation responsible for dispersing R&D funding Employs 290 individuals with 6 international offices, in Silicon Valley, Washington DC, Tokyo, Shanghai, Beijing and Brussels and 16 locations across Finland Tekes aims to share in R&D risk and accept greater uncertainty than other financial backers Tekes looks to promote co-operation, and explicitly required joint working from various organisations: – Universities are generally required to show that R&D projects are commercialisable – Companies showing their projects will involve input from other firms or universities are prioritised Focus around 8 industry areas (Telecommunications and Electronics Industries, Software and Digital Media Industries, Forest and Chemical Industries, Mechanical Engineering Industry, Real Estate and Construction Industries, Energy and Environment Industries, Services and Well-being Industries, Life Science Industries) and 11 research areas The organisation is shifting its focus to the services sector which now receives ~50% of all funding (although they have a hard time finding applicants!) Distributed €518m in 2008, across 1983 projects, with an average spend per project around €250,000 TEKES provides R&D funding in three forms: – Grants to companies (~40%) – Loans to companies (~20%) – Grants to universities and research institutes (~40%) Over 50% of funding is given to small and micro companies “Technocratic” culture, detached from political influence (e.g. funding given to telecoms was politically highly unpopular in Tekes early years) Very close connections to private sector companies and strong business understanding, which they consider key for being able to be effective in setting priorities Prior to the creation of TEKES, Government R&D subsidies were controlled by the Ministry of Industry, which tended to favour heavy industry due to the political benefits. TEKES was explicitly tasked with distributing R&D grants to promote “innovation and economic benefits” Tekes closely performance-manages grant and loan recipients, and reports on impact and success rates Expert interviews; “What Next? Finnish ICT Sector and Globalisation”, Steinbock; “the Oulu Phenomenon”, Morris; “Oulu: A Five Star Technology Cluster”; “Finland and Nokia”, HBS case; Expert interviews; “Ease of doing business” report, 2008 | 57 Tekes’ funding has increased rapidly, as has its focus on services and co-operative projects TEKES funding Expenditure on collaborative projects €million €million 120 400 350 Companies’ subcontracting from universities and research institutes 100 TEKES funding 300 80 250 200 60 150 40 Large companies’ subcontracting from SMEs 100 20 50 0 0 83 85 87 89 91 93 95 97 99 01 03 05 07 09 98 99 00 01 02 03 04 05 06 Expenditure by sector Expenditure by recipient size €million 100 % = €295m 200 180 160 140 120 100 80 60 40 20 0 2003 07 08 Micro companies 75 million euros Services Industry Large companies 105 million euros Small companies 78 million euros Other sectors 2004 2005 2006 2007 2008 Midsized companies 35 million euros SOURCE: Expert interviews; “What Next? Finnish ICT Sector and Globalisation”, Steinbock; “the Oulu Phenomenon”, Morris; “Oulu: A Five Star Technology Cluster”; “Finland and Nokia”, HBS case; Expert interviews; “Ease of doing business” report, 2008 | 58 VTT has been a key agent for promoting co-operation in research SCOPE AND APPROACH ▪ State-owned, non-profit, Research Institute, which conducts R&D activity ▪ Institute comes under the control of the Ministry of Employment and the Economy ▪ 2008 turnover of €250m ▪ Employs around 2,700 staff, mostly as researchers ▪ Around 30% of VTT’s revenue comes from commercial activities ▪ VTT’s key technology fields are: – Applied materials – Bio- and chemical processes – Energy – ICT – Industrial systems – Microtechnologies and electronics – Technology in the community – Business research ▪ VTT is currently leading 660 research projects ▪ Produced 47,000 publications and 1,200 patents over the past 20 years ▪ Following a 2006 strategy review, VTT chose to concentrate resources on a smaller number of major projects. In 2007, around half of the organisation’s publicly and jointly funded research was carried out in research programmes with a budget of over €3m ▪ ORGANISATION AND CULTURE VTT acts as a way for people to move smoothly between academic and commercial roles - for example the Mobira software development unit hired multiple people directly from VTT Oulu and then retained VTT to supervise R&D within the university SOURCE: Expert interviews; “What Next? Finnish ICT Sector and Globalisation”, Steinbock; “the Oulu Phenomenon”, Morris; “Oulu: A Five Star Technology Cluster”; “Finland and Nokia”, HBS case; Expert interviews; “Ease of doing business” report, 2008 | 59 VTT spends around €250m each year across a range of sectors VTT funding Expenditure by industry €million 100% = €240m Commercial activities jointly funded projects Energy Electronics Real estate and construction Chemistry and environment External funding Basic governmental funding ICT Biotechnology, pharmaceuticals and food industries Machines and vehicles Metal refining Forest industry Services and logistics Self-financed projects 250 200 1 6 3 6 150 18 10 100 15 50 13 0 2004 2005 2006 2007 2008 13 SOURCE: Expert interviews; “What Next? Finnish ICT Sector and Globalisation”, Steinbock; “the Oulu Phenomenon”, Morris; “Oulu: A Five Star Technology Cluster”; “Finland and Nokia”, HBS case; Expert interviews; “Ease of doing business” report, 2008 14 | 60 The matrix below is used to ensure research has a clear economic or social use | 61 What were the key success factors for Finland that Northern Ireland could learn from? ▪ Close collaboration between local business community and the government, with initiative for government support frequently coming from companies themselves. ▪ Strong central leadership from the Science and Technology Council drove alignment around a clear vision – yet government traditionally seen as an enabler and collaborator to local businesses ▪ Government defence contracts were instrumental in bringing an anchor firm, Nokia, to partner with the University of Oulu and form the hub of a high-tech cluster ▪ An independent organisation, TEKES, with close business connections was created to administer R&D funding according to strict, apolitical criteria ▪ Both TEKES and the Government research organisation VTT have a strong focus on promoting co-operation between organisations, and typically make funding contingent on partnership working SOURCE: Literature review; press search; expert interviews | 62 Contents 1 ▪ What we have done 2 ▪ Discussion of case studies – Singapore – – – – – – Republic of Ireland Costa Rica Finland Sweden Portland, Oregon Others 3 ▪ Implications for Northern Ireland | 63 Introduction to Sweden Background Key achievements ▪ ▪ ▪ ▪ ▪ Productivity grew by 2.8% p.a. between Largest Scandinavian country Population of 449,964 km sq GDP of $350 billion Historically heavily-regulated, with a large welfare state 1990 and 2000 – almost twice the OECD average ▪ Private sector productivity growth of 3.3% p.a. was even greater ▪ Limited natural resources (forests) ▪ Member of the EU since 1995 ▪ Elected president and independent assembly with legislative powers ▪ History of excellence in ▪ R&D expenditure of 4.25% of GDP in 2001 second highest in OECD ▪ Exports doubled from 1978 to 2008 education and training SOURCE: Literature review; press search; expert interviews | 64 Why are we interested in Sweden? Relevance? Applicability? Small? ▪ 2007 GDP 700% of NI Aspects NI could learn from ▪ Using financial crisis to build alignment around need for change ▪ Specific actions taken by central government to promote competition ▪ Grant-matching requirement of R&D agency drives co-operation around research and innovation Open? ▪ 2007 Exports 54% of GDP Developed? ▪ 2007 GDP per capita 125% of NI Successful? ▪ Achieved 2.8% productivity growth from 1990-2000 compared to UK average of 2.3% ~ Aspects NI is unlikely to learn from ▪ Highly regulated, non-EU economy was able to achieve significant benefits by removal of product market regulations and EU accession SOURCE: Economist Intelligence Unit; UNESCO Statistics; World Bank “Ease of doing business” reports; IMF International financial statistics; WMM/Global Insight; World Economic Outlook database; IMD World Competitiveness online | 65 Sweden introduced reforms to increase competition in key domestic sectors, resulting in significant productivity growth 1989-91: Sweden experienced deep economic crisis with two successive years of negative growth and a collapse of the financial system, leading to a widespread acceptance that the economic strategy of the 1980s had failed 1985 1991-95: Sweden underwent significant measures to increase competition across the retail, automotive, food processing and retail banking sectors. The ensuing increase in competition in these sectors contributed to substantial productivity growth over the next decade SOURCE: Literature review; press search; expert interviews 2003: Driven by a burgeoning telecoms sector, Swedish R&D expenditure reaches record level of 4.25% of GDP, second only to Israel among OECD countries. Government R&D expenditure, at 1.08% of GDP, is second only to Finland 1995 1993-95: In preparation for Sweden’s 1995 accession to the EU, the country undergoes a significant process of macroeconomic and regulatory harmonisation and reform 2004: Sweden experiences 5th highest productivity growth in OECD over period 19902004, at 3.3% p.a 2005 2001: 7.4km bridge built across Baltic Sea in Øresund, connecting Malmö, Sweden with Copenhagen, Denmark in an attempt to boost regional co-operation. Within 5 years, 17,000 people are commuting between the two cities | 66 Sweden’s productivity growth has been driven by growth in R&D , exports and FDI FDI Exports Total stock inward FDI, % GDP 70 60 50 40 30 20 10 0 1980 % GDP, excluding tariffs Sweden UK 60 Productivity 50 Sweden 40 30 UK 20 10 1985 1990 1995 2000 2005 2010 R&D 0 1980 1985 1990 1995 2000 2005 2010 Productivity growth % GDP, all R&D Change in real GDP per employed worker, % p.a.* 5 3.0 2.5 4 Sweden 2.0 Sweden 3 1.5 UK 2 1.0 UK 1 0 1980 0.5 0 -0.51980 1985 1990 1995 2000 2005 1985 1990 1995 2000 2005 2010 2010 * 10-year rolling average SOURCE: WMM / Global Insight (GDP, exports, productivity); OECD (R&D expenditure); IMF | 67 Sweden’s high R&D expenditure spurred productivity growth, which further benefited from increased product market competition ▪ Political momentum to push through change ▪ ▪ Sweden’s accession to EU-member status in 1995 required the country to harmonise regulation and remove product and labour market barriers, which had the effect of stimulating competition and driving productivity growth ▪ In addition to the policy harmonisation required by EU accession, Sweden introduced a series of policies aimed at increasing competition in the early 1990s Two sectors in particular were targeted: – Retail, in which a change in zoning laws helped stimulate competition and productivity growth of 4.5% p.a. from 1990-2003, 3 times that of the OECD – Retail banking, which experienced rapid productivity growth following government interventions to increase competition Access to a larger market provided by EU accession Reforms to increase competition in underperforming industries ▪ ▪ R&D co-operation driven by matching requirements Sweden experienced a deep economic crisis between 1989 and 1991, which led to a widespread acceptance that the “Swedish social welfare model” of the 1980s had failed The government was able to capitalise on the crisis and its effects to generate cross-party political support to push through a widespread series of regulatory reforms aimed at increasing competition and preparing the country for accession to the EU ▪ At close to 4%, Sweden has one of the highest rates of R&D expenditure in the world Distinctive element of Swedish R&D policy is the extent to which it involves cooperation between institutions. This is largely driven by the requirement of the R&D funding association, VINNOVA, that research grants be matched by other organisations – usually firms or universities SOURCE: Literature review; press search; expert interviews | 68 Reforms to increase competition in the retail and retail banking sectors drove significant productivity growth in Sweden Retail reforms ▪ ▪ ▪ Following the crisis of 1990-93, there was broad acceptance that product market reforms to increase competition were required to restore economic competitiveness. In the retail sector, this was largely achieved through an easing of municipality planning restrictions. Prior to 1992, planning applications from aspirational market entrants were considered by a committee including representatives of from incumbent firms, and were seldom successful In 1992, the government changed the municipality guidelines, requiring them to “consider the competitive landscape” when deciding whether or not to award planning permission to new retailers This led to a significant increase in competition in retail, and a large increase in large, high-productivity out-of-town stores (see chart to right), which resulted in sectoral productivity growth of 4.5% p.a. (OECD 1.5%) Retail banking reforms ▪ ▪ ▪ SOURCE: Expert interviews; “Öresundsregionen – the human capital of Scandinavia”; “Territorial review of Öresund, 2003”; “Årets svensk 2007: Sven-Erik Bucht” The financial sector also experienced significant reforms, including the creation of a government-backed mortgage lender to drive competition. As a result, the market share of the “Big 4” banks fell from 82% to 69%. This resulted in 4.6% p.a. productivity growth in retail banking, as opposed to the OECD average of 3.0% These developments contributed to Sweden’s high private sector productivity growth of 3.3%, as opposed to OECD average of 2.2% between 1992 and 2004 Sweden was particularly successful at using the economic crisis of the early 1990s to align the country around a clear vision of change, and driving through reforms by citing national interest | 69 The increase in R&D expenditure has been driven by nongovernment R&D Research and Development expenditure % GDP, all R&D 4.5 4.0 3.5 Total R&D 3.0 2.5 2.0 1.5 1.0 Government R&D 0.5 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 SOURCE: WMM / Global Insight (GDP); OECD (R&D expenditure) | 70 Sweden has a set of institutions to support development GOAL STATUS FUNDING ▪ Funding multi-disciplinary research ▪ Government agency that provides funding for scientific research in all disciplines ▪ Distributed grants of SEK 3 billion (€300m) in research support in 2007 ▪ Supporting innovation by funding R&D Strengthening research cooperation between academia, companies and the public sector ▪ Government agency that funds co-operative R&D projects under the Ministry of Industry, Employment and Communication ▪ 2008 budget of €180m (excluding overheads) Supporting Swedish companies’ international growth ▪ Jointly owned by government and industry 508 employees in more than 50 countries, 380 of whom wok abroad ▪ 71m USD from mix of government and private funding Attracting FDi to Sweden to increase competitiveness and promote growth ▪ Government agency, with 77% of funding directly from government 70 employees in 5 international offices ▪ Annual budget of SEK 78m (€8m) Swedish Research Council ▪ Agency for Innovation Systems ▪ ▪ SOURCE: Annual reports; Expert interviews ▪ ▪ | 71 Vinnova has a remit to increase co-operation among research and innovation organisations SCOPE AND APPROACH ▪ ▪ ▪ ▪ ▪ ▪ ▪ PROGRAMMES AND POLICIES ▪ ▪ ▪ ▪ ▪ ORGANISATION AND CULTURE Government agency responsible for disbursing funding for projects to boost innovation Explicit mandate to promote co-operation and strengthen networks between organisations across the public, private and university sectors – “Moving beyond Public-Private Partnerships to the “Triple Helix” of Public-Private-University Partnerships 2008 budget of €180m (excluding overheads) All projects are jointly-funded by VINNOVA and other organisations to encourage co-operation 6-pronged approach to innovation: – Strengthening the functions for commercialisation of research at universities – Development of the institute sector – Support for R&D aiming at radical innovations in SMEs – Supporting international cooperation – Knowledge and research about innovation system – Informing the broader public about research and innovation Strong focus on commercialisable “needs-driven research”, with a practical application All projects are jointly-funded by VINNOVA and other organisations to encourage co-operation. Example programmes: VINNVÄXT - a competition among regions for the development of internationally competitive research and innovation environments in specific growth fields, with a prize of €14-22m over 10 years (50% from VINNOVA, rest from regions) VINN Excellence Centres – Centres for research collaboration between universities, industry and the public sector. Each awarded €2.2m per year (matched by industry) Institute Excellence Centres – Top Research Institutes receive project grants from VINNOVA (grants matched by industry) “Do Research & Grow” grants to SMEs provide small firms with grants of up to €300k (matched by firm) to “Strengthen the company’s capacity to compete on the global market and thereby contribute to the generation of economic growth”. Over two-thirds of recipients co-operate directly with universities Strong focus on understanding both research and commercial aspects, with over a quarter of employees possessing a PhD SOURCE: Annual reports; Expert interviews | 72 Vinnova works with Universities, Institutes and private companies with a focus on 5 key sub-sectors Distribution of funding, type of institution, 2008 Distribution of funding, field of research, 2008 100% = €180m 100% = €180m Others Other 10 Companies 10 40 20 Universities ICT 20 Automotive 20 10 20 30 Research Institutes SOURCE: WMM; IMF Global Insight; OECD; World Economic Outlook database Manufacturing & Materials Services & IT Implementation 20 Bio-tech & Life Sciences | 73 Invest in Sweden works with domestic and foreign firms to encourage FDI SCOPE AND APPROACH ▪ ▪ ▪ ▪ ▪ ▪ ▪ Three-pronged approach to supporting FDI growth: – Increase awareness of business opportunities in Sweden among foreign firms through presentations, trade fairs and publications – Work with Swedish organisations in the public and private sectors to increase awareness of FDI opportunities and equip companies to work with foreign investors – Provide the government and other relevant players with investment analysis of the Swedish and international economies ▪ ▪ High-performing culture; 80% of employees are academics, while most have private sector experience Strong emphasis on client satisfaction, including continued contact with firms after they have invested in Sweden PROGRAMMES AND POLICIES ORGANISATION AND CULTURE Government agency responsible for attracting FDI to Sweden to enhance Swedish competitiveness 70 employees in 6 countries Annual funding of SEK 78m (€8m), 77% of which is direct from government International sales function specialises across industry and services: – Industry: Automotive, Cleantech, ICT; Life sciences; Packaging – Services: Contact centres, Financial services, Logistics, Retail, Tourism Regional function works with municipal, county and regional-level organisations in Sweden to provide: Skills and expertise development, After care, Regional cluster development Support provided along the “investor pathway” (see below) SOURCE: Annual reports; Expert interviews | 74 What were the key success factors for Sweden that Northern Ireland could learn from? ▪ The government used a financial crisis to build alignment behind a reform strategy that involved politically-unpalatable reforms ▪ Sweden introduced a sweeping wave of deregulation in the early 1990s, including relatively minor changes to planning guidelines for municipalities, which substantially increased competition and productivity ▪ By requiring that research grants be matched by other organisations, Sweden’s R&D organisation VINNOVA has contributed to Sweden’s high levels of R&D cooperation between firms, universities and research institutes SOURCE: Literature review; press search; expert interviews | 75 Contents 1 ▪ What we have done 2 ▪ Discussion of case studies – Singapore – – – – – – Republic of Ireland Costa Rica Finland Sweden Portland, Oregon Others 3 ▪ Implications for Northern Ireland | 76 Introduction to Portland, Oregon Background Key achievements ▪ Portland is the largest city in Oregon, with 575,000 of the state’s 3.8m residents ▪ ▪ The region is renowned for its quality of life and is known as the “Greenest city in the US” Annual productivity growth of 4.1% p.a. since 1990, more than twice the US average rate, drove productivity more than 10% above the US level ▪ High-tech employment increased 4-fold from 1976 to 2000, with over 65,000 people currently employed in the sector (6% of Portland’s labour force) ▪ Oregon’s “GDP” of $102 billion is almost 3 times as large as that of Northern Ireland ▪ The state’s economy was historically driven by natural resources such as timber ▪ ▪ The region boasts several regional universities, including Portland State University, University of Oregon and Oregon State University Vertical integration of the semiconductor industry, with 24 manufacturing sites located in the region, across silicon wafer fabrication, chip production and semiconductor equipment and supplies ▪ Intel opened first branch plant outside of California in the region in 1976 ▪ Infrastructure – 3rd largest port on the West Coast – Airport hosts 14 million passengers/year SOURCE: Literature review; press search; expert interviews | 77 Why are we interested in Portland, Oregon? Relevance? Comparably small ▪ GDP is 2.7x bigger than NI GDP Developed? ▪ 2007 GDP per capita 146% of NI Successful? ▪ Achieved 4.1% productivity growth from 2000-2005 compared to UK average of 2.3% Applicability? SOURCE: Literature review; press search; expert interviews Aspects NI could learn from ▪ Successful development of large high-tech cluster despite the absence of a major research University in the region ▪ Portland benefited from its status as a cheaper “second city” located relatively close to larger urban centres, along with its quality of life, to attract highproductivity firms Aspects NI is unlikely to learn from ▪ Long history of electronics firm Tektronix in the region ▪ Very low rate of corporate taxation | 78 In Portland a successful high-tech cluster developed around two firms – Tektronix and Intel Portland economy traditionally focused on forestry and wood products, with the high-tech sector in 1975 making up less than 1% of the region’s employment 1970 Intel opens its first branch plant outside California in Portland in 1976. The silicon chip production plant will become the region’s largest high-tech employer with over 15,000 jobs by 2008 Large electronics firm Tektronix present in Portland from 1946, with employment peaking at 16,000 in 1981. Sweeping redundancies in early 1980s led to a sudden release of a large number of skilled technicians and engineers into the labour market, and contributed to the wave of start-ups in early 1980s 1980 Venture capital boom in mid-1980s drives creation of large wave of start-up firms, with 39 new ventures from 1983-5. Around 50% of these are closely linked to Tektronix and a further 25% have connections with Intel SOURCE: Literature review; press search; expert interviews Portland hit hard by national slump of late 1980s. Traditional industries of forestry and farming are particularly affected 1990 Massive growth in the semiconductor industry, which invests over $750 million in the region during the 1990s. Vertical integration as suppliers also locate in the region By 2000, more than 1,000 hightech firms in Portland employ over 65,000 people in Portland, a 4-fold increase from 1976 2000 Region experiences strong productivity growth of 4.5% p.a. between 2000 and 2008, driven by strong performance in high-tech sectors. Computing and electronics manufacturing alone contribute 2/3 of total productivity growth | 79 Portland’s rapid productivity growth has been driven by high performance in computing and electronics Portland Productivity Growth by Industry, 1990 – 1999 CAGR Cumulative contribution to Productivity Growth, % Labor productivity 3.7 0.6 0.2 0.1 0.1 0.3 0.4 1.2 0.8 Compu- Real ting & Estate Electronics Trade & ProfesTranspor- sional tation Finance Telecoms Agriculture Other Total Portland Productivity Growth by Industry, 2000 – 2008 CAGR ‘000 Chained 2000 US$* 100 Portland 90 U.S. 80 70 60 50 40 30 1980 1985 1990 1995 2000 2005 2010 Productivity growth % p.a., 5-year rolling average 0.3 0.3 0.2 0.1 0.6 4.5 5 0.4 3.3 6 0.6 4 While Oregon has experienced strong growth in recent years, computing & electronics contributed to two-thirds of the city’s productivity growth between 2000 and 2008, demonstrating the importance of the city’s high-tech cluster in its growth Compu- Trade & Real ting & Transpor- Estate Electronicstation Profes- Finance sional Services Publish- Internet Other ing Services 3 2 1 Total Portland U.S. 0 1980 1985 1990 1995 2000 2005 2010 1 Labor productivity is measured in real GDP (chained 2000 US$) divided by total employment SOURCE: U.S. Bureau of Labor Statistics, U.S. Bureau of Economic Analysis, Moody's Economy.com, MGI Sunrise Database | 80 In the absence of major universities, Portland capitalised on the presence of large high-tech firms to build a high-tech cluster Position as an economical, high quality of life location near other West Coast centres ▪ ▪ ▪ Spillovers from large R&D intensive firms ▪ ▪ ▪ Fertile environment for entrepreneurship ▪ Situated less than 100 miles from Seattle, a city with a considerable high-tech presence, Portland was well-positioned to attract ICT workers and researchers looking to experience a better quality of life Portland was known for its high quality of life and a relatively cheap place to do business. Both these factors encouraged businesses and employees to relocate to Portland Two large high-tech firms have a long-standing presence in Portland. Tektronix, an early leader in the electronics industry, has had a presence in Portland since 1946 while Intel also opened its first branch plant to be located outside California in Portland in 1976 Both firms conducted large amounts of R&D in the area, with Tektronix in particular renowned for its sprawling and diverse research departments. These firms acted as “surrogate universities” for the area, and attracted a large pool of talent that drove the development of a high-tech cluster, with more than half of the 300 high-tech start-ups in the city between 1970 and 2001 founded by entrepreneurs with strong links to Tektronix or Intel Both firms were in the electronics/computing sector, which is particularly conducive to the development of clusters due to: – The growth of the sector – The intensity of R&D expenditure in the sector – Low barriers to entry in the spin-off software industry The business climate in Portland was receptive, with a number of measures in place to support start-ups, including: – Tax breaks on corporate capital investments – Transparent zoning laws – Excellent telecommunication links Venture capital firms moved to Portland early, providing the necessary networks and finance for entrepreneurs SOURCE: Literature review; press search; expert interviews | 81 Portland has two key institutions to support development GOAL STATUS FUNDING ▪ Promoting economic development and urban renewal ▪ Public organisation, with over 200 employees ▪ Government-funded, with an annual budget of around $290m ▪ Promoting quality of life by controlling planning in the Oregon region of the Portland metropolitan zone ▪ Directly-elected regional body responsible for planning and enhancing quality of life in the Portland metropolitan region ▪ Largely self-funding SOURCE: Literature review; press search; expert interviews | 82 Portland Development Commission focuses on attracting new firms to the area ▪ SCOPE AND APPROACH ▪ ▪ PROGRAMMES AND POLICIES ▪ ▪ ▪ ▪ ▪ ORGANISATION AND CULTURE Publicly-funded local government body with a tri-partite mission: – Attract new businesses to Portland – Support the growth of Portland businesses – Administer urban renewal projects and improve the urban environment in Portland Over 200 employees Provides potential investors with detailed information on the attractions of investing in Portland, including benchmarking against other US cities across a range of criteria, including tax rates, skill levels and labour and property costs Produces monthly briefings for potential investors outlining emerging opportunities within the region Offers consultancy services and information to existing businesses and companies interested in establishing or relocating facilities in the Portland metropolitan area Provides “gap” funding for local businesses Explicit focus on 5 industries: – Activewear/Outdoor Gear – Biosciences – Cleantech – Advanced Manufacturing – Software Strong emphasis on talent and experience, with range of academic, private sector and public sector experience SOURCE: Literature review; press search; expert interviews | 83 Entrepreneurial activity in Portland was driven by the presence of Tektronix and Intel Others New high tech start-ups by origin of founder, # p.a. Intel Family Tektronix Family 28 24 16 16 14 13 12 12 14 13 12 12 11 11 10 9 8 7 7 6 6 5 4 3 2 1 2 1 2 1 2 1 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 SOURCE: WMM; IMF Global Insight; OECD; World Economic Outlook database | 84 Clusters have been crucial in driving the vertical integration of semiconductor firms and the development of the software industry Semiconductor firms located in region, 2008 SOURCE: Literature review; press search; expert interviews Portland software firms, by size and location, 2006 | 85 What were the key success factors for Portland that Northern Ireland could learn from? ▪ Large high-tech firms can act as incubators for talent and innovation, with spill over benefits that may lead to explosive growth of high-tech industry even in the absence of excellent universities ▪ The firms most conducive to the development of start-ups tend to have large, unfocused R&D departments ▪ The city was able to use its relative proximity to major urban centres, along with its relatively cheap labour and high standard of living to attract high-productivity firms and employees SOURCE: Literature review; press search; expert interviews | 86 Contents 1 ▪ What we have done 2 ▪ Discussion of case studies – Singapore – – – – – – Republic of Ireland Costa Rica Finland Sweden Portland, Oregon Others 3 ▪ Implications for Northern Ireland | 87 We also looked at 5 other cases in less depth, which reinforced some of the lessons Taiwan Government-led development of clusters to create a competitive SME sector, focussed on high tech Korea Successful development through careful economic planning and public investment in education, R&D and ICT infrastructure to enable competitive high tech sector North Carolina Successfully created long term R&D cluster around universities through public private co-operation and first mover advantage Estonia Rapid creation of a business-friendly environment and government focus on ICT sector to grow labour productivity through move to knowledge economy Israel Focus on commercializing military research and creation of VC industry contributed to rapid development of successful high-tech sector SOURCE: Literature review; press search; expert interviews | 88 Taiwan’s government-led development of clusters created a competitive SME sector focused on high-tech Background ▪ ▪ ▪ ▪ ▪ ▪ Population: 23m Small island economy with very scarce natural resources Sudden population increase from migration from mainland China Lack of scale economies due to SME structure (over 98% of companies qualified as SMEs) High economic growth – averaged 8.5% GDP growth since 1950 Ranked #1 State for Cluster development by WEF (2006/07) Key success factors and challenges Clear economic strategy and emphasis on planning ▪ ▪ ▪ Successful development of SMEs in clusters Four year plans to develop and industrialize the economy until 1990s Market Intelligence Centre supports government in understanding trends Careful planning and analysis of trends Success of Hsinchu Science-based Industrial Park in 1981 – Modelled after Silicon Valley by – government Located next to Taiwan’s best technical universities – domestic firms should easily be able to leverage international knowledge – Firms have financial incentives to – ▪ Current challenges SOURCE: Literature review; press search; expert interviews ▪ locate in science park (tax benefits, low interest loans, R&D matching funds, improved credit profile) Attraction of Taiwanese-US. talent: ‘reverse brain drain’ Strong reliance on export markets (US, Europe) that face crisis Rise of China as low-cost manufacturing location | 89 South Korea’s rigorous economic planning and public investment in education and R&D supported the growth of a strong high-tech sector Background ▪ Population: 48m ▪ Area ▪ Lack of natural resources and small ▪ ▪ ▪ ▪ ▪ domestic market Officially established in 1948 Poor infrastructure Security issues and ongoing conflict with North Korea Average real GDP growth of 8% since 1948 Strong reliance on exports to US Key success factors ▪ Creating a clear national economic strategy Public investment in R&D and Education to enable move to higher value-added sectors ▪ ▪ ▪ ▪ SOURCE: Literature review; press search; expert interviews Five year plans to industrialize and grow the economy with development of higher value-add sectors Careful planning and analysis of trends National IT strategy and IT related infrastructure investments enable development of competitive high tech sector Prioritization of education policies – Focus on teacher quality (top 5% of cohort, good compensation) – Government sponsored scientific and technical education at Harvard and MIT Focus on R&D in sciences and IT – Pohang Institute of Science and Technology supported research and commercialization of technology – Targeting of top Korean scientists and researchers working abroad – Korea Institute for Electronics Technology (KIET) supported technology transfer | 90 North Carolina successfully created long term R&D cluster around universities through public private co-operation and first mover advantage Background ▪ ▪ ▪ ▪ Population: 8m Third lowest per capita income of any US state in 1952 State economy historically dominated by low wage manufacturing (furniture, textiles and tobacco) Dealing with significant brain drain as graduates left state to pursue careers elsewhere Key success factors ▪ Long term commitment ▪ ▪ Private sector involvement and leadership ▪ Success of RTP park required long-term collaboration between private sector, voluntary sector, academia, state and federal government, for example NC University has ‘Industrial Extension Service’ to advise local businesses, local business group (RTRP Partners) meets quarterly to solve regional issues, campuses are often occupied by mix of academic and commercial researchers ▪ Very clear focus on attracting R&D investments to RTP given science and technology community (positioned as ‘The State of Minds’) – strongly positioned as best place for R&D Multiple grants and loans programmes (particularly to support R&D) with $3-4m p.a. devoted to cash grants to strategic projects Focus is on spurring innovation and providing VC support through (e.g.) First Flight Venture Center providing leasable space to entrepreneurs and NC Biotechnology Center providing early stage funding Focus on R&D development ▪ ▪ SOURCE: Literature review; press search; expert interviews Early recognition of triangle universities (Chapel Hill, Duke and NC State University) as key asset and subsequent strategy ruthlessly focussed on exploiting that as part of RTP Particularly in early days of establishing park, strong efforts were made to secure anchor tenants - for example IBM courted for 7 years to 1965 before final decision made Consistent vision maintained despite 10 year start-up phase, with ability to ‘take a long view’ seen as key to success | 91 Estonia created a business-friendly environment through rapid deregulation and significant government investment in ICT infrastructure Background ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ ▪ Population: 1.3m Heterogeneous population (64% Estonians, 29% Russians, 7% others) Literacy rate of population close to 100% Small country (45,000 km2, few natural resources) 50 years of Soviet regime Independence in 1991 Very rapid productivity growth of over 7% p.a. between 1995 and 2005 Low GDP per capita at independence, small manufacturing base and scarce infrastructure Underdeveloped banking sector and obsolete infrastructure Key success factors Creating a Business-friendly environment ▪ ▪ ▪ Strategic focus on developing the ICT sector ▪ ▪ ▪ Attracting FDI building on existing strengths ▪ ▪ SOURCE: Literature review; press search; expert interviews Government transparency: E-government gives access to public services to business and citizens via Internet Open economy – Trade liberalization (FTEs, WTO, EU) – Full convertibility of Estonian currency – No capital movement restrictions Creation of modern infrastructure – Focus on education, science, IT and health care Government realizes the need at transition to move to knowledge economy to increase productivity ICT sector is viewed as “enabling” move to knowledge economy Systematic investment in good ICT (fixed and mobile) infrastructure and broadband and subsequent deregulation of sector Estonia built on strengths and opportunities: ICT sector infrastructure, small electronics sector, proximity to developed ICT sector in Scandinavia Attracted Nokia, Ericsson, Skype to Estonia | 92 Israel’s focus on commercializing military research and creating a VC industry contributed to rapid development of successful high-tech sector Background Key successes and challenges ▪ ▪ ▪ Population 7.4 million ▪ Very low employment rate driven by low labour market participation rates of religious minorities ▪ ▪ Lack of natural resources, with high dependence on imports of petroleum, coal, food, uncut diamonds and production inputs ▪ ▪ Economic crisis of 80s destabilized country and economy ▪ ▪ Large Defense Budget supported high-end research and training of skilled workers in technical areas ▪ Area 22,000 sq km Productivity growth of 0.9% between 1990 and 2008 well below OECD average Ongoing security issues with Palestine ▪ Successfully commercializing military research ▪ ▪ Creation of strong engineering skills base Failed to improve productivity across domestic sectors ▪ ▪ ▪ Very high level of military research drives Israel’s R&D rate of 4.6% of GDP, the highest in the OECD Government created “Rafael Development Corporation” from a former defence company, with a sole remit of commercializing military research Incubator programme established under Office of Chief Scientist to encourage commercialization of knowledge in form of start up companies Yozma venture capital fund created by state led to influx of VC into country. By 2006, 80 VC firms raised $1.6bn Large high-tech sector developed, with high-tech products constiuting over a third of all exporting goods Financial support for students opting to pursue engineering degrees has resulted in large number of engineering graduates Continuous stream of ex-military engineers into labour force Very highly regulated product and labour markets have greatly hindered productivity growth Low labour market participation driven by very low employment among religious minorities has exacerbated skill shortage | 93 Contents 1 ▪ What we have done 2 ▪ Discussion of case studies – Singapore – – – – – – Republic of Ireland Costa Rica Finland Sweden Portland, Oregon Others 3 ▪ Implications for Northern Ireland | 94 Across these cases, we see seven emerging themes 1 Successful regions have had a clear strategy based on rigorous diagnosis of existing strengths 2 Leadership has come from the top to drive alignment 3 Productivity transformation takes a long time and requires the creation of a competitive and attractive business environment 4 Successful regions place intense focus on attracting, retaining and embedding anchor institutions 5 High performing investment agencies have cultures that are responsive, fast-moving and work to overcome bureaucracy 6 To maximise impact, R&D incentives have been conditional on co-operation between firms or between firms and other institutions 7 Non-financial support to make connections and build skills and knowledge has helped differentiate best practice players SOURCE: Literature review; press search; expert interviews | 95 1 Successful regions have had a clear national strategy based on careful diagnosis of existing strengths Costa Rica ▪ ▪ Sweden ▪ ▪ Finland ▪ ▪ Estonia ▪ ▪ ▪ Careful analysis of existing strengths led Costa Rica to focus on sectors based on existing strength – Pre-existing foreign investment (Motorola, Baxter) – Relatively skilled often bi-lingual workforce – Leverage benefit of free trade zone, proximity to US and political stability CINDE’s strategy to move into R&D intensive industries is strongly based on availability of human capital and existing private and public R&D Following the financial crisis of 1989-1991, there was widespread agreement that the old Swedish “social welfare” model had failed Political parties aligned around a new national strategy of maintaining labour protection while pushing through a series of policies aimed at deregulating product markets Early recognition of country’s world class education system led to policy of concentrating R&D around universities Clear understanding of potential of telecoms industry in 1980s encouraged government R&D funding agency TEKES to focus on Nokia, which received 30% of its total funding between 1981 and 1983 After fall of Soviet regime and independence in 1991, Estonia’s government realised fast development would only be possible by evolving to a knowledge economy and initiated a rapid towards creating a strong ICT sector Rapid implementation of deregulation, opening economy and government transparency through e-government created a business friendly environment Policy focus on infrastructure upgrades for fixed communication and creation of a mobile telecommunication network SOURCE: Literature review; press search; expert interviews | 96 2 Leadership has come from the top to drive alignment Costa Rica ▪ ▪ Costa Rica’s President initiated a shift in economic policy towards focus on higher value added sectors. The commitment of senior leadership to this strategy leads the President and Minister of Trade to dedicate significant time meeting with potential investors (illustrated by high responsiveness to CINDE requests to attend meetings) Finland ▪ The Science & Technology Council, featuring the Prime Minister and several key Ministers, was founded in 1983, to provide central leadership of Finland’s emerging “technology policy”. The Council was crucial in driving alignment across government to support the growth of the high-tech sector Singapore ▪ Prime Minister Lee supported Singapore’s FDI focus by personally meeting with groups of CEOs to show his commitment to serving their businesses needs and to reassure potential investors ▪ Social democrat-led coaltion succeeded in building cross-party support for reform of business environment and removal of product market regulation, in wake of crisis on early 1990s. Unlikely that full range of liberalisation measures could have been implemented without support across the political spectrum Sweden SOURCE: Literature review; press search; expert interviews | 97 3 Productivity transformation has taken a long time and required the creation of a competitive and attractive business environment Israel ▪ ▪ Sweden Singapore Israel has developed a large high-tech cluster, supported by the OECD’s highest rate of R&D expenditure as a proportion of GDP However, bureaucracy, slow-moving local government and highly regulated product and labour markets have contributed to slow the country’s overall productivity growth over the last 20 years to 0.9% p.a., well below the OECD average ▪ Sweden introduced a sweeping wave of deregulation in the early 1990s. Two sectors in particular were targeted: – Retail, in which a change in zoning laws helped stimulate competition and productivity growth of 4.5% p.a. from between 1990 and 2003 – Retail banking, which experienced rapid productivity growth following government interventions to increase competition ▪ The creation of a business friendly environment has been top priority for Singapore’s government since the 1960s Singapore’s Pro-Enterprise Panel (PEP) allows businesses to submit suggestions online to change regulations and eliminate red tape The EDB is responsible for the creation of a business friendly environment and its link with foreign investors has helped to be responsive to demands and reach international standards ▪ ▪ SOURCE: Literature review; press search; expert interviews | 98 4 Successful regions place intense focus on attracting, retaining and embedding anchor institutions Costa Rica ▪ ▪ ▪ Ireland ▪ ▪ ▪ Finland ▪ ▪ Portland ▪ ▪ Attracting Intel - Presence of some large foreign investors in the electronics industry such as Motorola and DSC Corporation (attracted in 1995) served as “references” to attract Intel Effort in retaining and embedding Intel was undertaken, e.g. through establishing partnerships with universities (Intel-Associates) to develop skilled workforce Intel’s presence itself has served Costa Rica to establish a strong electronics cluster Intel’s investment in Ireland helped to subsequently attract major IT companies to Ireland (Dell, Google, IBM, HP) The attraction of Pfizer to Ireland served to rapidly expand Ireland’s presence in the pharmaceutical industry. Large companies facilitate setting-up collaborations with local institutions Nokia’s radio-telephone development in Oulu stemmed from the award of a government defence contract In awarding the contract, the government required Nokia to work closely with Oulu University, hence encouraging links to be forged Two large high-tech firms in Portland, Oregon, Intel and Tektronix, drove the development of a large ICT cluster in the region More than half of the 300 high-tech start-ups in the region since 1970 were founded by individuals closely connected to one of the two “anchor” firms SOURCE: Literature review; press search; expert interviews | 99 5 High performing investment agencies have cultures that are responsive, fast-moving and work to overcome bureaucracy ▪ Singapore ▪ Ireland ▪ ▪ Costa Rica ▪ ▪ ▪ Strong customer-focus of EDB can lead to “atypical” agreements: – To attract a solar energy firm the Singaporian government agreed to use the company's solar technology on part of its public buildings – Realising that Singapore lacked marine engineers in order to attract marine companies, the EDB initiated the creation of a company-sponsored graduate degree at NUS Strong performance culture of the EDB who recruits top performers at high school, incentivises employees through bonuses (15-50%), gives early responsibilities, provides constant on-the-job training The IDA has created a high performing organisation with limited financial incentives. Its public sector employees are motivated essentially through respect and recognition inside and outside the organisation for attracting large companies and helping employment creation To “seal the deal” with Intel and address its concern not to find sufficient qualified engineers, the IDA provided Intel with a list of 85 Irish engineers working abroad with relevant qualifications willing to move to Ireland if hired by Intel CINDE performance manages its employees closely and assesses the performance of its employees both against internal targets (set at the beginning of the year) and an evaluation by its customers (part of compensation is performance-based) Customer-satisfaction is an important element determining the compensation of CINDE employees: a detailed survey to companies CINDE has served during the year is conducted and influences compensation and promotion. The survey asks about CINDE’s responsiveness, speed and help in easing administrative processes In CINDE’s policy advocacy role, CINDE collaborates with the Presidency to suggest policies increasing the “ease of doing business” in the economy SOURCE: Literature review; press search; expert interviews | 100 6 To maximise impact, R&D incentives have been made conditional on co-operation between firms or between firms and other institutions Finland ▪ ▪ Sweden Ireland TEKES, the Finnish R&D funding agency, looks to promote co-operation, and explicitly requires joint working from various organisations: – Universities are generally required to show that R&D projects are commercialisable – Companies which can show their projects will involve input from other firms or universities are prioritised Research Institute VTT acts as a way for people to moves smoothly between academic and commercial roles, and works with partner organisations wherever possible ▪ By requiring that research grants be matched by other organisations, Sweden’s R&D organisation VINNOVA has contributed to Sweden’s high levels of R&D co-operation between firms, universities and research institutes ▪ Recently introduced Innovation Partnerships where up to 80% of R&D costs can be supported on condition the research is carried out under the leadership of a third tier educational institution. The institution makes the application and receives the grant but research is carried out for and on behalf of a specific firm or group of firms. SOURCE: Literature review; press search; expert interviews | 101 7 Non-financial support to make connections and build skills and knowledge has helped differentiate best practice players Finland ▪ Finland’s award-winning export-promotion agency FINPRO has succeeded by providing paid-for, demand led services to support exporters. Services include: – Provision of internationalisation strategies – Market research – Partner searches – Project consultancy report (e.g. helping company prepare a business plan for new market entry) Singapore ▪ The services provided by Singapore’s government agencies (EDB, IE Singapore, SPRING) to businesses entail but go far beyond financial incentives – Specific needs of businesses identified (e.g. IE Concierge Service in IE Advisory centre, contact of EDB employee with specific company) – Access to capability building is emphasised: IE and SPRING provide free seminars, scholarships for young managers, recruitment support, advisory on branding – Connections are programme focus: promotion of Singapore on trade fairs, exporters are matched with potential buyers on BuySingapore platform, companies are encouraged to collaborate to create scale for exports ▪ Costa Rica’s PROVEE programme provides practical support to link MNC’s with a local supplier base Procomer, the agency that manages PROVEE connects MNCs and local suppliers and provides “quality check” Assistance to local suppliers entails technical assistance, manufacturing and supply chain training – The online-portal SIVUCE Procomer administers provides a “one-stop shop” for export administration and documentation Costa Rica ▪ ▪ SOURCE: Literature review; press search; expert interviews | 102 ADDITIONAL MATERIAL | 103 Free trade zones offer attractive benefits to trading companies (1/2) 12 (different industrial parks, close to ports) Number of Free Trade Zones 5 (main ports and airports) Description of Free Trade Zones • Permit to use the FTZ is required (can be requested online) • Reconditioning, Repacking and Sorting is allowed but permission needed (e.g. good from different shipments can be put together) • Registrations avail. online % of Country Trade Concerned; # of companies N/A N/’A; 120 companies N/A; 240 companies. Beneficiaries All traders, especially reexporters and transshippers Companies with link to aircraft/transport industry Companies with activities related to IP Rights (Pharma) All traders, not for producers Duties on imports 0% duties, no GST. Excl. liquor and cigarettes 0% for goods in process 0% on raw materials, components and capital goods Duties on exports 0% 0% 0% SOURCE: Shannon Development, Business Singapore, CINDE, PROCOMER 1 (Shannon Free Zone) • Managed by Shannon Development (Irish government agency) which operates independently from IDA • Marketing abroad of • Managed by Procomer and Comex • No more than 25% can be sold to local market • Min. 15,000 USD fixed asset requirement in FTZ parks • Possibility Sub-FTZ outside parks • Preference to local suppliers | 104 Free trade zones offer attractive benefits to trading companies (2/2) Additional financial incentives • No duties and charges for goods within FTZ • Duties payable if local consumption Additional Information • EnterpriseOne provides access to different services (e.g. application for licenses premises in 5 min, submission of trade documents) and all information on free trade zones Services provided by agencies • Requests for FTZ benefits can be made online (TradeNet) • Simplified customs procedures • Training courses on customs procedures SOURCE: Shannon Development, Business Singapore, CINDE, PROCOMER • 0% on VAT • No charges on local services and goods if 75% for export • All tax benefits available in Ireland (low corporate tax, R&D tax credit) • Only 25% can be sold on local market (50% for services) • No income tax • 10 years capital tax exemptions • no restrictions on capital/profit repatriation • License has to be requested from Ministry of employment • Eligibility to Shannon Free Zone comparatively limited (engineering/high tech/pharmaceuticals/ healthcare) • Free Trade Sub Zones can be provided for companies unable to operate in existing zones (min 2 million USD investment) • Length of tax exemptions can be extended for reinvestments • Single Administrative document • Services provided by Shannon Development are similar to those provided by the IDA • CINDE and Procomer assist companies • On-site clearance of customs • Online-services available | 105 Data sources Population: Global Insight (Series WA0980001.A) Real GDP: Global Insight (Series WA1720003.A) Employment: Global Insight (Series WA1320062.A) Exports: Global Insight (Series WA1721449.A) FDI: IMF International Financial Statistics (Total stock inward FDI, % GDP) R&D: OECD Research and Innovation database (Total R&D spend as % of GDP) Tax rate: IMD World Competitiveness index Ease of doing bus.: World Bank ranking Students graduating: UNESCO (Total graduates, Tertiary) Engineers graduating: UNESCO (Graduates in engineering, manf. and construction. Tertiary) Public sector: IMD World Competitiveness index 2.12 Average wages: IMD World Competitiveness index 3.201 English-speaking: Eurobarometer 2005 for European countries plus Singapore census Electicity costs IMD World Competitiveness index 4.1.24 Broadband pen.: OECD Broadband statistics (Broadband subscribers per 100 inhabitants) SOURCE: Team analysis | 106
