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2011 Know Your Region Webinar Series2011 Know Your Region Webinar SeriesP t 7 Gl b l T d i C titiP t 7 Gl b l T d i C titiPart 7: Global Trends in Competitiveness Part 7: Global Trends in Competitiveness
and Productivity Growthand Productivity Growth
McKinsey & Company |
Webinar | April 7, 2011
How to compete and grow: A sector guide to policyA sector guide to policy
McKinsey Global InstituteMay 5, 2010May 5, 2010
CONFIDENTIAL AND PROPRIETARYAny use of this material without specific permission of McKinsey & Company is strictly prohibited
More than ever before, the U.S. now relies on productivity gains for GDP growthContributions to growth in real U.S. GDP, overall economyShare of compound annual growth rate, 1960-2008, %
100% = 2 22 13 33 23 14 1100% =
Increases in value added
2.22.13.33.2
47
3.1
35
4.1
value added per worker(productivity) 7780
534754
4665
53 47Increases in the workforce
20 23(labor inputs)
2010-20E2000s11990s1980s1970s1960s
McKinsey & Company | 2SOURCE: U.S. Bureau of Economic Analysis; U.S. Bureau of Labor Statistics; McKinsey Global Institute analysis1 2000-08 data used for 2000s
2010 20E2000s1990s1980s1970s1960s
Without a productivity boost, younger generations will experience slower increases in their standard of living
Improvement in per capita GDP by year of birthIndexed to 100260
Growth in per capita GDP Multiplier
Forecast Birth year
260
240
220
2.54x
2.04x
1960
1970
200
180
160
1.96x
1.78x
1 63
1980
1990
2000160
140
120
1.63x2000
0 5 10 15 20 25 30 35 40
100
McKinsey & Company | 3
0 5 10 15 20 25 30 35 40Years from birth
SOURCE: U.S. Bureau of Economic Analysis; U.S. Census Bureau; Moody’s Economy.com; McKinsey analysis
The productivity gains needed to sustain historic GDP growth rates are ambitious
1 62000s1
Productivity growth rates Compound annual growth rate, %
1.8
1.6
1990s
2000s
1.51980s
2.2
1.1
1960s
1970s
2.1 2.3to sustain to sustain historical Productivity gain
McKinsey & Company | 4
1 Includes 2000-08
historical 2.8% GDP growth
1.7% GDP per capita growth
required . . .
SOURCE: U.S. Bureau of Economic Analysis; Census 2009 population estimates; McKinsey Global Institute analysis
The U.S. can achieve historic levels of GDP growth, or better
0.2-0.5+
Potential GDP growthCompound annual growth rate, 2010-20, %
(not quantified)
0.7-1-1GDP growth 1990-2008 = 2.8
1.2
1.0
Increases in Productivity Potential
0.4
Changes inAdoption of Next-waveChange in
0.6
Population Increases in labor utilization and immigration(labor input)
Productivity enablers(productivity)
Potential GDP growth
Changes in regulated sectors(productivity)
Adoption of best practice(productivity)
Next-wave innovation(productivity)
Change in share of working-age population
Population increase
McKinsey & Company | 5SOURCE: Organisation for Economic Co-operation and Development; Central Intelligence Agency; World Bank;
McKinsey Global Institute analysis
Demographic changes Levers available to companies
Levers involving multiple actors
At the national level, the “trade-off” between aggregate employment and productivity levels is at best short-term Rolling periods of employment and productivity change, 1929-2009%; periods
480 76
171
3578
Employment
2115
864 13
3 5ProductivityEmploymentProductivity
E l t
89 99
EmploymentProductivity
6989
77EmploymentProductivity
Fi TThA l
McKinsey & Company | 6
Five-year periods
Ten-year periods
Three-year periods
Annual
SOURCE: U.S. Bureau of Economic Analysis; McKinsey Global Institute Analysis
Summary
▪ Our sector approach – and why it matters
▪ Patterns in sector contributions to growth
▪ How can governments tailor policies to each g psector
McKinsey & Company | 7
MGI categorizes sectors into six groups according to degrees of differentiation and tradability
1.6
Size of circle = relative amount of sector value added in 2005
Differentiation index0 = averageHigh
Computer and R&D
PharmaRadio, TV, and
1.2
0.8 Local services
Business services
Resource-prod
ucts
Wholesale and retail tradeReal-estate
prelated activities
Chemicalscommunication
equipment
Medical instruments
Aircraft and spacecraft
Other
0
0.4intensive industries
R&D-intensive manufacturing
entia
tion
of p retail trade
Post and telecommunication Finance and
insurance
Real estate activities
Pulp, paper, printing, and publishing
Fabricated metals
instruments
Other
0
-0.4 Infrastructure
Manufacturing
Diff
ere
Electricity
ConstructionHotels and restaurants
Land transport Agriculture,
forestry, Wood
Rubber and plastics
Basic metals
Machinery and equipment
Motor vehicles
100101-0.8
ManufacturingLow
Imports plus exports divided by sector gross output%
yand fishing products
McKinsey & Company | 8SOURCE: EU KLEMS growth and productivity accounts; OECD input-output tables; McKinsey Global Institute analysis
Tradability of productsLow High
Summary
▪ Our sector approach – and why it matters
▪ Patterns in sector contributions to growth
▪ How can governments tailor policies to each g psector
McKinsey & Company | 9
Three lessons learned for governments to keep in mind as they seek to enable growth
LESSON 1S i i i tiSuccess in emerging, innovative sectors alone is not enough to sustain growth
LESSON 2The mix of sectors in an
i l i t t theconomy is less important than the competitiveness of sectors
LESSON 3Service sector growth is critical – and particularly so for job
h
McKinsey & Company | 10SOURCE: McKinsey Global Institute analysis
growth
Even in the United States, innovative new sectors make a small direct economic contribution
Competitiveness in new innovative sectors is not enough
Share of US employment, August 2009 (percent of nonfarm employment)100% = 130 million
New innovative sectors Existing large employment sectors
BiotechSemi-conductor Cleantech
Construc-tion
Financial activities
Retail trade
11.3
0 60 30 2
5.94.9
McKinsey & Company | 11SOURCE: The Clean Energy Economy, PEW, 2009; Bureau of Labor Statistics; Haver analytics
0.60.30.2
Three lessons learned for governments to keep in mind as they seek to enable growth
LESSON 1Success in emerging innovativeSuccess in emerging, innovative sectors alone is not enough to sustain growth
LESSON 2The mix of sectors in an
i l i t t theconomy is less important than the competitiveness of sectors
LESSON 3Service sector growth is critical – and particularly so for job
h
McKinsey & Company | 12SOURCE: McKinsey Global Institute analysis
growth
Sector performance has mattered more than the mix of sectors for overall GDP growth in developed countries
Sector competitiveness matters more than sector mix
Contribution to total value added, 1995–2005Compound annual growth rate, %
Growth momentum Differences in
Growth Total growth
UnitedHigh
(growth predicted by initial sector mix)
performance of sectors
2 33 3 0 9United States
S. Korea
U it d
High
1.8
2.33.3
2.6 0.7
0.9
United Kingdom
France 2.3
2.2
2.1
2.6
-0.2
0.4
Germany
JapanLow 2 1
2.3
0 4
0.8
-1 7
-1.5
McKinsey & Company | 13SOURCE: Global Insight; McKinsey Global Institute analysis
JapanLow 2.10.4 -1.7
Three lessons learned for governments to keep in mind as they seek to enable growth
LESSON 1Success in emerging, innovative g gsectors is not enough to sustain growth; existing sectors need attention, too
LESSON 2The mix of sectors in an
i l i t t theconomy is less important than the competitiveness of sectors
LESSON 3Service sector growth is critical – and particularly so for job
h
McKinsey & Company | 14SOURCE: McKinsey Global Institute analysis
growth
Services have contributed 87 percent of GDP growth in high-income countries in the last decades
For jobs, service sector competitiveness is key
Sector contribution to growth of value added in high-income countries, 1985–2005100% = $10.4 trillion
100
62 4
13
100R&D-intensive mfgManufacturingResource-intensive
Goods
18Business services
58 87Local servicesServices
12
McKinsey & Company | 15SOURCE: Global Insight; International Labor Organization; National Statistics; McKinsey Global Institute analysis
Infrastructure
Service sectors generate most net new jobs across all income groups – and over 100% in high income countries
For jobs, service sector competitiveness is key
Low-income Medium-income High-income
Sector contribution to a country's net growth of employment, 1985–2005%, million employees
countries100% = 324
countries100% = 50
gcountries100% = 74
32Goods9
29100%
32Goods
91
129
68Services91
McKinsey & Company | 16SOURCE: International Labor Organization; National Statistics; McKinsey Global Institute analysis
Summary
▪ Our sector approach – and why it matters
▪ Patterns in sector contributions to growth
▪ How can governments tailor policies to geach sector
McKinsey & Company | 17
Our policy approach – frameworkDifferentiating sector-level policies by the degree of intervention
Degree of interventionHighLow
Government as principal actor
Tilting the playing fieldBuilding enablers
Setting ground rules/direction
Governments can limit Without interfering with Governments can Governments can sector policies to▪ Setting the
regulation covering labor, capital and
market mechanisms, governments can support private-sector activities by
choose to create favorable conditions for local production through:
play a direct role by▪ Establishing state-
owned or subsidized
land markets;▪ Establishing the
general business environment,
▪ Expanding hard and soft infrastructure;
▪ Helping to ensure adequate skills
▪ Trade protection from global competition
▪ Providing financial incentives for local
companies;▪ Funding existing
businesses to ensure their
▪ Setting broad national priorities and road maps.
qthrough education and training,
▪ Supporting R&D activities.
operations▪ Shaping local
demand growth through public
survival▪ Imposing
restructuring on certain industries.
McKinsey & Company | 18
g ppurchasing or regulation.
SOURCE: MGI/PSO Sector Competitiveness Project
To be effective, policy tools need to be tailored to sector characteristics
Degree of interventionHighLow
R&D i t iBusiness
Government as principal actor
Tilting the playing fieldBuilding enablers
Setting ground rules/direction
R&D-intensive manufacturing
Business services
Local services Manufacturing
InfrastructureResource-intensive industries
Infrastructure
McKinsey & Company | 19SOURCE: McKinsey Global Institute/Public Sector Office Sector Competitiveness Project
industries
Policy can determine domestic sector performance –retail sector performance varies widely around the world
EmploymentHours worked per capita
Retail sector performance in developed countries, 2005
90
100
80
60
70
80
60
40
50
2018 1916 17Labor productivity
00 22111098 217 12 14 1513 24236
McKinsey & Company | 20
Labor productivityValue added (dollars per hour worked)
SOURCE: EU KLEMS; McKinsey Global Institute analysis
To be effective, policy tools need to be tailored to sector characteristics
Degree of interventionHighLow
R&D i t iBusiness
Government as principal actor
Tilting the playing fieldBuilding enablers
Setting ground rules/direction
R&D-intensive manufacturing
Business services
Local services Manufacturing
InfrastructureResource-intensive industries
Infrastructure
McKinsey & Company | 21SOURCE: McKinsey Global Institute/Public Sector Office Sector Competitiveness Project
industries
The majority of recent attempts to establish local semiconductor industries
l t h f il d
ROUGH ESTIMATES
Estimated cumulative country-wide government incentives
$
or clusters have failedSuccesses and failures of semiconductor clusters
PresentCurrently not present
Sustainable competitive edge
wide government incentives (USD billion)
E ti t d d t f i d t hi i ifi t i20001980 19901970
United States, $12–36
Estimated date of industry reaching significant size
Taiwan Semiconductor M f t i C
Japan, $19–54
Taiwan, $15–43
Manufacturing Company (TSMC) first to introduce novel business model of foundry-only semiconductor player
South Korea, $9–26
Singapore, $5–16
semiconductor player
Germany, $2–7
China, $6–17
McKinsey & Company | 22SOURCE: SEMI World Fab Watch; expert estimates; McKinsey Global Institute analysis
Malaysia, $1–3
To be effective, policy tools need to be tailored to sector characteristics
Degree of interventionHighLow
R&D i t iBusiness
Government as principal actor
Tilting the playing fieldBuilding enablers
Setting ground rules/direction
R&D-intensive manufacturing
Business services
Local services Manufacturing
InfrastructureResource-intensive industries
Infrastructure
McKinsey & Company | 23SOURCE: McKinsey Global Institute/Public Sector Office Sector Competitiveness Project
industries
A sector perspective on competitiveness and growth
▪ Growth aspirations need to be grounded on a realistic view of sector contributions to growth– Success in emerging innovative sectors is not enough– Success in emerging, innovative sectors is not enough – The mix of sectors matters less than their competitiveness– Service sector growth is critical – particularly for job growth
▪ Effective growth policies are tailored to the levers that matter in each sector, yet odds of success vary – Policy can determine sector performance in local sectors…– but cannot guarantee success in globally traded industries– … but cannot guarantee success in globally traded industries
▪ In tradable sectors, odds improve if policies target economic activities with a strong business case for local production; and are executed in collaboration with the private sector
McKinsey & Company | 24
Thank you
This report and other MGI research areother MGI research are available at:
www.mckinsey.com/MGI
McKinsey & Company | 25