Policy ecosystem for strengthening innovation capacities
Transcript of Policy ecosystem for strengthening innovation capacities
Policy ecosystem for strengthening innovation capacities –seeing the big picture
Int’l conference on emerging technologies
for achieving sustainable development
goals
Kuala Lumpur, November 5, 2019
© Reddal Inc. This material is Reddal proprietary.
Drivers of economic growth – the role of population, productivity and
export, as well as the global macro environment overall
Development path of South Korea and Vietnam, and the role of
national policy
Real life innovation and the opportunities for emerging Asian
countries
Overview of policy ecosystem – key elements along the company
development journey
Key messages
© Reddal Inc. This material is Reddal proprietary. 2
Finland, as a sample Western country, is showing signs of
stagnation
© Reddal Inc. This material is Reddal proprietary. 3
GDP growth rate1 and GDP per capita – Finland (1960 - 2018)
-10
-5
0
5
10
15
35
20
0
5
15
10
30
40
25
45
50
55
19751965 1985 20051970
kUSD, current%
1960 1980 1990 1995 2000 20152010 2018
GDP growth rate
GDP per capita
1Based on constant local currency.
Source: World Bank (www.worldbank.com).
Global
financial
crisis
2007-08
Finnish
banking
crisis
1991-93
South Korea
2018, 31kUSD.
2013 Nokia
mobile phones
sold to
Microsoft
South Korean growth is today only a shadow of what it used to
be – the economy is facing significant challenges
© Reddal Inc. This material is Reddal proprietary. 4
GDP growth rate1 and GDP per capita – South Korea (1960 - 2018)
-8
-6
-4
-2
0
2
4
6
8
10
12
14
16
0
25
15
5
35
10
20
30
40
45
50
55
1970 1995 2018
kUSD, current %
1960 1965 1975 1980 1985 20001990 2005 2010 2015
GDP growth rate
GDP per capita
Global financial
crisis 2007-08
2008-13 Green
growth (Myung-
bak Lee)
Asian financial
crisis 1997-98
1962 Initiated gov’t lead
industrial policy (5 year plans)
(Chunghee Park)
1980 Gwangju massacre
(Doowhan Chun)
2013-17 Creative
econ. (Geun-hye
Park)
1982-92 5yr. economic and
social dev. plan.
1993-97 5yr. plan
for New Economy
Knowl. based econ. plan
Innovation driven dev.
Plan (2000-03, 2003-08)
Despite policies to
promote advanced
industries, GDP growth
has stagnated.
China 2018,
9.7kUSD.
1Based on constant local currency.
Source: World Bank (www.worldbank.com).
Growth in China is still good, but clearly slowing down
© Reddal Inc. This material is Reddal proprietary. 5
GDP growth rate1 and GDP per capita – China (1960 - 2018)
-15
10
5
15
-25
-20
-5
-10
0
0
10
15
2020
5
1960
kUSD, current%
1965 1970 1975 1980 20181985 1990 1995 2000 2010 20152005
GDP growth rate
GDP per capita
Great proletarian
cultural revolution
Start of Chinese
economic
reform
Hong Kong and
Macao handover,
Asian financial crisis
1997-98
Entry of
WTO
Global
financial
crisis
2007-08
Second
largest
economy in
the world
Belt and
road
initiative
Made in
China
2025
Vietnam 2018,
2.6kUSD.
1Based on constant local currency.
Source: World Bank (www.worldbank.com).
Vietnam is maintaining good growth, although the level of growth
is clearly lower than China and South Korea at similar stage
© Reddal Inc. This material is Reddal proprietary. 6
GDP growth rate1 and GDP per capita – Vietnam (1985 - 2018)
-10
-5
0
5
10
1520
10
0
2
12
6
4
8
14
16
18
kUSD, current%
1985 1990 1995 2000 2005 2010 2015 2018
GDP per capita
GDP growth rate
1Based on constant local currency.
*Bilateral Trade Agreement.
Source: World Bank (www.worldbank.com).
Đổi Mới reform Increasing export Asian
financial
crisis
1997-98
BTA* signed with
U.S. in 2000,
increasing FDI and
export afterwards
Global financial
crisis 2007-08
Mismanagement
of SOEs and
privatization
reform started
Strengthening
private-sector-
led growth
13
-8
-6
-4
-2
0
2
4
6
8
10
12
14
16
1.5
5.5
3.0
2.5
0.0
1.0
0.5
2.0
3.5
4.0
4.5
5.0
6.0
6.5
7.0
(kUSD, current)(%)
1960 1965 1970 1975 1980 1985 1990
Vietnam’s recent growth has some similarities to Korea in the 70s, but
with markedly lower growth rate in GDP per capita
© Reddal Inc. This material is Reddal proprietary. 7
GDP per capita and GDP per capita growth rate
8
-8
-6
-4
-2
0
2
4
6
8
10
12
14
16
4.0
3.0
3.5
2.5
0.5
0.0
1.0
7.0
1.5
2.0
4.5
5.0
5.5
6.0
6.5
1995 20052000
(kUSD, current)(%)
1985 1990 2010 2015
Growth rate - Vietnam GDP per capita - Vietnam
Growth rate - Korea GDP per capita - Korea
5% gap
Source: World Bank (www.worldbank.com).
Vietnam (1985 – 2015)Korea (1960 – 1990)
Iran is an aberration, due to high impact of global political
environment, but has demonstrated rapid growth at times
© Reddal Inc. This material is Reddal proprietary. 8
GDP growth rate1 and GDP per capita – Iran (1960 - 2017)
10
5
0
15
-25
-10
-20
-15
-5
20
0
5
20
10
15
25
kUSD, current
20001985 20151965 1995
%
19701960 1980 1990 2005 20101975
GDP growth rate
GDP per capita
Iran-Iraq warIran Revolution Rafsanjani government
(vast prioritization – foreign
investments)
Khatami government
(stable economy and
international relations –
foreign investments)
Ahmadinejad
government
(highest oil prices –
US sanctions)
Rouhani government
(nuclear deal – foreign
investments)
• After nuclear deal (2015) foreign investment reached
5BUSD (2017) and GDP growth rates peaked
• However, after US pulling out of deal, applying max.
pressure policy, local currency experienced large
devaluation 2017-18 followed by huge inflation rate (2018)
• Rouhani admin. managed to stabilise currency and control
the inflation (2019)
1Based on constant local currency
Source: World Bank (www.worldbank.com).
Population growth is a key additive term in GDP growth – it and
GDP per capita growth is shrinking in many countries
© Reddal Inc. This material is Reddal proprietary. 9
The role of population and per capita GDP in real GDP growth
Percent, 1990 - 2000, 2000 - 2015
Source: Peterson, The role of population in economic growth, SAGE Open Oct-Dec 2017, https://journals.sagepub.com/doi/pdf/10.1177/2158244017736094.
Piketty finds that global
long term values are
0.8% + 0.8% = 1.6%.
Solow studied US GDP
growth, and stated that
about 80% was driven
by innovation, and and
only 20% of factor
inputs.
Change in exports is a surprisingly accurate predictor of GDP
change at least in the case of Finland
© Reddal Inc. This material is Reddal proprietary. 10
Change of GDP vs. change in exports (Finland)
0
2
4
6
8
10
12
14
16
18
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
40000
42000
44000
46000
48000
50000
52000
2008 2012 2016
Finland’s export.
Finland’s GDP.
Finland’s GDP
assuming 1.1%
change in export
creates 1% change
in GDP.
Finland’s GDP per
capita assuming
2.5% change in
export/capita
creates 1% change
in GDP/capita.
GDP per person, USD
Finland’s
GDP/capita.
Source: Eero Byckling, Vienti vetämään – näin luomme uusia menestyviä vientituotteita (2018).
These relationships hold well for our sample countries in general
© Reddal Inc. This material is Reddal proprietary. 11
GDP growth and GDP per capita growth vs. parameters
-5,0
0,0
5,0
10,0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Vietnam 2009-2018
GDP per capita (%)
... vs. export growth rate (%) (ratio 1 : 2.5)
Pop. growth (%)
GDP growth (%)
-10,0
-5,0
0,0
5,0
10,0
15,0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
China 2009-2018
GDP per capita (%)
... vs. export growth rate (%) (ratio 1 : 2.5)
Pop. growth (%)
GDP growth (%)
-10,0
-5,0
0,0
5,0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Finland 2009-2018
GDP per capita (%)
... vs. export growth rate (%) (ratio 1 : 2.5)
Pop. growth (%)
GDP growth (%)
-2,0
0,0
2,0
4,0
6,0
8,0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
South Korea 2009-2018
GDP per capita (%)
... vs. export growth rate (%) (ratio 1 : 2.5)
Pop. growth (%)
GDP growth (%)
Drivers of economic growth – the role of population, productivity and
export, as well as the global macro environment overall
Development path of South Korea and Vietnam, and the role of
national policy
Real life innovation and the opportunities for emerging Asian
countries
Overview of policy ecosystem – key elements along the company
development journey
Key messages
© Reddal Inc. This material is Reddal proprietary. 12
Korea pursued substitution, while Malaysia, Taiwan and Vietnam
pursued complementary strategy – the choice had effects on SMEs
© Reddal Inc. This material is Reddal proprietary. 13
Comparison on national growth models
Note: MNC = multinational company, SME = small and medium sized enterprise, GLC = government linked company, SWF = sovereign wealth fund,
SOE = 100% state owned enterprise, Guangxiqiye = local business groups; China applies a modified substitution strategy, leveraging JVs to expediate tech
transfer process.
Source: Shin, Chang, Restructuring Korea Inc., pp. 11-22; Ha Thanh, Nguyen & Klaus Meyer (2004); Van Chung, Vu (2015); Reddal analysis.
State
Banks
Chaebols
SMEs MNCs
Industrial policy
Loan guarantees,
mutual assistance
Marginali-
sation
Korea
(substitution strategy)
Promotion
Banks
Govern-
ment
Public
enterprisesGuangxiqiye MNCs
SMEs
JVs
Support
Singapore and Malaysia
(compl. strat. – int’l model)
Taiwan and Vietnam
(compl. strat. – semi-int’l model)
Government
SMEs
Foreign
banksLocal banks
MNCsGLCs SWF
Vietnam pursues a semi-international complementary
strategy similar to Taiwan, yet with emergence of local
conglomerates and weaker links to SMEs. Unlike Japan, Taiwan and Singapore, Korean model
required large outside financing (debt and other funding).
Korea used interventionist/protectionist strategy to drive manufactured
goods exports by subsidizing target industries and related chaebols
© Reddal Inc. This material is Reddal proprietary. 14
Korean growth and industrial policy
1Includes LG, GS, LS and their affiliates; 2includes Samsung, Shinsegae, CJ and Hansol; 3Social overhead capital such as roads, schools and hospitals.
Source: ERRI, 재벌및대기업으로의 경제력집중과 동태적변화분석; Ahn, The outward-looking trade policy and the industrial development of South Korea.
8% 11% 12% 14% 19%11%11%
11% 12%13%
14%
5%6%
6%8%
9%
10%
5%
7%8%
9%
8%
5%
1%
3%
73%
65%
64%
57%
51%44%
1987
3%2%
5%
1992 1997 2002
4%
20122007
5%
100%
Rest of top 200
Lotte LG1
SK Hyundai
Samsung2
Period Main policy direction
1950s • Import substitution• Price stability
1962-1971 • Policy shift to export promotion (EP)
• Expanding SOC3
1972-1981 • Heavy and Chemical Industrialization under EP
• Administered credit allocation• Import substitution of parts
and components
1982-1991 • Industrial rationalization• Initial liberalization and opening• Shift to private sector initiatives
1993-1998 • Deregulation• Globalization (capital and foreign exchange
liberalization)• Fairness and transparency in industrial and
trade policy• Technology based industrial policy
Guided capitalism model Chaebols’ assets as a share of top 200 corporate
assets (1987-2012)
5530 4035 45
85
50
50
60
80
70
0
30
90
40
45
55
75
60
65
35
0 65
France
Italy
Germany
Greece
U.K.
Japan*
Iran5
Korea
U.S.
Taiwan3
Finland
Yet a burning issue of Korean economy is that the SME sector is
extremely inefficient and employs a large share of the population
© Reddal Inc. This material is Reddal proprietary. 15
SMEs contribution to overall economy by country
*Used 2013 number of labor forces and 2016 GDP for Iran and 2014 data for Korea and the U.S.; **Used 2013 data for Korea.
Source: 1OECD, Compendium of Productivity Indicators (2016); 2OECD, Entrepreneurship at a Glance (2015); 3Ministry of economic affairs of the
R.O.C and The conference board total economy database; 4General Statistics Office of Vietnam; 5 Statistical Center of Iran (www.amar.org.ir).
SMEs share of total employment2 in 2012**
(%)
GDP per hour worked1 in 2015*
(PPP)
90
15
75
80
55100 20 3525 30 405 45
85
50
30
50 60
65
80 85
0
25
45
55
60
70Hungary
Iceland*
Ireland*
Israel
Italy
Japan*
Korea
Lithuania
Mexico*
Netherlands
NorwayPoland*
Portugal
Russian Federation
Sweden
Slovenia
Slovakia
Latvia
Spain
Switzerland
Austria*
Turkey*
U.K.
New Zealand*
Taiwan3
Belgium*
Malaysia
Iran5
Czech Republic Denmark
Estonia
Vietnam4
FinlandFrance
Luxembourg
Germany
Greece
U.S.
Even in global terms, Korean SMEs poor productivity and role in
employment stands out
© Reddal Inc. This material is Reddal proprietary. 16
SMEs contribution to overall economy by country (full list of countries)
SMEs share of total employment2 in 2012**
(%)
GDP per hour worked1 in 2015*
(PPP)*Used 2013 number of labor forces and 2016 GDP for Iran and 2014 data for Korea and the U.S.; **Used 2013 data for Korea.
Source: 1OECD, Compendium of Productivity Indicators (2016); 2OECD, Entrepreneurship at a Glance (2015); 3Ministry of economic affairs of the
R.O.C and The conference board total economy database; 4General Statistics Office of Vietnam; 5 Statistical Center of Iran (www.amar.org.ir).
Asia
Other
BACK-UP
Productivity gap between Korean SME and conglomerates
continues to be a major issue
© Reddal Inc. This material is Reddal proprietary. 17
Productivity index2: SME vs. large corporations
Note: 1SME includes companies with 10 – 300 employees; 2 Total productivity index, including labor and capital; 3Compounded annual growth rate.
Source: KEIT (2017).
20001990
0.35
19951983 20142005 2010
0.53 0.54
0.750.63
0.98
0.85
1.58
1.06 1.09 1.08
1.92
1.15
1.81
SME1 Large
Relative SME
productivity
CAGR3
66% 72% 65% 80% 69% 57% 64%
4.9%
1.5%
-1.4%
SME productivity has been lower
than large enterprises consistently
and has been growing at lower rate.
4.3%
Vicious cycle of OEM trap
(focus on serving local conglomerates)
Korean SMEs are often locked in vicious cycle, as SMEs are complacent with
their role as supplier – transition to virtuous cycles requires internationalization
© Reddal Inc. This material is Reddal proprietary. 18
SME vicious vs. virtuous cycle
Bargaining power falls
Source: Interviews.
Virtuous cycle
(focus on internationally competitive
technology and products, and
expansion abroad)
“As local market is limited,
diversifying the customer base
globally is key for growth”
-CEO of local IT SME
Moving to virtuous cycle can be realized by providing SMEs with global-minded management
capability, competitive talents pool, and network and insights in international market
“Working with chaebols often
provides SMEs with solid skills”
-Manager of consulting firm
Profit falls
SME’s dependence on (Korean)
conglomerates
Inability to invest in development and attract new talent, morale
falls
Loss of competitiveness
Operations centered around conglomerates
Price squeeze
“Price squeeze is
inevitable and comes
by direct price-cut
request”
-Head of gov. agency
Better competitive advantage,
market position, ability to invest
and attract talent
Acquire new customers,
expand further
Operations based on market/
competitionOptimized resource allocation
Increased product/service differentiation
Bargaining power
increases
Ability to command
price premium
and maintain
profit
Vietnamese growth model does not emphasize building strong local
companies to substitute MNCs nor strong SMEs to complement them
© Reddal Inc. This material is Reddal proprietary. 19
Comparison on national growth models
Note: MNC = multinational company, SME = small and medium sized enterprise, SOE = 100% state owned enterprise managed by respective line ministries
or local governments, GLC = government linked company as result of SOE privatization.
Source: Shin, Chang, Restructuring Korea Inc., pp. 11-22; Ha Thanh, Nguyen & Klaus Meyer (2004); Van Chung, Vu (2015); Reddal analysis.
Both SOEs and MNCs play a significant role in the Vietnamese
economy, typical of a semi-international model. Linkages with
SMEs are weak as their capabilities are not strong enough to
participate in the value chains.
Vietnam (compl. strat. – semi-int’l model)
Banks
Govern-
ment
SOEsEmerging local
conglomeratesMNCs
SMEs
JVs
(Returning)
Vietnamese expatriates
GLCs
Foreign
donors
Overseas
remittances
Foreign
banks
ODA • The Vietnam model is closer to Taiwan, with
JV between SOEs and MNCs a common
practice because of government
equity/license requirements in sensitive
sectors and unique access to local
knowledge and natural resources
• Vietnamese SOEs are not only owned but
also managed by respective line
industries/local governments with strong
political patronage
• Recent privitization and restructuring efforts
of SOEs are slowly turning them to GLCs,
which are closer to the Singapore model
• Recent reforms since 1986 ”Doi moi” and
influx of overseas remittances from
Vietnamese expatriates have also
encouraged the emergence of a few local
conglomerates
Comments
Growing ties with returning ”Viet Kieu” and Vietnamese diaspora networks
overseas foster valuable ”soft factor” spillovers in terms of knowledge, skill
and human capital
© Reddal Inc. This material is Reddal proprietary. 20
Leveraging international connections for acceleration – Vietnamese diaspora networks
Family-run
businesses
Entrepreneurial
start-ups
Financial funding
Technical and
managerial support
Diaspora network
• Business contact
networks
• Professional
associations
• Independent
research institutes
Vietnamese companies with
international connections
Valuable stakeholders in
host countries
Venture capitalists
Service providers
Consultants
Suppliers
Case example
• Vingroup
• Masan
Emerging
conglomerates
Case example
• My Lan Group
• Highland Coffee
Case example:
• Misfit
Case example
• Association of Overseas
Vietnamese Business Owners,
• Vietabroader (US-focused),
• Vietnam2020 (Singapore-
based)
Access to exclusive
”highly-skilled”
pool
Source: Pham (2010), Reddal interviews (2017), Reddal analysis.
Major host countries are US,
Russia and Eastern Europe,
France, Australia, Canada.
First wave of returnees after Doi Moi mainly focused
on leveraging local connections to capture local
opportunities while current waves act more as a
bridge between Vietnam and regional/global markets.
Government policy
support
Market activities
Government policy aims to help local SMEs to become supplier to
MNCs
© Reddal Inc. This material is Reddal proprietary. 21
FDI spillover framework and policy implications
Source: Newman et al., European Economic Review 76 (2015), Reddal analysis.
Foreign firms
(FDI firms)
Mechanism to boost FDI spillover to domestic firms
Domestic
firms
Supplies
inputsSpillover
Increase spillover
potential
Develop absorptive
capacities
• Labor market regulations
• Investment policy and
promotion
• IP rights
• Education and training
• Access to finance
• SME development
• Trade policy
FDI contribution to Vietnamese
economy (based on 2015 data)
FDI companies contribution
to GDP: 18%
FDI companies contribution
to export: 70.5%
FDI companies contribution
to state budget revenues**:
14.1%
FDI companies contribution
to overall employment: 4.2%
Foreign conglomerate led FDI has been a major contributor to Vietnam’s
national level indicators, but its spill over effect is limited
© Reddal Inc. This material is Reddal proprietary. 22
FDI investments and spillover effects in Vietnam
*As of 12/31/2015; **As of 2014.
Source: Vietnamese General Statistics Office, Ernst and Young, Private equity briefing: SEA (2016); OECD, Investment Policy Review of Vietnam (2016);
IMF (2002).
40%
22%
2012
22%
38%
40%
1,367
39%
22%
39%
2014
36%
38%
23%
2015
1,010100%
2011
1,221
26%
38%
37%38%
2010 2013
25%
38%
40%
830 924 1,095
Investments by types of ownership
(total in trillion VND)*
FDI contribution to Vietnamese
economy (based on 2015 data)
FDI companies contribution
to GDP: 18%
FDI companies contribution
to export: 70.5%
FDI companies contribution
to state budget revenues**:
14.1%
FDI companies contribution
to overall employment: 4.2%
Reflections
• FDI has been focused on
industrial manufacturing
sector
• It has contributed
significant amount to
GDP development
• However, its contribution
to employment has been
very limited
• IMF assumes that most
employments have been
made through
subcontractors and
suppliers to the FDI
companies; however, the
competitiveness of these
companies have much
room for improvement
(and many are foreign
owned)
Non-state State FDI
Localization rate and local (Vietnamese) supplier quality assessments
highlight the competitiveness issue of Vietnamese players
© Reddal Inc. This material is Reddal proprietary. 23
Competitiveness of Vietnamese suppliers
Source: JETRO annual survey, OECD, press articles.
• Out of 32% Japanese local sourcing in Vietnam, 45% was
sourced from Japanese companies operating in Vietnam and
14% from Taiwanese companies operating in Vietnam
• Low localization rate has directly affected Japanese invested
companies’ profitability in Vietnam
• Vietnam has been cooperating with Japan since 2000s to
build supporting industries but have failed to realize two
planned supporting industrial parks after 14 years
Localization rate* of Japanese-invested
manufacturers by country, 2015
65%56%
41% 36% 32%
VietnamChina Thailand Indonesia Malaysia
*Localization rate is defined as % of raw material and intermediary goods sourced locally, **Based on OECD ranking of 140 countries.
Actual % purchased
from Vietnamese
companies is less
than 13,7%
Local supplier quantity
Lo
ca
l s
up
plie
r q
uali
ty
Thailand
Indonesia
Malaysia
Korea
ChinaPhilippines
Vietnam
Lao PDR
Cambodia
HighLow
Hig
hL
ow
There is still a big
gap in Vietnamese
local companies’
ability to
participate as
suppliers to MNCs
Local supplier quantity and quality**, 2015
Avoiding OEM trap is even more critical for SMEs in developing nations
– advantage in manufacturing, arising out of cheap labor will diminish
© Reddal Inc. This material is Reddal proprietary. 24
Peak manufacturing employment share and GDP per capita when it peaked
Percent, constant 2005 USD
• Trade has induced productivity gaps to close faster
than gap in income as manufacturers must follow
similar international standards
• Manufacturing is becoming less labor-intensive
also in developing economies; thus peaked share
of manufacturing employment has declined
• Automation coupled with additive manufacturing
making OEMs from developing economies risk
becoming redundant
Peak share of manufacturing
employment below 20% for many
emerging economies
Observations
Source: GGDC-10 Sector database, World Bank Development Indicators, Citi Research in “Technology at work v2.0: The future is not what it used to be.”
Drivers of economic growth – the role of population, productivity and
export, as well as the global macro environment overall
Development path of South Korea and Vietnam, and the role of
national policy
Real life innovation and the opportunities for emerging Asian
countries
Overview of policy ecosystem – key elements along the company
development journey
Key messages
© Reddal Inc. This material is Reddal proprietary. 25
On organizing international operations in Vietnam*
Misfit combined local capabilities across multiple countries in a unique way
to fuel its growth
© Reddal Inc. This material is Reddal proprietary. 26
Leveraging international connections for acceleration: Misfit Wearables
About Misfit (now part of Fossil Group)
• Founded in 2011 by Sony Vu (CEO and
President), Sridhar Lyengar and former Apple
CEO John Sculley
• Offering: health tracker wearables
• Available in 20 countries (US, Canada Mexico,
Brazil, UK, Germany, Italy, France, Switzerland,
Spain, Sweden, Russia, Australia, China, Hong
Kong, Japan, Singapore, Taiwan, South Korea
and India)
• Acquired by Fossil Group at 260MUSD in
November 2015
Q: What prompted the decision to have so many employees here
[in Vietnam], aside from your background?
Vu: “So we have to get the best talent at the best price. So what
we've done is optimized our hiring to be in places where we have
an unfair competitive advantage”.
Vu: “If you just come here with a mentality, I'm going to get cheap
outsourced labor, then that's exactly what you're going to get…So
we really give them [the Vietnamese staff] a lot of authority…And
people rise up to the challenge”.
• Product design
• Funding
• Marketing and sales
• Manufacturing
• Logistics and supply chain, operations,
finance
• Customer service
• Data science and algorithm development
• Firmware engineering
• Graphic design
• Commercial product development
Leverage the best
of each world to
gain competitive
advantages and
scale internal
capabilities
development fast.
Source: Company website, press articles.
*Interview with Sonny Vu conducted by CNET in 2015.
Uber’s struggles to scale in China, Russia and SEA illustrate that global
success of digital services still require local know-how
© Reddal Inc. This material is Reddal proprietary. 27
Lessons learnt from some of Uber internationalization journey
Feb 2013 – Uber launched in Singapore, starting its
expansion in South East Asia (SEA).
Jul 2014 – Uber officially launched in China. Also in Russia.
August 2016 – Uber China merged into Didi Chuxing. Uber
China would own 20% of the new entity. Didi to own $1bn
share in Uber global.
July 2017 – Uber merged its operations in Russia,
Azerbaijan, Belarus and Kazakhstan with Yandex. Uber
would own 36.6% of the new entity.
March 2018 – Uber sold its operations in SEA for 27.5%
stakes in Grab – a Singapore based competitor.
Uber expansion timeline in selected markets
Source: Press clippings.
Grab focused on building ”segmented, localized and tailored
service” to foster customer experience and loyalty
© Reddal Inc. This material is Reddal proprietary. 28
Grab localization strategy to succeed in regional expansion
• Traffic congestion make motorbike a
more convenient and faster choice
• GrabBike was launched in 2014, two
years ahead of Uber Motor
• Cash payments are still prevalent in
many South East Asian cities
• Grab has traditionally accepted cash
payments, long before Uber began to
pilot it, first in India in 2015
• SEA is a fragmented region with
different languages; many still do not
speak English
• Grab launched GrabChat in 2016 with
template messages and auto translation
for quick communication between drivers
and riders
• Durian is a special and popular local
fruit in many parts of SEA
• Grab organized special campaigns/
redeem offer for special treats of high-
quality durian
How Grab cater to local needs and tastesSouth East Asia special characteristics
Source: Press clippings.
Without a dedicated entry strategy, many young companies fell to the
pitfalls of relying on the “sales” approach only for short-term gain
© Reddal Inc. This material is Reddal proprietary. 29
Entry strategy approach versus “sales” approach to international markets
”Sales” approach Entry strategy approach (go-to-market system)
Time horizons Short-run. Long-run (say, 3 to 5 years).
Target markets No systematic selection.Selection based on analysis of markets/sales
potential.
Dominant objectives Immediate sales. Build permanet market position.
Resource commitment Only enough to get immediate sales. What is necessary to gain permanent market position.
Entry mode No systematic choice. Systematic choice of most appropriate mode.
New product development Exclusively for home market. For both home and foreign markets.
Product adoptionOnly mandator adaptions (to meet legal/technical
requirements) of domestic products.
Adaption of domestic products to foreign buyers’
preferences, incomes, and use conditions.
Channels No effort to control. Effort to control to drive market objectives/goals.
PriceDetermined by domestic full cost with some ad hoc
adjustments to specific sales situations.
Determined by demand, competition, objectives, and
other marketing policies, as well as cost.
PromotionMainly confined to personal selling or left to
middlemen.
Advertising, sales promotion, and personal selling mix
to achieve market objectives/goals.
Without a go-to-market system with entry strategy for a
product/target market, a company only has a “sales” approach.
Source: Franklin R. Root, Entry strategies for international markets (2008).
Success as global company
• Consolidate global system that allows
flexibility in cost management and
customized marketing
• Risk of new entrants with lower cost
advantage persists
• To sustain position, firm-specific and
proprietary knowledge in narrow field
must be developed
Developing own design/brand
• Early strength in production skills acquired
in supplier position
• Upgrade into higher-value-added products
in the same industry
• Key challenges in weak brands, lack of
marketing experience and incumbent
litigations
SME supplier to conglomerate
• Condition: late entry and resource poor
• Learning and building technology via
external sources and in-house R&D
• Needs local conglomerates to supply to
SMEs in developing nations require a unique path creation
strategy, where internationalization is an integral part of success
© Reddal Inc. This material is Reddal proprietary. 30
Path creation strategy for SMEs: from OEM to OBM*
Sales
TimeEntry Gradual catch-up Path creating/ crisis Rapid catch-up Post catch-up
Path creation
begins
*OEM = original equipment manufacturer, OBM = original brand manufacturer; concepts can be also extended to services
Source: Lee, Economic catchup and technological leapfrogging
Young technology companies need to build internal R&D capabilities and
leverage digital technologies and service platforms to drive growth
© Reddal Inc. This material is Reddal proprietary. 31
Tips on internationalization for technology SMEs
Avoid the OEM trap – being complacent
in playing the role of part manufacturers
in the global value chain.
Over-rely on low-cost advantages
without realizing other value-adding
advantages from local resources.
Invest in internal R&D to develop internationally
competitive technology and products, and
expansion abroad.
Overly ambitious expansion plan, risk
stretching themselves too thin over
mass expansion without a clear go-to-
market strategy/strategies.
Digital technologies make cross-border
collaboration more easily, which young
companies can leverage to build optimal teams.
Digital and service platforms make scaled
internationalization more feasible for young
companies with local resources – but local
know-how essential for success.
Drivers of economic growth – the role of population, productivity and
export, as well as the global macro environment overall
Development path of South Korea and Vietnam, and the role of
national policy
Real life innovation and the opportunities for emerging Asian
countries
Overview of policy ecosystem – key elements along the company
development journey
Key messages
© Reddal Inc. This material is Reddal proprietary. 32
Coase developed a basic theory of a firm, and this can partially
be extended to nations as well
© Reddal Inc. This material is Reddal proprietary. 33
Ronald Coase main theses on the nature of the firm
“As long as there is a cost of using the price-
mechanism, it is advantageous to organize within a
firm and reduce uncertainty by making a promise
of loyalty to a certain extent. Within a firm, an
unsustainably large number of contracts is
replaced by one.”
“A firm stops growing at some point due to
the law of diminishing returns to management: the cost
of organizing rises with additional transactions due to
inability to place resources effectively, and at some
point surpasses the costs of carrying out the transaction
in the open market. A firm therefore tends to be larger
•The less the cost of organizing is and the slower the
cost grows with expansion
•The less likely is the entrepreneur to make mistakes
and the smaller the probability of being inefficient
grows with accepting additional transactions
•The less the supply price of factors of production rises
as the firm grows larger”
Source: https://www.scribd.com/doc/156497850/Summary-Coase-1937-the-Nature-of-the-Firm.
Earlier Kondratieff presented the notion of long-term waves in
global economy and Schumpeter ”creative destruction”
34
Kondratieff waves of growth and their main features
Source: Trott, Innovation Management and New Product Development, 5th ed., pp. 6-8, 54-55; see also Shin, The Global Financial Crisis and the Korean
Economy
1770s-80s 1830s-40s 1980s-90s1880s-90s 1930s-40s
Eco
no
mic
activity
Depression
Recession
Prosperity
Recovery
?
K1
Early
mechanisation
K2
Steam power and
railway
K3
Electrical and heavy
engineering
K4
Fordism
K5
Information and
communication
© Reddal Inc. This material is Reddal proprietary.
These can now be connected to a theory of nations and their
success – and it lends itself perhaps also back to ventures
© Reddal Inc. This material is Reddal proprietary. 35
Basic concepts on structure of institutionsNarrow Broad
Distribution of power
Lack of
state
Political
centralization
State building
(China, N. Korea)
Democracies
(US, W. Europe)
Source: Daren Acemoglu, MIT, State building: A political economy perspective.
Economic institutions
Extractive Inclusive
Extractive
Inclusive
Political
institutions
Democracies
(US, W. Europe)
ChinaSoviet Russia
Somalia
Most extractive
institutions
(Latin America, Sub
Saharan Africa)
1
2Nations can
follow different
evolution paths
(1 – England, 2
– Turkey)
The basic idea is that innovation is driven by freedom and creativity;
institutions can improve that by incentivizing everyone to participate
© Reddal Inc. This material is Reddal proprietary. 36
Rents and economic development
Economic institutions
Extractive Inclusive
Extractive
Inclusive
Political
institutions
USA UK
South Korea
ChinaNorth Korea
South Africa
Zimbabwe
Source: Daren Acemoglu, James A. Robinson, Rents and economic development: the perspective of Why Nations Fail.
Idea
Inclusiveness is a key element in the early part of development, but the
overall policy ecosystem must also meet requirements down the line
© Reddal Inc. This material is Reddal proprietary. 37
Growth development path and role of environment
*MVP = Minimum viable product.
Source: Adapted from Eero Byckling, Vienti vetämään – näin luomme uusia menestyviä vientituotteita (2018).
Capturing market
changes
• Technology
evolution
• New services
• Changes in
demographics
• Changes in wealth
Creating unique ideas
• High quality education
• Inclusiveness
• Global talent
• High quality research
Professional business development
• Focused gov’t role
• Active business angel community
• International, regional and local
investors
• Ecosystem of professional services
Establishing a
foothold
• Deliveries to first
customers
• Customer feedback
Expanding the base
• Supply chain
• Sales channels
• Marketing in multiple
markets
• Access to top notch
talent
Scaling up to high
volume operations
• Deliveries to multiple
markets
• Expanding presence
• Attractive employer
in home country
Domain leadership
• Acknowledged brand
• Presence in multiple
markets
• Attractive employer
in multiple markets
Value adding owners
• Listed in stock
market (functioning
market)
• Part of larger
corporation
(ecosystems of good
corporate owners)
Industrial leadership
• Significant
contribution to home
country (attractive
regulative
environment and
stability)
Prototype or
concept (MVP*)Growth company Export company
Global/regional
corporation
Tasks
Role of
environ-
ment
FOR DISCUSSION
• Growth is becoming increasingly difficult – the past does not provide clear recipes for the future, nations must forge their own paths
• Population growth is a clear driver for GDP growth, but needs to be combined with productivity growth – avoid the low labor cost trap that has both negative effect on productivity as well as potentially inequality
• Korea is a lesson in that state run industrial policy that favors only a small number of large corporations is not sustainable (compare to German industrial ecosystem, and the strong role of ”Mittelstand” companies)
• Vietnam may be a cautionary lesson in the excessive dependence on FDI, and failure to build the country’s own industrial ecosystem
• As a base rule, Asian companies can innovate if they leverage their inherent advantages in a creative way
• Inclusiveness is critical to success – it implies seeking to get the most of all members in the society (also immigrants in the country and diaspora abroad)
• However, in order to develop a growing economy, the nation’s policy ecosystem must address the needs of the entire company development path – piecemeal solutions do not work (see also Josh Learner, Bulevard of Broken Dreams)
We can learn from the past, and from others, but the future we
face brings fresh challenges – new holistic solutions are needed
© Reddal Inc. This material is Reddal proprietary. 38
Conclusion
Working together for successful growth!
39© Reddal Inc. This material is Reddal proprietary.