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Dr. Sanjaya Lall

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Title: Dr. Sanjaya Lall


1
Dr. Sanjaya Lall
Professor, Developmental Economics Oxford
University, UK
2
  • Former Senior Economist, World Bank
  • Advisor, Technology Policy, Innovation,
    Competitiveness, Industrial Technology, Foreign
    Direct Investment, Trade, Monitoring Evaluation
    Systems
  • Former Senior Research Officer, Institute of
    Economics and Statistics, Oxford

3
Competitiveness, FDI, trade and innovation A
global perspective
  • Sanjaya Lall
  • Professor of Development Economics
  • University of Oxford
  • sanjaya.lall_at_economics.ox.ac.uk

4
International competitiveness has become an
essential precondition for growth. The context
for competitiveness is changing significantly,
rapidly and irrevocably.The change is driven
by technical progress, but its impact is very
uneven. It is uneven across activities,
regions, countries and particular groups within
countries. This is driving a wedge between the
technological haves and have-nots in the
developing world and it needs to be countered.
5
  • I illustrate this for manufacturing industry with
    data for production, exports and technological
    performance for 1980-2000
  • Technological performance is shown by dividing
    production and exports into categories according
    to the sophistication of technology a simple
    but useful method
  • I also consider some structural drivers of
    competitive performance skills, FDI, domestic
    technological effort, licensing and ICT
    infrastructure.
  • This is for benchmarking reasons it is NOT
    meant to reduce the importance of other factors
    like macro or trade policy, governance, business
    costs and so on.

6
Let me start with some basic scene setting
7
Globalization is driven by rapid and pervasive
technical change
The death of distance opens opportunities new
markets and narrower forms of specialization in
fragmented production global value chains
Innovation changes structure of industrial and
export activity, shifting the dynamics of
different activities the key to success is good
positioning to exploit these changes
The pace and spread of innovation make it
imperative to constantly access new technologies,
but raises minimum entry levels in capabilities,
institutions and infrastructure
8
Recent growth of hi-tech other manufacturing
production in 1980-98 (US National Science Board)
9
Technical change alters the organisation of
production and trade
Harnessing innovation and globalization needs
more than opening up to trade or FDI it needs
building capabilities to use new technologies
efficiently and moving up the technology scale
Thus globalization offers new markets and mobile
resources but competing for these calls for more
than primary resources or cheap labour it
requires the ability to harness innovation
  • Globalization raises the role of MNCs in
    innovation, technology transfer, production and
    particularly exports. Around 2/3 of world trade
    is handled by MNCs, about 1/3 is within companies

10
Capability building in developing countries is
not innovating at the frontier
  • It is building the specialized skills, technical
    knowledge, organizational structures and
    inter-firm linkages to seek, absorb, adapt and
    improve technologies.
  • This requires strengthening the institutional
    base the national innovation system
  • The interacting complex of technology (MSTQ, RD,
    technical services, extension), education,
    training and other institutions that help
    enterprises to become technologically capable
  • The NIS is as important (or even more so) for
    less industrialized as it is for more advanced
    economies they find it harder to cope with new
    technologies and to tap dynamic global value
    chains

11
Now consider global patterns of export
competitiveness and dynamism
12
Evolution of MVA shares by development
13
Technological structures a simple categorisation
  • Primary products
  • Manufactured products
  • RB (Resource based) e.g. food, wood forestry
    products, processed minerals, petroleum products
  • LT (Low technology) e.g. textiles, clothing,
    footwear, toys, sports goods, simple metal
    products
  • MT (Medium technology) e.g. automotive products,
    TVs, machinery, chemicals, steel
  • HT (High technology) Advanced ICT and
    electricals, pharmaceuticals, aerospace,
    precision instruments

14
Growth rates of MVA by technology in
industrialized and developing countries
15
Developing countries industrial structure still
lags ICs but is catching up rapidly
16
Technology structure of MVA in developing regions
(1980-2000)
17
Performance in developing world is skewed
regional shares of global MVA, 1980-2000 ()
18
LAC was largest regional loser of MVA shares,
followed by SSA
19
Now consider export competitiveness
20
Manufactures drive trade values of world
exports, 1985-2000 (current billion)
21
Shares of world manufactured exports by
technology note when RB, MT and LT shares peak
(1976 to 2000, )
Resource based
High Technology
Medium Technology
Low Technology
22
Growth rates of manufactured exports by
technology
23
Role of HT is more evident in the 50 fastest
growing world exports over 1990-2000 ( shares)
24
How are developing countries doing in this
dynamic scene?Surprisingly well
25
Growth rates of industrialized and developing
countries over the past two decades ( p.a.)
26
Developing worlds market shares by technology
27
And the values of its exports HT now far exceeds
LT and RB (current billion)
28
But developing world export performance is also
highly concentrated (world market shares)
29
Shares of developing world exports by technology
2000
1985
30
10 countries (of which, 8 from E Asia) account
for over 75 of developing world manufactured
exports ( m.)
31
A few words on service exports, not traditional
services but the new set of outsourced or, more
correctly, offshored services
32
What are offshored services?
Call/contact centre services Shared Service centres (back-office services) IT services Innovation services Regional headquarters
Help desk Technical support/advice After-sales Employee enquiries Claims enquiries Customer support/advice Market research Answering services Prospecting Information services Customer relationship management (CRM) Claims processing Account processing Transaction processing Query management processing Customer administration processing HR/Payroll processing Data processing IT outsourcing Logistics processing Quality assurance Supplier invoices Software development Application testing Content development Engineering and design Product optimisation Basic research Applied research and design Product development and adaptation Testing and customization (e.g. drugs) HQ Coordination centre Regional marketing and other services Technical support Other services
33
Service exports (call centres, shared service
centres and IT services) new FDI projects in
2002/3
Developed countries 620
The total market for offshored services was 32
b. in 2001
34
Service exports by country
RD offshoring is starting WIPRO of India is now
the worlds biggest RD services provider, with
about 300 million in earnings selling RD
services, with 6,500 researchers. It is one of
several RD contractors in India
35
Indian offshoring
  • At 7.7 billion in 2001, Indias share of the
    global market for offshore BPO and IT services is
    estimated at 25 second only to Ireland
  • For BPO services alone Indian market share is
    about 67
  • Between 2000 and 2008, employment in offshored
    services in India is expected to increase from
    0.5 to 2 million and its foreign exchange
    earnings from 6 billion to 60 billion
  • According to the National Association of Software
    and Service Companies, the BPO market in India
    will grow at 55 annually from 0.5 billion in
    1999-2000 to 17 billion by 2008
  • In 2001, foreign affiliates accounted for 45 of
    the Indian BPO market, and for 22 of total
    export revenues in the software industry.
  • Indian based Pentamedia Graphics is now the third
    largest animation studio in the world (behind
    Disney and Lucas).
  • FDI in IT and BPO services during 1998-2002 was
    almost 90 in the form of greenfield investment,
    10 in joint ventures and less than 1 in
    acquisitions

36
Industrial performance (and competitiveness in
services) is clearly diverging, but why?
  • Insufficient liberalization, macro instability
    and poor governance account for part
  • But they dont account for it completely the
    data dont suggest that liberalization by itself
    leads to competitive success
  • Export growth and upgrading require other
    factors careful strategy to build domestic
    capabilities by creating appropriate skills,
    raising technological effort, and tapping into
    global production systems via FDI. Service
    exports are slightly different but not entirely

37
Some simple indicators of these structural
drivers of industrial competitiveness
38
RD financed by productive enterprises ( per
capita)
39
RD financed by productive enterprises at the
national level ( of GDP, 1997-2000)
40
Skills tertiary technical enrolments (per 1000
people)
41
National tertiary technical enrolments (1985-98,
population)
42
Annual inward FDI (US per capita)
43
Developing world FDI distribution
10 COUNTRIES GET 80 OF FDI IN THE DEVELOPING
WORLD AND THEIR SHARE IS RISING OVER TIME LARGE
PART OF RECENT FDI, PARTICULARLY IN LAC, IS NOT
IN MANUFACTURING OR EXPORT-ORIENTED ACTIVITIES
THE MAJOR EXCEPTION IS MEXICO
44
Reliance on FDI varies greatly in EA (FDI of
gross domestic investment)
45
Technology licence payments abroad (US per
capita)
46
Conclusions East Asian lessons
  • There are many ways to build export
    competitiveness
  • MNCs play a critical role in all strategies but
    countries access their technologies, skills and
    marketing prowess in different ways
  • Korea and Taiwan used arms length strategies to
    tap FDI, building domestic skills, innovation and
    institutions by coherent industrial and
    technology strategies. Singapore used FDI
    targeting with skill infrastructure
    development to plug into global production and
    upgrade rapidly. These have the best technology
    systems
  • New Asian Tigers had weak capabilities, shallow
    technology base, inadequate skill creation
    systems. They are upgrading rapidly but many gaps
    remain
  • All strategies have worked well so far, but their
    sustainability remains to be seen

47
  • Autonomous strategies are less feasible, more
    risky
  • Acceleration of technical change
  • Spread of global production networks
  • Problems in managing selective industrial
    strategies
  • New international rules of the game
  • FDI dependent countries are becoming less passive
    as policies grow more standardized and
    governments realize need to target
  • Importance of building strong technology systems
    is increasingly accepted as need to move up
    technology ladder and stay ahead of competition
    mounts (threat of China galvanizing EA and other
    regions)
  • Least developed countries unduly neglect
    technology policy and institutions even low
    technology and resource based industrialization
    needs higher capabilities and stronger technology
    bases

48
Dr. Sanjaya Lall
Professor, Developmental Economics Oxford
University, UK
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