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State of the Region-Report 2004:
Competitiveness and Cooperation in the Baltic Sea Region
Christian H.M. Ketels, PhDInstitute for Strategy and Competitiveness
Harvard Business Schooland
Institute of International BusinessStockholm School of Economics
This presentation draws on joint work with Professor Örjan Sölvell and has benefited strongly from ideas that Professor Michael E. Porter has developed. The State of the Region-Report has been financed by VINNOVA. VINNOVA and the BALTIC DEVELOPMENT FORUM are the lead institutions in the project that this Report is part of. The full Report is available at www.bdforum.org
Additional information on competitiveness research can be found at the website of the Institute for Strategy and Competitiveness, www.isc.hbs.edu
2 Copyright 2004 © Christian H. M. KetelsBaltic Sea Region Report – HH Conference 09-02-04 CK
The Baltic Sea Region Entering a New Era
PastPast PresentPresent
• Ties in the region far below historical precedents
• Enthusiasm about freedom and opportunity in the East
• Main goal is political: integrate and secure
• West providing help to East; East providing new markets and access to low-wage labor
• Ties in the region far below historical precedents
• Enthusiasm about freedom and opportunity in the East
• Main goal is political: integrate and secure
• West providing help to East; East providing new markets and access to low-wage labor
• Many trade and organizational ties across the region
• Realism about benefits raises demands on cooperation
• Main goal is economic: raise prosperity across the region
• West and East operating with same objectives from different points of departure
• Many trade and organizational ties across the region
• Realism about benefits raises demands on cooperation
• Main goal is economic: raise prosperity across the region
• West and East operating with same objectives from different points of departure
3 Copyright 2004 © Christian H. M. KetelsBaltic Sea Region Report – HH Conference 09-02-04 CK
Towards A New Strategy for the Baltic Sea Region
• How strong is the economic performance of the Baltic Sea Region?
• What is the profile of the economy in the Region?
• What are the strengths and weaknesses of the business environments across the Region?
• What are the implications for a sound regional strategy?
4 Copyright 2004 © Christian H. M. KetelsBaltic Sea Region Report – HH Conference 09-02-04 CK
Profile of the Region
Nordic CountriesNordic Countries
• Denmark, Finland, Norway, Sweden
• 24 Mio. People (41% of the region)
• GDP of € 793bn (74%)
• Denmark, Finland, Norway, Sweden
• 24 Mio. People (41% of the region)
• GDP of € 793bn (74%)
Northern GermanyNorthern Germany
• Hamburg, Mecklenburg-Vorpommern, Schleswig-Holstein
• 6.3 Mio. People (11%)• GDP of € 172bn (16%)
• Hamburg, Mecklenburg-Vorpommern, Schleswig-Holstein
• 6.3 Mio. People (11%)• GDP of € 172bn (16%)
Northwest RussiaNorthwest Russia
• Northwestern Region• 16 Mio. People (27%)• GDP of € 46bn (4%)
• Northwestern Region• 16 Mio. People (27%)• GDP of € 46bn (4%)
Baltic StatesBaltic States
• Estonia, Latvia, Lithuania
• 7.4 Mio. People (12%)• GDP of € 34bn (3%)
• Estonia, Latvia, Lithuania
• 7.4 Mio. People (12%)• GDP of € 34bn (3%)
Northern PolandNorthern Poland
• Zachodnio-Pomorskie, Pomorskie, Warmins-ko-Mazurskie
• 5.4 Mio. People (9%)• GDP of € 24bn (2.5%)
• Zachodnio-Pomorskie, Pomorskie, Warmins-ko-Mazurskie
• 5.4 Mio. People (9%)• GDP of € 24bn (2.5%)
Source: EU (2004)
Western shore Eastern shore
5 Copyright 2004 © Christian H. M. KetelsBaltic Sea Region Report – HH Conference 09-02-04 CK
Real GDP Development Over TimeBaltic Sea Region Countries, 1993 - 2003
70%
85%
100%
115%
130%
145%
160%
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Poland
Latvia
Estonia
Finland
Lithuania
Norway
Sweden
Denmark
Germany
Russia
EU 25
Source: Groningen Growth and Development Centre and The Conference Board (2004), EIU (2004), authors’ calculations
Sorted by CAGR,1993 – 2003:
Real GDP, PPP-adjusted, 1993 = 100
6 Copyright 2004 © Christian H. M. KetelsBaltic Sea Region Report – HH Conference 09-02-04 CK
Key ObservationsProfile of the Region
• Clear dominance of the Nordic countries in the overall Baltic Sea Region economy
– Countries on the eastern shore still account for only 10% of the regional economy
– In addition, Germany, Poland, and Russia all have their economic centers of gravity outside the Region
• Overall growth performance of economies in the Region suggests dominance of nation-specific over regional factors
– Among western shore countries, Nordic countries did in general better than Germany but even among them differences emerge
– Among the eastern shore countries, Poland and the Baltic countries followed different paths. Lithuania in particular stands out with its late bounce-back from the transition crisis
7 Copyright 2004 © Christian H. M. KetelsBaltic Sea Region Report – HH Conference 09-02-04 CK
Measures of Competitiveness
ProductivityProductivity
Innovative CapacityInnovative CapacityInnovative CapacityInnovative Capacity
Competitiveness
ProsperityProsperityProsperityProsperity
Source: Michael E. Porter
8 Copyright 2004 © Christian H. M. KetelsBaltic Sea Region Report – HH Conference 09-02-04 CK
ProsperitySelected European Regions and Countries
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
0% 1% 2% 3% 4% 5% 6% 7% 8%
Estonia
Baltic Sea Region
Iberian Peninsula
Central Europe
British Isles
NorwayDenmark
Finland
Poland (North)
Russia (Northwest)
Lithuania
Latvia
SwedenGermany (North)
Real GDP per Capita 2003, PPP-adjusted, $-US (1999)
Growth of Real GDP per Capita (PPP-adjusted), CAGR, 2000-2003Source: Groningen Growth and Development Centre and The Conference Board (2004), authors’ calculations
9 Copyright 2004 © Christian H. M. KetelsBaltic Sea Region Report – HH Conference 09-02-04 CK
Decomposing Prosperity
IncomeIncomeIncomeIncome
Labor Productivity
Labor Productivity
Labor Utilization
Labor Utilization
Domestic Purchasing
Power
Domestic Purchasing
Power
• Consumption taxes
• Local market competition
• Efficiency of local industries
ProsperityProsperityProsperityProsperity
• Skills
• Capital stock
• TFP
• Working hours
• Unemployment
• Participation rate
• Population age profile
10 Copyright 2004 © Christian H. M. KetelsBaltic Sea Region Report – HH Conference 09-02-04 CK
Key FindingsPerformance Drivers
• Labor utilization - employees per capita and hours worked per employee are highest of all peer regions
– Gap to Iberian Peninsula and British Isles is, however, falling; it is slightly increasing versus Central Europe
• Labor productivity is on par with Central Europe and Iberian Peninsula, lagging the British Isles
– Baltic Sea Region is currently improving its position versus peer regions
• Domestic purchasing power of income is lowest of all peer regions
– Gap to Iberian Peninsula and British Isles is, however, falling; it is slightly increasing versus Central Europe
Advantages
Disadvantages
11 Copyright 2004 © Christian H. M. KetelsBaltic Sea Region Report – HH Conference 09-02-04 CK
Economic PerformanceDecomposition by Baltic Sea Sub-region
Nordic countries
Germany PolandBaltic
countriesRussia
Labor Productivity ++ ++ - - - - - - - -
Employees per capita =0 - - + +
Hours worked per Employee
- - + + +
Domestic Purchasing
Power- - ++ +++ ++
Prosperity (% of Region)
154% 150% 53% 53% 37%
Note: +++ for >150% above Baltic Sea Region average, ++ for > 50%, + for > average, - for < average, - - for < 30%, - - - for < 50%Source: Groningen Growth and Development Centre and The Conference Board (2004), national statistics (2004), authors’ calculations
12 Copyright 2004 © Christian H. M. KetelsBaltic Sea Region Report – HH Conference 09-02-04 CK
0
50
100
150
200
0% 5% 10% 15% 20%
Note: Bubble size is relative to total U.S. patents filed in 2002; sub-national region shares by GDP share Source: USPTO (2004), author’s analysis.
U.S.Patents filed per Capita, 2003
Growth of U.S. Patents Filed per Capita, CAGR, 1998 - 2003
Innovation PerformancePatenting in the U.S.
Estonia
Central Europe
British Isles
Norway
Denmark
Finland
Russia (Northwest)Lithuania
Sweden
Iberian Peninsula
Baltic Sea Region
Germany (North)
Poland (North)
13 Copyright 2004 © Christian H. M. KetelsBaltic Sea Region Report – HH Conference 09-02-04 CK
Innovation PerformanceTop Patenting Organizations
ERICSSON Sweden 1246
NOKIA Finland 809
NOVO NORDISK A/S Denmark 553
VALMET CORP. Finland 273
SANDVIK AKTIEBOLAG Sweden 236
AKTIEBOLAGET ASTRA Sweden 202
BEIERSDORF AG Germany 136
ASEA BROWN BOVERI AB Sweden 133
AB VOLVO Sweden 126
ERICSSON, INC. Sweden 99
TETRA LAVAL Sweden 96
DANFOSS A/S Denmark 95
SIEMENS ELEMA AB Sweden 94
AKTIEBOLAGET ELECTROLUX Sweden 90
DRAGERWERK AG Germany 83
PACESETTER AB Sweden 81
PHARMACIA & UPJOHN AB Sweden 75
KVAERNER PULPING AKTIEBOLAG Sweden 74
HALDOR TOPSOE A/S Denmark 71
U.S. Patents, 1997-2001Company Country
Source: USPTO (2004), author’s analysis.
14 Copyright 2004 © Christian H. M. KetelsBaltic Sea Region Report – HH Conference 09-02-04 CK
Other Economic Indicators World Export Market Share over Time
2%
3%
4%
5%
6%
7%
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Central Europe
British Isles
Iberian Peninsula
Baltic Sea Region
Source: WTO (2004), author’s analysis.
World Export Market Share
15 Copyright 2004 © Christian H. M. KetelsBaltic Sea Region Report – HH Conference 09-02-04 CK
Other Economic Indicators Relative Export Intensity
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Share of World Exports versus Share of World GDP, 2001
Source: WTO (2004), EIU (2004), author’s analysis.
16 Copyright 2004 © Christian H. M. KetelsBaltic Sea Region Report – HH Conference 09-02-04 CK
0%
10%
20%
30%
40%
50%
60%
0% 20% 40% 60% 80%
Note: Bubble size is relative to FDI stock in 2001; subnational regions by their share of national GDP Source: UNCTAD (2004), author’s analysis.
Inward FDI stock as % of GDP, Average
1999-2001
Inward FDI Flows as % of Domestic Capital Formation, Average 1999-2001
Other Economic Indicators Inward FDI Position
EstoniaBritish Isles
Norway
Denmark
FinlandPoland (North)
Russia (Northwest)
Lithuania
Latvia
Sweden
Baltic Sea Region
Iberian Peninsula
Germany (North)
Central Europe
17 Copyright 2004 © Christian H. M. KetelsBaltic Sea Region Report – HH Conference 09-02-04 CK
Other Economic Indicators Multinational Companies’ Home Base
Business Week 1000Business Week 1000 Fortune Global 500Fortune Global 500
British Isles 77
Baltic Sea Region 30• Sweden 15• Finland 5• Norway 5• Denmark 4• Northern Germany 1
Iberian Peninsula 13
Central Europe 11
British Isles 77
Baltic Sea Region 30• Sweden 15• Finland 5• Norway 5• Denmark 4• Northern Germany 1
Iberian Peninsula 13
Central Europe 11
British Isles 36
Baltic Sea Region 15• Sweden 6• Finland 4• Denmark 2• Norway 2• Northern Germany 1
Iberian Peninsula 7
Central Europe 7
British Isles 36
Baltic Sea Region 15• Sweden 6• Finland 4• Denmark 2• Norway 2• Northern Germany 1
Iberian Peninsula 7
Central Europe 7
Note: Business Week ranks by Market Value, Fortune by Revenues Source: Business Week (2004), Fortune (2004), author’s analysis.
18 Copyright 2004 © Christian H. M. KetelsBaltic Sea Region Report – HH Conference 09-02-04 CK
The Composition of Economies
Local industries
• Do not compete across regions
• Tied to location
• Dominated by services
• More critical for prosperity than for income
68% of employment
57% of income
31% of employment
42% of income
Cluster
• Compete across regions/countries
• Can locate anywhere
• Strong role of manufacturing
• Critical for income
Source: Michael E. Porter, Economic Performance of Regions, Regional Science (2004), Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School
Natural-resource based industries
• 1% of income and __employment
19 Copyright 2004 © Christian H. M. KetelsBaltic Sea Region Report – HH Conference 09-02-04 CK
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
-10% -5% 0% 5% 10% 15% 20% 25%
*Growth figures exclude Baltic States and Northwest Russia Source: WTO (2004), Institute for Strategy and Competitiveness, author’s analysis.
World Market Share, 2000
Absolute Growth* of Exports, 1995 - 2000
Cluster CompositionBaltic Sea Region Export Performance by Cluster
EntertainmentTransportation
Food & Beverages
Forest Products
Health CareMultiple Business
Materials & Metals
Petroleum/Chemicals
Power
Semiconductors
Telecommunication
Textiles & ApparelOffice
Household
Personal
BSR overall: +2.1% (versus +5.3% world trade)
BSR overall: 5.36%
20 Copyright 2004 © Christian H. M. KetelsBaltic Sea Region Report – HH Conference 09-02-04 CK
NordicNordic
Telecom
Forest Products
Health Care
Oil/Chemicals
Food Products
Defense
Power
Household
Metals
Multiple Bus.
Entertainment
Office
Semiconductor
Transportation
Textiles
Personal
Telecom
Forest Products
Health Care
Oil/Chemicals
Food Products
Defense
Power
Household
Metals
Multiple Bus.
Entertainment
Office
Semiconductor
Transportation
Textiles
Personal
GermanyGermany
Semiconductor
Transportation
Office
Personal
Multiple Bus.
Textiles
Entertainment
Power
Health Care
Household
Metals
Food Products
Oil/Chemicals
Forest Products
Telecom
Defense
Semiconductor
Transportation
Office
Personal
Multiple Bus.
Textiles
Entertainment
Power
Health Care
Household
Metals
Food Products
Oil/Chemicals
Forest Products
Telecom
Defense
RussiaRussia
Defense
Oil/Chemicals
Metals
Multiple Bus.
Forest Products
Personal
Food Products
Power
Textiles
Transportation
Entertainment
Semiconductor
Household
Office
Health Care
Telecom
Defense
Oil/Chemicals
Metals
Multiple Bus.
Forest Products
Personal
Food Products
Power
Textiles
Transportation
Entertainment
Semiconductor
Household
Office
Health Care
Telecom
BalticBaltic
Textiles
Forest Products
Household
Food Products
Entertainment
Telecom
Metals
Personal
Power
Oil/Chemicals
Office
Transportation
Health Care
Semiconductor
Multiple Bus.
Defense
Textiles
Forest Products
Household
Food Products
Entertainment
Telecom
Metals
Personal
Power
Oil/Chemicals
Office
Transportation
Health Care
Semiconductor
Multiple Bus.
Defense
Relative Cluster SpecializationBaltic Sea Sub-Regions
PolandPoland
Textiles
Entertainment
Personal
Household
Metals
Transportation
Power
Defense
Food Products
Forest Products
Multiple Bus.
Office
Semiconductor
Oil/Chemicals
Health Care
Telecom
Textiles
Entertainment
Personal
Household
Metals
Transportation
Power
Defense
Food Products
Forest Products
Multiple Bus.
Office
Semiconductor
Oil/Chemicals
Health Care
Telecom
Higher share
Lower Share
Source: WTO (2004), Institute for Strategy and Competitiveness, HBS (2004), author’s analysis.
21 Copyright 2004 © Christian H. M. KetelsBaltic Sea Region Report – HH Conference 09-02-04 CK
Microeconomic Foundations of DevelopmentMicroeconomic Foundations of Development
Quality of the Quality of the MicroeconomicMicroeconomic
BusinessBusinessEnvironmentEnvironment
Quality of the Quality of the MicroeconomicMicroeconomic
BusinessBusinessEnvironmentEnvironment
SophisticationSophisticationof Companyof Company
Operations andOperations andStrategyStrategy
SophisticationSophisticationof Companyof Company
Operations andOperations andStrategyStrategy
Determinants of Productivity and Productivity Growth
Macroeconomic, Political, Legal, and Social Macroeconomic, Political, Legal, and Social Context for DevelopmentContext for Development
Macroeconomic, Political, Legal, and Social Macroeconomic, Political, Legal, and Social Context for DevelopmentContext for Development
• A sound macroeconomic, political, legal, and social context creates the potential for competitiveness, but is not sufficient
• Competitiveness ultimately depends on improving the microeconomic capability of the economy and the sophistication of local companies and local competition
Source: Michael E. Porter
22 Copyright 2004 © Christian H. M. KetelsBaltic Sea Region Report – HH Conference 09-02-04 CK
Business Competitiveness IndexRanking of European Regions and Countries
Baltic Sea RegionBaltic Sea Region British IslesBritish Isles Central EuropeCentral Europe Iberian PeninsulaIberian Peninsula
TOTAL RANK 6
Finland 1
Sweden 3
Denmark 4
Germany 5
Norway 22
Estonia 28
Latvia 29
Lithuania 40
Poland 46
Russian Federation 63
TOTAL RANK 6
Finland 1
Sweden 3
Denmark 4
Germany 5
Norway 22
Estonia 28
Latvia 29
Lithuania 40
Poland 46
Russian Federation 63
TOTAL RANK 9
United Kingdom 6
Ireland 21
TOTAL RANK 9
United Kingdom 6
Ireland 21
TOTAL RANK 21
Germany 5
Austria 17
Slovenia 30
Czech Republic 35
Hungary 38
Slovak Republic 42
Poland 46
TOTAL RANK 21
Germany 5
Austria 17
Slovenia 30
Czech Republic 35
Hungary 38
Slovak Republic 42
Poland 46
TOTAL RANK 27
Spain 25
Portugal 36
TOTAL RANK 27
Spain 25
Portugal 36
Source: Global Competitiveness Report (2003), author’s analysis.
23 Copyright 2004 © Christian H. M. KetelsBaltic Sea Region Report – HH Conference 09-02-04 CK
Context for Context for Firm Firm
Strategy Strategy and Rivalryand Rivalry
Context for Context for Firm Firm
Strategy Strategy and Rivalryand Rivalry
Related and Supporting Industries
Related and Supporting Industries
FactorFactor(Input) (Input)
ConditionsConditions
FactorFactor(Input) (Input)
ConditionsConditions
Demand Demand ConditionsConditionsDemand Demand
ConditionsConditions
Business Environments’ in the Baltic Sea RegionKey Observations
+ Strong physical infrastructure, especially for communication
+ High skill base of the labor force+ Well developed science system+ Public servants apply laws with
neutrality; low level of corruption– Significant level of bureaucracy– Emerging weaknesses in the
education system+ Presence of a number of globally
competing cluster + Strong basis for the activation of
existing clusters
+ Companies competing globally on innovation and differentiation
+ High formal openness of markets– Low rivalry on many local markets– High level of taxation, especially on
labor, reduces incentives– Presence of distortive subsidies,
especially in Germany and Russia + Demanding regulatory standards, especially on environmental issues
– Buyer sophistication, including government procurement, is only average
Source: Global Competitiveness Report (2003), author’s analysis.
24 Copyright 2004 © Christian H. M. KetelsBaltic Sea Region Report – HH Conference 09-02-04 CK
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
-2% 0% 2% 4% 6% 8%
Lithuania
Factor Conditions Spending on Human Resources
Growth in Spending on Human Resources, CAGR 1995-2001
Baltic Sea Region
Estonia
Norway
Denmark
Finland
Poland (North)Latvia
Public expenditure on education
as % of GDP, 2001
Central Europe
Iberian Peninsula British Isles
Germany (North)
Sweden
Source: EU Structural Indicators (2004), author’s calculation
25 Copyright 2004 © Christian H. M. KetelsBaltic Sea Region Report – HH Conference 09-02-04 CK
Factor ConditionsAverage of Reading, Scientific, and Mathematical Literacy
400
420
440
460
480
500
520
540
560
Average Educational Attainment, 2000
Source: OECD PISA-Study (2003), author’s calculation
OECD average
26 Copyright 2004 © Christian H. M. KetelsBaltic Sea Region Report – HH Conference 09-02-04 CK
Context for Strategy and RivalryMarket Pressure
Baltic Sea RegionBaltic Sea Region NordicNordic GermanyGermany BalticBaltic PolandPoland RussiaRussia
Effectiveness of Anti-Trust Policy 10
Hidden Trade Barrier Liberalization 11
Foreign Ownership of Companies 12
Intensity of Local Competition 18
Tariff Liberalization 20
Administrative Burden for Start-Ups 22
Extent of Locally Based Competitors 23
Extent of Distortive Subsidies 29
Effectiveness of Anti-Trust Policy 10
Hidden Trade Barrier Liberalization 11
Foreign Ownership of Companies 12
Intensity of Local Competition 18
Tariff Liberalization 20
Administrative Burden for Start-Ups 22
Extent of Locally Based Competitors 23
Extent of Distortive Subsidies 29
11
10
16
22
24
21
37
17
11
10
16
22
24
21
37
17
5
13
11
13
15
34
4
93
5
13
11
13
15
34
4
93
43
41
52
39
38
34
46
26
43
41
52
39
38
34
46
26
45
52
47
51
45
52
46
78
45
52
47
51
45
52
46
78
73
79
93
83
76
84
48
70
73
79
93
83
76
84
48
70
• Nordic and Germany both formally open for competition but effective competitive pressure is significantly lower in Nordic countries
• High differences in competitive intensity among Baltic countries, Poland, and Russia
Source: Global Competitiveness Report (2003), author’s analysis.
27 Copyright 2004 © Christian H. M. KetelsBaltic Sea Region Report – HH Conference 09-02-04 CK
Context for Strategy and Rivalry Taxes on Production
0%
5%
10%
15%
20%
25%
30%
35%
40%
Direct Taxes and Social Security Contributions as % of GDP, 2002
Source: Eurostat (2004), author’s analysis.
Social security contributionsDirect taxes (labor, capital)
28 Copyright 2004 © Christian H. M. KetelsBaltic Sea Region Report – HH Conference 09-02-04 CK
Context for Strategy and RivalryFlexibility of Firing
0
10
20
30
40
50
60
70
80
Baltic
Sea R
egion
Denm
ark
Norway
Sweden
Lithu
ania
Poland
Latvi
a
Germ
any
Finlan
d
Russia
British
Isle
sUK
Irelan
d
Centra
l Eur
ope
Austri
a
Hunga
ry
Czech
Rep
ublic
Poland
Sloven
ia
Germ
any
Slovak
Rep
ublic
Iber
ian P
enisu
la
Spain
Portu
gal
Less flexible
More flexible
Source: World Bank (2004), author’s analysis.
29 Copyright 2004 © Christian H. M. KetelsBaltic Sea Region Report – HH Conference 09-02-04 CK
EU-14 + NorwayEU-14 + Norway
Overall Cluster Strength in EuropeGCR Ranking
2
4
5
7
8
9
10
14
15
17
18
21
25
41
51
2
4
5
7
8
9
10
14
15
17
18
21
25
41
51
Finland
Italy
Germany
Denmark
Sweden
United Kingdom
France
Austria
Netherlands
Spain
Ireland
Belgium
Norway
Portugal
Greece
Finland
Italy
Germany
Denmark
Sweden
United Kingdom
France
Austria
Netherlands
Spain
Ireland
Belgium
Norway
Portugal
Greece
Accession CountriesAccession Countries
31
32
33
34
40
44
45
53
68
31
32
33
34
40
44
45
53
68
Czech Republic
Lithuania
Latvia
Poland
Slovak Republic
Estonia
Slovenia
Hungary
Malta
Czech Republic
Lithuania
Latvia
Poland
Slovak Republic
Estonia
Slovenia
Hungary
Malta
Source: Global Competitiveness Report 2003/04 , Institute for Strategy and Competitiveness (2004)
30 Copyright 2004 © Christian H. M. KetelsBaltic Sea Region Report – HH Conference 09-02-04 CK
Innovation Capacity
1
5
10
20
15
25
30
35
40
Rank on InnovationCapacity Index, 2003
Source: Michael E. Porter/Scott Stern (2003), author’s calculations
31 Copyright 2004 © Christian H. M. KetelsBaltic Sea Region Report – HH Conference 09-02-04 CK
Germany Nordic countries Baltic countries Poland Russia
30
Rank on InnovationCapacity Sub-indices, 2003
1
10
20
40
50
60
70
80
Innovation Capacity Sub-Index by Country or Sub-Region
Source: Michael E. Porter/Scott Stern (2003), author’s calculations
Proportion of Scientists and Engineers Index
Innovation Policy Index
Cluster Innovation Environment Index
Innovation Linkages Index
Operations and Strategy Index
32 Copyright 2004 © Christian H. M. KetelsBaltic Sea Region Report – HH Conference 09-02-04 CK
Source: EU Innovation Scoreboard 2003, author’s calculation
Annual Growth of Gross Domestic R&D Spending, average of three preceding years - 2001
Factor ConditionsTotal R&D Spending
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
-10% 0% 10% 20% 30%
Gross Domestic R&D Expenditure as % of GDP, 2001 (or latest available)
British Isles
Nordic
Baltic StatesIberian Peninsula
Germany (North)
Central Europe
Poland (North)
Baltic Sea Region
33 Copyright 2004 © Christian H. M. KetelsBaltic Sea Region Report – HH Conference 09-02-04 CK
Factor ConditionsShare of R&D Spending by Business
0%
10%
20%
30%
40%
50%
60%
70%
80%
Source: EU Innovation Scoreboard 2003, author’s calculation
Business Share of Total R&D Spending, 2001 (or latest available)
34 Copyright 2004 © Christian H. M. KetelsBaltic Sea Region Report – HH Conference 09-02-04 CK
Influences on CompetitivenessMultiple Geographic Levels
Broad Economic AreasBroad Economic Areas
Groups of Neighboring Groups of Neighboring NationsNations
States, ProvincesStates, Provinces
Cities, Metropolitan Cities, Metropolitan AreasAreas
NationsNations
World EconomyWorld Economy
Source: Michael E. Porter
35 Copyright 2004 © Christian H. M. KetelsBaltic Sea Region Report – HH Conference 09-02-04 CK
Regional CooperationLevels
Stage 3: Joint action• Limited independence• Includes joint positioning of the region abroad, including in international/
supranational bodies
Stage 2: Coordinated action
• Medium level of independence• Includes joint efforts to upgrade border procedures, improve infrastructure,
develop clusters, ..
Stage 1: Learning and benchmarking
• Leaves national autonomy fully intact• Includes networks covering all areas of policy in an “open model of
cooperation”
Countries act in isolation
Countries act as one
36 Copyright 2004 © Christian H. M. KetelsBaltic Sea Region Report – HH Conference 09-02-04 CK
HighLow
Regional CooperationBenefits and Costs of Regional Heterogeneity
Degree of HeterogeneityDegree of Heterogeneity
• Easy to develop a common identity
• Easy applicability of others’ experience
• Balanced distribution of benefits
• Regional cooperation is easier but provides fewer benefits
• Huge potential gains from regional benchmarking
• Huge potential gains from division of labor
• Regional cooperation is harder but provides higher benefits
37 Copyright 2004 © Christian H. M. KetelsBaltic Sea Region Report – HH Conference 09-02-04 CK
SituationSituation Implications of the ReportImplications of the Report
Key Implications
Stage 3: Joint action
Stage 3: Joint action
Stage 2: Coordinated
action
Stage 2: Coordinated
action
Stage 1:Learning and benchmarking
Stage 1:Learning and benchmarking
• More ambition than reality
• More ambition than reality
• Some activities currently under way
• Some activities currently under way
• Many activities currently under way
• Many activities currently under way
• Current patterns of heterogeneity suggest high benefits but also difficulties in achieving joint action
• Current patterns of heterogeneity suggest high benefits but also difficulties in achieving joint action
• High level of regional integration signals room for development of strategic action plan
• High level of regional integration signals room for development of strategic action plan
• High remaining heterogeneity in the region signals ample room for further cooperation
• High remaining heterogeneity in the region signals ample room for further cooperation
38 Copyright 2004 © Christian H. M. KetelsBaltic Sea Region Report – HH Conference 09-02-04 CK
The Way Ahead
BDF Meeting Hamburg 2004
• Launch of the 1st State of the Region-Report
• Set a structure for the regional debate• Provide data to review performance,
cluster composition, and business environment quality across the Region
BDF Meeting Stockholm 2005
• 2nd State of the Region-Report• Provide data to discuss the positioning of
the Baltic Sea Region• Provide data to set regional action
priorities • Provide data on current regional efforts
Ongoing discussions in the Region• Validate the performance and business
environment quality assessment• Identify areas for further in-depth analysis• Develop the foundations for an
institutional capacity to act
Moving to Action• Launch meetings to define a regional
strategy for action • Launch institutional structure to
coordinate decision making and implementation
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