Double or NothingMetals: Status and future

development

Associate Professor Amir Sasson

Norwegian Business School, BI

PROSINKristiansand, 25.05.2011

Cluster Attractiveness

Educational Attractiveness

Talent Attr

activenessR&D & Innovation

Attractiveness

Environmental

Attractiveness

Ownership Attractiveness

Cluster Dynamic

s

The Emerald Model

Cluster Attractiveness

Educational Attractiveness

Talent

Attractiv

eness

R&D and innovation

Attractiveness

Environmental

Attractiveness

Ownership Attractiveness

Knowledgedynamics

The Emerald Model

REPORT NO 6. May 2011

KNOWLEDGE-BASED METALS & MATERIALS

By

Amir Sasson

Consistent portion of GDP

0 %

1 %

2 %

3 %

4 %

5 %

6 %

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Share of metal industry out of GDP (Basic metals)

Share of metal industry out of GDP (Basic and febricated metals)

While GDP is increasing, the portion of oil is exploding, basic and fabricated metals maintain their national respective market shares.

This cannot be said about many other industries.

Value creation and locomotives

2000 2001 2002 2003 2004 2005 2006 2007 2008 20090

200

400

600

800

1000

1200

1400

1600

1800

2000

Primary production Secondary productionTertiary production Industry

Opera

tors

Geo &

Sei

smics

Drill &

wel

l

Subs

ea

Opera

tions

Sup

port

Tops

ide

Trea

tmen

t

Resea

rch

Inst

itutio

ns

Diagn

osis

Who

lesa

le a

nd R

etai

l

Serv

ice

Human

ser

vice

s

Hospi

tals

0

1000

2000

3000

4000

5000

6000

7000

8000

Expected returns in secondary and tertiary production.

Above average returns in primary production, but for 2009…

Not doing worse than many “central” industries e.g. health, tourism, or construction.

Industrial agglomeration

Not really… Broadly distributed. Under a few roofs only.

0 %

10 %

20 %

30 %

40 %

50 %

60 %

70 %

80 %

90 %

100 %

Primary production Secondary production Tertiary production

<10m NOK 10m-100m NOK 100m-1bn NOK >1bn NOK

0 %

2 %

4 %

6 %

8 %

10 %

12 %

14 %

16 %

2000 2001 2002 2003 2004 2005 2006 2007 2008

Østfold Vestfold Telemark

Vest Agder Rogaland Hordaland

Møre and Romsdal Nordland

Educational Attractiveness The pool of graduates with relevant

advanced knowledge of metal and materials is increasing in absolute and relative terms. Availability Attraction

0 %

1 %

2 %

3 %

2005 2006 2007 2008 2009

Metal university students Metal Master students Metal PhD students

Talent Attractiveness

Industry composition is in line with the industry’s focus on manufacturing as evident from the composition in other manufacturing industries (e.g., food, textiles, wood, pulp and paper, and chemicals) and labor intensive industries (e.g., fishery).

But: It is attractive to

the “wrong” type of foreign workers…

And engineers are existing! 28 %

57 %

10 %

4 % 0 %

Middle school High school Bachelor Master PhD

0 %2 %4 %6 %8 %

10 %12 %14 %16 %18 %

2000 2001 2002 2003 2004 2005 2006 2007 2008

Share of foreign university educated workers

Share of foreign workers

R&D and Innovation Attractiveness I

Metal: Relevant academic contributions are up to three times the national average

But a marginal role in the global picture of metals and materials.

0,00

0,50

1,00

1,50

2,00

2,50

3,00

2001 2002 2003 2004 2005 2006 2007 2008

Metal-related fields Other fields

0 %

5 %

10 %

15 %

20 %

25 %

30 %

35 %

40 %

45 %

2001 2002 2003 2004 2005 2006 2007 2008 2009

Norway China USA France Canada Brazil Russia

R&D and Innovation Attractiveness II

Oil: Both product and service innovations are significantly above national averages

Metal: Decreasing innovation activity over time.

2004 2006 20080 %

5 %

10 %

15 %

20 %

25 %

30 %

35 %

Other industries: Product innovation Oil industry: Product innovationOther industries: Service innovation Oil industry: Service innovation

0 %

5 %

10 %

15 %

20 %

25 %

30 %

35 %

2004 2006 2008

Other industries: Product innovation Metal industry: Product innovation

Other industries: Service innovation Metal industry: Service innovation

Ownership Attractiveness

Oil: Serial owners are technology developers

Metal: A serial owner. Attractive for foreign portfolio builders.

0 %

10 %

20 %

30 %

40 %

50 %

60 %

70 %

2002 2005 2008

1 - 2 3 - 5 6 and above

0

1020

304050

6070

8090

100

2002 2005 2008

1-2 3-5 > 5

Knowledge Dynamics

Local competition: Local competitors are of comparatively little significance, with only 17% of firms meeting intense competition locally. Secondary production and tertiary production firms experience high levels of local competition but this is not the source of the toughest competition that they experience.

Suppliers: Metal firms in all sectors perceive their international suppliers as more technologically leading than their national suppliers. This clearly indicates a lack of competitiveness among local and national suppliers to all sectors.

Local customers: They are not the most demanding. Collaborative linkages: 55% state that R&D institutions are

irrelevant in their innovative product developments. This percentage is much higher than in the oil industry (38%) or the health industry (32%).

Intra-industry labor spillovers: Non-existent

Parts of the metal industry are not isolated within the Norwegian economy.

Competence development

The metal industry as a whole does not distinguish itself in terms of high investments in intra-firm competence development relative to other industries. Its distribution is similar to that seen in other labor-intensive industries. It differs from investments made in more “knowledge-intensive” industries.

0 %

5 %

10 %

15 %

20 %

25 %

30 %

35 %

40 %

<1% 1-2% 2-4% 4-8% 8-15% >15%

Oil and gas Tourism Construction Health Metals and materials

Some implications The Norwegian metal industry is at a crossroads. We argue for a “double or nothing” strategy. Norway can either

become a significant player in the metal industry or become an insignificant player that will eventually be squeezed out of the markets by giants.

We refer to this process as “the giant competition hypothesis”: when national barriers to competition, establishment and trade are gradually reduced, and output is standardized, scale considerations will motivate actors to increase their respective sizes through horizontal mergers and acquisitions, and/or through the development of superior technologies.

Questions: Is Norway to become a giant in the silicon business (or play a

decreasing role as a part of the portfolio of foreign giants)? Is Norway to become a giant in the aluminium business (different

parts of the value chain or will it sell its remaining assets to foreign giants)*

Create a synchronized strategic direction that encourages investment in knowledge that allow industrial development. Knowledge-based owner, electricity and expansion, transforming

the knowledge base and increase the knowledge infrastructure.