Kyr part 7 remes

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


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


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


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



▪ How can governments tailor policies to each g psector


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


LESSON 1Success in emerging innovativeSuccess in emerging, innovative sectors alone is not enough to sustain growth




h


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


LESSON 1Success in emerging, innovative g gsectors is not enough to sustain growth; existing sectors need attention, too




h


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



▪ How can governments tailor policies to geach sector


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.


g ppurchasing or regulation.

SOURCE: MGI/PSO Sector Competitiveness Project

To be effective, policy tools need to be tailored to sector characteristics


R&D i t iBusiness





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


Labor productivityValue added (dollars per hour worked)

SOURCE: EU KLEMS; McKinsey Global Institute analysis



R&D i t iBusiness





Business services



Infrastructure


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



R&D i t iBusiness





Business services



Infrastructure


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


Thank you

This report and other MGI research areother MGI research are available at:

www.mckinsey.com/MGI


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