Reaping the Benefits of Globalisation

Conference: "Reaping the Benefits of Globalisation: What are the Opportunities and Challenges for Europe and Ireland?"

Globalisation and the emergence of new industrial markets outside the EU are key to European competitiveness, particularly in the context of the economic recovery. More importantly, however, they are crucial for European industrial competitiveness in the long term. This is because the emerging industrialised economies are increasingly competing with Europe not only in traditional export products and markets, but also in knowledge-intensive industries. Fast-growing emerging industrial powers outside Europe present European firms with both challenges and opportunities. These have either not been fully studied or their implications for European industrial policies have remained ambiguous. The 2012 edition of the European Competitiveness Report seeks to identify opportunities to make European industries more competitive by maximising the benefits of globalisation. This conference presents and discusses the main findings of the report as well as recent evidence on the competitiveness, growth and job creation drivers and their implications for industrial and innovation policies in Europe and Ireland. The conference will close with an address given by Eamon Gilmore, TD, Tánaiste and Minister for Foreign Affairs and Trade. Please find below short summaries of the 6 presentations to be given at the conference, with contact details for the appropriate speaker. Presentation slides will be available to download from our website on the day of the event (7 March). For further information on the conference please visit our website. Members of the Media are invited to attend the Conference.  

A Stronger European Industry for Growth and Economic Recovery Didier Herbert, Acting Director, European Commission, DG Enterprise and Industry Now more than ever Europe needs its real economy to underpin the recovery of economic growth and jobs. Immediate action should contribute to reversing the current downward trend and to promoting the re-industrialisation of Europe. Currently, industry accounts for about 16% of EU GDP. The European Commission has set the goal that industry's share of GDP should be around 20% by 2020. Europe's industry is well placed to assume this role: Europe is a world leader in many strategic sectors such as automotive, aeronautics, engineering, space, chemicals and pharmaceuticals. Industry still accounts for 4/5 of Europe's exports and 80% of private sector R&D investment comes from manufacturing. If confidence comes back, and with it new investments, Europe's industry can become the leader of the on-going "New Industrial Revolution".

 Key Messages:

• The European Commission adopted a Communication on "A Stronger European Industry for Growth and Economic Recovery" in October 2012, an Update of the 2010 Flagship initiative on Industrial Policy.
• The objective of the new Communication is to reverse the declining role of industry for the 21st century, with the aims of delivering sustainable growth, creating high-value jobs and solving the societal challenges that Europe is facing.
• The Commission has put forward a reinforced industrial policy with four pillars: 1) Stimulating new industrial investments to speed up the adoption of new technologies and boost resource efficiency. The focus is on six priority areas for immediate action (advanced manufacturing technologies for clean production; key enabling technologies; bio-based products; sustainable industrial policy, construction and raw materials; clean vehicles and vessels; smart grids). 2) Improving the functioning of the Internal Market and increasing opportunities for EU companies, notably SMEs, on international markets. 3) Ensuring better access to finance for companies. 4) Increasing investments in skills and human capital.
• The Commission is currently implementing these priorities and the related specific actions, both horizontally and at sectoral level (e.g. cars, steel, etc.).

For further information please consult: http://ec.europa.eu/enterprise/initiatives/mission-growth/index_en.htm  

European Competitiveness Report 2012: Main Findings Konstantin Pashev, Head of Unit, European Commission, DG Enterprise and Industry The 2012 edition of the European Competitiveness Report finds that the EU is well positioned to benefit from globalisation. The report highlights the many opportunities and the various ways in which EU enterprises have gained from globalisation, as well as making policy suggestions to increase these gains in the future.

Key Messages:

• Globalisation fosters exports and reductions in production costs. New industrial markets outside the EU are helping Europe's economic recovery and competitiveness. Despite increased competition from new industrial players, the EU still leads the world in both exports and foreign direct investment (FDI).
• About 86 cent of each Euro from EU exports is still supplied domestically. More opportunities for trading intermediate and semi-finished products allow industries to exploit the comparative advantages of external locations and markets. In a globalised world, so-called 'value-chain performance' is becoming a more important measure of competitiveness than the traditional emphasis focused mainly on exports of final products.
• Even with the global economic slowdown, the EU attracted $421 billion in FDI in 2011 – more than one-fourth of the world's FDI total. FDI generates new jobs and increases productivity, allowing the EU to create more goods, more efficiently – which makes Europe an even more attractive place to invest.
• The EU leads the world in energy efficiency gains in exports, and EU manufacturing firms are global frontrunners in energy efficiency innovation activities and investments in clean and more energy-efficient products.
• A pro-active industrial policy may consider the promotion of trade and FDI and the optimal positioning of SMEs in the global value chains, as well as better-targeted instruments to encourage investment in intangibles and in process and marketing innovations.

Click here to download the report.

Reaping the Benefits of Globalisation: Opportunities and Challenges for Ireland Adrian Devitt, Forfás The Irish economy has benefited significantly from globalisation in recent decades. The growth of emerging markets and the renewed emphasis of many countries on export driven growth heightens the opportunities and challenges facing Europe and particularly small open economies such as Ireland.

Key Messages:

• Ireland is already a highly globalised economy. This has contributed significantly to our economic progress in recent decades.
• Given the significant challenges facing the domestic economy, net exports are the dominant driver of growth in the Irish economy at present. However despite recent growth in net exports, our share of world trade peaked in 2002.
• Who and what we compete for is changing as consumer markets in emerging countries grow rapidly and as firms in these countries increasingly compete across the value chain in their home market, the EU and in third markets.
• At a national level, Ireland's competitiveness has improved in recent years. Cost competitiveness has improved but further cost reductions are required. Skills availability has improved, pressures on infrastructure have eased, and Ireland remains a relatively easy place in which to do business. However, the availability of credit to indigenous enterprises remains a major challenge.
• With a small domestic market, expansion into other markets is a prerequisite for growth. Within our exporting base, challenges remain to grow market share, to enhance the share of national exports from indigenously owned firms, to upgrade capabilities and to diversify exports in terms of products produced and markets served.
• A significant proportion of Ireland's exports are classified as complex goods or services. The degree of complexity apparent in Ireland's export profile differentiates Ireland from other peripheral EU economies which export a larger proportion of less complex goods and services. It is important for Irish competitiveness to continue to pursue cost efficiencies in all sectors of the economy. It is also vital that we continue to develop the exporting capabilities of high value, complex sectors and their supply base. To support this, it is crucial that Ireland continues to make progress in upgrading its human, ICT and research, development and innovation capacity.

Competition and Innovation: Testing the Empirical Relationship in a Simultaneous System Michael Peneder, Austrian Institute of Economic Research (WIFO), Vienna Is increased competition conducive or obstructive to innovation? Surprisingly, this relationship between two essential drivers of competitiveness and growth is still a major puzzle, producing a variety of conflicting theoretical predictions and empirical findings. We present a novel approach, where the opportunity, production, and impact functions of innovation are estimated in a simultaneous system. The findings confirm a robust inverted-U relationship, in which a rise in the number of competitors at low levels of initial competition increases the firm's research effort, but at a diminishing rate, and the research effort ultimately decreases at high levels of competition. When the sample is split by firm types, the inverted-U shape is steeper for creative firms than for adaptive ones. The numerical solution indicates three particular configurations of interest: (i) an uncontested monopoly with low innovation; (ii) low competition with high innovation; and (iii) a 'no innovation trap' at very high levels of competition.

Key Messages:

• With regard to competition policy, we find a negative impact of competition on innovation only at high levels of initial competition, whereas in markets with few competitors the impact of competition on innovation is generally positive. Our findings thus confirm that in concentrated markets antitrust measures typically increase both competition and innovation.
• Second, the simultaneous possibility of different equilibria – for example, one with high innovation and an intermediate-to-low degree of competition, and the other with no innovation and very high competition – provides a rationale for industrial policies that can help propel the system out of a 'no-innovation trap' and gear it towards a higher innovation trajectory.
• Third, simulating changes of the exogenous variables, technology potential, demand growth, firm size and exports have a positive impact on innovation, while foreign ownership has a negative effect, and higher appropriability has a positive impact on the number of competitors.

Innovation and Employment Growth: Empirical Evidence from European Service Enterprises Bettina Peters, ZEW Centre for European Economic Research and MaCCI Centre for Competition and Innovation, Mannheim Innovation has been placed at the core of Europe 2020, the European Union's strategy for smart, sustainable and inclusive growth. Given the large share of the service sector in economic activity in European Union (EU) countries, innovation in services could make a major contribution towards solving the problems of high unemployment that are currently observed in many EU countries. However, innovation could both create and destroy jobs. We investigate how the introduction of new products and production technologies affect employment growth in service enterprises in 20 EU countries, including Ireland. We contrast the findings for these technological innovations with employment effects that accrue due to new organisational methods such as new business models.

Key Messages:

• Product innovation plays an important role in employment growth in European service enterprises. Even when new products partially or totally replace existing products, we find a positive net effect on employment growth for all 20 EU countries under consideration, and for all service industries.
• Comparing the contribution of existing and new products to employment growth, however, we find that demand for existing products has contributed more to employment growth than product innovations. Exceptions are Germany and Portugal and our results suggest that this is due to sector composition, since the contribution of product innovation is disproportionately high in high-tech knowledge intensive services (HTKIS).
• Process innovation does not appear significantly linked to employment growth in European service enterprises. In most analysed countries, potential negative displacement effects that arise due to higher labour productivity are outweighed by employment growth effects that emerge when enterprises pass on lower costs to customers.
• The role played by new organisational methods in employment growth is industry-specific. In industries such as water and air transport, real estate activities, renting and other business activities, financial services and media, we find that organisational innovation led to a significant reduction in the workforce. In high-technology knowledge-intensive services the effect is neutral at best.
• In many countries, innovation policy has been designed for technology-based innovation in manufacturing and has largely neglected innovation in services. We suggest that innovation policy should take into account the specific characteristics of innovation in services. Our research findings suggest that the employment growth effects generated by innovation in services are conditioned by the type of innovation.

Boosting Enterprise Innovation and Productivity: What Matters? What Works? Iulia Siedschlag, Economic and Social Research Institute, Dublin Innovation is of crucial importance for sustainable economic growth and competitiveness in the context of intensified international competition. Understanding determinants of enterprise innovation and productivity is important for designing effective innovation policies. We present key research findings on the links between innovation investment, innovation output and productivity based on a wide range of international and Irish evidence. We focus on innovation in indigenous enterprises which is crucial to Ireland's efforts to regain competitiveness and restore sustainable economic growth.

Key Messages:

• International evidence shows that enterprises that innovate tend to be more productive. Innovation is linked to higher productivity through increased revenue generated by new or improved goods and services and via efficiency gains when new or improved processes and organisational methods are introduced. This result is mirrored in Ireland. Yet in the case of Irish indigenous enterprises, the productivity benefits of innovation are not primarily linked to new and improved products, but rather to process and organisational innovation.
• This evidence also suggests that successful innovators tend to be larger enterprises, those that have higher innovation expenditure per employee and enterprises that co-operate with others in innovation activities. Among indigenous enterprises in Ireland, successful innovation is also associated with enterprise size, with exporting and with co-operating with other enterprises, and with universities or other higher education institutions.
• International evidence points to the fact that successful innovation is more likely to occur when enabling framework conditions are in place. These include a stable macroeconomic policy environment; openness to international flows of goods, services, capital and knowledge; appropriate levels of competition and regulation; a developed and well functioning financial system; a coherent intellectual property system; flexible labour markets; a well performing education system; and a high performing infrastructure.
• Policy to promote innovation at enterprise level needs to take account of differences across enterprises and especially in their capacity to absorb new knowledge. Innovation policy should strengthen national innovation systems and promote links with international innovation systems.
• In the current context with limited budgets, all programmes should be evaluated for effectiveness, using metrics and methods that take account of complexity of the innovation process and the mixture of policies in place.

Note to Editors: Members of the Media are invited to attend the Conference "Reaping the Benefits of Globalisation: What are the Opportunities and Challenges for Europe and Ireland?" at the Economic and Social Research Institute, Whitaker Square, Sir John Rogerson's Quay, Dublin 2 on Thursday 7 March 2013, from 08:30 - 13:00. For further information and the full Programme please visit the ESRI website. The Conference presentation slides will be available to download from our website on the day of the conference.