How to Understand Culture and Design in Economy?

How to Understand Culture and Design in Economy? CULTURE AS INNOVATION –The search for creative power in economies and societies, 6-8 June 2007, Turku...
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How to Understand Culture and Design in Economy? CULTURE AS INNOVATION –The search for creative power in economies and societies, 6-8 June 2007, Turku Pekka Ylä-Anttila ETLA - THE RESEARCH INSTITUTE OF THE FINNISH ECONOMY

This talk ¢

Culture, design, and innovation in economic analysis l

¢ ¢

Innovation as a source of economic growth

Designers as innovators Results of recent empirical studies l

Country level data • WEF competitiveness data • Statistics Finland data of IPR innovativeness

l

Micro level data from Finland • Expert panel • Survey data (Finnish manufacturing firms)

¢

Conclusions

Design and innovation in economic analysis ¢

¢

¢

Intangible capital –design, R&D, IT, brand equity, human competencies –has become as important growth source in advanced economies as traditional tangible capital Rather than distinct factor of production (like physical capital and labor), intangible capital is ”glue”or “lubricant”… … That creates value from other inputs • E,g., empirical evidence show that firms that intensively both design and R&D input gain more from design

What is design? ¢ We

see design in end products, in product shape, in production lines, in construction sites. ¢ We see design in marketing and branding ¢ We try to think of design here as widely as possible.

Design and innovation We think that design and innovation are closely linked together. ¢ Designers have a lot to give to the innovation process. ¢

Designers as innovators ¢

¢ ¢ ¢ ¢ ¢

Challenge the present Take risks Accept uncertainty Create a customer Think differently Be passionate and inspire others to be passionate

¢

¢

¢

¢

Question the status quo Are risk takers See the world differently See possibilities everywhere

Findings of empirical studies

Policy perspective

¢

Policy perspective - What kind of questions policy makers and politicians ask? •How does design affect competitiveness or competitive advantges of nations/economies •Do we see any visible and concrete impacts from design inputs? • In exports, company growth and market valuation?

Some empirical results 1 Country-level data: WEF competitiveness Index (2004 data)

International competitiveness rankings data ¢

World Economic Forum (WEF)

10/2004

Growth competitiveness index: - Represents country’ s economic growth from 5 to 10 years from now. Design index: l Degree of customer orientation l Extent of marketing l Extent of branding l Capacity for innovation (technology) l Production process sophistication (technology)

Relation between design index and growth competitiveness 6,5 Germany Japan

6,0

Switzerland

France

UK Netherlands

Denmark

Finland

Belgium Israel Austria

5,5

Design

USA Sweden

Taiwan Hong Kong Singapore Canada Luxembourg Australia Island Korea New Zealand Norway Ireland

5,0 Italy

Spain Slovenia

4,5

Czech Republic South Africa

India

4,0

United Arab Emirates Estonia

China Russia

3,5 3,5

4

4,5

5 Growth Competitiveness

5,5

6

6,5

Technological component and growth competitiveness 6,5 Germany Japan

T ech n o lo g y co m p o n en t

6,0 France

5,5

Israel

Sweden Finland

Switzerland USA Netherlands Denmark UK

Belgium

Taiwan Singapore Canada Norway Island

Austria Luxembourg Korea Ireland

5,0 Italy

4,5

Hong Kong

Australia New Zealand

Slovenia Spain India

4,0 Russia

China

Check republic South Africa

Estonia United Arab Emirates

3,5 3,5

4,0

4,5

5,0 Growth competitiveness

5,5

6,0

6,5

Marketing component and growth competitiveness

Marketing know-how component

6,5 USA Japan Germany Switzerland UK Netherlands Sweden

France

6,0

Denmark Austria Hong Kong Israel Singapore Canada Australia Taiwan Korea New ZealandIsland Luxembourg Belgium

5,5 Italy

5,0

Finland

Ireland Spain South Africa Slovenia Check Republic

4,5

Norway United Arab Emirated

India Estonia China

4,0

Russia

3,5 3,5

4,0

4,5

5,0 Growth competitiveness

5,5

6,0

6,5

The difference between the technology and marketing component United Kingdom Taiw an Sw eden South Africa Singapore Norw ay Netherlands Korea Italy Ireland Iceland Germany Finland Denmark China Belgium Australia

-1,20

-1,00

-0,80

-0,60

-0,40

-0,20

0,00

0,20

0,40

0,60

Difference between technology component and marketing component? Ü The biggest difference between technology component and marketing component is for Finland Ü What does it mean? Ü That we are excellent with technology but not that good in marketing, branding and commercializing products and services?

Some empirical results 2 Statistics Finland international data base of IPRs (Patents, Trademarks, and Registration of Designs)

Ranking according to IPR innovativeness in Europe

Luxenbourg Denmark Sweden Germany Finland Austria Netherlands Spain Italy Great Britain Belgium Ireland France Norway Portugal Greece

Patents 6 5 1 3 2 7 4 15 12 10 8 13 9 11 16 15

Source: Statistics Finland 2005

Trademarks 1 4 3 6 8 9 11 2 10 7 12 5 14 16 13 15

Registration of Designs 2 1 7 3 10 5 6 9 5 11 8 12 13 14 15 16

Total 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Ranking according to IPR innovativeness in Europe, USA and Japan

Sweden Luxenbourg Denmark Germany Netherlands Finland Great Britain Austria France Belgium Italy Ireland Spain Norway Portugal Greece

Triad patents 2 6 5 3 4 1 10 9 7 8 12 13 14 11 15 16

Source: Statistics Finland 2005

Trademarks 2 1 3 6 4 8 5 10 9 13 12 7 11 14 15 16

Registration of designs 3 1 2 6 4 5 10 7 11 9 8 14 13 12 15 16

Total 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Some empirical results 3 Expert panel and financial statement data : 20 experts’classification of Finnish listed firms according to their design intensity

Metal and engineering industry: Design and share of export 100 Outokumpu

90

Metso

80

Export share % v. 1996-2002

Kone Fiskars

Raute

70 Rocla 60 Rautaruukki 50

Ponsse W ärtsilä

40 Nordic aluminium

30

KCI Konecranes

20 1

1.5

2

2.5 De sign inde x

3

3.5

Metal and engineering industry: Design and sale’ s growth 1.6 1.4

Rocla

Kone

1.2 Sale's growth v. 1996-2002

Ponsse 1

Outokumpu

Fiskars

0.8 KCI Konecranes 0.6 Nordic Aluminium 0.4

Rautaruukki Wärtsilä

Metso

0.2 0 1

1.5

2

2.5

-0.2 Raute -0.4 Design index

3

3.5

Metal and engineering industry: Design and market valuation 45 40

Rocla

35

P/E-ratio

30 25

Wärtsilä KCI Konecranes

20

Metso Kone Ponsse

15 Nordic Aluminium

10

Fiskars Outokumpu

Raute

5 Rautaruukki 0 1

1,5

2

2,5

3

3,5

Design index

P/E-ratio: Market value / net revenue - 12 months; In how many years does the firm pay itself back with today’ s revenues

Some empirical results 4 Econometric analysis using survey data: Sample of Finnish manufacturing companies (~ 200 firms)

Key Findings I ¢ ¢

25 % of Finnish manufacturing firms use design regularly Commitment to design goes hand in hand with the position of design in companies l

¢

Companies that use design continuously have integrated design in corporate structure, i.e. with R&D, marketing, and overall strategy

Design inputs only a fraction of R&D expenditures

Key Findings II ¢

The most important effects of design Ability to differentiate products and services from competitors l Strengthening of brand, trademark, or company image l Increased sales l

Key Findings III l

The impact of design on firm performance depends on organization and management of design • The impacts of design on performance are more likely to positive • If design is used continuously in business • If design is integrated with R&D (and marketing) • If design is part of firm strategy

• => It is the combination of design, R&D, and marketing inputs that matters, not any of these alone

Future Challenges

Changing global division of labor in manufacturing (… and later R&D and industrial design?) % 70

Asia

60 50 40 30

North America

20 10

Europe 0 1750

1800

1850

1900

1950

2000

2050

2100

Asia = China, Japan, India North America = USA, Canada Europe = Germany, UK, France, Italy, Spain, Swedeni, Belgiium, Switzerland Sources: Bairoch (1982), ETLA.

Seuraavat sata vuotta/kuvio 3.6/2.3.2007

Conclusions 1(2) ¢

¢ ¢

Intangible capital –including structural capital (like culture and values), and design –are increasingly important source of economic growth and well-being. Lubricant or glue rather than distinct production factor Strong complementarities between intangibles and tangibles –and between different kind of intangible assets l

It not design alone that matters

Conclusions 2(2) ¢

Design l

There is some empirical evidence that design intensity/input affects positively competitiveness and economic performance • Country level –competitiveness • Firm level –expected sales growth, market valuation

l

Effects are likely to appear only in combination with other intangible inputs

References ¢

¢

¢

¢

Corrado, C.- Hulten, C. –Sichel, D. (2006), Intangible Capital and Economic Growth, NBER Working Paper 11948. Cummins, J. (2004), A New Approach to the Valuation of Intangible Capital. Div. of Research and Statistics, Board of Governace of FED. Lindström, M. Pajarinen, M. (2006), The Use of Design in Finnish Manufacturing Firms. ETLA Discussion Papers No. 1017. Lindström, M –Pajarinen, M.- Ylä-Anttila, P. (2006), Ei vain muodon vuoksi –Muotoilu on kilpailuetu. ETLA Series B 220. Taloustieto Oy. Helsinki.

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