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
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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
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Micro level data from Finland • Expert panel • Survey data (Finnish manufacturing firms)
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Conclusions
Design and innovation in economic analysis ¢
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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 ¢
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Challenge the present Take risks Accept uncertainty Create a customer Think differently Be passionate and inspire others to be passionate
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Question the status quo Are risk takers See the world differently See possibilities everywhere
Findings of empirical studies
Policy perspective
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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
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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) ¢
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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
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Effects are likely to appear only in combination with other intangible inputs
References ¢
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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.