National Intellectual Capital
wwwwwwwwww
Carol Yeh-Yun Lin Leif Edvinsson ●
National Intellectual Capital A Comparison of 40 Countries
Carol Yeh-Yun Lin Department of Business Administration National Chengchi University Taipei, Taiwan ROC
[email protected] Leif Edvinsson Universal Networking Intellectual Capital Norrtälje, Sweden
[email protected] ISBN 978-1-4419-7376-4 e-ISBN 978-1-4419-7377-1 DOI 10.1007/978-1-4419-7377-1 Springer New York Dordrecht Heidelberg London Library of Congress Control Number: 2010938372 © Springer Science+Business Media, LLC 2011 All rights reserved. This work may not be translated or copied in whole or in part without the written permission of the publisher (Springer Science+Business Media, LLC, 233 Spring Street, New York, NY 10013, USA), except for brief excerpts in connection with reviews or scholarly analysis. Use in connection with any form of information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed is forbidden. The use in this publication of trade names, trademarks, service marks, and similar terms, even if they are not identified as such, is not to be taken as an expression of opinion as to whether or not they are subject to proprietary rights. Printed on acid-free paper Springer is part of Springer Science+Business Media (www.springer.com)
Foreword
The economic crisis, climate change, and demographic ageing have created challenges both in decision-making and in people’s everyday lives. Although the transformation brought about by digitalization and globalization has been recognized years ago, its revolutionary force was neither realized early enough nor taken seriously enough. The measures needed now concern all aspects of governance in the public and private sectors. The knowledge society has been a tremendous accelerator of economic and social progress. Recognizing this, decision-makers in all countries and regions worldwide need a deep and broad understanding of the critical success factors affecting the national intellectual capital. With all the facts and frames for thinking, this book hits the core of today’s challenges. Based on my experience of the Finnish and European political and university life, I find that the decision-makers need a model – a comprehensive system of variables – for managing successfully the value chains and value networks of their operating environment. This book gives an excellent base for benchmarking the practices around the world. Let me highlight a few features of our Finnish experiences, thus deepening the message of this book. The Finnish model is based on high-level basic education and a strong commitment of all citizens to lifelong learning. The state has used incentives, strategic planning, and participatory mechanisms. The combination of deregulation and effective provision and facilitation of the public infrastructure has stimulated growth. The state has acted as a promoter of technological and social innovations, thus creating the conditions under which Finnish business firms could restructure themselves and compete globally. Parliamentary work focuses on the politics of the day. However, with the rapidly increasing rate of technological and societal changes, it has become obvious that the existing legislative bodies cannot proactively react to future trends. With respect to this, a truly unique Finnish innovation has been the establishment of the Committee for the Future as a permanent parliamentary organ. An example of the impact is that the key government ministers have tackled complex ecosystem issues with foresight and strong focus while serving as members of the Committee for the Future during their earlier parliamentary years.
v
vi
Foreword
The Finnish innovation system is regarded as a structurally high-quality system, rated among the top national innovation systems in the world. Despite this, we know that the current innovation practices in Finland – or anywhere else – are not nearly adequate in terms of the challenges that lie ahead. This book and other studies also help us to understand the interrelationships in the global innovation ecosystem. This helps to implement the national strategic goals set by the Parliament of being the forerunner nation in innovativeness and education and to create the world’s best innovative environment in Finland. Digitalization and globalization have changed business processes rapidly. The required transition from an information-based society to a knowledge- and innovation-based society can be seen as a paradigm shift. The quality of society is largely determined by its capacity to generate genuine learning and team work and to produce new visionary knowledge. Measuring this capacity is a prerequisite for having the intellectual capital high on the political agenda of nations’ decision-making processes. Measuring productivity and impact is difficult. Different people and actors emphasize the quality factors of outputs from different viewpoints. From the perspective of productivity, the constant transformation of the working life is an immense challenge. The challenge is overcome by developing and steering intangible capital. There are also more and more alternatives to allocating and developing inputs. Traditional indicators created for and used in industrial production cannot be applied to a knowledge-intensive, turbulent, and innovative global enterprise environment. Indicators that perceive the intangible dimensions of competitiveness – knowledge capital, innovation, knowledge and anticipation of the future – have been developed around the world, but their use has not yet become an established practice. This book accelerates the development and use of these indicators. A conceptualized holistic view is a basic requirement for successful changes. Markku Markkula Advisor to the Aalto University Presidents Member of the EU Committee of the Regions Former Member of the Parliament of Finland
Foreword
Peter Drucker said in Post-Capitalist Society that knowledge will replace machinery, capital, raw material, and labor as the basis of business operation. In other words, the competitive advantage of an enterprise no longer lies in physical capital, such as land, equipment, or facilities, but is rather based on the value created by an enterprise’s intangible assets and knowledge. Such a mechanism is commonly known as an enterprise’s intellectual capital. As more and more enterprises are increasing their investments in the creation of intangible assets, the true value of an enterprise can no longer be measured with the traditional practice of accounting. Take, for example, the ratio between market value and book value of most US-listed companies; on average over 40% of most enterprises’ actual value is not reflected on the balance sheet. For the highly knowledge-oriented enterprises, the ratio of unrepresented assets even often exceeds 100%. Said phenomenon has caused considerable confusion for the traditional practice of accounting in calculating and explaining the value of an enterprise. Therefore, many scholars have been dedicated to the study of intellectual capital, seeking to assist enterprises in estimating the value of intangible assets. Nevertheless, due to the intangible nature of intellectual capital, while the concept is relatively easy to grasp, the actual application is considerably difficult. In light of this situation, the Institute for Information Industry (III) and the College of Commerce, National Chengchi University, with support from the Academia Technology Development Programs under the Department of Industrial Technology, Ministry of Economic Affairs, joined hands to establish the Taiwan Intellectual Capital Research Center (TICRC). The center aims to conduct a wide range of research projects so as to answer and solve the following issues. To start with, what is intellectual capital and what are the content and ingredients of intellectual capital? The TICRC aims to establish an index system for calculating and measuring intellectual capital, so as to provide guidance for actual applications in enterprises’ operation. Furthermore, as the market value of high-tech industries far exceeds the range that can be covered by means of traditional accounting, its evaluation is best served by a new model which accommodates intangible assets instead of the old model which considers physical assets alone. It is necessary for the enterprises to make vii
viii
Foreword
investment information more apparent by including the evaluation of intellectual capital, making for more sound and fair judgment on the investor’s part. In recent years, many of Taiwan’s industries have relocated in China driven by the search for lower production cost. Taiwan’s information hardware industry, for instance, recorded a worldwide shipment value of more than US$100 billion in 2009, with over 90% manufactured in China, though. Does the shift of production value signify the transfer of Taiwanese enterprises’ capabilities, too? Will Taiwan’s industry sector be hollowed out as a result? Are there other intangible assets still existing in or controlled by Taiwan’s industry sector? What are the current status and development trend of Taiwan’s national intellectual capital? How are the government’s policies coping with the development? Those are all important issues included in the TICRC’s research scope. In the TICRC, Professor Carol Yeh-Yun Lin is in charge of the study on national intellectual capital, and this book presents the main results of her research on this subject. In addition to detailed introduction to the establishment of index system and methodology for the measurement of national intellectual capital, Professor Lin also provides comparative analyses between diverse nation groups in this book, making for an in-depth understanding of the distinct development of different countries. Also included in this book are Professor Lin’s practical advices for government policies, which are essential readings for officials and scholars concerned with the development of national intellectual capital. The importance of research on intellectual capital has been increasingly recognized worldwide in recent years, but most researchers have largely focused their attention on the enterprise level. With her expertise on this topic, Professor Lin addresses the issue of intellectual capital from a broader national scope, which has not only opened up a new field of study on intellectual capital but helped pave the way for the global development of knowledge economy. I would like to take this chance to congratulate Professor Lin on her outstanding accomplishment and the publication of this book while offering my sincerest gratitude for her invaluable contribution to the TICRC. Victor Tsan Vice President and General Director of Market Intelligence & Consulting Institute, Institute for Information Industry, Taiwan
Preface
A new economic landscape is emerging based on intangibles, or an evolution toward Knowledge. The old paradigm of Wealth of Nations might have been focused on the tangible assets. Today we see that the spending on macroeconomic level in Nations for welfare, health, education, R&D, or security is more and more in the intangible dimensions. On the national level, this is somewhere between 7 and 20% of GDP (Corrado et al. 2009). Every innovation step starts with a small spending on intangibles. Sometimes this is referred to as “soft” dimensions such us culture and values, and in Japan they had coined this in Soft Economics way back in the 1980s. Today METI in Japan is calling this Intellectual Asset-based Management. But the mapping is still done to a large degree based on the tangibles. The knowledge gap or ignorance on the value of intangibles is still huge. So we need both a new perspective and new metrics for the mapping. I started to work on these more than 20 years ago, as the world’s first director of Intellectual Capital. The global financial meltdowns, with immense amount of money, more than 7300 billion Euro, to cover losses and rescue the institutions highlight the need for a new systemic understanding. This understanding is based on the insights of investment, handling, and cultivation of intangibles. This is also called intellectual capital. One distinction of IC is the derived insights of head value for future value creation. In the West, capital is confined in its usage to mean only financial capital, while its meaning might be derived from Latin, meaning head. Capital in Asia is more referring to the roots or soil. We also need a better understanding of this new ecology of value creation, both on macro level as well as micro level. So the new paradigm for Wealth of Nations is in the insight of what are the drivers for value creation. Noble Prize laureates are pointing in this direction. OECD is investigating (Tojo et al. 2008). President Sarkozy in France has appointed a special task force by Stiglitz–Sen–Fitoussi to look into the quality-of-life dimensions of economics. Some countries are prototyping of Nation reporting, such as Sweden, Israel, Poland, and Turkey. On a policy level as well as on statistical mapping, several countries such as Denmark, UK, France, Germany, Austria, Finland, Norway, USA, Japan, Brazil, Japan, China, etc. are now addressing the IC dimensions. Special research groups or Task forces are appointed as in Japan. The New Club of Paris was founded to support the agenda setting on knowledge economy for cabinets of various nations (see http://www.new-club-of-paris.org). ix
x
Preface
This is now realized also by big accounting firms. They have now started a big global project on WICI (World Intellectual Capital Initiative); see http://www.worldici.com. The European Financial Analysts are shaping guidelines for looking into IC; see http://www.effas.com. In European Commission, several projects, among others a special report called RICARDIS (Reporting Intellectual Capital to Augment Research), have been looking into this. This resulted in a microeconomic enterprise project in some five European countries, based on a systems dynamics model for value drivers of Intellectual Capital and its reporting, see http://www. incas-europe.org, now being followed by a project called CADIC. This project was, however, initiated in Germany by the Bundes Ministerium fur Wirtschaft unt Arbeit. Based on this, big enterprises listed on Stock Exchanges are starting to look into the reporting of IC. Special projects are emerging as in the Stock Exchange of Warsaw. Many initiatives are emerging at various levels with different focus. TICRC (Taiwan IC Research Center) was one of the pioneers in establishing a research group on IC in 2003. This book is based on the research and building of a database by TICRC and Dr. Carol Lin. I started to ask the question of IC of nations in late 1990s and prototyped a report in Sweden in 1996, among others, with the Swedish Governmental Agency, ISA. Today we have much more data as well as contextual reports for a deeper drill into the understanding of the role of IC of nations or future wealth creation. It is starting to reveal an ecosystem of both drivers for the Social Capital, as the larger holistic perspective, as well as new softer dimensions of Mind set, Culture and Values of Nations. Perhaps they are so-called strange attractors for the societal engagement. A very special part of this is the renewal dimension, also understood as the innovation dimension of, and for, nations’ stakeholders. This was also highlighted by President Barack Obama, in his Inaugural Address, Jan. 2009. For this, we need to acknowledge much more mapping of the emerging new forces of social power in social entrepreneurship and societal innovation thrusts, as in, for example, UK, Denmark, and Finland. This book gives some highlights on the statistical map, specifically for the renewal dimension of IC of nations. The book is an invitation to ask more deepening, powerful questions for future wealth and well-being. In its extension, this might be the new bottom line both for micro- as well as macrolevel eco systems. The cultivation of this is the leadership for generative relationships of collective intelligence in each unique national context. This might become visualized as a ratio between current positions of IC of nations vs. potential IC of nations, as described in Chap. 17. This gap is in fact a liability to future generations, which we have a responsibility to address today. Otherwise they…. Leif Edvinsson Lund University, Lund, Sweden Hong Kong Polytechnic University, Hong Kong The World’s First Professor of Intellectual Captial
Preface
This book is dedicated to the visionary Taiwan government officers, three key intellectual capital project leaders of the Taiwan Intellectual Capital Research Center (TICRC) at National Chengchi University (NCCU), and my research partner – Professor Leif Edvinsson. Taiwan is a small island of 23 million people with an area of only 35,980 km2 – around 1/10th the size of Japan and 1/12th that of Sweden. Owing to the fact that Taiwan is lacking many natural resources yet enjoying an abundance of highly educated human resources, several Taiwan government officers, including Dr. Jung-Chiou Hwang, Vice Minister of the Ministry of Economic Affairs, and Dr. Victor Tsan, Vice President and General Director of Market Intelligence & Consulting Institute, Institute for Information Industry, foresaw the need to develop the intangibles for Taiwan’s future prosperity. As a result, a 4-year intellectual capital research project was commissioned to the TICRC in 2003 by the Ministry of Economic Affairs under the leadership of NCCU President Se-Hwa Wu, the former NCCU President Ting-Wan Cheng, and Professor Anne Wu. To formalize this 4-year research project, the TICRC was established to integrate and record the research results as well as the wisdom of around 40 researchers during their heyday. I had the privilege to become a member of TICRC’s research team as the coordinator of human capital. In addition to this function, I also led a Taiwan National Science Council-sponsored 11-member intellectual capital research team, which deepened my understanding of intellectual capital research, including the launching of a national-level intellectual capital comparative study of 40 countries that led to the publication of this book. Derived from a validated national intellectual capital model (introduced in Chap. 3), the data sets of this book are based on the IMD World Competitiveness Yearbook, covering 14 years (1995–2008) for 40 countries. Since 2005, I have been presenting my attention-getting research results at various conferences held in 8 different countries. As years go by, it has become increasingly clear to me that publishing a book would be the most efficient way to share these valuable findings, which may shed some light to policy makers and interested parties in improving their national intellectual capital development.
xi
xii
Preface
I was so fortunate to meet my research partner, Professor Leif Edvinsson, at a conference and was enlightened by every speech of his that I had the opportunity to attend. Our friendship started from my visit to his Skandia Future Center in Stockholm during a learning trip of my 11-member research team. With the fame of Brain of the Year in 1998, Professor Edvinsson proved to be the “mind twitter” of this book, which prompted me to interpret the results from various perspectives and opened more windows to see the value of this data set. During the drafting of this book, we encountered the 2008 global financial crisis. Intriguingly, we detected the early signs of a serious problem of capital availability in Iceland, which partially explained the meltdown of its banking system. In early 2010, the problems of Greece, Ireland, and Portugal prompted us to engage in further analysis of the trouble that these countries were experiencing. Again, we found that our data showed a clear downturn of their short-term intellectual capital. While giving our last-minute polish to this book, we have added several figures to present our findings in explaining the above-mentioned troubles. Very likely, these brief explanations of the countries in trouble may reveal just the tip of the iceberg. With the confidence of the predicting power of our data set, Professor Edvinsson and I have decided to follow up the development of a number of other countries, continue our trend analysis, and, additionally, probe the impact of the alignment of national intellectual capital with other factors such as national culture, national health indicators, and so on. We also plan to write a second book to share our reflections over the 2008 global financial crisis, the early 2010 troubles of several EU countries, and other influencing factors. “Knowing the past to foresee the future” is what this book is about. I hope that readers will enjoy the rich information presented here about the development trends of national intellectual capital of an individual country, a country cluster, or comparisons of specific countries. Readers are especially encouraged to give some time to the study of the last three chapters, the book’s grand finale that readers should not overlook. Enjoy reading! Carol Yeh-Yun Lin Professor, Departmant of Business Administration National Chengchi University, Taiwan Taiwan Intellectual Capital Research Center (TICRC)
Contents
1 Introduction of National Intellectual Capital.......................................... Introduction.................................................................................................. Development of National Intellectual Capital............................................. Five Types of Component Capital................................................................ Expected Contributions................................................................................ Chapter Organization of This Book.............................................................
1 1 2 3 5 6
2 Background of National Intellectual Capital.......................................... Motivation for Writing This Book............................................................... Current National Intellectual Capital Measurement Models....................... Measurements Proposed by Regional or World Development Organizations........................................................................................... National Intellectual Capital Models Proposed by Individual Researchers.............................................................................................. Obstacles to the Measurement of National Intellectual Capital................... Summary......................................................................................................
7 7 8
11 12 16
3 Methods and National Intellectual Capital Ranking of 40 Countries........................................................................................... Proposed National Intellectual Capital Measurement Model...................... Indicator Selection and Validation............................................................... Validation of NICI40 Measurement Model................................................. Methods........................................................................................................ National Intellectual Capital Indices for 40 Countries................................ Appendix 1................................................................................................... Appendix 2...................................................................................................
17 17 18 21 21 22 27 30
4 National Intellectual Capital of Five Nordic Countries (Denmark, Finland, Iceland, Norway, Sweden)...................................... Introduction.................................................................................................. National Intellectual Capital of Each Individual Country........................... Comparison of Capital Components of the Five Nordic Countries.............
33 33 34 40
9
xiii
xiv
Contents
Three-Period Progression of National Intellectual Capital Development.................................................................................... General Descriptive Information on the Five Nordic Countries.................. Summary...................................................................................................... 5 National Intellectual Capital of Four Larger Western European Countries (France, Germany, Ireland, UK)........................... Introduction.................................................................................................. National Intellectual Capital of Each Individual Country........................... Comparison of Capital Components of the Four Larger European Countries...................................................................................... Three-Period Progression of National Intellectual Capital Development.................................................................................... General Descriptive Information on the Four Larger European Countries...................................................................................... Summary......................................................................................................
44 47 60 63 63 64 68 72 75 84
6 National Intellectual Capital of Four Smaller Western European Countries (Austria, Belgium, Netherlands, Switzerland)................................................................................................ 87 Introduction.................................................................................................. 87 National Intellectual Capital of Each Individual Country........................... 88 Comparison of Capital Components of the Four Smaller European Countries...................................................................................... 93 Three-Period Progression of National Intellectual Capital Development................................................................................................ 96 General Descriptive Information on the Four Smaller European Countries...................................................................................... 99 Summary...................................................................................................... 108 7 National Intellectual Capital of Four Southern European Countries (Greece, Italy, Portugal, Spain)............................. Introduction.................................................................................................. National Intellectual Capital of Each Individual Country........................... Comparison of Capital Components of the Four Southern European Countries...................................................................................... Three-Period Progression of National Intellectual Capital Development................................................................................................ General Descriptive Information on the Four Southern European Countries...................................................................................... Summary......................................................................................................
111 111 112 117 120 123 134
Contents
8
9
National Intellectual Capital of Four East Central European Countries and South Africa (Czech Republic, Hungary, Poland, South Africa, Turkey)................................................................ Introduction................................................................................................ National Intellectual Capital of Each Individual Country......................... Comparison of Capital Components of the Four East Central European Countries and South Africa....................................................... Three-Period Progression of National Intellectual Capital Development.............................................................................................. General Descriptive Information on the Four East Central European Countries and South Africa........................................................................ Summary.................................................................................................... National Intellectual Capital of Two North American Countries (Canada, USA)........................................................................ Introduction................................................................................................ National Intellectual Capital of the Two Countries................................... Comparison of Capital Components of the Two North American Countries................................................................................... Three-Period Progression of National Intellectual Capital Development.............................................................................................. General Descriptive Information on the Two North American Countries................................................................................... Summary....................................................................................................
10 National Intellectual Capital of Four Latin American Countries (Argentina, Brazil, Chile, Mexico)........................................ Introduction................................................................................................ National Intellectual Capital of Each Individual Country......................... Comparison of Capital Components of the Four Latin American Countries................................................................................... Three-Period Progression of National Intellectual Capital Development.............................................................................................. General Descriptive Information on the Four Latin American Countries................................................................................... Summary.................................................................................................... 11 National Intellectual Capital of Australia and New Zealand............... Introduction................................................................................................ National Intellectual Capital of Australia and New Zealand..................... Comparison of Capital Components of Australia and New Zealand......... Three-Period Progression of National Intellectual Capital Development.............................................................................................. General Descriptive Information on Australia and New Zealand.............. Summary....................................................................................................
xv
137 137 138 143 147 150 161 163 163 165 167 170 172 172 181 181 182 186 189 190 193 205 205 207 209 212 214 218
xvi
Contents
12 National Intellectual Capital of Three East Asian Countries (Japan, South Korea, Taiwan)................................................................ Introduction................................................................................................ National Intellectual Capital of Each Individual Country......................... Comparison of Capital Components of the Three East Asian Countries.......................................................................................... Three-Period Progression of National Intellectual Capital Development.............................................................................................. General Descriptive Information on the Three East Asian Countries.......................................................................................... Summary.................................................................................................... 13 National Intellectual Capital of Four Southeast Asian Countries (Malaysia, Philippines, Singapore, Thailand)..................... Introduction................................................................................................ National Intellectual Capital of Each Individual Country......................... Comparison of Capital Components of the Four Southeast Asian Countries.......................................................................................... Three-Period Progression of National Intellectual Capital Development.................................................................................. General Descriptive Information on the Four Southeast Asian Countries.......................................................................................... Summary.................................................................................................... 14 National Intellectual Capital of the Four BRIC Countries (Brazil, Russia, India, China)................................................ Introduction................................................................................................ National Intellectual Capital of Each Individual Country......................... Comparison of Capital Components of the Four BRIC Countries............ Three-Period Progression of National Intellectual Capital Development.............................................................................................. General Descriptive Information on the Four BRIC Countries................. Summary.................................................................................................... 15 National Intellectual Capital Development: Trajectory from a Poor to a Fast Growth Country.................................................. Introduction................................................................................................ National Intellectual Capital of the Five Poorest Countries...................... National Intellectual Capital of the Five Fastest Growth Countries.......... Comparison of the Poorest and Fastest Growth Countries........................ Trajectory from a Poor to a Fast Growth Country..................................... Summary....................................................................................................
221 221 222 226 229 231 238 241 241 242 246 250 253 253 263 263 264 268 272 275 285 287 287 288 292 295 298 303
Contents
xvii
16 Dynamic Systems in National Intellectual Capital............................... Ranking Changes of the Five Component Capitals................................... GDP Growth Comparison.......................................................................... Intangible Asset Indicators of Various World Organizations..................... Paths for Planned National Intellectual Capital Growth............................ Summary.................................................................................................... Appendices................................................................................................. Appendix 1................................................................................................. Appendix 2................................................................................................. Appendix 3................................................................................................. Appendix 4................................................................................................. Appendix 5................................................................................................. Appendix 6.................................................................................................
305 305 313 315 315 333 334 335 337 339 341 343 345
17 Policy Implications and Future Perspectives......................................... Introduction................................................................................................ Internal and External National Intellectual Capital Issues......................... Policy Implications.................................................................................... GDP Implications................................................................................... National Context Implications............................................................... Currency Effect Implications................................................................. Effectiveness Implications..................................................................... IC Formula I: Turning Liability into Potential and into Value............... On-Going National Intellectual Capital Development............................... Promote National Intellectual Capital Creation Routes......................... Encourage Three Types of National Intellectual Capital Growth Patterns...................................................................................... Create Intellectual Capital Accelerator.................................................. Establish an Intellectual Capital Incubator............................................ Suggestions for BRIC Countries................................................................ Limitations and Future Perspectives.......................................................... Conclusion.................................................................................................
347 347 348 351 351 352 353 353 354 354 354 355 359 361 361 367 367
After Note: Looking from Outside................................................................. 371 References......................................................................................................... 373 Glossary............................................................................................................ 385 Author Index.................................................................................................... 389 Subject Index.................................................................................................... 391
wwwwwwwwww
Chapter 1
Introduction of National Intellectual Capital
Introduction National wealth, national competitiveness, and economic development are issues of concern for national leaders, policy makers, and world organizations. As a result, various kinds of national ranking have caught the attention of relevant parties, such as the World Competitiveness Yearbook published by the International Institute for Management Development (IMD). The Organization for Economic Cooperation and Development (OECD) also estimates and reports the potential future wealth of its member countries. Such ranking enables national leaders to locate the relative position of their own nation in the global arena, find a benchmarking nation, and then appropriately strategize their policies for securing national development and competitiveness. Over the past few decades, intangible assets, such as knowledge, patents, and innovation, have been identified as fundamental sources of wealth and progress. These assets represent a major concern for business firms and their stakeholders (Garcia-Ayuso 2003). Drucker predicts the emergence of a society dominated by knowledge-based resources and a competitive landscape in the allocation of intellectual capital (IC) (Bontis 2004). In addition to firm-level studies, a number of intellectual capital assessments have also been undertaken at the national level (e.g., Sweden, Denmark, The Nordic Project, and Israel) and at the regional level (e.g., the Arab nations and the Pacific Islands) (Bontis 2004; Bounfour 2003). Although the assessment of national intellectual capital cannot fully explain or predict an abrupt occurrence such as a sudden stock market plunge, currency depreciation, regional political strife, or a global financial crisis, it can reflect a nation’s past efforts in terms of human resource development, national economic relationships, infrastructural investment, renewal capability building, and national financial management. This chapter briefly introduces the concepts of “intellectual capital” and “national intellectual capital,” whereas Chap. 3 will elaborate the terms in greater detail. Intellectual capital is defined as “intellectual material – knowledge, information, intellectual property, experience – that can be put to use to create wealth” (Stewart 1997) and functions as the roots for future earning capabilities
C.Y.-Y. Lin and L. Edvinsson, National Intellectual Capital: A Comparison of 40 Countries, DOI 10.1007/978-1-4419-7377-1_1, © Springer Science+Business Media, LLC 2011
1
2
1 Introduction of National Intellectual Capital
(Edvinsson and Malone 1997). In the context of global competition, these features, including educational system, international trade, infrastructure, and renewal capability, affect national competitiveness and constitute the major components of national intellectual capital, namely, human capital, market capital, process capital, and renewal capital. Those countries rich in knowledge-intensive activities will be the winners in terms of future wealth creation (Bounfour and Edvinsson 2004; Stähle and Pöyhönene 2005). The recognition that intangibles are one of the most important sources of prosperity and progress has prompted an increasing need for developing a better understanding of intellectual capital; as a result, studies of intellectual capital and related topics have proliferated over the years. The intellectual capital of a nation requires the articulation of a comprehensive system of variables to help uncover and manage that nation’s invisible wealth. Previous studies, to be elaborated on in Chap. 2, have either proposed models from a limited perspective (e.g., inputs or intellectual property rights) or models containing too many variables to be easily replicated for trend analysis. This book proposes a moderate set of national intellectual capital indices that are valid and can be easily replicated for follow-up studies.
Development of National Intellectual Capital The question about IC (Intellectual Capital) of Nations first emerged in the 1990s. The powerful question was very natural; “What are the hidden values of a particular country, such as Sweden?” So together with students from Market Academy at Stockholm University, Leif Edvinsson initiated at the Skandia Future Center a prototyping project based on the Skandia Navigator. The very first IC report of Nations emerged in 1997 called “Welfare and Security – For Future Generations” (Jarehov and Stenfelt 1998). This was then followed by another prototype in Israel, by some of the members partially of the same team, and Dr. Edna Pasher in Israel and local Israeli students. At the same time, the Ministry of Finance in Denmark commissioned a study on its hidden values in Denmark. The Swedish government’s ISA, Invest in Sweden Agency, also prototyped a report on the hidden values of Sweden (Rembe 1999). The several reports emerged from various countries and regions, as well as the World Bank. The most recent IC of Nations report was published in 2009 by the Polish government of Poland. Over the past decade, knowledge assets and intellectual capital have been attracting an increasing amount of attention, not only from academics and CEOs, but also from national policy makers. A World Bank report (1998), for example, points out that the adoption of policies to increase a nation’s intellectual wealth can improve people’s lives, besides giving them higher incomes. Yet, a majority of intellectual capital studies have been analyzed particularly from the interest of business firms to explain the differences between accounting value and market value as a possible basic source of competitive advantages in companies (Bontis 2001; Edvinsson 2002). Nowadays, there are approaches
Five Types of Component Capital
3
that attempt to apply these methodologies to a broader scope with the objective of comparing the intellectual capital indices at the national or regional level, which mainly are applications of business models translated to the nations or regions. For instance, in Europe an attempt has been made to promote competitive investment into intangibles, also referred to as the Lisbon agenda, from the EU summit held in Lisbon, Portugal in 2002. The aim is to increase R&D investment to the level of 3% of GDP for EU-12 countries (http://www.fm-kp.si/zalozba/ ISBN/961-6486-71-3/009-012.pdf). This highlights the magnitude and the shift of investments into intangibles as well as the need for a systematic intellectual capital report and the outcome of value creation based on these expenditures. This growing pace of intangible investments is, among other things, demanding a higher degree of strategic intelligence, or knowledge navigation capability in a given society. As knowledge assets fuel a country’s growth and have significant implications for future national value with respect to innovation, learning, and gross domestic product (GDP), they represent the source of the competencies and capabilities deemed essential for national economic growth, human development, and quality of life (Malhotra 2003). Consequently, countries rich in intangible assets fare better in terms of national wealth than those whose assets are limited to land, tools, and labor (Malhotra 2003; World Bank 1998). Up to the present, the concept of national intellectual capital is still formu lating and the consensus of its assessment is yet to be reached. Relevant researchers are pulling the wisdom from the economic disciplines, Edvinsson and Malone’s Skandia model, and national innovation systems in regions and clusters (Hervas-Oliver and Dalmau-Porta 2007) to overcome the challenges of identifying national intellectual capital indicators and its measurement for the optimization and enforcement of economic growth. Although national intellectual capital is very difficult to capture and measure (Weziak 2007), its value of serving as an extension of GDP that may predict future national wealth is well recognized. As a result, more and more world organizations and researchers are commissioned to investigate this future-oriented crucial national issue. Readers are referred to Chap. 2 for more details.
Five Types of Component Capital As Edvinsson (http://www.fm-kp.si/zalozba/ISBN/961-6486-71-3/009-012.pdf) put it, intellectual capital is future earning capabilities. It is about an opportunity in waiting, about sustainability, thinking ahead and adding values. Consequently, national intellectual capital is comprised of the knowledge, wisdom, capability, and expertise that provide a country with a competitive advantage over other countries and determine its potential for future growth. For instance, advanced countries create national value through service innovation, through R&D, or through improved GDP per hour worked. The intellectual capital report gives the reader an integrated and balanced picture of a country’s potential for future growth as we see it today
4
1 Introduction of National Intellectual Capital
(Pasher and Shachar 2007). As mentioned earlier, national intellectual capital mainly consists of five types of component capital – human capital, market capital, process capital, renewal capital, and financial capital. The scope of each component capital is described hereunder (Malhotra 2003; Pasher and Shachar 2007). Human capital includes knowledge, wisdom, expertise, intuition, and the ability of individuals to realize national tasks and goals. This focal area also includes the values encompassed within the culture and philosophy of the nation. Human capital constitutes a population’s total capabilities as reflected in education, knowledge, health, experience, motivation, intuition, entrepreneurship and expertise; in addition, a highly skilled labor force, the availability of scientists and engineers, a female labor force, and health (life expectancy, physicians) are also good indicators. These elements represent the key success factors in creating a competitive edge for a nation in the present and the future. Human capital provides the resources for the development and cultivation of other areas of intellectual assets such as R&D and training, as the human factor is the most important link in the process of value creation. Market capital refers to the general assets embodied in the nation’s relationship with the international market. It is the aggregate of a country’s capabilities and successes in providing an attractive, competitive solution to the needs of its international clients, a country’s investment and achievements in foreign relations, coupled with its exports of quality products and services (Bontis 2004). The assets in this focal point include customer or national loyalty, openness to globalization, flexibility and adaptability, resilience of economy, as well as the satisfaction expressed by strategic customers and national trading partners. Process capital is the cooperation and flow of knowledge that require structural intellectual assets, such as information systems, hardware, software, databases, laboratories, and national infrastructure, including transportation, information technology skills, communications and computerization, technological readiness and telecom services, personal computers, cellular subscribers, cyber security, quality scientific research institutions, knowledge transfer, a legal environment for entrepreneurship, a minimum number of days to start a business, a quality management system, and agricultural productivity. Such structural intellectual assets sustain and increase the output of human capital. Renewal capital refers to a nation’s capabilities and real investments made in an effort to increase its competitive strength in future markets, which, in turn, encourages future growth. Renewal and development assets include investments in research and development, patents, trademarks, start-up companies, the number of scientific publications, the number of patents registered in the US, EPO patent applications, total expenditure on R&D, and capacity for innovation. Financial capital refers to GDP, external debt, industrial production by major branches and inflation. The main purpose of this book is to present a national intellectual capital measurement model, to report, and then to rank the national intellectual capital,
Expected Contributions
5
comprised of human capital, market capital, process capital, renewal capital, and financial capital, of a total of 40 countries based on a set of panel data covering 14 years. The data source of the 40 countries included in this book is described in Chap. 3. They extend over the five continents and are listed hereunder: Europe – 22 countries Nordic Europe – Denmark, Finland, Iceland, Norway, and Sweden Western Europe – Austria, Belgium, France, Germany, Ireland, Netherlands, Switzerland, and UK. Southern Europe – Greece, Italy, Portugal, and Spain Eastern Europe – Russia East Central Europe – Czech Republic, Hungary, Poland, Turkey Americas – six countries North America – Canada, USA Latin America – Argentina, Brazil, Chile, Mexico Australia – two countries Australia and New Zealand Asia – nine countries East Asia – China, Japan, Korea, Taiwan Southeast Asia – Malaysia, Philippines, Singapore, Thailand South Asia – India Africa – one country South Africa
Expected Contributions Indeed, those nations that seek to establish viable and sustainable economic prosperity will inevitably turn toward managing and measuring what we now consider the intangible wealth of the nation or the national intellectual capital. As more nations focus upon human capital, which function together with and subsequently generate market capital, process capital, and renewal capital, we have an opportunity to increase the standard of living worldwide. In other words, human capital represents the necessary lever that enables value creation from all other components that have turned out to be key sources of wealth at the national level (Malhotra 2000). Before going on, a special remark to the readers must be taken into account. At the very point of publishing this research report at the end of 2008, a financial crisis occurred which had a major impact globally. That situation induced us to refrain from the original publishing plan and wait for another year to obtain the most recently updated data from our source (the 2009 IMD Yearbook, based on 2008 national data). Understandably, the data for Iceland for 2007 and 2008 are missing due to the breakdown of its financial system. As national ranking is based
6
1 Introduction of National Intellectual Capital
on the statistical evaluation of historical data, it is not surprising that a past excellent performer, such as Iceland, with its inherent banking system weakness, tumbled down within a very short time. However, this book that provides valuable information and the 14 years of panel data did reveal much for deep reflection in contemplating the future of national competitiveness.
Chapter Organization of This Book Chapter organization of this book is listed hereunder for the reader’s ease of reference: Chapter 1 – Introduction of National Intellectual Capital Chapter 2 – Background of National Intellectual Capital Chapter 3 – Methods and National Intellectual Capital Ranking of 40 Countries Chapter 4 – National Intellectual Capital of Five Nordic Countries (Denmark, Finland, Iceland, Norway, Sweden) Chapter 5 – National Intellectual Capital of Four Larger European Countries (France, Germany, Ireland, UK) Chapter 6 – National Intellectual Capital of Four Smaller European Countries (Austria, Belgium, Netherlands, Switzerland) Chapter 7 – National Intellectual Capital of Four Southern European Countries (Greece, Italy, Portugal, Spain) Chapter 8 – National Intellectual Capital of Eastern European Countries and South Africa (Czech Republic, Hungary, Poland, South Africa, Turkey) Chapter 9 – National Intellectual Capital of North American Countries (Canada, USA) Chapter 10 – National Intellectual Capital of Latin American Countries (Argentina, Brazil, Chile, Mexico) Chapter 11 – National Intellectual Capital of Australia and New Zealand Chapter 12 – National Intellectual Capital of Japan, Korea, and Taiwan Chapter 13 – National Intellectual Capital of Southeast Asian Countries (Malaysia, Philippines, Singapore, Thailand) Chapter 14 – National Intellectual Capital of BRIC Countries (Brazil, Russia, India, China) Chapter 15 – National intellectual capital development: The trajectory from poor to fast-growth countries Chapter 16 – World Dynamics System Thinking among Nations Chapter 17 – Policy Implications and Future Perspectives
Chapter 2
Background of National Intellectual Capital
Intellectual capital, the source of the competencies and capabilities deemed essential for national economic growth, human development, and quality of life (Malhotra 2003), have been attracting an increasing amount of attention. Particularly, the results of national level intellectual capital studies and ranking provide a direction for nations to benchmark and to make wise decisions in the effective investment of national intangible assets and their development in the era of the knowledge economy. This chapter first describes the motivation for writing and publishing this book and the national intellectual capital models that are currently in use; this is followed by the obstacles that hinder the measurement of national intellectual capital, and then a presentation of the measurement framework proposed in this book.
Motivation for Writing This Book Although intellectual capital (IC) has held the world’s attention for over a decade, it still remains at concept promotion, measurement, and valuation mostly at the micro-organizational level and mainly discussed in academic or management consulting circles. Linkage between the value of an intangible asset and how to quantify it or benchmark it is still tenuous, not to mention easily misunderstood by a layman for guiding better decision making. With the belief that numbers talk and statistics hide valuable information, this book serves to present our research findings covering 14 years of intellectual capital information for 40 countries to the general public. Readers are invited to see their own world through the lens of this set of macro environment. Hopefully, by putting their own concerns in the national level intangible context, readers may be able to generate knowledge for better future decision making and for a more meaningful life. The impetus for pursuing organizational level IC is for the reasons that although the traditional balance sheet provides the historic costs and assumes that the cost reflects the actual value of the asset, it does not, however, account for the hidden value inherent in intangible assets and does not provide effective future implications. As traditional financial resources, lands, and buildings can no longer fully
C.Y.-Y. Lin and L. Edvinsson, National Intellectual Capital: A Comparison of 40 Countries, DOI 10.1007/978-1-4419-7377-1_2, © Springer Science+Business Media, LLC 2011
7
8
2 Background of National Intellectual Capital
represent corporate assets in the knowledge economy, managers of business enterprises have endeavored to understand and to find reliable ways to assess intangible knowledge assets for creating corporate competitiveness. Consequently, many models of IC measurement and valuation have been proposed at the organizational level (Bontis et al. 1999; Bontis 2001; Petty and Guthrie 2000; Sveiby 2002; Andriessen 2004). In other words, a key focus has been on metrics as well as innovations. Major accounting firms have come together to form the WICI – World Intellectual Capital Initiative (http://www.worldici.com), while the European Financial Analyst Association has published a special guide on how to report on IC (http://www.effas.com). As intangible assets are important to private enterprise organizations, they should also be important in increasing the productivity and competitiveness of the public sector, the nation, and the region. Measuring national intangibles assists nations in diagnosing and benchmarking their competences and capabilities, as such assessments can facilitate the adoption of good policies and practices for a holistic national development.
Current National Intellectual Capital Measurement Models Recognizing the importance of intangible assets, a number of national governments have launched national knowledge initiatives to develop measurement models and their own intellectual capital indicators for creating and sustaining national competitiveness. Declaring 1996 as the Year of Innovation, the Swedish government together with Stockholm University modified the Skandia Navigator at the national level to quantify Sweden’s critical success factors (Spring Project 2002). Rembe (1999) examined the components of national attraction from the viewpoint of foreign investment in Sweden and proposed a strategic plan for the future development of Sweden’s human capital, market capital, process capital and renewal capital. Israel identifies its hidden values and the key driving success factors along its 60 years of existence in different areas such as education, patents, the number of scientists engaged in research and development, international openness, the computer and its communication infrastructure (Pasher 1999; Pasher and Shachar 2007). Four accounting firms were invited to conduct a practice-oriented study of Netherlands’ intangible assets. The Danish Agency for Trade and Industry sponsored the development of comprehensive intellectual capital indicators based on several Nordic and Danish companies’ experiences; and the Norwegian government sponsored the development of a competence capital model including intellectual capital (Malhotra 2003). Furthermore, Bontis (2004) analyzed data of several Middle East countries and published a study of the national intellectual capital of the Arab Region. In addition to national governments, several world development organizations such as the World Bank, the OECD and various United Nations agencies have proposed a variety of knowledge asset measurement models as well. These models were originally developed for industrial and agricultural economies, and focus on tangible
Current National Intellectual Capital Measurement Models
9
assets and structural assets. Nevertheless, some of these models have also been used to assess national growth in terms of investment (using a scale of 1–10 rather than objective quantitative data), describing input- and process-related measures and allowing assessment, comparison and benchmarking of individual national economies (OECD 2001; UNDP 2000; World Bank 2001). This book summarizes below several of the previous national intellectual capital models.
Measurements Proposed by Regional or World Development Organizations Several world development organizations have joined in the effort to help countries make better resource allocation decisions by proposing various assessment models. Among these proposed models, the following three are the most well known. The World Bank’s Knowledge Assessment Methodology The aim of the World Bank’s Knowledge Assessment Methodology (KAM) is to illustrate and identify the problems and opportunities that a country encounters for policy reference to facilitate future investment. It can also be used to benchmark “how an economy compares with its competitors or countries it wishes to imitate” (World Bank 2002). A comprehensive tool for reviewing world development, KAM consists of 69 structural and qualitative variables classified into five dimensions as indicated in Table 2.1. Four of these are considered decisive in the development of a knowledge-based economy, while the fifth tracks its overall performance. They include economic and institutional regime, education and skilled human resources, dynamic information infrastructure, and efficient innovation system. Using “standard” scorecards, 14 out of the 69 variables were compiled to capture the essence of a country’s preparedness for developing a knowledge-based economy. Table 2.1 Variables of the “standard” scorecards Economic and institutional regime Education and skilled human resources 1. Adult literacy rate 1. Tariff and non-tariff barriers 2. Secondary enrollment 2. Property rights 3. Tertiary enrollment 3. Regulation Dynamic information infrastructure 1. Telephones per 1,000 persons 2. Computers per 1,000 persons 3. Internet hosts per 1,000 persons Performance indicators 1. Average annual GDP growth 2. Human development index Source: World Bank (2002)
Efficient innovation system 1. Researchers in R&D 2. Manufacturing trade as percentage of GDP 3. Scientific and technical journal articles per million people
10
2 Background of National Intellectual Capital
OECD Measurement Models The OECD regards inputs – rather than outputs – as being of greater significance when measuring national intellectual capital (Malhotra 2003). According to the OECD, although measuring knowledge assets presents a challenge, a gross indicator may contain the following: 1 . Public and private spending on higher education 2. Expenditure on R&D 3. Investment in software in terms of percentage of GDP investments This model regards inputs rather than outputs as significant when measuring national intellectual capital (Malhotra 2003). In other words, the more a country invests in its higher education, in R&D, and in software, the more intellectual capital it has. As the value of measurements based on investments in input resources has been called into question at the firm level because of their apparent constraints, researchers at the national level have started to shift their attention away from the amount of financial investment or financial input and toward the way that people manage and utilize these inputs (Collins 2001; Malhotra 2003; Carr 2003; etc).
United Nations Economic Commission for Europe Model Another model proposed by a world development organization is the ECE Model developed by the United Nations Economic Commission for Europe (ECE). With the objective of facilitating the innovation and commercialization of knowledge assets, the model (United Nations Economic Commission for Europe 2003) inspects: 1. The existing practices and methodologies for valuing intellectual assets (inventions) 2. Intellectual property rights (patents) 3. The valuation of managerial flexibility 4. The stock market valuation of companies 5. R&D project valuation This model provides a holistic view of the sustainable innovation process, focusing in particular on the valuation of intellectual property rights. Since innovation is closely linked to human resources, governments have gradually begun to provide more support for human resources development and the ongoing adaptation of institutional, information and innovation systems, realizing that the innovation and technological capabilities of a country are correlated with long-term growth and social progress.
Current National Intellectual Capital Measurement Models
11
National Intellectual Capital Models Proposed by Individual Researchers The intellectual capital concept was promoted by Edvinsson and Malone (1997) through the illustration of the Skandia Navigator Model based on their observations of the differences between accounting value and market value as a possible basic source of competitive advantages to companies. National intellectual capital consists mainly of applications of business models translated to individual nations. Since intellectual capital has been recognized as underpinning and fueling a nation’s growth, its research on the national level has recently emerged as a new area of study with the main focus on understanding and measuring the intangible factors influencing the creation of national wealth (Stähle and Pöyhönene 2005). Numerous efforts have been made by establishing formal, systematic measurement criteria to document and report progress according to key factors that under-gird the prosperity of a given nation. Table 2.2 has summarized recent works of such endeavors. Although the concept of intellectual capital has been extended from a microorganizational level to the macro-national and regional levels, the absence of a Table 2.2 Dimensions and nature of indicators for measuring national intellectual capital General basic Country/researcher model Dimensions Nature of indicators • Financial indicators Sweden (Rembe Skandia • Human capital • Descriptive indicators 1999) Navigator • Market capital • Process capital • Renewal capital • Descriptive indicators Malaysia (Bontis Skandia • Financial wealth • Intangible indicators et al. 2000) Navigator • Human capital • Financial indicators • Market capital • Process capital • Renewal capital • Innovation indicators Sweden (Spring Skandia • Business recipe • Competence indicators Project 2002) Navigator • Human capital • Industrial indicators • Structural capital • Company–universities • Relational capital indicators
Madrid, Spain (Pomeda et al. 2002)
Skandia Navigator
EU Countries (Bounfour 2003)
IC-dVAL Approach
• • • • • • • •
Human capital Organizational capital Technological capital Relay capital Social capital Resources Processes Outputs
• Descriptive indicators • Intangible indicators • Innovation indicators
• Financial indicators • Descriptive indicators • Innovation indicators (continued)
12
2 Background of National Intellectual Capital
Table 2.2 (continued) Country/researcher
General basic model
Arab Region (Bontis 2004)
Skandia Navigator
Finland (Stähle and Skandia Pöyhönene 2005) Navigator
Israel (Pasher and Shachar 2007)
Skandia Navigator
EU Countries (Weziak 2007)
Skandia Navigator
Dimensions • • • • • • • • • • • • • •
• • • • Source: Revised from Pomeda et al. (2002)
Nature of indicators
• Financial wealth • Human capital • Market capital Process capital Renewal capital • Human focus • Market focus • Process focus Renewal & development focus • Financial capital Human capital Market capital Process capital Renewal & development capital • Human capital • Relational capital Structural capital Renewal capital
Descriptive indicators Intangible indicators Financial indicators
Industrial indicators National indicators Financial indicators
Financial indicators
Financial indicators Descriptive indicators
recognized macro model and widely accepted methodologies indicate the need for more national-level studies. In spite of the relative consensus that has been reached regarding the measurement of a few categories of intangible assets such as patents and trademarks, the measurement systems are still limited in their ability to account for tacit knowledge assets (Malhotra 2000), as several obstacles have hindered the effective measurement of national intellectual capital.
Obstacles to the Measurement of National Intellectual Capital Several obstacles have hindered the effective measurement of national intellectual capital, including: (1) the question of whether the translation of the models from the domain of business management to the national or regional level applies; (2) most national intellectual capital measurement models analyze existing data at the input and output level (Bounfour 2003); (3) the problem of trying to undertake a systematic collection of data without a comprehensive reference framework (Pomeda et al. 2002), and (4) comparison among countries is based on different quality criteria and different regional-national statistical systems, and these differences may result in inconsistencies in comparison and analysis (Klein 2000). Many countries have adopted their own intellectual capital measurement for creating and sustaining national competitiveness as exhibited in Table 2.3. The merit of
Table 2.3 Intellectual capital indicators of five exemplary studies Swedish Government and Stockholm Israeli report University by Pasher Advanced Human capital Quality of life, degrees, equal average age opportunities, expectancy, women in the infant survival professional rate, smoking, workforce, education, level book of education for publishing, immigrants, crime museum visits, rate, age statistics physicians in the medical system, alcohol consumption, crime International Market capital Tourism statistics, events, openness standards of to different cultures, honesty, balance language skills of service, balance of trade, balance of trade for intellectual property Israeli report by Malhotra Education, equal opportunities, culture, health, crime
Providing solutions Openness to to market needs, globalization, international global competievents, openness tiveness indicator, to different cultures, flexibility and adaptability, resilience of language skills economy, Nobel prizes
Israeli report by Pasher and Shachar Highly skilled labor force, availability of scientists and engineers, female labor force, culture, health (life expectancy, physicians)
Termed as Relational Capital: fiscal environment, European institutions, playing the “National Card,” erosion of national ownership (continued)
Luxembourg Population, other characteristics (e.g., birth rate, marriage rate), frontaliers, education, engineers and scientists, equal opportunity
Obstacles to the Measurement of National Intellectual Capital 13
Table 2.3 (continued) Swedish Government and Stockholm Israeli report University by Pasher Extent of internet Process capital Service-producing use, software use, organizations, public teaching effectiveconsumption as a ness, freedom of percentage of GDP, expression, agriculbusiness leadership, ture added-value, information technology, entrepreneurship survivors in traffic and risk-taking, accidents, employment venture capital funds, immigration Absorption Israeli report by Israeli report by Pasher and Shachar Malhotra Communications and Information technology computerization skills, technological infrastructure, readiness and extent of internet telecom services, use, circulation of personal computers, daily newspapers, cellular subscribers, extent of software cyber security, use, agriculture, quality of scientific management, research institutions, top management knowledge transfer, international legal environment experience, for entrepreneurship, entrepreneurship number of days to start and risk taking, a business, ISO quality venture capital management system, funding, employment agricultural productivity Development of the service sector, immigration and absorption
Luxembourg Termed as Structural capital: information and communication technology, innovation and intellectual property, education and research institutions
14 2 Background of National Intellectual Capital
Israeli report by Pasher
Israeli report by Pasher and Shachar
Israeli report by Malhotra
Renewal capital
R&D expenses as a percentage of GDP, number of genuine business start-ups, trademarks, factors important to high school youth
Civilian R&D, scientific publications, biotechnology companies
Luxembourg
– National expenditure on Number of scientific civilian R&D, scientific publications, publications in the Israel’s world share world, registration of of science patents, patents, work force university/industry employed in R&D, research collaboration, start-up companies, number of patents, biotechnology ICT-related patents, companies utility patents, biotechnology patents, total expenditure on R&D, national expenditure on civilian R&D, foreign investment in Israel, venture capital availability, entrepreneurship and start-up companies, capacity for innovation, entrepreneurship – Gross domestic product GDP, external debt, Dollar exchange Financial Per capita GDP, (GDP), dollar ex labor market (ICT rates, external Capital national debt, the change rate, external employment, debt, unemploymean value of the debt, unemployment, employment and ment, sector US dollar productivity within unemployment), productivity rates, various economic industrial production exports by industry, sectors, breakdown by major branches, inflation of exports according to exports by industry, industries, inflation inflation Summarized by the authors based on the following sources: (1) http://www.entovation.com/whatsnew/ic-nations.htm, (2) http://info.worldbank.org/ etools/docs/library/235909/s4_p1.pdf, and (3) Pasher and Shachar (2007)
Swedish Government and Stockholm University Obstacles to the Measurement of National Intellectual Capital 15
16
2 Background of National Intellectual Capital
such measurement development is that each country determines the indicators that suit its own characteristics and needs. The downside is that those indicators do not provide a framework for cross-country comparisons. For instance, Luxembourg’s human capital has an indicator of frontaliers, because each working day more than 115,000 frontaliers cross national borders to their jobs in Luxembourg. This indicator may not apply to other countries. In addition, the number of indicators varies with respect to each type of capital, e.g., process capital has the largest number of indicators and market capital has the fewest indicators as exhibited in Table 2.3. With such variance, the representativeness of each component capital in the total intellectual capital measurement model will be somewhat skewed. Furthermore, some indicators are given, such as tourism statistics in market capital will be biased toward the countries with geographical wonders and bountiful cultural heritages; statistics for some indicators, such as “international events,” may not be easily obtained or reliable in every country. In addition, some countries adopt a qualitative description rather than indicators, such as the use of Intellectual Capital Statements in Denmark. Therefore, consistency is a problem. Taking the IC of Israel as an example, three different groups of researchers conducted three studies, with each utilizing a different set of indicators as shown in Table 2.3.
Summary All of the above-stated endeavors attempt to leverage the private sector’s experience in measuring intangible assets to the macro level and increase the nations’ wealth. However, the level of complexity involved makes it impossible to simply transplant micro models to the national level and thus, some measurement changes are needed. Despite the aforementioned problems and inconsistencies, the proliferation of relevant studies has enabled researchers to crystallize the core components of national intellectual capital. For instance, Table 2.2 indicates that national intellectual capital mainly consist of five components – human capital, market capital, process capital, renewal capital, and financial capital as the basis for a more comprehensive coverage. As a result, in Chap. 3, we will present a national intellectual capital measurement model comprised of 29 indicators that has been statistically validated and easy to replicate for cross-country comparisons and follow-up trend analysis.
Chapter 3
Methods and National Intellectual Capital Ranking of 40 Countries
As mentioned in the previous two chapters, the intellectual capital of a nation requires a comprehensive system of variables to help uncover and manage that nation’s invisible wealth; yet, measurement models of past studies have constraints for an on-going cross-country national intellectual capital (IC) comparison of a relatively large scale. This book proposes a moderate set of national intellectual capital indicators that is validated and can be easily replicated for follow-up trend analysis. Upon completion of this book-length study, its readers would have learned the following: 1 . A valid national IC measurement model 2. The IC landscape of each country studied 3. The IC profile of country-clusters (e.g., Nordic countries, Latin American countries) 4. The national IC ranking of the 40 countries studied 5. A potential development trajectory from a poor- to a fast-growth country This chapter starts out with our proposed national IC measurement model, including indicator selection and validation. We then describe our data source and the ranking methods. Afterwards, the national IC ranking result is presented.
Proposed National Intellectual Capital Measurement Model As described in Chap. 2, in the past, researchers from different backgrounds have proposed different models to evaluate national intellectual capital. Since this field of study is still developing, a consensus regarding the set of determinants that should be employed has yet to be reached. Building on past relevant research, we propose a framework and model of IC measurement and then test this model by using the widely accepted International Institute for Management Development (IMD) databases, which contain both quantitative and qualitative indicators. Although national wealth can be assessed from different perspectives, including
C.Y.-Y. Lin and L. Edvinsson, National Intellectual Capital: A Comparison of 40 Countries, DOI 10.1007/978-1-4419-7377-1_3, © Springer Science+Business Media, LLC 2011
17
18
3 Methods and National Intellectual Capital Ranking of 40 Countries
Table 3.1 Variables in each type of capital proposed by this study Human capital index Market capital index Skilled labor# Corporate tax# Employee training# Cross-border venture# Literacy rate Openness of culture# Higher education enrollment Globalization# Pupil–teacher ratio Transparency# Internet subscribers Image of country# Public expenditure on education Exports of goods Process capital index Renewal capital index Business competition environment# Business R&D spending Government efficiency# Basic research# Intellectual property rights protection# R&D spending/GDP Capital availability# R&D researchers Computers in use per capita Cooperation between universities and enterprises# Convenience of establishing new firms# Scientific articles Mobile phone subscribers Patents per capita (USPTO + EPO) Remarks: (1) Financial capital is the logarithm of GDP per capita adjusted by purchasing power parity. (2) Variables marked with # are rated qualitatively using a scale of 1–10
health, poverty, and gender empowerment (Bontis 2004), the main focus of this paper is on the most commonly used national intellectual capital framework, including human capital, market capital, process capital, renewal capital, and financial capital as indicated in Table 3.1.
Indicator Selection and Validation Indicators we used were selected in two rounds. In the first round, variables that were used at least two times in relevant studies (please refer to Appendix 1 for the source of these variables) were matched with the IMD World Competitiveness Yearbook. Market capital turned out to have the fewest number of variables supported by at least two studies. In the second round, a focus group was formed to obtain feedback regarding the appropriateness of the selected variables. With input from ten Taiwanese professors who all are engaged in intellectual capital-related research, focal variables were finalized, as shown in Table 3.1. Financial capital is also included as it is a key indicator of national wealth and represents the output dimension. Consequently, a total of 29 variables were selected – seven each for human capital, market capital, process capital, and renewal capital, and a single variable (GDP per capita adjusted by purchasing power parity) representing financial capital. Herein after, this set of 29 variables is referred as NICI40 (National Intellectual Capital Indices for 40 countries). The first type of national intellectual capital, human capital, is defined as the competencies of individuals in realizing national goals (Bontis 2004). According to OECD
Indicator Selection and Validation Table 3.2 Definition of the indicators Indicators Human capital Skilled labor# Employee training# Literacy rate Higher education enrollment Pupil–teacher ratio Internet subscribers Public expenditure on education Market capital Corporate tax encouragement# Cross-border venture# Openness to foreign culture# Attitudes toward globalization# Transparency# Country image# Exports of goods Process capital Business competition environment# Government efficiency# Intellectual property rights protection# Capital availability# Computers in use per capita Convenience of establishing new firms# Mobile phone subscribers Renewal capital Business R&D spending Basic research# R&D spending/GDP R&D researchers Cooperation between universities and enterprises#
19
Definition Whether skilled labor is readily available Whether employee training is a high propriety in companies Adult (over 15 years) literacy rate as a percentage of population Percentage of population that has attained at least tertiary education Ratio of teaching staff to students Number of internet users per 1,000 people Total public expenditure on education (percentage of GDP) Whether corporate taxes encourage entrepreneurial activity Whether international transactions can be freely negotiated with foreign partners Whether the national culture is open to foreign culture ideas Whether attitudes toward globalization are generally positive in a given society Whether transparency of government policy is satisfactory Whether the image abroad of a given country encourages business development Exports of goods (percentage of GDP) Whether competition legislation is efficient in preventing unfair competition Whether government bureaucracy hinders business activity Whether intellectual property rights are adequately enforced Whether cost of capital encourages business development Number of computers per 1,000 people Whether creation of firms is supported by legislation Number of subscribers per 1,000 inhabitants Business expenditure on R&D (per capita) Whether basic research enhances long-term economic development Total expenditure on R&D (percentage of GDP) Total R&D personnel nationwide per capita (Full-time work equivalent per 1,000 people) Whether knowledge transfer is highly developed between universities and companies (continued)
20
3 Methods and National Intellectual Capital Ranking of 40 Countries
Table 3.2 (continued) Indicators Scientific articles Patents per capita (USPTO + EPO) Financial capital GDP per capita (PPP) (from IMF)
Definition Scientific articles published by origin of author (per capita) USPTO and EPO total patents granted (per capita) Gross domestic product based on purchasing power parity (PPP) per capita
(2000), human capital consists of knowledge about facts, laws, and principles in addition to knowledge relating to teamwork, and other specialized and communication skills. Education is the foundation of human capital. The variables used in this study include the amount of skilled labor, the degree of employee training, the rate of literacy, the level of enrollment in institutions of higher education, the pupil–teacher ratio, the number of Internet subscribers, and the amount of public expenditure on education. Readers are referred to Table 3.2 for the definition of indicators selected. The second type of national capital, market capital, is similar to external relational networking and social capital in a micro setting in that it represents a country’s capabilities and successes in providing an attractive and competitive incentive in order to meet the needs of its international clients, while also sharing knowledge with the rest of world (Bontis 2004). The present study takes into consideration investment in foreign countries and achievements in foreign relations, as well as exports of goods and services. In this study, the authors focus primarily on each country’s corporate tax encouragement, cross-border ventures, openness to foreign cultures, degree of globalization, and transparency of economic information, as well as the image that the country projects abroad, and the country’s export and import of commercial services. The third type of national capital, process capital, comprises the non-human sources of knowledge in a nation. Embedded in a country’s infrastructure, these sources facilitate the creation, accessibility, and dissemination of information. This type of capital is measured through the parameters of a fair business competition environment, government efficiency, intellectual property rights protection, the availability of capital, the number of computers per capita, the ease with which new firms can be established, and the number of mobile phone subscribers. The fourth type of national capital, renewal capital, is defined as a nation’s future intellectual wealth and the capability for innovation to sustain a nation’s competitive advantage. Business R&D spending, basic research, R&D spending as a percentage of GDP, the number of R&D researchers, the level of cooperation between universities and enterprises, scientific articles, and USPTO and EPO (i.e., the patent number recorded in both United States Patent and Trademark Office and European Patent Office) per capita are included in this type of capital. The fifth type of national capital, financial capital, is represented by a single indicator: the logarithm of GDP per capita adjusted by purchasing power parity. This is the most common measurement of the financial wealth of a nation.
Validation of NICI40 Measurement Model
21
Validation of NICI40 Measurement Model In our model, except for financial capital, there are seven variables for each of the four component capitals. To assure the validity of the selected variables in measuring the four constructs (human capital, market capital, process capital, and renewal capital), statistical analyses were utilized to test the measurement model. Data analyses showed that all the variables are significant at a = 0.05, which means the selected variables are sufficient to evaluate the four component capitals. Thus the measurement model is valid for assessing national intellectual capital consisting of human capital, market capital, process capital, and renewal capital. Additional statistical analysis information concerning the measurement model validation is provided in Appendix 2.
Methods Using the variables listed in Table 3.1, we collected data for the maximum number of 47 countries from the IMD World Competitiveness Yearbook. However, due to the large number of missing values in their datasets, those for Colombia, Hong Kong, Indonesia, Israel, Luxembourg, Slovenia, and Venezuela were excluded. The data analyzed in this book, therefore, describes 40 countries over a period of 14 years, from 1995 to 2008. To differentiate this model from other National IC Models and for easier reference, the designation “NICI40” has been employed to represent the 29-indicator national intellectual capital model for 40 countries developed by the authors. To avoid confusion, for each individual component capital, HC40 (Human Capital Index for 40 Countries), MC40 (Market Capital Index for 40 Countries), PC40 (Process Capital Index for 40 Countries), RC40 (Renewal Capital Index for 40 Countries), and FC40 (Financial Capital Index for 40 Countries) will be used whenever referring to the ranking of each component capital of the 40 countries. In this study, there are two different types of data: data with an absolute value, such as “patents per capita,” and data with a qualitative rating based on a scale of 1–10, such as “image of country.” Although subjective, qualitative rating on the degree or magnitude of certain variables is unavoidable, as evaluating intangible assets cannot be fully represented by merely adding up absolute numbers. For a meaningful integration of the quantitative score and qualitative rating, the ratio of the absolute value relative to the highest value of each quantitative variable was calculated and multiplied by 10 to transform the number into a 1–10 score. The data transformation procedures have been repeated for all numerical indicators of human capital, market capital, process capital, and renewal capital. Financial capital is represented by the logarithm of GDP per capita adjusted by the purchasing power parity of each country, its ratio calculated to the highest value and then transformed into a 1–10 score. The Overall National Intellectual Capital Ranking as shown in Table 3.3 includes the mean scores of the five types of capital and the total score of national intellectual capital for each country.
22
3 Methods and National Intellectual Capital Ranking of 40 Countries
National Intellectual Capital Indices for 40 Countries Based on the data analysis described in the preceding section, Table 3.3 displays the score and ranking of the five types of national intellectual capital. The overall and individual indices provide valuable information for policy makers. Balance in the number of variables for each of the four types of capital (seven variables each, excluding financial capital) as well as in the number of quantitative and qualitative variables (14 vs. 15) was achieved through the literature review, focus group discussion, and IMD database matching. With respect to the 14 years of data, the top ten countries in the overall ranking list are, in order, Finland, Sweden, Switzerland, Denmark, the USA, Singapore, Iceland (2007 and 2008 data are missing, very likely due to the 2008 financial crisis), the Netherlands, Norway, and Canada. The overall results of NICI40 confirm the general perception that the Nordic countries have the highest degree of national intellectual capital; as a result, all five Nordic countries are in the top ten of the NICI40. To facilitate reference to the NICI40 ranking, Table 3.3 has been prepared according to country sequence and Table 3.4 has been prepared according to ranking sequence. A quick review of Tables 3.3 and 3.4 shows that although the ranking so indicated is for the intangible national intellectual capital, the result agrees with the general perception that the top ten countries are well-developed countries with a relatively higher economic and social status, and the bottom ten countries are developing countries to a certain degree afflicted by either economic, social, or political problems in the past decade. A reminder is that this set of data reflects the past national intellectual capital performance of the 40 countries, spanning the years from 1995 to 2008 rather than their current status. For Iceland particularly, the statistics reported in this book reflect its past performance before the 2008 global financial crisis (from 1995 to 2006, with 2007 and 2008 IMD data missing for Iceland only). Irrespective of the recent financial crisis, the trend analysis of the 14-year panel data provides valuable clues for the kind of country they are today and what they may become in the future. To better understand what each nation has achieved in terms of developing national intellectual capital in the past, the results need to be put into a context for some comparison. Therefore, in addition to presenting each individual country’s national intellectual capital profile, this book has grouped the 40 countries into various clusters, mainly based on geographical location, cultural similarity, and size of country in terms of the total area. The grouping of BRIC (Brazil, Russia, India, and China) countries is based on recent fervent discussion about these four large emerging markets with promising futures. For a full comparison, Brazil is reported twice, once in the grouping of Latin American countries and the other in that of the BRIC countries. South Africa is the only African country included in this study; therefore, it is grouped with East Central European countries with which it shares a somewhat similar economic status. As a result, the remainder of this book is organized according to the chapters presented in Chap. 1. Chapter organization from Chaps. 4 to 15 is similar, comprising abstract, introduction, the national intellectual capital profile of each individual country, comparison of
4.01 6.16 6.25 5.86 4.81 6.31 6.60 5.27 5.56 6.62 6.61 4.67 5.55 4.82 5.68 6.55 4.91 7.21 4.60 4.60 4.79 6.50
40 14 13 18 33 9 6 25 22 4 5 35 23 32 19 7 30 2 36 37 34 8
2.78 7.03 6.52 5.79 3.11 6.57 4.91 3.49 4.51 7.42 7.71 5.51 6.12 4.32 4.71 6.86 3.22 6.58 5.07 5.68 4.87 5.11
40 7 13 18 38 12 25 33 28 2 1 20 16 29 27 9 36 11 23 19 26 22
1.43 4.49 4.60 4.66 1.63 4.84 1.80 2.12 2.57 5.81 7.36 4.96 5.88 1.96 2.34 5.14 1.78 3.87 2.62 7.03 4.23 2.01
38 18 16 15 35 12 33 27 24 7 3 10 6 29 26 9 34 20 23 5 19 28
32 11 8 12 35 6 30 38 26 9 18 17 14 23 27 10 40 7 19 16 24 31
8.65 9.65 9.70 9.64 8.43 9.71 8.70 7.49 9.16 9.69 9.56 9.60 9.62 9.36 8.94 9.67 6.96 9.70 9.54 9.60 9.24 8.66
31 10 12 9 37 3 33 39 29 1 4 15 20 28 19 7 40 17 23 13 22 27
Argentina Australia Austria Belgium Brazil Canada Chile China Czech Republic Denmark Finland France Germany Greece Hungary Iceland India Ireland Italy Japan Korea Malaysia
5.12 7.01 6.89 7.01 4.43 7.84 4.96 4.18 5.34 8.15 7.79 6.50 6.31 5.43 6.33 7.58 3.79 6.42 6.07 6.82 6.15 5.53
Financial capital 9.14 0.73 Score Ranking
Table 3.3 NICI40 – national intellectual capital score and ranking based on country sequence 1995–2008 Human capital Market capital Process capital Renewal capital Mean 6.13 5.64 5.32 3.76 SD 1.16 0.94 1.51 2.01 Country Score Ranking Score Ranking Score Ranking Score Ranking 22.00 34.34 33.96 32.97 22.41 35.26 26.97 22.55 27.15 37.69 39.03 31.24 33.48 25.87 27.99 35.80 20.67 33.77 27.90 33.73 29.28 27.80
(continued)
38 11 12 16 37 10 28 36 27 4 1 20 15 29 23 7 40 13 24 14 21 25
Overall NICI40 29.99 5.67 Score Ranking
National Intellectual Capital Indices for 40 Countries 23
28 3 11 15 29 39 26 38 1 31 24 10 12 16 20 27 21 17
4.95 6.95 6.26 5.96 4.93 4.04 5.26 4.07 8.39 4.84 5.39 6.31 6.26 5.94 5.68 4.98 5.62 5.91
35 11 14 5 34 26 25 30 18 36 24 2 8 16 32 38 21 6
Mexico Netherlands New Zealand Norway Philippines Poland Portugal Russia Singapore South Africa Spain Sweden Switzerland Taiwan Thailand Turkey UK USA
4.75 6.89 6.80 7.72 4.85 5.61 5.94 5.30 6.39 4.71 5.98 7.98 7.17 6.47 5.02 4.33 6.18 7.60
Market capital 5.64 0.94 Score Ranking
Table 3.3 (continued) 1995–2008 Human capital Mean 6.13 SD 1.16 Country Score Ranking 3.19 6.79 6.27 7.06 3.25 3.23 4.95 2.85 7.25 4.02 5.16 7.18 7.04 5.92 3.96 3.61 6.13 6.97
37 10 14 5 34 35 24 39 3 30 21 4 6 17 31 32 15 8
Process capital 5.32 1.51 Score Ranking 1.24 5.21 3.50 4.71 1.47 1.95 1.91 2.87 4.77 1.84 2.50 7.78 7.99 4.84 1.36 1.51 4.57 7.16
40 8 21 14 37 30 31 22 13 32 25 2 1 11 39 36 17 4
Renewal capital 3.76 2.01 Score Ranking 8.75 9.73 9.36 10.00 7.38 8.77 9.22 8.57 9.85 8.37 9.47 9.63 9.78 9.38 8.15 8.57 9.61 9.88
29 5 22 1 39 28 25 34 3 36 20 13 4 21 37 33 15 2
Financial capital 9.14 0.73 Score Ranking 22.88 35.56 32.18 35.45 21.88 23.59 27.28 23.65 36.65 23.79 28.51 38.89 38.24 32.55 24.16 22.99 32.11 37.53
35 8 18 9 39 33 26 32 6 31 22 2 3 17 30 34 19 5
Overall NICI40 29.99 5.67 Score Ranking
24 3 Methods and National Intellectual Capital Ranking of 40 Countries
6.61 6.31 6.26 6.62 5.91 8.39 6.55 6.95 5.96 6.31 6.16 6.25 7.21 4.60 5.55 5.86 5.94 6.26 5.62 4.67 4.79 5.39
5 10 12 4 17 1 7 3 15 9 14 13 2 37 23 18 16 11 21 35 34 24
7.71 7.18 7.04 7.42 6.97 7.25 6.86 6.79 7.06 6.57 7.03 6.52 6.58 5.68 6.12 5.79 5.92 6.27 6.13 5.51 4.87 5.16
1 4 6 2 8 3 9 10 5 12 7 13 11 19 16 18 17 14 15 20 26 21
7.36 7.78 7.99 5.81 7.16 4.77 5.14 5.21 4.71 4.84 4.49 4.60 3.87 7.03 5.88 4.66 4.84 3.50 4.57 4.96 4.23 2.50
3 2 1 7 4 13 9 8 14 12 18 16 20 5 6 15 11 21 17 10 19 25
18 13 4 9 2 3 10 5 1 6 11 8 7 16 14 12 21 22 15 17 24 20
9.56 9.63 9.78 9.69 9.88 9.85 9.67 9.73 10.00 9.71 9.65 9.70 9.70 9.60 9.62 9.64 9.38 9.36 9.61 9.60 9.24 9.47
4 2 8 1 6 18 7 11 5 3 10 12 17 13 20 9 16 14 21 15 22 24
Finland Sweden Switzerland Denmark USA Singapore Iceland Netherlands Norway Canada Australia Austria Ireland Japan Germany Belgium Taiwan New Zealand UK France Korea Spain
7.79 7.98 7.17 8.15 7.60 6.39 7.58 6.89 7.72 7.84 7.01 6.89 6.42 6.82 6.31 7.01 6.47 6.80 6.18 6.50 6.15 5.98
Financial capital 9.14 0.73 Score Ranking
Table 3.4 NICI40 – national intellectual capital score and ranking based on ranking sequence 1995–2008 Human capital Market capital Process capital Renewal capital Mean 6.13 5.64 5.32 3.76 SD 1.16 0.94 1.51 2.01 Country Score Ranking Score Ranking Score Ranking Score Ranking 39.03 38.89 38.24 37.69 37.53 36.65 35.80 35.56 35.45 35.26 34.34 33.96 33.77 33.73 33.48 32.97 32.55 32.18 32.11 31.24 29.28 28.51
(continued)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
Overall NICI40 29.99 5.67 Score Ranking
National Intellectual Capital Indices for 40 Countries 25
19 36 8 26 22 6 32 20 31 38 39 27 28 25 33 40 29 30
5.68 4.60 6.50 5.26 5.56 6.60 4.82 5.68 4.84 4.07 4.04 4.98 4.95 5.27 4.81 4.01 4.93 4.91
19 23 27 25 29 33 28 32 36 30 26 38 35 39 37 31 34 40
Hungary Italy Malaysia Portugal Czech Republic Chile Greece Thailand South Africa Russia Poland Turkey Mexico China Brazil Argentina Philippines India
6.33 6.07 5.53 5.94 5.34 4.96 5.43 5.02 4.71 5.30 5.61 4.33 4.75 4.18 4.43 5.12 4.85 3.79
Market capital 5.64 0.94 Score Ranking
Table 3.4 (continued) 1995–2008 Human capital Mean 6.13 SD 1.16 Country Score Ranking 4.71 5.07 5.11 4.95 4.51 4.91 4.32 3.96 4.02 2.85 3.23 3.61 3.19 3.49 3.11 2.78 3.25 3.22
27 23 22 24 28 25 29 31 30 39 35 32 37 33 38 40 34 36
Process capital 5.32 1.51 Score Ranking 2.34 2.62 2.01 1.91 2.57 1.80 1.96 1.36 1.84 2.87 1.95 1.51 1.24 2.12 1.63 1.43 1.47 1.78
26 23 28 31 24 33 29 39 32 22 30 36 40 27 35 38 37 34
Renewal capital 3.76 2.01 Score Ranking 8.94 9.54 8.66 9.22 9.16 8.70 9.36 8.15 8.37 8.57 8.77 8.57 8.75 7.49 8.43 8.65 7.38 6.96
27 19 31 25 26 30 23 37 36 34 28 33 29 38 35 32 39 40
Financial capital 9.14 0.73 Score Ranking 27.99 27.90 27.80 27.28 27.15 26.97 25.87 24.16 23.79 23.65 23.59 22.99 22.88 22.55 22.41 22.00 21.88 20.67
23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40
Overall NICI40 29.99 5.67 Score Ranking
26 3 Methods and National Intellectual Capital Ranking of 40 Countries
Appendix 1
27
component capitals, the progression of three time periods of national IC development (1995–1999 for the first period, 2000–2004 for the second period, and 2005–2008 for the third period), information providing a general description of each country, and chapter summary. To orient readers of individual chapter to grasp the full concept of the national IC profile, repetition of some explanation in each chapter is unavoidable.
Appendix 1 Variable data sources for each type of capital Capital Variables Human capital Skilled labor
Employee training
Literacy rate
Higher education enrollment
Pupil–teacher ratio Internet subscribers
Public expenditure on education
Sources 1. World Bank 2. OECD 3. APEC 4. US Department of Commerce (2000) 5. Commission of European Community (2000) 6. Singapore Department of Trade and Industry (2001) 1. World Bank 2. US Department of Commerce (2000) 3. Australia Department of Industry and Science and Resource Branch (2000) 1. World Bank 2. Australia Department of Industry and Science and Resource Branch (2000) 3. Bontis (2004) 1. World Bank 2. Australia Department of Industry and Science and Resource Branch (2000) 3. Bontis (2004) 1. World Bank 2. Malhotra (2000) 1. APEC 2. US Department of Commerce (2000) 3. Commission of European Community (2000) 4. Australia Department of Industry and Science and Resource Branch (2000) 1. World Bank 2. Australia Department of Industry and Science and Resource Branch (2000) 3. Pomeda et al. (2002) (continued)
28
3 Methods and National Intellectual Capital Ranking of 40 Countries
Capital
Variables
Sources
Market capital
Corporate Tax
1. World Bank 2. Focus group Focus group
Cross-border venture Openness of culture Globalization Transparency Image of country Exports of goods Process capital
Competition environment Government efficiency Intellectual property rights protection Capital availability
Computers in use per capita
Convenience of establishing new firms
Mobile phone subscribers
1. World Bank 2. Bontis (2004) 3. Malhotra (2002) 1. APEC 2. Malhotra (2000) 1. World Bank 2. Focus group 1. Malhotra (2003) 2. Focus group 1. APEC 2. Malhotra (2000) 1. World Bank 2. APEC 1. World Bank 2. APEC 1. World Bank 2. APEC 1. World Bank 2. APEC 3. US Department of Commerce (2000) 4. Commission of European Community (2000) 5. Malhotra (2002) 1. World Bank 2. APEC 3. Australia Department of Industry and Science and Resource Branch (2000) 4. Singapore Department of Trade and Industry (2001) 5. Malhotra (2000) 1. World Bank 2. Commission of European Community (2000) 3. Singapore Department of Trade and Industry (2001) 1. World Bank 2. OECD 3. APEC 4. Australia Department of Industry and Science and Resource Branch (2000) 5. Singapore Department of Trade and Industry (2001) (continued)
Appendix 1
29
Capital
Variables
Sources
Renewal capital
Business R&D spending
1. 2. 3. 4. 5. 6.
Basic research R&D spending/GDP
7. 1. 2. 1. 2. 3. 4. 5. 6.
R&D researchers
Cooperation between universities and enterprises
7. 1. 2. 3. 4. 5. 6. 1. 2. 3. 4. 5.
Scientific articles
Patents per capita (USPTO + EPO)
1. 2. 3. 1. 2. 3. 4. 5. 6. 7.
World Bank OECD APEC US Department of Commerce (2000) UK Department of Trade and Industry (2000) Australia Department of Industry and Science and Resource Branch (2000) Malhotra (2000) World Bank APEC World Bank OECD APEC Commission of European Community (2000) Australia Department of Industry and Science and Resource Branch (2000) Singapore Department of Trade and Industry (2001) Bontis (2004) World Bank OECD APEC Australia Department of Industry and Science and Resource Branch (2000) Bontis (2004) Malhotra (2000) World Bank OECD APEC UK Department of Trade and Industry (2000) Australia Department of Industry and Science and Resource Branch (2000) World Bank UK Department of Trade and Industry (2000) Malhotra (2000) World Bank US Department of Commerce (2000) Commission of European Community (2000) Australia Department of Industry and Science and Resource Branch (2000) Singapore Department of Trade and Industry (2001) Bontis (2004) Malhotra (2000)
30
3 Methods and National Intellectual Capital Ranking of 40 Countries
Appendix 2 The Validation of NICI40 Measurement model In this model, excluding financial capital, there are seven variables for each of the four types of capital with the latent concept. Therefore, the LISREL technique was adopted and the “Amos 5” program was used to test the model. In the measurement model shown hereunder, x1, x2, x3, and x4 represent the latent constructs of national intellectual capital, including human capital, market capital, process capital, and renewal capital, respectively. The X variables represent the indicators of the four latent constructs. The Greek letter l stands for the factor loading of an indicator variable to its corresponding latent construct and d stands for the measurement error of the indicator. All the paths in the measurement model are significant with a = 0.05, which means that the indicators are sufficient to evaluate the latent constructs. Results of NICI40 measurement model Latent variables (x) Indicator (X) Human capital X1: Skilled labor X2: Employee training X3: Literacy rate X4: Higher education enrollment X5: Pupil–teacher ratio X6: Internet subscribers X7: Public expenditure on education Market capital X8: Corporate tax X9: Cross-border venture X10: Openness of culture X11: Globalization X12: Transparency X13: Image of your country X14: Export of goods Process capital X15: Business competition environment X16: Government efficiency X17: Intellectual property rights protection X18: Capital availability X19: Computers in use per capita X20: Convenience of establishing new firms X21: Mobile phone subscribers X22: Business R&D spending Renewal capital X23: Basic research X24: R&D spending/GDP X25: R&D researchers X26: Cooperation between universities and enterprises X27: Scientific articles X28: Patents per capita (USTPO + EPO)
Standardized estimate 0.276 0.573 0.593 0.721 0.493 0.849 0.587 0.770 0.648 0.424 0.674 0.790 0.888 0.394 0.905 0.750 0.942 0.737 0.840 0.460 0.547 0.957 0.744 0.924 0.844 0.719 0.833 0.888
Appendix 2
31
δ1
X1
λ1 = 0.28
λ15 = 0.91
X15
δ15
δ2
X2
λ2 = 0.57
λ16 = 0.75
X16
δ16
δ3
X3
λ3 = 0.59
λ17 = 0.94
X17
δ17
λ18 = 0.46
X18
δ18
ξ1 HC
ξ3 PC
δ4
X4
λ4 = 0.72
δ5
X5
λ5 = 0.49
λ19 = 0.74
X19
δ19
δ6
X6
λ6 = 0.85
λ20 = 0.84
X20
δ20
δ7
X7
λ7 = 0.59
λ21 = 0.55
X21
δ21
δ8
X8
λ8 = 0.77
λ22 = 0.96
X22
δ22
δ9
X9
λ9 = 0.65
λ23 = 0.74
X23
δ23
δ10
X10
λ10 = 0.42
λ24 = 0.92
X24
δ24
λ26 = 0.84
X25
δ25
ξ2 MC
ξ4 RC
δ11
X11
λ11 = 0.67
δ12
X12
λ12 = 0.79
λ26 = 0.72
X26
δ26
δ13
X13
λ13 = 0.89
λ27 = 0.83
X27
δ27
δ14
X14
λ14 = 0.39
λ28 = 0.89
X28
δ28
wwwwwwwwww
Chapter 4
National Intellectual Capital of Five Nordic Countries (Denmark, Finland, Iceland, Norway, Sweden)
Abstract Based on data from 1995 to 2008, all five Nordic countries are listed among the top ten in the National Intellectual Capital Indices (NICI40) for 40 Countries. Finland, Sweden, Denmark, Iceland, and Norway ranked number 1, 2, 4, 7, and 9, respectively (2007 and 2008 data for Iceland were unavailable). Denmark has the highest score in human capital and the second highest score in process capital; Finland has the highest score in process capital; Norway has the highest score in financial capital; and Sweden has the second highest scores in both human capital and renewal capital. National intellectual capital ranking of five Nordic countries Human capital
Market capital
Process capital
Renewal capital
Financial capital
Overall IC (NICI40)
Mean SD
7.84 0.22
6.41 0.28
7.25 0.33
6.16 1.35
9.71 0.17
37.37 1.68
Country Denmark Finland Iceland Norway Sweden
Score 8.15 7.79 7.58 7.72 7.98
Score Ranking 5.81 7 7.36 3 5.14 9 4.71 14 7.78 2
Score 9.69 9.56 9.67 10.00 9.63
Ranking 1 4 7 5 2
Score Ranking Score 6.62 4 7.42 6.61 5 7.71 6.55 7 6.86 5.96 15 7.06 6.31 10 7.18
Ranking 2 1 9 5 4
Ranking 9 18 10 1 13
Score 37.69 39.03 35.80 35.45 38.89
Ranking 4 1 7 9 2
Introduction The five Nordic countries are among the world’s 20 most affluent nations. According to figures from the IMF data (International Monetary Fund April 2009 data), in terms of GDP per capita (PPP) in US dollars, Norway (53,451), Iceland (40,025), Denmark (37,266), Sweden (37,245), and Finland (36,217) ranked number 3, 10, 16, 17, and 20, respectively, in world wealth (http://en.wikipedia.org/wiki/ List_of_countries_by_GDP_%28PPP%29_per_capita). Located in a cold-climate zone with a combined population of only 24 million, how has this region been able to achieve such outstanding economic performance and well-being? An analysis from the perspective of national intellectual capital may provide some insights.
C.Y.-Y. Lin and L. Edvinsson, National Intellectual Capital: A Comparison of 40 Countries, DOI 10.1007/978-1-4419-7377-1_4, © Springer Science+Business Media, LLC 2011
33
34
4 National Intellectual Capital of Five Nordic Countries
Since the five Nordic countries share not only similar environmental realities and traditional livelihoods but also similar historical and cultural backgrounds (http://en.wikipedia.org/wiki), this study addresses them as a cluster. Among them, the overall intellectual capital ranking sequence, in descending order, is Finland, Sweden, Denmark, Iceland, and Norway; interestingly, the 2008 GDP per capita of these five countries reported by the IMF in April 2009 indicates a ranking in reverse order. Certainly, there are implications for readers to explore. Table 4.1 shows the results of comparing five types of component capital “within” each country and “between” all Nordic countries. Based on each country’s ranking, financial capital ranks first among all types of capital in all five countries. That is, financial capital has the highest score among the five component capitals. Human capital, market capital, process capital, and renewal capital are ranked as 2, 4, 3, and 5, respectively, for Denmark, Iceland, and Norway; 2, 5, 3, and 4, respectively, for Finland; and 2, 5, 4, and 3, respectively, for Sweden. As for inter-country comparisons, each country has its own strength. Table 4.1 shows that Denmark ranks highest in human capital and market capital, Finland in process capital, Norway in financial capital, and Sweden in renewal capital.
National Intellectual Capital of Each Individual Country Figures 4.1–4.5 display the characteristics and trends of national intellectual capital in each Nordic country. In Fig. 4.1, Denmark has made the most progress in terms of renewal capital (23 percentile points) and human capital with a gain of over 22 percentile points, followed by an increase in process capital of about nine percentile points, in comparing the figures for 1995 and 2008. Yet, it shows a slight decrease in both market capital and financial capital. The figure for financial capital is a transformed 1–10 rating score relative to the highest value, and so the score represents Denmark’s relative financial performance with respect to all 40 countries. In other words, the financial capital ratings for 1995 and 2008 indicate that Denmark’s financial performance does not have too much change over the studied 14 years. Yet, the real dollar value of its GDP per capital (PPP) increased from US$23,158 in 1995 to US$37,266 in 2008 (IMF 2009 report) for a growth rate of 61%. Although Denmark has already exhibited great improvement in renewal capital, it is still its lowest-rated capital. In addition, from 2006 onward, its process capital is in decline. Figure 4.2 indicates that Finland has undergone the greatest progress in renewal capital of about 28 percentile points, jumping from its lowest score in 1995 to its second highest in 2008. Over the 14-year period, Finland’s human capital and financial capital showed a small improvement of two and two percentile points. Market capital regressed in 2006, yet recovered in 2008 and gained about five percentile points over the 14 years. However, it remains Finland’s weakest type of capital since 2000. Process capital declined sharply from 2005 to 2006, yet recovered in 2008 and gained about seven percentile points over the 14 years. In terms of financial capital, although its 1–10 rating score improved only slightly, the real dollar value of its GDP per capital (PPP) increased from US$18,058 in 1995 to US$36,217 in 2008 for a growth rate of 101%.
Table 4.1 Capital mean ratings and rankings of the five Nordic countries from 1995 to 2008 Intellectual capital Human Market Process Renewal Mean score capital capital capital capital Denmark Score 8.15 6.62 7.42 5.81 Ranking Within 2 4 3 5 Between 1 1 2 3 Finland Score 7.79 6.61 7.71 7.36 Ranking Within 2 5 3 4 Between 3 2 1 2 Iceland Score 7.58 6.55 6.86 5.14 Ranking Within 2 4 3 5 Between 5 3 5 4 Norway Score 7.72 5.96 7.06 4.71 Ranking Within 2 4 3 5 Between 4 5 4 5 Score 7.98 6.31 7.18 7.78 Sweden Within 2 5 4 3 Ranking Between 2 4 3 1 Financial capital 9.69 1 2 9.56 1 5 9.67 1 3 10.00 1 1 9.63 1 4
Overall ranking among Nordic countries 3
1
4
5
2
Overall score 37.69
39.03
35.80
35.45
38.89
2
9
7
1
Overall ranking among 40 countries 4
National Intellectual Capital of Each Individual Country 35
36
4 National Intellectual Capital of Five Nordic Countries 10 Denmark Human Capital 8 Denmark Market Capital 6 Denmark Process Capital 4 Denmark Renewal Capital 2 Denmark Financial Capital 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Denmark Human Capital
6.531 7.166 7.258 7.587 7.700 8.518 8.754 8.526 8.800 8.635 8.687 8.485 8.654 8.731
Denmark Market Capital
6.892 6.892 6.397 6.204 6.406 6.210 6.515 6.401 6.811 6.545 6.826 6.961 6.814 6.807
Denmark Process Capital
6.620 7.246 6.851 7.045 7.315 7.344 7.415 7.485 7.829 7.424 8.112 7.965 7.701 7.545
Denmark Renewal Capital 4.377 4.854 5.309 5.522 5.631 5.443 5.755 5.905 6.124 6.299 6.551 6.576 6.330 6.687 Denmark Financial Capital 9.722 9.701 9.683 9.683 9.691 9.698 9.688 9.681 9.678 9.673 9.678 9.694 9.690 9.668
Fig. 4.1 Trends of intellectual capital in Denmark 10 Finland Human Capital 8 Finland Market Capital 6 Finland Process Capital 4 Finland Renewal Capital 2 Finland Financial Capital 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Finland Human Capital
7.513 7.621 7.635 8.266 7.949 7.707 8.013 7.902 7.884 7.892 7.908 7.525 7.460 7.761
Finland Market Capital
6.154 6.810 6.625 6.859 7.043 7.027 7.033 7.020 6.507 6.635 6.562 5.756 5.906 6.630
Finland Process Capital
6.659 7.544 7.613 8.123 8.277 8.219 8.169 8.436 7.917 7.815 7.923 6.928 6.869 7.387
Finland Renewal Capital 5.215 6.617 6.379 7.028 7.122 7.618 7.666 8.059 7.722 7.961 8.092 7.942 7.636 8.005 Finland Financial Capital 9.481 9.473 9.486 9.515 9.538 9.560 9.570 9.575 9.586 9.595 9.588 9.618 9.642 9.642
Fig. 4.2 Trends of intellectual capital in Finland
Analysis of the raw data reveals that the sharp decline of market capital was mainly caused by several score changes between 2005 and 2006, including corporate tax encouragement1 (from 5.70 to 4.49), cross-border venture (from 9.38 to 8.23), 1
Please refer to Chap. 3 for the definition of each individual indicator.
National Intellectual Capital of Each Individual Country
37
10 Iceland Human Capital 8 Iceland Market Capital 6 Iceland Process Capital 4 Iceland Renewal Capital
2
Iceland Financial Capital
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Iceland Human Capital
6.806 6.639 6.692 6.984 7.191 7.443 8.177 8.032 8.037 8.359 8.228 8.424
Iceland Market Capital
5.521 5.809 5.995 6.352 6.675 6.383 6.677 6.846 7.022 7.012 7.233 7.095
Iceland Process Capital
5.926 5.967 6.153 6.751 7.079 7.090 6.827 7.506 7.163 7.274 7.490 7.126
Iceland Renewal Capital 3.134 3.722 3.926 4.464 4.621 5.154 5.838 5.862 5.974 6.217 6.315 6.429 Iceland Financial Capital 9.610 9.608 9.602 9.632 9.646 9.649 9.661 9.649 9.660 9.697 9.725 9.729 9.746 9.734
Fig. 4.3 Trends of intellectual capital in Iceland 10 Norway Human Capital 8 Norway Market Capital 6 Norway Process Capital 4 Norway Renewal Capital 2 Norway Financial Capital 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Norway Human Capital
6.876 7.055 6.825 7.899 7.547 7.787 8.015 8.081 8.155 8.123 8.136 7.670 7.801 8.123
Norway Market Capital
6.505 6.501 6.203 5.736 5.876 5.363 5.817 5.795 5.758 5.787 6.136 6.128 5.862 5.957
Norway Process Capital
6.994 7.525 7.467 6.789 7.668 6.874 6.801 6.633 7.135 6.746 7.777 6.994 6.792 6.695
Norway Renewal Capital 4.320 4.813 4.590 4.805 4.701 4.255 4.443 4.706 4.724 4.716 5.038 4.860 4.810 5.176 Norway Financial Capital 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00
Fig. 4.4 Trends of intellectual capital in Norway
cultural openness (from 7.23 to 6.43), and government policy transparency (from 7.82 to 6.0). Similarly, the raw data reveal that the sharp decline of process capital was mainly caused by the score changes between 2005 and 2006, including those for business competition environment (from 7.81 to 6.95), government efficiency
38
4 National Intellectual Capital of Five Nordic Countries 10 Sweden Human Capital 8 Sweden Market Capital 6 Sweden Process Capital 4 Sweden Renewal Capital 2 Sweden Financial Capital 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Sweden Human Capital
7.340 7.291 6.809 7.200 7.430 8.423 8.454 8.302 8.360 8.363 8.479 8.354 8.338 8.611
Sweden Market Capital
6.370 6.348 6.244 5.833 6.361 6.451 6.501 6.180 6.398 5.906 6.118 6.401 6.515 6.683
Sweden Process Capital
6.748 6.638 6.775 7.237 7.615 7.897 7.444 7.344 7.353 6.957 7.296 7.007 7.096 7.118
Sweden Renewal Capital
6.651 6.769 7.322 7.884 8.064 7.896 8.033 8.121 8.143 8.063 8.098 8.056 7.871 8.012
Sweden Financial Capital 9.612 9.585 9.566 9.584 9.614 9.629 9.623 9.635 9.645 9.649 9.655 9.676 9.680 9.668
Fig. 4.5 Trends of intellectual capital in Sweden
(from 6.54 to 4.46), IP rights protection (from 8.09 to 7.35), capital availability (from 7.66 to 6.19), and convenience of establishing new firms (from 7.24 to 6.18). Analysis of the raw data also reveals that market capital recovery between 2007 and 2008 was mainly caused by the score increase of cross-border venture (from 7.56 to 9.15) and government policy transparency (from 5.96 to 7.7). Similarly, the recovery of process capital between 2007 and 2008 was mainly caused by the score increase of business competition environment (from 6.96 to 7.66), government efficiency (from 4.76 to 5.83), IP rights protection (from 7.25 to 8.51), and convenience of establishing new firms (from 6.28 to 7.47). Such development agrees with the IMD Competitiveness Yearbook ranking changes of Finland from #6 (2005) to #10 (2006) to #17 (2007) to #15 (2008) and to #9 (2009) http://www. imd.ch/research/publications/wcy/upload/Overall_ranking_5_years.pdf. As all the scores are relative ratings against the highest value among the 40 countries, it seems that Finland is suffering some competitive disadvantage after enjoying a high degree of intellectual capital for a decade; yet, it picks up in 2008. Certainly, market capital is the area that Finland should keep a close eye on. In regard to the 2008 global financial crisis, Iceland has been the hardest hit of all Nordic countries. Very likely for this reason, the most current 2008 and 2009 IMD Yearbook (reporting 2007 and 2008 statistics) does not provide relevant ratings for Iceland. As a result, we have to leave its scores for 2007 and 2008 in Fig. 4.3 blank, save for the GDP per capita obtained from a separate data source. In researching panel data, this study reports past national intellectual capital performance from 1995 to 2008 (prior to the 2008 year end financial crisis). Although Iceland’s 2007 and 2008 data are unavailable, the results presented hereunder still reflect the collective efforts of Icelanders for the previous 12 years.
National Intellectual Capital of Each Individual Country
39
Figure 4.3 indicates Iceland’s greatest improvement in the area of renewal capital, about 33 percentile points, followed by an increase in human capital and market capital, both of about 16 percentile points, in comparing the figures for 1995 and 2006. It also shows a significant improvement in process capital of about 12 percentile points, and a marginal improvement in financial capital of about one percentile point over the 14 years. Although the financial capital 1–10 rating score improved only slightly, the real dollar value of its GDP per capital (PPP) increased from US$20,635 in 1995 to US$40,025 in 2008 for a growth rate of 94%. Analysis of the Iceland’s raw data reveals that the slight decline of market capital was mainly caused by several score changes between 2005 and 2006, including cultural openness (from 9.18 to 8.78), government policy transparency (from 7.32 to 7.09), and image of country (from 7.95 to 7.61). Similarly, the raw data reveal that the decline of process capital was mainly caused by the score changes between 2005 and 2006, including those for IP rights protection (from 7.59 to 6.78), capital availability (from 4.86 to 3.33), and mobile phone subscribers (from 9.13 to 8.32). In general, Iceland has much steeper upward trends for most forms of capital than the other countries in this cluster. For further improvement, renewal capital should be the area of Iceland’s increased focus. Figure 4.4 indicates that Norway has made the most progress in human capital with an increase of about 12 percentile points, followed by that of renewal capital of about nine percentile points. Yet, it shows a negative progress in market capital of about five percentile points and in process capital of about three percentile points over the 14-year period. Figure 4.4 also exhibits that Norway enjoyed the highest financial capital rating (with the maximum score of 10.00) for all 14 years. The real dollar value of its GDP per capital (PPP) increased from US$30,885 in 1995 to US$53,451 in 2008 for a growth rate of 73%. In spite of having the highest-rated financial capital, Norway shows a relatively flat trend for the other four types capitals with respect to the other Nordic countries. In particular, a decline in its market capital and process capital are evident over the years. Analysis of the raw scores reveals that a decline in process capital, as indicated from the score changes between 2005 and 2006, including business competition environment (from 7.19 to 6.12), government efficiency (from 5.66 to 4.96), IP rights protection (from 7.15 to 6.34), capital availability (from 7.86 to 7.06), convenience of establishing new firms (from 7.48 to 6.69), and mobile phone subscribers (from 9.55 to 8.28). Since the capital rating score is relative to the highest value, score reduction indicates that other countries are catching up to and has outperformed some advanced countries. Although Norway has enjoyed its national wealth for quite a period of time, in order to sustain competitiveness, creating more renewal capital should be high on the national agenda, as it is currently only around the 50th percentile, while the renewal capital of the other Nordic countries has already exceeded the 60th percentile. Figure 4.5 indicates Sweden’s most significant improvement of 14 percentile points in renewal capital, followed by the improvement of 13 percentile points in human capital, for the scores in 1995 and 2008. In addition, it made slight progress in market capital with an increase of three percentile points and in process capital with a
40
4 National Intellectual Capital of Five Nordic Countries
gain of four percentile points. Sweden did not show a decline in any of the forms of component capital over the 14 years of the study period. With respect to financial capital, although the 1–10 rating score showed a slight improvement, the real dollar value of its GDP per capital (PPP) increased from US$20,689 in 1995 to US$37,245 in 2008 for a growth rate of 80%. In general, the figures for Sweden indicate an upward trend for all five types of capital. For further improvement, Sweden can focus more on market capital and process capital, the areas for which its scores are lowest. In general, the intellectual capital of each Nordic country has increased over the 14-year research period. As shown in Figs. 4.1–4.5, Finland and Sweden exhibit a similar development pattern; that is, the scores of the four types of capital (human capital, market capital, process capital, and renewal capital) are largely clustered between the 60th and the 85th percentiles throughout the period. Denmark and Iceland also have a similar development pattern; that is, their scores for the four types of capital largely cluster between the 40th and the 70th percentile at the initial stage, yet progress to the range between the 60th to the 85th percentile in more recent years. Norway has its own distinctive development pattern with the scores for its four types of capital ranging between the 40th and the 80th percentile in the course of the 14 years. Although Norway does not exhibit clear upward trends for the four types of capital, it did achieve the highest financial performance with the highest GDP per capital (PPP) in this cluster. This interesting finding is elaborated on below.
Comparison of Capital Components of the Five Nordic Countries Figures 4.6 –4.10 allow for the further comparison of the five types of capital among the Nordic countries. Figure 4.6 shows that variations in human capital among the five countries are relatively small, shifting from around the 65th percentile to the range of the 75th to the 85th percentile over the years with Iceland having experienced the greatest surge. Yet, a dip in human capital occurred in Finland and Norway in the year 2006 and recovered in 2007 and 2008. Finland with its initial leading score and Denmark with its lagging score for 1995 have reversed positions from 2007. That is, Denmark surpassed the other Nordic countries in human capital and became the leader in this cluster, whereas the early frontrunner, Finland, became the poorest performer in terms of human capital starting 2001. Although Fig. 4.7 indicates relatively minor market capital variation among the five countries over the years, with respect to Iceland, a clear upward trend is evident with its lowest score occurring in 1995 and highest score in 2006; yet, the data source of this study (IMD) did not report Iceland’s ratings in its 2008 and 2009 yearbook. Norway is at the lower end of the scale starting from 1999 and remains the lowest in the category of market capital. Finland’s market capital slid sharply from year 2005 to 2006, though it rebounded in 2007 and 2008. This phenomenon has been noted earlier in Fig. 4.2 as Finland’s corporate tax encouragement, crossborder venture, culture openness, and government policy transparency all decreased from 2005 to 2006.
Comparison of Capital Components of the Five Nordic Countries
41
10 Denmark Human Capital 8 Finland Human Capital 6 Iceland Human Capital 4 Norway Human Capital 2 Sweden Human Capital 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Denmark Human Capital 6.531 7.166 7.258 7.587 7.700 8.518 8.754 8.526 8.800 8.635 8.687 8.485 8.654 8.731 Finland Human Capital
7.513 7.621 7.635 8.266 7.949 7.707 8.013 7.902 7.884 7.892 7.908 7.525 7.460 7.761
Iceland Human Capital
6.806 6.639 6.692 6.984 7.191 7.443 8.177 8.032 8.037 8.359 8.228 8.424
Norway Human Capital
6.876 7.055 6.825 7.899 7.547 7.787 8.015 8.081 8.155 8.123 8.136 7.670 7.801 8.123
Sweden Human Capital
7.340 7.291 6.809 7.200 7.430 8.423 8.454 8.302 8.360 8.363 8.479 8.354 8.338 8.611
Fig. 4.6 Comparison of human capital in the Nordic countries 10 Denmark Market Capital 8 Finland Market Capital 6 Iceland Market Capital 4 Norway Market Capital 2 Sweden Market Capital 0
1995 1996 1997 1998 1999
2000 2001 2002 2003 2004 2005 2006 2007 2008
Denmark Market Capital 6.892 6.892 6.397 6.204 6.406 6.210 6.515 6.401 6.811 6.545 6.826 6.961 6.814 6.807 Finland Market Capital
6.154 6.810 6.625 6.859 7.043 7.027 7.033 7.020 6.507 6.635 6.562 5.756 5.906 6.630
Iceland Market Capital
5.521 5.809 5.995 6.352 6.675 6.383 6.677 6.846 7.022 7.012 7.233 7.095
Norway Market Capital
6.505 6.501 6.203 5.736 5.876 5.363 5.817 5.795 5.758 5.787 6.136 6.128 5.862 5.957
Sweden Market Capital
6.370 6.348 6.244 5.833 6.361 6.451 6.501 6.180 6.398 5.906 6.118 6.401 6.515 6.683
Fig. 4.7 Comparison of market capital in the Nordic countries
Figure 4.8 shows that the process capital of the five countries varied primarily from around the 60th percentile to the 70th percentile over the 14-year period with Denmark enjoying the greatest surge and stabilized around the 75th percentile, followed by Iceland’s increase by 12 percentile points (through 2006). As reported earlier, Finland exhibited a decline in government efficiency, capital availability, and convenience of setting up new firms; Iceland declined in IP rights protection,
42
4 National Intellectual Capital of Five Nordic Countries 10 Denmark Process Capital 8 Finland Process Capital 6 Iceland Process Capital 4 Norway Process Capital 2 Sweden Process Capital 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Denmark Process Capital 6.620 7.246 6.851 7.045 7.315 7.344 7.415 7.485 7.829 7.424 8.112 7.965 7.701 7.545 Finland Process Capital
6.659 7.544 7.613 8.123 8.277 8.219 8.169 8.436 7.917 7.815 7.923 6.928 6.869 7.387
Iceland Process Capital
5.926 5.967 6.153 6.751 7.079 7.090 6.827 7.506 7.163 7.274 7.490 7.126
Norway Process Capital 6.994 7.525 7.467 6.789 7.668 6.874 6.801 6.633 7.135 6.746 7.777 6.994 6.792 6.695 6.748 6.638 6.775 7.237 7.615 7.897 7.444 7.344 7.353 6.957 7.296 7.007 7.096 7.118
Sweden Process Capital
Fig. 4.8 Comparison of process capital in the Nordic countries
10 Denmark Renewal Capital 8 Finland Renewal Capital 6 Iceland Renewal Capital 4 Norway Renewal Capital 2 Sweden Renewal Capital 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Denmark Renewal Capital 4.377 4.854 5.309 5.522 5.631 5.443 5.755 5.905 6.124 6.299 6.551 6.576 6.330 6.687 Finland Renewal Capital
5.215 6.617 6.379 7.028 7.122 7.618 7.666 8.059 7.722 7.961 8.092 7.942 7.636 8.005
Iceland Renewal Capital
3.134 3.722 3.926 4.464 4.621 5.154 5.838 5.862 5.974 6.217 6.315 6.429
Norway Renewal Capital
4.320 4.813 4.590 4.805 4.701 4.255 4.443 4.706 4.724 4.716 5.038 4.860 4.810 5.176
Sweden Renewal Capital
6.651 6.769 7.322 7.884 8.064 7.896 8.033 8.121 8.143 8.063 8.098 8.056 7.871 8.012
Fig. 4.9 Comparison of renewal capital in the Nordic countries
capital availability, and mobile phone subscribers; Norway declined in business competition environment, government efficiency, IP rights protection, capital availability, convenience of establishing new firms, and mobile phone subscribers. In this set of data, only the category of computer in use per capita and mobile phone subscribers are a transformed 1–10 rating score against the highest value in
Comparison of Capital Components of the Five Nordic Countries
43
10 Denmark Financial Capital 8 Finland Financial Capital 6 Iceland Financial Capital 4 Norway Financial Capital 2 Sweden Financial Capital
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Denmark Financial Capital 9.722 9.701 9.683 9.683 9.691 9.698 9.688 9.681 9.678 9.673 9.678 9.694 9.690 9.668 Finland Financial Capital
9.481 9.473 9.486 9.515 9.538 9.560 9.570 9.575 9.586 9.595 9.588 9.618 9.642 9.642
Iceland Financial Capital
9.610 9.608 9.602 9.632 9.646 9.649 9.661 9.649 9.660 9.697 9.725 9.729 9.746 9.734
Norway Financial Capital 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 10.00 Sweden Financial Capital
9.612 9.585 9.566 9.584 9.614 9.629 9.623 9.635 9.645 9.649 9.655 9.676 9.680 9.668
Fig. 4.10 Comparison of financial capital in the Nordic countries
the 40 countries; other scores are original IMD data. That is, countries and the related areas pointed out in this paragraph reflect an actual decline, which should be regarded as a signal for attention. Fortunately, Finland and Sweden picked up their ratings in 2007 and 2008. Yet, the capital availability of 7.76, 6.19, 3.33, 7.06, and 6.65 for Denmark, Finland, Iceland, Norway, and Sweden, respectively, in 2006 did explain the trouble Iceland encountered in the 2008 financial crisis with capital availability of 3.33 only. Further raw data investigation reveals that Iceland’s capital availability ranges from 2.09 to 4.93 from 2000 onward. Figure 4.9 shows the formation of the three renewal capital groups at a later stage of the 14-year period. Initially, Denmark and Norway recorded similar renewal capital scores. Yet, with Denmark’s steady improvement, the significant improvement of Iceland, and the slight progress of Norway, a three-group formation began taking shape in the year 2000. As a result, Finland and Sweden became the leading group, Denmark and Iceland (through 2006) the middle group, with Norway lagging noticeably behind the other four countries in the area of renewal capital. Once again, Iceland experienced the greatest surge of 33 percentile points, while Finland and Denmark posted impressive increases of 28 and 23 percentile points, respectively. With respect to the 1–10 scaled financial capital, Fig. 4.10 shows little variation among the five countries. Yet, in real dollar values of GDP per capita (PPP), Denmark achieved 61% growth, Finland 101% growth, Iceland 94% growth, Norway 73% growth, and Sweden 80% growth over the entire 14 years. Generally speaking, it is fair to say that the five Nordic countries have realized a solid financial achievement in the past decade, although starting from a relatively large initial base. The above reveal some interesting phenomena, especially the reverse ranking of GDP per capita (PPP) and that of NICI40. For instance, the GDP per capita (PPP)
44
4 National Intellectual Capital of Five Nordic Countries
and the financial capital of Sweden and Finland ranked at the bottom (fourth and fifth) among the five Nordic countries, yet their overall NICI40 ranking was first and second in this cluster. This seems to suggest that financial performance alone is insufficient to explain the creation of wealth in light of intellectual capital. On the other hand, it implies that intellectual capital does not necessarily translate into financial performance. This gap poses an interesting area for further pursuit.
Three-Period Progression of National Intellectual Capital Development Sections “National Intellectual Capital” and “Component Capital Comparison of the Five Nordic Countries” presented the results of data analysis for a total of 14 years, spanning from 1995 to 2008. However, the results are somewhat limited in nature, with comparisons focusing on the initial year (1995) and the concluding year (2008) of each form of capital in each country. To get a more complete picture of the dynamics of the capital development over the 14 years, we prepared Table 4.2, which assesses the changes of capital rankings in three periods (the first and second period consists of 5 years and the third period consists of 4 years), viz., 1995–1999 is the first period, 2000–2004 is the second period, and 2005–2008 is the third period. This division of Table 4.2 into periods makes it easier to visualize the development and perhaps even the future trends of the five types of capital for each country. In Table 4.2, we employ the sequence of human capital, market capital, process capital, renewal capital, financial capital, and overall IC. The second column exhibits the overall ranking difference between the first period and the third period. The third column is the ranking of the first period, and the fourth and the fifth columns display respective rankings and differences with regard to the previous period. The last column compares the most recent third period ranking with the overall NICI40 ranking. Over the entire course of the three periods, Denmark showed a ranking increase in human capital (2), market capital (3), process capital (3), renewal capital (3), and overall IC (3), yet exhibited a ranking decrease in financial capital (−4). Finland showed increases in both renewal capital (3), and financial capital (4), but decreased in human capital (−7), market capital (−8), process capital (−4), and overall IC (−5). Iceland had increased in all of the capital categories, viz., human capital (4), market capital (13), process capital (6), renewal capital (11), financial capital (7), and overall IC (8). Norway showed no change in the category of human and financial capital (0), and decreased in market capital (−3), process capital (−5), renewal capital (−5), and overall IC (−2). Sweden showed increases in human capital (3), market capital (3), renewal capital (2), financial capital (4), and overall IC (1), although its ranking decreased in process capital (−1). In general, Denmark and Iceland made advances in terms of national intellectual capital over the years, while Finland and Norway declined (cf., the second column of Table 4.2). Sweden advanced in a single ranking to become number one in overall IC in the third period among the 40 countries. Furthermore, in comparing the ranking of the most recent third period with the
3 −8 13 −3 3
3 −4 6 −5 −1
Market capital Denmark Finland Iceland Norway Sweden
Process capital Denmark Finland Iceland Norway Sweden
4 1 10 2 5
7 4 15 12 11 2 1 8 12 4
8 4 5 20 12 2 0 2 −10 1
−1 0 10 −8 −1
Table 4.2 Changes in intellectual capital rankings over the three periods 1st period to 1st period 3rd period (1995–1999) 2nd period (2000–2004) Difference (1) Ranking Ranking Difference Human capital Denmark 2 3 1 2 Finland −7 1 7 −6 Iceland 4 7 5 2 Norway 0 4 4 0 Sweden 3 5 2 3
1 5 4 7 6
4 12 2 15 8
1 8 3 4 2
1 −4 4 5 −2
4 −8 3 5 4
0 −1 2 0 0
3rd period (2005–2008) Ranking Difference
2 1 9 5 4
4 5 7 15 10
1 4 7 5 2
1 −4 5 −2 −2 (continued)
0 −7 5 0 2
0 −4 4 1 0
3rd Period ranking vs. overall NICI40 ranking NICI40 ranking Difference
Three-Period Progression of National Intellectual Capital Development 45
−4 4 7 0 4
Financial capital Denmark Finland Iceland Norway Sweden
6 19 14 1 15
9 5 18 10 3
1st period (1995–1999) Ranking
9 18 10 1 13
6 3 7 16 1 −3 1 4 0 2
3 2 11 −6 2
2nd period (2000–2004) Ranking Difference
10 15 7 1 11
6 2 7 15 1 −1 3 3 0 2
0 1 0 1 0
3rd period (2005–2008) Ranking Difference
9 18 10 1 13
7 3 9 14 2
−1 3 3 0 2
1 1 2 −1 1
3rd Period ranking vs. overall NICI40 ranking NICI40 ranking Difference
Overall IC Denmark 3 5 5 0 2 3 4 2 Finland −5 1 1 0 6 −5 1 −5 Iceland 8 12 6 6 4 2 7 3 Norway −2 6 10 −4 8 2 9 1 Sweden 1 2 2 0 1 1 2 1 Remarks: (1) The second column compares the 3rd period ranking with the 1st period ranking. (2) The last column compares the most current 3rd period ranking with the original 14-year NICI40 ranking summarized in the abstract
3 3 11 −5 2
1st period to 3rd period Difference (1)
Renewal capital Denmark Finland Iceland Norway Sweden
Table 4.2 (continued)
46 4 National Intellectual Capital of Five Nordic Countries
General Descriptive Information on the Five Nordic Countries
47
14-year NICI40 ranking reported in the abstract, Denmark advanced two ranks (from #4 to #2), Finland declined five ranks (from #1 to #6), and Iceland advanced three ranks (from #7 to #4, yet with data up to 2006 only). Although Norway advanced one rank (from #9 to #8) compared with the 14-year NICI40 ranking, its market capital, process capital, renewal capital, and overall IC are actually weaker than they were in the first period (1995–1999).
General Descriptive Information on the Five Nordic Countries The above four sections basically present results based on statistical analyses of IMD secondary data spanning from 1995 to 2008. To complement the quantitative data analyses, this section provides some background information for each country that may help explain the results as well as cast further light for future intellectual capital development. Due to the magnitude of relevant information, this study does not intend nor does it have the resources to provide in-depth descriptions of country backgrounds in great detail. As a result, what we are presenting hereunder is a summary of information closely related to intellectual capital which is available from public sources, including a number of objective indicators published by various world organizations (e.g., the United Nations’ Human Development Index – HDI), web information from http://en.wikipedia.org/wiki and relevant articles posted on the Internet. Although different indicators cover different dimensions (e.g., the Human Development Index also covers health/life expectancy, and purchasing power; PISA covers only students’ performances) and do not have an equal comparison basis, they nevertheless provide valuable information on individual nations as exhibited in Table 4.3. In addition to the statistics presented in Table 4.3 derived from 16 different sources, we summarize relevant qualitative information for each country in the sequence of human capital, market capital, process capital, renewal capital, financial capital, and future perspective. Ranking under country name is the overall ranking of each specific type of capital reported in the abstract. We also include the observations that incorporate the 14-year data analysis and the relevant current indicators reported in Table 4.3. Inevitably, the summaries presented in Tables 4.4–4.9 are susceptive to imbalances due to information availability; nevertheless, the information provided is meant to show different avenues for observing intellectual capital development. Readers are encouraged to expand their own interpretation from various information sources and different angles. To highlight the future perspective of each country, the last four indicators of Table 4.3 have been provided for readers’ reference – World Competitiveness by the IMD, Global Competitiveness by the World Economic Forum, the Environmental Sustainability Index by Yale University (project-based Index conducted in 2005), and the Environmental Performance Index by Yale University. We summarize hereunder some information that may be relevant to the future intellectual capital development of each country.
4. PISA science (#/score) 22/496 1/563 25/491 27/487 20/503
PISA math. (#/score) 13/513 1/548 16/506 25/490 17/502
PISA reading (#/score) 14/494 2/547 23/484 22/484 7/507
5. Broad band/ popul. 36.8% 30.6% 32.9% 34% 37.3%
HC40 (#) 1 4 7 5 2
6. Global ization (#) 6 18 – 17 11
MC40 (#) 4 5 7 15 10
14. Global 9. Internet 10. Mobile 7. Quality 15. ESI telephone 11. R&D 12. Innovation 13. World comp. usership/ of life 8. e-readiness 16. EPI (#/score) (#/score) PC40 (#) (#/%) score RC40 (#) comp. (#) (#/score) popul. (%) (#/score) (#/score) (#/score) Denmark 4/9.36 5/8.83 84.2 28/120.1 2 10/2.55 0.57 7 5 5/5.46 26/58.2 25/84.0 Finland 9/9.07 13/8.42 82.9 17/129 1 3/3.47 0.61 3 9 6/5.43 1/75.1 4/91.4 Iceland 2/9.56 – 89.3 44/108.8 9 7/2.83 0.47 9 7 26/4.8 5/70.8 11/87.6 Norway 3/9.56 11/8.60 85.7 40/110.5 5 20/1.57 0.38 14 11 14/5.17 2/73.4 3/93.1 Sweden 6/9.2 3/8.85 80.5 34/113.7 4 2/3.64 0.64 2 6 4/5.51 4/71.7 2/93.1 Remark: “#” refers to the ranking among respective members and the numbers are the most current data available in 2009. Please refer to the “References” section for a list of the sources of these 16 indicators
Table 4.3 National intellectual capital-related indicators and ranking 2. Edu. GDP per capita Overall (PPP) growth 1. Popula expen. NICI40 3. HDI 2008 vs. 1995 tion (000) (#/%) ranking Denmark 4 61% 5,501 4/7.4 13 Finland 1 101% 5,250 15/5.9 12 Iceland 7 94% 307 3/7.7 1 Norway 9 73% 4,661 20/5.4 2 Sweden 2 80% 9,060 6/7 7
Finland HC40#4
1. UN Human Development Index ranking: #12 out of 179 (2008) 2. Broadband internet subscribers – 30.6% (2009 est.) 3. Labor force – 2.53 million (2008 est.) 4. Unemployment – 8.8% (2009 est.) 5. The World Economic Forum ranks Finland’s tertiary education number one in the world 6. The Finnish educational system is comparatively egalitarian, with no tuition fees for full-time students. Free meals are served to pupils at primary and secondary levels
Table 4.4 Background information on human capital for five Nordic countries Country Human capital Denmark HC40#1 1. UN Human Development Index ranking: #13 out of 179 (2008) 2. Broadband internet subscribers – 36.8% (2009 est.) 3. Labor force – 2.86 million (2008 est.) 4. Unemployment – 5.7% (2009 est.) 5. Government-funded education is usually free of charge and open to everyone. About 99% of the general population attends elementary school, 86% attend secondary school, and 41% pursue further education 6. Productivity increased at an average of 2.3% annually for the years 2004, 2005, and 2006
(continued)
Observations From Table 4.3, Denmark spent 7.4% of its GDP on education (the second highest in this cluster); in addition, it is ranked HC40#1 with a 22 percentile points improvement over the 14 years and advanced 2 ranks from the 1st to the 3rd period (refer to Table 4.2). Yet its current HDI #13 and students’ PISA performance ranked 22/13/14 for science, math, and reading, respectively, out of 57 countries are lower than those of Finland, indicating a need to re-examine the effectiveness of school age human resource development. However, on the positive side, the human capital of Denmark still surpasses that of Finland, and Danish productivity has been continuously rising over the past few years From Table 4.3, Finland spent 5.9% of its GDP on education and students’ PISA performance ranked 1/1/2 for science, math, and reading, respectively, out of 57 countries. Finland is ranked HC40#4 with a 2 percentile-point improvement over the 14 years, yet declined 7 ranks from the 1st to the 3rd period (refer to Table 4.2). From 2005 to 2006, its skilled labor and employee training declined slightly. In addition, its HDI#12 (including education/literacy, health/ life expectancy, and purchasing power) fails to match its other outstanding performances and is the area most deserving of attention
General Descriptive Information on the Five Nordic Countries 49
Sweden HC40#2
Norway HC40#5
Iceland HC40#7
1. UN Human Development Index ranking: #7 out of 179 (2008) 2. Broadband internet subscribers –37.3% (2009 est.) 3. Labor force – 4.9 million (2008 est.) 4. Unemployment – 9% (2009 est.) 5. 90% of Sweden’s school children continue with a 3-year upper secondary school, leading to a vocational diploma and further studies at a university or college 6. Higher education is free of charge, both for Swedes and for foreigners
1. UN Human Development Index ranking: #1 out of 179 (2008) 2. Broadband internet subscribers – 32.9% (2009 est.) 3. Labor force – 166,000 (2008 est.) 4. Unemployment – 9.1% (2009 est.) 5. Iceland’s literacy rate is among the highest in the world, and a love of literature, art, chess, and other intellectual pursuits is widespread 6. Around 90% of students leaving lower secondary education enter into upper secondary education. The labor force is relatively young compared with neighboring countries, with 64% of the population aged between 16 and 65 7. In 2007, labor force in the service industry is around 73% 1. UN Human Development Index ranking: #2 out of 179 (2008) 2. Broadband internet subscribers –34% (2009 est.) 3. Labor force – 2.59 million (2008 est.) 4. Unemployment – 3.1% (2009 est.) 5. Norway maintained a first-place ranking in the world in the Human Development Index (HDI) for six consecutive years (2001–2006)
Table 4.4 (continued) Country Human capital Observations
From Table 4.3, Norway spent 5.4% of its GDP on education (the lowest in this cluster) and students’ PISA performance ranked 27/25/22 for science, math, and reading, respectively, out of 57 countries. As indicated in the column at left, Norway was currently ranked #2 in HDI behind Iceland. It is ranked HC40#5 with a 12 percentile-point improvement over the 14 years and no ranking change from the 1st to the 3rd period (refer to Table 4.2). Yet, in year 2006, its skilled labor score declined From Table 4.3, Sweden spent 7% of its GDP on education and students’ PISA performance ranked 20/17/7 for science, math, and reading, respectively, out of 57 countries. Sweden is ranked HC40#2 with a 13 percentile-point improvement over the 14 years and advanced 3 ranks from the 1st to the 3rd period (refer to Table 4.2). What can be improved is Swedish students’ PISA performance in science and math
From Table 4.3, Iceland spent 7.7% of its GDP on education (data from 2007) and students’ PISA performance ranked 25/16/23 for science, math, and reading, respectively, out of 57 countries. Yet, Iceland recorded the highest HDI #1 for 2008. It is ranked HC40#7 with a 16 percentilepoint improvement over the 12 years (through 2006) and advanced 4 ranks from the 1st to the 3rd period (refer to Table 4.2). Similar to other Nordic countries, its 30% broadband subscriber rate is fairly high, which facilitates citizens in acquiring new knowledge
50 4 National Intellectual Capital of Five Nordic Countries
Finland MC40#5
1. About one-third of Finland’s gross domestic product comes from foreign trade. Exports – $104.3 billion f.o.b. (2008 est.), imports – $93.28 billion f.o.b. (2008 est.) 2. The main economic sector is services, but manufacturing and technology is the key export sector, centering on the wood, metals, engineering, telecommunications, and electronics industries 3. In 2005, Finnish tourism grossed over €6.7 billion (over 4 million visitors) with a 5% increase from the previous year and a growth rate of 11.2% in 2005/2006, one of the fastest growing areas of the economy. The value added by tourism is about 2.4% of the Finnish GDP, and provides around 60,000 jobs
Table 4.5 Background information on market capital for five Nordic countries Country Market capital Denmark MC40#4 1. High dependence on foreign trade. Exports – $119.5 billion f.o.b. (2008 est.), imports – $120.7 billion f.o.b. (2008 est.) 2. Denmark is a net exporter of food and energy 3. Danes devote 0.8% of Gross National Income (GNI) to foreign aid
(continued)
Observations Denmark is ranked #6 out of 72 countries in the Globalization Index – the highest among Nordic countries. It is ranked MC40#4 with virtually no score change over the 14 years and advanced 3 ranks from the 1st to the 3rd period (refer to Table 4.2). From the left column description, Denmark is market oriented as it allocates 0.8% GNI for foreign aid Finland is ranked #18 out of 72 countries in the Globalization Index, the lowest among the Nordic countries. Yet it is ranked MC40#5, with an increase of 5 percentile points over the 14 years. It declined 8 ranks from the 1st to the 3rd period (refer to Table 4.2). The ranking gap between the GL and MC40 may be explained by the different criteria applied: The GL assesses globalization in terms of trade and investment flows, movement of people across borders, volume of international telephone calls, Internet usage, and participation in international organizations, whereas MC40 focuses exclusively on providing a facilitating environment for international partnership
General Descriptive Information on the Five Nordic Countries 51
Sweden MC40#10
Norway MC40#15
Iceland MC40#7
1. Forests and iron ore constitute the resource base of an economy heavily oriented toward foreign trade 2. Sweden’s engineering sector accounts for 50% of output and exports. Telecommunications, the automotive industry, and the pharmaceutical industries are also of great importance 3. According to the CIA World Factbook, Sweden is the 21st most visited country in the world, with 7,627,000 arrivals in 2006 4. Exports – $185.1 billion f.o.b. (2008 est.), imports – $166.6 billion f.o.b. (2008 est.)
1. The tourism sector is expanding, with recent trends in ecotourism and whale-watching. Tourism accounts for 12.4% of Iceland’s foreign currency earnings 2. Marine products account for about 60% of Iceland’s total exports and around 40% of its foreign currency earnings. Exports – $6.85 billion f.o.b. (2008 est.), imports – $6.54 billion f.o.b. (2008 est.) 3. Iceland is also an exporter of medical products, including prosthetics, diagnostic equipment, and medical software 4. Iceland’s impressive outcome is especially due to high rankings in business flexibility and entrepreneurship 5. Foreign direct investment in Iceland reached US$12,269 millions in 2007 1. In 2006, oil and gas accounted for 58% of Norway’s exports 2. Exports – $177.6 billion f.o.b. (2008 est.), imports – $93.21 billion f.o.b. (2008 est.)
Table 4.5 (continued) Country Market capital
Norway is ranked #17 out of 72 countries in the Globalization Index and ranked MC40#15 (the lowest in this cluster) with a decline of 5 percentile points over the 14 years and declined 3 ranks from the 1st to the 3rd period (refer to Table 4.2). Although oil and gas exports have been strong in Norway, other intangibles such as cultural openness and government policy transparency that facilitate trading have relatively low scores in MC40 Sweden is ranked #11 in the 2007 Globalization Index, and it is ranked MC40#10 with a 3 percentile-point improvement over the 14 years and advanced 3 ranks from the 1st to the 3rd period (refer to Table 4.2). Sweden is relatively weak in MC40 among the five Nordic countries
Iceland is not ranked by the Globalization Index and is ranked MC40#7 with a 16 percentile points improvement from 1995 to 2006 (data through 2006 only) and advanced 13 ranks from the 1st to the 3rd period (refer to Table 4.2). As reported in Fig. 4.7, Iceland has accumulated its MC40 rapidly over the past decade. It has attracted increasing FDI due to its high rankings in business flexibility and entrepreneurship. Upon reflection, its overly flexible business systems may cause some governance problems
Observations
52 4 National Intellectual Capital of Five Nordic Countries
Iceland PC40#9
1. Internet usership – 89.3% of the population (2009 est.) 2. Iceland is one of the world’s most technologically advanced and digitally connected countries 3. Iceland’s economy has been diversifying into the manufacturing and service industries in the last decade, including software production, biotechnology, and financial services 4. Renewable energy provides over 70% of the nation’s primary energy. Over 99% of the country’s electricity is produced from hydropower and geothermal energy, and the country expects to be energy-independent by 2050
Table 4.6 Background information on process capital for five Nordic countries Country Process capital Denmark PC40#2 1. Internet usership – 84.2% of the population (2009 est.) 2. Denmark is self-sufficient in energy – producing oil, natural gas, wind- and bio-energy. Nearly one-fifth of all trips in Copenhagen are by bicycle; and for home-to-work commutes, nearly one-third of all trips are by bicycle 3. Denmark’s modern services economy is featured by high-tech agriculture, up-to-date small-scale and corporate industries 4. Significant investment has been made in recent decades in building road and rail links between Copenhagen and Malmö, Sweden Finland PC40#1 1. Internet usership – 82.9% of the population (2009 est.) 2. Finland fares very well with renewable energy: 25% of energy is renewable (EU average 10%). About one-fifth of all the energy consumed in Finland is wood-based. In 2001, 18% of all electricity consumed was produced by the four nuclear power plants. The fifth nuclear power station – the world’s largest at 1,600 MWe – is currently under construction and is scheduled to be operational by 2011
(continued)
Based on Table 4.3, Finland’s rankings for quality of life, e-readiness, and mobile telephone subscribers are #9 out of 57, #13 out of 70, and #17 out of 133, respectively. It is ranked PC40#1 with a 7 percentile points improvement over the 14 years, yet declined 4 ranks from the 1st to the 3rd period (refer to Table 4.2). Most notably in year 2006, the scores of government efficiency, capital availability, and convenience of setting up new firms all declined. As described in the left column, in spite of 25% of its energy being renewable, Finland is heavily dependent on nuclear power Based on Table 4.3, Iceland’s rankings for quality of life and mobile telephone subscribers are #2 out of 57 and #44 out of 133, respectively. It is ranked PC40#9 with a 12 percentilepoint improvement over the 12 years and advanced 6 ranks from the 1st to the 3rd period (refer to Table 4.2). However, in year 2006, the scores for IP rights protection, capital availability, and mobile phone subscribers all declined. In retrospect, these declines appear to have signaled the ensuing economic problems of Iceland
Observations Based on Table 4.3, Denmark’s rankings for quality of life, e-readiness, and mobile telephone subscribers are #4 out of 57, #5 out of 70, and #28 out of 133, respectively. It is ranked PC40#2 with a 9 percentile-point improvement over the 14 years and advanced 3 ranks from the 1st to the 3rd period (refer to Table 4.2). Also, from the left column description, it is clear that Denmark has devoted itself to infrastructure enhancement, including energy self-sufficiency and high-tech agriculture
General Descriptive Information on the Five Nordic Countries 53
Sweden PC40#4
Norway PC40#5
1. Internet usership – 85.7% of the population (2009 est.) 2. Norway has a relatively advanced telecommunications structure. There are about as many mobile telephone subscriptions as there are inhabitants in the country 3. In addition to its aspirations for a high-tech industry, in Norway there is growing interest in encouraging small business growth as a source of employment for the future 4. Electricity – hydro: 99.3% 5. Shipping has long been a support of Norway’s export sector, but much of Norway’s economic growth has been fueled by an abundance of natural resources, including petroleum exploration and production, hydroelectric power, and fisheries 1. Internet usership – 80.5% of the population (2009 est.) 2. Sweden’s mobile and internet penetration in the household market is one of the highest in the world, with more than 50% of its revenue coming from these two industries 3. Sweden is an export-oriented market economy featuring a modern distribution system, excellent internal and external communications, and a skilled labor force 4. In 2006, electricity from hydropower accounted for 44%, nuclear power 47%, biofuels and peat 9%, and wind power 1%
Table 4.6 (continued) Country Process capital
Based on Table 4.3, Sweden’s rankings for quality of life, e-readiness, and mobile telephone subscribers are #6 out of 57, #3 out of 70, and #34 out of 133, respectively. It is ranked PC40#4 with a 4 percentile-point improvement over the 14 years, yet declined 1 rank from the 1st to the 3rd period (refer to Table 4.2). In addition, in year 2006, the scores for government efficiency and mobile phone subscribers declined. It appears that, although Sweden’s mobile and internet penetration has been high in the past, other countries are catching up
Based on Table 4.3, Norway’s rankings for quality of life, e-readiness, and mobile telephone subscribers are #3 out of 57, #11 out of 70, and #40 out of 133, respectively. It is ranked PC40#5 with a decline of 3 percentile points over the 14 years and declined 5 ranks from the 1st to the 3rd period (refer to Table 4.2). In addition, in year 2006, the scores of business competition environment, government efficiency, IP rights protection, and mobile phone subscribers all declined. From the description in the adjacent column, Norway is environmentally conscious as its electricity is mainly powered by hydro sources
Observations
54 4 National Intellectual Capital of Five Nordic Countries
Table 4.7 Background information on renewal capital for five Nordic countries Country Renewal capital Denmark RC40#7 1. Its European innovation scoreboard ranking was #5 out of 33 with a score of 0.57 in 2008 2. Aiming at strengthening the access of Danish researchers and enterprises to world-leading knowledge centers outside Denmark, the Ministry of Science, Technology and Innovation has set up three innovation centers in Silicon Valley in Oct. 2006, in Shanghai in Sept. 2007, and in Munich in Feb. 2008 Finland RC40#3 1. In recent years Finland’s focus has been on innovation and research and development, with special emphasis on information technology. A significant new form of cooperation between industry and academia are the Strategic Centers for Science, Technology and Innovation 2. In Finland, the proportion of research personnel in the total labor force is the highest of all the European Union and OECD countries. Finland is also one of the world’s most significant publishers of scientific material, relative to its population and GDP 3. Its European innovation scoreboard ranking was #3 out of 33 in 2008 Iceland RC40#9 1. Iceland is a participant in international hydrogen fuel research and development programs, and many countries are following its progress with interest 2. Iceland has also begun many other projects involving hydrogen. A project to build a hydrogen-powered H-ship was initiated in February 2004 and is exploring the practicalities of using hydrogen as a source of fuel for Iceland’s fishing fleet 3. Its European innovation scoreboard ranking was #15 out of 33 in 2008 (continued)
Iceland invested 2.83% of GDP in R&D in both 2007 and 2008, with the European innovation scoreboard of 0.50 and 0.47 in 2007 and 2008, respectively. It is ranked RC40#9 with a 33 percentile-point improvement over the 12 years (data through 2006) and advanced 11 ranks from the 1st to the 3rd period (refer to Table 4.2). Iceland has a strategic focus on hydrogen power R&D, which has become its national niche area
Observations Denmark invested 2.44, 2.43, and 2.55% of its GDP in R&D in 2007, 2008, and 2009 respectively Denmark is ranked RC40#7 with a 23 percentile-point improvement over the 14 years and advanced 3 ranks from the 1st to the 3rd period (refer to Table 4.2). Although there is not much description in open sources, Denmark did prove its renewal agility through the statistics exhibited in Table 4.2 and Fig. 4.9 Finland invested 3.48, 3.45, and 3.47% of its GDP in R&D in 2007, 2008, and 2009, respectively, with the European innovation scoreboard of 0.64 and 0.61 (2007 and 2008, respectively). It is ranked RC40#3 with a 28 percentile-point improvement over the 14 years and advanced 3 ranks from the 1st to the 3rd period (refer to Table 4.2). As described in the column at left, Finland’s special focus on innovation, R&D, information technology, and industry-academia cooperation has apparently paid off
General Descriptive Information on the Five Nordic Countries 55
Sweden RC40#2
Norway RC40#14
1. The state-owned company “Innovation Norway” established in 2004 promotes nationwide industrial development and helps release the potential of different districts and regions by contributing towards innovation, internationalization and promotion. Innovation Norway has offices in all the Norwegian counties and in more than 30 countries worldwide. Its core group of clients is Norwegian companies, predominantly SMEs 2. Its European innovation scoreboard ranking was #19 out of 33 in 2008 1. Sweden is ranked 4th of 68 countries in the Nation Master’s list for technological achievement 2. A large portion of the Swedish economy is based on the export of technical inventions, such as further development of biofuels, solar cells, fuel cells, wind farms, wave energy, district heating schemes and greater use of heat pumps 3. Sweden has been ranked first in measures of knowledge creation, innovation and entrepreneurship, innovation drivers, and intellectual property 4. Sweden’s industry is overwhelmingly under private control 5. Its European innovation scoreboard ranking was #2 out of 33 in 2008
Table 4.7 (continued) Country Renewal capital Observations
Sweden invested 3.86, 3.73, and 3.64% of its GDP in R&D in 2007, 2008, and 2009, respectively) (the highest in this cluster) with the European innovation scoreboard of 0.73 and 0.64 in 2007 and 2008 (also the highest in this cluster). It is ranked RC40#2 with a 14 percentile-point improvement over the 14 years and advanced 2 ranks from the 1st to the 3rd period (refer to Table 4.2). From the percentage of R&D of its GDP and the left column description, clearly Sweden has devoted a significant amount of resources to innovation and renewal. The private control of Sweden’s industry may explain the high level of its renewal capital, as private companies tend to be more innovative
Norway invested 1.48% of its GDP in R&D in both 2007 and 2008, and 1.57 % in 2009, (the lowest in this cluster) with the European innovation scoreboard of 0.36 and 0.38 in 2007 and 2008, respectively. It is ranked RC40#14 with a 9 percentile-point improvement over the 14 years, yet declined 5 ranks from the 1st to the 3rd period (refer to Table 4.2). However, it seems that Norway is reverting to the renewal path by its having established the state-owned company “Innovation Norway”
56 4 National Intellectual Capital of Five Nordic Countries
Table 4.8 Background information on financial capital for five Nordic countries Country Financial capital Denmark FC40#9 1. GDP per capita (PPP) – US$37,266 (IMF 2009 report) 2. Average annual growth rates were less than 2% in 2007 3. Denmark has a comfortable balance of payments surplus and zero net foreign debt 4. GDP growth: −0.6% in 2008, 1.6% in 2007 and 3.3% in 2006 Finland FC40#18 1. GDP per capital (PPP) – US$36,217 (IMF 2009 report) 2. The World Economic Forum declared Finland to be the most competitive country in the world for four consecutive years (2002–2005) 3. GDP growth – 1.5% in 2008, 4.2% in 2007 and 4.9% in 2006 Iceland FC40#10 1. GDP per capita (PPP) – US$40,025 (IMF 2009 report) 2. Iceland’s economic growth slowed from 2000 to 2002 (−0.6% in 2002), but it expanded by 4.3% in 2003, 6.2% in 2004, 6.6% in 2005 and 4.6% in 2006 3. GDP growth: −3.5% in 2008, 4.9% in 2007 and 4.4% in 2006
Iceland was ranked #10 world wealth in GDP per capita (PPP) in 2008. In addition, Iceland’s FC40 advanced from #14 in the 1st period to #7 in the 3rd period over the years (refer to Table 4.2). As a developed country, its GDP growth rate (1995 vs. 2008) was 94% The 2008–2009 Icelandic financial crisis involves the collapse of all three of the country’s major banks. The full cost of the crisis exceeds 75% of the country’s 2007 GDP (continued)
Finland was ranked #20 world wealth in GDP per capita (PPP) in 2008 – the lowest in this cluster, although its overall intellectual capital is ranked #1. The issue of concern is “why high intellectual capital cannot be transferred to bottom line GDP performance?” However, the GDP growth rate of Finland (1995 vs. 2008) was 101%
Observations Denmark was ranked #16 world wealth in GDP per capita (PPP) in 2008 with its healthy national financial status as described in the left column. As a well-developed country, its GDP growth rate (1995 vs. 2008) was 61%
General Descriptive Information on the Five Nordic Countries 57
1. GDP per capita (PPP) – US$53,451 (IMF 2009 report) 2. Norway’s government pension fund became the largest fund in Europe, totaling about US$300 billion, and equivalent to over US$62,000 per capita. This means that the Norwegian state has savings equal to 100% of the Norwegian GDP. In 2007, Norway has the largest capital reserve per capita of any nation 3. In 2007, Norway saw a massive 6% growth of its economy, outpacing any other western nation 4. GDP growth – 1.8% in 2008, 3.7% in 2007, and 2.5 % in 2006 Sweden FC40#13 1. GDP per capita (PPP) – US$37,245 (IMF 2009 report) 2. Following the Second World War, Sweden took advantage of an intact industrial base, social stability, and its natural resources to expand its industry and supply the rebuilding of Europe, leading to its position as one of the richest countries in the world by 1960 3. GDP growth – 0.7% in 2008, 2.7% in 2007, and 4.6 % in 2006 Remark: GDP per capita (PPP) in 2008 is based on 2009 report
Norway FC40#1
Table 4.8 (continued) Country Financial capital
Sweden ranked #17 world wealth in GDP per capita (PPP) in 2008. As described in the left column, Sweden managed to leverage its resources after the Second World War and thereby created its national wealth. As a well-developed country, its GDP growth rate (1995 vs. 2008) was 80%
Norway was ranked #3 in GDP per capita (PPP) in 2008 in the world wealth and is consistently ranked the highest FC40. Very likely, the main reason is the well-managed government pension fund and its strong oil and gas exports. Its 6% economic growth in 2007 is praiseworthy as a well-developed country and its GDP growth rate (1995 vs. 2008) was 73%
Observations
58 4 National Intellectual Capital of Five Nordic Countries
General Descriptive Information on the Five Nordic Countries
59
Table 4.9 Background Information on future perspective of five Nordic countries Country Denmark 1. IMD World Competitiveness ranking: #5 out of 57 countries (2009) 2. World Economic Forum global competitiveness: #5 out of 133 (2009–2010) 3. Environmental Sustainability Index (ESI) – #26 out of 149 (2005, a project-based ranking conducted in 2005) 4. Environmental Performance Index (EPI) – #25 out of 149 (2008) 5. A new revision of statistics indicates that Denmark has had the world’s highest tax burden beginning in 2004 6. More than one-quarter of the labor force is employed in the public sector 7. The Government of Fogh Rasmussen, re-elected in November 2007, announced a new referendum on the euro for 2008 or 2009 at the latest 8. GDP (PPP) per hour worked (2007) – 30.73 Finland 1. IMD World Competitiveness ranking: #9 out of 57 countries (2009) 2. World Economic Forum global competitiveness: #6 out of 133 (2009–2010) 3. Environmental Sustainability Index (ESI) – #1 out of 149 (2005, a project-based ranking conducted in 2005) 4. Environmental Performance Index (EPI) – #4 out of 149 (2008) 5. Finland was deemed the most competitive country in the world for four consecutive years (2002–2005) and the sixth most competitive economy in the world in 2007 by the World Economic Forum 6. Finland was ranked first in the ESI because of its good water and air quality, the high level of science and technology and the efficiency of environmental governance 7. Finland’s intellectual capital declined by 5 ranks (from #1 to #6), comparing its ranking of the overall 14 years and that of the most current period (2005–2008) 8. GDP (PPP) per hour worked (2007) – 29.77 Iceland 1. World Economic Forum global competitiveness: #26 out of 133 (2009–10) 2. Environmental Sustainability Index (ESI) – #5 out of 149 (2005, a project-based ranking conducted in 2005) 3. Environmental Performance Index (EPI) – #11 out of 149 (2008) 4. Iceland was ranked number one of the OECD countries according to The Global Benchmark Report 2006 5. Iceland’s evolving economic structure that is moving away from traditional activities such as fisheries requires increased efforts in the field of human resource development (Economic Survey of Iceland 2006) 6. Iceland has received a consistently high ranking in the world standard-of-living surveys, yet in the past it has borrowed more than ten times the country’s gross domestic product from the international wholesale money markets and consequently became the victim of the financial meltdown of the 2008 crisis 7. A number of writers have linked Iceland’s woes to the nation’s adoption of neo-liberal and laissez-faire economic policies starting in the 1990s. Coming from a small domestic market, Iceland’s banks have financed their expansion with loans on the interbank lending market and, more recently, by deposits from outside Iceland. Households also took on a large amount of debt, equivalent to 213% of disposable income, which led to inflation 8. GDP (PPP) per hour worked (2007) – 24.67 (continued)
60
4 National Intellectual Capital of Five Nordic Countries
Table 4.9 (continued) Country Norway
Sweden
1. IMD World Competitiveness ranking: #11 out of 57 countries (2009) 2. World Economic Forum global competitiveness: #14 out of 133 (2009–2010) 3. Environmental Sustainability Index (ESI) – #2 out of 149 (2005, a project-based ranking conducted in 2005) 4. Environmental Performance Index (EPI) – #3 out of 149 (2008) 5. Because of the oil boom since the 1970s, there has been little extensive government incentive to help develop and encourage new industries in the private sector, in contrast to other Nordic countries like Sweden and particularly Finland 6. There has been concern that much of Norway’s human capital investment has been concentrated in petroleum-related industries. Critics have pointed out that Norway’s economic structure is highly dependent on natural resources that do not require skilled labor, making economic growth highly vulnerable to fluctuations in the demand of, and pricing for, these natural resources 7. On March 30, 2009 the Norwegian Minister of Finance Kristin Halvorsen sent a letter to the Managing Director of the International Monetary Fund (IMF) offering to make additional financial resources available to the Fund for the IMF to support its neighboring ailing countries, such as Iceland and Latvia (http://www.norway-un.org/News/Latest+news/300309_IMF.htm) 8. GDP (PPP) per hour worked (2007) – 37.44 1. IMD World Competitiveness ranking: #6 out of 57 countries (2009) 2. World Economic Forum global competitiveness: #4 out of 133 (2009–10) 3. Environmental Sustainability Index (ESI) – #4 out of 149 (2005, a project-based ranking conducted in 2005) 4. Environmental Performance Index (EPI) – #2 out of 149 (2008) 5. In an effort to phase out its dependency on nuclear power and fossil fuels, the Swedish government has launched a multi-billion dollar program to promote renewable energy and energy efficiency and intended to be the first country to free itself from a dependence on petroleum, natural gas and other “fossil raw materials” by 2020 6. Sweden also expects to make greater use of teleworking, video conferencing and web conferencing, public transport, sea transport, hybrid vehicles, and smaller, lighter, biodiesel cars 7. GDP (PPP) per hour worked (2007) – 30.69
Summary In general, the five Nordic countries are ranked high in the NICI40 – first, second, fourth, seventh, and ninth. As a group, they also invest the highest percentage of GDP in education, ranging from 5.4 to 7.4%; they have the highest ratio of broadband subscribers, ranging from 29 to 34%; they have the highest level of e-readiness, ranging from ranking #3 to #13, and they invest the highest percentage of GDP in R&D, ranging from 1.57 to 3.64%. Yet, even with those generous investments, students’ PISA performance in this region, except for Finland, leaves much to be desired as exhibited in Table 4.3. In the future, countries with lower rates of student performance will need to spend more time and resources for nurturing skilled labor
Summary
61
and conducting more employee training programs. Therefore, the effectiveness of school age human resource development needs to be addressed. The high degree of intellectual capital in Nordic countries could be traced back to their social systems, which provided free or subsidized higher education, a factor that helped cultivate qualified human resources. In addition, heavy reliance on foreign trade, the external social networking and the development of a national infrastructure were conducive to technological advancement and the creation of a robust e-environment. In other words, making the most of social capital with the mutual reinforcement of well-grounded human capital and process capital has enabled this region to fully develop its potential in the past decade. Are the Nordic countries ready to cope with potential economic stagnation and the recent financial crisis, and can their accumulated intangible assets sustain the competitiveness of this region? Based on the 14-year panel data, it is apparent that the Nordic countries have ranked high in national intellectual capital in the past for a reason. Their bountiful human capital and social structure, infrastructure, and trading markets have taken time and resources – which cannot easily be replaced – to develop. As a result, this region has a very solid foundation for further advancement. However, after examining the most recent (2005–2008) intellectual capital scores, Denmark is still rising, but Finland is declining. Finland’s national intellectual capital decrease is largely in concert with the IMD competitiveness ranking changes for Finland from #6 (2005) to #10 (2006) to #17 (2007); yet, it picks up a little bit to #15 (2008) to #9 (2009) (IMD Competitiveness Yearbook 2009, http:// www.imd.ch/research/publications/wcy/upload/Overall_ranking_5_years.pdf). Although Norway’s NICI40 for the years 2005–2008 advanced one rank compared to its 14-year overall ranking, other statistics show a decline in its market capital, process capital, and renewal capital. It seems that national intellectual capital development also undergoes a life cycle. Those currently at the peak may decline some day, especially as more and more countries are becoming aware of the value of intellectual capital and are aggressively pursuing it. Yet, while competitors are catching up, the key success factor in the future may lie in aspiring to a national vision, leveraging human capital, consolidating the roots of innovation, and enhancing social skills (Stahle 2007) for the renewal and effective transfer from intellectual capital to financial performance, or, in other words, to enhance human capital with components of process capital, which leads to financial performance. This may require more social innovation and societal entrepreneurship. The Nordic countries’ intellectual capital has an international reputation for excellence, and this study supports that perception. The intellectual capital of all five Nordic countries was ranked among the top ten countries of the 40 countries, and three were in the top five. The various tables presented in this chapter provide some guidelines for countries that are seeking ways to improve their intellectual capital. For example, Finland and Sweden may look into ways to convert intellectual capital into financial performance, Iceland needs to enhance its renewal capital and its capital availability problem needs more attention, and Norway can put more effort into expanding its market capital and renewal capital.
62
4 National Intellectual Capital of Five Nordic Countries
The World Bank predicted in a Global Economic Prospects 2007 press release that economic growth for 2007–2008 in high-income countries was expected to be 2.6% compared with a 6% increase in developing countries (http://web.worldbank. org). The challenges that rapid globalization, trade expansion, and technology diffusion present to developing countries may intensify stresses on the “global commons.” Are Nordic countries ready to cope with potential economic stagnation? Can the intangible assets they have accumulated sustain the competitiveness of this region? These are the questions that need to be constantly reflected upon. Although intellectual capital does not necessarily translate to financial performance and current financial performance may not guarantee future national development, yet the ebb and flow of Iceland and Norway in the current financial crisis may provide insights for policy makers. Iceland has been a rising star in economic development in the past few years and has received a consistently high ranking in world standard-of-living surveys; moreover, it was number one of the OECD countries according to The Global Benchmark Report 2006. But its 2008 national financial meltdown hit the country very hard. On the contrary, the relatively static Norway thrives by going its own way. In 2008, Norway’s economy grew by just under 3%. Instead of spending its riches lavishly, it passed legislation ensuring that oil revenue would go straight into its sovereign wealth state fund, which is used to make investments around the world. Now its sovereign wealth fund is close to being the largest in the world and its banks represent just 2% of the economy and tight public oversight over their lending practices have kept Norwegian banks from taking on the risk that brought down their Icelandic counterparts (http://www.nytimes. com/2009/05/14/business/global/14frugal.html?_r=2&hp). Although gloomy at the moment, those countries which tumbled in this financial crisis should have great potential to regain their national strength, provided that their intellectual capital continues to steadily increase over the coming decade, for in today’s knowledge economy the intangible intellectual capital is surely the key foundation for future national development.
Chapter 5
National Intellectual Capital of Four Larger Western European Countries (France, Germany, Ireland, UK)
Abstract The four relatively large Western European countries are among the second quarter percentile (11–20th) of national intellectual capital indices for 40 countries (NICI40). France, Germany, Ireland, and the United Kingdom ranked number 20, 15, 13, and 19, respectively. In taking into account each individual country’s overall ranking, both France and Germany have a relatively better score in renewal capital (ranked #10 and ranked #6); Ireland has a very good score in market capital (ranked #2), while France is particularly weak in market capital (ranked #35). National intellectual capital ranking of four larger European countries Human capital
Market capital
Process capital
Renewal capital
Financial capital
Overall IC (NICI40)
Mean SD
6.35 0.14
5.76 1.06
6.09 0.44
4.82 0.84
9.63 0.05
32.65 1.19
Country France Germany Ireland UK
Score 6.50 6.31 6.42 6.18
Ranking 15 20 17 21
Score 4.67 5.55 7.21 5.62
Ranking 35 23 2 21
Score 5.51 6.12 6.58 6.13
Ranking 20 16 11 15
Score 4.96 5.88 3.87 4.57
Ranking 10 6 20 17
Score 9.60 9.62 9.70 9.61
Ranking 17 14 7 15
Score 31.24 33.48 33.77 32.11
Ranking 20 15 13 19
Introduction The countries described in Chaps. 5 and 6 have been regarded as Western European countries after World War II, as they received economic assistance from the USA, whereas the Eastern Bloc countries behind the Iron Curtain were dominated by the Soviet Union (http://en.wikipedia.org/wiki/Western_Europe). For greater ease of comparison, we separate the eight Western European countries reported on this book into two clusters based on their total areas, namely the relatively large and relatively small Western European countries. This chapter presents the national intellectual capital of the four relatively large Western European countries, including France, Germany, Ireland, and the United Kingdom.
C.Y.-Y. Lin and L. Edvinsson, National Intellectual Capital: A Comparison of 40 Countries, DOI 10.1007/978-1-4419-7377-1_5, © Springer Science+Business Media, LLC 2011
63
64
5 National Intellectual Capital of Four Larger Western European Countries
These four countries are among the world’s wealthiest 23 countries. Based on IMF (International Monetary Fund April 2009 data) GDP per capita (PPP) in US dollars, Ireland (42,539), United Kingdom (36,523), Germany (35,442), and France (34,208) ranked number 8, 18, 21, and 23, respectively, in world wealth (http://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29_per_capita). In the present era of keen global competition, how have these four larger European countries been able to sustain and improve their competitiveness? An analysis from the perspective of national intellectual capital may provide some answers. Since these four Western European countries have similar geographical features (although Ireland is smaller) in the same region, this book addresses them as a cluster. Among them, the overall national intellectual capital ranking sequence, in descending order, is Ireland (13), Germany (15), United Kingdom (19), and France (20). Table 5.1 shows the results of comparing five types of capital “within” each country and “between” countries in this cluster. Based on each country’s ranking, financial capital ranks first among all types of capital in all four countries. That is, financial capital has the highest score among the five capital components. Human capital, market capital, process capital, and renewal capital are ranked as 2, 5, 3, and 4, respectively, for France and Germany; 4, 2, 3, and 5, respectively, for Ireland; and 2, 4, 3, and 5, respectively, for the United Kingdom. As for inter-country comparisons, each country has its own strength. Table 5.1 shows that Ireland ranks highest in market capital, process capital, and financial capital, France in human capital, and Germany in renewal capital. In this cluster, France is comparatively weak in market capital and process capital, Ireland in renewal capital, and the United Kingdom in human capital.
National Intellectual Capital of Each Individual Country Figures 5.1–5.4 display the characteristics and trends of national intellectual capital in each larger European country reported in this chapter. In Fig. 5.1, France has made the most progress in terms of human capital with a gain of about 16 percentile points, followed by an increase in process capital of about nine percentile points, as compared to the figures for 1995 and 2008. Yet, the country experienced a decrease in market capital of about 11 percentile points and in renewal capital of about five percentile points. The figures for financial capital show little change, since it is a transformed 1–10 rating score relative to the highest value. In other words, the financial capital ratings for 1995 and 2008 indicate that France’s financial performance remained relatively the same over the 14 years with respect to that of the 40 countries. Yet, in real dollar value, the GDP per capita (PPP) of France increased from US$21,244 in 1995 to US$34,208 in 2008 (IMF 2009 Report), a growth of 61%. For further improvement and enhanced competitiveness, France can focus on development of its market capital and renewal capital.
Table 5.1 Capital mean ratings and rankings of the four larger Western European countries from 1995 to 2008 Intellectual capital Ranking Human Market Process Renewal Financial Overall in this Mean score capital capital capital capital capital cluster score France Score 6.5 4.67 5.51 4.96 9.6 31.24 4 Ranking Within 2 5 3 4 1 Between 1 4 4 2 4 Germany Score 6.31 5.55 6.12 5.88 9.62 33.48 2 Ranking Within 2 5 3 4 1 Between 3 3 3 1 2 Ireland Score 6.42 7.21 6.58 3.87 9.7 33.77 1 Ranking Within 4 2 3 5 1 Between 2 1 1 4 1 Score 6.18 5.62 6.13 4.57 9.61 United 32.11 3 Kingdom 2 4 3 5 1 Ranking Within Between 4 2 2 3 3 19
13
15
20
Overall ranking among 40 countries
National Intellectual Capital of Each Individual Country 65
66
5 National Intellectual Capital of Four Larger Western European Countries 10 France Human Capital 8 France Market Capital 6 France Process Capital 4 France Renewal Capital 2 France Financial Capital 0
1995
1996 1997
1998
1999
2000 2001
2002
2003 2004
2005
2006
2007 2008
France Human Capital
5.486 5.744 5.833 6.448 6.202 6.291 6.597 6.616 6.807 6.837 6.975 6.937 7.141 7.122
France Market Capital
5.159 5.239 4.976 5.099 5.221 4.870 4.500 4.847 4.572 4.398 3.998 4.082 4.408 4.025
France Process Capital
4.648 4.801 5.077 5.371 5.884 5.829 5.849 5.770 5.790 5.443 5.771 5.594 5.653 5.590
France Renewal Capital 5.071 5.768 5.285 5.337 5.369 4.871 4.692 4.928 4.724 4.847 4.735 4.640 4.618 4.549 France Financial Capital 9.638 9.605 9.579 9.593 9.606 9.614 9.611 9.608 9.608 9.597 9.591 9.595 9.594 9.590
Fig. 5.1 Trends of intellectual capital in France
10 Germany Human Capital 8 Germany Market Capital 6 Germany Process Capital Germany Renewal Capital Germany Financial Capital
4
2
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Germany Human Capital
5.625 5.793 5.794 6.273 6.020 6.348 6.382 6.465 6.387 6.476 6.634 6.507 6.814 6.855
Germany Market Capital
6.089 5.628 5.497 5.416 5.709 5.955 5.847 5.044 5.354 5.119 5.300 5.596 5.561 5.610
Germany Process Capital
5.279 5.380 5.502 5.938 6.432 6.820 6.409 6.088 6.066 6.081 6.424 6.512 6.326 6.353
Germany Renewal Capital 5.599 6.378 6.134 6.285 6.263 6.021 5.576 5.835 5.570 5.744 5.856 5.833 5.523 5.743 Germany Financial Capital 9.676 9.642 9.615 9.616 9.621 9.627 9.623 9.614 9.608 9.598 9.590 9.607 9.615 9.622
Fig. 5.2 Trends of intellectual capital in Germany
Figure 5.2 indicates that Germany has made the most progress in human capital with an increase of about 12 percentile points, followed by an increase in process capital of about 11 percentile points, and a slight increase in renewal capital of about one percentile point, in comparing the figures for 1995 and 2008. Yet, the country experienced a decrease in market capital of about five percentile points and
National Intellectual Capital of Each Individual Country
67
10 Ireland Human Capital 8 Ireland Market Capital 6 Ireland Process Capital 4 Ireland Renewal Capital 2 Ireland Financial Capital 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Ireland Human Capital
5.316 5.267 5.055 5.479 5.874 6.640 6.760 7.276 7.359 6.600 6.893 6.914 7.064 7.335
Ireland Market Capital
7.077 7.205 7.441 7.403 7.824 7.520 7.349 7.127 7.022 7.046 7.341 7.236 6.965 6.444
Ireland Process Capital
5.119 5.720 5.871 5.919 7.049 7.417 7.122 7.024 6.641 6.754 7.345 6.844 6.727 6.528
Ireland Renewal Capital 3.067 3.687 3.792 4.037 4.121 4.071 3.749 3.744 3.707 3.805 3.860 3.998 4.171 4.320 Ireland Financial Capital 9.458 9.487 9.539 9.589 9.664 9.712 9.738 9.772 9.794 9.795 9.803 9.818 9.835 9.790
Fig. 5.3 Trends of intellectual capital in Ireland 10 UK Human Capital 8 UK Market Capital 6 UK Process Capital
UK Renewal Capital
UK Financial Capital
4
2
0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
UK Human Capital
5.043 5.472 5.003 5.686 5.784 6.071 6.319 6.382 6.382 6.654 6.833 6.758 6.977 7.152
UK Market Capital
5.682 6.247 6.288 5.811 5.956 5.536 5.606 5.392 5.541 5.103 5.415 5.466 5.348 5.357
UK Process Capital
6.947 6.967 7.090 6.916 7.407 7.298 7.601 7.116 7.178 6.816 7.068 6.594 6.671 5.884
UK Renewal Capital 4.429 4.980 4.562 4.873 4.148 4.000 4.275 4.329 4.198 4.730 4.790 5.082 4.764 4.764 UK Financial Capital 9.593 9.578 9.563 9.578 9.595 9.605 9.611 9.620 9.639 9.639 9.636 9.645 9.652 9.650
Fig. 5.4 Trends of intellectual capital in the United Kingdom
a slight decrease in financial capital of about one percentile point. In real dollar value, the GDP per capita (PPP) of Germany increased from US$22,089 in 1995 to US$35,442 in 2008 (IMF 2009 Report), a growth of 60%. From Fig. 5.2, Germany’s initial strong market capital has regressed to the lowest score starting from 2002. For further improvement and enhanced competitiveness, Germany can focus on development of its market capital and renewal capital.
68
5 National Intellectual Capital of Four Larger Western European Countries
Figure 5.3 indicates that Ireland has made the most progress in human capital with an increase of about 20 percentile points, followed by an increase in process capital of about 14 percentile points, an increase in renewal capital of about 13 percentile points, and a slight increase in financial capital of about three percentile points, in comparing the figures for 1995 and 2008. Yet, the country experienced a decrease in market capital of about six percentile points. In real dollar value, the GDP per capita (PPP) of Ireland increased from US$17,632 in 1995 to US$42,539 in 2008 (IMF 2009 Report), a growth of 141%. Analysis of the raw data reveals that the continuous decline of market capital between 2005 and 2008 was mainly due to several score changes, including globalization (from 7.61 to 6.90), government policy transparency (from 6.43 to 4.65), and image of country (from 9.04 to 6.0). Although Ireland exhibited good improvement in renewal capital, it is still the lowest-rated capital component. For further improvement and enhanced competitiveness, Ireland should invest more in its renewal capital. Figure 5.4 indicates that the United Kingdom has made the most progress in human capital with an increase of about 21 percentile points, followed by an increase in renewal capital of about three percentile points, and a slight increase in financial capital of about one percentile point, in comparing the figures for 1995 and 2008. Yet, the country experienced a significant decrease in process capital of about 11 percentile points, as well as a decrease in market capital of about three percentile points. In real dollar value, the GDP per capita (PPP) of the United Kingdom increased from US$20,268 in 1995 to US$36,523 in 2008 (IMF 2009 Report), a growth of 80%. For further improvement and enhanced competitiveness, the United Kingdom should develop its two lowest-rated capital components, market capital and renewal capital. In general, the human capital of each of the four larger European countries has exhibited the greatest improvement with a steady upward trend, yet the market capital of all four countries decreased in various degrees over the 14-year research period. As shown in Figs. 5.1–5.4, France initially showed a difference of about eight percentile points among the four capitals (financial capital excluded), yet in 2008 the gap widened to about 30 percentile points; the four capital components of Germany developed somewhat as a cluster with less variation; Ireland exhibits a distinctive pattern of development with an initial wide gap of about 20 percentile points among human capital, market capital and process capital, yet the gap narrowed to about eight percentile points in 2008; meanwhile, the United Kingdom reveals a relatively flat and distinct pattern of capital development, except for the steady increase of its human capital.
Comparison of Capital Components of the Four Larger European Countries Figures 5.5–5.9 allow for a further comparison of the five types of capital among the four larger Western European countries. Figure 5.5 shows that variations in human capital among the four countries are relatively small, shifting from around the
Comparison of Capital Components of the Four Larger European Countries
69
10 France Human Capital 8
Germany Human Capital
6
4
Ireland Human Capital
2 UK Human Capital 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 5.486 5.744 5.833 6.448 6.202 6.291 6.597 6.616 6.807 6.837 6.975 6.937 7.141 7.122
France Human Capital
Germany Human Capital 5.625 5.793 5.794 6.273 6.020 6.348 6.382 6.465 6.387 6.476 6.634 6.507 6.814 6.855 Ireland Human Capital
5.316 5.267 5.055 5.479 5.874 6.640 6.760 7.276 7.359 6.600 6.893 6.914 7.064 7.335
UK Human Capital
5.043 5.472 5.003 5.686 5.784 6.071 6.319 6.382 6.382 6.654 6.833 6.758 6.977 7.152
Fig. 5.5 Comparison of human capital in the four larger European countries
10 France Market Capital 8 Germany Market Capital
Ireland Market Capital
6
4
2 UK Market Capital 0 France Market Capital
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 5.159 5.239 4.976 5.099 5.221 4.870 4.500 4.847 4.572 4.398 3.998 4.082 4.408 4.025
Germany Market Capital 6.089 5.628 5.497 5.416 5.709 5.955 5.847 5.044 5.354 5.119 5.300 5.596 5.561 5.610 Ireland Market Capital
7.077 7.205 7.441 7.403 7.824 7.520 7.349 7.127 7.022 7.046 7.341 7.236 6.965 6.444
UK Market Capital
5.682 6.247 6.288 5.811 5.956 5.536 5.606 5.392 5.541 5.103 5.415 5.466 5.348 5.357
Fig. 5.6 Comparison of market capital in the four larger European countries
55th percentile at the initial stage to around the 70th percentile in 2008 over the 14 years. Comparing the 1995 and 2008 human capital ratings, France, Germany, Ireland, and the United Kingdom showed an improvement of 16, 12, 20, and 21 percentile points, respectively. However, having posted the highest initial score, Germany ended up with the lowest score in 2008 after exhibiting only modest improvement.
70
5 National Intellectual Capital of Four Larger Western European Countries 10 France Process Capital
Germany Process Capital
Ireland Process Capital
8
6
4
2 UK Process Capital 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 4.648 4.801 5.077 5.371 5.884 5.829 5.849 5.770 5.790 5.443 5.771 5.594 5.653 5.590
France Process Capital
Germany Process Capital 5.279 5.380 5.502 5.938 6.432 6.820 6.409 6.088 6.066 6.081 6.424 6.512 6.326 6.353 Ireland Process Capital
5.119 5.720 5.871 5.919 7.049 7.417 7.122 7.024 6.641 6.754 7.345 6.844 6.727 6.528
UK Process Capital
6.947 6.967 7.090 6.916 7.407 7.298 7.601 7.116 7.178 6.816 7.068 6.594 6.671 5.884
Fig. 5.7 Comparison of process capital in the four larger European countries
10 France Renewal Capital 8
Germany Renewal Capital
Ireland Renewal Capital
6
4
2 UK Renewal Capital 0 France Renewal Capital
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 5.071 5.768 5.285 5.337 5.369 4.871 4.692 4.928 4.724 4.847 4.735 4.640 4.618 4.549
Germany Renewal Capital 5.599 6.378 6.134 6.285 6.263 6.021 5.576 5.835 5.570 5.744 5.856 5.833 5.523 5.743 Ireland Renewal Capital
3.067 3.687 3.792 4.037 4.121 4.071 3.749 3.744 3.707 3.805 3.860 3.998 4.171 4.320
UK Renewal Capital
4.429 4.980 4.562 4.873 4.148 4.000 4.275 4.329 4.198 4.730 4.790 5.082 4.764 4.764
Fig. 5.8 Comparison of renewal capital in the four larger European countries
Figure 5.6 indicates a general negative progress in market capital. Comparing their market capital ratings for 1995 and 2008, France, Germany, Ireland, and the United Kingdom decreased 11, 5, 6, and 3 percentile points, respectively, with France suffering the greatest decline. In this cluster, Ireland is the leader in market capital,
Comparison of Capital Components of the Four Larger European Countries
71
10 France Financial Capital
Germany Financial Capital
Ireland Financial Capital
8
6
4
2 UK Financial Capital 0 France Financial Capital
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 9.638 9.605 9.579 9.593 9.606 9.614 9.611 9.608 9.608 9.597 9.591 9.595 9.594 9.590
Germany Financial Capital 9.676 9.642 9.615 9.616 9.621 9.627 9.623 9.614 9.608 9.598 9.590 9.607 9.615 9.622 Ireland Financial Capital
9.458 9.487 9.539 9.589 9.664 9.712 9.738 9.772 9.794 9.795 9.803 9.818 9.835 9.790
UK Financial Capital
9.593 9.578 9.563 9.578 9.595 9.605 9.611 9.620 9.639 9.639 9.636 9.645 9.652 9.650
Fig. 5.9 Comparison of financial capital in the four larger European countries
Germany and the United Kingdom occupy the middle positions, with France lagging behind. Analysis of raw data reveals that the decline of market capital in France between 1995 and 2008 was mainly caused by several score changes, including cultural openness (down from 6.04 to 4.44), globalization (down from 6.26 to 2.62), and image of country (down from 6.19 to 4.85). Figure 5.7 indicates that all the countries exhibit an increase in process capital except for the United Kingdom, shifting from around the 50th percentile to the 65th percentile over the 14 years, with Ireland showing the greatest improvement of 14 percentile points, followed by the 11 and 9 percentile points of Germany and France, respectively. Analysis of the raw data reveals that the decline of process capital in the United Kingdom between 1995 and 2008 was mainly caused by several score changes, including government efficiency (down from 3.8 to 2.3), IP rights protection (down from 7.93 to 6.95), and convenience of establishing new firms (down from 8.44 to 5.89). Figure 5.8 indicates a general increase of renewal capital in this cluster (with the exception of France), shifting from the initial range from the 30th to the 55th percentile to around the 40th to the 57th percentile in 2008. Over the 14 years, Ireland exhibited the greatest increase of nearly 13 percentile points, followed by the United Kingdom with an increase of three percentile points. France’s renewal capital decreased around five percentile points; consequently, it ceded its relative position with respect to renewal capital in Fig. 5.8 to the United Kingdom starting from 2005. Meanwhile, Germany remains the renewal capital leader with Ireland as the laggard in this cluster. With a 1–10 rating score to gage financial capital, Fig. 5.9 indicates the overlapping financial capital development for the four countries, with Ireland moving up
72
5 National Intellectual Capital of Four Larger Western European Countries
from the laggard in 1995 to the leader in 2008. In real dollar values of GDP per capita (PPP), over the entire 14-year period France achieved a growth of 61%, Germany 60%, Ireland 141%, and the United Kingdom 80%. In this cluster, Ireland recorded the most outstanding financial achievement for the given period. Generally speaking, Ireland proved to be the best performer in this cluster, having improved rapidly on a larger scale not only in national intellectual capital but also in GDP per capita (PPP) growth over the 14 years. Yet, Ireland has some national performance setback in early 2010, which will be elaborated in Chap. 16, Fig. 16.8. France suffered the greatest decrease in market capital in terms of openness of culture, globalization, and image of country, which reveal several interesting issues for French policy makers to ponder. The relatively slower GDP growth and modest national intellectual capital improvement in Germany should also be further examined.
Three-Period Progression of National Intellectual Capital Development Sections “National Intellectual Capital of Each Individual Country” and “Comparison of Capital Components of the Four Larger European Countries” presented the results of data analysis for a total of 14 years, spanning from 1995 to 2008. However, the results are somewhat limited in nature, with comparisons being focused on the initial year (1995) and the concluding year (2008) for each form of capital in each of the countries. To get a more complete picture of the dynamics of the capital development over the 14 years, we prepared Table 5.2, which assesses the changes of capital rankings in three periods (the first and second periods consist of 5 years and the third period consists of 4 years), viz., 1995–1999 is the first period; 2000–2004 is the second period, and 2005–2008 is the third period. This division of Table 5.2 into periods makes it easier to visualize the development and perhaps even the future trends of the five types of capital for each country. In Table 5.2, we employ the sequence of human capital, market capital, process capital, renewal capital, financial capital, and overall IC. The second column exhibits the overall ranking difference between the first period and the third period. The third column is the ranking of the first period, and the fourth and the fifth columns display respective rankings and differences with regard to the previous period. The last column compares the most recent third period ranking with the overall NICI40 ranking. Over the entire course of the three periods, France shows a ranking decrease in human capital (−3), market capital (−5), renewal capital (−12), financial capital (−4), and overall IC (−2), yet no change in process capital. Germany shows a ranking decrease in human capital (−8), renewal capital (−2), financial capital (−6), and overall IC (−5), yet a ranking increase in market capital (3) and no change in process capital. Ireland shows a ranking increase in human capital (4), process capital (2), financial capital (14), and overall IC (1), yet a ranking decrease in market capital (−1) and no change in renewal capital. The United Kingdom shows a ranking decrease in market capital (−2), process capital (−3), renewal capital (−5), yet a ranking
−3 −8 4 0
−5 3 −1 −2
0 0 2 −3
−12 −2 0 −5
−4 −6
Human capital France Germany Ireland UK
Market capital France Germany Ireland UK
Process capital France Germany Ireland UK
Renewal capital France Germany Ireland UK
Financial capital France Germany
1st to 3rd period Difference (1)
13 10
7 6 20 11
20 15 13 14
32 23 2 20
14 15 20 21
1st period (1995–1999) Ranking
16 15
12 8 20 18
19 16 10 15
37 23 2 24
18 21 15 22
−3 −5
−5 −2 0 −7
1 −1 3 −1
−5 0 0 −4
−4 −6 5 −1
2nd period (2000–2004) Ranking Difference
Table 5.2 Changes in intellectual capital rankings over the three periods
17 16
19 8 20 16
20 15 11 17
37 20 3 22
17 23 16 21
−1 −1
−7 0 0 2
−1 1 −1 −2
0 3 −1 2
1 −2 −1 1
3rd period (2005–2008) Ranking Difference
17 14
10 6 20 17
20 16 11 15
35 23 2 21
15 20 17 21
0 −2 (continued)
−9 −2 0 1
0 1 0 −2
−2 3 −1 −1
−2 −3 1 0
3rd period ranking vs. overall NICI40 ranking NICI40 ranking Difference
Three-Period Progression of National Intellectual Capital Development 73
1st period (1995–1999) Ranking
2nd period (2000–2004) Ranking Difference
3rd period (2005–2008) Ranking Difference
3rd period ranking vs. overall NICI40 ranking NICI40 ranking Difference
Ireland 14 18 5 13 4 1 7 3 UK 3 16 14 2 13 1 15 2 Overall IC France −2 19 20 −1 21 −1 20 −1 Germany −5 10 17 −7 15 2 15 0 Ireland 1 15 13 2 14 −1 13 −1 UK 0 18 18 0 18 0 19 1 Remarks: (1) The second column compares the third period ranking with the first period ranking. (2) The last column compares the most current third period ranking with the original 14-year NICI40 ranking summarized in the abstract
1st to 3rd period Difference (1)
Table 5.2 (continued)
74 5 National Intellectual Capital of Four Larger Western European Countries
General Descriptive Information on the Four Larger European Countries
75
increase in financial capital (3) and no change in both human capital and overall IC. In general, these four relatively large European countries showed a decrease in national intellectual capital over the three periods, with the exception of Ireland. In other words, during the period 1995–1999, the national intellectual capital of these four countries earned them a higher ranking than for the corresponding period in 2005–2008 with respect to all the 40 countries. In addition, in comparing the ranking in terms of overall IC for the most recent third period with that of the 14-year NICI40 ranking reported in the abstract, France declined one rank (from #20 to #21), Germany maintained the same rank (#15), Ireland declined one rank (from #13 to #14), and the United Kingdom advanced one rank (from #19 to #18).
General Descriptive Information on the Four Larger European Countries As stated in Chap. 4, the above sections basically present results based on statistical analyses of IMD secondary data spanning from 1995 to 2008. To complement the quantitative data analyses, this section provides some background information for the four countries that may help explain the results as well as cast further light on their future intellectual capital development. Due to the magnitude of relevant information, this study does not intend nor does it have the resources to present in-depth country backgrounds in abundant detail. As a result, what we are presenting hereunder is a summary of information closely related to intellectual capital and available from public sources, including some objective indicators published by various world organizations (e.g., the Human Development Index by the United Nations), web information from http://en.wikipedia.org/wiki and relevant articles posted on the Internet. Although different indicators cover different dimensions (e.g., the Human Development Index also covers health/life expectancy, and purchasing power; PISA covers only students’ performances) and do not have an equal comparison basis, they nevertheless provide valuable information on individual nations as exhibited in Table 5.3. In addition to the statistics in Table 5.3, which are derived from 16 different sources, we summarize relevant qualitative information for each country with respect to human capital, market capital, process capital, renewal capital, financial capital, and future perspective in that sequence. Ranking under country name is the overall ranking of each specific type of capital reported in the abstract. We also include the observations that incorporate the 14-year data analysis and the relevant current indicators reported in Table 5.3. Inevitably, the summaries presented in Tables 5.4–5.9 are susceptive to imbalances due to information availability; nevertheless, the information provided is meant to show different avenues for observing intellectual capital development. Readers are encouraged to expand their own interpretation from various information sources and different angles. To highlight the future perspective of each country, the last four indicators of Table 5.3 have been provided for readers’ reference – World Competitiveness by the
4. PISA science 3. HDI (#/score) 11 22/495 23 10/516 5 15/508 21 12/515
PISA PISA math. reading (#/score) (#/score) 21/496 18/488 16/504 12/495 17/501 5/517 22/495 14/495
5. Broad band/ population (%) 28.6 27.4 20.4 28.3
HC (#) 15 20 17 21
6. Globaliza tion (#) 25 22 5 42
MC (#) 35 23 2 21
14. Global 10. Mobile 9. Internet 7. Quality telephone 11. R&D 12. Innova 13. World comp. (#/ 15. ESI (#/ 16. EPI of life (#/ 8. e-readiness usership/ score) PC (#) (#/%) tion score RC (#) comp. (#) score) population (%) (#/score) score) (#/score) (#/score) France 15/8.26 22/7.92 67.7 62/93.6 20 14/2.08 0.50 10 28 16/5.13 36/55.2 10/87.8 Germany 10/9.05 14/8.39 67.1 16/129.9 16 11/2.53 0.58 6 13 7/5.37 31/56.9 13/86.3 Ireland 18/8.05 21/8.03 67.3 32/115.3 11 24/1.31 0.53 20 19 25/4.84 21/59.2 34/82.7 UK 20/7.68 8/8.68 79.8 20/123.8 15 17/1.76 0.55 17 21 13/5.19 65/50.2 14/86.3 Remark: “#” means ranking among respective members and the numbers are the most current data available in 2009. Please refer to the Reference section for a list of the sources of these 16 indicators
Table 5.3 National intellectual capital-related indicators and ranking GDP per capita (PPP) 2. Education growth Overall 2008/1995 1. Population expenditures IC (#/%) (%) (000) ranking France 20 61 64,058 14/5.9 Germany 15 60 82,330 40/4 Ireland 13 141 4,203 33/4.4 UK 19 80 61,113 10/6.1
UK HC40#21
Ireland HC40#17
UN Human Development Index (HDI) ranking: #5 out of 179 (2008) Broadband internet subscribers – 20.4% (2009 est.) Labor force – 2.27 million (2008 est.) Unemployment – 11.9% (2009 est.) Education in Ireland is free at all levels, including the tertiary level Birth rates in Ireland are currently more than double the death rates Approximately 10% of Ireland’s population is now made up of foreign citizens Ireland has significant resources including a skilled workforce UN Human Development Index ranking: #21 out of 179 (2008) Broadband internet subscribers – 28.3% (2009 est.) Labor force – 31.2 million (2008 est.) Unemployment – 7.6% (2009 est.) The United Kingdom’s official literacy rate is 99%
Table 5.4 Background information on human capital for larger European countries Country Human capital France UN Human Development Index ranking: #11 out of 179 (2008) HC40#15 Broadband internet subscribers – 28.6% (2009 est.) Labor force – 28.5 million (2008 est.) Unemployment – 9.3% (2009 est.) In 2004, 68.8% of the French population aged 15–64 years was in employment, compared to 80.0% in Japan, 78.9% in the UK, 77.2% in the USA, and 71.0% in Germany Germany UN Human Development Index ranking: #23 out of 179 (2008) HC40#20 Broadband internet subscribers – 27.4% (2009 est.) Labor force – 43.62 million (2008 est.) Unemployment – 8.3% (2009 est.) All courses at the roughly 250 classic universities and universities of applied sciences are free The Nobel Prize has been awarded to 98 German laureates
From Table 5.3, the United Kingdom spent 6.1% GDP on education (the highest in this cluster) and students’ PISA performance ranked 12/22/14 for science, math, and reading out of 57 countries. UK is ranked HC40#21 with a 21 percentile-point improvement over the 14 years, yet without any rank advancement from the 1st to the 3rd period (refer to Table 5.2)
From Table 5.3, Germany spent 4% GDP on education (the lowest in this cluster) and students’ PISA performance ranked 10/16/12 for science, math, and reading out of 57 countries (higher than that of France). Germany is ranked HC40#20 with a 12 percentile-point improvement over the 14 years, yet declined eight ranks from the 1st to the 3rd period (refer to Table 5.2). Germany used to have very good national human capital with many Nobel Prize laureates in the past, yet its human capital has declined comparing to other European countries in recent years From Table 5.3, Ireland spent 4.4% GDP on education and students’ PISA performance ranked 15/17/5 for science, math, and reading out of 57 countries. Ireland is ranked HC40#17 with a 20 percentilepoint improvement over the 14 years and advanced four ranks from the 1st to the 3rd period (refer to Table 5.2). A promising sign of human capital growth in Ireland is the growing population and skilled workforce. In addition, its HDI is far ahead of other countries in this cluster (#5 out of 179 countries)
Observations From Table 5.3, France spent 5.9% GDP on education (the second highest in this cluster), yet students’ PISA performance ranked 22/21/18 for science, math, and reading out of 57 countries (the lowest in this cluster). It is ranked HC40#15 with a 16 percentile-point improvement over the 14 years; yet declined three ranks from the 1st to the 3rd period (refer to Table 5.2). In addition, the unemployment rate of France is higher than that of its neighboring countries
Germany MC40#23
Exports – $1.53 trillion f.o.b. (2008 est.), imports – $1.202 trillion f.o.b. (2008 est.) Germany has close trading ties with the USA. It conducted slightly more than half of its trade within the then 15-member EU (2003 report) In 2004, Germany enjoyed the largest world market share in machine tools (19.3%) Tourism generates about 8% of gross domestic product (GDP) and 2.8 million jobs. Following commerce, tourism is the second largest component of the services sector
Table 5.5 Background information on market capital for larger European countries Country Market capital France Exports – $761 billion f.o.b. (2008 est.), imports – $833 billion f.o.b. MC40# 35 (2008 est.) France is the second-largest trading nation in Western Europe (after Germany). In 2003, France was the 2nd-largest recipient of foreign direct investment among OECD countries and the second most important outward direct investor in the OECD, behind the USA With 79.1 million foreign tourists in 2006, France is ranked as the #1 tourist destination in the world France increased its expenditures on other forms of aid by sending out skilled individuals to developing countries to provide technical and cultural expertise
Observations France is ranked #25 out of 72 countries in the Globalization Index, in spite of its active export and import, tourism and foreign aid activities described in the column at left. It is ranked MC40#35 with a decline of 11 percentile points over the 14 years and declined five ranks from the 1st to the 3rd period (refer to Table 5.2). Furthermore, during the 3rd period 2005–2008, its MC ranking slid to #37 (refer to Table 5.2). This outcome should serve as a serious warning for relevant policy makers. Focus of attention should be centered in the areas of cultural openness, globalization, and image of country (Fig. 5.6) Germany is ranked #22 out of 72 countries in the Globalization Index. It is ranked MC40#23 with a decline of 5 percentile points over the 14 years, yet advanced three ranks from the 1st to the 3rd period (refer to Table 5.2). Despite its strong industries, such as machine tools, its MC is only in the middle range, #23 among the 40 countries
78 5 National Intellectual Capital of Four Larger Western European Countries
United Kingdom MC40#21
Ireland MC40#2
Exports – $128 billion f.o.b. (2008 est.), imports – $91.27 billion f.o.b. (2008 est.) In the 1920s and 1930s, 97% of its trade was with Britain. More recently, serious efforts have been made to attract investment from the USA, West Germany, and Japan Ireland is the largest exporter of software-related goods and services in the world. A significant amount of foreign software, including music, is filtered through the country to take advantage of the state’s non-taxing of royalties from copyrighted goods A policy of tax breaks and other incentives has also attracted international film to Ireland Ireland is the third leading global destination for ICT Outsourcing activities after India and Canada. In addition, it has shifted away from a purely IT infrastructure to a more knowledge-centric, value-added model. Outsourcing and Managed Services accounted for nearly €440 m in Irish Industry in 2006 in an ICT context Exports – $468.7 billion f.o.b. (2008 est.), imports – $645.7 billion f.o.b. (2008 est.) Many multinational companies have chosen to site their European or rest-of-world headquarters in London Tourism is very important to the British economy. With over 27 million tourists a year, the United Kingdom is ranked as the sixth major tourist destination in the world Even though London is an important business center, the United Kingdom’s Globalization Index is ranked an unexpected #42 out of 72 countries (refer to Table 5.3) and it is ranked MC40#21 with a decline of 3 percentile points over the 14 years and declined two ranks from the 1st to the 3rd period (refer to Table 5.2). The exports and imports of UK are about four to seven times that of Ireland only, yet its population is about 14.5 times that of Ireland
Ireland’s Globalization Index is ranked #5 out of 72 countries (refer to Table 5.3) and it is ranked MC40#2 with a decline of 6 percentile points over the 14 years and declined one rank from the 1st to the 3rd period (refer to Table 5.2). From the description in the left column, it is clear that Ireland has transformed itself from its past heavy trade reliance on Britain to an independent market player and from an agricultural focus to value-added services and investment. Its economic development strategy and achievement has set a good model for other countries
General Descriptive Information on the Four Larger European Countries 79
United Kingdom PC40#15
Internet usership – 79.8% of the population (2009 est.). As of January 2005, there were more mobile phones than people in UK Civil and defense aerospace, land and marine equipment, electronics, audio and optical equipment, chemicals and chemical-based products are important elements of the UK’s manufacturing base
Based on Table 5.3, the UK’s quality of life, e-readiness, and mobile telephone subscribers rankings are #20 out of 57, #8 out of 70, and #20 out of 133, respectively. It is ranked PC40#15 with a decline of 4 percentile points over the 14 years and declined three ranks from the 1st to the 3rd period (refer to Table 5.2). From the description in the left column, the UK has a very solid manufacturing base
Table 5.6 Background information on process capital for larger European countries Country Process capital Observations France Internet usership – 67.7% of the population (2009 est.) Based on Table 5.3, France’s rankings for the quality of life, e-readiness, PC40#20 and mobile telephone subscribers are #15 out of 57, #22 out of 70, and France’s railway network is the most extensive in Western #62 out of 133, respectively. It is ranked PC40#20 with a 9 percentileEurope and the nation has approximately 478 airports, point improvement over the 14 years and without any rank change including landing fields from the 1st to the 3rd period (refer to Table 5.2). France has a good France has relied heavily on the development of nuclear transportation infrastructure, yet it relies heavily on nuclear power. The power, which accounts for about 78% of the country’s percentage of mobile telephone subscribers (#62) lags behind that of electricity production Germany and Ireland Germany Internet usership – 67.1% of the population (2009 est.) Based on Table 5.3, the quality of life, e-readiness, and mobile telephone PC40#16 subscribers ranking of Germany is #10 out of 57, #14 out of 70, The largest wind farm capacity in the world is installed in and #16 out of 133, respectively. It is ranked PC40#16 with an Germany, having generated 7% of the country’s total 11 percentile-point improvement over the 14 years and without power in 2007. Germany is the leading producer of any rank change from the 1st to the 3rd period (refer to Table 5.2). wind turbines and solar power technology in the world Germany has a good transportation infrastructure and an enlightened The volume of traffic in Germany, especially goods renewable energy policy transportation, is at a very high level due to its central location in Europe Ireland Internet usership – 67.3% of the population (2009 est.) Based on Table 5.3, Ireland’s rankings for the quality of life, e-readiness, PC40#11 and mobile telephone subscribers are #18 out of 57, #21 out of Construction plays an important role in the Irish economy 70, and #32 out of 133, respectively. It is ranked PC40#11 with a The world’s largest offshore wind farm is currently being 14 percentile-point improvement over the 14 years and advanced two developed off the coast of Ireland ranks from the 1st to the 3rd period (refer to Table 5.2). Its high value The managed service market in Ireland continues to grow, and high quality ICT industry serves as a good foundation for process indicating the increasing success of Ireland’s strategy in capital development attracting high value and high quality ICT jobs
80 5 National Intellectual Capital of Four Larger Western European Countries
United Kingdom RC40#17
Ireland RC40#20
Service sectors account for Ireland’s increasing rate in business R&D and patents Service innovation is frequently built around complementary technologies and added value services Ireland has developed current and future skills requirements that can be applied to the international financial services industry Its European innovation scoreboard ranking was #8 out of 33 with a score of 0.53 in 2008 The creative industries accounted for 7.3% of GVA in 2004 and grew at an average of 5% per annum between 1997 and 2004 The UK’s chemical and pharmaceutical industry boasts the world’s second and sixth largest pharmaceutical firms (GlaxoSmithKline and AstraZeneca, respectively) based in UK Its European innovation scoreboard ranking was #6 out of 33 with a score of 0.55 in 2008
Table 5.7 Background information on renewal capital for larger European countries Country Renewal capital In France, many research institutes are installed inside universities and France RC40#10 jointly operated by the two parties France enjoys a free press and has more than 100 daily newspapers, reflecting a thirst for knowledge among the French population France’s building of Techworld – a new innovation cluster for a healthy, dynamic, and profitable open source software industry – allows the Paris region to renew its industrial base and slow the loss of jobs being shifted to low-cost locations Its European innovation scoreboard ranking was #11 out of 33 with a score of 0.5 in 2008 Germany Government policy emphasizes conservation and the development of RC40#6 renewable energy sources, such as solar, wind, biomass, hydro, and geothermal Its European innovation scoreboard ranking was #4 out of 33 with a score of 0.58 in 2008
UK invested 1.76% of its GDP on R&D (refer to Table 5.3). It is ranked RC40#17 with a 3 percentilepoint improvement over the 14 years; yet declined 5 ranks from the 1st to the 3rd period (refer to Table 5.2). According to the description in the left column, chemical and pharmaceutical industry R&D is strong in UK
Germany invested 2.53% of its GDP on R&D (the highest in this cluster) (refer to Table 5.3). It is ranked RC40#6 (the highest in this cluster), with 1 percentile-point improvement over the 14 years, yet declined two ranks from the 1st to the 3rd period (refer to Table 5.2). Its recent R&D has been focused on renewable energy Ireland invested 1.31% of its GDP on R&D (refer to Table 5.3). It is ranked RC40#20 with a 13 percentilepoint improvement over the 14 years and without any rank change from the 1st to the 3rd period (refer to Table 5.2). As described in the left column, service innovation in its international financial services, among others, has become the driving force of Ireland’s renewal
Observations France invested 2.08% GDP on R&D (refer to Table 5.3). It is ranked RC40#10 with a decline of 5 percentile points over the 14 years and declined 12 ranks from the 1st to the 3rd period (refer to Table 5.2). Although the French have a thirst for knowledge, its renewal capital is declining. The establishment of the open source center of excellence – “Techworld” – has proved to be a good move
General Descriptive Information on the Four Larger European Countries 81
Table 5.8 Background information on financial capital for larger European countries Country Financial capital France FC40#17 GDP per capita (PPP) – US$34,208 (IMF 2009 report) GDP growth averaged 2% between 1994 and 1998, 3% in 2000, 2.4% in 2006, 2.1% in 2007, and 0.7% in 2008 Germany FC40#14 GDP per capita (PPP) – US$35,442 (IMF 2009 report) Germany was the world’s top exporter in 2006 and generated a trade surplus of €165 billion In 2003 services constituted 70% of gross domestic product (GDP), and the sector employed 71.3% of the nation’s workforce GDP growth – 1.3% in 2008, 2.5% in 2007, and 3% in 2006 Ireland FC40#7 GDP per capita (PPP) – US$42,539 (IMF 2009 report) Ireland became the “Celtic Tiger” in the mid-1990s. This was brought about by a surge in inward investment in high end industries in services, and lower taxation levels. From 2002, this was augmented by low interest rates set by the European Central Bank Industry accounts for 46% of GDP, about 80% of exports, and 29% of the labor force Economic growth in Ireland averaged an exceptional 10% from 1995–2000, and 7% from 2001–2004; growth for 2004 was over 4%, 4.7% in 2005, 5.7% in 2006, 6% in 2007, and −1.7% in 2008 United Kingdom FC40#15 GDP per capita (PPP) – $36,523 (IMF 2009 report) UK also has the world’s third largest current account deficit, despite significant oil revenues GDP growth – 0.7% in 2008, 3% in 2007, and 2.8% in 2006 UK was ranked #18 in GDP per capita (PPP) in 2008. Its GDP growth rate (1995 vs. 2008) was 80%
Ireland was ranked #8 in GDP per capita (PPP) in 2008. With $42,539 GDP per capita (PPP) in 2008, its growth rate (1995 vs. 2008) of 141% was the fourth highest among the 40 countries, after China, India, and Russia
Germany was ranked #21 in GDP per capita (PPP) in 2008. Its GDP growth rate (1995 vs. 2008) was 60%
Observations France was ranked #23 in GDP per capita (PPP) in 2008. Its GDP growth rate (1995 vs. 2008) was 61%
82 5 National Intellectual Capital of Four Larger Western European Countries
General Descriptive Information on the Four Larger European Countries
83
Table 5.9 Background information on future perspective for larger European countries Country France IMD World Competitiveness ranking: #28 out of 57 countries (2009) World Economic Forum global competitiveness: #16 out of 133 (2009–2010) Environmental Sustainability Index (ESI): #36 out of 149 (2005, a project-based ranking conducted in 2005) Environmental Performance Index (EPI): #10 out of 149 (2008) GDP (PPP) per hour worked (2007) – 35.09 Germany IMD World Competitiveness ranking: #13 out of 57 countries (2009) World Economic Forum global competitiveness: #7 out of 133 (2009–2010) Environmental Sustainability Index (ESI): #31 out of 149 (2005, a project-based ranking conducted in 2005) Environmental Performance Index (EPI): #13 out of 149 (2008) The government has set the goal of meeting half the country’s energy demands from renewable sources by 2050. In 2000 the government and the German nuclear power industry agreed to phase out all nuclear power plants by 2021 GDP (PPP) per hour worked (2007) – 29.69 Ireland IMD World Competitiveness ranking: #19 out of 57 countries (2009) World Economic Forum global competitiveness: #25 out of 133 (2009–2010) Environmental Sustainability Index (ESI): #21 out of 149 (2005, a project-based ranking conducted in 2005) Environmental Performance Index (EPI): #34 out of 149 (2008) The downturn in residential property market sentiment in the past few years has highlighted the overexposure of the Irish economy to construction, which presents a threat to economic growth. Unfortunately, such worry is indeed reflected in Ireland’s early 2010 financial problem Ireland has suffered significant environmental degradation, including rapid loss of biodiversity and erosion of natural and cultural heritage Several successive years of unbalanced economic growth have also led to a huge inequality among the strata of Irish society Ireland’s position as a leading player in the global outsourcing arena is coming under increasing threat from lower-cost alternatives such as India, Russia, and Eastern European states GDP (PPP) per hour worked (2007) – 30.63 IMD World Competitiveness ranking: #21 out of 57 countries (2009) United Kingdom World Economic Forum global competitiveness: #13 out of 133 (2009–2010) Environmental Sustainability Index (ESI): #65 out of 149 (2005, a project-based ranking conducted in 2005) Environmental Performance Index (EPI): #14 out of 149 (2008) In common with the economies of other English-speaking countries, the UK has higher levels of income inequality than many European countries GDP (PPP) per hour worked (2007) – 31.27
IMD, Global Competitiveness by the World Economic Forum, the Environmental Sustainability Index by Yale University, and the Environmental Performance Index by Yale University. We summarize hereunder some information that may be relevant to the intellectual capital development of each country.
84
5 National Intellectual Capital of Four Larger Western European Countries
Summary In general, the four larger European countries are ranked within the second quarter in the NICI40 – 13th, 15th, 19th, and 20th. As a group, they invest a relatively high percentage of GDP in education, ranging from 4 to 6.1% and they invest a relatively high percentage of GDP in R&D as well, ranging from 1.31 to 2.53%. In addition, with their percentage of GDP in education, their students performed better than their counterparts in the Nordic countries in general. Countries of this cluster used to be the most powerful main players in Europe in earlier times. Yet, their GDP per capita (PPP) and national intellectual capital are only in the middle range among the 40 countries in recent times. Except for Ireland’s #2 ranking in market capital and Germany’s #6 ranking in renewal capital, other capital rankings are not too impressive; especially France’s #35 ranking in market capital is somewhat disappointing with the reputation it enjoys in its renowned fashion industries. France would be expected to have a high market capital score, yet the results show otherwise despite the fact that France is ranked as the #1 tourist destination in the world, is the second-largest trading nation in Western Europe (after Germany), was the world’s fifth-largest exporter and the fourth-largest importer of manufactured goods in 2004 (according to the OECD), was the second-largest recipient of foreign direct investment among OECD countries in 2003, was the second most important outward direct investor in the OECD, behind the USA ($173.8 billion), and ahead of the United Kingdom ($55.3 billion), Japan ($28.8 billion), and Germany ($2.6 billion) in 2003. France also increased its expenditures on foreign aid sending out skilled individuals to developing countries to provide them with technical and cultural expertise. Oddly, France is very active in international trade as described above, yet its market capital is the lowest among these four countries and is ranked in the bottom quarter (MC40#35) among the 40 countries and has dropped to #37 in the most recent period (2005–2008). Raw data analyses reveal that France is particularly weak in cultural openness, globalization, and image of country. This controversy poses a challenging interesting issue for interested parties to pursue. Germany should pay more attention to its human capital, as indicated by its recent lower HC40 and HDI rankings. Ireland lags behind the other three countries in renewal capital, which is in accord with the Innovation Scoreboard report that Ireland has been regarded as an innovation follower (http://en.wikipedia.org/wiki/ European_Innovation_Scoreboard). While the Irish are happy with their remarkable economic progress over the past 14 years, some officials are worried about Ireland’s weakened competitiveness in recent years stemming from “the slowdown in domestic sectors of the economy” (Ireland’s competitiveness by the National Competitiveness Council annual reports press release Nov. 29, 2007). The United Kingdom has shown a decline in its process capital and renewal capital for the most recent period. The UK should pay more attention to this decline, as these two capital components impact its present and future national competitiveness.
Summary
85
In general, market capital is the weakest capital component in this country c luster, except for Ireland. Each country and each cluster has its own distinctive intellectual capital characteristics, which leave ample space for exploration and comparison. For instance, these four larger Western European countries used to be the most affluent and developed countries in terms of people, international relations, infrastructure, and wealth in comparison with the Nordic countries in old times. Yet, they have all been surpassed by the Nordic countries not only in terms of national wealth but also with respect to intangible assets. This book provides relevant information that each country can use to examine its strengths and weaknesses and identify the areas on which it should be focusing as it strives for excellence.
wwwwwwwwww
Chapter 6
National Intellectual Capital of Four Smaller Western European Countries (Austria, Belgium, Netherlands, Switzerland)
Abstract The four relatively small Western European countries are in the top 20 in the National Intellectual Capital Indices for 40 Countries (NICI40). Austria, Belgium, the Netherlands, and Switzerland ranked number 12, 16, 8, and 3, respectively. The Netherlands and Switzerland have a higher level of national intellectual capital than do Austria and Belgium. Switzerland has the overall best score in renewal capital (ranked #1) and the Netherlands is strong in market capital (ranked #3). Both Austria and Belgium ranked relatively higher in financial capital (ranked #8 and #12) than in their overall NICI40 ranking. Austria is relatively weak in renewal capital (ranked #16) and Belgium is relatively weak in market capital and process capital (both ranked #18). National intellectual capital ranking of the four smaller European countries Human capital Mean SD
Market capital
6.99 0.13
6.33 0.45
Process capital
Renewal capital
6.54 0.54
5.62 1.61
Financial capital
Overall IC (NICI40)
9.71 0.06
35.18 2.30
Country
Score Ranking Score Ranking Score Ranking Score Ranking Score Ranking Score Ranking
Austria Belgium Netherlands
6.89 7.01 6.89
12 9 11
6.25 5.86 6.95
13 18 3
6.52 5.79 6.79
13 18 10
4.60 4.66 5.21
16 15 8
9.70 9.64 9.73
8 12 5
33.96 32.97 35.56
12 16 8
Switzerland
7.17
8
6.26
12
7.04
6
7.99
1
9.78
4
38.24
3
Introduction This chapter presents the national intellectual capital of the four relatively small Western European countries, namely Austria, Belgium, the Netherlands, and Switzerland. All 4 countries are among the world’s top 20 wealthiest countries. Based on IMF findings (International Monetary Fund April 2009 data), the GDP
C.Y.-Y. Lin and L. Edvinsson, National Intellectual Capital: A Comparison of 40 Countries, DOI 10.1007/978-1-4419-7377-1_6, © Springer Science+Business Media, LLC 2011
87
88
6 National Intellectual Capital of Four Smaller Western European Countries
per capita (PPP) in US dollars for Switzerland (42,783), the Netherlands (40,431), Austria (39,634), and Belgium (36,235) gave them a ranking of 7, 9, 12, and 19, respectively, in world wealth (http://en.wikipedia.org/wiki/List_of_countries_by_ GDP_%28PPP%29_per_capita). In this country cluster, the world wealth ranking sequence is identical to the national intellectual capital (NICI40) ranking sequence; that is, Switzerland is ranked first, the Netherlands is second, Austria is third, with Belgium taking up the final position. More specifically, the overall NICI40 ranking sequence in descending order is Switzerland (3), the Netherlands (8), Austria (12), and Belgium (16). Since the four relatively small Western European countries have similar geographical strengths and weaknesses, it makes sense to examine them as a cluster. As the smaller Western European countries show a higher degree of national IC and GDP performance than the larger ones (Chap. 5), this chapter provides some answers for the differences in levels of intellectual capital for both the larger and smaller European countries. Table 6.1 shows the results of comparing the five types of capital “within” each country and “between” countries in this cluster. Financial capital ranks first in all four countries and renewal capital ranks fifth in all these countries except for Switzerland (ranked #2). That is, financial capital has the highest score among the five capital components. Human capital, market capital, process capital, and renewal capital are ranked 2, 4, 3, and 5, respectively, for Austria; 2, 3, 4, and 5, respectively, for Belgium; 3, 2, 4, and 5, respectively, for the Netherlands; 3, 5, 4, and 2, respectively, for Switzerland. As for inter-country comparisons, each country has its own strength or weakness. Table 6.1 shows that Switzerland ranked highest in human capital, process capital, renewal capital, and financial capital; the Netherlands ranked highest in market capital and the second highest in process capital, renewal capital, and financial capital; Austria ranked the last in renewal capital; and Belgium ranked the second highest in human capital and is comparatively weak in overall national IC in this cluster.
National Intellectual Capital of Each Individual Country Figures 6.1–6.4 display the characteristics and trends of national intellectual capital in each smaller European country. In Fig. 6.1, Austria has made the greatest increase in renewal capital of about 18 percentile points, followed by an increase in human capital of about 12 percentile points and process capital of about 11 percentile points, in comparing the figures for 1995 and 2008. However, it shows a decrease of about five percentile points in market capital. With respect to financial capital, although the 1–10 rating score showed slight improvement, the real dollar value of its GDP per capita (PPP) increased from US$22,945 in 1995 to US$39,634 in 2008 for a growth rate of 73%. Starting from 2006, Austria’s market capital and process capital have seen a continuous decline. Analysis of the raw data reveals that the decline in market
Ranking
3
1
Within
Between
2
5 1
4 1
2
1
1
Table 6.1 Capital mean ratings and rankings of the four smaller European countries from 1995 to 2008 Intellectual capital Human Market Process Renewal Financial Mean score capital capital capital capital capital Austria Score 6.89 6.25 6.52 4.6 9.7 Ranking Within 2 4 3 5 1 Between 3 3 3 4 3 Belgium Score 7.01 5.86 5.79 4.66 9.64 Ranking Within 2 3 4 5 1 Between 2 4 4 3 4 Netherlands Score 6.89 6.95 6.79 5.21 9.73 Ranking Within 3 2 4 5 1 Between 3 1 2 2 2 Score 7.17 6.26 7.04 7.99 9.78 Switzerland Overall ranking among European countries 3
4
2
1
Overall score 33.96
32.97
35.56
38.24
3
8
16
Overall ranking among 40 countries 12
National Intellectual Capital of Each Individual Country 89
90
6 National Intellectual Capital of Four Smaller Western European Countries Austria Human Capital Austria Market Capital
10
8
6 Austria Process Capital 4 Austria Renewal Capital 2 Austria Financial Capital 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Austria Human Capital
6.204 6.234 6.298 6.777 6.657 6.911 7.157 7.224 7.008 6.953 7.269 7.161 7.182 7.387
Austria Market Capital
6.237 6.086 6.010 6.025 6.081 6.360 6.267 6.100 6.546 6.348 6.761 6.722 6.149 5.764
Austria Process Capital
5.381 5.050 5.336 5.971 6.616 7.077 7.130 6.780 7.146 6.643 7.490 7.382 6.891 6.453
Austria Renewal Capital 3.736 3.978 3.731 4.042 3.991 4.702 4.492 5.072 4.537 4.946 5.081 5.276 5.265 5.535 Austria Financial Capital 9.713 9.692 9.667 9.683 9.700 9.708 9.696 9.699 9.699 9.688 9.690 9.706 9.716 9.725
Fig. 6.1 Trends of intellectual capital in Austria 10 Belgium Human Capital 8 Belgium Market Capital 6 Belgium Process Capital 4 Belgium Renewal Capital 2 Belgium Financial Capital
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Belgium Human Capital
5.657 5.842 5.951 6.599 6.710 7.189 7.301 7.159 7.351 7.416 7.777 7.774 7.622 7.854
Belgium Market Capital
6.482 6.091 5.964 5.889 6.282 5.990 5.789 6.001 5.882 5.551 5.484 5.633 5.553 5.489
Belgium Process Capital
5.010 4.888 5.130 5.666 6.057 6.298 6.183 6.065 5.916 5.902 6.036 6.187 5.923 5.786
Belgium Renewal Capital 4.095 4.340 4.312 4.560 4.536 4.608 4.649 4.854 5.021 5.191 4.721 4.777 4.754 4.860 Belgium Financial Capital 9.666 9.632 9.621 9.618 9.636 9.645 9.635 9.638 9.640 9.637 9.635 9.645 9.646 9.643
Fig. 6.2 Trends of intellectual capital in Belgium
c apital was mainly caused by several score changes between 2005 and 2008, including corporate tax incentives1 (from 7.66 to 5.76), cross-border ventures (from 9.28 to 7.69), cultural openness (from 7.28 to 6.17), globalization (from 1
Please refer to Chap. 3 for the definition of each individual indicator.
National Intellectual Capital of Each Individual Country
91
10 Netherlands Human Capital 8 Netherlands Market Capital 6 Netherlands Process Capital 4 Netherlands Renewal Capital
2
Netherlands Financial Capital
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Netherlands Human Capital
5.883 6.040 5.906 6.518 6.433 7.335 7.706 7.219 7.020 7.166 7.228 7.226 7.364 7.424
Netherlands Market Capital
6.904 7.057 7.247 7.191 7.562 7.275 7.377 6.676 6.588 6.571 6.545 6.885 6.531 6.902
Netherlands Process Capital
5.664 5.733 6.210 6.615 7.414 7.556 7.402 6.849 6.936 6.885 7.133 7.129 6.769 6.732
Netherlands Renewal Capital 4.468 5.218 5.203 5.656 5.586 5.167 5.318 5.151 5.032 5.154 5.141 5.260 5.155 5.399 Netherlands Financial Capital 9.721 9.708 9.700 9.714 9.739 9.741 9.739 9.726 9.721 9.713 9.719 9.736 9.736 9.743
Fig. 6.3 Trends of intellectual capital in the Netherlands
10 Switzerland Human Capital 8 Switzerland Market Capital 6 Switzerland Process Capital 4 Switzerland Renewal Capital Switzerland Financial Capital
2
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Switzerland Human Capital
5.749 6.205 6.584 6.836 6.578 7.505 7.555 7.624 7.596 7.593 7.640 7.632 7.588 7.695
Switzerland Market Capital
5.519 6.086 5.986 6.102 6.292 6.379 6.459 6.292 6.140 6.279 6.356 6.652 6.665 6.392
Switzerland Process Capital
5.736 6.216 6.381 6.611 7.225 7.548 7.701 7.528 6.967 7.176 7.357 7.719 7.165 7.218
Switzerland Renewal Capital 7.158 8.393 7.920 8.478 8.409 8.023 8.313 8.070 7.965 7.832 7.720 8.356 7.612 7.624 Switzerland Financial Capital 9.844 9.805 9.779 9.783 9.777 9.783 9.777 9.771 9.763 9.760 9.758 9.775 9.788 9.795
Fig. 6.4 Trends of intellectual capital in Switzerland
6.19 to 5.48), and government policy transparency (from 6.83 to 4.98). Similarly, the raw data reveal that the decline in process capital was mainly caused by the score changes between 2005 and 2008, including those for government efficiency (from 5.02 to 3.55), capital availability (from 7.28 to 4.81), convenience of estab-
92
6 National Intellectual Capital of Four Smaller Western European Countries
lishing new firms (from 7.54 to 5.90), and mobile subscribers (from 8.98 to 7.74). Austria should pay more attention to its sliding market capital and process capital to enhance its competitiveness. Figure 6.2 indicates that Belgium has made the most progress in human capital with an increase of about 22 percentile points, followed by an increase in both process capital and renewal capital of about eight percentile points, in comparing the figures for 1995 and 2008. Yet, market capital shows a decrease of about ten percentile points over the 14 years. With respect to financial capital, although the 1–10 rating score showed a slight decrease, the real dollar value of GDP per capita (PPP) increased from US$21,868 in 1995 to US$36,235 in 2008 for a growth rate of 66%. Analysis of the raw data reveals that the decline in market capital was mainly caused by several score changes between 1995 and 2008, including cultural openness (from 8.42 to 6.77), globalization (from 7.19 to 5.85), government policy transparency (from 4.23 to 3.32), and image of country (from 6.23 to 4.94). To enhance competitiveness, Belgium should focus on renewal capital and market capital, the areas in which it scored lowest. Figure 6.3 indicates that the Netherlands has made the most progress in human capital with an increase of about 15 percentile points, followed by an increase in process capital of about 11 percentile points and in renewal capital of nine percentile points, in comparing the figures for 1995 and 2008. For market capital and financial capital, there is not much change. Yet, the real dollar value of the GDP per capita (PPP) of the Netherlands increased from US$23,135 in 1995 to US$40,431 in 2008 for a growth rate of 75%. The Netherlands has a relatively balanced development of human capital, market capital, and process capital with the gap separating them diminishing from year 2000 onward. For process capital between 2006 and 2008, the raw data reveal that the continuous decline was mainly caused by score changes for government efficiency (from 3.94 to 3.56), capital availability (from 6.89 to 5.12), and convenience of establishing new firms (from 6.31 to 5.90). For further improvement and to enhance competitiveness, the lowest score renewal capital and the declining process capital are the areas on which the Netherlands should focus. Figure 6.4 indicates that Switzerland has made the most progress in human capital with an increase of about 19 percentile points, followed by an increase in process capital of about 15 percentile points, in market capital of about nine percentile points, and in renewal capital of about five percentile points, as compared to the figures for 1995 and 2008. For the 1–10 scaled financial capital, there is not much change. Yet, the real dollar value of GDP per capita (PPP) of Switzerland increased from US$26,272 in 1995 to US$42,783 in 2008 for a growth rate of 63%. Since Switzerland is already high in national intellectual capital and GDP performance, the main issue of concern is how Switzerland can sustain its competitiveness and not be overtaken by other countries in the future. In general, the intellectual capital of the smaller European countries has been on the rise over the 14 years. As shown in Figs. 6.1–6.4, Austria and the Netherlands reveal a similar development pattern in human capital, market capital, and process
Comparison of Capital Components of the Four Smaller European Countries
93
capital, clustering between the 60th and 80th percentiles starting from 1999. However, at the initial stage, Austria lagged somewhat behind the Netherlands in renewal capital. Belgium’s market capital and process capital are still lingering around the 60th percentile, yet it shows a clear upward trend in human capital. Switzerland has the most distinctive pattern of development with its renewal capital having the highest score among the four capital components (with the exception of financial capital).
Comparison of Capital Components of the Four Smaller European Countries Figures 6.5–6.9 allow for a further comparison of the five types of capital among the four smaller European countries. Figure 6.5 shows a narrow gap between the countries, meaning that human capital in this cluster seems to develop as a group with a similar level of human capital over the years, moving upwards from around the 60th percentile at the initial stage to the 75th percentile in 2008. From year 2005, Belgium and Switzerland as a subgroup are the two better-performing countries in human capital, followed by Austria and the Netherlands with a few percentile points difference. Figure 6.6 indicates that there is comparatively little variation in market capital over the years as a whole. From 1995 to 2002, the Netherlands is the apparent leader
10 Austria Human Capital 8
Belgium Human Capital
Netherlands Human Capital
6
4
2 Switzerland Human Capital 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Austria Human Capital
6.204 6.234 6.298 6.777 6.657 6.911 7.157 7.224 7.008 6.953 7.269 7.161 7.182 7.387
Belgium Human Capital
5.657 5.842 5.951 6.599 6.710 7.189 7.301 7.159 7.351 7.416 7.777 7.774 7.622 7.854
Netherlands Human Capital 5.883 6.040 5.906 6.518 6.433 7.335 7.706 7.219 7.020 7.166 7.228 7.226 7.364 7.424 Switzerland Human Capital 5.749 6.205 6.584 6.836 6.578 7.505 7.555 7.624 7.596 7.593 7.640 7.632 7.588 7.695
Fig. 6.5 Comparison of human capital in the four smaller European countries
94
6 National Intellectual Capital of Four Smaller Western European Countries 10 Austria Market Capital 8
Belgium Market Capital
Netherlands Market Capital
6
4
2 Switzerland Market Capital 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Austria Market Capital
6.237 6.086 6.010 6.025 6.081 6.360 6.267 6.100 6.546 6.348 6.761 6.722 6.149 5.764
Belgium Market Capital
6.482 6.091 5.964 5.889 6.282 5.990 5.789 6.001 5.882 5.551 5.484 5.633 5.553 5.489
Netherlands Market Capital 6.904 7.057 7.247 7.191 7.562 7.275 7.377 6.676 6.588 6.571 6.545 6.885 6.531 6.902 Switzerland Market Capital 5.519 6.086 5.986 6.102 6.292 6.379 6.459 6.292 6.140 6.279 6.356 6.652 6.665 6.392
Fig. 6.6 Comparison of market capital in the four smaller European countries
10 Austria Process Capital 8
Belgium Process Capital
Netherlands Process Capital
6
4
2 Switzerland Process Capital 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Austria Process Capital
5.381 5.050 5.336 5.971 6.616 7.077 7.130 6.780 7.146 6.643 7.490 7.382 6.891 6.453
Belgium Process Capital
5.010 4.888 5.130 5.666 6.057 6.298 6.183 6.065 5.916 5.902 6.036 6.187 5.923 5.786
Netherlands Process Capital 5.664 5.733 6.210 6.615 7.414 7.556 7.402 6.849 6.936 6.885 7.133 7.129 6.769 6.732 Switzerland Process Capital 5.736 6.216 6.381 6.611 7.225 7.548 7.701 7.528 6.967 7.176 7.357 7.719 7.165 7.218
Fig. 6.7 Comparison of process capital in the four smaller European countries
in this cluster, yet Austria and Switzerland began gradually catching up starting from 2003. As indicated in Fig. 6.1, Austria underwent a clear decline in market capital from 2006 to 2008 with respect to cultural openness, globalization, government policy transparency, and image of country. Belgium also shows a decline in market capital and has been increasingly apart from the other countries from 2003.
Comparison of Capital Components of the Four Smaller European Countries
95
10 Austria Renewal Capital 8
Belgium Renewal Capital
Netherlands Renewal Capital
6
4
2 Switzerland Renewal Capital 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Austria Renewal Capital
3.736 3.978 3.731 4.042 3.991 4.702 4.492 5.072 4.537 4.946 5.081 5.276 5.265 5.535
Belgium Renewal Capital
4.095 4.340 4.312 4.560 4.536 4.608 4.649 4.854 5.021 5.191 4.721 4.777 4.754 4.860
Netherlands Renewal Capital 4.468 5.218 5.203 5.656 5.586 5.167 5.318 5.151 5.032 5.154 5.141 5.260 5.155 5.399 Switzerland Renewal Capital 7.158 8.393 7.920 8.478 8.409 8.023 8.313 8.070 7.965 7.832 7.720 8.356 7.612 7.624
Fig. 6.8 Comparison of renewal capital in the four smaller European countries 10 Austria Financial Capital 8
Belgium Financial Capital
Netherlands Financial Capital
6
4
2 Switzerland Financial Capital 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Austria Financial Capital
9.713 9.692 9.667 9.683 9.700 9.708 9.696 9.699 9.699 9.688 9.690 9.706 9.716 9.725
Belgium Financial Capital
9.666 9.632 9.621 9.618 9.636 9.645 9.635 9.638 9.640 9.637 9.635 9.645 9.646 9.643
Netherlands Financial Capital 9.721 9.708 9.700 9.714 9.739 9.741 9.739 9.726 9.721 9.713 9.719 9.736 9.736 9.743 Switzerland Financial Capital 9.844 9.805 9.779 9.783 9.777 9.783 9.777 9.771 9.763 9.760 9.758 9.775 9.788 9.795
Fig. 6.9 Comparison of financial capital in the four smaller European countries
Figure 6.7 indicates that the process capital development of these four countries has more variation than that of human capital and market capital, having moved from the initial 50th–60th percentile to the 60th–70th percentile in 2008. Yet, the development pattern is similar. That is, after an initial gradual increase up to year 1999, the lines have become relatively flat despite a few ups and downs. However, Belgium’s process capital has grown more slowly and is separated by an increasingly
96
6 National Intellectual Capital of Four Smaller Western European Countries
large gap from the other countries. Interestingly, the countries’ relative positions in this cluster has not changed over the years; that is, Switzerland was at the top and Belgium at the bottom for both the initial stage and in 2008. Figure 6.8 shows that Switzerland is consistently the top renewal capital performer, while the performance of the other three countries moves from around the 40th percentile to around the 50th percentile with a diminishing gap starting from 2000. Being the poorest renewal capital performer at the initial stage, Austria has surpassed both the Netherlands and Belgium in 2008. Figure 6.9 shows the graphic overlap in financial capital for the four countries. Yet, in real dollar values of GDP per capita (PPP), over the 14 years, Austria achieved 73% growth, Belgium 66% growth, the Netherlands 75% growth, and Switzerland 63% growth. It is understandable that the growth rate of these countries is not overly impressive, as they are already well-advanced countries. The above analyses reveal some interesting phenomena, including why and how Switzerland has been able to sustain both its high national intellectual capital and GDP over the years, why and how the Netherlands surpassed its neighbor, Belgium, in both intangible and tangible assets even though they share some common characteristics, such as geographical location and size.
Three-Period Progression of National Intellectual Capital Development As stated in the previous chapters, sections “National Intellectual Capital of Each Individual Country” and “Comparison of Capital Components of the Four Smaller European Countries” presented the results of data analysis for a total of 14 years, spanning from 1995 to 2008. However, the results are somewhat limited in nature, with comparisons focusing on the initial year (1995) and the concluding year (2008) for each form of capital in each country. To get a more complete picture of the dynamics of the four nations’ capital development over the 14 years, we prepared Table 6.2, which assesses the changes of capital rankings in three periods (the first and second periods consist of 5 years and the third period consists of 4 years), viz., 1995–1999 comprise the years of the first period, 2000–2004 of the second period, and 2005–2008 of the third period. This division of Table 6.2 into periods makes it easier to visualize the development and perhaps even the future trends of the five types of capital for each country. We employ the sequence of human capital, market capital, process capital, renewal capital, financial capital, and overall IC. The second column in Table 6.2 exhibits the overall ranking difference between the first period and the third period. The third column is the ranking of the first period, and the fourth and the fifth columns display respective rankings and differences with regard to the previous period. The last column compares the most recent third period ranking with the overall NICI40 ranking.
8 −1 2 6
8 −4 −4 −2
Process capital Austria Belgium Netherlands Switzerland
Renewal capital Austria Belgium Netherlands Switzerland
19 13 8 1
16 17 12 9 14 11 9 2
11 17 9 5 5 2 −1 −1
5 0 3 4
4 −5 0 8
5 −6 −2 12
Market capital Austria Belgium Netherlands Switzerland
11 17 12 3
8 18 10 3
9 19 5 7
−4 1 1 2
10 18 3 11
13 6 11 9
Difference
14 13 3 19
3rd period (2005–2008) Ranking
Table 6.2 Changes in intellectual capital rankings over the three periods 1st to 3rd 1st period 2nd period period (1995–1999) (2000–2004) Difference (1) Ranking Ranking Human capital Austria −4 9 13 Belgium 7 13 12 Netherlands 1 12 11 Switzerland 1 10 8
3 −6 −3 −1
3 −1 −1 2
1 −1 −2 4
0 6 0 −1
Difference
16 15 8 1
13 18 10 6
13 18 3 12
12 9 11 8
(continued)
5 −2 −4 −2
5 0 0 3
4 −1 −2 5
−1 3 0 −1
3rd period ranking vs. overall NICI40 ranking NICI40 ranking Difference
Three-Period Progression of National Intellectual Capital Development 97
7 11 5 3
Financial capital Austria Belgium Netherlands Switzerland 8 12 6 4
2nd period (2000–2004) Ranking −1 −1 −1 −1
Difference 9 14 6 5
3rd period (2005–2008) Ranking −1 −2 0 −1
Difference
8 12 5 4
−1 −2 −1 −1
3rd period ranking vs. overall NICI40 ranking NICI40 ranking Difference
Overall IC Austria 6 16 12 4 10 2 12 2 Belgium 0 17 15 2 17 −2 16 −1 Netherlands −2 7 8 −1 9 −1 8 −1 Switzerland 1 4 3 1 3 0 3 0 Remarks: (1) The second column compares the 3rd period ranking with the 1st period ranking. (2) The last column compares the most current 3rd period ranking with the original 14-year NICI40 ranking summarized in the abstract
−2 −3 −1 −2
1st period (1995–1999) Ranking
Table 6.2 (continued) 1st to 3rd period Difference (1)
98 6 National Intellectual Capital of Four Smaller Western European Countries
General Descriptive Information on the Four Smaller European Countries
99
Over the entire course of the three periods, Austria increased its ranking in market capital (5), process capital (8), renewal capital (8), and overall IC (6) but decreased in human capital (−4) and financial capital (−2). Belgium increased in human capital (7) and showed no change in overall IC (0), yet it decreased in market capital (−6), process capital (−1), renewal capital (−4), and financial capital (−3). The Netherlands increased in human capital (1) and process capital (2), yet it decreased in market capital (−2), renewal capital (−4), financial capital (−1) and overall IC (−2). Switzerland increased in human capital (1), market capital (12), process capital (6) and overall IC (1), yet it decreased in both renewal capital (−2) and financial capital (−2). Furthermore, in comparing the ranking of the most recent third period with the 14-year NICI40 ranking reported in the abstract, Austria advanced two ranks (from #12 to #10), Belgium declined one rank (from #16 to #17), the Netherlands declined one rank (from #8 to #9), and Switzerland showed no change (#3).
General Descriptive Information on the Four Smaller European Countries As stated in the previous chapters, the above sections basically present results based on statistical analyses of IMD secondary data spanning from 1995 to 2008. To complement the quantitative data analyses, this section provides some background information for each country that may help explain the results of this study as well as shed further light on their future intellectual capital development. Due to the magnitude of relevant information, this study does not intend nor does it have the resources to present in-depth country backgrounds in abundant detail. As a result, what we are presenting hereunder is a summary of information closely related to intellectual capital and available from public sources, including several objective indicators published by various world organizations (e.g., the United Nations’ Human Development Index), web information from http://en. wikipedia.org/wiki and relevant articles posted on the Internet. Although different indicators cover different dimensions (e.g., the Human Development Index also covers health/life expectancy, and purchasing power; PISA covers only students’ performances) and do not have an equal comparison basis, they still provide valuable information on individual nations as exhibited in Table 6.3. In addition to presenting the statistics in Table 6.3 derived from 16 different sources, we summarize relevant information for each country in the sequence of human capital, market capital, process capital, renewal capital, financial capital, and future perspective. Ranking under country name is the overall ranking of each respective capital in the abstract. We also include the observations that incorporate the 14-year data analysis and the relevant current indicators reported in Table 6.3. Inevitably, the summaries presented in Tables 6.4–6.9 are susceptive to subjectivity due to information availability; nevertheless, the information provided is meant to show different avenues for observing intellectual capital development. Readers are encouraged to expand their own interpretation from various information sources and different angles.
4. PISA science 3. HDI (#/score) 14 12/511 17 14/510 6 6/525 10 13/512
PISA PISA math. reading (#/score) (#/score) 15/505 15/490 8/520 10/501 5/531 8/507 5/530 11/499
5. Broad band/ population (%) 21.4 28.3 35 33 HC (#) 12 9 11 8
6. Globaliza tion (#) 14 15 3 4
MC (#) 13 18 3 12
13. World 14. Global 9. Internet competi competi 10. Mobile usership/ 7. Quality tiveness 15. ESI tiveness telephone 11. R&D 12. Innova RC of life 8. e-readiness population 16. EPI (#/score) (#/score) (#) (#/score) PC (#) (#/%) tion score (#) (%) (#/score) (#/score) (#/score) Austria 2/9.57 10/8.63 68.2 18/128.9 13 9/2.56 0.53 16 16 17/5.13 10/62.7 6/89.4 Belgium 13/8.79 20/8.04 67.3 36/112.8 18 16/1.87 0.51 15 22 18/5.09 112/44.4 57/78.4 Netherlands 11/8.94 7/8.74 85.4 27/121.1 10 18/1.7 0.48 8 10 10/5.32 40/53.7 55/78.7 Switzerland 1/9.7 9/8.67 75.8 30/116.9 6 6/2.9 0.68 1 4 1/5.6 7/63.7 1/95.5 “#” Refers to ranking among respective members and the numbers are the most current data available in 2009. Please refer to the reference section for a list of the sources of these 16 indicators
Table 6.3 National intellectual capital-related indicators and ranking GDP per capita (PPP) 2. Education growth Overall 2008/1995 1. Population expenditure IC (#/%) (%) (000) ranking Austria 12 73 8,210 12/5.9 Belgium 16 66 10,414 11/6 Netherlands 8 75 16,716 25/5.1 Switzerland 3 63 7,604 19/5.4
Belgium HC40#9
students enrolled in universities rose from 23% to 44% UN Human Development Index ranking: #17 out From Table 6.3, Belgium spent 6% of its GDP (the second highest in this cluster) of 179 (2008) on education and students’ PISA performance ranked 14/8/10 for science, math, and reading, respectively, out of 57 countries. Belgium is ranked Broadband internet subscribers – 28.3% (2009 est.) HC40#9 with a 22 percentile-point improvement over the 14 years Labor force – 4.99 million (2008 est.) and advanced seven ranks from the first to the third period (refer to Table 6.2). Unemployment – 8.2% (2009 est.), 6.5% in 2008, Belgium’s high-quality education system has supported the achievement of the 8.2% in 2006, and 8.4% in 2005 third highest productivity per hour worked and the lowest rate of absenteeism Foreign companies in Belgium account for in the EU approximately 11% of the total work force Belgium is ranked third for productivity per hour worked and Belgian workers also have the lowest rate of absenteeism in the EU From Table 6.3, the Netherlands spent 5.1% of its GDP on education and students’ Netherlands UN Human Development Index ranking: #6 out HC40#11 of 179 (2008) PISA performance ranked 6/5/8 for science, math, and reading, respectively, out of 57 countries, better than Belgium’s. The Netherlands is ranked HC40#11 Broadband internet subscribers – 35% (2009 est.) with a 15 percentile-point improvement over the 14 years and advanced one Labor force – 7.75 million (2008 est.) rank from the first to the third period (refer to Table 6.2). Unemployment – 3.3% (2009 est.) The Netherlands has the lowest unemployment rate in the EU From Table 6.3, Switzerland spent 5.4% of its GDP on education and students’ Switzerland UN Human Development Index ranking: #10 out of 179 (2008) PISA performance ranked 13/5/11 for science, math, and reading, respectively, HC40#8 out of 57 countries, also better than Belgium’s. Switzerland is ranked HC40#8 Broadband internet subscribers – 33% (2009 est.) with a 19 percentile-point improvement over the 14 years and advanced one Labor force – 4.04 million (2008 est.) rank from the first to the third period in human capital (refer to Table 6.2). Unemployment – 3.6% (2009 est.) Switzerland has the second highest number of foreign students and a good Higher education and training are rapidly growing in education system importance as engines of productivity growth
Table 6.4 Background information on human capital for the smaller Western European countries Country Human capital Observations UN Human Development Index ranking: #14 out From Table 6.3, Austria spent 5.9% of its GDP on education and students’ PISA Austria HC40#12 of 179 (2008) performance ranked 12/15/15 for science, math, and reading, respectively, out of 57 countries. Austria is ranked HC40#12 with a 12 percentile-point Broadband internet subscribers – 21.4% (2009 est.) improvement over the 14 years, yet declined four ranks from the first to the Labor force – 3.49 million (2008 est.) third period (refer to Table 6.2). A good human capital indicator is that female Unemployment – 4.3% (2009 est.) student enrollment in universities is increasing Between year 1960 and 1992, the number of female
General Descriptive Information on the Four Smaller European Countries 101
Table 6.5 Background information on market capital for the smaller Western European countries Country Market capital Observations Austria Exports $163.3 billion f.o.b. (2008 est.), imports $183.4 Austria is ranked #14 in the Globalization Index (GL). MC40#13 billion f.o.b. (2008 est.) It is ranked MC40#13 with a decline of five percentile points over the 14 years, yet it advanced five ranks from the first to the third period Tourism accounts for around 10% of Austria’s GDP (refer to Table 6.2). Austria is highly integrated in the EU system Trade with other EU countries accounts for almost 66% of Austrian imports and exports Viennese law firms and banks are among the leading corporations in business with the new EU member states Belgium Exports $372.9 billion f.o.b. (2008 est.), imports $375.2 Belgium is ranked #15 in the Globalization Index (GL) and ranked MC40#18 billion f.o.b. (2008 est.) MC40#18 with a decrease of ten percentile points over the 14 years and declined six ranks from the first to the third period (refer to Belgium’s average value of export and import of GDP equates Table 6.2). From the descriptions in the left column, Belgium should to almost 83% and ranked tenth for international trade in have good market capital; however, the statistics show otherwise. goods. Belgium also holds first place for the percentage of As described in Fig. 6.2, Belgium decreased in cultural openness, GDP accounted for by foreign direct investment (FDI) globalization, government policy transparency, and image of country North Belgium (Flanders) attracts diversified investments over the 14 years, while other countries are catching up with respect from multinationals. South Belgium (Wallonia) attracts to market capital FDI in high technology sectors such as Aircraft R&D, electronics and biomedical research The tourist industry generates 2.8% of Belgium’s GDP and employs 3.3% of the working population (142,000 people) Exports – $537.5 billion f.o.b. (2008 est.), imports $485.3 The Netherlands is ranked #3 in the Globalization Index (GL) and Netherlands MC40#3 billion f.o.b. (2008 est.) also ranked MC40#3 with no score change over the 14 years, yet it declined two ranks from the first to the third period (refer to The Netherlands derives more than two-thirds of its GDP Table 6.2). The Netherlands is very aggressive in expanding its from merchandise trade and has strongly positive balance international trade and has been able to attract foreign investments, of payments (2005 estimated at €31.5 billion) especially from Asia recently In 2006, the Netherlands attracted 113 investment projects from foreign businesses. Together they accounted for 2,425 jobs and 357 M Euro in investments. More than 50% of the investment projects launched in 2006 were from Asian companies, in 2005 that figure was less than 40%
102 6 National Intellectual Capital of Four Smaller Western European Countries
Switzerland MC40#12
Exports – $172.7 billion f.o.b. (2008 est.), imports – $212.8 billion f.o.b. (2008 est.) Switzerland has a long history of neutrality (from 1815) and hosts many international organizations. It is home to several large multinational corporations In 2006, Switzerland approved a billion francs supportive investment in the poorer eastern European countries in support of cooperation and positive ties for the EU as a whole The Swiss legal system is highly developed, commercial law is well defined, and solid laws and policies protect investments Trade has been the key to prosperity in Switzerland, with 62% of Swiss exports destined for the EU market
Switzerland is ranked #4 in the Globalization Index (GL) and ranked MC40#12 with a nine percentile-point improvement over the 14 years and advanced 12 ranks from the first to the third period (refer to Table 6.2). Neutrality, liberal trading, and its well-developed legal systems are the keys to prosperity in Switzerland. In addition, although Switzerland is not an EU member, it has made efforts to integrate itself into the community through measures such as investing in poorer European countries
General Descriptive Information on the Four Smaller European Countries 103
Belgium PC40#18
Internet usership – 67.3% of the population (2009 est.) Belgium was the first country in Europe to create a railway system and it quickly built it up into the densest network in the world. Transport on its waterways has also been optimized Communications in Belgium are extensive and advanced. Belgium has five submarine cables and a number of satellite earth stations Small and medium enterprises (SME) account for over 70% of its GDP. Belgian SMEs have turned out to be particularly good niche companies which are often market leaders in their own sectors
Based on Table 6.3, the rankings for the quality of life, e-readiness, and mobile telephone subscribers of Belgium are #13 out of 57, #20 out of 70, and #36 out of 133, respectively (the lowest in this cluster). It is ranked PC40#18 with an eight percentile-point improvement over the 14 years, yet it declined four ranks from the first to the third period (refer to Table 6.2). Belgium has a very good transportation infrastructure and its SMEs are key drivers of its economic development
Table 6.6 Background information on process capital for the smaller Western European countries Country Process capital Observations Based on Table 6.3, Austria’s rankings for quality of life, Austria Internet usership – 68.2% of the population (2009 est.) e-readiness, and mobile telephone subscribers are #2 out PC40#13 The electricity supplied from renewable energy sources (such as wind, of 57, #10 out of 70, and #18 out of 133, respectively. Its solar, and biomass power) amounts to nearly 80% of total use in high #2 quality-of-life ranking means its citizens have been Austria satisfied with the overall national environment. Austria is During the 1970s, the government placed new emphasis on centralized ranked PC40 #13 with an 11 percentile-point improvement economic planning, including the selective promotion of private over the 14 years and advanced eight ranks from the first to sector investment, coordinated expansion of the energy sector and the third period (refer to Table 6.2). state-owned industry, and assistance for the structural improvement of agriculture Notably, nearly 80% of the electricity supply in Austria is In 1996, the post and telecommunications monopoly was privatized from renewable energy sources. In addition, its centralized and taken over by foreign and especially German companies economic planning facilitates Austria’s national IC The agricultural sector has gone through substantial reform through development and economic growth the European Union’s (EU’s) common agricultural policy
104 6 National Intellectual Capital of Four Smaller Western European Countries
Switzerland PC40#8
Netherlands PC40#10
Internet usership – 85.4% of the population (2009 est.) Privatization and deregulation are ongoing processes The Netherlands is presently the second greatest natural gas producer in the European Union and the ninth greatest in the world, accounting for more than 30% of EU’s total annual gas production and about 2.7% of the annual world output The Netherlands has an extensive and much-used railway network, which connects virtually all cities and many towns with each other Internet usership – 75.8% of the population (2009 est.) Electricity generated in Switzerland is 42% from nuclear, 53% from hydroelectricity, 5% from conventional power sources Switzerland is heavily active in recycling and is one of the top recyclers in the world Business activity benefits from a well-developed institutional framework, characterized by the rule of law, an efficient judicial system, and high levels of transparency and accountability within public institutions Switzerland’s machinery, metals, electronics, and chemicals sectors are world-renowned for precision and quality. Together they account for well over half of Swiss export revenues Based on Table 6.3, the rankings for quality of life, e-readiness, and mobile telephone subscribers ranking of Switzerland are #1 out of 57, #9 out of 70, and #30 out of 133, respectively. It is ranked PC40#8 with a 15 percentile-point improvement over the 14 years and advanced six ranks from the first to the third period (refer to Table 6.2). Switzerland has created a good environment that is conducive to business growth, such as an efficient judicial system, and high levels of transparency and accountability within public institutions
Based on Table 6.3, the rankings for quality of life, e-readiness, and mobile telephone subscribers of the Netherlands are #11 out of 57, #7 out of 70, and #27 out of 133, respectively. It is ranked PC40#10 with an 11 percentile-point improvement over the 14 years and advanced two ranks from the first to the third period (refer to Table 6.2). The Netherlands has very good transportation infrastructure and energy supply that facilitate its economic development
General Descriptive Information on the Four Smaller European Countries 105
Table 6.7 Background information on renewal capital for the smaller Western European countries Country Renewal capital Observations Austria Starting in medieval times, Austria has always focused on medicine Austria invested 2.56% of its GDP in R&D (2009 IMD Yearbook). RC40#16 The Institute of Science and Technology Austria (I.S.T. Austria) is an It is ranked RC40 #16 with an 18 percentile-point improvement over the 14 years and advanced eight ranks from the first to the institute of basic research located close to Vienna. According to its third period (refer to Table 6.2). Austria is the only country that development plan, 40–50 research groups with approximately 500 posted increases for renewal capital over the three time periods scientists should be working on the campus by the year 2016. The in this cluster. The establishment of I.S.T. Austria shows the language at the institute is English. Its independence from bureaucracy government’s determination in advancing R&D and renewal and politics – guaranteed by legislation – is a milestone for Austria European innovation scoreboard ranking – #7 out of 33 (2008). It scored 0.53 in 2008 Belgium The Northern Flemish economy has a higher private spending in R&D Belgium invested 1.87% of its GDP in R&D. It is ranked RC40 #15 RC40#15 Belgium has 929 scientific publications per million inhabitants on with an eight percentile-point improvement over the 14 years; yet declined four ranks from the first to the third period (refer average per year, compared to 550 in Japan and 775 in the USA to Table 6.2). Belgium has a good R&D environment with The proportion accounted for by the ICT sector in the Belgian productive researchers and a rising ICT sector economy rose from 3.35% in 1995 to 4.27% in 2004. During this period, the sector accounted for 19.5% of the increase in GDP and provides 20% of total R&D efforts European innovation scoreboard ranking – #10 out of 33 (2008). It scored 0.51 in 2008 The Netherlands invested 1.7% of its GDP in R&D. It is ranked Netherlands Nearly 9% of the foreign investment projects launched in the RC40#8 with a nine percentile-point improvement over the RC40#8 Netherlands in 2007 were R&D projects. One of the spearheads of 14 years; yet declined four ranks from the first to the third period the acquisitions strategy drawn up in August 2006 was to attract (refer to Table 6.2). The Netherlands is determined to improve its foreign R&D in boosting innovation in the Netherlands R&D and innovation by utilizing external resources European innovation scoreboard ranking – #12 out of 33 (2008). It scored 0.48 in 2008 Switzerland invested 2.9% of its GDP in R&D and was ranked first Switzerland Its high level of technological innovation boosts Switzerland’s competitiveness in the global economy on the European Innovation Scoreboard. It is also ranked RC40#1 RC40#1 with a five percentile-point improvement over the 14 years; yet European innovation scoreboard ranking – #1 out of 33. declined two ranks from the first to the third period (refer to It scored 0.68 in 2008 Table 6.2). A high level of technological innovation has contributed to Switzerland’s competitiveness in the global economy
106 6 National Intellectual Capital of Four Smaller Western European Countries
Table 6.8 Background information on financial capital for the smaller Western European countries Country Financial capital Austria GDP per capita (PPP) – US $39,634 (IMF 2009 report) FC40#8 Following moderate GDP growth of 1.7, 2, and 1.2%, respectively, in 1995, 1996, and 1997, Austria’s economy rebounded with real GDP expansion of 1.6% in 2008, 3.1% in 2007, and 3.4% in 2006 Belgium GDP per capita (PPP) – US $36,235 (IMF 2009 report) FC40#12 Belgian SMEs are the most profitable in the EU. Belgium is also the only European country where the profitability of SMEs is considerably higher than that of large companies GDP growth – 1.3% in 2008, 2.6% in 2007, 3% in 2006, and 1.5% in 2005 Netherlands GDP per capita (PPP) – US $40,431 (IMF 2009 report) FC40#5 Between 1998 and 2000 annual economic growth (GDP) averaged nearly 4%, well above the European average. Growth slowed considerably in 2001–2005 due to the global economic slowdown but increased to 4.1% in the third quarter of 2007 GDP growth – 1.8% in 2008, 3.5% in 2007 and 3.4% in 2006 GDP per capita (PPP) – US $42,783 (IMF 2009 report) Switzerland The economy has been growing most recently at around 3% per year. The Swiss FC40#4 economy expanded by 3% during the first half of 2007, the fastest rate in 6 years. GDP growth was primarily due to the positive evolution of private consumption and the expansion of investment in fixed assets and software GDP growth – 1.9% in 2008, 3.3% in 2007 and 3.4% in 2006
Switzerland was ranked #7 in GDP per capita (PPP) in 2008 with sustained growth over the last 4 years Its GDP growth rate (1995 vs. 2008) was 63%
Observations Austria was ranked #12 in GDP per capita (PPP) in 2008 with accelerated economic growth in recent years Its GDP growth rate (1995 vs. 2008) was 73% Belgium was ranked #19 in GDP per capita (PPP) in 2008. That the profitability of its SMEs is considerably higher than that of large companies is unique Its GDP growth rate (1995 vs. 2008) was 66% The Netherlands was ranked #9 in GDP per capita (PPP) in 2008 with accelerated economic growth in recent years Its GDP growth rate (1995 vs. 2008) was 75%
General Descriptive Information on the Four Smaller European Countries 107
108
6 National Intellectual Capital of Four Smaller Western European Countries
Table 6.9 Background information on future perspectives for the smaller Western European countries Country Austria IMD world competitiveness ranking: #16 out of 57 countries (2009) World economic forum global competitiveness: #17 out of 133 (2009–2010) Environmental sustainability index (ESI) – #10 out of 149 (2005, a project-based ranking conducted in 2005) Environmental performance index (EPI) – #6 out of 149 (2008) In 1955, Austria began shaping its foreign policy on the basis of neutrality GDP (PPP) per hour worked 2007 – 31.59 Belgium IMD world competitiveness ranking: #22 out of 57 countries (2009) World economic forum global competitiveness: #18 out of 133 (2009–2010) Environmental sustainability index (ESI) – #112 out of 149 (2005, a projectbased ranking conducted in 2005) Environmental performance index (EPI) – #57 out of 149 (2008) Belgium’s private enterprise economy has capitalized on its central geographic location, highly developed transport network, diversified industrial and commercial base, and the high productivity of its work force GDP (PPP) per hour worked 2007 – 34.39 Netherlands IMD world competitiveness ranking: #10 out of 57 countries (2009) World economic forum global competitiveness: #10 out of 133 (2009–2010) Environmental sustainability index (ESI) – #40 out of 149 (2005, a project-based ranking conducted in 2005) Environmental performance index (EPI) – #55 out of 149 (2008) GDP (PPP) per hour worked 2007 – 32.71 IMD world competitiveness ranking: #4 out of 57 countries (2009) Switzerland World economic forum global competitiveness: #1 out of 133 (2009–2010) Environmental sustainability index (ESI) – #7 out of 149 (2005, a project-based ranking conducted in 2005) Environmental performance index (EPI) – #1 out of 149 (2008) GDP (PPP) per hour worked 2007 – 26.78
To highlight the future perspective of each country, the last four indicators of Table 6.3 have been provided for readers’ reference – World Competitiveness by the IMD, Global Competitiveness by the World Economic Forum, the Environmental Sustainability Index by Yale University, and the Environmental Performance Index by Yale University. We summarize hereunder some information that may be relevant to the intellectual development of each country.
Summary In general, the four smaller Western European countries are ranked in the first and second quarter of the NICI40 – 3rd, 8th, 12th, and 16th. As a group, they invest a significant percentage of GDP in education, ranging from 5.1 to 6.0% and achieved
Summary
109
a relatively high PISA students’ performance in terms of percentage of GDP on education in comparison with the Nordic and larger Western European countries; they have a relatively high level e-readiness, ranging from ranking #7 to #20 out of 70 countries, and they invest a relatively high percentage of GDP in R&D, ranging from 1.7 to 2.9%. The performance of these four countries can be divided into two groups with the Netherlands and Switzerland as members of the high-performing group and Austria and Belgium making up the low-performing group with respect to their NICI40 ranking, globalization index, e-readiness, and global competitiveness (Table 6.3). As a cluster and over 14 years, human capital (except for Austria) and process capital (except for Belgium) show steady improvement, yet renewal capital (except for Austria) and financial capital are decreasing. That may explain why the governments of this country cluster are concerned about and invest in innovation and renewal, as exemplified by the following: the establishment of “The Institute of Science and Technology Austria (I.S.T. Austria)” – with its guaranteed independence from bureaucracy and politics; Northern Belgium has a higher private R&D spending; nearly 9% of the foreign investment projects launched in the Netherlands in 2007 were R&D projects; and the high level of technological innovation in Switzerland. As for market capital, Belgium and the Netherlands are decreasing in spite of their central geographical location in Europe. Taking the capital progression over the three time periods presented in Table 6.2 into account, Austria apparently is a very promising country with advances in market capital, process capital, renewal capital, and its overall NICI40 ranking. Within a closed system comparison among the 40 countries studied, ranking improvement represents a real measure of competitiveness with many well-established countries such as Japan, Singapore, and many rapidly growing countries such as China and India. In other words, with increasing intangible assets, Austria is more prepared for thriving in the knowledge economy. Yet, Austria needs to pay more attention as to how to translate its intangible assets into financial value, as its financial capital ranking decreased over the three periods. For most indicators, Belgium lags behind either Austria or the Netherlands; yet, its students perform better in PISA scores, its human capital and GDP (PPP) per hour worked are higher than those of Austria and the Netherlands. Hopefully, the good quality of its human resources can help sustain Belgium’s future competitiveness. Although ranked #8 in the NICI40 and #9 in world wealth, the Netherlands began to show slight declines in market capital and renewal capital, which is reflected in its ranking decrease in the most recent NICI40 and its lower Innovation Scoreboard ranking with the lowest R&D investment in this country cluster. For Switzerland, neutrality seems to have played a major role in contributing to its highest rank in quality of life, innovation, and environmental performance index. Over the 14 years, although Switzerland advanced greatly in market capital, it also showed declines in renewal capital and financial capital. Overall, the smaller European countries seem to be more agile than the larger ones in accumulating both tangible and intangible assets. In terms of intellectual capital, compared to the larger European countries, the smaller ones are stronger
110
6 National Intellectual Capital of Four Smaller Western European Countries
in human capital, market capital, students’ PISA performance, quality of life, and e-readiness. With their membership and involvement in the EU (except for Switzerland), their roles in facilitating the prosperity of the European block are not to be questioned. Yet, how to capitalize on their good quality human resources, advanced infrastructure, and geographical location in competing with some established Asian countries and the aggressive emerging countries deserves serious thought.
Chapter 7
National Intellectual Capital of Four Southern European Countries (Greece, Italy, Portugal, Spain)
Abstract The four Southern European countries are in the third quarter percentile (21st to 30th) of the National Intellectual Capital Indices for 40 countries (NICI40). Greece, Italy, Portugal, and Spain ranked number 29, 24, 26, and 22, respectively. Both Greece and Italy ranked higher in financial capital (ranked #23 and #19, respectively) than in their overall IC ranking. Italy is weak in market capital (ranked #36). Portugal lags five ranks behind (ranked #31) its overall IC ranking in renewal capital and Spain is relatively weak in renewal capital (ranked #25).
Human capital
Market capital
Process capital
Renewal capital
Financial capital
Overall intellectual capital
Mean SD
5.86 0.29
5.02 0.37
4.88 0.38
2.25 0.36
9.40 0.14
27.39 1.13
Country Greece Italy Portugal Spain
Score 5.43 6.07 5.94 5.98
Ranking 28 23 25 24
Score 4.82 4.60 5.26 5.39
Ranking 32 36 26 24
Score 4.32 5.07 4.95 5.16
Ranking 29 23 24 21
Score 1.96 2.62 1.91 2.50
Ranking 29 23 31 25
Score 9.36 9.54 9.22 9.47
Ranking 23 19 25 20
Score 25.87 27.90 27.28 28.51
Ranking 29 24 26 22
Introduction The four Southern European countries are among the world’s 40 wealthiest countries. Based on IMF (International Monetary Fund April 2009 data) GDP per capita (PPP) in US dollars, Spain (30,621), Italy (30,581), Greece (30,535), and Portugal (22,190) ranked number 26, 27, 28, and 39, respectively, in world wealth (http://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29_per_capita). The countries in this cluster have had a glorious history, including the Greek Culture, the Roman Empire, the Spanish Empire, and the Portuguese Empire. The former two contributed greatly to world civilization, whereas the latter two discovered unknown territories with their strong marine force in the fifteenth and sixteenth centuries. Yet, their prosperity did not sustain them into the modern age and C.Y.-Y. Lin and L. Edvinsson, National Intellectual Capital: A Comparison of 40 Countries, 111 DOI 10.1007/978-1-4419-7377-1_7, © Springer Science+Business Media, LLC 2011
112
7 National Intellectual Capital of Four Southern European Countries
their national intellectual capital development has been surpassed by many less resourceful countries. Analysis of this chapter may provide some insights into their recent development. Since the four Southern European countries combine geographical proximity with similar cultures, it makes sense to examine them as a cluster. Among them, the overall national intellectual capital ranking sequence in descending order is Spain (22), Italy (24), Portugal (26), and Greece (29). Table 7.1 shows the results of comparing five types of capital “within” each country and “between” countries in this cluster. Based on each country’s ranking, financial capital ranks first and renewal capital ranks fifth in all four countries. In other words, financial capital has the highest and renewal capital the lowest score. Human capital, market capital, and process capital are ranked as 2, 3, and 4, respectively, for Greece, Portugal, and Spain, and 2, 4, and 3, respectively, for Italy. As for the inter-country comparison, each country has its own strength or weakness. Table 7.1 shows that Greece is relatively weak in human capital, and process capital (both ranked #4). Italy ranked the highest in human capital, renewal capital, and financial capital, yet it ranked last in market capital. Portugal ranks number two in market capital; however, it ranks last in renewal capital and financial capital. Spain ranked the highest in market capital and process capital and ranked second in human capital, renewal capital, and financial capital.
National Intellectual Capital of Each Individual Country Figures 7.1–7.4 display the characteristics and trends of national intellectual capital in each of the four Southern European countries. In Fig. 7.1, Greece has made the most progress in human capital with an increase of about 16 percentile points, followed by an increase in renewal capital of about eight percentile points, in process capital of about six percentile points, and in financial capital of about two percentile points, in comparing the figures for 1995 and 2008. Yet, it shows a decrease in market capital of about 14 percentile points. With respect to financial capital, although the 1–10 rating score showed a slight improvement, the real dollar value of its GDP per capita (PPP) increased from US$14,928 in 1995 to US$30,535 in 2008 for a growth rate of 105%. Analysis of the raw data reveals that the sharp decline of market capital between 2006 and 2008 was mainly caused by several score changes, including corporate tax incentives (from 4.72 to 3.57), cross-border ventures (from 7.67 to 7.03), cultural openness (from 6.69 to 5.83), government policy transparency (from 4.84 to 1.94), and image of country (from 5.19 to 3.21). Greece’s market capital decline may reflect on its national performance setback in early 2010, which will be elaborated in Chap. 16, Fig. 16.6. For further improvement and to enhance its competitiveness,
Table 7.1 Capital mean ratings and rankings of the four Southern European countries from 1995 to 2008 Intellectual capital Human Market Process Renewal Financial Mean score capital capital capital capital capital Greece Score 5.43 4.82 4.32 1.96 9.36 Ranking Within 2 3 4 5 1 Between 4 3 4 3 3 Italy Score 6.07 4.6 5.07 2.62 9.54 Ranking Within 2 4 3 5 1 Between 1 4 2 1 1 Portugal Score 5.94 5.26 4.95 1.91 9.22 Ranking Within 2 3 4 5 1 Between 3 2 3 4 4 Score 5.98 5.39 5.16 2.5 9.47 Spain Within 2 3 4 5 1 Ranking Between 2 1 1 2 2 Ranking in this cluster 4
2
3
1
Overall NICI score 25.87
27.90
27.28
28.51
22
26
24
Overall ranking among 40 countries 29
National Intellectual Capital of Each Individual Country 113
114
7 National Intellectual Capital of Four Southern European Countries 10
Greece Human Capital
8
Greece Market Capital
6
Greece Process Capital
4 Greece Renewal Capital 2 Greece Financial Capital 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Greece Human Capital
4.350 4.579 4.367 5.371 5.258 5.562 5.781 5.645 5.854 5.776 5.832 5.877 5.860 5.902
Greece Market Capital
5.073 5.563 5.244 5.217 5.509 5.029 4.691 4.509 4.510 4.509 4.695 4.893 4.285 3.705
Greece Process Capital
3.077 3.428 3.643 4.231 4.561 5.213 5.126 4.919 4.671 4.420 4.710 4.536 4.247 3.642
Greece Renewal Capital 1.475 1.614 1.565 1.893 1.790 1.941 1.944 2.003 2.019 2.118 2.240 2.286 2.252 2.237 Greece Financial Capital 9.297 9.273 9.260 9.270 9.286 9.302 9.326 9.349 9.395 9.414 9.418 9.446 9.466 9.485
Fig. 7.1 Trend of intellectual capital in Greece
Italy Human Capital
10
8 Italy Market Capital 6 Italy Process Capital 4 Italy Renewal Capital 2 Italy Financial Capital
0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Italy Human Capital
5.768 5.585 5.475 5.874 6.004 5.854 6.160 6.182 6.130 6.096 6.308 6.405 6.579 6.507
Italy Market Capital
5.028 4.630 5.038 4.688 4.621 4.694 4.957 4.898 4.544 4.374 4.270 4.512 4.216 3.980
Italy Process Capital
3.538 3.855 4.612 5.209 5.550 5.836 5.863 5.522 5.147 4.967 5.299 5.238 5.254 5.048
Italy Renewal Capital 2.455 2.599 2.561 2.720 2.733 2.490 2.469 2.577 2.508 2.609 2.698 2.703 2.676 2.823 Italy Financial Capital 9.606 9.576 9.551 9.548 9.549 9.558 9.559 9.554 9.550 9.537 9.515 9.517 9.509 9.487
Fig. 7.2 Trend of intellectual capital in Italy
Greece should place greater emphasis on its renewal capital, its lowest score, and its regressed market capital. Figure 7.2 indicates that Italy has made the most progress in process capital with an increase of about 15 percentile points, followed by an increase in human capital
National Intellectual Capital of Each Individual Country
115
10
Portugal Human Capital
8 Portugal Market Capital 6 Portugal Process Capital 4 Portugal Renewal Capital 2 Portugal Financial Capital 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Portugal Human Capital
4.542 4.805 4.854 5.614 5.733 4.918 5.160 6.162 6.542 6.651 6.818 6.963 7.104 7.239
Portugal Market Capital
5.871 6.125 6.075 5.634 5.506 4.796 4.960 5.054 5.273 4.853 4.822 5.053 4.768 4.819
Portugal Process Capital
2.912 3.378 4.317 5.141 5.257 5.568 5.291 5.106 5.188 4.914 5.392 5.635 5.481 5.786
Portugal Renewal Capital 1.449 1.574 1.674 1.886 1.897 1.800 1.669 1.714 1.873 2.071 2.016 2.026 2.309 2.838 Portugal Financial Capital 9.204 9.198 9.194 9.220 9.241 9.252 9.253 9.247 9.230 9.213 9.199 9.198 9.200 9.192
Fig. 7.3 Trend of intellectual capital in Portugal
Spain Human Capital
10
Spain Market Capital
8
6 Spain Process Capital 4 Spain Renewal Capital 2 Spain Financial Capital 0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Spain Human Capital
5.044 5.106 5.128 5.903 5.678 5.901 6.244 6.380 6.316 6.227 6.437 6.340 6.566 6.443
Spain Market Capital
5.459 5.955 5.903 5.963 5.924 5.654 5.754 5.455 5.628 4.956 4.715 5.078 4.724 4.347
Spain Process Capital
3.326 4.548 4.677 5.406 5.549 5.781 5.785 5.746 5.920 5.403 5.376 5.052 4.953 4.768
Spain Renewal Capital 1.973 2.364 2.240 2.467 2.559 2.290 2.252 2.604 2.548 2.518 2.614 2.731 2.927 2.965 Spain Financial Capital 9.432 9.414 9.406 9.427 9.455 9.471 9.482 9.487 9.496 9.487 9.486 9.496 9.498 9.488
Fig. 7.4 Trend of intellectual capital in Spain
of about seven percentile points, and in renewal capital of about three percentile points, in comparing the figures for 1995 and 2008. However, it suffered a decrease in market capital of about ten percentile points. With respect to financial capital, although the 1–10 rating score showed a slight decrease, the real dollar value of its
116
7 National Intellectual Capital of Four Southern European Countries
GDP per capita (PPP) increased from US$20,552 in 1995 to US$30,581 in 2008 for a growth rate of 49%. Analysis of the raw data reveals that the continuous decline of market capital between 2006 and 2008 was mainly caused by several score changes, including corporate tax incentives (from 3.28 to 2.72), cross-border ventures (from 7.79 to 6.45), and cultural openness (from 6.34 to 5.57). For further improvement and to enhance its competitiveness, Italy should focus on developing its renewal capital, its lowest score, and its regressed market capital. Figure 7.3 indicates that Portugal has made the most progress in process capital with an increase of about 29 percentile points, followed by an increase in human capital of about 27 percentile points, and in renewal capital of about 14 percentile points, in comparing the figures for 1995 and 2008. Yet, its market capital decreased about 11 percentile points. With respect to the 1–10 rating score of financial capital, there is no change over the years, yet the real dollar value of its GDP per capita (PPP) increased from US$13,567 in 1995 to US$22,190 in 2008 for a growth rate of 64%. Analysis of the raw data reveals that the continuous decline of its market capital was mainly caused by several score changes between 1995 and 2008, including cultural openness (from 8.26 to 6.86), globalization (from 7.51 to 5.56), and government policy transparency (from 4.72 to 4.0). Portugal’s market capital decline may reflect on its national performance setback in early 2010, which will be elaborated in Chap. 16, Fig. 16.10. For further improvement and to enhance its competitiveness, Portugal should focus on developing its renewal capital, its lowest score, and its regressed market capital. Figure 7.4 indicates that Spain has made the most progress in process capital with an increase of about 15 percentile points, followed by an increase in human capital of about 14 percentile points, and in renewal capital of about ten percentile points, in comparing the figures for 1995 and 2008. However, its market capital decreased about 12 percentile points. With respect to its financial capital, although the 1–10 rating score showed a slight improvement, the real dollar value of its GDP per capita (PPP) increased from US$17,167 in 1995 to US$30,621 in 2008 for a growth rate of 78%. Analysis of the raw data reveals that the continuous decline of its market capital was mainly caused by several score changes between 1995 and 2008, including corporate tax incentives (from 5.03 to 3.42), cultural openness (from 7.32 to 6.34), globalization (from 6.95 to 4.60), and government policy transparency (from 4.05 to 3.06). Spain’s market capital decline may reflect on its national performance setback in early 2010, which will be elaborated in Chap. 16, Fig. 16.12. For further improvement and to enhance competitiveness, Spain should focus on developing its lowest scored renewal capital and its regressed market capital. All these four countries have enjoyed good progress in human capital and process capital, modest progress in renewal capital, but they have suffered a regression in market capital over the years. As shown in Figs. 7.1–7.4, Greece, Portugal, and Spain have a comparatively similar development pattern, with a ranking sequence of
Comparison of Capital Components of the Four Southern European Countries
117
market capital, human capital, and process capital at the initial stage. Yet, from year 2001 onward, the ranking sequence changed to human capital, process capital, and market capital. That is, market capital decreased the most over the years. Italy has a distinctive development pattern, with a broader range of scores for human capital, market capital, and process capital, and with process capital having surpassed market capital from 1998 onward.
Comparison of Capital Components of the Four Southern European Countries Figures 7.5–7.9 allow for a further comparison of the five types of capital among the four Southern European countries. Figure 7.5 shows a general upward trend of human capital, moving from the 40–60th percentiles to the 60–70th percentiles. Particularly, Portugal increased its human capital the most by 27 percentile points and has become the top performer in this cluster, followed by Greece and Spain with gains of about 16 and 14 percentile points, respectively, while Italy shows an increase on a smaller scale of around seven percentile points. Figure 7.6 indicates that the market capital of all the four countries has suffered negative growth. Investigation of the raw data reveals that the ratings of corporate tax incentives, cultural openness, and government policy transparency of these countries have mainly declined over the years. Since indicators of market capital are mainly 1–10 scaled ratings, the decreasing scores did reflect the real decline of
10 Greece Human Capital 8 Italy Human Capital 6
Portugal Human Capital
Spain Human Capital
4
2
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Greece Human Capital
4.350 4.579 4.367 5.371 5.258 5.562 5.781 5.645 5.854 5.776 5.832 5.877 5.860 5.902
Italy Human Capital
5.768 5.585 5.475 5.874 6.004 5.854 6.160 6.182 6.130 6.096 6.308 6.405 6.579 6.507
Portugal Human Capital 4.542 4.805 4.854 5.614 5.733 4.918 5.160 6.162 6.542 6.651 6.818 6.963 7.104 7.239 Spain Human Capital
5.044 5.106 5.128 5.903 5.678 5.901 6.244 6.380 6.316 6.227 6.437 6.340 6.566 6.443
Fig. 7.5 Comparison of human capital in the four Southern European countries
118
7 National Intellectual Capital of Four Southern European Countries 10 Greece Market Capital 8 Italy Market Capital
Portugal Market Capital
6
4
2 Spain Market Capital 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Greece Market Capital
5.073 5.563 5.244 5.217 5.509 5.029 4.691 4.509 4.510 4.509 4.695 4.893 4.285 3.705
Italy Market Capital
5.028 4.630 5.038 4.688 4.621 4.694 4.957 4.898 4.544 4.374 4.270 4.512 4.216 3.980
Portugal Market Capital 5.871 6.125 6.075 5.634 5.506 4.796 4.960 5.054 5.273 4.853 4.822 5.053 4.768 4.819 5.459 5.955 5.903 5.963 5.924 5.654 5.754 5.455 5.628 4.956 4.715 5.078 4.724 4.347
Spain Market Capital
Fig. 7.6 Comparison of market capital in the four Southern European countries
10 Greece Process Capital 8 Italy Process Capital
Portugal Process Capital
Spain Process Capital
6
4
2
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Greece Process Capital
3.077 3.428 3.643 4.231 4.561 5.213 5.126 4.919 4.671 4.420 4.710 4.536 4.247 3.642
Italy Process Capital
3.538 3.855 4.612 5.209 5.550 5.836 5.863 5.522 5.147 4.967 5.299 5.238 5.254 5.048
Portugal Process Capital 2.912 3.378 4.317 5.141 5.257 5.568 5.291 5.106 5.188 4.914 5.392 5.635 5.481 5.786 Spain Process Capital
3.326 4.548 4.677 5.406 5.549 5.781 5.785 5.746 5.920 5.403 5.376 5.052 4.953 4.768
Fig. 7.7 Comparison of process capital in the four Southern European countries
those factors as perceived by the raters of IMD Databank. Therefore, continuous improvement should be the basic rule for sustaining competitiveness. Definitely, the lower ranking of market capital offers something for relevant policy makers to ponder. Figure 7.7 shows that these four countries have a somewhat similar development pattern in process capital, which has moved from the 30–35th percentiles to around
Comparison of Capital Components of the Four Southern European Countries
119
10 Greece Renewal Capital 8 Italy Renewal Capital
Portugal Renewal Capital
Spain Renewal Capital
6
4
2
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Greece Renewal Capital
1.475 1.614 1.565 1.893 1.790 1.941 1.944 2.003 2.019 2.118 2.240 2.286 2.252 2.237
Italy Renewal Capital
2.455 2.599 2.561 2.720 2.733 2.490 2.469 2.577 2.508 2.609 2.698 2.703 2.676 2.823
Portugal Renewal Capital 1.449 1.574 1.674 1.886 1.897 1.800 1.669 1.714 1.873 2.071 2.016 2.026 2.309 2.838 1.973 2.364 2.240 2.467 2.559 2.290 2.252 2.604 2.548 2.518 2.614 2.731 2.927 2.965
Spain Renewal Capital
Fig. 7.8 Comparison of renewal capital in the four Southern European countries
10 Greece Financial Capital 8 Italy Financial Capital
Portugal Financial Capital
6
4
2 Spain Financial Capital 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Greece Financial Capital
9.297 9.273 9.260 9.270 9.286 9.302 9.326 9.349 9.395 9.414 9.418 9.446 9.466 9.485
Italy Financial Capital
9.606 9.576 9.551 9.548 9.549 9.558 9.559 9.554 9.550 9.537 9.515 9.517 9.509 9.487
Portugal Financial Capital 9.204 9.198 9.194 9.220 9.241 9.252 9.253 9.247 9.230 9.213 9.199 9.198 9.200 9.192 Spain Financial Capital
9.432 9.414 9.406 9.427 9.455 9.471 9.482 9.487 9.496 9.487 9.486 9.496 9.498 9.488
Fig. 7.9 Comparison of financial capital in the four Southern European countries
the 40–60th percentiles. As a whole, the first 7 years (up to 2001) showed a steady increase in process capital; afterwards there were ups and downs with Greece falling further behind the other countries. Portugal has the greatest improvement and changed from its initial position as lowest performer to becoming the top performer from 2006 onward.
120
7 National Intellectual Capital of Four Southern European Countries
Figure 7.8 demonstrates that the renewal capital of these four countries has made some progress, moving from the 15–25th percentiles to the 20–30th percentiles. Comparatively, Spain has the greatest improvement, followed by Portugal, Greece, and Italy, respectively. Portugal, in particular, has experienced a sharp increase in the last 2 years. Analysis of the raw data reveals that the increase was mainly caused by some score changes from 2007 to 2008, including business R&D (from 0.45 to 0.99), R&D of GDP (from 2.17 to 3.24), and R&D researchers (from 2.20 to 3.06). The renewal capital ranking summarized in the abstract (ranging from #23 to #31) shows that renewal capital of this cluster is at the bottom half of the NICI40, and it is the area that deserves more attention. As for financial capital with its 1–10 scale, Fig. 7.9 shows a flat development for the four countries, with Portugal consistently having the lowest score. Yet, in real dollar values of GDP per capita (PPP), over the 14 years, Greece achieved 105% growth, Italy 49% growth, Portugal 64% growth, and Spain 78% growth. In this cluster, Greece has enjoyed the greatest financial achievement over the past decade. The above analyses reveal some interesting phenomena. For instance, Greece has the greatest GDP per capita (PPP) growth and Portugal has shown the greatest improvement in human capital and process capital, yet their overall NICI40 ranking indicates that they are the two lower-ranked countries in this cluster. This seems to suggest that financial performance alone cannot explain the creation of intangible assets with respect to intellectual capital. On the other hand, it implies that intellectual capital does not necessarily translate into financial performance. The gap poses an interesting area for further study.
Three-Period Progression of National Intellectual Capital Development As stated in the previous chapters, Sections “National Intellectual Capital of Each Individual Country” and “Comparison of Capital Components of the Four Southern European Countries” presented the results of a data analysis for a total of 14 years, spanning from 1995 to 2008. However, the results are somewhat limited in nature, with comparisons focusing on the initial year (1995) and the concluding year (2008) of each form of capital in each country. To get a more complete picture of the dynamics of their capital development over the 14 years, we prepared Table 7.2, which assesses the changes of capital rankings in three periods (the first and second periods consist of 5 years and the third period consists of 4 years), viz., 1995–1999 is the first period, 2000–2004 is the second period, and 2005–2008 is the third period. This division of Table 7.2 into periods makes it easier to visualize the development and perhaps even the future trends of the five types of capital for each country. Employing the sequence of human capital, market capital, process capital, renewal capital, financial capital, and overall IC, the second column in Table 7.2 exhibits the overall ranking difference between the first period and the third period. The third column is the ranking of the first period, and the fourth and the fifth
−2 −2 4 −6
6 −1 5 2
Process capital Greece Italy Portugal Spain
Renewal capital Greece Italy Portugal Spain
34 23 32 25
28 23 25 22 27 23 31 25
29 22 25 20 7 0 1 0
−1 1 0 2
−9 0 −6 0
−8 −2 −9 −9
Market capital Greece Italy Portugal Spain
28 24 27 23
30 25 21 28
35 36 30 31
3 −7 0 −1
36 34 27 22
29 24 19 25
Difference
27 34 21 22
3rd period (2005–2008) Ranking
Table 7.2 Changes in intellectual capital rankings over the three periods 1st to 3rd 1st period 2nd period period (1995–1999) (2000–2004) Difference (1) Ranking Ranking Human capital Greece 1 30 27 Italy −7 17 24 Portugal 6 25 25 Spain −3 22 23
−1 −1 4 2
−1 −3 4 −8
1 −2 −3 −9
−2 0 6 −2
Difference
29 23 31 25
29 23 24 21
32 36 26 24
28 23 25 24
(continued)
1 −1 4 2
−1 −2 3 −7
−3 0 −4 −7
−1 −1 6 −1
3rd period ranking vs. overall NICI40 ranking NICI40 ranking Difference
Three-Period Progression of National Intellectual Capital Development 121
23 17 24 20
Financial capital Greece Italy Portugal Spain 23 19 25 20
2nd period (2000–2004) Ranking 0 −2 −1 0
Difference 22 19 26 20
3rd period (2005–2008) Ranking 1 0 −1 0
Difference
23 19 25 20
0 −3 2 −3 3rd period
1 0 −1 0
3rd period ranking vs. overall NICI40 ranking NICI40 ranking Difference
Overall IC Greece −1 28 29 −1 29 0 29 Italy −5 22 24 −2 27 −3 24 Portugal 2 26 28 −2 24 4 26 Spain −4 21 22 −1 25 −3 22 Remarks: (1) The second column compares the 3rd period ranking with the 1st period ranking. (2) The last column compares the most current ranking with the original 14-year NICI40 ranking summarized in the abstract
1 −2 −2 0
1st period (1995–1999) Ranking
Table 7.2 (continued) 1st to 3rd period Difference (1)
122 7 National Intellectual Capital of Four Southern European Countries
General Descriptive Information on the Four Southern European Countries
123
columns display respective rankings and differences with regard to the previous period. The last column compares the most recent third period ranking with the overall NICI40 ranking. Over the entire course of the three periods, Italy had the most apparent national IC decline in this cluster over the three periods, followed by Spain. That is, Italy regressed in every capital component including the overall NICI40 and Spain advanced only in renewal capital. Portugal had the best national IC progress, followed by Greece. Comparing the ranks of the first period and the third period, Greece increased its ranking in human capital (1), renewal capital (6), financial capital (1), but decreased in market capital (−8), process capital (−2), and overall IC (−1). Italy decreased its ranking in human capital (−7), market capital (−2), process capital (−2), renewal capital (−1), financial capital (−2), and overall IC (−5). Portugal increased its ranking in human capital (6), process capital (4), renewal capital (5), and overall IC (2), but decreased in market capital (−9) and financial capital (−2). Spain increased its ranking in renewal capital (2), but decreased in human capital (−3), market capital (−9), process capital (−6), and overall IC (−4). Furthermore, in comparing the ranking of the most recent third period with the 14-year NICI40 ranking reported in the abstract, Italy declined three ranks (from #24 to #27) and Spain also declined three ranks (from #22 to #25); Portugal, meanwhile, advanced two ranks (from #26 to #24), whereas the ranking of Greece remained the same. These findings indicate that the national intellectual capital of Italy and Spain has been gradually decreasing.
General Descriptive Information on the Four Southern European Countries As stated in the previous chapters, the above sections basically present results based on statistical analyses of IMD secondary data spanning from 1995 to 2008. To complement the quantitative data analyses, this section provides some background information for each country that may help explain the results of this study as well as shed further light on future intellectual capital development. Due to the magnitude of relevant information, this study does not intend nor does it have the resources to provide in-depth depictions of country backgrounds in abundant detail. As a result, what we are presenting hereunder is a summary of information closely related to intellectual capital and available from public sources, including a number of objective indicators published by various world organizations (e.g., the United Nations’ Human Development Index), web information from http://en.wikipedia.org/wiki and relevant articles posted on the Internet. Although different indicators cover different dimensions (e.g., the Human Development Index also covers health/life expectancy, and purchasing power; PISA covers only students’ performances) and do not have an equivalent comparison basis, they still provide valuable information on individual nations as exhibited in Table 7.3.
8. e-Readiness (#/score) 30/6.72 25/7.55 27/7.38 26/7.46
IC ranking 29 24 26 22
7. Quality of life (#/score) 38/5.25 26/6.7 30/6.24 19/7.69
Greece Italy Portugal Spain
Greece Italy Portugal Spain
2. Education expenditures (#/%) 55/2.3 31/4.5 2/7.6 34/4.4 10. Mobile telephone (#/score) 22/123.5 6/150.3 12/139.8 38/111.4
1. Popula tion (000) 10,737 58,126 10,708 40,525
9. Internet usership/ population (%) 45.9 50.1 41.6 70.6 PC (#) 29 23 24 21
11. R&D (#/%) 42/0.57 29/1.13 26/1.18 25/1.2
4. PISA science 3. HDI (#/score) 18 35/473 19 35/475 33 35/474 16 26/488
12. Innova tion score 0.36 0.35 0.36 0.37
PISA math. (#/score) 38/459 37/462 35/466 31/480
RC (#) 29 23 31 25
PISA reading (#/score) 34/460 31/469 29/472 34/461
13. World comp. (#) 52 50 34 39
5. Broad band/ population (%) 13.5 19.1 15.9 20.2
14. Global comp. (#/score) 71/4.04 48/4.31 43/4.4 33/4.59
HC (#) 28 23 25 24
15. ESI (#/score) 67/50.1 69/50.1 37/54.2 76/48.8
6. Globaliza tion (#) 45 34 31 29
16. EPI (#/score) 44/80.2 24/84.2 18/85.8 30/83.1
MC (#) 32 36 26 24
Remark: “#” refers to ranking among respective members and the numbers are the most current data available in 2009. Please refer to the Reference section for a list of the sources of these 16 indicators
GDP per capita (PPP) growth 2008/1995 (%) 105 49 64 78
Overall
Table 7.3 National intellectual capital related indicators and ranking
Table 7.4 Background information on human capital for Southern European countries Country Human capital Observations Greece UN Human Development Index ranking: #18 out From Table 7.3, Greece spent 2.3% of its GDP on education (the lowest in HC40#28 of 179 (2008) this cluster) and students’ PISA performance ranked 35/38/34 for science, math, and reading, respectively, out of 57 countries (refer to Table 7.3). Broadband internet subscribers – 13.5% (2009 est.) Greece is ranked HC40#28 with a 16 percentile-point improvement over Labor force – 4.96 million (2008 est.) the 14 years and advanced one rank from the 1st to the 3rd period (refer Unemployment – 9.4% (2009 est.) to Table 7.2). In addition, the number of broadband internet subscribers at 13.5% is relatively low, which may hamper efficient knowledge acquirement in this rapidly changing world Italy UN Human Development Index ranking: #19 out From Table 7.3, Italy spent 4.5% of its GDP on education and students’ PISA HC40#23 of 179 (2008) performance ranked 35/37/31 for science, math, and reading, respectively, out of 57 countries (similar to Greece which spent only 2.3% of its GDP). Broadband internet subscribers – 19.1% (2009 est.) Therefore, the effectiveness of student human resource development Labor force – 25.09 million (2008 est.) needs to be re-examined Unemployment – 7.4% (2009 est.) Italy is currently the EU country with the highest percentage Italy is ranked HC40#23 with a 7 percentile-point improvement over the 14 of the elderly, and its population is increasingly aging years, yet declined seven ranks from the 1st to the 3rd period (refer to Table 7.2). The aging population issue may require some attention UN Human Development Index ranking: #33 out From Table 7.3, Portugal spent 7.6% of its GDP on education (the highest in Portugal HC40#25 of 179 (2008) this cluster) and students’ PISA performance ranked 35/35/29 for science, math, and reading, respectively, out of 57 countries (refer to Table 7.3). Broadband internet subscribers – 15.9% (2009 est.) Students’ PISA performance does not match the nation’s high investment Labor force – 5.64 million (2008 est.) in education. Therefore, the effectiveness of student human resource Unemployment – 9.4% (2009 est.) development needs some attention. Portugal is ranked HC40#25 with a 27 percentile-point improvement over the 14 years and advanced six ranks from the 1st to the 3rd period (refer to Table 7.2) UN Human Development Index ranking: #16 out From Table 7.3, Spain spent 4.4% of its GDP on education and students’ Spain of 179 (2008) PISA performance ranked 26/31/34 for science, math, and reading, HC40#24 respectively, out of 57 countries (refer to Table 7.3) Broadband internet subscribers – 20.2% (2009 est.) Labor force – 23.1 million (2008 est.) Spain is ranked HC40#24 with a 14 percentile-point improvement over the 14 years, yet declined three ranks from the 1st to the 3rd period Unemployment – 17.9% (2009 est.) (refer to Table 7.2). Its unemployment rate is exceptionally high
General Descriptive Information on the Four Southern European Countries 125
Italy MC40#36
Exports – $566.1 billion f.o.b. (2008 est.), imports – $566.8 billion f.o.b. (2008 est.) Italy’s major exports are precision machinery, motor vehicles, chemicals and electric goods. Its more famous exports are in the fields of fashion (e.g., Armani, Valentino), food industry (e.g., Martini & Rossi), luxury vehicles (e.g., Ferrari) and motor yachts (e.g., Ferretti) Tourism is also very important to the Italian economy: with over 37 million tourists a year, it ranks as the fifth major tourist destination in the world Italy’s closest trade ties are with other EU countries, with which it conducts about 59% of its total trade
Table 7.5 Background information on market capital for Southern European countries Country Market capital Greece MC40#32 Exports – $27.4 billion f.o.b. (2008 est.), imports $82.28 billion f.o.b. (2008 est.) Greece serves as the regional business hub for many of the world’s largest multinational companies Greece’s tourism industry is a major source of foreign exchange earnings and revenue, accounting for 15% of Greece’s total GDP and employing about 16.5% of total employment
Observations Greece is ranked #45 out of 72 countries in the Globalization Index. It is ranked MC40#32 with a decrease of 14 percentile points over the 14 years and declined eight ranks from the 1st to the 3rd period (refer to Table 7.2). With a population similar to that of Belgium and a larger territory, its export volume is only about 1/13 and import 1/4 of Belgium’s. Its booming tourism does not create market capital for Greece. Greece can be more aggressive in establishing international relationships Italy is ranked #34 out of 72 countries in the Globalization Index. It is ranked MC40#36 with a decrease of 10 percentile points over the 14 years and declined two ranks from the 1st to the 3rd period (refer to Table 7.2). The left column description seems to indicate a flourishing export nexus, yet the market capital shows otherwise. Investigation of raw data reveals that Italy’ market capital rating is particularly low in corporate tax encouragement policies, government policy transparency, and image of country
126 7 National Intellectual Capital of Four Southern European Countries
Exports – $57.8 billion f.o.b. (2008 est.), imports $87.92 billion f.o.b. (2008 est.) Portuguese wines are exported worldwide and tourism also brings in significant amounts of revenue
Exports – $292.8 billion f.o.b. (2008 est.), imports – $444.9 billion (2008 est.) Spain has created more than half of all the new jobs in the European Union over the 5 years ending in 2005 and has attracted significant amounts of foreign investment The Spanish tourism industry has grown to become the second biggest in the world, worth approximately 40 billion Euros in 2006
Portugal MC40#26
Spain MC40#24
Portugal is ranked #31 out of 72 countries in the Globalization Index. It is ranked MC40#26 with a decrease of 11 percentile points over the 14 years and declined nine ranks from the 1st to the 3rd period (refer to Table 7.2). Investigation of raw data reveals that Portugal’s market capital rating decreased in corporate tax encouragement policies, cultural openness, globalization, and image of country Spain is ranked #29 out of 72 countries in the Globalization Index. It is ranked MC40#24 with a decrease of 12 percentile points over the 14 years and declined 9 ranks from the 1st to the 3rd period (refer to Table 7.2) Increasing foreign investment does not facilitate market capital creation, as Spain declined nine ranks in market capital from the 1st to the 3rd period
General Descriptive Information on the Four Southern European Countries 127
Portugal PC40#24
Internet usership – 41.6% of the population (2009 est.), 78% of companies with Internet access (2006) Portugal has achieved a healthy level of growth with successive governments’ implemented reforms and privatized many state-controlled firms In 2006 the world’s largest solar power plant began operating in the nation’s sunny south and the world’s first commercial wave power farm opened in October 2006 in Portugal
Table 7.6 Background information on process capital for Southern European countries Country Process capital Greece PC40#29 Internet usership – 45.9% of the population (2009 est.) Economic activities of Greece mainly include the tourism and shipping industries, banking and finance, manufacturing and construction, and telecommunications Greece’s present prosperity is largely owing to a number of structural reforms, such as decentralization, democratic consolidation High-technology equipment production, especially for telecommunications, is a fast-growing sector Italy PC40#23 Internet usership – 50.1% of the population (2009 est.) Most raw materials needed for manufacturing and more than 80% of the country’s energy sources are imported Italy is the second largest producer of wine in the world and one of the leading exporters in olive oil, fruits, flowers, and horticulture vegetables Based on Table 7.3, Greece’s rankings for the quality of life, e-readiness, and mobile telephone subscribers are #26 out of 57, #25 out of 70, and #6 out of 133, respectively It is ranked PC40#23 with a 15 percentile-point improvement over the 14 years; yet declined two ranks from the 1st to the 3rd period (refer to Table 7.2). As more than 80% of Italy’s energy sources are imported, its infrastructure may be impacted in times of high oil prices Based on Table 7.3, Portugal’s rankings for the quality of life, e-readiness, and mobile telephone subscribers are #30 out of 57, #27 out of 70, and #12 out of 133, respectively. It is ranked PC40#24 with a 29 percentile-point improvement over the 14 years and advanced four ranks from the 1st to the 3rd period (refer to Table 7.2). Portugal’s impressive improvement in process capital of about 29 percentile points (Fig. 7.3) very likely results from the continuous reforms implemented by successive governments
Observations Based on Table 7.3, Greece’s rankings for the quality of life, e-readiness, and mobile telephone subscribers are #38 out of 57, #30 out of 70, and #22 out of 133, respectively. It is ranked PC40#29 with a 6 percentile-point improvement over the 14 years; yet declined two ranks from the 1st to the 3rd period (refer to Table 7.2)
128 7 National Intellectual Capital of Four Southern European Countries
Spain PC40#21
Internet usership – 70.6% of the population (2009 est.). Approximately 72% of Spanish firms are connected by broadband – the third-highest proportion in the European Union The Spanish government continues to advocate liberalization, privatization, and deregulation of the economy and introduced some tax, economic and social reforms Spain has a proven record of effectively leveraging its consistent economic growth (an average 3.2% in the last eight years) into significant investments, including groundbreaking transportation networks and IT-infrastructures
Based on Table 7.3, Spain’s rankings for the quality of life, e-readiness, and mobile telephone subscribers are #19 out of 57, #26 out of 70, and #38 out of 133, respectively. Its mobile telephone subscriber ranking is lower than that of both Italy and Portugal. It is ranked PC40#21 with a 15 percentile-point improvement over the 14 years; yet declined six ranks from the 1st to the 3rd period (refer to Table 7.2). With the government’s continuous efforts in liberalization, privatization, deregulation, economic and social reforms, a better process capital may be anticipated
General Descriptive Information on the Four Southern European Countries 129
Italy RC40#23
European innovation scoreboard ranking – #23 out of 33; Italy scored 0.35 in 2008 Recently, Italian research scholars and teaching staffs have been entering private companies and facilitating the transfer of knowledge and research innovations. A major incentive for research innovation in Italy is the high degree of autonomy that is provided to the researcher. In addition, the government encourages research innovations of an interdisciplinary nature
Table 7.7 Background information on renewal capital for Southern European countries Country Renewal capital Greece RC40#29 European innovation scoreboard ranking – #22 out of 33; Greece scored 0.36 in 2008 With its strategic location, qualified workforce and political and economic stability, Greece has attracted many multinational companies, such as Ericsson, Siemens, SAP, Motorola, Coca-Cola to set up their regional R&D Headquarters there From 1993 to 2001, the number of its researchers in ICT and multimedia fields almost doubled Various institutes and leading universities have consistently been awarded research grants for top-level EU projects
Observations Greece invested 0.57% of its GDP in R&D (2008) (the lowest in this cluster). It is ranked RC40#29 with an 8 percentile-point improvement over the 14 years and advanced six ranks from the 1st to the 3rd period (refer to Table 7.2). The effect of Greece’s increasing researchers and research projects is not reflected in its renewal capital, as Fig. 7.8 indicates that Greece has the lowest figures for renewal capital in this country cluster. However, its advancement of six ranks from the 1st to the 3rd period is a promising sign of a better future Italy invested 1.13% of its GDP in R&D (2008). It is ranked RC40#23 (the highest in this cluster) with a 3 percentile-point improvement over the 14 years, yet declined one rank from the 1st to the 3rd period (refer to Table 7.2)
130 7 National Intellectual Capital of Four Southern European Countries
Spain RC40#25
Portugal RC40#31
European innovation scoreboard ranking – #21 out of 33; Portugal scored 0.36 in 2008 Scientific and technological research activities in Portugal are mainly conducted within a network of R&D units belonging to public universities and state-managed autonomous research institutions. Some national and multinational high-tech and industrial companies are also responsible for R&D projects The Portuguese government is channeling $3.8 billion into developing renewable energy sources over a period of 5 years. Portugal wants renewable energy sources like solar, wind, and wave power to account for nearly half of the electricity consumed in the country by 2010 European innovation scoreboard ranking – #20 out of 33; Spain scored 0.37 in 2008 Homegrown innovation and a firm commitment to sustainable development have made Spain the world leader in reverse osmosis and a pioneer in renewable energies with the world’s second largest wind-power capacity Spain invested 1.2% of its GDP in R&D (2008) (the highest in this cluster). It is ranked RC40#25 with a 10 percentile-point improvement over the 14 years and advanced two ranks from the 1st to the 3rd period (refer to Table 7.2). Continuous commitment to sustainable development has paid off as reflected in its creation of renewal capital
Portugal invested 1.18% of its GDP in R&D (2008). It is ranked RC40#31 (the lowest in this cluster) with a 14 percentile-point improvement over the 14 years and advanced five ranks from the 1st to the 3rd period (refer to Table 7.2). With its comparatively weak renewal capital, the country’s investment in developing renewable energy and encouraging greater involvement of public universities and state-managed autonomous research institutions are good strategic moves
General Descriptive Information on the Four Southern European Countries 131
Spain FC40#20
Portugal FC40#25
GDP per capita (PPP) – US $22,190 (IMF 2009 report) GDP growth – 0.2% in 2008, 1.9% in 2007 and 1.4% in 2006 GDP per capita (PPP) – $30,621 (IMF 2009 report) The Spanish economy boomed from 1986 to 1990, averaging 5% annual growth and resumed moderate growth starting in 1994 GDP growth – 1.1% in 2008, 3.7% in 2007 and 3.9 % in 2006
Table 7.8 Background information on financial capital for Southern European countries Country Financial capital Greece FC40#23 GDP per capita (PPP) – US $30,535 (IMF 2009 report) Greece’s economic growth can be attributed to considerable amounts of European Union funding over the last 25 years and increasing private consumption GDP growth – 2.8% in 2008, 4% in 2007 and 4.2 % in 2006 Italy FC40#19 GDP per capita (PPP) – $30,581 (IMF 2009 report) GDP growth – −0.7% in 2008, 1.4% in 2007 and 1.9% in 2006
Italy was ranked #27 in GDP per capita (PPP) in 2008. Its GDP growth rate (1995 vs. 2008) was 49%, which is the lowest in this country cluster Portugal was ranked #39 in GDP per capita (PPP) in 2008. Its GDP growth rate (1995 vs. 2008) was 64% Spain was ranked #26 in GDP per capita (PPP) in 2008. Its GDP growth rate (1995 vs. 2008) was 78%
Observations Greece was ranked #28 in GDP per capita (PPP) in 2008. Its GDP growth rate (1995 vs. 2008) was 105%
132 7 National Intellectual Capital of Four Southern European Countries
General Descriptive Information on the Four Southern European Countries
133
Table 7.9 Background information on future perspectives for Southern European countries Country Greece IMD World Competitiveness ranking: #52 out of 57 countries (2009) World Economic Forum global competitiveness: #71 out of 133 (2009–2010) Environmental Sustainability Index (ESI) – #67 out of 149 (2005, a project-based ranking conducted in 2005) Environmental Performance Index (EPI) – #44 out of 149 (2008) Within the last decade, a noticeable increase in repatriation has led to Hellenes from around the world returning to Greece and entering academia, medicine, government service, or entrepreneurship GDP (PPP) per hour worked 2007 – 19.49 Italy IMD World Competitiveness ranking: #50 out of 57 countries (2009) World Economic Forum global competitiveness: #48 out of 133 (2009–2010) Environmental Sustainability Index (ESI) – #69 out of 149 (2005, a project-based ranking conducted in 2005) Environmental Performance Index (EPI) – #24 out of 149 (2008) The small average size of Italian companies remains a limiting factor, and the government has been working to encourage integration and mergers and to reform the rigid regulations Italy’s export structure remains heavily biased toward low-skill production, hence highly exposed to cost competition by emerging market economies in the present era of globalization Areas where Italy is lacking include basic scientific research, innovation in high-tech, and labor productivity. Also disappointing is the lack of strategic planning to reduce the country’s alarming energy dependence GDP (PPP) per hour worked 2007 – 29.22 Portugal IMD World Competitiveness ranking: #34 out of 57 countries (2009) World Economic Forum global competitiveness: #43 out of 133 (2009–2010) Environmental Sustainability Index (ESI) – #37 out of 149 (2005, a project-based ranking conducted in 2005) Environmental Performance Index (EPI) – #18 out of 149 (2008) GDP (PPP) per hour worked 2007 – 17.11 IMD World Competitiveness ranking: #39 out of 57 countries (2009) Spain World Economic Forum global competitiveness: #33 out of 133 (2009–2010) Environmental Sustainability Index (ESI) – #76 out of 149 (2005, a project-based ranking conducted in 2005) Environmental Performance Index (EPI) – #30 out of 149 (2008) It is expected that the Spanish economy will continue growing based on the increasing strength of its industries, the growth of the global economy and its trade with Latin America and Asia, its biggest trading partners GDP (PPP) per hour worked 2007 – 22.90
In addition to the statistics presented in Table 7.3 derived from 16 different sources, we summarize relevant information for each country in the sequence of human capital, market capital, process capital, renewal capital, financial capital, and future perspective. Ranking under country name is the overall ranking of each respective capital in the abstract. We also include the observations that incorporate the 14-year data analysis and the relevant current indicators reported in Table 7.3.
134
7 National Intellectual Capital of Four Southern European Countries
Inevitably, the summaries presented in Tables 7.4–7.9 are susceptive to subjectivity due to information availability; nevertheless, the information provided is meant to show different avenues for observing intellectual capital development. Readers are encouraged to expand their own interpretation from various information sources and different angles. To highlight the future perspectives of each country, the last four indicators of Table 7.3 have been provided for readers’ reference – World Competitiveness by the IMD, Global Competitiveness by the World Economic Forum, Environmental Sustainability Index by Yale University, and Environmental Performance Index by Yale University. We summarize hereunder some information that may be relevant to the intellectual capital development of each country.
Summary In general, the four Southern European countries are ranked within the third quarter of NICI40 – 22nd, 24th, 26th, and 29th. They invest unequal percentages of their GDP in education, ranging from 2.3% (Greece) to 7.6% (Portugal); their Human Development Index (HDI) ranges from #16 (Spain) to #33 (Portugal); they have middle level e-readiness, ranging from ranking #25 to #30 out of 70 countries. The performance of these four countries does not exhibit much variation according to Figs. 7.5–7.9. As a whole, the economic development of these four countries has been relatively slow and all of them are characterized by either stationary, declining, or aging populations. The GDP (PPP) per hour worked (Table 7.9) of these four countries is relatively low, ranging from 17.11 (Portugal) to 29.22 (Italy) vs. 35.09 (France) and 32.71 (the Netherlands). In other words, the value generated by each worker is relatively low in this country cluster. The exceptionally high unemployment rate of 17.9% in Spain has some implications for Spanish policy makers as well. Based on Table 7.2, these four countries have mainly witnessed a decline in their market capital and process capital over the three time periods. Italy and Spain particularly show weakening intellectual capital with a decrease in their overall NICI40 ranking. In this cluster, Portugal has exhibited fairly good improvement in human capital, process capital, renewal capital, and in its overall NICI40 ranking. Its heavy investment in education (7.6% GDP) may partially explain its advancement in human capital of six ranks over the three time periods and its relatively high Environment Performance Index (#18). Yet, its low Human Development Index (HDI) ranking of #33 (cf. Greece which was ranked #18 in HDI with only 2.3% of its GDP invested in education) deserves the attention of relevant parties. In addition, Portugal ought to investigate why the advancement it made in human capital, process capital, and renewal capital did not transfer to financial performance; instead, its market capital and financial capital have decreased which may result in its early 2010 national performance problem.
Summary
135
With respect to the market capital of Portugal and Spain, the results run counter to expectations. Five hundred years ago, Portugal and Spain were oceanic super powers with strong navies and commercial fleets that boosted world trading at that time. Yet, based on the average mean rating recorded in Table 7.5, Portugal ranks number #26 and Spain number #24 in market capital in the 40-country list. The top five nations in market capital in order are Singapore, Ireland, the Netherlands, Denmark, and Finland. The Netherlands was also a naval power hundreds of years ago; yet it has been able to sustain its market capital competitiveness in modern times. Apparently, Portugal and Spain can learn from the Netherlands in attempting to regain their global trading capabilities. In terms of human capital and process capital, Greece and Italy – in looking back upon the past glory of Greek civilization and the Roman Empire – should possess good quality human resources and a well-grounded infrastructure. Yet, the ranking of human capital at #28 and #23, and process capital at #29 and #23 for Greece and Italy, respectively, are in general at the bottom half of the 40-country list. Comparing the four major Southern European countries to the four major Northern European countries (Denmark, Finland, Norway, and Sweden), the former have a more splendid history than the latter; yet the latter, also with ancient civilizations, have become the wealthiest region in the contemporary world. The major challenge for the countries reported in this chapter may lie on how to utilize and transform their precious cultural heritage and geographical location to become the vital sources of future competitiveness. Certainly, there are lessons that these four Southern European countries can learn from the Nordic countries. From the background information presented earlier, each government is trying to engage in some reforms and have witnessed some positive results. Yet, in an era of hyper competition, nations are competing not only for talent and innovation but also for speed. Those nations that are faster in innovating and renewal will fare better in the rapidly changing world. As a result, each country can develop its own niche for lasting competitiveness, as, for instance, Greece’s shipping industry, Italy’s fashion industries, and Portugal’s and Spain’s renewable energy industry. In addition, the four countries can take advantage of being EU members with access to EU funding and assistance to speed up their economic development. Furthermore, the nations’ policy makers can consider how to enhance national wealth with the assistance of successful business organizations, as Italy’s world renowned fashion industries can serve to boost its national development.
wwwwwwwwww
Chapter 8
National Intellectual Capital of Four East Central European Countries and South Africa (Czech Republic, Hungary, Poland, South Africa, Turkey)
Abstract The countries of this cluster are at the bottom half of National Intellectual Capital Indices for 40 Countries (NICI40), with Czech Republic and Hungary in possession of a higher level of national intellectual capital. Czech Republic, Hungary, Poland, South Africa, and Turkey ranked number 27, 23, 33, 31, and 34, respectively. In comparing each individual country’s overall IC ranking, Hungary ranked better in human capital and market capital (both ranked #19), Poland is particularly weak in market capital and process capital (ranked #39 and #35, respectively), and Turkey is comparatively better in market capital (ranked #27). Overall IC Human capital Market capital Process capital Renewal capital Financial capital (NICI40) Mean SD
5.26 0.78
5.02 0.66
4.02 0.61
2.04 0.42
8.76 0.31
25.10 2.29
Country Czech Republic Hungary Poland South Africa
Score Ranking Score Ranking Score Ranking Score Ranking Score Ranking Score Ranking 5.34 29 5.56 22 4.51 28 2.57 24 9.16 26 27.15 27 6.33 19 5.61 26 4.71 36
5.68 4.04 4.84
19 39 31
4.71 3.23 4.02
27 35 30
2.34 1.95 1.84
26 30 32
8.94 8.77 8.37
27 28 36
27.99 23 23.59 33 23.79 31
Turkey
4.33 38
4.98
27
3.61
32
1.51
36
8.57
33
22.99 34
Introduction Czech Republic, Hungary, and Poland came to be regarded as Eastern European countries after the Second World War. All the countries in Eastern Europe had communist regimes imposed upon them by the former Soviet Union (http://en.wikipedia. org/wiki/Western_Europe). Although Turkey is rather a Eurasian country than Eastern European, we group it to East Central Europe in this chapter due to its geographical proximity with the above three countries. In addition, South Africa has a somewhat similar economic development status to these four countries, more than do other countries in the NICI40 list, this study has determined to report their national IC as a cluster. C.Y.-Y. Lin and L. Edvinsson, National Intellectual Capital: A Comparison of 40 Countries, 137 DOI 10.1007/978-1-4419-7377-1_8, © Springer Science+Business Media, LLC 2011
138
8 National Intellectual Capital of Four East Central European Countries
Based on IMF data (International Monetary Fund April 2009 data) the GDP per capita (PPP) in US dollars for the five countries is as follows: Czech Republic (25,395), Hungary (19,499), Poland (17,482), Turkey (13,138), and South Africa (10,119) with rankings of 35, 45, 50, 62, and 79, respectively, in world wealth (http://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29_per_ capita). Although subjected to communism’s command economy for over 4 decades, Czech Republic and Hungary nevertheless enjoy a higher level of national intellectual capital than do South Africa and Turkey. Analysis from the national intellectual capital perspective may provide some answers in explaining their national development. In this country cluster, the overall intellectual capital ranking sequence in descending order is Hungary (23), Czech Republic (27), South Africa (31), Poland (33), and Turkey (34). Table 8.1 shows the results of a comparison of the five types of capital “within” each country and “between” countries in this cluster. Based on each country’s ranking, financial capital ranks first and renewal capital ranks fifth in all five countries. In other words, financial capital earned the highest and renewal capital the lowest score. Human capital, market capital, and process capital are ranked as 3, 2, and 4, respectively, for Czech Republic, South Africa, and Turkey; they are 2, 3, and 4, respectively, for Hungary and Poland. As for an inter-country comparison, Table 8.1 shows that Czech Republic has the best renewal capital and financial capital and the second best market capital and process capital. Hungary has the best human capital, market capital, and process capital and the second best in renewal capital and financial capital. Poland is comparatively better in human capital and weak in market capital and process capital. South Africa has the lowest score in financial capital. Turkey has the lowest score in human capital and renewal capital in this cluster.
National Intellectual Capital of Each Individual Country Figures 8.1–8.5 display the characteristics and trends of national intellectual capital in each East Central European country and South Africa in this chapter. In Fig. 8.1, Czech Republic has made the most progress in process capital with an increase of about 24 percentile points, followed by an increase in human capital of about 20 percentile points, in renewal capital of about nine percentile points, and in financial capital of about two percentile points, in comparing the figures for 1995 and 2008. However, it shows a decrease in market capital of about five percentile points. With respect to financial capital, although the 1–10 rating score showed slight improvement, the real dollar value of its GDP per capita (PPP) increased from US$12,706 in 1995 to US$25,395 in 2008 for a growth rate of 100%. For further improvement and to enhance its competitiveness, Czech Republic should focus on developing its renewal capital – its lowest score – and its regressed market capital. Figure 8.2 indicates that Hungary has made the most progress in process capital with an increase of about 19 percentile points, followed by an increase in human
Table 8.1 Capital mean ratings and rankings of the Four East Central European countries and South Africa from 1995 to 2008 Intellectual capital Overall ranking among Nordic Human Market Process Renewal Financial Overall countries score Mean score capital capital capital capital capital Czech Republic Score 5.34 5.56 4.51 2.57 9.16 27.15 2 Ranking Within 3 2 4 5 1 Between 3 2 2 1 1 Hungary Score 6.33 5.68 4.71 2.34 8.94 27.99 1 Ranking Within 2 3 4 5 1 Between 1 1 1 2 2 Poland Score 5.61 4.04 3.23 1.95 8.77 23.59 4 Ranking Within 2 3 4 5 1 Between 2 5 5 3 3 South Africa Score 4.71 4.84 4.02 1.84 8.37 23.79 3 Ranking Within 3 2 4 5 1 Between 4 4 3 4 5 Score 4.33 4.98 3.61 1.51 8.57 Turkey 22.99 5 Within 3 2 4 5 1 Ranking Between 5 3 4 5 4
34
31
33
23
Overall ranking among 40 countries 27
National Intellectual Capital of Each Individual Country 139
140
8 National Intellectual Capital of Four East Central European Countries Czech Republic Human Capital
10
8 Czech Republic Market Capital 6 Czech Republic Process Capital 4 Czech Republic Renewal Capital 2 Czech Republic Financial Capital
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Czech Republic Human Capital
4.246 4.307 4.564 5.057 5.091 5.227 5.478 5.822 5.582 5.681 5.867 5.824 5.869 6.162
Czech Republic Market Capital
6.080 5.878 5.429 4.906 4.961 5.257 5.698 5.675 5.364 5.570 5.896 5.507 6.038 5.612
Czech Republic Process Capital
2.690 2.666 3.484 3.327 3.872 4.604 5.450 5.448 4.939 5.229 5.749 5.433 5.182 5.088
Czech Republic Renewal Capital 2.284 2.396 2.426 2.361 2.380 2.331 2.479 2.501 2.399 2.561 2.638 3.017 2.973 3.200 Czech Republic Financial Capital 9.141 9.143 9.097 9.079 9.083 9.097 9.113 9.125 9.155 9.181 9.210 9.258 9.292 9.316
Fig. 8.1 Trends of intellectual capital in Czech Republic
Hungary Human Capital
10
8 Hungary Market Capital 6 Hungary Process Capital 4 Hungary Renewal Capital 2 Hungary Financial Capital
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Hungary Human Capital
5.454 5.838 5.850 6.099 6.043 6.484 6.590 6.325 6.360 6.598 6.589 6.712 6.851 6.774
Hungary Market Capital
5.773 5.885 6.057 6.275 6.338 6.002 5.880 5.918 5.438 5.924 5.787 5.314 4.640 4.296
Hungary Process Capital
2.847 3.286 4.096 4.586 4.844 4.998 5.105 5.304 5.034 5.143 5.252 5.384 5.293 4.732
Hungary Renewal Capital 1.849 2.203 2.141 2.299 2.420 2.345 2.256 2.406 2.536 2.589 2.355 2.520 2.438 2.362 Hungary Financial Capital 8.809 8.788 8.795 8.827 8.859 8.890 8.919 8.954 8.994 9.020 9.044 9.074 9.072 9.073
Fig. 8.2 Trends of intellectual capital in Hungary
National Intellectual Capital of Each Individual Country Poland Human Capital
141
10
8 Poland Market Capital 6 Poland Process Capital 4 Poland Renewal Capital 2 Poland Financial Capital
0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Poland Human Capital
4.552 4.574 4.642 5.321 5.943 5.279 5.573 5.894 5.951 5.728 6.134 6.150 6.395 6.421
Poland Market Capital
4.420 4.170 4.299 4.284 4.583 4.041 3.860 3.687 3.551 3.813 3.874 3.777 3.926 4.227
Poland Process Capital
2.524 2.177 2.828 3.081 3.757 3.503 3.159 3.195 3.187 3.110 3.324 3.426 4.020 3.918
Poland Renewal Capital 1.579 2.139 2.220 2.133 2.216 2.123 1.736 1.882 1.910 1.743 1.801 1.806 2.006 1.969 Poland Financial Capital 8.598 8.621 8.649 8.681 8.714 8.739 8.746 8.754 8.789 8.818 8.838 8.886 8.934 8.973
Fig. 8.3 Trends of intellectual capital in Poland
South Africa Human Capital
10
8 South Africa Market Capital 6 South Africa Process Capital 4 South Africa Renewal Capital 2 South Africa Financial Capital 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
South Africa Human Capital
3.852 4.127 4.018 4.866 5.184 5.264 5.301 4.962 4.938 4.779 4.548 4.392 4.418 5.303
South Africa Market Capital
4.782 4.687 4.668 4.451 4.709 4.508 4.824 4.938 5.287 5.219 5.414 4.963 4.463 4.882
South Africa Process Capital
3.100 3.224 3.665 3.658 4.144 4.150 4.248 4.279 4.212 4.058 4.416 4.468 4.237 4.479
South Africa Renewal Capital
1.916 2.096 1.927 2.102 1.968 1.853 1.760 1.750 1.834 1.753 1.750 1.623 1.674 1.817
South Africa Financial Capital 8.367 8.356 8.329 8.304 8.304 8.313 8.319 8.339 8.357 8.373 8.404 8.435 8.462 8.471
Fig. 8.4 Trends of intellectual capital in South Africa
142
8 National Intellectual Capital of Four East Central European Countries Turkey Human Capital
10
8 Turkey Market Capital 6 Turkey Process Capital 4 Turkey Renewal Capital 2 Turkey Financial Capital 0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Turkey Human Capital
3.638 3.860 3.726 4.073 4.376 4.542 4.334 4.359 4.391 4.636 4.697 4.649 4.683 4.655
Turkey Market Capital
5.186 5.013 4.873 4.932 5.357 4.381 4.478 4.492 4.994 5.346 5.217 5.078 5.138 5.171
Turkey Process Capital
2.536 2.912 3.279 3.440 3.927 3.733 3.644 3.569 3.438 3.832 3.954 3.840 4.218 4.185
Turkey Renewal Capital 1.227 1.351 1.375 1.551 1.616 1.515 1.314 1.477 1.395 1.534 1.463 1.645 1.749 1.889 Turkey Financial Capital 8.521 8.536 8.575 8.576 8.520 8.519 8.439 8.476 8.508 8.580 8.643 8.694 8.715 8.711
Fig. 8.5 Trends of intellectual capital in Turkey
capital of about 13 percentile points, in renewal capital of about six percentile points and financial capital of about three percentile points, in comparing the figures for 1995 and 2008. However, it suffered a decrease in market capital of about 15 percentile points. With respect to financial capital, although the 1–10 rating score showed slight improvement, the real dollar value of Hungary’s GDP per capita (PPP) increased from US$9,018 in 1995 to US$19,499 in 2008 for a growth rate of 116%. Starting from 2004, Hungary’s market capital shows a continuous decline. Analysis of the raw data reveals that the decline of market capital was mainly caused by several score changes between 2004 and 2008, including corporate tax incentives (from 5.54 to 3.59), cultural openness (from 7.82 to 5.54), globalization (from 5.32 to 3.16), government policy transparency (from 4.14 to 2.05), and image of country (from 6.27 to 3.13). Similarly, starting from 2006, Hungary’s process capital shows a continuous decline. Analysis of the raw data between 2006 and 2008 reveals that the score changes include declines in government efficiency (from 3.04 to 1.90) and capital availability (from 4.87 to 2.37). For further improvement and to enhance its competitiveness, Hungary should place greater emphasis on its lowest rated renewal capital and its regressed market capital and process capital. Figure 8.3 indicates that Poland has made the most progress in human capital with an increase of about 18 percentile points, followed by an increase in process capital of about 14 percentile points, in renewal capital of about four percentile points and in financial capital of about four percentile points, in comparing the figures for 1995 and 2008. However, it shows a decrease in market capital of about
Comparison of Capital Components of the Four East Central European Countries
143
two percentile points. With respect to financial capital, although the 1–10 rating score showed an improvement of four percentile points, the real dollar value of Poland’s GDP per capita (PPP) increased from US$7,249 in 1995 to US$17,482 in 2008 for a growth rate of 141%. For further improvement and to enhance its competitiveness, Poland should look to develop its renewal capital – its lowest score – and its regressed market capital. Figure 8.4 indicates that South Africa has made most progress in both human capital and process capital with increases of about 14 percentile points, followed by an increase in market capital of about one percentile point and in financial capital of about one percentile point, in comparing the figures for 1995 and 2008. However, it shows a decrease in renewal capital of about one percentile point. With respect to financial capital, although the 1–10 rating score showed a slight improvement, the real dollar value of South Africa’s GDP per capita (PPP) increased from US$5,710 in 1995 to US$10,119 in 2008 for a growth rate of 77%. In general, South Africa does not exhibit much variation in national intellectual capital, except in terms of human capital and process capital. For further improvement and to enhance its competitiveness, South Africa should develop its renewal capital – its lowest score. Figure 8.5 indicates that Turkey has made the most progress in process capital with an increase of about 16 percentile points, followed by an increase in human capital of about ten percentile points, in renewal capital of about seven percentile points and in financial capital of about two percentile points, in comparing the figures for 1995 and 2008. With respect to financial capital, although the 1–10 rating score showed a slight improvement, the real dollar value of Turkey’s GDP per capita (PPP) increased from US$6,693 in 1995 to US$13,138 in 2008 for a growth rate of 96%. For further improvement and to increase its competitiveness, Turkey should develop its renewal capital, its lowest capital rating. Interestingly, all five countries show good progress in human capital and process capital, modest progress in renewal capital, and a decline in market capital over the years except for South Africa. As shown in Figs. 8.1–8.5, in general, all countries have a relative flat intellectual capital development as compared to other country clusters in this study.
Comparison of Capital Components of the Four East Central European Countries and South Africa Figures 8.6–8.10 allow for a further comparison of the five types of capital among the five countries. Figure 8.6 shows that human capital in this cluster exhibits an upward trend, moving from the 35th to the 55th percentiles to the 45th to the 70th percentiles, with Czech Republic and Poland posting the greatest improvement of around 20 and 18 percentile points, respectively, over the 14 years. Starting from 2002, two groups begin to emerge, namely Hungary, Czech Republic, and Poland are the top group, and South Africa and Turkey are the bottom group in human capital.
144
8 National Intellectual Capital of Four East Central European Countries 10
Czech Republic Human Capital
8 Hungary Human Capital 6 Poland Human Capital 4 South Africa Human Capital 2 Turkey Human Capital 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Czech Republic Human Capital 4.246 4.307 4.564 5.057 5.091 5.227 5.478 5.822 5.582 5.681 5.867 5.824 5.869 6.162 Hungary Human Capital
5.454 5.838 5.850 6.099 6.043 6.484 6.590 6.325 6.360 6.598 6.589 6.712 6.851 6.774
Poland Human Capital
4.552 4.574 4.642 5.321 5.943 5.279 5.573 5.894 5.951 5.728 6.134 6.150 6.395 6.421
South Africa Human Capital
3.852 4.127 4.018 4.866 5.184 5.264 5.301 4.962 4.938 4.779 4.548 4.392 4.418 5.303
Turkey Human Capital
3.638 3.860 3.726 4.073 4.376 4.542 4.334 4.359 4.391 4.636 4.697 4.649 4.683 4.655
Fig. 8.6 Comparison of human capital in the East Central European countries and South Africa
Czech Republic Market Capital
10
8 Hungary Market Capital 6 Poland Market Capital 4 South Africa Market Capital 2 Turkey Market Capital 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Czech Republic Market Capital 6.080 5.878 5.429 4.906 4.961 5.257 5.698 5.675 5.364 5.570 5.896 5.507 6.038 5.612 Hungary Market Capital
5.773 5.885 6.057 6.275 6.338 6.002 5.880 5.918 5.438 5.924 5.787 5.314 4.640 4.296
Poland Market Capital
4.420 4.170 4.299 4.284 4.583 4.041 3.860 3.687 3.551 3.813 3.874 3.777 3.926 4.227
South Africa Market Capital
4.782 4.687 4.668 4.451 4.709 4.508 4.824 4.938 5.287 5.219 5.414 4.963 4.463 4.882
Turkey Market Capital
5.186 5.013 4.873 4.932 5.357 4.381 4.478 4.492 4.994 5.346 5.217 5.078 5.138 5.171
Fig. 8.7 Comparison of market capital in the East Central European countries and South Africa
Comparison of Capital Components of the Four East Central European Countries Czech Republic Process Capital
145
10
Hungary Process Capital
8
6 Poland Process Capital 4 South Africa Process Capital 2 Turkey Process Capital 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Czech Republic Process Capital 2.690 2.666 3.484 3.327 3.872 4.604 5.450 5.448 4.939 5.229 5.749 5.433 5.182 5.088 Hungary Process Capital
2.847 3.286 4.096 4.586 4.844 4.998 5.105 5.304 5.034 5.143 5.252 5.384 5.293 4.732
Poland Process Capital
2.524 2.177 2.828 3.081 3.757 3.503 3.159 3.195 3.187 3.110 3.324 3.426 4.020 3.918
South Africa Process Capital
3.100 3.224 3.665 3.658 4.144 4.150 4.248 4.279 4.212 4.058 4.416 4.468 4.237 4.479
Turkey Process Capital
2.536 2.912 3.279 3.440 3.927 3.733 3.644 3.569 3.438 3.832 3.954 3.840 4.218 4.185
Fig. 8.8 Comparison of process capital in the East Central European countries and South Africa
Czech Republic Renewal Capital
10
8 Hungary Renewal Capital 6 Poland Renewal Capital 4 South Africa Renewal Capital
2
Turkey Renewal Capital 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Czech Republic Renewal Capital 2.284 2.396 2.426 2.361 2.380 2.331 2.479 2.501 2.399 2.561 2.638 3.017 2.973 3.200 Hungary Renewal Capital
1.849 2.203 2.141 2.299 2.420 2.345 2.256 2.406 2.536 2.589 2.355 2.520 2.438 2.362
Poland Renewal Capital
1.579 2.139 2.220 2.133 2.216 2.123 1.736 1.882 1.910 1.743 1.801 1.806 2.006 1.969
South Africa Renewal Capital
1.916 2.096 1.927 2.102 1.968 1.853 1.760 1.750 1.834 1.753 1.750 1.623 1.674 1.817
Turkey Renewal Capital
1.227 1.351 1.375 1.551 1.616 1.515 1.314 1.477 1.395 1.534 1.463 1.645 1.749 1.889
Fig. 8.9 Comparison of renewal capital in the East Central European countries and South Africa
146
8 National Intellectual Capital of Four East Central European Countries Czech Republic Financial Capital
10
8 Hungary Financial Capital 6 Poland Financial Capital 4 South Africa Financial Capital 2 Turkey Financial Capital 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Czech Republic Financial Capital 9.141 9.143 9.097 9.079 9.083 9.097 9.113 9.125 9.155 9.181 9.210 9.258 9.292 9.316 Hungary Financial Capital
8.809 8.788 8.795 8.827 8.859 8.890 8.919 8.954 8.994 9.020 9.044 9.074 9.072 9.073
Poland Financial Capital
8.598 8.621 8.649 8.681 8.714 8.739 8.746 8.754 8.789 8.818 8.838 8.886 8.934 8.973
South Africa Financial Capital
8.367 8.356 8.329 8.304 8.304 8.313 8.319 8.339 8.357 8.373 8.404 8.435 8.462 8.471
Turkey Financial Capital
8.521 8.536 8.575 8.576 8.520 8.519 8.439 8.476 8.508 8.580 8.643 8.694 8.715 8.711
Fig. 8.10 Comparison of financial capital in the East Central European countries and South Africa
Figure 8.7 indicates that market capital in this cluster generally varied between the 40th and the 60th percentiles without too much improvement, with Hungary undergoing the greatest decline, followed by Czech Republic. From 1997 to 2004, Hungary led in market capital in this cluster; yet starting from 2005, a continuous slide led to its becoming the second lowest performer in 2008. The market capital sequence of the other four countries basically remains the same with Czech Republic number one in market capital in both 1995 and 2008. Figure 8.8 indicates that process capital in this cluster has undergone the greatest improvement among all five capital categories, moving from around the 25th to the 30th percentiles to around the 40th to the 50th percentiles, with Czech Republic posting the greatest increase. The two laggards between 2000 and 2006 – Poland and Turkey – began to catch up to the other countries in process capital in 2007. Figure 8.9 shows that the development of renewal capital in this cluster is quite flat, moving from around the 15th to the 25th percentiles to around the 20th to the 35th percentiles. In other words, little progress in renewal capital was made by the countries in this cluster over the 14 years, with the exception of Czech Republic. As for the 1–10 scale financial capital, Fig. 8.10 shows little change in this cluster, with Czech Republic consistently the top performer and South Africa the poorest performer. Yet, in real dollar values of GDP per capita (PPP), over the 14 years, Czech Republic achieved 100% growth, Hungary 116% growth, Poland 141% growth, South Africa 77% growth, and Turkey 96% growth. In this cluster, Poland has the most outstanding financial achievement, followed by Hungary. The above analyses reveal some interesting phenomena. For instance, Poland has the greatest GDP per capita (PPP) growth yet it has the lowest market capital
Three-Period Progression of National Intellectual Capital Development
147
and process capital in the cluster. What is its main source of growth? South Africa and Turkey were never communist countries. Why has their economic development been slower than that of the other three former communist countries? The renewal capital of this cluster is comparatively low, between the 15th and the 30th percentiles. Is this low status related to their poorer financial performance? These are several of the most engaging issues requiring further study.
Three-Period Progression of National Intellectual Capital Development As stated in the previous chapters, sections “National Intellectual Capital of Each Individual Country” and “Comparison of Capital Components of the East Central European Countries and South Africa” present the results of a data analysis for a total of 14 years, spanning from 1995 to 2008. However, the results are somewhat limited in nature, with comparisons focusing on the initial year (1995) and the concluding year (2008) of each form of capital in each country. To get a more complete picture of the dynamics of the capital development over the 14 years, we prepared Table 8.2, which assesses the changes of capital rankings in three periods (the first and second periods consist of 5 years and the third period consists of 4 years), viz., 1995–1999 is the first period, 2000–2004 is the second period, and 2005–2008 is the third period. This division of Table 8.2 into periods makes it easier to visualize the development and perhaps even the future trends of the five types of capital for each country. We employ the sequence of human capital, market capital, process capital, renewal capital, financial capital, and overall IC. The second column in Table 8.2 exhibits the overall ranking difference between the first period and the third period. The third column is the ranking of the first period, and the fourth and the fifth columns display respective rankings and differences with regard to the previous period. The last column compares the most recent third period ranking with the overall NICI40 ranking. Over the entire course of the three periods, Czech Republic had the most apparent national IC progress in this cluster over the three periods, followed by Turkey. In comparing the ranks of the first period and the third period, Czech Republic increased its ranking in human capital (4), market capital (10), process capital (10), renewal capital (2), and overall IC (7). Hungary increased its ranking in renewal capital (1), but decreased in human capital (−6), market capital (−10) and overall IC (−3). Poland increased its ranking in process capital (5), financial capital (4) and overall IC (2), but it decreased in market capital (−1) and renewal capital (−4). South Africa increased its ranking in market capital (8), but it decreased in human capital (−3), renewal capital (−6) and overall IC (−2). Turkey increased its ranking in market capital (8) and overall IC (5), but it decreased in financial capital (−1). Furthermore, in comparing the ranking of the most recent third period with the
2 1 −4 −6 0
24 27 28 29 36
24 26 30 32 36
27 28 35 31 33 0 1 −2 −3 0
6 −1 4 −2 −1 22 26 32 35 36
23 27 34 29 32
Renewal capital Czech Republic Hungary Poland South Africa Turkey
33 27 39 29 32
2 0 −2 −3 0
4 1 1 2 1
5 −7 0 1 8
24 26 30 32 36
28 27 35 30 32
22 19 39 31 27
10 0 5 0 0
5 −3 −1 7 0
Process capital Czech Republic Hungary Poland South Africa Turkey
21 19 39 28 33
16 26 39 27 25
26 16 38 35 33
10 −10 −1 8 8
Market capital Czech Republic Hungary Poland South Africa Turkey
2 0 −2 −3 0
5 0 1 1 0
6 −7 0 4 2
1 −3 −1 −3 0
29 19 26 36 38
28 22 27 39 38
1 −2 1 −6 −1
3rd period ranking vs. overall NICI40 ranking NICI40 ranking Difference
3rd period (2005–2008) Ranking Difference
Table 8.2 Changes in intellectual capital rankings over the three periods 1st to 3rd 1st period period (1995–1999) 2nd period (2000–2004) Difference (1) Ranking Ranking Difference Human capital Czech Republic 4 32 29 3 Hungary −6 16 20 −4 Poland 0 27 28 −1 South Africa −3 36 33 3 Turkey 0 38 37 1
148 8 National Intellectual Capital of Four East Central European Countries
25 27 32 36 33
26 27 28 36 34
−1 0 4 0 −1
25 27 28 36 34
1 0 0 0 0
26 27 28 36 33
1 0 0 0 −1
Overall IC Czech Republic 7 29 26 3 22 4 27 5 Hungary −3 23 23 0 26 −3 23 −3 Poland 2 33 33 0 31 2 33 2 South Africa −2 32 31 1 34 −3 31 −3 Turkey 5 38 35 3 33 2 34 1 Remarks: (1) The second column compares the 3rd period ranking with the 1st period ranking. (2) The last column compares the most current 3rd period ranking with the original 14-year NICI40 ranking summarized in the abstract
Financial capital Czech Republic 0 Hungary 0 Poland 4 South Africa 0 Turkey −1
Three-Period Progression of National Intellectual Capital Development 149
150
8 National Intellectual Capital of Four East Central European Countries
14-year NICI40 ranking reported in the abstract, Czech Republic advanced five ranks (from #27 to #22), Poland advanced two ranks (from #33 to #31), and Turkey advanced one rank (from #34 to #33), whereas South Africa declined three ranks (from #31 to #34) and Hungary declined three ranks (from 23 # to #26).
General Descriptive Information on the Four East Central European Countries and South Africa As stated in the previous chapters, the above sections basically present results based on statistical analyses of IMD secondary data spanning from 1995 to 2008. To complement the quantitative data analyses, this section provides some background information for each country that may help explain the results of this study as well as shed further light on their future intellectual capital development. Due to the magnitude of relevant information, this study does not intend nor does it have the resources to provide in-depth depictions of country backgrounds in abundant detail. As a result, what we are presenting hereunder is a summary of information closely related to intellectual capital available from public sources, including a number of objective indicators published by various world organizations (e.g., the United Nations’ Human Development Index), web information from http://en.wikipedia.org/wiki and relevant articles posted on the Internet. Although different indicators cover different dimensions (e.g., the Human Development Index also covers health/life expectancy, and purchasing power; PISA covers only students’ performances) and do not have an equal comparison basis, they still provide valuable information on individual nations as exhibited in Table 8.3. In addition to the statistics presented in Table 8.3 derived from 16 different sources, we summarize relevant information for each country in the sequence of human capital, market capital, process capital, renewal capital, financial capital, and future perspective. The ranking under country name is the overall ranking of each respective capital in the abstract. We also include observations that incorporate the 14-year data analysis and the relevant current indicators reported in Table 8.3. Inevitably, the summaries presented in Tables 8.4–8.9 are susceptive to subjectivity due to information availability; nevertheless, the information provided is meant to show different avenues for observing intellectual capital development. Readers are encouraged to expand their own interpretation from various information sources and different angles. To highlight the future perspectives of each country, the last four indicators of Table 8.3 have been provided for readers’ reference – World Competitiveness by the IMD, Global Competitiveness by the World Economic Forum, the Environmental Sustainability Index by Yale University, and the Environmental Performance Index by Yale University. We summarize hereunder some information that may be relevant to the intellectual development of each country.
9. Internet usership/ population 48.9%
10. Mobile telephone (#/score) 13/135.3
23/482 7/508 – 37/447
19/504 22/498 – 43/424
12. 11. R&D Innovation score RC (#) PC (#) (#/%) 28 21/1.54 0.40 24
24/491 22/495 – 41/424
PISA reading (#/score) 22/483
4. PISA science PISA math (#/score) (#/score) 12/513 14/510
13.World comp. (#) 29
15.4% 9% 0.8% 7.6%
5. Broad band/ population 17.3%
24 41 59 65
16. EPI (#/score) 68/76.8
19 39 31 27
6. Globali zation (#) MC (#) 19 22
14. Global comp. (#/ 15. ESI score) (#/score) 31/4.67 92/46.6
19 26 36 38
HC # 29
Czech Republic Hungary 41/4.97 33/6.30 55.5% 24/122.2 27 32/0.97 0.32 26 45 58/4.22 54/52.0 23/84.2 Poland 46/4.57 41/5.83 52% 45/108.7 35 44/0.56 0.31 30 44 46/4.33 102/45.0 42/80.5 South Africa 34/5.59 39/5.95 9.4% 64/92.2 30 33/0.92 – 32 48 45/4.34 93/46.2 97/69.0 Turkey 40/4.98 43/5.64 34.5% 71/86.8 32 41/0.58 0.21 36 47 61/4.16 91/46.6 72/75.9 Remark: “#” refers to ranking among respective members and the numbers are the most current data available in 2009. Please refer to the reference section for a list of the sources of these 16 indicators
7. Quality of life 8. e-Readiness (#/score) (#/score) 22/7.32 31/6.68
Table 8.3 National intellectual capital-related indicators and ranking 2. Education GDP per capita Overall (PPP) growth 1. Popula expenditures IC 3. HDI 2008/1995 tion (000) (#/%) ranking Czech 27 100% 10,212 43/3.9 35 Republic Hungary 23 116% 9,906 16/5.8 38 Poland 33 141% 38,483 23/5.2 39 South Africa 31 77% 49,052 7/6.7 125 Turkey 34 96% 76,806 51/3.1 76
Table 8.4 Background information on human capital for East Central European countries and South Africa Country Human capital Observations From Table 8.3, Czech Republic spent 3.9% of its GDP on Czech Republic UN Human Development Index ranking: #35 out of 179 (2008) education and students’ PISA performance ranked 12/14/22 for HC40#29 Broadband internet subscribers – 17.3% (2009 est.) science, math, and reading, respectively, out of 57 countries. Labor force – 5.37 million (2008 est.) Czech Republic is ranked HC40#29 with a 20 percentile-point Unemployment – 8% (2009 est.) improvement over the 14 years and advanced 4 ranks from the The tourism industry employs more than 110,000 people – 1st to the 3rd period (refer to Table 8.2) over 1% of the population From Table 8.3, Hungary spent 5.8% of its GDP on education (the Hungary UN Human Development Index ranking: #38 out of 179 (2008) second highest in this cluster). It is ranked HC40#19 with a 13 HC40#19 Broadband internet subscribers – 15.4% (2009 est.) percentile-point improvement over the 14 years; yet declined Labor force – 4.2 million (2008 est.) 6 ranks from the 1st to the 3rd period (refer to Table 8.2). In Unemployment – 9.8% (2009 est.) addition, students’ PISA performance ranked 19/24/23 for science, In the past, Hungary was celebrated for its excellent mathematics math, and reading, respectively, out of 57 countries (lower than education which provided training for numerous outstanding Czech Republic, which invested 3.9% GDP on education) (refer scientists to Table 8.3). Students’ PISA “math” performance is relatively low when considering Hungary’s past accomplishments in mathematics education From Table 8.3, Poland spent 5.2% of its GDP on education, and UN Human Development Index ranking: #39 out of 179 (2008) Poland students’ PISA performance ranked 22/22/7 for science, math, and HC40#26 Broadband internet subscribers – 9% (data reading, respectively, out of 57 countries. It is ranked HC40#26 up to 2007) with an 18 percentile-point improvement over the 14 years and Labor force – 16.95 million (2008 est.) without any rank change between the 1st to the 3rd period (refer Unemployment – 8.1% (2009 est.) to Table 8.2). Its broadband subscriber rate of 9% is very low, which may hamper new knowledge acquirement
152 8 National Intellectual Capital of Four East Central European Countries
Turkey HC40#38
South Africa HC40#36
UN Human Development Index ranking – #125 out of 179 (2008) Broadband internet subscribers – 0.8% (data up to 2007) Labor force – 18.22 million economically active (2008 est.) Unemployment – 23.5% (2009 est.) Restrictive labor regulations have resulted in a high unemployment rate South Africa has lost 25% of its graduate students to the USA alone. Moreover, South Africans account for 9.7% of all international medical graduates practicing in Canada UN Human Development Index ranking: #76 out of 179 (2008) Broadband internet subscribers – 7.6% (2009 est.) Labor force – 23.21 million, yet about 1.2 million Turks work abroad (2008 est.) Unemployment – 14.9% (2009 est.) Turkish children spend on average fewer years in school compared with their European counterparts. Turkey also falls short of the European standard regarding the quality of the educational system Turkey’s private sector is doing better in providing on-the-job training to workers From Table 8.3, Turkey spent 3.1% of its GDP on education (the lowest in this cluster) and it is ranked HC40#38, at the bottom, with an 11 percentile-point improvement over the 14 years and without any rank change from the 1st to the 3rd period (refer to Table 8.2). Its broadband subscriber ratio of 5% is very low, which may hamper effective new knowledge acquirement. The quality of the Turkish educational system is a concern, as reflected in students’ PISA performance (ranked 43/41/37 for science, math, and reading, respectively, out of 57 countries)
From Table 8.3, South Africa spent 6.7% of its GDP on education (the highest in this cluster). It is ranked HC40#36 with a 14 percentile-point improvement over the 14 years; yet declined 3 ranks from the 1st to the 3rd period (refer to Table 8.2). It is ranked HC40#36, in spite of its high investment in education. As a result, the effectiveness of South Africa’s human resource development needs to be re-examined
General Descriptive Information on the Four East Central European Countries 153
Poland MC40#39
1995 to the current figure of almost 80% Hungary is one of the 15 most popular tourist destinations in the world Exports – $190.5 billion f.o.b. (2008 est.), imports – $213.9 billion f.o.b. (2008 est.) The value of Poland’s telecommunication market grew by 12.4% in 2007
Poland is ranked #41 out of 72 countries in the Globalization Index (refer to Table 8.3). It is ranked MC40#39, the lowest in this cluster which shows a decline of 2 percentile points over the 14 years and a 1-rank decline from the 1st to the 3rd period (refer to Table 8.2). Poland should learn from Czech Republic concerning how to build up its market capital
Table 8.5 Background information on market capital for East Central European countries and South Africa Country Market capital Observations Czech Republic is ranked #19 out of 72 countries in the Czech Republic Exports – $145.8 billion f.o.b. (2008 est.), imports – $141.4 billion Globalization Index (the highest in this cluster) (refer MC40#22 f.o.b. (2008 est.) to Table 8.3). It is ranked MC40 #22 with a decline of In 2001, total earnings from tourism reached 118.13 billion CZK, 5 percentile points over the 14 years, yet advanced 10 making up 5.5% of Czech Republic’s GNP and 9.3% of overall ranks from the 1st to the 3rd period (refer to Table 8.2). export earnings Tourism, foreign trade, foreign direct investment, and its Foreign trade has played a crucial role in the transformation of the geographical location in Europe favor its market capital Czech economy from a centrally planned to a market economy development after 1989. The Czech Republic has continued to build up its network of preferential trade agreements There has been a major influx of foreign direct investment, as Czech Republic has been able to capitalize on its skilled labor force, developed infrastructure, relatively low production costs, and a suitable position in the center of Europe Hungary Exports – $109.3 billion f.o.b. (2008 est.), imports – $107.5 billion f.o.b. Hungary is ranked #24 out of 72 countries in the Globalization MC40#19 (2008 est.) Index (refer to Table 8.3). It is ranked MC40 #19, the highest in this cluster; yet shows a decline of 15 percentile Hungary gets nearly one-third of all Central European foreign direct points over the 14 years and declined 10 ranks from the investment. It enjoys strong trade, fiscal, monetary, investment, 1st to the 3rd period (refer to Table 8.2). Hungary has a business, and labor freedom. Around 60% of all new companies are very favorable foreign investment system, which appears wholly foreign-owned to contribute to its market capital accumulation; however, The rule of law is strong, a professional judiciary protects property its drastic drop of market capital in recent years has sent a rights, and the level of corruption is low warning to policy makers The ratio of exports-to-GDP has risen from less than 45% of GDP in
154 8 National Intellectual Capital of Four East Central European Countries
Turkey MC40#27
South Africa MC40#31
Exports – $81.47 billion f.o.b. (2008 est.), imports – $87.3 billion f.o.b. (2008 est.) South Africa is a popular tourist destination, and a substantial amount of revenue comes from tourism Exports reached 29.1% of GDP in 2001, up from 11.5% a decade ago. South Africa’s major trading partners include the UK, the USA, Germany, Italy, Belgium, China, and Japan Exports – $141.8 billion f.o.b. (2008 est.), imports – $204.8 billion f.o.b. (2008 est.) Since the economic crisis of 2001, Turkey has gradually opened up its markets through economic reforms, reduction of government controls on foreign trade and the privatization of publicly owned industries Turkey’s tourism sector has experienced rapid growth in the last 20 years, and constitutes an important part of the economy. In 2005, there were 24,124,501 visitors to the country, contributing 18.2 billion USD to Turkey’s revenues Turkey is ranked #65 out of 72 countries in the Globalization Index (the lowest in this cluster) (refer to Table 8.3). It is ranked MC40#27 with no score change over the 14 years, yet advanced 8 ranks from the 1st to the 3rd period (refer to Table 8.2). Turkey’s opening up of its markets and economic reforms should contribute to its market capital growth
South Africa is ranked #59 out of 72 countries in the Globalization Index (refer to Table 8.3). It is ranked MC40#31 with a 1 percentile point improvement over the 14 years and advanced 8 ranks from the 1st to the 3rd period (refer to Table 8.2). The improvement in ranking suggests that South Africa is catching up to other countries
General Descriptive Information on the Four East Central European Countries 155
Poland PC40#35
Hungary PC40#27
harmonizing its standards and technical regulations with those of the EU Internet usership – 55.5% of the population (2009 est.) Economic reform measures such as health-care reform, tax reform, and local government financing are being addressed by the present government Throughout the 1980s, Hungary invested significantly in its infrastructure, making it one of the most modern East Central European countries Hungary has successfully privatized 75% of its state-owned enterprises. In 1991–1992, the government forced large enterprises to divest themselves of small units, and nearly 7,000 new small businesses were created Internet usership – 52% of the population (2009 est.) The value of Poland’s telecommunications market is zl 38.2 bn (2006), and it grew by 12.4% in 2007 The coverage of mobile cellular is over 1,000 users per 1,000 people (2007)
Based on Table 8.3, Poland’s quality of life, e-readiness, and mobile telephone subscribers rankings are #46 out of 57, #41 out of 70, and #45 out of 133, respectively. It is ranked PC40#35 with a 14 percentile-point improvement over the 14 years and advanced 5 ranks from the 1st to the 3rd period (refer to Table 8.2)
Based on Table 8.3, Hungary’s quality of life, e-readiness, and mobile telephone subscribers rankings are #41 out of 57, #33 out of 70, and #24 out of 133, respectively. It is ranked PC40#27 with a 19 percentile-point improvement over the 14 years and without any rank change from the 1st to the 3rd period (refer to Table 8.2). Hungary is clearly determined to implement various reforms which may contribute to increasing its process capital over the coming years
Table 8.6 Background information on process capital for East Central European countries and South Africa Country Process capital Observations Based on Table 8.3, Czech Republic’s quality of life, Czech Republic Internet usership – 48.9% of the population (2009 est.) e-readiness, and mobile telephone subscribers rankings PC40#28 Most of the economy has been privatized, including banks and are #22 out of 57, #31 out of 70, and #13 out of 133 telecommunications, the energy industry, and the Prague airport (the highest in this cluster), respectively. It is ranked Nuclear energy provides about 30–40% of total power needs PC40#28 with a 24 percentile-point improvement over Roads are in good condition with a highway network, a good the 14 years and advanced 10 ranks from the 1st to the tourism infrastructure in every big city and tourist resorts 3rd period (refer to Table 8.2) As part of its accession to the EU, the Czech Republic is
156 8 National Intellectual Capital of Four East Central European Countries
Internet usership – 9.4% of the population (2009 est.) South Africa suffers from a relatively heavy regulation burden compared to developed countries. State ownership and interference impose high barriers to entry in many areas As of 2005, agriculture has contributed only 3.4% to the country’s GDP, while services account for 65.1%
Internet usership – 34.5% of the population (2009 est.) The quality of Turkey’s infrastructure is significantly below that of the EU average; of particular concern is the quality of Turkish railroads and an electricity supply that suffers frequent interruptions and shortages Turkey’s information communication technology (ICT) infrastructure and penetration rates remain very low; the use of personal computers, the Internet, and cellular telephones are all quite low by European standards
South Africa PC40#30
Turkey PC40#32
Based on Table 8.3, the quality of life in South Africa is #34 out of 57, the second best in this cluster, after Czech Republic. Yet, its e-readiness (#39 out of 70) and mobile telephone subscriber ranking (#64 out of 133) are in the middle range of all countries assessed. It is ranked PC40#30 with a 14 percentile-point improvement over the 14 years and without any rank change from the 1st to the 3rd period (refer to Table 8.2) Based on Table 8.3, Turkey’s quality of life, e-readiness, and mobile telephone subscriber rankings are #40 out of 57, #43 out of 70, and #71 out of 133, respectively, which are relatively low in this cluster. It is ranked PC40#32 with a 17 percentile-point improvement over the 14 years; yet without any rank change from the 1st to the 3rd period (refer to Table 8.2). Turkey needs to improve its national infrastructure
General Descriptive Information on the Four East Central European Countries 157
Table 8.7 Background information on renewal capital for East Central European countries and South Africa Country Renewal capital Observations R&D expenditure – 1.54% of its GDP (2008) European innovation scoreboard ranking – #18 out of 33; Czech Republic Czech (the highest in this cluster) scored 0.4 in 2008 Republic Czech Republic is ranked RC40#24 with a 9 RC40#24 A national R & D policy was adopted in 2000 percentile-point improvement over the 14 years Pharmaceutical/bio-technology clusters have formed around Prague, Brno, and advanced 2 ranks from the 1st to the 3rd Hradec Kralove for R&D outsourcing period (refer to Table 8.2) R&D expenditure – 0.97% of its GDP (2008) Hungary European innovation scoreboard ranking – #25 out of 33; Hungary scored 0.32 Hungary is ranked RC40#26 with a 6 percentile-point RC40#26 in 2008 improvement over the 14 years and advanced Hungary boasts internationally recognized R&D – particularly in the fields of 1 rank from the 1st to the 3rd period (refer to mechanical engineering, chemical engineering, medical sciences and natural Table 8.2) sciences. The World Economic Forum ranked Hungary 24th in terms of the quality of its scientific research institutions R&D expenditure – 0.56% of its GDP (2008) (the Poland European innovation scoreboard ranking – #27 out of 33; Poland scored 0.31 lowest in this cluster) RC40#30 in 2008 Poland is ranked RC40#30 with a 4 percentile-point There are around 300 R&D institutes and around 91,000 scientists in Poland improvement over the 14 years, yet declined Multinational companies such as ABB, Delphi, Google, Hewlett–Packard, 4 ranks from the 1st to the 3rd period (refer to IBM, Intel, LG Electronics, and Microsoft have set up their R&D centers Table 8.2). In spite of the fact that Poland has a in Poland. Poland has become the biggest R&D hub in Central and Eastern rather strong R&D base, various indicators do Europe, with its highly qualified labor force, universities, the support of not reflect any benefit from such an advantage. authorities, and the largest market in Central Europe Therefore, the effectiveness of its R&D investment In 2006, Intel decided to double the number of employees in its R&D center needs to be re-examined in Poland
158 8 National Intellectual Capital of Four East Central European Countries
Turkey RC40#36
South Africa RC40#32
South Africa has some well-known medical achievements, e.g., the first human-to-human heart transplant was performed by cardiac surgeon Christiaan Barnard at Groote Schuur Hospital in December 1967; Max Theiler developed a vaccine against Yellow Fever; Allan McLeod Cormack pioneered X-ray computed tomography; and Aaron Klug developed crystallographic electron microscopy techniques. These advancements were all recognized with Nobel Prizes. Sydney Brenner won most recently, in 2002, for his pioneering work in molecular biology South Africa is currently building the Karoo Array Telescope as a pathfinder for the $20 billion square kilometer array project European innovation scoreboard ranking – #33 out of 33; Turkey scored 0.21 in 2008 (the lowest) Turkey’s business sector and academia score better than the government does on R&D Turkey ranks a disappointing 70th place for the number of US utility patents granted per million inhabitants R&D expenditure – 0.58% of its GDP (2008) Turkey is ranked RC40#36, at the bottom, with a 7 percentile-point improvement over the 14 years and without any rank change from the 1st to the 3rd period (refer to Table 8.2). Turkey’s R&D and innovation-related system need to be improved
R&D expenditure – 0.92% of its GDP (2008) (the second largest in this cluster) South Africa is ranked RC40#32 with a decline of 1 percentile point over the 14 years and declined 6 ranks from the 1st to the 3rd period (refer to Table 8.2). South Africa is aggressively involved in the global R&D project
General Descriptive Information on the Four East Central European Countries 159
Table 8.8 Background information on financial capital for East Central European countries and South Africa Country Financial capital GDP per capita (PPP) – $25,395 (IMF 2009 report) Czech Republic The Czech Republic has been recovering from recession since mid-1999. Recent growth has been FC40#26 led by exports to the European Union Growth dropped to 0.3% in 1997, −2.3% in 1998, and −0.5% in 1999. The basic transition problem continues to be too much direct and indirect government influence on the privatized economy GDP growth – 3.9% in 2008, 6% in 2007 and 6.8% in 2006 Hungary GDP per capita (PPP) – $19,499 (IMF 2009 report) FC40#27 The private sector accounts for over 80% of Hungary’s GDP Hungary exhibited consistent GDP annual growth of 4% in the late 1990s Inflation (CPI) – 3.0% (2009 est.) GDP growth – −1.5% in 2008, 1.3% in 2007 and 3.9% in 2006 Poland GDP per capita (PPP) – $17,482 (IMF 2009 report) FC40#28 Poland is considered to have the strongest economy of all Eastern European countries. The prospect of closer integration with the European Union has put the economy back on track Poland’s resilience can be attributed mainly to its balanced and consistent macroeconomic policy, structural reforms, and relatively strong and transparent financial system GDP growth – 4.8% in 2008, 6.7% in 2007, 6.2% in 2006, 3.3% in 2005, 5.4% in 2004, and 3.7% in 2003 South Africa GDP per capita (PPP) – $10,119 (IMF 2009 report) FC40#36 Since 1999, quarterly GDP growth has been positive and annual GDP growth consistently above 2%. Between 1996 and 2004, GDP growth averaged 3.1%, rising to 4.5% (based on 2005 market prices) in 2004 GDP growth – 2.8% in 2008, 5.1% in 2007 and 5.3% in 2006 Turkey GDP per capita (PPP) – $13,138 (IMF 2009 report) FC40#33 During the 1980s, the government’s reforms spurred rapid growth, but this growth was punctuated by sharp recessions and financial crises in 1994, 1999, and 2001. The lack of additional reforms, combined with large and growing public sector deficits and widespread corruption, has resulted in high inflation, a weak banking sector, and increased macroeconomic volatility However, the GDP growth rate from 2002 to 2007 averaged 7.4%, with GDP growth – 1.5% in 2008, 4.6% in 2007, and 6.9% in 2006 Turkey was ranked #62 in GDP per capita (PPP) in 2008 with a GDP growth (1995 vs. 2008) of 96%
South Africa was ranked #79 in GDP per capita (PPP) in 2008 (the lowest in this cluster) with a GDP growth (1995 vs. 2008) of 77%
Poland was ranked #50 in GDP per capita (PPP) in 2008 with a GDP growth (1995 vs. 2008) of 141%. From the description at left, Poland’s continuous economic growth can be anticipated
Hungary was ranked #45 in GDP per capita (PPP) in 2008 with a GDP growth rate (1995 vs. 2008) of 116%
Observations Czech Republic was ranked #35 in GDP per capita (PPP) in 2008 with a GDP growth rate (1995 vs. 2008) of 100%
160 8 National Intellectual Capital of Four East Central European Countries
Summary
161
Table 8.9 Background information on future perspectives for East Central European countries and South Africa Country Czech IMD World Competitiveness ranking – #29 out of 57 countries (2009) Republic World Economic Forum global competitiveness – #31 out of 133 (2009–2010) Environmental Sustainability Index (ESI) – #92 out of 149 (2005, a projectbased ranking conducted in 2005) Environmental Performance Index (EPI) – #68 out of 149 (2008) The rate of corruption remains one of the highest among OECD countries GDP (PPP) per hour worked 2007 – 12.65 Hungary IMD World Competitiveness ranking – #45 out of 57 countries (2009) World Economic Forum global competitiveness – #58 out of 133 (2009–2010) Environmental Sustainability Index (ESI) – #54 out of 149 (2005, a projectbased ranking conducted in 2005) Environmental Performance Index (EPI) – #23 out of 149 (2008) No one knows why the black market persists in Hungary to a greater extent than in other Eastern European countries. One explanation is that Hungarians cannot tolerate high taxes imposed by governments they do not fully support GDP (PPP) per hour worked 2007 – 12.15 Poland IMD World Competitiveness ranking – #44 out of 57 countries (2009) World Economic Forum global competitiveness – #46 out of 133 (2009–2010) Environmental Sustainability Index (ESI) – #102 out of 149 (2005, a projectbased ranking conducted in 2005) Environmental Performance Index (EPI) – #42 out of 149 (2008) GDP (PPP) per hour worked 2007 – 12.31 South Africa IMD World Competitiveness ranking – #48 out of 57 countries (2009) World Economic Forum global competitiveness – #45 out of 133 (2009–2010) Environmental Sustainability Index (ESI) – #93 out of 149 (2005, a projectbased ranking conducted in 2005) Environmental Performance Index (EPI) – #97 out of 149 (2008) South Africa held its first multi-racial elections in 1994, leaving the newly elected African National Congress (ANC) government the daunting task of trying to restore order to an economy harmed by international sanctions, while also integrating the previously disadvantaged segment of the population into it GDP (PPP) per hour worked 2007 – no data Turkey IMD World Competitiveness ranking – #47 out of 57 countries (2009) World Economic Forum global competitiveness – #61 out of 133 (2009–2010) Environmental Sustainability Index (ESI) – #91 out of 149 (2005, a project-based ranking conducted in 2005) Environmental Performance Index (EPI) – #72 out of 149 (2008) There are large macroeconomic imbalances and the rather wide gap with international standards on human rights, freedom of expression, minority rights, and judicial independence GDP (PPP) per hour worked 2007 – 13.30
Summary In general, the four East Central European countries and South Africa are ranked in the middle of NICI40 – 23rd, 27th, 31st, 33rd, and 34th. Considering their relatively low GDP per capita, they invest a relatively high percentage of GDP in
162
8 National Intellectual Capital of Four East Central European Countries
education, ranging from 3.1% (Turkey) to 6.7% (South Africa); they have middle level e-readiness, ranging from rankings of #31 to #43 out of 70 countries. Human capital and process capital are the areas that have shown greater improvement, whereas market capital has generally declined. In this cluster, the former communist countries have more significant GDP per capita growth – Czech Republic (100%), Hungary (116%), and Poland (141%) than do the non-communist countries – South Africa (77%) and Turkey (96%). Among them, Hungary has the overall best performance, yet it declined in human capital, market capital, and in its overall NICI40 ranking. On the other hand, Czech Republic has greatly improved over the three time periods and may surpass Hungary in the near future in national intellectual capital. In addition, Czech Republic’s world competitiveness and global competitiveness presented in Table 8.3 both ranked higher than those of Hungary. Furthermore, Czech Republic invested the least GDP percentage (3.9%) in education in this cluster, yet achieved the best students’ PISA performance, which implies that the return on its educational investment is higher than that of other countries. Czech Republic has much lower Environment Sustainability Index and Environment Performance Index scores than does Hungary. Poland has improved significantly its process capital and financial capital, which may explain its GDP growth of 141%, the highest in this cluster. South Africa and Turkey are the two poorest countries in this cluster and have made less progress in national intellectual capital. Their human capital ranking of #36 and #38 agrees with their low HDI rankings of #125 and #76, respectively, out of 179 countries. We return to the questions posited earlier as to why Poland has relatively good financial capital and GDP growth, despite its low market capital and process capital; why South Africa and Turkey were surpassed by the three former communist countries in financial performance; and whether low renewal capital is the main reason for the poor financial performance of the countries in this cluster. Plausible explanations include that Poland has relatively better human capital and renewal capital which may result in better financial performance. The government of the three former communist countries implemented aggressive reforms to boost economic development after the iron curtain was lifted, and the high correlation between renewal capital and financial performance is evidenced by other country clusters. However, potential problem of Czech Republic may revolve around environmental issues. Hungary may need to be cautious about the risk of the high percentage of foreign-owned companies, particularly the industries that have national strategic concerns, keeping in mind the banking system breakdown of Iceland in the 2008 financial crisis. In summary, East Central Europe is a very promising region with more and more countries joining the EU and benefiting from EU funding for economic development. When moving toward prosperity, matching progress in human capital, market capital, process capital, and renewal capital can help sustain a country’s competitiveness. In addition, students’ performance and environmental issues should also be high on the agenda.
Chapter 9
National Intellectual Capital of Two North American Countries (Canada, USA)
Abstract The two North American countries are in the first quarter percentile of National Intellectual Capital Indices for 40 Countries (NICI40). Canada and the USA ranked number 10 and 5, respectively. Comparatively, Canada has better human capital (ranked #3) and the USA has better financial capital (ranked #2). The USA is relatively weak in market capital (ranked #17).
Mean SD
Human capital
Market capital
Process capital
Overall intellectual Renewal capital Financial capital capital
7.72 0.17
6.11 0.28
6.77 0.28
6.00 1.64
9.80 0.12
36.40 1.61
Country Score Ranking Score Ranking Score Ranking Score Ranking Score Ranking Score Canada 7.84 3 6.31 9 6.57 12 4.84 12 9.71 6 35.26 USA 7.6 6 5.91 17 6.97 8 7.16 4 9.88 2 37.53
Ranking 10 5
Introduction The two North American countries are among the world’s top 15 wealthiest countries. Based on IMF data (International Monetary Fund April 2009 data), in terms of GDP per capita (PPP) in US dollars, the USA (46,859) and Canada (39,183) ranked number 6 and 13, respectively, in world wealth (http://en.wikipedia.org/wiki/List_ of_countries_by_GDP_%28PPP%29_per_capita). In the present era of keen global competition, how do these two countries sustain and improve their competitiveness? Analysis from the perspective of national intellectual capital may provide some insights. Since the two North American countries share an extensive physical border, this study reports their national IC as a cluster. Table 9.1 shows the results of comparing the five types of capital “within” each country and “between” countries in this cluster. The financial capital of both countries ranked first; human capital, market capital, process capital, and renewal capital ranked as 2, 4, 3, and 5, respectively, for Canada; 2, 5, 4, and 3, respectively, for the USA. C.Y.-Y. Lin and L. Edvinsson, National Intellectual Capital: A Comparison of 40 Countries, 163 DOI 10.1007/978-1-4419-7377-1_9, © Springer Science+Business Media, LLC 2011
USA
Mean score Canada
Score Ranking
Score Ranking
Within Between
Within Between
Intellectual capital Human Market capital capital 7.84 6.31 2 4 1 1 7.60 5.91 2 5 2 2 Process capital 6.57 3 2 6.97 4 1
Renewal capital 4.84 5 2 7.16 3 1
Table 9.1 Capital mean ratings and rankings of Canada and the USA from 1995 to 2008 Financial capital 9.71 1 2 9.88 1 1
37.53
Overall score 35.26
1
Ranking in this cluster 2
5
Overall ranking among 40 countries 10
164 9 National Intellectual Capital of Two North American Countries (Canada, USA)
National Intellectual Capital of the Two Countries
165
As for the inter-country comparison, each country has its own strength. Table 1 shows that Canada has better human capital and market capital, whereas the USA has better process capital, renewal capital, and financial capital.
National Intellectual Capital of the Two Countries Figures 9.1 and 9.2 display the characteristics and trends of national intellectual capital in each of the two North American countries. In Fig. 1, Canada has made the most progress in renewal capital with an increase of about 14 percentile points, followed by an increase in human capital of about six percentile points and in process capital of one percentile point, in comparing the figures for 1995 and 2008. Yet, it shows a decrease in market capital of about four percentile points and no change in financial capital. With respect to financial capital, although the 1–10 rating score showed no improvement, the real dollar value of GDP per capita (PPP) increased from US$22,777 in 1995 to US$39,183 in 2008, a growth rate of 72%. For further improvement and enhanced competitiveness, Canada should develop its renewal capital and its regressed market capital. Figure 9.2 indicates that USA has made the most progress in human capital with an increase of about 11 percentile points, followed by an increase in renewal capital of about two percentile points, as compared to the figures for 1995 and 2008. Yet, it has suffered a decrease in market capital of about ten percentile points and process capital of about nine percentile points. With respect to financial capital,
10 Canada Human Capital 8 Canada Market Capital 6 Canada Process Capital 4 Canada Renewal Capital Canada Financial Capital
2
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Canada Human Capital
7.151 7.601 7.337 7.427 7.371 8.495 8.467 8.303 8.181 8.138 7.836 7.759 7.851 7.805
Canada Market Capital
6.466 6.649 6.465 6.087 6.291 6.510 6.439 6.172 6.593 6.204 6.240 6.145 6.053 6.066
Canada Process Capital
6.124 6.047 6.608 6.578 6.829 6.881 6.899 6.537 6.919 6.637 6.730 6.469 6.484 6.181
Canada Renewal Capital 4.062 4.471 4.324 4.796 4.696 4.715 4.949 5.154 4.941 5.065 4.783 4.828 5.497 5.489 Canada Financial Capital 9.705 9.670 9.657 9.670 9.701 9.717 9.710 9.720 9.725 9.721 9.721 9.728 9.727 9.714
Fig. 9.1 Trends of intellectual capital in canada
166
9 National Intellectual Capital of Two North American Countries (Canada, USA) USA Human Capital
10
8 USA Market Capital 6 USA Process Capital 4 USA Renewal Capital 2 USA Financial Capital
0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
USA Human Capital
6.616 6.917 6.691 7.491 7.825 7.959 8.226 7.974 7.919 7.792 7.794 7.672 7.783 7.737
USA Market Capital
5.887 6.429 6.207 6.234 6.554 6.267 6.489 5.962 5.799 5.502 5.683 5.497 5.319 4.914
USA Process Capital
6.947 6.967 7.090 6.916 7.407 7.298 7.601 7.116 7.178 6.816 7.068 6.594 6.671 5.961
USA Renewal Capital 6.751 6.638 6.540 7.107 7.421 8.127 7.462 7.734 7.146 7.027 7.235 6.943 7.159 6.985 USA Financial Capital 9.897 9.879 9.865 9.875 9.893 9.892 9.875 9.873 9.884 9.885 9.887 9.891 9.884 9.879
Fig. 9.2 Trends of intellectual capital in the USA
although the 1–10 rating score showed no change, the real dollar value of GDP per capita (PPP) increased from US$27,763 in 1995 to US$46,859 in 2008, a growth rate of 69%. The USA as a nation used to be strong in marketing and has good infrastructure; its substantial decline in market capital and process capital runs counter to expectations. Analysis of the raw data reveals that the decline of market capital was mainly caused by several score changes between 1995 and 2008, including cross-border ventures (from 7.89 to 6.97), cultural openness (from 7.59 to 6.67), globalization (from 6.29 to 5.59), government policy transparency (from 5.75 to 4.2), and image of country (from 7.52 to 6.0). The raw data relating to process capital between 1995 and 2008 reveal the major score declines including government efficiency (from 3.86 to 2.74), IP rights protection (from 8.29 to 7.58), capital availability (from 7.49 to 4.88), and convenience of establishing new firms (from 8.44 to 5.89). For further improvement and to enhance its competitiveness, the USA should develop its regressed market capital and process capital. In general, the intellectual capital of these two North American countries has not undergone much improvement as seen from the relatively flat lines shown in Figs. 9.1 and 9.2. Canada is particularly weak in renewal capital, yet it moved up from the 40th to the 55th percentile. Both countries witnessed an increase in human capital, yet they decreased in market capital over the 14 years.
Comparison of Capital Components of the Two North American Countries
167
Comparison of Capital Components of the Two North American Countries Figures 9.3–9.7 further compare the five types of capital of the two countries. Figure 9.3 indicates an upward trend in human capital with Canada gradually gaining ground on the USA. Figure 9.4 indicates that the market capital of the USA decreased about ten percentile points, while Canada’s decreased about four percentile points. As reported in Fig. 9.2, the decline of market capital in the USA was mainly caused by its decreasing scores in the categories of cross-border venture, cultural openness, globalization, government policy transparency, and image of country. Since these scores are actual rating scores from the IMD Competitiveness Yearbook databank, they represent a real decline from the perspective of IMD expert raters. Figure 9.5 indicates that at the initial stage the process capital of the USA was greater than that of Canada, yet the gap became narrower over the years. In year 2006, the two scores showed a difference of only about one percentile point and in 2008 Canada surpassed the USA in process capital. As reported in Fig. 9.2, the decline of process capital in the USA was mainly caused by its decreasing scores for government efficiency, IP rights protection, capital availability, and convenience of establishing new firms. Again, these scores are actual rating scores from the IMD Competitiveness Yearbook databank and represent a real decline.
10
8 Canada Human Capital 6
USA Human Capital
4
2
0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Canada Human Capital 7.151 7.601 7.337 7.427 7.371 8.495 8.467 8.303 8.181 8.138 7.836 7.759 7.851 7.805 USA Human Capital
6.616 6.917 6.691 7.491 7.825 7.959 8.226 7.974 7.919 7.792 7.794 7.672 7.783 7.737
Fig. 9.3 Comparison of human capital in the North American countries
168
9 National Intellectual Capital of Two North American Countries (Canada, USA) 10
8 Canada Market Capital
6
4
USA Market Capital
2
0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Canada Market Capital 6.466 6.649 6.465 6.087 6.291 6.510 6.439 6.172 6.593 6.204 6.240 6.145 6.053 6.066 5.887 6.429 6.207 6.234 6.554 6.267 6.489 5.962 5.799 5.502 5.683 5.497 5.319 4.914
USA Market Capital
Fig. 9.4 Comparison of market capital in the North American countries
10
8
Canada Process Capital
6
4 USA Process Capital 2
0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Canada Process Capital 6.124 6.047 6.608 6.578 6.829 6.881 6.899 6.537 6.919 6.637 6.730 6.469 6.484 6.181 USA Process Capital
6.947 6.967 7.090 6.916 7.407 7.298 7.601 7.116 7.178 6.816 7.068 6.594 6.671 5.961
Fig. 9.5 Comparison of process capital in the North American countries
Figure 9.6 shows that the lines for the renewal capital of the two countries are wide apart with an average difference of around 15–27 percentile points. This is the specific area Canada should seriously think about strengthening in order to enhance its future competitiveness.
Comparison of Capital Components of the Two North American Countries
169
10
8
Canada Renewal Capital
6
4 USA Renewal Capital
2
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Canada Renewal Capital 4.062 4.471 4.324 4.796 4.696 4.715 4.949 5.154 4.941 5.065 4.783 4.828 5.497 5.489 6.751 6.638 6.540 7.107 7.421 8.127 7.462 7.734 7.146 7.027 7.235 6.943 7.159 6.985
USA Renewal Capital
Fig. 9.6 Comparison of renewal capital in the North American countries
10
8 Canada Financial Capital 6
USA Financial Capital
4
2
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Canada Financial Capital 9.705 9.670 9.657 9.670 9.701 9.717 9.710 9.720 9.725 9.721 9.721 9.728 9.727 9.714 USA Financial Capital
9.897 9.879 9.865 9.875 9.893 9.892 9.875 9.873 9.884 9.885 9.887 9.891 9.884 9.879
Fig. 9.7 Comparison of financial capital in the North American countries
As for the 1–10 scaled financial capital, Fig. 9.7 shows little change over the years with the USA consistently outperforming Canada. In real dollar values of GDP per capita (PPP), over the 14 years, Canada achieved 72% growth and the USA 69% growth.
170
9 National Intellectual Capital of Two North American Countries (Canada, USA)
The above analyses reveal that Canada is gradually catching up with the USA in almost every type of capital with the exception of renewal capital. With their current intellectual capital ranking of fifth and tenth, both countries ought to consider how to compete with the Nordic countries, the Western European countries, and Asian countries in terms of intangible assets.
Three-Period Progression of National Intellectual Capital Development As stated in the previous chapters, sections “National Intellectual Capital of the Two Countries” and “Comparison of Capital Components of the Two North American Countries” presented the results of data analysis for a total of 14 years, spanning from 1995 to 2008. However, the results are somewhat limited in nature, with comparisons focusing on the initial year (1995) and the concluding year (2008) of each form of capital in each country. To get a more complete picture of the dynamics of the capital development of the two countries over the 14 years, we prepared Table 9.2, which assesses the changes of capital rankings in three periods (the first and second periods consist of 5 years and the third period consists of 4 years), viz., 1995–1999 is the first period, 2000–2004 is the second period, and 2005–2008 is the third period. This division of Table 9.2 into periods makes it easier to visualize the development and perhaps even the future trends of the five types of capital for each country. We employ the sequence of human capital, market capital, process capital, renewal capital, financial capital, and overall IC, while the second column in Table 9.2 exhibits the overall ranking difference between the first and the third period. The third column is the ranking of the first period, and the fourth and the fifth columns display respective rankings and differences with regard to the previous period. The last column compares the most recent third period ranking with the overall NICI40 ranking. Over the entire course of the three periods, all capital components of Canada and the USA declined, save for the absence of change in Canada’s in financial capital and the USA’s renewal capital. Although Canada and the USA saw improvement in human capital of about 7 and 11 percentile points, respectively, over the 14 years (self-improvement), both Canada and the USA decreased their ranking in human capital with scores of −3 and −1, respectively from the first to the third periods (external competition). In other words, the relative ranking position in the NICI40 of these two countries declined due to the fact that other countries are catching up. In the same vein, Canada and the USA decreased their ranking in market capital (−4 and −13), process capital (−5 and −9), renewal capital (−1 and 0), financial capital (0 and −1), and overall IC (both −4), respectively. Furthermore, in comparing their status in the most recent third period with respect to the 14-year NICI40 ranking reported in the abstract, Canada declined two ranks (from #10 to #12) and the USA declined two ranks (from #5 to #7).
−1 0
0 −1
Renewal capital Canada USA
Financial capital Canada USA 7 2
10 4
13 7
1 0
2 0
−5 −4
8 3
13 4
−1 −1
−3 0
0 −5
−4 −8
−2 −1
6 2
12 4
12 8
9 17
3 6
−2 −1
−1 0
−1 −4
−4 −6
−2 −1
3rd period ranking vs. overall NICI40 ranking NICI40 ranking Difference
Overall IC Canada −4 8 9 −1 12 −3 10 −2 USA −4 3 4 −1 7 −3 5 −2 Remarks: (1) The second column compares the 3rd period ranking with the 1st period ranking. (2) The last column compares the most current 3rd period ranking with the original 14-year NICI40 ranking summarized in the abstract
8 2
12 4
8 3
13 12
−5 −9
Process capital Canada USA
0 −5
13 23
9 15
−4 −13
Market capital Canada USA
9 10
5 7
3rd period (2005–2008) Ranking Difference
Table 9.2 Changes in intellectual capital rankings over the three periods 1st period to 1st period 3rd period (1995–1999) 2nd period (2000–2004) Difference (1) Ranking Ranking Difference Human capital Canada −3 2 3 −1 USA −1 6 6 0
Three-Period Progression of National Intellectual Capital Development 171
172
9 National Intellectual Capital of Two North American Countries (Canada, USA)
General Descriptive Information on the Two North American Countries As stated in the previous chapters, the above sections basically present results based on statistical analyses of IMD secondary data spanning from 1995 to 2008. To complement the quantitative data analyses, this section provides some background information for each country that may help explain the results of this study as well as shed further light on the future intellectual capital development of these countries. Due to the magnitude of relevant information, this study does not intend nor does it have the resources to provide in-depth depictions of country backgrounds in abundant detail. As a result, what we are presenting hereunder is a summary of information closely related to intellectual capital which is available from public sources, including a number of objective indicators published by various world organizations (e.g., the United Nations’ Human Development Index), web information from http://en. wikipedia.org/wiki and relevant articles posted on the Internet. Although different indicators cover different dimensions (e.g., the Human Development Index also covers health/life expectancy, and purchasing power; PISA covers only students’ performances) and do not have an equal comparison basis, they still provide valuable information on individual nations as exhibited in Table 9.3. In addition to the statistics presented in Table 9.3 derived from 16 different sources, we summarize relevant information for each country in the sequence of human capital, market capital, process capital, renewal capital, financial capital, and future perspective. Ranking under country name is the overall ranking of each respective capital in the abstract. We also include the observations that incorporate the 14-year data analysis and the relevant current indicators reported in Table 9.3. Inevitably, the summaries presented in Tables 9.4–9.9 are susceptive to subjectivity due to information availability; nevertheless, the information provided is meant to show different avenues for observing intellectual capital development. Readers are encouraged to expand their own interpretation from various information sources and different angles. To highlight the future perspectives of each country, the last four indicators of Table 9.3 have been provided for readers’ reference – World Competitiveness by the IMD, Global Competitiveness by the World Economic Forum, the Environmental Sustainability Index by Yale University, and the Environmental Performance Index by Yale University. We summarize hereunder some information that may be relevant to the intellectual development of each country.
Summary In general, Canada and the USA are ranked high in the NICI40 – fifth and tenth, respectively. As a group, they invest a high percentage of their GDP in education, 5.9 and 6.3%, respectively; they have a fairly high ratio of broadband subscribers,
4. PISA science (#/score) 3/534 24/489 PISA math (#/score) 5/527 32/474
PISA reading (#/score) 4/527 –
5. Broad band/ population HC (#) 29% 3 25.6% 6
6. Globalization (#) MC (#) 8 9 7 17
14. Global 9. Internet 10. Mobile 15. ESI 11. R&D 12. Innovation 13. World comp. 7. Quality of 8. e-Readiness usership/ telephone 16. EPI score RC (#) comp. (#) (#/score) (#/score) (#/score) population (#/score) PC (#) (#/%) life (#/score) (#/score) Canada 5/9.21 12/8.49 71.7% 92/64.7 12 15/1.89 0.44 12 8 9/5.33 6/64.4 12/86.6 USA 16/8.18 1/8.95 74.1% 69/87.6 8 7/2.67 0.55 4 1 2/5.59 45/52.9 39/81.0 Remark: “#” refers to ranking among respective members and the numbers are the most current data available in 2009. Please refer to the reference section for a list of the sources of these 16 indicators
Table 9.3 National intellectual capital-related indicators and ranking 2. Education GDP per capita 1. (PPP) growth Population expenditures Overall IC (#/%) 3. HDI (000) 2008/1995 ranking Canada 10 72% 33,487 13/5.9 3 USA 5 69% 307,212 8/6.3 15
Summary 173
Table 9.4 Background information on human capital for the North American countries Country Human capital Canada HC40#3 UN Human Development Index ranking: #3 out of 179 (2008) Broadband internet subscribers – 29% (2009 est.) Labor force – 18.8 million (2008 est.) Unemployment – 8.6% (2009 est.) A number of Nobel Prizes were awarded to Canadian scientists, including Chemistry – 1949, 1971, 1986, 1989, 1992, 1993; Physiology or Medicine – 1966, 1981; Physics – 1990, 1994; Economic Sciences – 1996; Economics – 1997, 1999 USA HC40#6 UN Human Development Index ranking: #15 out of 179 (2008) Broadband internet subscribers – 25.6% (2009 est.) Labor force – 155.2 million (includes unemployed) (2008 est.) Unemployment – 9.5% (2009 est.) 79% of its workforce is employed in the service sector Of Americans 25 and older, 84.6% graduated from high school, 52.6% attended some college, 27.2% earned a bachelor’s degree, and 9.6% earned graduate degrees
From Table 9.3, the USA spent 6.3% of its GDP on education and students’ PISA performance ranked 24/32 for science and math (reading performance data unavailable), respectively, out of 57 countries (The USA invested a higher GDP percentage on education, yet its students’ PISA performance is lower than Canada’s). Its HDI also lags behind Canada. The USA is ranked HC40#6 with an 11 percentile-point improvement over the 14 years, yet declined 1 rank from the 1st to the 3rd period (refer to Table 9.2)
Observations From Table 9.3, Canada spent 5.9% of its GDP on education and students’ PISA performance ranked 3/5/4 for science, math, and reading, respectively, out of 57 countries. Canada is ranked HC40#3 with a 7 percentile-point improvement over the 14 years, yet declined 3 ranks from the 1st to the 3rd period (refer to Table 9.2). Its 29% rate of broadband internet subscribers is relatively high
174 9 National Intellectual Capital of Two North American Countries (Canada, USA)
USA MC40#17
Canada is a world leader in the production of many natural resources such as gold, nickel, uranium, diamonds and lead Exports – $1.377 trillion f.o.b. (2008 est.), imports $2.19 trillion f.o.b. (2008 est.) The USA is the top export market for almost 60 trading nations worldwide The USA is a net exporter of food
The USA is ranked #7 out of 72 countries in the Globalization Index (refer to Table 9.3). It is ranked MC40#17 with a decline of 10 percentile points over the 14 years and declined 13 ranks from the 1st to the 3rd period (refer to Table 9.2). Its decreasing market capital is worthy of attention
Table 9.5 Background information on market capital for the North American countries Country Market capital Observations Canada is ranked #8 out of 72 countries in the Globalization Index Canada MC40#9 Exports – $461.8 billion f.o.b. (2008 est.), imports – (refer to Table 9.3). It is ranked MC40#9 with a decline of 4 $436.7 billion f.o.b. (2008 est.) percentile points over the 14 years and declined 4 ranks from the International trade makes up a large part of the 1st to the 3rd period (refer to Table 9.2). With so many valuable Canadian economy natural resources, Canada should look into the causes of its Canada provides about 16% of US oil imports and market capital decline 14% of total US consumption of natural gas
Summary 175
Table 9.6 Background information on process capital for the North American countries Country Process capital Canada Internet usership – 71.1% of the population (2009 est.) PC40#12 Canada is a net exporter of energy and has the world’s second largest reserves of oil behind Saudi Arabia Cheap energy has enabled the creation of several important industries, such as its large aluminum industry The service sector employs about 75% of Canadians and accounts for two-thirds of GDP. The business services, financial services, real estate, and communications industries have been rapidly growing As the second largest country in the world, Canada has considerable natural resources spread across its varied regions, including forestry, oil industry, mining industry and fishing USA PC40#8 Internet usership – 74.1% of the population (2009 est.) Only 9% of total US work commutes employ mass transit, compared to 38.8% in Europe. Bicycle usage is minimal, well below European levels The USA remains an industrial power, with chemical products as the leading manufacturing field In 2007, 40% of the nation’s energy came from petroleum, 23% from coal, and 24% from natural gas, the remaining was from nuclear power, hydroelectric dams, and miscellaneous renewable sources
Based on Table 9.3, the USA’s rankings for quality of life, e-readiness, and mobile telephone subscribers are #16 out of 57, #1 out of 70, and #69 out of 133, respectively. It is ranked PC40#8 with a decline of 10 percentile points over the 14 years and declined 9 ranks from the 1st to the 3rd period (refer to Table 9.2). As a nation with bountiful natural resources, the USA should have valuable resources to support its infrastructure. Its decline in process capital deserves some attention
Observations Based on Table 9.3, Canada’s rankings for quality of life, e-readiness, and mobile telephone subscribers are #5 out of 57, #12 out of 70, and #92 out of 133, respectively. It is ranked PC40#12 with a 1 percentile-point improvement over the 14 years; yet declined 5 ranks from the 1st to the 3rd period (refer to Table 9.2). Canada has valuable natural resources to support its infrastructure; the decline in its process capital ranking deserves some attention
176 9 National Intellectual Capital of Two North American Countries (Canada, USA)
Table 9.7 Background information on renewal capital for the North American countries Country Renewal capital Canada RC40#12 Canada has a solid research foundation. The Cavendish Laboratory established at McGill in Montreal was home to the discovery of the atomic nucleus by Rutherford; the University of Toronto established the Connaught Laboratories where Banting and Best discovered insulin. In the 1950s large atomic research reactors were built in Chalk River, Ontario, space research satellites were built in Ottawa and launched in the USA The government of Canada has designed tax programs to encourage industrial R&D. As a result, industrial research accounts for about 50% of all research spending in Canada (about 1% of Canada’s GDP), university research accounts for about 40%, and scientific research in government laboratories accounts for about 10% The best known Canadian invention of recent years is surely the Blackberry, which has become a fashionable communications tool of businessmen around the world European innovation scoreboard ranking – #18 out of 38; Canada scored 0.44 in 2007 (data up to 2007) USA RC40#4 European innovation scoreboard ranking – #9 out of 38; the USA scored 0.55 in 2007 (data up to 2007) In 2008, researchers from the Indian government on private sector are to collaborate with the US Department of Energy’s Lawrence Berkeley National Laboratory (LBNL) and the University of California, Berkeley (UCB) on energy efficiency and renewable energy technologies
The USA invested 2.67% of its GDP in R&D (2008). It is ranked RC40#4 with a 2 percentile-point improvement over the 14 years and without any rank change from the 1st to the 3rd period (refer to Table 9.2)
Observations Canada invested 1.89% of its GDP in R&D (2008). It is ranked RC40#12 with a 14 percentile-point improvement over the 14 years, yet declined 1 rank from the 1st to the 3rd period (refer to Table 9.2). As described in the left column, Canada would appear to be strong in building its renewal capital, yet it lags behind that of the USA
Summary 177
178
9 National Intellectual Capital of Two North American Countries (Canada, USA)
Table 9.8 Background information on financial capital for the North American countries Country Financial capital Observations Canada GDP per capita (PPP) – US$39,183 (IMF Canada was ranked #13 in GDP FC40#6 2009 report) per capita (PPP) in 2008 As a well-developed country, Since the early 1990s, the Canadian economy its GDP growth rate (1995 has been growing rapidly with low vs. 2008) was 72% unemployment and large government surpluses on the federal level However, the recession caused by the collapse of the dot com bubble beginning in 2000 hurt the Toronto Stock Exchange GDP growth – 0.6% in 2008, 2.7% in 2007 and 3.1% in 2006 The USA was ranked #6 in GDP GDP per capita (PPP) – US$46,859 (IMF USA 2009 report) per capita (PPP) in 2008 FC40#2 As a well-developed country, The economy is postindustrial, with the its GDP growth rate (1995 service sector contributing over 75% of vs. 2008) was 69% GDP. The leading business field by gross business receipts is wholesale and retail trade; by net income it is finance and insurance GDP growth – 1.3% in 2008, 2% in 2007 and 2.8% in 2006
Table 9.9 Background information on future perspectives for the North American countries Country Canada IMD World Competitiveness ranking – #8 out of 57 countries (2009) World Economic Forum global competitiveness – #9 out of 133 (2009–2010) Environmental Sustainability Index (ESI) – #6 out of 149 (2005, a project-based ranking conducted in 2005) Environmental Performance Index (EPI) – #12 out of 149 (2008) In recent years, policy makers have begun to consider the potential for promoting services innovation as part of their economic development strategies Manufacturers have been attracted to Canada due to its highly educated population and lower labor costs in comparison with the USA. Canada’s publicly funded, privately delivered healthcare system is also an important attraction, as it exempts companies from the high health insurance costs they must pay in the USA GDP (PPP) per hour worked 2007 – 28.06 USA IMD World Competitiveness ranking – #1 out of 57 countries (2009) World Economic Forum global competitiveness – #2 out of 133 (2009–2010) Environmental Sustainability Index (ESI) – #45 out of 149 (2005, a project-based ranking conducted in 2005) Environmental Performance Index (EPI) – #39 out of 149 (2008) GDP (PPP) per hour worked 2007 – 35.90 (the second highest)
Summary
179
29 and 25.6%, respectively; the USA ranks the #1 and Canada #12 in e-readiness; and they invest a good percentage of their GDP in R&D, 1.89 and 2.67%, respectively. Canadian students’ PISA performance is much better than that of the USA; yet the USA ranks first and second in world competitiveness and global competitiveness (Table 9.3), whereas Canada ranks #8 and #9, respectively. However, Canada is ranked higher in the Environment Sustainability Index and Environment Performance Index than is the USA (#6 and #12 vs. #45 and #39). In the future, countries with lower rates of student performance will need to spend more time and resources in developing skilled labor and conducting more employee training programs. Therefore, the effectiveness of school age human resource development in the USA needs to be addressed. With abundant natural resources and human resources, Canada and the USA would be expected to have better intellectual capital ranking than their current status indicates. Yet, they were surpassed by the Nordic countries in terms of national intangible assets, mainly for the reason that Canada is comparatively weak in process capital and renewal capital, and the USA is particularly weak in market capital. Although ranked #6 in human capital, the USA needs to seriously consider their students’ PISA performance, as highly qualified human resources is one of the key factors in the generation of future wealth. Can these two countries effectively cope with the recent financial crisis? Can they sustain the competition of some European countries, Asian countries, and the newly developed countries? These are the questions policy makers can contemplate on. As observed in this study, better market capital and process capital lead to shortterm national performance. For long-term development, human capital and renewal capital together are the key success factors.
wwwwwwwwww
Chapter 10
National Intellectual Capital of Four Latin American Countries (Argentina, Brazil, Chile, Mexico)
Abstract The four Latin American countries are all ranked in the last quarter percentile of National Intellectual Capital Indices for 40 countries (NICI40) except for Chile. Argentina, Brazil, Chile, and Mexico ranked number 38, 37, 28, and 35, respectively. Chile is particularly strong in market capital (ranked #6) and has a comparatively higher score in process capital (ranked #25) than in its overall IC ranking #28. However, Chile’s market capital strength did not transfer to financial capital (ranked #30). Brazil finds itself in a similar situation; its comparatively high market capital (ranked #33) did not transfer in equivalent strength to financial capital (ranked #35). On the contrary, Argentina lagged behind in market capital and process capital (ranked #40 and #40, respectively), yet its financial capital ranked #32.
Human capital
Market capital
Process capital
Renewal capital
Financial capital
Overall intellectual capital
Mean SD
4.82 0.30
5.09 1.09
3.50 0.96
1.53 0.24
8.63 0.14
23.57 2.30
Country Argentina Brazil Chile Mexico
Score 5.12 4.43 4.96 4.75
Ranking 31 37 33 35
Score 4.01 4.81 6.6 4.95
Ranking 40 33 6 28
Score 2.78 3.11 4.91 3.19
Ranking 40 38 25 37
Score 1.43 1.63 1.8 1.24
Ranking 38 35 33 40
Score 8.65 8.43 8.7 8.75
Ranking 32 35 30 29
Score 22 22.41 26.97 22.88
Ranking 38 37 28 35
Introduction This chapter presents the national intellectual capital of four Latin American countries, namely, Argentina, Brazil, Chile, and Mexico. Based on IMF data (International Monetary Fund April 2009 data), the GDP per capita (PPP) in US dollars of the four countries is as follows: Mexico (14,560), Chile (14,510), Argentina (14,413), and Brazil (10,326) with respective rankings of 54, 56, 58, and 77 in world wealth (http://en.wikipedia.org/wiki/List_of_countries_ by_GDP_%28PPP%29_per_capita). Why did Chile perform better than other three countries in the same region in terms
C.Y.-Y. Lin and L. Edvinsson, National Intellectual Capital: A Comparison of 40 Countries, 181 DOI 10.1007/978-1-4419-7377-1_10, © Springer Science+Business Media, LLC 2011
182
10 National Intellectual Capital of Four Latin American Countries
of GDP and national intangible assets? Analysis from the perspective of national intellectual capital may provide some insights. Since the four Latin American countries share geographical proximity and similarities in economic development, this study has grouped them as a cluster. Among the four countries, the overall national intellectual capital ranking sequence in descending order is Chile (28), Mexico (35), Brazil (37), and Argentina (38). Table 10.1 shows the results of comparing the five types of capital “within” each country and “between” countries in this cluster. Based on each country’s ranking, financial capital ranks first and renewal capital ranks fifth in all four countries. In other words, financial capital has the highest and renewal capital has the lowest score. Human capital, market capital, and process capital are ranked as 2, 3, and 4, respectively, for Argentina and 3, 2, and 4, respectively, for Brazil, Chile, and Mexico. As for the inter-country comparison, Table 10.1 shows that Argentina ranks first in human capital; Chile ranks first in market capital, process capital, and renewal capital; and Mexico ranks first in financial capital. However, Argentina is weak in market capital and process capital; Brazil is weak in human capital and financial capital, and Mexico is weak in renewal capital.
National Intellectual Capital of Each Individual Country Figures 10.1–10.4 display the characteristics and trends of national intellectual capital in each Latin American country in this chapter. Figure 10.1 shows that Argentina has made the most progress in renewal capital with an increase of about three percentile points, followed by an increase in human capital of about two percentile points, and process capital of about one percentile point, in comparing the figures for 1995 and 2008. Yet it decreased substantially in market capital, about 26 percentile points. With respect to financial capital, although the 1–10 rating score showed slight improvement, the real dollar value of GDP per capita (PPP) increased from US$7,882 in 1995 to US$14,413 in 2008, a growth rate of 83%. Analysis of the raw data reveals that the decline of market capital was mainly caused by several score changes between 1995 and 2008, including corporate tax incentives (from 5.6 to 2.96), cross-border ventures (from 8.33 to 5.3), cultural openness (from 8.38 to 5.89), globalization (from 6.88 to 3.85), government policy transparency (from 3.58 to 0.44), and image of country (from 5.8 to 1.59). From the flat lines shown in Fig. 10.1, Argentina did not exhibit much progress in its national intellectual capital over the 14 years. For further improvement and to enhance its competitiveness, Argentina should develop its renewal capital, its lowest score, and its regressed market capital. Figure 10.2 indicates that Brazil has made the most progress in both human capital and process capital with an increase of about 11 percentile points, followed by an increase in renewal capital of about eight percentile points, in comparing the figures for 1995 and 2008. Yet, it has a decrease in market capital of about four percentile points. With respect to financial capital, although the 1–10 rating score
Table 10.1 Capital mean ratings and rankings of the four Latin American countries from 1995 to 2008 Intellectual capital Human Market Process Renewal Financial capital capital capital capital Mean score capital Argentina Score 5.12 4.01 2.78 1.43 8.65 Ranking Within 2 3 4 5 1 Between 1 4 4 3 3 Brazil Score 4.43 4.81 3.11 1.63 8.43 Ranking Within 3 2 4 5 1 Between 4 3 3 2 4 Chile Score 4.96 6.6 4.91 1.8 8.7 Ranking Within 3 2 4 5 1 Between 2 1 1 1 2 Score 4.75 4.95 3.19 1.24 8.75 Mexico Within 3 2 4 5 1 Ranking Between 3 2 2 4 1 Ranking in this cluster 4
3
1
2
Overall score 22
22.41
26.97
22.88
35
28
37
Overall ranking among 40 countries 38
National Intellectual Capital of Each Individual Country 183
184
10 National Intellectual Capital of Four Latin American Countries 10
Argentina Human Capital
8 Argentina Market Capital 6 Argentina Process Capital 4 Argentina Renewal Capital 2 Argentina Financial Capital 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Argentina Human Capital
5.100 5.297 4.785 5.574 5.366 4.925 4.956 5.064 4.972 4.999 5.096 5.177 5.138 5.260
Argentina Market Capital
5.558 6.042 5.496 4.334 4.614 4.244 3.019 3.098 3.323 3.241 3.428 3.625 3.144 3.027
Argentina Process Capital
2.690 3.424 3.197 3.034 2.870 3.094 2.342 2.151 2.156 2.314 2.854 3.059 2.981 2.816
Argentina Renewal Capital
1.218 1.510 1.435 1.299 1.494 1.642 1.216 1.486 1.350 1.514 1.382 1.414 1.514 1.543
Argentina Financial Capital 8.679 8.685 8.711 8.722 8.669 8.633 8.571 8.449 8.519 8.572 8.632 8.691 8.746 8.796
Fig. 10.1 Trends of intellectual capital in Argentina Brazil Human Capital
10
8 Brazil Market Capital 6 Brazil Process Capital 4 Brazil Renewal Capital
Brazil Financial Capital
2
0
1995 1996 1997 1998 1999 2000 2001
2002 2003 2004 2005 2006 2007 2008
Brazil Human Capital
3.784 4.004 4.010 4.583 4.726 4.221 4.738 4.126 4.068 4.640 4.710 4.635 4.824 4.907
Brazil Market Capital
5.069 5.490 5.352 4.775 5.084 4.756 5.088 4.774 4.630 4.573 4.429 4.167 4.461 4.662
Brazil Process Capital
2.247 3.032 3.341 3.282 3.677 3.680 3.788 3.189 2.652 2.645 2.983 2.770 2.975 3.322
Brazil Renewal Capital
1.325 1.305 1.319 1.450 1.691 1.987 1.484 1.591 1.718 1.734 1.763 1.668 1.749 2.104
Brazil Financial Capital 8.487 8.459 8.440 8.413 8.392 8.400 8.390 8.397 8.393 8.413 8.415 8.431 8.459 8.489
Fig. 10.2 Trends of intellectual capital in Brazil
showed no improvement, the real dollar value of GDP per capita (PPP) increased from US$6,460 in 1995 to US$10,326 in 2008, a growth rate of 60%. For further improvement and to enhance its competitiveness, Brazil should try to improve on the two lowest scores of process capital and renewal capital and its regressed market capital.
National Intellectual Capital of Each Individual Country Chile Human Capital
185
10
8 Chile Market Capital 6 Chile Process Capital 4 Chile Renewal Capital 2 Chile Financial Capital
0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Chile Human Capital
4.302 4.118 4.017 4.775 5.029 4.853 5.116 5.136 5.399 5.371 5.301 5.181 5.397 5.416
Chile Market Capital
6.941 6.214 6.373 6.548 6.550 6.127 6.765 6.533 6.838 7.140 6.768 6.638 6.534 6.405
Chile Process Capital
4.677 3.787 4.081 4.528 4.917 4.955 5.100 5.348 5.302 5.403 5.437 4.939 5.264 5.027
Chile Renewal Capital
2.004 1.995 1.762 1.795 1.774 1.634 1.696 1.796 1.672 1.788 1.721 1.736 1.929 1.927
Chile Financial Capital 8.642 8.662 8.674 8.677 8.652 8.662 8.674 8.677 8.703 8.722 8.742 8.765 8.786 8.802
Fig. 10.3 Trends of intellectual capital in Chile
Mexico Human Capital
10
8 Mexico Market Capital 6 Mexico Process Capital 4 Mexico Renewal Capital 2 Mexico Financial Capital 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Mexico Human Capital
4.564 4.608 4.252 4.299 4.677 4.791 4.875 4.689 4.664 4.619 5.024 4.918 5.023 5.493
Mexico Market Capital
5.030 5.094 5.260 4.986 5.605 5.338 5.172 4.841 4.635 4.765 4.748 4.796 4.535 4.506
Mexico Process Capital
2.777 2.994 3.225 3.210 3.567 3.489 3.439 3.317 2.807 3.031 3.300 3.080 3.155 3.231
Mexico Renewal Capital
0.949 1.190 1.147 1.346 1.464 1.273 1.089 1.190 1.197 1.218 1.281 1.285 1.297 1.411
Mexico Financial Capital 8.703 8.702 8.713 8.731 8.744 8.772 8.751 8.744 8.749 8.770 8.768 8.797 8.806 8.805
Fig. 10.4 Trends of intellectual capital in Mexico
Figure 10.3 indicates that Chile has made the most progress in human capital with an increase of about 11 percentile points, followed by an increase in process capital of about three percentile points and financial capital of about two percentile points, in comparing the figures for 1995 and 2008. Yet, it has a decrease in market
186
10 National Intellectual Capital of Four Latin American Countries
capital of about five percentile points and renewal capital of about one percentile point. With respect to financial capital, although the 1–10 rating score showed a two percentile-point improvement, the real dollar value of GDP per capita (PPP) of Chile increased from US$7,587 in 1995 to US$14,510 in 2008, a growth rate of 91%. For further improvement and to enhance its competitiveness, Chile should seek to improve its lowest score of renewal capital. Figure 10.4 indicates that Mexico has made the most progress in human capital with an increase of about nine percentile points, followed by an increase in renewal capital of about five percentile points, in process capital of about four percentile points, and in financial capital of about one percentile point, in comparing the figures for 1995 and 2008. Yet, it shows a decrease in market capital of about five percentile points. With respect to financial capital, although the 1–10 rating score showed a slight improvement, the real dollar value of GDP per capital (PPP) of Mexico increased from US$8,082 in 1995 to US$14,560 in 2008, a growth rate of 80%. For further improvement and to enhance its competitiveness, Mexico should seek to improve its lowest score of renewal capital and its regressed market capital. In general, these four countries made progress in human capital and process capital, with Brazil and Chile showing more improvement in these two capital components. In addition, all four countries regressed in market capital with Argentina posting the greatest decline of 26 percentile points. The intellectual capital development patterns of Argentina, Brazil, and Mexico are similar to each other with human capital, market capital, and renewal capital mainly spread within the 20th to the 60th percentiles, whereas the renewal capital for the three countries was initially located at around the 15th percentile. All three countries improved their performance in terms of human capital over the years. Chile’s development pattern is different from the other countries of this cluster. Its market capital is consistently its second highest score, behind financial capital. Unlike the other countries, its human capital and process capital have progressed in tandem.
Comparison of Capital Components of the Four Latin American Countries Figures 10.5–10.9 further compare the countries’ five types of capital. Figure 10.5 shows an improvement of around 9–11 percentile points in human capital for all countries except Argentina. They progressed from roughly the 40–50th percentiles to the 50–55th percentiles with Brazil and Chile exhibiting the most improvement. Figure 10.6 indicates that the market capital of these four countries all decreased, with Argentina posting the greatest decline of about 26 percentile points. At the initial stage, the gap in scores among the countries was relatively small. However, with Argentina’s sharp decrease, the gap has grown wider with Chile at the top, Mexico and Brazil in the middle, and Argentina at the bottom.
Comparison of Capital Components of the Four Latin American Countries
187
10 Argentina Human Capital 8 Brazil Human Capital
6
4
Chile Human Capital
2 Mexico Human Capital 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Argentina Human Capital 5.100 5.297 4.785 5.574 5.366 4.925 4.956 5.064 4.972 4.999 5.096 5.177 5.138 5.260 Brazil Human Capital
3.784 4.004 4.010 4.583 4.726 4.221 4.738 4.126 4.068 4.640 4.710 4.635 4.824 4.907
Chile Human Capital
4.302 4.118 4.017 4.775 5.029 4.853 5.116 5.136 5.399 5.371 5.301 5.181 5.397 5.416
Mexico Human Capital
4.564 4.608 4.252 4.299 4.677 4.791 4.875 4.689 4.664 4.619 5.024 4.918 5.023 5.493
Fig. 10.5 Comparison of human capital in the Latin American countries
10 Argentina Market Capital 8 Brazil Market Capital
Chile Market Capital
6
4
2 Mexico Market Capital 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Argentina Market Capital 5.558 6.042 5.496 4.334 4.614 4.244 3.019 3.098 3.323 3.241 3.428 3.625 3.144 3.027 Brazil Market Capital
5.069 5.490 5.352 4.775 5.084 4.756 5.088 4.774 4.630 4.573 4.429 4.167 4.461 4.662
Chile Market Capital
6.941 6.214 6.373 6.548 6.550 6.127 6.765 6.533 6.838 7.140 6.768 6.638 6.534 6.405
Mexico Market Capital
5.030 5.094 5.260 4.986 5.605 5.338 5.172 4.841 4.635 4.765 4.748 4.796 4.535 4.506
Fig. 10.6 Comparison of market capital in the Latin American countries
Figure 10.7 indicates that the process capital of this country cluster was spread between the 20th and 40th percentiles over the years, except for that of Chile. Argentina typically has the lowest score while Brazil has shows a relatively higher increase in process capital over the 14 years. Generally speaking, Chile’s process
188
10 National Intellectual Capital of Four Latin American Countries 10 Argentina Process Capital 8 Brazil Process Capital
Chile Process Capital
6
4
2 Mexico Process Capital 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Argentina Process Capital 2.690 3.424 3.197 3.034 2.870 3.094 2.342 2.151 2.156 2.314 2.854 3.059 2.981 2.816 Brazil Process Capital
2.247 3.032 3.341 3.282 3.677 3.680 3.788 3.189 2.652 2.645 2.983 2.770 2.975 3.322
Chile Process Capital
4.677 3.787 4.081 4.528 4.917 4.955 5.100 5.348 5.302 5.403 5.437 4.939 5.264 5.027
Mexico Process Capital
2.777 2.994 3.225 3.210 3.567 3.489 3.439 3.317 2.807 3.031 3.300 3.080 3.155 3.231
Fig. 10.7 Comparison of process capital in the Latin American countries
10 Argentina Renewal Capital 8 Brazil Renewal Capital
Chile Renewal Capital
6
4
2 Mexico Renewal Capital 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Argentina Renewal Capital 1.218 1.510 1.435 1.299 1.494 1.642 1.216 1.486 1.350 1.514 1.382 1.414 1.514 1.543 Brazil Renewal Capital
1.325 1.305 1.319 1.450 1.691 1.987 1.484 1.591 1.718 1.734 1.763 1.668 1.749 2.104
Chile Renewal Capital
2.004 1.995 1.762 1.795 1.774 1.634 1.696 1.796 1.672 1.788 1.721 1.736 1.929 1.927
Mexico Renewal Capital
0.949 1.190 1.147 1.346 1.464 1.273 1.089 1.190 1.197 1.218 1.281 1.285 1.297 1.411
Fig. 10.8 Comparison of renewal capital in the Latin American countries
capital ranged between the 40th and 55th percentiles and is around 20 points higher than the scores of the other three countries. Figure 10.8 shows that the development of renewal capital in this cluster has been flat and lackluster, remaining between the 15th and 20th percentiles. In other
Three-Period Progression of National Intellectual Capital Development
189
10 Argentina Financial Capital 8 Brazil Financial Capital
Chile Financial Capital
6
4
2 Mexico Financial Capital 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Argentina Financial Capital 8.679 8.685 8.711 8.722 8.669 8.633 8.571 8.449 8.519 8.572 8.632 8.691 8.746 8.796 Brazil Financial Capital
8.487 8.459 8.440 8.413 8.392 8.400 8.390 8.397 8.393 8.413 8.415 8.431 8.459 8.489
Chile Financial Capital
8.642 8.662 8.674 8.677 8.652 8.662 8.674 8.677 8.703 8.722 8.742 8.765 8.786 8.802
Mexico Financial Capital
8.703 8.702 8.713 8.731 8.744 8.772 8.751 8.744 8.749 8.770 8.768 8.797 8.806 8.805
Fig. 10.9 Comparison of financial capital in the Latin American countries
words, little progress in renewal capital has been made in this cluster over the 14 years in comparison with the renewal development in other clusters. Even the best performing country, Chile posted a low score in renewal capital. As for the 1–10 scaled financial capital, Figure 10.9 shows little progress among the countries with Brazil consistently having the lowest score and Mexico having the highest score. Yet, in real dollar values of GDP per capita (PPP), over the 14 years, Argentina achieved 83% growth, Brazil 60% growth, Chile 91% growth, and Mexico 80% growth. In this cluster, Chile experienced the most financial growth. The above analyses reveal some interesting phenomena and raise certain questions. For instance, why does Chile have a higher level of national intellectual capital and stronger GDP growth than other countries in the same region? Why are the scores for renewal capital so low in this cluster? Why did all four countries regress in market capital with Argentina and Brazil suffering the greatest decline? These questions should be addressed in future studies.
Three-Period Progression of National Intellectual Capital Development As stated in the previous chapters, sections “National Intellectual Capital of Each Individual Country” and “Comparison of Capital Components of the Four Latin American Countries” presented the results of data analysis for a total of 14 years, spanning from 1995 to 2008. However, the results are somewhat limited in nature,
190
10 National Intellectual Capital of Four Latin American Countries
with comparisons focusing on the initial year (1995) and the concluding year (2008) of each form of capital in each country. To get a more complete picture of the dynamics of the capital development of this country cluster over the 14 years, we developed Table 10.2, which assesses the changes in capital rankings in three periods (the first and second periods consist of 5 years and the third period consists of 4 years), namely, 1995–1999 is the first period, 2000–2004 is the second period, and 2005–2008 is the third period. This division of Table 10.2 into periods makes it easier to visualize the development and perhaps even the future trends of the five types of capital for each country. We employ the sequence of human capital, market capital, process capital, renewal capital, financial capital, and overall IC. The second column in Table 10.2 exhibits the overall ranking difference between the first period and the third period. The third column is the ranking of the first period, and the fourth and the fifth columns display respective rankings and differences with regard to the previous period. The last column compares the most recent third period ranking with the overall NICI40 ranking. Over the entire course of the three periods, Argentina exhibited the most obvious national intellectual capital decline in this cluster. Other countries, except Mexico have experienced both progression and regression in the various types of capital. In comparing scores in the first period and the third period, Argentina suffered a decrease in ranking in human capital (−9), market capital (−11), process capital (−3), financial capital (−4), and overall IC (−9), and showed no change in renewal capital (0). Brazil decreased its ranking in market capital (−3), process capital (−4), financial capital (−1), and showed no change in both human capital and overall IC (0), but increased its ranking in renewal capital (3). Chile increased its ranking in human capital (4) and market capital (2), yet it decreased in process capital (−2), renewal capital (−2), financial capital (−1), and overall IC (−1). Mexico showed no change in human capital (0) and renewal capital (0), but it decreased its ranking in market capital (−2), process capital (−3), financial capital (−2), and overall IC (−1). Furthermore, in comparing the ranking of the most recent third period with the 14-year NICI40 ranking reported in the abstract, Argentina declined 1 rank (from #38 to #39), Brazil and Chile underwent no ranking change (#37 and #28, respectively), and Mexico declined 1 rank (from #35 to #36). This finding indicates that the national intellectual capital of this cluster is gradually decreasing.
General Descriptive Information on the Four Latin American Countries As stated in the previous chapters, the above sections basically present results based on statistical analyses of IMD secondary data spanning from 1995 to 2008. To complement the quantitative data analyses, this section provides some background information for each country that may help explain the results of this study as well as shed further light on the future intellectual capital development of the four countries.
0 3 −2 0
Renewal capital Argentina Brazil Chile Mexico
38 37 31 40
37 35 24 34 37 35 34 40
40 37 24 36 1 2 −3 0
−3 −2 0 −2 38 34 33 40
40 39 26 37
−3 −4 −2 −3
Process capital Argentina Brazil Chile Mexico
−11 0 2 1
40 34 6 32
40 31 6 29
−11 −3 2 −2
Market capital Argentina Brazil Chile Mexico
29 31 8 30
33 37 31 34
3rd period (2005–2008) Ranking
Table 10.2 Changes in intellectual capital rankings over the three periods 1st period 1st period 2nd period to 3rd period (1995–1999) (2000–2004) Difference (1) Ranking Ranking Difference Human capital Argentina −9 24 35 −11 Brazil 0 37 38 −1 Chile 4 35 31 4 Mexico 0 34 36 −2
−1 1 1 0
0 −2 −2 −1
0 −3 0 −3
2 1 0 2
Difference
38 35 33 40
40 38 25 37
40 33 6 28
31 37 33 35
0 1 0 0 (continued)
0 −1 −1 0
0 −1 0 −4
−2 0 2 1
3rd period ranking vs. overall NICI40 ranking NICI40 ranking Difference
General Descriptive Information on the Four Latin American Countries 191
29 34 30 28
Financial capital Argentina Brazil Chile Mexico 33 35 30 29
2nd period (2000–2004) Ranking −4 −1 0 −1
Difference 33 35 31 30
3rd period (2005–2008) Ranking 0 0 −1 −1
Difference 32 35 30 29
−1 0 −1 −1
3rd period ranking vs. overall NICI40 ranking NICI40 ranking Difference
Overall IC Argentina −9 30 40 −10 39 1 38 −1 Brazil 0 37 36 1 37 −1 37 0 Chile −1 27 27 0 28 −1 28 0 Mexico −1 35 34 1 36 −2 35 −1 Remarks: (1) The second column compares the 3rd period ranking with the 1st period ranking. (2) The last column compares the most current 3rd period ranking with the original 14-year NICI40 ranking summarized in the abstract
−4 −1 −1 −2
1st period (1995–1999) Ranking
Table 10.2 (continued) 1st period to 3rd period Difference (1)
192 10 National Intellectual Capital of Four Latin American Countries
Summary
193
Due to the magnitude of relevant information, this study does not intend nor does it have the resources to provide in-depth depictions of country backgrounds in abundant detail. As a result, what we are presenting hereunder is a summary of information closely related to intellectual capital and available from public sources, including some objective indicators published by various world organizations (e.g., the United Nations’ Human Development Index), web information from http://en. wikipedia.org/wiki, and relevant articles posted on the Internet. Although different indicators cover different dimensions (e.g., the Human Development Index also covers health/life expectancy and purchasing power; PISA covers only students’ performances) and do not have an equal comparison basis, they still provide valuable information on individual nations as exhibited in Table 10.3. In addition to the statistics presented in Table 10.3 derived from 16 different sources, we summarize relevant information for each country in the sequence of human capital, market capital, process capital, renewal capital, financial capital, and future perspective. Ranking under country name is the overall ranking of each respective capital in the abstract. We also include the observations that incorporate the 14-year data analysis and the relevant current indicators reported in Table 10.3. Inevitably, the summaries presented in Tables 10.4–10.9 are susceptive to subjectivity due to information availability; nevertheless, the information provided is meant to show different avenues for observing intellectual capital development. Readers are encouraged to expand their own interpretation from various information sources and different angles. To highlight the future perspectives of each country, the last four indicators of Table 10.3 have been provided for readers’ reference – World Competitiveness by the IMD, Global Competitiveness by the World Economic Forum, the Environmental Sustainability Index by Yale University, and the Environmental Performance Index by Yale University. We summarize hereunder some information that may be relevant to the intellectual capital development of each country.
Summary In general, the Latin American countries (except Chile) are ranked in the last quarter of NICI40 – 28th, 35th, 37th, and 38th. Considering their general low GDP per capita, they invest a relatively high percentage of GDP in education, ranging from 3.2% (Chile) to 7.5% (Mexico), yet their students’ PISA performance has much room for improvement; their broadband population is quite low, ranging from 5.2 to 8.5%; they have middle-level e-readiness, ranging from a ranking of #32 to #44 out of 70 countries; and their R&D investment of GDP is low, ranging from 0.46 to 1.1%. To answer the question why Chile is the best performer in this cluster, available information reveals that Chile implemented 12 years of free education to cultivate their human resources, adopted an open economy with intensive privatization, encouraged domestic saving and investment, aggressively signed preferential trade
Table 10.3 National intellectual capital-related indicators and ranking GDP per PISA 4. PISA 2. Education capita (PPP) 6. Globalization science PISA math. reading 5. Broad band/ 1. Population expenditures Overall IC growth (#/score) population (%) HC (#) (#) (#/%) 3. HDI (#/score) (#/score) 2008/1995 (%) (000) ranking MC (#) Argentina 38 83 40,914 37/4.2 46 50/391 50/381 51/374 8 31 54 40 Brazil 37 60 198,739 30/4.5 70 50/390 53/370 46/393 5.2 37 67 33 Chile 28 91 16,602 48/3.2 40 40/438 44/411 37/442 8.5 33 43 6 Mexico 35 80 111,212 3/7.5 51 48/410 46/406 41/410 7.1 35 49 28 9. Internet 14. Global 13. World 12. 10. Mobile usership/ competitiveness competitiveness 15. ESI telephone 11. R&D Innovation 7. Quality of 8. e-Readiness population 16. EPI (#/score) (#/score) (#) score RC (#) (#/score) PC (#) (#/%) (%) life (#/score) (#/score) (#/score) Argentina 49/4.41 44/5.56 48.9 31/116.5 40 46/0.51 – 38 55 85/3.91 9/62.7 38/81.8 Brazil 44/4.8 42/5.65 34 81/77.6 38 31/1.1 – 35 40 56/4.23 11/62.2 35/82.7 Chile 27/6.41 32/6.57 50.4 67/88.1 25 40/0.68 – 33 25 30/4.7 42/53.6 29/83.4 Mexico 47/4.54 40/5.88 24.6 89/69.9 37 49/0.46 – 40 46 60/4.19 95/46.2 47/79.8 Remark: “#” refers to ranking among respective members and the numbers are the most current data available in 2009. Please refer to the reference section for a list of the sources of these 16 indicators
Table 10.4 Background information on human capital for the Latin American countries Country Human capital Observations From Table 10.3, Argentina spent 4.2% of its GDP on education and Argentina UN Human Development Index ranking: #46 out students’ PISA performance ranked 50/50/51 for science, math, and HC40#31 of 179 (2008) reading, respectively, out of 57 countries. Argentina is ranked HC40#31 Broadband internet subscribers – 8% (2009 est.) with a 2 percentile-point improvement over the 14 years; yet declined 9 Labor force – 16.27 million, urban areas only ranks in human capital from the 1st to the 3rd period (refer to Table 10.2). (2008 est.) Apparently, the effectiveness of Argentina’s human resource development Unemployment – 12% (2009 est.) needs to be re-examined. In addition, the 8% rate of broadband internet The country has a literacy rate of 97.2% (UN subscribers is relatively low, which may hamper efficient knowledge Development Program Report 2007/2008, p. 226) acquirement in this rapidly changing world Education in public schools (primary, secondary, and tertiary) is free From Table 10.3, Brazil spent 4.5% of its GDP on education and students’ Brazil UN Human Development Index ranking: #70 out PISA performance ranked 50/53/46 for science, math, and reading, HC40#37 of 179 (2008) respectively, out of 57 countries. Brazil is ranked HC40#37 with an 11 Broadband internet subscribers – 5.2% (2009 est.) percentile-point improvement over the studied 14 years and without any Labor force – 100.9 million (2008 est.) rank change from the 1st to the 3rd period (refer to Table 10.2). Although Unemployment – 8.1% (2009 est.) taxes are reserved for education, the effectiveness of human resource The literacy rate was at 88.6% of the population (UN development in Brazil still needs to be re-examined due to its low human Development Program Report 2007/2008, p. 226) capital. In addition, the broadband internet subscriber rate of 5% is the The new constitution reserves 25% of state and municipal lowest in this cluster taxes and 18% of federal taxes for education (continued)
Summary 195
Observations
UN Human Development Index ranking: #40 out From Table 10.3, Chile spent 3.2% of its GDP on education (the lowest in of 179 (2008) this cluster) and students’ PISA performance ranked 40/44/37 for science, math, and reading, respectively, out of 57 countries (the best in this cluster). Broadband internet subscribers – 8.5% (2009 est.) Chile is ranked HC40#33 with an 11 percentile-point improvement over the Labor force – 7.32 million (2008 est.) studied 14 years and advanced 4 ranks from the 1st to the 3rd period (refer Unemployment – 10.2% (2009 est.) to Table 10.2). The Chilean government’s early emphasis on human capital Twelve years of mandatory, free education make Chile development seems to have paid off. The broadband internet subscriber a special case within Latin America rate of 8.5% is the highest in this cluster, yet it is still comparatively low to The democratic governments early on placed emphasis ensure efficient new knowledge acquisition on human capital development and institutional modernization that lay at the heart of second- and third-generation reforms From Table 10.3, Mexico spent 7.5% of its GDP on education (the highest in Mexico UN Human Development Index ranking: #51 out this cluster) and students’ PISA performance ranked 48/46/41 for science, HC40#35 of 179 (2008) math, and reading, respectively, out of 57 countries (no better than Chile). Broadband internet subscribers – 7.1% (2009 est.) Mexico is ranked HC40#35 with a 9 percentile-point improvement over the Labor force – 45.5 million (2008 est.) studied 14 years and without any rank change from the 1st to the 3rd period Unemployment – 5.2% (2009 est.) (refer to Table 10.2). With a higher GDP percentage investment in education In 2004, the literacy rate was at 91%, and the youth literacy than most advanced countries, apparently the effectiveness of its human rate (ages 15–24) was 96%. Primary and secondary resource development needs to be re-examined. In addition, the broadband education (9 years) is free and mandatory internet subscriber rate of 5% is very low, which may hamper efficient knowledge acquirement in this rapidly changing world
Chile HC40#33
Table 10.4 (continued) Country Human capital
196 10 National Intellectual Capital of Four Latin American Countries
Mexico MC40#28
Chile MC40#6
Brazil MC40#33
in the country’s industrial GDP
Observations Argentina is ranked #54 out of 72 countries in the Globalization Index. It is ranked at the bottom MC40#40 with a decline of 26 percentile points over the 14 years and it declined 11 ranks from the 1st to the 3rd period (refer to Table 10.2) Brazil is ranked #67 out of 72 countries in the Exports – $200 billion f.o.b. (2008 est.), imports – $ 176 billion f.o.b. (2008 est.) Globalization Index. It is ranked MC40#33 with a Brazil has aimed to strengthen ties with other South American countries and decline of 4 percentile points over the 14 years and to engage in multilateral diplomacy through the United Nations and the declined 3 ranks from the 1st to the 3rd period (refer Organization of American States to Table 10.2) Chile is ranked #43 out of 72 countries in the Exports – $69.1 billion f.o.b. (2008 est.), imports – $59.17 billion f.o.b. (2008 est.) Globalization Index. It is ranked MC40#6 with a Chile has an open economy and has been pursuing a vigorous agenda of trade decline of 5 percentile points over the 14 years, liberalization. Chile already has preferential trade agreements with 54 countries yet advanced 2 ranks from the 1st to the 3rd period Total trade with Asia grew significantly at nearly 31%. Chile’s total trade with (refer to Table 10.2). Its #6 ranking in market capital China reached US$8.8 billion in 2006, representing nearly 66% of the value of is very impressive. The description at left explains its trade relationship with Asia Chile’s market capital achievement In 2005, tourism grew by 13.6%, generating more than 1.5 billion dollars, equivalent to 1.33% of the national GDP Mexico is ranked #49 out of 72 countries in the Exports – $294 billion f.o.b. (2008 est.), imports $305.9 billion f.o.b. (2008 est.) Globalization Index. It is ranked MC40#28 with a Mexico is the 15th largest exporter in the world decline of 5 percentile points over the 14 years and Trade has increased dramatically since the North American Free Trade Agreement declined 2 ranks from the 1st to the 3rd period (refer was established. More than 90% of Mexican trade is under free trade agreements to Table 10.2). Mexico is in a very good position to with more than 40 countries develop its market capital as described in the left In 2005, Mexico was the seventh most popular tourist destination worldwide, column receiving over 20 million tourists per year. Tourism is also the third largest sector
Table 10.5 Background information on market capital for the Latin American countries Country Market capital Argentina Exports – $73 billion f.o.b. (2008 est.), imports – $59.9 billion f.o.b. (2008 est.) MC40#40 The country is one of the largest producers and exporters (with Canada and Russia) of Cobalt-60, a radioactive isotope widely used in cancer therapy Tourism is increasingly important, now providing 7% of its economic output
Summary 197
Brazil Internet usership – 34% of the population (2009 est.) PC40#38 Brazil’s information technology is comparable in quality and positioning to those of India and China Brazil is a large oil and gas producer in the region and the world’s largest ethanol producer. Because of its ethanol fuel production, Brazil has sometimes been described as a bio-energy superpower Brazil co-owns the Itaipu Hydroelectric Power Plant on the Paraná River which is the world largest hydroelectric power plant
Table 10.6 Background information on process capital for the Latin American countries Country Process capital Argentina Internet usership – 48.9% of the population (2009 est.) PC40#40 Manufacturing is the nation’s leading single sector in GDP output, with 35% of the share The telecommunications sector has been growing at a fast pace, with an important penetration of mobile telephones (75% of population), the internet (with 10 million people online), and broadband services (3%) The service sector is the biggest contributor to overall GDP. Argentina produces energy in large part through well-developed hydroelectric resources; nuclear energy is also of high importance
Observations Based on Table 10.3, Argentina’s rankings for the quality of life, e-readiness, and mobile telephone subscribers are #49 out of 57, #44 out of 70, and #31 out of 133, respectively. It is ranked last, PC40 #40, with 1 percentile-point improvement over the 14 years and declined 3 ranks from the 1st to the 3rd period (refer to Table 10.2). As described in the column at left, Argentina’s infrastructure support such as manufacturing, telecommunications, and service sector seem to be good, yet these resources have not created good process capital for Argentina Based on Table 10.3, Brazil’s rankings for quality of life, e-readiness, and mobile telephone subscribers are #44 out of 57, #42 out of 70, and #81 out of 133, respectively. It is ranked at the bottom, PC40#38, with an 11 percentile-point improvement over the 14 years; yet declined 4 ranks from the 1st to the 3rd period (refer to Table 10.2). From the left column description, Brazil owns very good energy resources to support its infrastructure building, yet these resources have not created a high level of process capital for Brazil
198 10 National Intellectual Capital of Four Latin American Countries
Based on Table 10.3, Chile’s rankings for quality of Chile Internet usership – 50.4% of the population (2009 est.) life, e-readiness, and mobile telephone subscribers PC40#25 Chile went on a privatization campaign that was very extensive and was a first are #27 out of 57, #32 out of 70, and #67 out of for Latin America 133, respectively, the best in this cluster. It is ranked Its governments also turned the country’s attention to key “second- and PC40#25 with a 3 percentile-point improvement over third-generation” reforms, notably a strengthening of the country’s the 14 years; yet declined 2 ranks from the 1st to the educational and judicial systems and a deepening of the social security 3rd period (refer to Table 10.2). As described in the reform undertaken in the early 1980s left column, several Chilean government policies and reforms may have contributed to its relatively high level of process capital Based on Table 10.3, Mexico’s rankings for quality of Mexico Internet usership – 24.6% of the population (2009 est.) life, e-readiness, and mobile telephone subscribers PC40#37 Recent administrations have also improved the infrastructure and opened are #47 out of 57, #40 out of 70, and #89 out of competition in seaports, railroads, telecommunications, electricity 133, respectively. It is ranked PC40#37 with a 4 generation, natural gas distribution, and airports percentile-point improvement over the 14 years; yet In 2007, Mexico was the 6th larger oil producer in the world, producing 3.1 declined 3 ranks from the 1st to the 3rd period (refer million of barrels a day, significantly above the production of Kuwait or to Table 10.2). The advantages and resources described Venezuela in the left column have not created substantial process Mexico’s railway development is still inefficient and incapable of meeting the capital for Mexico economic demands of transportation
Summary 199
Mexico RC40#40
Chile RC40#33
Brazil RC40#35
Investment in R&D has been growing in private universities and companies since the 1990s Brazil has the most advanced space program in Latin America, with significant capabilities to launch vehicles, launch sites, and satellite manufacturing Uranium is enriched at the Resende Nuclear Fuel Factory to fuel the country’s energy demands. Plans are on the way to build the country’s first nuclear submarine Brazil has an operational Synchrotron Laboratory, a research facility for physics, chemistry, material science, and life sciences Chilean expenditure on R&D amounted to 5.9% of the overall expenditure on R&D in Latin America in 2005, up from 4.2% in 1996 Companies are now responsible for performing much of Chilean R&D R&D spending is heavily concentrated on three sectors: agriculture, hunting and fisheries, and manufacturing and services Universidad Nacional Autónoma de México conducts 50% of Mexico’s scientific research and extends its presence all over the country with satellite campuses and research centers Notable Mexican technologists include the co-inventor of the contraceptive pill, the inventor of the “Chromoscopic adapter for television equipment,” the first color television transmission system, and a Nobel Prize laureate in chemistry Mexico has the lowest number of researchers of OECD countries, with only 4.8 researchers per 10,000 inhabitants and trains only three PhDs per million inhabitants per year In recent years, the largest scientific project developed in Mexico was the construction of the world’s largest and most sensitive single-aperture telescope
Table 10.7 Background information on renewal capital for the Latin American countries Country Renewal capital Argentina Argentines have been responsible for major breakthroughs in world medicine, RC40#38 including coronary bypass surgery and cardiac pacemakers Argentine research has led to advances in wound-healing therapies, heart disease, and in several forms of cancer Argentina has two Nobel laureates in medicine and a Nobel laureate in chemistry
Mexico invested 0.46% of its GDP in R&D (2008), the lowest in this cluster. It is ranked RC40#40 with a 5 percentile-point improvement over the 14 years and without any rank change from the 1st to the 3rd period (refer to Table 10.2). Mexico has solid results in R&D, yet it suffers from a shortage of researchers to build up its renewal capital
Chile invested 0.68% of its GDP in R&D (2008). It is ranked RC40#33 with a decline of 1 percentile point over the 14 years and declined 2 ranks from the 1st to the 3rd period (refer to Table 10.2)
Observations Argentina invested 0.51% of its GDP in R&D (2008). It is ranked RC40#38 with a 3 percentile-point improvement over the 14 years and without any rank change from the 1st to the 3rd period (refer to Table 10.2). Argentina can create more renewal capital from its recognized medicine sector Brazil invested 1.1% of its GDP in R&D (2008), the highest in this cluster. It is ranked RC40#35 with an 8 percentile-point improvement over the 14 years and advanced 3 ranks from the 1st to the 3rd period (refer to Table 10.2). As described in the left column, Brazil has fairly good resources for developing renewal capital, yet its #35 ranking demands more attention
200 10 National Intellectual Capital of Four Latin American Countries
Argentina was ranked #58 in GDP per capita (PPP) in 2008 Its GDP growth rate (1995 vs. 2008) was 83% (refer to Table 16.10) A military dictatorship seemed to hamper Argentina’s national growth; however, its GDP growth rate in the most recent 6 years shows that Argentina is picking up its economic development Brazil was ranked #77 in GDP per capita (PPP) in 2008 Its GDP growth rate (1995 vs. 2008) was 60% Chile was ranked #56 in GDP per capita Chile GDP per capital (PPP) US$ 14,510 (IMF 2009 report) (PPP) in 2008 FC40#30 High domestic savings and investment rates helped propel Chile’s economy to average growth Its GDP growth rate (1995 vs. 2008) was rates of 8% during the 1990s 91% In Chile, the 1990s were a period of vigorous and unprecedented expansion, with average annual GDP growth of 6.5%. In 2003, Chile achieved 4.0% real GDP growth, 6.0% growth Continued Chilean economic development can be anticipated in 2004, and 5.7% in 2005, 4.3 % in 2006, 5.1% in 2007, and 4% in 2008 Mexico was ranked #54 in GDP per capita Mexico GDP per capita (PPP) – US$14,560 (IMF 2009 report) (PPP) in 2008 with a GDP growth rate FC40#29 The macroeconomic policies of the 1970s left Mexico’s economy highly vulnerable to external (1995 vs. 2008) of 80% conditions. These turned sharply against Mexico in the early 1980s, and caused the worst recession since the 1930s In April 1989, the Mexican government announced a national development plan for 1989–1994 which called for annual GDP growth of 6%. By 1996, there were signs that the country had begun to emerge from its economic recession Oil is Mexico’s largest source of foreign income Its GDP annual average growth for the period of 1995–2002 was 5.1%, 4.2% in 2004, 3.0% in 2005, 4.9 % in 2006, 3.2% in 2007, and 1.4% in 2008
Table 10.8 Background information on financial capital for the Latin American countries Country Financial capital Argentina GDP per capita (PPP) – US$14,413 (IMF 2009 report) FC40#32 Argentina was a wealthy nation with a strong and prosperous economy, but sunk into a deep recession in the mid-1950s The economy further declined during the military dictatorship that lasted from 1976 to 1983. During that period, over 400,000 companies of all sizes went bankrupt. The economic decisions made from 1983 to 2001 failed to reverse the situation. Finally, in 2001, after 3 years of recession, the economy collapsed and reached the worst point in Argentine history GDP growth – 7.1% in 2008, 8.7% in 2007, 8.5 % in 2006, 9.2% in 2005, 9.0% in 2004, and 8.8% in 2003 Brazil GDP per capita (PPP) – US$10,326 (IMF 2009 report) FC40#35 GDP growth – 5.2% in 2008, 5.4% in 2007, and 4 % in 2006
Summary 201
202
10 National Intellectual Capital of Four Latin American Countries
Table 10.9 Background information on future perspectives for the Latin American countries Country Argentina IMD World Competitiveness ranking: #55 out of 57 countries (2009) World Economic Forum global competitiveness: #85 out of 133 (2009–2010) Environmental Sustainability Index (ESI) – #9 out of 149 (2005, a projectbased ranking conducted in 2005) Environmental Performance Index (EPI) – #38 out of 149 (2008) The urban poverty rate dropped to 26.9% by 2007, down from the 48% observed in 2003 In spite of recent economic growth, the income distribution in Argentina is still considerably unequal GDP (PPP) per hour worked (2007) – 11.78 Brazil IMD World Competitiveness ranking: #40 out of 57 countries (2009) World Economic Forum global competitiveness: #56 out of 133 (2009–2010) Environmental Sustainability Index (ESI) – #11 out of 149 (2005, a project-based ranking conducted in 2005) Environmental Performance Index (EPI) – #35 out of 149 (2008) Brazil has been unable to translate its recent economic achievements into social development. Poverty, urban violence, growing social security debts, inefficient public services, and the low value of the minimum wage are some of the main social issues that currently challenge the Brazilian government. The rate of poverty is in part attributed to the country’s economic inequality GDP (PPP) per hour worked (2007) – 6.82 Chile IMD World Competitiveness ranking: #25 out of 57 countries (2009) World Economic Forum global competitiveness: #30 out of 133 (2009–2010) Environmental Sustainability Index (ESI) – #42 out of 149 (2005, a project-based ranking conducted in 2005) Environmental Performance Index (EPI) – #29 out of 149 (2008) Chile also suffers from one of the most uneven distributions of wealth in the world. Those ranked in the top ten percentiles possess 47% of the country’s wealth The government encourages domestic and foreign investment in research and development, and hopes it will bring additional FDI into new parts of the economy GDP (PPP) per hour worked (2007) – 12.94 Mexico IMD World Competitiveness ranking: #46 out of 57 countries (2009) World Economic Forum global competitiveness: #60 out of 133 (2009–2010) Environmental Sustainability Index (ESI) – #95 out of 149 (2005, a project-based ranking conducted in 2005) Environmental Performance Index (EPI) – #47 out of 149 (2008) Income inequality remains a problem, and huge gaps remain not only between the rich and the poor, but also between the North and the South, and between urban and rural areas. Sharp contrasts in income and human development are also a grave problem for Mexico Mexico is now firmly established as an upper middle-income country. After the slowdown of 2001, the country has recovered and has a steady economic growth GDP (PPP) per hour worked (2007) – 9.15
Summary
203
agreements, and built a facilitating environment conducive to foreign investments. Chile is also ranked well in world competitiveness and global competitiveness (Table 10.3) with scores of #25 and #28, respectively. These initiatives may partially explain why Chile outperformed its peers in national intangible assets. In general, economic inequality seems to be a common problem in this country cluster, which may lead to reduced intellectual capital. For the decline in market capital, the political strife of Argentina and communism in Brazil may impact cross-border ventures, cultural openness, globalization, government policy transparency, and country image. The generally low level of renewal capital is counter intuitive given the information that Argentina has had several breakthroughs in medicine, Brazil has an advanced space program, Chile is aggressive in R&D, and Mexico is also strong in space technology. Very likely, the nations did not capitalize on such achievements to build streams of R&D around the core invention or technology for the greater national benefit. In addition, low R&D investment and a limited number of researchers, as the case of Mexico attests, may constrain renewal capital accumulation. In summary, the four Latin American countries have bountiful natural resources with large populations. Developing their intellectual capital would enable the countries to utilize their natural resources in a wiser manner. The analyses in this chapter provide some information for the relevant policy makers to find new directions for enhancing national competitiveness.
wwwwwwwwww
Chapter 11
National Intellectual Capital of Australia and New Zealand
Abstract Australia and New Zealand are listed in the top 20 in the National Intellectual Capital Indices (NICI40) for 40 countries, namely 11th and 18th. In comparing the two countries’ overall rankings, Australia scores higher in human capital (ranked #10) and process capital (ranked #7), while New Zealand is relatively strong in market capital (ranked #11); however, this advantage does not transfer to its financial capital (ranked #22)
Mean SD
Human capital
Market capital
Process capital
Financial Renewal capital capital
6.91 0.15
6.21 0.07
6.65 0.54
4.00 0.70
9.51 0.21
Overall intellectual capital 33.26 1.53
Country Score Ranking Score Ranking Score Ranking Score Ranking Score Ranking Score Ranking Australia 7.01 10 6.16 14 7.03 7 4.49 18 9.65 11 34.34 11 New Zealand
6.80
14
6.26
11
6.27
14
3.50
21
9.36
22
32.18 18
Introduction Australia and New Zealand are among the top 35 wealthiest countries in the world. Based on IMF data (International Monetary Fund April 2009 data), the GDP per capita (PPP) in US dollars for Australia (37,299) and New Zealand (27,060) ranked number 15 and 34, respectively, in world wealth (http://en.wikipedia.org/ wiki/List_of_countries_by_GDP_%28PPP%29_per_capita). Located in the same region, why is Australia a better performer than New Zealand in terms of GDP and national IC? Analysis from the perspective of national intellectual capital may provide some answers. Table 11.1 shows the results of comparing five types of capital “within” each country and “between” countries in this cluster. Based on each country’s ranking, financial capital ranks first and renewal capital ranks fifth for both these two countries. That is, financial capital has the highest and renewal capital has the lowest score. Human
C.Y.-Y. Lin and L. Edvinsson, National Intellectual Capital: A Comparison of 40 Countries, 205 DOI 10.1007/978-1-4419-7377-1_11, © Springer Science+Business Media, LLC 2011
New Zealand
Mean score Australia
Score Ranking
Score Ranking
Within Between
Within Between
Intellectual capital Human Market capital capital 7.01 6.16 3 4 1 2 6.8 6.26 2 4 2 1 Process capital 7.03 2 1 6.27 3 2
Renewal capital 4.49 5 1 3.5 5 2
Financial capital 9.65 1 1 9.36 1 2
Table 11.1 Capital mean ratings and rankings of Australia and New Zealand from 1995 to 2008
32.18
Overall score 34.34
2
Ranking in this cluster 1
18
Overall ranking among 40 countries 11
206 11 National Intellectual Capital of Australia and New Zealand
National Intellectual Capital of Australia and New Zealand
207
capital, market capital, and process capital are ranked as 3, 4, and 2, respectively, for Australia, and 2, 4, and 3, respectively, for New Zealand. As for the inter-country comparison, Table 11.1 shows that Australia has higher scores in four of the capital components, namely, human capital, process capital, renewal capital, and financial capital; New Zealand only surpasses Australia in market capital.
National Intellectual Capital of Australia and New Zealand Figures 11.1 and 11.2 display the characteristics and trends of national intellectual capital for Australia and New Zealand. In Fig. 11.1, Australia has made the most progress in renewal capital with an increase of about 16 percentile points, followed by an increase in human capital of about 15 percentile points, in process capital of about seven percentile points, and in both market capital and financial capital of about one percentile point, as compared to the figures for 1995 and 2008. With respect to financial capital, although the 1–10 rating score showed a slight improvement, the real dollar value of GDP per capita (PPP) increased from US$21,281 in 1995 to US$37,299 in 2008 for a growth rate of 75%. For further improvement, Australia should focus attention on its lowest score in renewal capital, even though it has made notable progress in that area.
Australia Human Capital
10
8 Australia Market Capital 6 Australia Process Capital 4 Australia Renewal Capital 2 Australia Financial Capital
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Australia Human Capital
5.929 6.235 6.040 6.896 6.785 7.358 7.525 7.685 7.302 7.275 7.315 7.133 7.295 7.370
Australia Market Capital
5.914 6.104 5.890 5.837 6.279 6.077 6.025 6.284 6.519 6.345 6.375 6.323 6.305 5.955
Australia Process Capital
6.192 6.344 6.909 7.050 7.353 7.483 7.259 7.327 7.360 6.885 7.261 7.113 6.950 6.886
Australia Renewal Capital 3.563 4.086 4.092 4.562 4.468 4.062 4.178 4.573 4.446 4.315 5.157 5.335 4.900 5.158 Australia Financial Capital 9.640 9.627 9.611 9.631 9.649 9.646 9.640 9.660 9.672 9.668 9.661 9.661 9.668 9.669
Fig. 11.1 Trends of intellectual capital in Australia
208
11 National Intellectual Capital of Australia and New Zealand New Zealand Human Capital
10
8 New Zealand Market Capital 6 New Zealand Process Capital 4 New Zealand Renewal Capital 2 New Zealand Financial Capital
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
New Zealand Human Capital
6.182 6.334 6.107 7.169 6.753 6.948 7.008 6.889 6.732 6.881 6.913 6.864 7.003 7.370
New Zealand Market Capital
6.869 7.326 6.505 6.423 6.351 5.523 6.041 6.237 6.052 6.110 6.089 6.217 6.016 5.852
New Zealand Process Capital
6.451 6.441 6.273 6.319 6.253 6.037 6.191 5.984 5.679 6.295 6.435 6.590 6.333 6.487
New Zealand Renewal Capital 2.928 3.326 3.000 3.315 3.184 3.147 3.449 3.734 3.612 3.664 3.847 3.923 3.889 3.945 New Zealand Financial Capital 9.378 9.362 9.329 9.305 9.328 9.336 9.342 9.364 9.381 9.392 9.385 9.381 9.386 9.374
Fig. 11.2 Trends of intellectual capital in New Zealand
Figure 11.2 indicates that New Zealand has made the most progress in human capital with an increase of about 12 percentile points, followed by an increase in renewal capital of about ten percentile points, yet it shows a decrease in market capital of about ten percentile points, as compared to the figures for 1995 and 2008. Its process capital score did not change. With respect to financial capital, although the 1–10 rating score showed no improvement, the real dollar value of GDP per capita (PPP) increased from US$16,232 in 1995 to US$27,060 in 2008 for a growth rate of 67%. Analysis of the raw data reveals that the decline of market capital was mainly caused by several score changes between 1995 and 2008, including corporate tax encouragement (from 7.0 to 4.39), cross-border ventures (from 8.7 to 7.32), globalization (from 7.87 to 6.34), and image of country (from 8.6 to 7.32). For further improvement and to enhance its competitiveness, New Zealand should try to improve its lowest score rating of renewal capital and its regressed market capital. Figures 11.1 and 11.2 indicate that the development of human capital, market capital, and process capital in these two countries spread within the 60–80th percentile range over the years. Overall, the capital development of Australia has shown a slight upward trend (except for market capital), whereas that of New Zealand is relatively flat. Initially, New Zealand’s market capital surpassed its human capital, yet it was overtaken by human capital starting from 1998 and by process capital from 2004. The renewal capital of both countries shows the most improvement with Australia running ahead of New Zealand by more than ten percentile points.
Comparison of Capital Components of Australia and New Zealand
209
Comparison of Capital Components of Australia and New Zealand Figures 11.3–11.7 allow for a further comparison of the five types of capital between the two countries. Figure 11.3 shows that initially New Zealand has a slightly higher score for human capital than does Australia, yet the situation began to reverse itself starting in 2000 and by 2008 they had identical human capital scores. Figure 11.4 indicates that at the initial stage, New Zealand was ahead of Australia in market capital; yet the opposite was true from 2003 to 2007. In 2008, the two scores became almost identical. As reported earlier, New Zealand’s scores for corporate tax encouragement, cross-border ventures, globalization, and image of country all decreased. Figure 11.5 shows that the process capital of Australia increased by about seven percent points over the 14 years, while New Zealand showed no improvement. Again, in 1995, New Zealand had a higher score than Australia in process capital, yet the situation began reversing itself in 1997. Figure 11.6 indicates that Australia has consistently higher scores for renewal capital than does New Zealand, with the two scores spreading farther and farther apart to a gap of about 13 percentile points in 2008.
10
8
Australia Human Capital
6
New Zealand Human Capital
4
2
0 Australia Human Capital
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 5.929 6.235 6.040 6.896 6.785 7.358 7.525 7.685 7.302 7.275 7.315 7.133 7.295 7.370
New Zealand Human Capital 6.182 6.334 6.107 7.169 6.753 6.948 7.008 6.889 6.732 6.881 6.913 6.864 7.003 7.370
Fig. 11.3 Comparison of human capital in Australia and New Zealand
210
11 National Intellectual Capital of Australia and New Zealand 10
8
Australia Market Capital
New Zealand Market Capital
6
4
2
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 5.914 6.104 5.890 5.837 6.279 6.077 6.025 6.284 6.519 6.345 6.375 6.323 6.305 5.955
Australia Market Capital
New Zealand Market Capital 6.869 7.326 6.505 6.423 6.351 5.523 6.041 6.237 6.052 6.110 6.089 6.217 6.016 5.852
Fig. 11.4 Comparison of market capital in Australia and New Zealand
10
8
Australia Process Capital
New Zealand Process Capital
6
4
2
0 Australia Process Capital
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 6.192 6.344 6.909 7.050 7.353 7.483 7.259 7.327 7.360 6.885 7.261 7.113 6.950 6.886
New Zealand Process Capital 6.451 6.441 6.273 6.319 6.253 6.037 6.191 5.984 5.679 6.295 6.435 6.590 6.333 6.487
Fig. 11.5 Comparison of process capital in Australia and New Zealand
Comparison of Capital Components of Australia and New Zealand
211
10
8
Australia Renewal Capital
6
4 New Zealand Renewal Capital 2
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 3.563 4.086 4.092 4.562 4.468 4.062 4.178 4.573 4.446 4.315 5.157 5.335 4.900 5.158
Australia Renewal Capital
New Zealand Renewal Capital 2.928 3.326 3.000 3.315 3.184 3.147 3.449 3.734 3.612 3.664 3.847 3.923 3.889 3.945
Fig. 11.6 Comparison of renewal capital in Australia and New Zealand
10
8
Australia Financial Capital
6
4 New Zealand Financial Capital 2
0 Australia Financial Capital
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 9.640 9.627 9.611 9.631 9.649 9.646 9.640 9.660 9.672 9.668 9.661 9.661 9.668 9.669
New Zealand Financial Capital 9.378 9.362 9.329 9.305 9.328 9.336 9.342 9.364 9.381 9.392 9.385 9.381 9.386 9.374
Fig. 11.7 Comparison of financial capital in Australia and New Zealand
212
11 National Intellectual Capital of Australia and New Zealand
As for the 1–10 scaled financial capital, Figure 11.7 shows little change over the years with Australia consistently being the better performer. In real dollar values of GDP per capita (PPP), over the 14 years, Australia achieved 75% growth and New Zealand 67% growth. The above analyses reveal some interesting phenomena. For human capital, market capital, and process capital (but not for renewal capital and financial capital), New Zealand was the better performer initially, yet the situation reversed itself at different rates of change for each specific type of capital. New Zealand’s GDP growth rate is also lower than Australia, 67% vs. 75%. In addition to New Zealand’s market capital decline, are there any other factors that could explain why it lags behind Australia? The issue poses an interesting question for further study.
Three-Period Progression of National Intellectual Capital Development As stated in the previous chapters, sections “National Intellectual Capital of Australia and New Zealand” and “Comparison of Capital Components of Australia and New Zealand” presented the results of data analysis for a total of 14 years, spanning from 1995 to 2008. However, the results are somewhat limited in nature, with comparisons focusing on the initial year (1995) and the concluding year (2008) of each form of capital in each country. To get a more complete picture of the dynamics of the capital development over the 14 years, we developed Table 11.2, which assesses the changes of capital rankings in three periods (the first and second periods consist of 5 years and the third period consists of 4 years), namely, 1995–1999 is the first period, 2000–2004 is the second period, and 2005–2008 is the third period. This division of Table 11.2 into periods makes it easier to visualize the development and perhaps even the future trends of the five types of capital for each country. We employ the sequence of human capital, market capital, process capital, renewal capital, financial capital, and overall IC. The second column in Table 11.2 exhibits the overall ranking difference between the first period and the third period. The third column is the ranking of the first period, and the fourth and the fifth columns display respective rankings and differences with regard to the previous period. The last column compares the most recent third period ranking with the overall NICI40 ranking. Over the entire course of the three periods, New Zealand underwent an apparent national IC decline in this cluster over the three periods. After comparing the ranks of the first period and the third period, Australia increased its ranking in market capital (7) and renewal capital (2), yet decreased in process capital (−2) and human capital (−1), with no change in financial capital (0) and overall IC (0). New Zealand decreased its ranking in human capital (−10), market capital (−9), process capital (−3), financial
2 1
0 −2
Financial capital Australia New Zealand 11 22
17 21 1 −1
−1 1
1 −7
12 23
14 21
−1 −1
3 0
−3 4
11 22
18 21
7 14
−1 −1
4 0
−2 0
3 −3
Overall IC Australia 0 11 11 0 11 0 11 0 New Zealand −5 14 19 −5 19 0 18 −1 Remarks: (1) The second column compares the 3rd period ranking with the 1st period ranking. (2) The last column compares the most current 3rd period ranking with the original 14-year NICI40 ranking summarized in the abstract
12 21
16 22
6 18
9 14
Renewal capital Australia New Zealand
7 11
2 2
14 11
−2 −3
5 −11
Process capital Australia New Zealand
13 16
11 14
18 5
7 −9
Market capital Australia New Zealand
−2 −4
10 14
12 18
−3 −2
3rd period ranking vs. overall NICI40 ranking NICI40 ranking Difference
3rd period (2005–2008) Ranking Difference
Table 11.2 Changes in intellectual capital rankings over the three periods 1st to 3rd 1st period period (1995–1999) 2nd period (2000–2004) Difference (1) Ranking Ranking Difference Human capital Australia −1 11 9 2 New Zealand −10 8 16 −8
Three-Period Progression of National Intellectual Capital Development 213
214
11 National Intellectual Capital of Australia and New Zealand
capital (−2), and overall IC (−5), although it increased its ranking in renewal capital (1). Furthermore, in comparing the ranking of the most recent third period with the 14-year NICI40 ranking reported in the abstract, Australia underwent no ranking change (#11) and New Zealand declined one rank (from #18 to #19). These findings indicate that the national IC of New Zealand has been gradually decreasing.
General Descriptive Information on Australia and New Zealand The above four sections basically present results based on statistical analyses of IMD secondary data spanning from 1995 to 2008. To complement the quantitative data analyses, this section provides some background information for each country that may help explain the results as well as cast further light for future intellectual capital development. Due to the magnitude of relevant information, this study does not intend nor does it have the resources to provide an in-depth background report on the two countries. As a result, what we are presenting hereunder is a summary of information closely related to intellectual capital and available from public sources, including some objective indicators published by various world organizations (e.g., the United Nations’ Human Development Index), web information from http://en.wikipedia.org/wiki, and relevant articles posted on the Internet. Although different indicators cover different dimensions (e.g., the Human Development Index also covers health/life expectancy and purchasing power; PISA covers only students’ performances) and do not have an equal comparison basis, they still provide valuable information on individual nations as exhibited in Table 11.3. In addition to the statistics presented in Table 11.3 derived from 16 different sources, we summarize some qualitative information for each country with respect to human capital, market capital, process capital, renewal capital, financial capital, and future perspective in that sequence. Ranking under country name is the overall ranking of each respective capital reported in the abstract. We also include the observations that incorporate the 14-year data analysis and the relevant current indicators reported in Table 11.3. Inevitably, the summaries presented in Tables 11.4–11.9 are susceptive to subjectivity due to information availability; nevertheless, the information provided is meant to show different avenues for observing intellectual capital development. Readers are encouraged to expand their own interpretation from various information sources and different angles. To highlight the future perspectives of each country, the last four indicators of Table 11.3 have been provided for readers’ reference – World Competitiveness by the IMD, Global Competitiveness by the World Economic Forum, the Environmental Sustainability Index by Yale University, and the Environmental Performance Index by Yale University. We summarize hereunder some information that may be relevant to the intellectual capital development of each country.
9. Internet usership/ population (%) 79.6 79.7
10. Mobile telephone (#/score) 47/105.6 42/109.6
11. R&D PC (#) (#/%) 7 13/2.09 14 27/1.18
4. PISA science (#/score) 5/527 3/530
12. Innovation score RC (#) 0.36 18 – 21
PISA PISA math. (#/ reading (#/score) score) 10/520 6/513 8/522 4/521
13. World competitive ness (#) 7 15
14. Global competitive ness (#/score) 15/5.15 20/4.98
5. Broad band/popula tion (%) HC (#) 24.5 10 21.7 14
15. ESI (#/score) 13/61.0 14/60.9
16. EPI (#/score) 46/79.8 7/88.9
6. Globaliza tion (#) MC (#) 13 14 16 11
Australia New Zealand Remark: “#” refers to ranking among respective members, and the numbers are the most current data available in 2009. Please refer to the reference section for a list of the sources of these 16 indicators
7. Quality of life 8. e-Readiness (#/score) (#/score) 6/9.2 4/8.83 12/8.88 16/8.28
Table 11.3 National intellectual capital-related indicators and ranking 2. Education GDP per capita 1. Overall IC (PPP) growth Population expenditures (#/%) 3. HDI 2008/1995 (%) (000) ranking Australia 11 75 21,263 29/4.9 4 18 67 4,213 17/5.8 20 New Zealand
216
11 National Intellectual Capital of Australia and New Zealand
Table 11.4 Background information on human capital for Australia and New Zealand Country Human capital Observations Australia UN Human Development Index From Table 11.3, Australia spent HC40#10 ranking: #4 out of 179 (2008) 4.9% of its GDP on education and students’ PISA performance Broadband internet subscribers – ranked 5/10/6 for science, math, 24.5% (2009 est.) and reading, respectively, out of Labor force – 11.21 million (2008 57 countries. Australia is ranked est.) HC40#10 with a 15 percentileUnemployment – 5.8% (2009 est.) point improvement over the 14 years, yet declined one rank from the 1st to the 3rd period (refer to Table 11.2) From Table 11.3, New Zealand spent New Zealand UN Human Development Index ranking: #20 out of 179 (2008) 5.8% of its GDP on education and HC40#14 students’ PISA performance ranked Broadband internet subscribers – 3/8/4 for science, math, and reading, 21.7% (2009 est.) respectively, out of 57 countries Labor force – 2.26 million (2008 (better than Australia). New Zealand est.) is ranked HC40#14 with a 12 Unemployment – 5% (2009 est.) percentile-point improvement over Education in New Zealand is the studied 14 years, yet declined ten nominally free for all primary, ranks from the 1st to the 3rd period intermediate and secondary (refer to Table 11.2). Although schooling students’ PISA performance In recent years, a brain gain in New Zealand is better than has brought in educated Australia’s, yet the advantage does professionals from poor not transfer to human capital as countries and Europe as New Zealand’s human capital and permanent settlers UN Human Development Index (HDI) lag behind those of Australia
Table 11.5 Background information on market capital for Australia and New Zealand Country Market capital Observations Australia Exports – $178.9 billion (2008 est.), Australia is ranked #13 MC40#14 imports – $187.2 billion (2008 est.) out of 72 countries in Globalization Index. Australia’s largest export markets include Japan, It is ranked MC40#14 China, the USA, South Korea, and with no score change New Zealand over the 14 years, yet In 2003/2004, the tourism industry represented advanced seven ranks 3.9% of Australia’s GDP at a value of from the 1st to the approximately A$32 billion to the national 3rd period (refer to economy Table 11.2) (continued)
General Descriptive Information on Australia and New Zealand Table 11.5 (continued) Country Market capital New Zealand MC40#11
217
Observations
Exports – $29.53 billion (2008 est.), imports – $31.11 billion f.o.b. (2008 est.) New Zealand is a country heavily dependent on trade with exports accounting for around 24% of its output Tourism contributes $12.8 billion (or 8.9%) to New Zealand’s total GDP and supports nearly 200,000 full-time equivalent jobs (9.9% of the total workforce in New Zealand) Since 1984, successive governments have engaged in major macroeconomic restructuring, transforming New Zealand from a highly protectionist and regulated economy to a liberalized free-trade economy
New Zealand is ranked #16 out of 72 countries in the Globalization Index. It is ranked MC40#11with a decline of 10 percentile points over the 14 years and declined nine ranks from the 1st to the 3rd period (refer to Table 11.2)
Table 11.6 Background information on process capital for Australia and New Zealand Country Process capital Observations Australia Internet usership – 79.6% of Based on Table 11.3, Australia’s PC40#7 population (2009 est.) rankings for quality of life, e-readiness, and mobile The service sector of the economy, telephone subscribers are #6 out including tourism, education, and of 57, #4 out of 70, and #47 out financial services, constitutes of 133, respectively. It is ranked 69% of its GDP PC40#7 with a 7 percentile-point Renewable energy technologies improvement over the 14 years; currently contribute about 6% of yet declined two ranks from Australia’s total energy supply. the 1st to the 3rd period (refer South Australia had 15% of its to Table 11.2). As described electricity coming from wind in the column at left, Australia farms by the end of 2007 has made significant efforts to According to an estimate, Australia develop renewable energy has enough geothermal energy
New Zealand PC40#14
to provide for its electricity needs for 450 years Internet usership – 79.7% of population (2009 est.) The current government’s economic objectives are centered on building a “knowledge economy”
Based on Table 11.3, New Zealand’s rankings for quality of life, e-readiness, and mobile telephone subscribers are #12 out of 57, #16 out of 70, and #42 out of 133, respectively. It is ranked PC40#14 with no score change over the 14 years; yet declined three ranks from the 1st to the 3rd period (refer to Table 11.2)
218
11 National Intellectual Capital of Australia and New Zealand
Table 11.7 Background information on renewal capital for Australia and New Zealand Country Renewal capital Observations Australia invested 2.09% of Australia Australia has developed world-leading its GDP in R&D (2008). RC4m0#18 solar thermal technologies, but at It is ranked RC40#18 only very low levels of actual use with 16 percentile-point R&D of small businesses has risen by 17% improvement over the to reach US$1.3 billion. R&D expenditure 14 years and advanced by micro-businesses (fewer than five two ranks from the employees) increased by 18% to reach 1st to the 3rd period US$354 million (refer to Table 11.2). Australian R&D Tax Concessions offer a The increasing R&D tax deduction of up to 125% of R&D expenditure by its microexpenditure businesses is impressive European innovation scoreboard ranking – #22 out of 38; Australia scored 0.36 in 2007 (the most current data) Employment in research and development has only just kept pace with growth in the overall job market
New Zealand invested 1.18% of its GDP in R&D (2008). It is ranked RC40#21 with a 10 percentile-point improvement over the 14 years and advanced one rank from the 1st to the 3rd period (refer to Table 11.2) Remark: New Zealand is not included in the European innovation scoreboard ranking
New Zealand RC40#21
Table 11.8 Background information on financial capital for Australia and New Zealand Country Financial capital Observations Australia GDP per capita (PPP) – US$37,299 Australia was ranked #15 in GDP FC40#11 (IMF 2009 report) per capita (PPP) in 2008 GDP growth – 2.2% in 2008, 4% Its GDP growth rate (1995 vs. in 2007, and 2.9 % in 2006 2008) was 75% New Zealand was ranked #34 in New Zealand GDP per capita (PPP) – US$27,060 (IMF 2009 report) GDP per capita (PPP) in 2008 FC40#22 Its GDP growth rate (1995 vs. Estimated GDP in 12 cities grew 2008) was 67% by 4.3% per year and GDP per capita by 3.5% per year from 2001 to 2006 GDP growth – 0.2% in 2008, 3.1% Based on 2008 GDP growth, in 2007, and 2 % in 2006 New Zealand was hit by the 2008 financial crisis more seriously than Australia
Summary In general, Australia and New Zealand are ranked in the second quarter of NICI40 – 11th and 18th, respectively. They invest a good percentage of their GDP in education, 4.9% for Australia and 5.8% for New Zealand. With more educational investment, the
Summary
219
Table 11.9 Background information on future perspectives of Australia and New Zealand Country Australia IMD World Competitiveness ranking: #7 out of 57 countries (2009) World Economic Forum global competitiveness: #15 out of 133 (2009–2010) Environmental Sustainability Index (ESI) – #13 out of 149 (2005, a projectbased ranking conducted in 2005) Environmental Performance Index (EPI) – #46 out of 149 (2008) Australia is building the world’s most advanced photovoltaic (PV) heliostat solar concentrator power station in Northwestern Victoria GDP (PPP) per hour worked (2007) – 28.77 IMD World Competitiveness ranking: #15 out of 57 countries (2009) New Zealand World Economic Forum global competitiveness: #20 out of 133 (2009–2010) Environmental Sustainability Index (ESI) – #14 out of 149 (2005, a projectbased ranking conducted in 2005) Environmental Performance Index (EPI) – #7 out of 149 (2008) GDP (PPP) per hour worked (2007) – 21.15
PISA performance of New Zealand is better that that of Australia, yet the Australian broadband population is higher than that of New Zealand, 23% vs. 17%. Their e-readiness is ranked #4 and #16 out of 70 countries and R&D investment of GDP is 2.09% and 1.18%, respectively. At the initial stage, New Zealand had higher scores in human capital, market capital, and process capital than did Australia. However, Australia has become the better performer in almost every capital category, with renewal capital exhibiting the greatest disparity. Table 11.2 also shows that New Zealand underwent substantial declines in human capital (−10), market capital (−9), process capital (−3), financial capital (−2), and overall NICI40 (−5) when comparing the first and third period ranking. In returning to the question “Why does Australia perform better than New Zealand?”, the declining human capital and market capital, and the weak process capital and renewal capital of New Zealand are the likely answers. Although New Zealand’s successive governments have engaged in major macroeconomic restructuring and transformation since 1984, the effects are not clearly shown in the accumulation of national intellectual capital. However, judging from the percentage of its GDP investment in education, students’ PISA performance, and the brain gain of educated professionals, human capital should not be a major concern for New Zealand if continuous commitment is warranted. New Zealand is relatively rich in natural resources and boasts beautiful scenery and a good Environment Performance Index score of #7. The government can be more aggressive in developing its tourism and improving its “image of country” through various measures. In addition, its low degree of renewal capital deserves some attention; measures such as the R&D Tax Concessions (following Australia’s example) can be adopted to promote R&D and innovation.
220
11 National Intellectual Capital of Australia and New Zealand
In summary, Australia and New Zealand are two neighboring countries that can learn from each other and even progress together as a region. In today’s environment of keen competition, regionalization may be the key to sustainable advantage. Investigation of the countries’ intellectual capital provides a guideline for policy makers to create and accumulate intangible assets for their future competitiveness in the twenty-first century knowledge economy.
Chapter 12
National Intellectual Capital of Three East Asian Countries (Japan, South Korea, Taiwan)
Abstract The three East Asian countries are mainly in the second quarter percentile of National Intellectual Capital Indices for 40 Countries (NICI40). Japan, South Korea, and Taiwan ranked number 14, 21, and 17, respectively. In comparing each individual country’s overall ranking, Japan is particularly strong in renewal capital (ranked #5), yet weak in market capital (ranked #37). South Korea is comparatively better in renewal capital (ranked #19) and weak in market capital #34. Taiwan is also comparatively strong in renewal capital (ranked #11), yet this advantage did not effectively transfer to its financial capital (ranked #21).
Renewal Human capital Market capital Process capital capital
Financial capital
Overall intellectual capital
Mean SD
6.48 0.34
9.41 0.18
31.85 2.31
Country Japan South Korea Taiwan
Score Ranking Score Ranking Score Ranking Score Ranking Score Ranking Score Ranking 6.82 13 4.60 37 5.68 19 7.03 5 9.60 16 33.73 14 6.15 22 4.79 34 4.87 26 4.23 19 9.24 24 29.28 21 6.47
5.11 0.73
16
5.94
5.49 0.55
16
5.92
5.37 1.47
17
4.84
11
9.38
21
32.55 17
Introduction This chapter presents the national intellectual capital of three East Asian countries, namely, Japan, South Korea, and Taiwan. For the sake of brevity, “Korea” represents South Korea in this study. These three nations are among the world’s 40 wealthiest countries. Based on IMF data (International Monetary Fund April 2009 data), the GDP per capita (PPP) in US dollars for Japan (34,100), Taiwan (30,881), and South Korea (27,647) ranked 24, 25, and 32, respectively, in world wealth (http://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29_per_ capita). Japan as a former economic superpower in the past is being outperformed C.Y.-Y. Lin and L. Edvinsson, National Intellectual Capital: A Comparison of 40 Countries, 221 DOI 10.1007/978-1-4419-7377-1_12, © Springer Science+Business Media, LLC 2011
222
12 National Intellectual Capital of Three East Asian Countries
by several rising countries as Singapore and the Netherlands in terms of GDP and national intellectual capital. Why is Japan so weak in market capital? How can Korea and Taiwan further advance their economic development? Analysis from the perspective of national intellectual capital may provide some answers. These three countries share a geographical proximity; in addition, Korea and Taiwan seem to follow Japan’s development pattern; therefore, this study groups them as a cluster. Among the three countries, the overall national intellectual capital ranking sequence in descending order is Japan (14), Taiwan (17), and Korea (21). Table 12.1 shows the results of comparing the five types of capital “within” each country and “between” countries in this cluster. Based on each country’s ranking, financial capital ranks first in all three countries; that is, financial capital has the highest score in this cluster. Human capital, market capital, process capital, and renewal are ranked as 3, 5, 4, and 2, respectively, for Japan; 2, 4, 3, and 5, respectively, for Korea; and 2, 3, 4, and 5, respectively, for Taiwan. As for the inter-country comparison, Table 12.1 shows that Japan ranks first in three types of capital – human capital, renewal capital, and financial capital, while Taiwan ranks first in market capital and process capital. In this cluster, Korea is comparatively weak in national intellectual capital.
National Intellectual Capital of Each Individual Country Figures 12.1–12.3 display the characteristics and trends of national intellectual capital for each East Asian country in this chapter. In Fig. 12.1, Japan has made the most progress in human capital with an increase of about 24 percentile points, followed by an increase in process capital of about 13 percentile points and market capital of about five percentile points, in comparing the figures for 1995 and 2008. Yet, it has a decrease in renewal capital of about five percentile points and financial capital of about one percentile point. In real dollar value, the GDP per capita (PPP) of Japan increased from US$22,418 in 1995 to US$34,100 in 2008 for a growth rate of 52%. For further improvement and to enhance its competitiveness, Japan should develop its lowest-ranked market capital and its regressed renewal capital. Figure 12.2 indicates that Korea has made the most progress in human capital with an increase of about 22 percentile points, followed by an increase in renewal capital of about 16 percentile points, in process capital of about 14 percentile points, in market capital of about seven percentile points, and in financial capital of about three percentile points, in comparing the figures for 1995 and 2008. In real dollar value, the GDP per capita (PPP) of Korea increased from US$12,754 in 1995 to US$27,647 in 2008 for a growth rate of 117%. For further improvement and to enhance its competitiveness, Korea should promote the continuous growth of its market capital, process capital, and renewal capital. Figure 12.3 indicates that Taiwan has made the most progress in renewal capital with an increase of about 20 percentile points, followed by an increase in
Table 12.1 Capital mean ratings and rankings of the three East Asian countries from 1995 to 2008 Intellectual capital Human Market Process Renewal Financial capital capital capital capital capital Mean score Japan Score 6.82 4.6 5.68 7.03 9.6 Ranking Within 3 5 4 2 1 Between 1 3 2 1 1 Korea Score 6.15 4.79 4.87 4.23 9.24 Ranking Within 2 4 3 5 1 Between 3 2 3 3 3 Score 6.47 5.94 5.92 4.84 9.38 Taiwan Within 2 3 4 5 1 Ranking Between 2 1 1 2 2
Ranking in this cluster 1
3
2
Overall score 33.73
29.28
32.55
17
21
Overall ranking among 40 countries 14
National Intellectual Capital of Each Individual Country 223
224
12 National Intellectual Capital of Three East Asian Countries 10 Japan Human Capital 8 Japan Market Capital 6 Japan Process Capital 4 Japan Renewal Capital 2 Japan Financial Capital 0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Japan Human Capital
5.439 5.393 5.456 6.039 5.861 7.540 7.243 7.319 7.312 7.316 7.637 7.456 7.675 7.750
Japan Market Capital
4.035 4.234 4.025 4.352 4.669 4.362 4.598 4.692 4.796 4.947 5.240 5.147 4.815 4.517
Japan Process Capital
4.853 5.578 4.915 5.336 5.664 5.654 5.395 5.735 5.721 5.784 6.327 6.231 6.094 6.215
Japan Renewal Capital 7.413 7.954 7.750 7.804 7.549 6.405 6.434 6.871 6.613 6.559 6.773 6.652 6.730 6.865 Japan Financial Capital 9.690 9.673 9.643 9.603 9.588 9.590 9.577 9.570 9.578 9.579 9.584 9.592 9.598 9.587
Fig. 12.1 Trends of intellectual capital in Japan 10 Korea Human Capital 8 Korea Market Capital 6 Korea Process Capital 4 Korea Renewal Capital 2 Korea Financial Capital
0
1995 1996 1997 1998
1999 2000 2001 2002 2003 2004 2005
2006 2007 2008
Korea Human Capital
4.754 4.969 4.803 5.430 5.198 6.375 6.821 6.524 6.536 6.733 6.734 7.089 7.022 7.042
Korea Market Capital
4.240 4.325 3.786 4.472 5.089 4.825 5.184 4.896 5.445 5.395 5.115 4.698 4.719 4.929
Korea Process Capital
3.693 3.670 3.386 4.097 5.177 5.506 5.777 5.123 5.292 5.589 5.509 5.451 4.881 5.060
Korea Renewal Capital 3.598 4.400 4.016 4.542 4.327 4.142 3.805 3.877 3.805 3.972 4.003 4.590 4.946 5.202 Korea Financial Capital 9.145 9.163 9.157 9.067 9.136 9.184 9.202 9.256 9.274 9.293 9.319 9.352 9.381 9.394
Fig. 12.2 Trends of intellectual capital in Korea
human capital of 19 percentile points, in process capital of about seven percentile points, and in financial capital of about two percentile points, in comparing the figures for 1995 and 2008. Yet, it has a decrease in market capital of about six percentile points. In real dollar value, the GDP per capita (PPP) of Taiwan increased from US$14,616 in 1995 to US$30,881 in 2008 for a growth rate of 111%.
National Intellectual Capital of Each Individual Country
225
10 Taiwan Human Capital 8 Taiwan Market Capital 6 Taiwan Process Capital 4 Taiwan Renewal Capital Taiwan Financial Capital
2
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Taiwan Human Capital
5.159 5.533 5.148 5.990 5.626 6.794 6.688 6.754 7.180 6.937 7.190 7.081 7.366 7.128
Taiwan Market Capital
5.807 5.889 6.001 6.196 6.160 5.572 6.118 6.004 6.348 6.321 5.830 5.748 5.920 5.232
Taiwan Process Capital
4.781 4.511 5.190 5.738 6.219 6.705 6.741 6.311 6.444 6.554 6.148 6.012 6.046 5.480
Taiwan Renewal Capital 3.997 4.163 4.155 4.729 4.796 4.937 4.562 4.570 4.826 4.817 5.048 5.247 5.959 6.001 Taiwan Financial Capital 9.276 9.289 9.300 9.318 9.353 9.376 9.338 9.369 9.395 9.423 9.442 9.470 9.503 9.496
Fig. 12.3 Trends of intellectual capital in Taiwan
From 2007 to 2008, Taiwan’s market capital and process capital have experienced an obvious decline. Analysis of the raw data reveals that the decline in market capital was mainly caused by several score changes between 2007 and 2008, including corporate tax encouragement (from 5.26 to 4.48), cross-border ventures (from 7.13 to 5.2), cultural openness (from 7.65 to 6.83), globalization (from 7.57 to 6.78), and image of country (from 6.84 to 6.22). The decline in process capital was mainly caused by several score changes between 2007 and 2008 also, including government efficiency (from 4.19 to 3.43), capital availability (from 5.61 to 4.75), and convenience of establishing new firms (from 7.11 to 6.26). For further improvement and to enhance its competitiveness, Taiwan should develop its regressed areas of market capital and process capital. In general, the intellectual capital of these three East Asian countries is characterized by an overall rising trend, yet with different patterns. Japan, as the most advanced country in this cluster, exhibits a progressive and steady improvement in market capital and process capital. Yet, there was a surge in its human capital and a decline in renewal capital in year 2000. As explained in previous chapters, a decline in renewal capital may indicate that other countries are catching up, as it is a relative rating to the highest value among 40 countries. Korea started out at a lower level of intellectual capital (between the 35th and 50th percentiles, except for financial capital) in this cluster, yet it has gradually caught up with Japan and Taiwan in human capital, market capital, and process capital beginning in year 1999. Taiwan started out with a higher level of overall intellectual capital than Korea, yet from year 1999 the overall development is similar to that of Korea. In general, human capital has undergone the greatest improvement in these three countries; Japan has a much
226
12 National Intellectual Capital of Three East Asian Countries
higher level of renewal capital than do Korea and Taiwan, although it has recently decline somewhat. Market capital is the area on which these three East Asian countries can place greater emphasis.
Comparison of Capital Components of the Three East Asian Countries Figures 12.4–12.6 allow for a further comparison of the five types of capital – human capital, market capital, process capital, renewal capital, and financial capital, respectively, among the three East Asian countries. Figure 12.4 shows that human capital of all three countries experienced a distinct surge in year 2000 and then stabilized between the 70th and 75th percentiles. Japan consistently has better scores in human capital than do the other two countries, while Korea is gradually catching up with Taiwan. Figure 12.5 indicates that Taiwan has consistently higher scores in market capital in this cluster, very likely because it is a small island which relies heavily on exports and imports. Japan’s market capital has decline since 2005. Analysis of the raw data reveals that Japan’s market capital decline was mainly caused by several score changes between 2005 and 2008, including corporate tax encouragement (from 4.74 to 3.48), cross-border ventures (from 6.93 to 5.15), and government policy transparency (from 4.74 to 3.02). Taiwan’s market capital also dipped from 2007 to 2008, mainly due to lower scores in corporate tax encouragement, cross-border ventures, cultural openness, globalization, and image of country as reported in Fig. 12.3. 10 Japan Human Capital
8
6 Korea Human Capital 4
Taiwan Human Capital
2
0 Japan Human Capital
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
5.439 5.393 5.456 6.039 5.861 7.540 7.243 7.319 7.312 7.316 7.637 7.456 7.675 7.750
Korea Human Capital 4.754 4.969 4.803 5.430 5.198 6.375 6.821 6.524 6.536 6.733 6.734 7.089 7.022 7.042 Taiwan Human Capital 5.159 5.533 5.148 5.990 5.626 6.794 6.688 6.754 7.180 6.937 7.190 7.081 7.366 7.128
Fig. 12.4 Comparison of human capital in Japan, Korea, and Taiwan
Comparison of Capital Components of the Three East Asian Countries
227
10
Japan Market Capital
8
6 Korea Market Capital 4
2
Taiwan Market Capital
0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Japan Market Capital
4.035 4.234 4.025 4.352 4.669 4.362 4.598 4.692 4.796 4.947 5.240 5.147 4.815 4.517
Korea Market Capital
4.240 4.325 3.786 4.472 5.089 4.825 5.184 4.896 5.445 5.395 5.115 4.698 4.719 4.929
Taiwan Market Capital 5.807 5.889 6.001 6.196 6.160 5.572 6.118 6.004 6.348 6.321 5.830 5.748 5.920 5.232
Fig. 12.5 Comparison of market capital in Japan, Korea, and Taiwan 10
Japan Process Capital
8
6 Korea Process Capital 4
Taiwan Process Capital
2
0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Japan Process Capital
4.853 5.578 4.915 5.336 5.664 5.654 5.395 5.735 5.721 5.784 6.327 6.231 6.094 6.215
Korea Process Capital
3.693 3.670 3.386 4.097 5.177 5.506 5.777 5.123 5.292 5.589 5.509 5.451 4.881 5.060
Taiwan Process Capital 4.781 4.511 5.190 5.738 6.219 6.705 6.741 6.311 6.444 6.554 6.148 6.012 6.046 5.480
Fig. 12.6 Comparison of process capital in Japan, Korea, and Taiwan
Figure 12.6 indicates that between 1997 and 2004 Taiwan enjoyed a higher level of process capital in this cluster, yet it dipped in year 2005 and was surpassed by Japan. Both Japan and Korea made substantial progress in process capital with increases of 13 and 16 percentile points, respectively. In general, Korea has the lowest scores in process capital in this cluster.
228
12 National Intellectual Capital of Three East Asian Countries 10
Japan Renewal Capital
8
6 Korea Renewal Capital 4
2
Taiwan Renewal Capital
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Japan Renewal Capital
7.413 7.954 7.750 7.804 7.549 6.405 6.434 6.871 6.613 6.559 6.773 6.652 6.730 6.865
Korea Renewal Capital
3.598 4.400 4.016 4.542 4.327 4.142 3.805 3.877 3.805 3.972 4.003 4.590 4.946 5.202
Taiwan Renewal Capital 3.997 4.163 4.155 4.729 4.796 4.937 4.562 4.570 4.826 4.817 5.048 5.247 5.959 6.001
Fig. 12.7 Comparison of renewal capital in Japan, Korea, and Taiwan 12
Japan Financial Capital
10
8
Korea Financial Capital
6
4
Taiwan Financial Capital
2
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Japan Financial Capital
9.690 9.673 9.643 9.603 9.588 9.590 9.577 9.570 9.578 9.579 9.584 9.592 9.598 9.587
Korea Financial Capital
9.145 9.163 9.157 9.067 9.136 9.184 9.202 9.256 9.274 9.293 9.319 9.352 9.381 9.394
Taiwan Financial Capital 9.276 9.289 9.300 9.318 9.353 9.376 9.338 9.369 9.395 9.423 9.442 9.470 9.503 9.496
Fig. 12.8 Comparison of financial capital in Japan, Korea, and Taiwan
Figure 12.7 shows Japan as the consistent leading performer in renewal capital, far outpacing the other two countries before 2000. Afterwards, Japan declined in renewal capital and then stabilized around the 65th percentile. For the first 4 years, Korea and Taiwan had similar levels of renewal capital, yet Taiwan shows better progress starting from 1999 and remains steadily ahead of Korea.
Three-Period Progression of National Intellectual Capital Development
229
As for the 1–10 scaled financial capital, Fig. 12.8 shows slight changes, c onsistently in the sequence of Japan, Taiwan, and Korea. In addition, the initial gap separating the countries has gradually narrowed. In real dollar values of GDP per capita (PPP), over the 14 years, Japan achieved 52% growth, Korea 117% growth, and Taiwan 111% growth. The above analyses reveal some interesting phenomena. For instance, as a well-developed country, why does Japan lag far behind the other two countries in market capital? What accounts for Japan’s higher renewal capital? These questions pose an interesting area for further study.
Three-Period Progression of National Intellectual Capital Development As stated in the previous chapters, sections “National Intellectual Capital of Each Individual Country” and “Comparison of Capital Components of the Three East Asian Countries” presented the results of data analysis for a total of 14 years, spanning from 1995 to 2008. However, the results are somewhat limited in nature, with comparisons focusing on the initial year (1995) and the concluding year (2008) of each form of capital in each country. To get a more complete picture of the dynamics of the capital development over the 14 years, we developed Table 12.2, which assesses the changes of capital rankings in three periods (the first and second periods consist of 5 years and the third period consists of 4 years), namely, 1995–1999 is the first period, 2000–2004 is the second period, and 2005–2008 is the third period. This division of Table 12.2 into periods makes it easier to visualize the development and perhaps even the future trends of the five types of capital for each country. We employ the sequence of human capital, market capital, process capital, renewal capital, financial capital, and overall IC. The second column in Table 12.2 exhibits the overall ranking difference between the first period and the third period. The third column is the ranking of the first period, and the fourth and the fifth columns display respective rankings and differences with regard to the previous period. The last column compares the most recent third period ranking with the overall NICI40 ranking. Over the entire course of the three periods, Japan increased its ranking in human capital (8), market capital (11), and process capital (3), yet it decreased in renewal capital (−3), financial capital (−9), and showed no change in overall IC (0). Korea increased its ranking in human capital (6), market capital (7), process capital (2), financial capital (2), and overall IC (4), yet it decreased in renewal capital (−3). Taiwan increased its ranking in human capital (5), renewal capital (4), financial capital (1), and overall IC (4), yet it decreased in process capital (−1), and showed no change in market capital (0). Furthermore, in comparing the ranking of the most recent third period with the 14-year NICI40 ranking reported in the abstract, Japan advanced 1 rank (from #14 to #13), Korea advanced 1 rank (from #21 to #20), and Taiwan also advanced 1 rank (from #17 to #16).
−3 −3 4
−9 2 1
Financial capital Japan Korea Taiwan 17 24 21
5 19 15 −8 2 1
−3 −4 −1
−2 3 4
Overall IC Japan 0 13 14 −1 Korea 4 24 21 3 Taiwan 4 20 16 4 Remarks: (1) The second column compares the 3rd period ranking with the 1st period ranking with the original 14-year NICI40 ranking summarized in the abstract
9 26 22
2 15 14
21 23 14
13 20 16 ranking. (2) The
18 24 21
5 18 10
16 24 19
Renewal capital Japan Korea Taiwan
19 26 18
16 24 21
5 19 11
19 26 17
−2 0 0
0 1 1
3 2 −2
9 5 −1
1 14 1 1 21 1 0 17 1 last column compares the most current 3rd period
−1 0 0
0 1 5
5 −1 −5
7 −3 −3
37 34 16
3 2 −1
4 10 3
Process capital Japan Korea Taiwan
35 26 14
28 29 17
39 36 17
11 7 0
Market capital Japan Korea Taiwan
3 2 2
13 22 16
10 20 14
0 −1 3
3rd period ranking vs. overall NICI40 ranking NICI40 ranking Difference
3rd period (2005–2008) Ranking Difference
Table 12.2 Changes in intellectual capital rankings over the three periods 1st period to 1st period 3rd period (1995–1999) 2nd period (2000–2004) Difference (1) Ranking Ranking Difference Human capital Japan 8 18 10 8 Korea 6 26 19 7 Taiwan 5 19 17 2
230 12 National Intellectual Capital of Three East Asian Countries
General Descriptive Information on the Three East Asian Countries
231
In general, this country cluster has improved its rankings in human capital, market capital, and its overall IC ranking. All three countries have advanced their human capital ranking over the three periods. Although Japan is relatively weak in market capital, it has made great improvement and advanced from #39 in the first period to #28 in the third period. Over the three periods Japan declined in renewal capital and financial capital, Korea declined in renewal capital only, and Taiwan declined in process capital only.
General Descriptive Information on the Three East Asian Countries The above four sections basically present results based on statistical analyses of IMD secondary data spanning from 1995 to 2008. To complement the quantitative data analyses, this section provides some background information for each country that may help explain the results as well as cast further light for future intellectual capital development. Due to the magnitude of relevant information, this study does not intend nor does it have the resources to provide in-depth depictions of country backgrounds in abundant detail. As a result, what we are presenting hereunder is a summary of information closely related to intellectual capital and available from public sources, including some objective indicators published by various world organizations (e.g., the United Nations’ Human Development Index), web information from http://en.wikipedia.org/wiki, and relevant articles posted on the Internet. Although different indicators cover different dimensions (e.g., the Human Development Index also covers health/life expectancy and purchasing power; PISA covers only students’ performances) and does not have an equal comparison basis, they still provide valuable information on individual nations as exhibited in Table 12.3. In addition to the statistics presented in Table 12.3 derived from 16 different sources, we summarize some qualitative information for each country with respect to human capital, market capital, process capital, renewal capital, financial capital, and future perspective in that sequence. Ranking under country name is the overall ranking of each respective capital reported in the abstract. We also include the observations that incorporate the 14-year data analysis and the relevant current indicators reported in Table 12.3. Inevitably, the summaries presented in Tables 12.4–12.9 are susceptive to subjectivity due to information availability; nevertheless, the information provided is meant to show different avenues for observing intellectual capital development. Readers are encouraged to expand their own interpretation from various information sources and different angles. To highlight the future perspectives of each country, the last four indicators of Table 12.3 have been provided for readers’ reference – World Competitiveness by the IMD, Global Competitiveness by the World Economic Forum, the Environmental Sustainability Index by Yale University, and the Environmental Performance Index by Yale University. We summarize hereunder some information that may be relevant to the intellectual capital development of each country.
11. R&D (#/%)
#/score 11/498 1/556 12/496
PISA reading
12. Innovation score RC (#)
PISA math. (#/score) 6/523 1/547 1/549 HC (#) 13 22 16
6. Globalization (#) 28 35 37
13. World 14. Global competitiveness competitiveness 15. ESI (#) (#/score) (#/score)
5. Broad band/ population (%) 23.5 32 21.8
16. EPI (#/score)
MC (#) 37 34 16
Japan 24/7.05 18/8.08 74 72/86.3 19 4/3.4 0.6 5 17 8/5.37 30/57.3 21/84.5 Korea 32/5.86 15/8.34 77.3 61/94.3 26 5/3.01 – 19 27 19/5 122/43.0 51/79.4 Taiwan 33/5.78 19/8.05 65.9 41/110.3 17 8/2.62 – 11 23 12/5.2 145/32.7 40/80.8 Remark: “#” refers to ranking among respective members and the numbers are the most current data available in 2009. Please refer to the reference section for a list of the sources of these 16 indicators
10. Mobile telephone PC (#/score) (#)
9. Internet usership/ 8. e-Readiness population (%) (#/score)
7. Quality of life (#/score)
4. PISA science (#/score) 3/531 7/522 3/532
Table 12.3 National intellectual capital-related indicators and ranking GDP per 2. Education capita (PPP) 1. Population expenditures Overall IC growth (#/%) 3.HDI 2008/1995 (%) (000) ranking Japan 14 52 127,079 42/3.9 8 Korea 21 117 48,509 36/4.2 25 Taiwan 17 111 22,974 39/4 –
UN Human Development Index ranking: #25 out of 179 (2008) Broadband internet subscribers – 32% (2009 est.) Labor force – 24.35 million (2008 est.) Unemployment – 3.9% (2009 est.) In 2004, Korea’s 411 higher education institutions enrolled 3.5 million students, about 40% of them in science and engineering. According to a 2005 study of OECD member countries, 97% of South Korea’s young adults complete high school, the highest percentage recorded in any country South Korea’s spectacular progress in modernization and economic growth since the Korean War is largely attributable to the willingness of individuals to invest a large amount of personal resources in education Broadband internet subscribers – 21.8% (2009 est.) Taiwan HC40#16 Labor force – 10.85 million (2008 est.) Unemployment – 5.82% (2009 est.) In 2006, 47.7% of Taiwan’s population aged 15 years and older had graduated from high school or vocational school, and 33.2% had earned a college or university degree The educational system has been successful in that Taiwan’s students enjoy some of the highest test scores in the world, especially in mathematics and science Remark: Both Korea and Taiwan were ranked #1 in PISA math performance
Korea HC40#22
Table 12.4 Background information on human capital for East Asian countries Country Human capital Japan UN Human Development Index ranking: #8 out of 179 (2008) HC40#13 Broadband internet subscribers – 23.5% (2009 est.) Labor force – 66.15 million (2008 est.) Unemployment – 5.2% (2009 est.) Japanese people have a strong work ethic and mastery of high technology 75.9% of high-school graduates attend a university, junior college, trade school, or other postsecondary institution in 2005
From Table 12.3, Taiwan spent 4% of its GDP on education and students’ PISA performance ranked 3/1/12 for science, math, and reading, respectively, out of 57 countries. Taiwan is ranked HC40#16 with a 19 percentile-point improvement over the 14 years and advanced 5 ranks from the 1st to the 3rd period (refer to Table 12.2). In the 3rd period (2005–2008), Taiwan’s HC advanced to #14
Observations From Table 12.3, Japan spent 3.9% of its GDP on education and students’ PISA performance ranked 3/6/11 for science, math, and reading, respectively, out of 57 countries. Japan is ranked HC40#13 with a 24 percentile-point improvement over the 14 years and advanced 8 ranks from the 1st to the 3rd period (refer to Table 12.2). In the 3rd period (2005–2008), Japan’s HC advanced to #10. Japan has a 23.5% (2009) broadband subscriber rate, the second highest in this cluster, after Korea From Table 12.3, Korea spent 4.2% of its GDP on education and students’ PISA performance ranked 7/1/1 for science, math, and reading, respectively, out of 57 countries. Korean students have a very good PISA performance, yet it is not reflected in HDI (#25, 2008) and HC40 ranking. Korea is ranked HC40#22 with a 22 percentile-point improvement over the 14 years and advanced 6 ranks from the 1st to the 3rd period (refer to Table 12.2). In the 3rd period (2005–2008), Korea’s HC advanced to #20
Taiwan MC40#16
Korea MC40#34
Exports – $419 billion f.o.b. (2008 est.), imports – $435 billion f.o.b. (2008 est.) Korea ranked 31st in tourism revenues in 2006 Since 1987, Korea has invested nearly similar amounts in developed and developing countries As of 2009, South Korea is the world’s eighth largest exporter Exports – $255.7 billion f.o.b. (2008 est.), imports $236 billion f.o.b. (2008 est.) Taiwan’s annual trade surplus for 2006 amounted to US$21.3 billion, up from US$15.8 billion in 2005 During the 1990s, Taiwan’s outward FDI in Asia-Pacific countries had made it the second largest intra-regional investor after Japan In 2007, Taiwan was the world’s fourth largest producer of IT hardware and the largest provider of foundry services From 1985 to 2006, high-tech intensive products increased their share of total exports from 18.8 to 51.8% In 2007, about 83% of PC-related products installed “Wintel” were produced by Taiwanese IT companies Taiwan has become a major foreign investor in China, Thailand, Indonesia, the Philippines, Malaysia, and Vietnam
Table 12.5 Background information on market capital for East Asian countries Country Market capital Japan Exports – $776.8 billion f.o.b. (2008 est.), imports – $696.2 billion f.o.b. MC40#37 (2008 est.) Japan’s largest trading partners are China and the USA Japan’s main exports include transport equipment, motor vehicles, electronics, electrical machinery, and chemicals
Taiwan is ranked #37 out of 72 countries in the Globalization Index. It is ranked MC40#16 (the highest in this cluster), yet with a decline of 6 percentile points over the 14 years and no ranking change from the 1st to the 3rd period (refer to Table 12.2). As described in the left column, Taiwan has been aggressive in international trade and FDI. In addition, its achievement in high-tech has been impressive
Observations Japan is ranked #28 out of 72 countries in the Globalization Index. It is ranked MC40#37 (at the bottom for a well-developed country) with a 5 percentile-point improvement over the 14 years. However, Japan advanced 11 ranks in market capital from the 1st to the 3rd period (refer to Table 12.2) Korea is ranked #35 out of 72 countries in the Globalization Index. It is ranked MC40#34 with a 7 percentile-point improvement over the 14 years and advanced 7 ranks from the 1st to the 3rd period (refer to Table 12.2). As described in the left column, Korea has been aggressive in international trade
234 12 National Intellectual Capital of Three East Asian Countries
Table 12.6 Background information on process capital for East Asian countries Country Process capital Japan Internet usership – 74% of the population (2009 est.) PC40#19 Transportation in Japan is highly developed with extensive international flights Japan leads the world in robotics production and use, possessing more than half (402,200 of 742,500) of the world’s industrial robots used in manufacturing Korea Internet usership – 77.3% of the population (2009 est.) PC40#26 Korea is among the world’s most technologically advanced and digitally connected countries; it is a global leader in electronics, digital displays, semiconductor devices, and mobile phones Korea also leads the world in the shipbuilding industry, and exports radioactive isotope production equipment for medical and industrial use Korea has an extensive network of trains and buses, as most of the country lies within a day’s round trip of any major city Taiwan Internet usership – 65.9% of the population (2009 est.) PC40#17 In 2007, PC penetration 79.3%, broadband household 63% (#4), mobile phone penetration 103%, and cable TV household 84.8% IT industry competitiveness index – #6 out of 64 by Economist Intelligence Unit 2007 report
Based on Table 12.3, Taiwan’s rankings for quality of life, e-readiness, and mobile telephone subscribers are #33 out of 57, #19 out of 70, and #41 out of 133, respectively. It is ranked PC40#17 with a 7 percentile-point improvement over the 14 years, yet declined 1 rank from the 1st to the 3rd period (refer to Table 12.2). As described in the column at left, Taiwan has a strong IT industry
Based on Table 12.3, Korea’s rankings for quality of life, e-readiness, and mobile telephone subscribers are #32 out of 57, #15 out of 70, and #61 out of 133, respectively. It is ranked PC40#26 with a 14 percentile-point improvement over the 14 years and advanced 2 ranks from the 1st to the 3rd period (refer to Table 12.2). As described in the left column, Korea’s technology advancement is impressive, which may contribute to its increasing process capital
Observations Based on Table 12.3, Japan’s rankings for quality of life, e-readiness, and mobile telephone subscribers are #24 out of 57, #18 out of 70, and #72 out of 133, respectively. It is ranked PC40#19 with a 13 percentile-point improvement over the 14 years and advanced 3 ranks from the 1st to the 3rd period (refer to Table 12.2)
General Descriptive Information on the Three East Asian Countries 235
European innovation scoreboard ranking – 6 out of 38; Japan scored 0.6 in 2007 (data unavailable for 2008) Japan is the producer of most technologically advanced motor vehicles, electronic equipment, machine tools, steel and nonferrous metals, ships, chemicals, textiles, and processed foods Japan is one of the leading nations in the fields of scientific research, particularly technology, machinery, and biomedical research. Nearly 700,000 researchers share a US$130 billion R&D budget, the third largest in the world Japan has plans in space exploration, including building a moonbase by 2030 In renewable energy, South Korean scientists at the Gwangju Institute of Science and Technology in cooperation with the University of California, Santa Barbara successfully developed an organic photovoltaic power cell with energy efficiency of 6.5% South Korean R&D has increased tenfold since 1971. 75% of South Korean gross expenditure on R&D was from private industry. Public funding for R&D in 2006 was US$8.65 billion, a 15% increase over 2005 South Korea is ranked first in the world in the Digital Opportunity Index, and first among major economies in the Global Innovation Index Korea plans to be a world leader in biotech and nanotechnology, through doubling investment in R&D to expand its scientific research workforce from 180,000 to 250,000. Korea’s well-educated population, connected by pervasive broadband and mobile phone penetration, could unleash a wave of mass innovation in media and services The number of research personnel per 1,000 population rose from 1.3 in 1985 to 3.9 in 2005 Taiwan’s world ranking rose from 36th to 18th in the Science Citation Index and from 26th to 11th in the Engineering Index
Japan RC40#5
Taiwan invested 2.62% of its GDP in R&D (2008, the lowest in this cluster). It is ranked RC40#11 with a 20 percentile-point improvement over the 14 years and advanced 4 ranks from the 1st to the 3rd period (refer to Table 12.2). With 2.62% GDP investment in R&D, Taiwan has better renewal capital than Korea, yet lags behind Denmark, Germany, and Netherlands – all with a similar percentage of R&D investment
Korea invested 3.01% of its GDP in R&D (2008). It is ranked RC40#19 with a 16 percentile-point improvement over the 14 years; yet declined 3 ranks from the 1st to the 3rd period (refer to Table 12.2). The Korean government has mapped an R&D and innovation strategy, which should contribute to its renewal capital enhancement
Japan invested 3.4% of GDP in R&D (2008) (the third highest among the 40 countries, after Sweden and Finland). It is ranked RC40#5, yet declined 5 percentile points over the 14 years and declined 3 ranks from the 1st to the 3rd period (refer to Table 12.2). Japan appropriated the world’s third largest R&D budget and is one of the leading nations in the fields of scientific research. However, its renewal capital ranking decline deserves some attention
Observations
Remark: In this cluster, only Japan is included in the European innovation scoreboard ranking
Taiwan RC40#11
Korea RC40#19
Renewal capital
Country
Table 12.7 Background information on renewal capital for East Asian countries
236 12 National Intellectual Capital of Three East Asian Countries
Table 12.8 Background information on financial capital for East Asian countries Country Financial capital Japan FC40#16 GDP per capita (PPP) – US$34,100 (IMF 2009 report) GDP growth in 2005 was 2.8%, with an annualized fourth quarter expansion of 5.5%, surpassing the growth rates of the USA and European Union during the same period GDP growth – −0.4% in 2008, 2.4% in 2007, and 2% in 2006 Korea FC40#24 GDP per capita (PPP) – US$27,647 (IMF 2009 report) Manufacturing and trade in commodities accounts for 28 and 72% of its GDP GDP has grown 240 times in 40 years (US$3.6 billion in 1966 and US$887.4 billion in 2006) GDP growth – 2.5% in 2008, 5% in 2007, and 5.1% in 2006 Taiwan FC40#21 GDP per capita (PPP) – US$30,881 (IMF 2009 report) In 2007, foreign exchange reserve US$266.15 billion (No. 3) Real growth in GDP has averaged about 8% during the past three decades. Exports have provided the primary impetus for industrialization. Its trade surplus is substantial, and its foreign reserves are the world’s third largest. Taiwan’s current GDP per capita (PPP) is equal to the average of EU Countries GDP growth – 1.9% in 2008, 5.7% in 2007, and 4.8% in 2006
Taiwan was ranked #25 in GDP per capita (PPP) in 2008. Its GDP growth rate (1995 vs. 2008) was 111%
Korea was ranked #32 in GDP per capita (PPP) in 2008Its GDP growth rate (1995 vs. 2008) was 117%. Korea experienced outstanding GDP growth over 40 years
Observations Japan was ranked #24 in GDP per capita (PPP) in 2008. Its GDP growth rate (1995 vs. 2008) was 52%
General Descriptive Information on the Three East Asian Countries 237
238
12 National Intellectual Capital of Three East Asian Countries
Table 12.9 Background information on future perspectives for East Asian countries Country Human capital Japan IMD World Competitiveness ranking: #17 out of 57 countries (2009) World Economic Forum global competitiveness: #8 out of 133 (2009–2010) Environmental Sustainability Index (ESI) – #30 out of 149 (2005, a project-based ranking conducted in 2005) Environmental Performance Index (EPI) – #21 out of 149 (2008) GDP (PPP) per hour worked (2007) – 25.61 Korea (South) IMD World Competitiveness ranking: #27 out of 57 countries (2009) World Economic Forum global competitiveness: #19 out of 133 (2009–2010) Environmental Sustainability Index (ESI) – #122 out of 149 (2005, a project-based ranking conducted in 2005) Environmental Performance Index (EPI) – #51 out of 149 (2008) South Korea’s newly found wealth and technological prowess have been attracting the interest of a growing number of socialist nations Young, well-educated Koreans have access to the world’s best information infrastructure Korea Bio-Vision 2010 aims to push Korea’s biotech ranking from 13th in the world in 2003 to 7th by 2010, and to be among the top three countries in biotech by 2015. Government plans are for Korea to have ten cutting-edge nanotechnologies and 12,600 nanotechnology experts by 2010 Korea intends to become a hub for R&D in north-east Asia, attracting multinational companies to free economic zones like Incheon GDP (PPP) per hour worked (2007) – 18.18 Taiwan IMD World Competitiveness ranking: #23 out of 57 countries (2009) World Economic Forum global competitiveness: #12 out of 133 (2009–2010) Environmental Sustainability Index (ESI) – #145 out of 149 (2005, a project-based ranking conducted in 2005) Environmental Performance Index (EPI) – #40 out of 149 (2008) By 2015, its economic growth rate is likely to be sustained at an average of 5%. The gap between the top and bottom quintiles of income could fall below a ratio of six GDP (PPP) per hour worked (2007) – 21.91
Summary For the past 14 years, Japan, Korea, and Taiwan have been working hard to enhance their national competitiveness. The NICI40 rankings for Japan, Taiwan, and Korea were 14th, 17th, and 21st, respectively. These three East Asian countries invest a mid-level percentage of their GDP in education, ranging from 3.9 to 4.2% with relatively good PISA performance of their students; their broadband population ranges from 20 to 30%; e-readiness ranges from ranking #15 to #19 out of 70 countries; and R&D investment of GDP ranges from 2.62 to 3.4%. In general, all three nations are among the top 25 in the rankings for the five types of capital, with the exception shown in the abstract, where Japan ranked #37 in market capital and Korea ranked #34 in market capital and #26 in process capital. However, in the most recent third period (2005–2008), Japan and Korea have advanced their market capital to rankings of #28 and #29, respectively; in addition, Korea has
Summary
239
advanced its process capital ranking to #24. In other words, Japan and Korea have taken immense strides in improving their market capital. These three nations are comparatively strong in renewal capital, ranked #5, #19, and #11 for Japan, Korea, and Taiwan, respectively. Based on the most current statistics presented in Table 12.3, Japan is the best performer in major indicators, including world competitiveness (#17), global competitiveness (#9), and the Environmental Performance Index (#21). As to why Japan’s market capital is so weak for a well-developed country, the question can be approached by comparing the top five performers in market capital and Taiwan in the same country cluster. Singapore, Ireland, the Netherlands, Denmark, and Finland are the top five market capital leaders among the 40 countries studied. All but Finland share a similar feature of a small territory with limited resources. They are more export dependent than the “big” countries; therefore, they need to be more aggressive in boosting their economies through various types of interactions with other countries. With respect to Taiwan’s strong market capital in this country cluster, raw data analysis reveals that Taiwan obtained higher scores than both Japan and Korea in corporate tax incentives and cultural openness. In addition, Taiwan also has a very small territory and is highly dependent upon international trade and relations. As for the strong renewal capital of Japan in this cluster, raw data analyses indicate that Japan is particularly strong in business R&D, number of R&D researchers, and number of patents. Historically, Japan’s economic development has been the model for both Korea and Taiwan, as countries in the same region. The rankings listed in the abstract indicate that Japan’s performance in renewal capital and financial capital is a feasible goal for both Korea and Taiwan to pursue. Yet, it is also worthwhile to note that each country can identify one of the top ten countries as a benchmark for improving their intellectual capital. With respect to size and shape of a given territory, it is feasible to say that Japan may focus on learning from Sweden. Sweden is also strong in renewal capital and weak in market capital, yet it ranked #2 in the NICI40. Korea can benchmark Finland, with its geographical similarity and relative strength in renewal capital. Taiwan can benchmark Denmark for its overall improvement. Like Taiwan, Denmark has a large amount of small and medium enterprises, and is small in territory yet with abundant ocean resources. Yet, Denmark has been faring much better than Taiwan. In addition, Taiwan should learn from Singapore as well, for the sheer reason that Singapore has only 1/50th the size of Taiwan (710.2 km2 compared with 35,961 km2), and a majority of its population are ethnic Chinese. Singapore’s overall NICI40 ranking of number six (#6) indicates the high level of competitiveness of this very small country. Statistically, Singapore is strong in market (#1) and process capital (#3), whereas Taiwan ranked #16 and #17 in these two capitals, respectively. Japan, Korea, and Taiwan in general exhibit an upward trend of human capital, process capital, and renewal capital (all but market capital) over the 14 years of study. Since a major motivation of conducting an intellectual capital study is to identify a country’s potential for future competitiveness, Japan’s high score for renewal capital is certainly one area worthy for Korea and Taiwan to explore. The proposal for benchmarking Sweden, Finland, and Denmark is only a suggestion based on the limited data analyses of this study.
wwwwwwwwww
Chapter 13
National Intellectual Capital of Four Southeast Asian Countries (Malaysia, Philippines, Singapore, Thailand)
Abstract The intellectual capital of the four Southeast Asian countries of our study varies considerably. Malaysia, the Philippines, Singapore, and Thailand earned ranks of 25, 39, 6, and 30, respectively, for the NICI40. In comparing each individual country’s overall ranking, Singapore is particularly strong in market capital (ranked #1) and process capital (ranked #3). Malaysia and Thailand are also relatively strong in market capital (ranked #8 and #20, respectively); however, such strength was not effectively transferred to their respective financial capital (ranked #31 and #37, respectively). The Philippines have the lowest score in national intellectual capital in this cluster.
Human capital Market capital
Overall intellectual Process capital Renewal capital Financial capital capital
Mean SD
5.45 0.69
4.89 1.75
Country Malaysia Philippines Singapore Thailand
Score 5.53 4.85 6.39 5.02
6.38 1.49 Ranking 27 34 18 32
Score 6.50 4.93 8.39 5.68
Ranking 8 29 1 20
Score 5.11 3.25 7.25 3.96
2.40 1.60 Ranking 22 34 3 31
Score 2.01 1.47 4.77 1.36
8.51 1.04 Ranking 28 37 13 39
Score 8.66 7.38 9.85 8.15
27.62 6.49 Ranking 31 39 3 37
Score 27.80 21.88 36.65 24.16
Ranking 25 39 6 30
Introduction This chapter presents the national intellectual capital of four Southeast Asian countries, namely, Malaysia, the Philippines, Singapore, and Thailand. These four countries exhibit great disparateness in terms of national wealth. Based on IMF data (International Monetary Fund April 2009 data), their GDP per capita (PPP) in US dollars is Singapore (51,142), Malaysia (14,072), Thailand (8,225), and the Philippines (3,546), and they are ranked number 4, 60, 86, and 123, respectively, in world wealth (http://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP% 29_per_capita). With all four located in the same region, how did Singapore accumulate such a high degree of national intellectual capital in such a small territory? Why have
C.Y.-Y. Lin and L. Edvinsson, National Intellectual Capital: A Comparison of 40 Countries, 241 DOI 10.1007/978-1-4419-7377-1_13, © Springer Science+Business Media, LLC 2011
242
13 National Intellectual Capital of Four Southeast Asian Countries
the Philippines lagged behind the other countries throughout all these years? Analysis from the perspective of national intellectual capital may provide some insights. Since these four countries are characterized by a geographical proximity, this study has opted to report them as a cluster. Among them, their overall national intellectual capital ranking sequence in descending order is Singapore (6), Malaysia (25), Thailand (30), and the Philippines (39). Table 13.1 shows the results of comparing the five types of capital “within” each country and “between” countries in this cluster. Based on each country’s ranking, financial capital ranks first and renewal capital ranks fifth in all four countries. In other words, their financial capital earned the highest and their renewal capital earned the lowest score. Human capital, market capital, and process capital are ranked as 3, 2, and 4, respectively, for Malaysia, the Philippines, and Thailand, and 4, 2, and 3, respectively, for Singapore. As for the inter-country comparison, Table 13.1 shows that Singapore ranks first in all five capital components; Malaysia ranks the second in all five categories; the Philippines ranks last in human capital, market capital, process capital, and financial capital, and Thailand is particularly weak in renewal capital.
National Intellectual Capital of Each Individual Country Figures 13.1–13.4 display the characteristics and trends of national intellectual capital in each Southeast Asian country in this chapter. In Fig. 13.1, Malaysia has made the most progress in human capital with an increase of about 27 percentile points, followed by an increase in renewal capital of about one percentile point and in financial capital of about two percentile points, in comparing the figures for 1995 and 2008. Yet, it shows a decrease in market capital of about nine percentile points and a small decrease in process capital of about one percentile point. Although there was a small improvement in 1–10 scaled financial capital, in real dollar value, the GDP per capita (PPP) of Malaysia increased from US$7,513 in 1995 to US$14,072 in 2008 for a growth rate of 87%. Starting from 2002, Malaysia’s human capital overtook its process capital and renewal capital to become its third highest capital score through 2006, and then the second highest capital score in 2008. Analysis of the raw data reveals that the decline of its market capital between 1995 and 2008 was mainly due to several score changes, including corporate tax encouragement (from 7.5 to 5.73), crossborder ventures (from 7.07 to 4.6), government policy transparency (from 6.42 to 3.94), and image of country (from 8.31 to 7.04). For further improvement and to enhance its competitiveness, Malaysia should develop its lowest-ranking renewal capital and its regressed market capital. Figure 13.2 indicates that the Philippines made slight progress in human capital with an increase of about four percentile points, followed by an increase in financial capital of about two percentile points, in comparing the figures for 1995 and 2008. Yet, it shows a decrease in market capital of about 13 percentile points, in process capital of about four percentile points, and in renewal capital of about six percentile points. Although there was a small improvement in 1–10 scaled financial capital, in
Score Ranking
Score Ranking
Score Ranking
Singapore
Thailand
Score Ranking
Philippines
Mean score Malaysia
Within Between
Within Between
Within Between
Within Between
Intellectual capital Human Market capital capital 5.53 6.5 3 2 2 2 4.85 4.93 3 2 4 4 6.39 8.39 4 2 1 1 5.02 5.68 3 2 3 3 Process capital 5.11 4 2 3.25 4 4 7.25 3 1 3.96 4 3
Renewal capital 2.01 5 2 1.47 5 3 4.77 5 1 1.36 5 4
Table 13.1 Capital mean ratings and rankings of the Southeast Asian countries from 1995 to 2008 Financial capital 8.66 1 2 7.38 1 4 9.85 1 1 8.15 1 3 24.16
36.65
21.88
Overall score 27.8
3
1
4
Ranking in this cluster 2
30
6
39
Overall ranking among 40 countries 25
National Intellectual Capital of Each Individual Country 243
244
13 National Intellectual Capital of Four Southeast Asian Countries Malaysia Human Capital
10
8 Malaysia Market Capital 6 Malaysia Process Capital 4 Malaysia Renewal Capital 2 Malaysia Financial Capital 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Malaysia Human Capital
4.048 4.233 4.237 5.434 4.980 4.964 5.116 6.167 6.532 6.175 6.391 6.128 6.283 6.720
Malaysia Market Capital
6.639 6.999 6.559 6.118 6.620 5.725 6.571 6.847 7.091 6.500 6.630 6.672 6.321 5.692
Malaysia Process Capital
5.289 4.984 4.688 4.489 4.851 4.569 5.341 5.559 5.451 4.778 5.497 5.617 5.229 5.174
Malaysia Renewal Capital 2.098 1.941 1.773 1.830 1.778 1.837 1.888 1.992 2.194 1.940 2.180 2.261 2.162 2.199 Malaysia Financial Capital 8.633 8.668 8.676 8.567 8.592 8.620 8.595 8.619 8.653 8.676 8.693 8.722 8.751 8.774
Fig. 13.1 Trends of intellectual capital in Malaysia
Philippines Human Capital
10
Philippines Market Capital
8
6 Philippines Process Capital 4 Philippines Renewal Capital 2 Philippines Financial Capital 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Philippines Human Capital
4.524 4.397 4.294 5.119 4.952 5.215 5.206 5.112 4.940 4.976 4.603 4.729 4.871 4.915
Philippines Market Capital
5.261 5.806 5.748 5.697 4.865 4.632 4.857 4.556 4.783 4.935 4.844 4.340 4.616 4.046
Philippines Process Capital
3.517 3.271 3.353 3.364 3.466 3.202 3.150 3.355 3.069 2.988 3.303 3.017 3.317 3.107
Philippines Renewal Capital 1.968 1.866 1.382 1.654 1.478 1.520 1.409 1.340 1.079 1.512 1.282 1.352 1.432 1.365 Philippines Financial Capital 7.342 7.348 7.346 7.309 7.314 7.336 7.329 7.349 7.378 7.395 7.416 7.444 7.484 7.508
Fig. 13.2 Trends of intellectual capital in Philippines
real dollar value, the GDP per capita (PPP) of Philippines increased from US$1,979 in 1995 to US$3,546 in 2008 for a growth rate of 79%. Analysis of the raw data reveals that the sharp decline of its market capital between 1995 and 2008 was mainly due to several score changes, including
National Intellectual Capital of Each Individual Country Singapore Human Capital
245
10
8 Singapore Market Capital 6 Singapore Process Capital 4 Singapore Renewal Capital 2 Singapore Financial Capital
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Singapore Human Capital
4.862 5.051 5.083 5.708 5.615 6.559 7.199 7.100 6.899 6.975 7.018 7.081 7.143 7.228
Singapore Market Capital
8.552 8.471 8.280 8.481 8.539 8.236 8.301 8.097 8.574 8.307 8.310 8.520 8.727 8.054
Singapore Process Capital
6.631 6.566 6.693 6.891 7.225 7.220 7.565 7.579 7.457 7.361 7.566 7.874 7.727 7.165
Singapore Renewal Capital
3.388 3.812 4.020 4.324 4.620 4.525 4.489 4.882 4.979 5.037 5.314 5.609 6.010 5.712
Singapore Financial Capital 9.811 9.802 9.803 9.740 9.786 9.836 9.774 9.796 9.840 9.893 9.925 9.957 9.971 9.959
Fig. 13.3 Trends of intellectual capital in Singapore
Thailand Human Capital
10
8 Thailand Market Capital 6 Thailand Process Capital 4 Thailand Renewal Capital 2 Thailand Financial Capital
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Thailand Human Capital
3.965 4.386 4.368 5.570 5.844 5.205 4.978 5.028 5.021 4.958 5.145 5.078 5.372 5.375
Thailand Market Capital
5.551 5.656 5.302 5.721 5.717 5.165 5.688 6.073 6.358 6.211 5.818 5.208 5.544 5.478
Thailand Process Capital
3.267 3.476 3.051 3.360 3.702 3.675 4.155 4.616 4.480 4.510 4.379 3.789 4.181 4.754
Thailand Renewal Capital 1.239 1.396 1.137 1.291 1.449 1.140 1.234 1.440 1.469 1.389 1.520 1.379 1.506 1.480 Thailand Financial Capital 8.175 8.191 8.135 8.005 8.029 8.048 8.053 8.090 8.147 8.171 8.201 8.240 8.268 8.280
Fig. 13.4 Trends of intellectual capital in Thailand
c orporate tax encouragement (from 5.68 to 4.41), cross-border ventures (from 7.02 to 4.13), cultural openness (from 8.55 to 7.59), government policy transparency (from 3.98 to 1.46), and image of country (from 4.82 to 3.12). For further improvement and to increase competitiveness, the Philippines should develop its lowest-ranked renewal capital and its regressed market capital.
246
13 National Intellectual Capital of Four Southeast Asian Countries
Figure 13.3 indicates that Singapore has made the most progress in both human capital and renewal capital with increases of about 23 percentile points, followed by an increase in process capital of about six percentile points, and in financial capital of about two percentile points, in comparing the figures for 1995 and 2008. Yet, it shows a decrease in market capital of about five percentile points. Although there is a small improvement in its 1–10 scaled financial capital, in real dollar value, the GDP per capita (PPP) of Singapore increased from US$25,397 in 1995 to US$51,142 in 2008 for a growth rate of 101%. Although strong in market capital and process capital, Singapore experienced a sharp decline in these two capital components from 2007 to 2008. Analysis of the raw data reveals that the decline of its market capital between 2007 and 2008 was mainly due to several score changes, including corporate tax encouragement (from 8.22 to 7.24), cross-border ventures (from 9.13 to 7.85), and cultural openness (from 8.93 to 7.85). The decline of its process capital between 2007 and 2008 was mainly caused by two score changes, i.e., government efficiency (from 6.93 to 5.83) and capital availability (from 7.13 to 5.29). For further improvement and to enhance its competitiveness, Singapore should develop its regressed market capital and process capital. Figure 13.4 indicates that Thailand has made the most progress in process capital with an increase of about 15 percentile points, followed by an increase in human capital of about 14 percentile points, in renewal capital of about three percentile points, and in financial capital of about one percentile point, in comparing the figures for 1995 and 2008. Yet, it has a slight decrease in market capital of about one percentile point. Although there is a small improvement in the 1–10 scaled financial capital, in real dollar value, the GDP per capita (PPP) of Thailand increased from US$4,679 in 1995 to US$8,225 in 2008 for a growth rate of 76%. For further improvement and to enhance its competitiveness, Thailand should develop its lowest-ranked renewal capital and its regressed market capital. In general, the intellectual capital of these four Southeast Asian countries has different development patterns. Human capital, market capital, and process capital in Figs. 13.1–13.4 shown that Malaysia has experienced an upward trend within the 40th to the 70th percentiles; Philippines is on a downward trend (except for human capital) within a range from the 30th to the 50th percentile; Singapore has a sharper upward trend within the 50th and the 85th percentiles, and Thailand has an upward trend (except for its market capital) within the 30th and 50th percentiles over the years. Renewal capital has the lowest score in all four countries, yet Singapore enjoyed the greatest renewal capital improvement, approaching the 60th percentile in 2007. In general, the Philippines have the lowest level of national IC development in this cluster.
Comparison of Capital Components of the Four Southeast Asian Countries Figures 13.5–13.9 allow for the further comparison of the five types of capital of the Four Southeast Asian countries. Figure 13.5 shows that Singapore has sustained the highest human capital score over the years; Malaysia improved from the second
Comparison of Capital Components of the Four Southeast Asian Countries
247
10 Malaysia Human Capital 8 Philippines Human Capital
6
4
Singapore Human Capital
2 Thailand Human Capital 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 4.048 4.233 4.237 5.434 4.980 4.964 5.116 6.167 6.532 6.175 6.391 6.128 6.283 6.720
Malaysia Human Capital
Philippines Human Capital 4.524 4.397 4.294 5.119 4.952 5.215 5.206 5.112 4.940 4.976 4.603 4.729 4.871 4.915 Singapore Human Capital 4.862 5.051 5.083 5.708 5.615 6.559 7.199 7.100 6.899 6.975 7.018 7.081 7.143 7.228 3.965 4.386 4.368 5.570 5.844 5.205 4.978 5.028 5.021 4.958 5.145 5.078 5.372 5.375
Thailand Human Capital
Fig. 13.5 Comparison of human capital in the Southeast Asian countries
10 Malaysia Market Capital 8 Philippines Market Capital
Singapore Market Capital
6
4
2 Thailand Market Capital 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Malaysia Market Capital
6.639 6.999 6.559 6.118 6.620 5.725 6.571 6.847 7.091 6.500 6.630 6.672 6.321 5.692
Philippines Market Capital
5.261 5.806 5.748 5.697 4.865 4.632 4.857 4.556 4.783 4.935 4.844 4.340 4.616 4.046
Singapore Market Capital
8.552 8.471 8.280 8.481 8.539 8.236 8.301 8.097 8.574 8.307 8.310 8.520 8.727 8.054
Thailand Market Capital
5.551 5.656 5.302 5.721 5.717 5.165 5.688 6.073 6.358 6.211 5.818 5.208 5.544 5.478
Fig. 13.6 Comparison of market capital in the Southeast Asian countries
lowest score in 1995 to the second highest score beginning in 2002; and the Philippines declined from the second highest score in 1995 to the lowest score from 2005 onward. In general, Malaysia’s human capital underwent the greatest improvement (27 percentile points), followed by Singapore (23 percentile points), and
248
13 National Intellectual Capital of Four Southeast Asian Countries 10 Malaysia Process Capital 8 Philippines Process Capital
6
4
Singapore Process Capital
2 Thailand Process Capital 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 5.289 4.984 4.688 4.489 4.851 4.569 5.341 5.559 5.451 4.778 5.497 5.617 5.229 5.174
Malaysia Process Capital
Philippines Process Capital 3.517 3.271 3.353 3.364 3.466 3.202 3.150 3.355 3.069 2.988 3.303 3.017 3.317 3.107 Singapore Process Capital
6.631 6.566 6.693 6.891 7.225 7.220 7.565 7.579 7.457 7.361 7.566 7.874 7.727 7.165
Thailand Process Capital
3.267 3.476 3.051 3.360 3.702 3.675 4.155 4.616 4.480 4.510 4.379 3.789 4.181 4.754
Fig. 13.7 Comparison of process capital in the Southeast Asian countries 10 Malaysia Renewal Capital 8 Philippines Renewal Capital
Singapore Renewal Capital
6
4
2 Thailand Renewal Capital 0 Malaysia Renewal Capital
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2.098 1.941 1.773 1.830 1.778 1.837 1.888 1.992 2.194 1.940 2.180 2.261 2.162 2.199
Philippines Renewal Capital 1.968 1.866 1.382 1.654 1.478 1.520 1.409 1.340 1.079 1.512 1.282 1.352 1.432 1.365 Singapore Renewal Capital 3.388 3.812 4.020 4.324 4.620 4.525 4.489 4.882 4.979 5.037 5.314 5.609 6.010 5.712 Thailand Renewal Capital
1.239 1.396 1.137 1.291 1.449 1.140 1.234 1.440 1.469 1.389 1.520 1.379 1.506 1.480
Fig. 13.8 Comparison of renewal capital in the Southeast Asian countries
Thailand (14 percentile points). The human capital development of the Philippines shows a marginal improvement of four percentile points. Figure 13.6 indicates that the market capital of all the countries in this cluster regressed over the 14 years. The relative positions of the market capital in this cluster mainly remain the same; that is, Singapore at the top, followed by Malaysia, Thailand,
Comparison of Capital Components of the Four Southeast Asian Countries
249
10 Malaysia Financial Capital 8 Philippines Financial Capital
Singapore Financial Capital
6
4
2 Thailand Financial Capital 0 Malaysia Financial Capital
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 8.633 8.668 8.676 8.567 8.592 8.620 8.595 8.619 8.653 8.676 8.693 8.722 8.751 8.774
Philippines Financial Capital 7.342 7.348 7.346 7.309 7.314 7.336 7.329 7.349 7.378 7.395 7.416 7.444 7.484 7.508 Singapore Financial Capital 9.811 9.802 9.803 9.740 9.786 9.836 9.774 9.796 9.840 9.893 9.925 9.957 9.971 9.959 Thailand Financial Capital
8.175 8.191 8.135 8.005 8.029 8.048 8.053 8.090 8.147 8.171 8.201 8.240 8.268 8.280
Fig. 13.9 Comparison of financial capital in the Southeast Asian countries
and then the Philippines. The scores ranged from 5.3 to 8.6 in 1995 and from 4.0 to 8.1 in 2008 with a clear overall decline. The graph of Fig. 13.6 shows that the initial market capital gap among the countries has become wider over the years. Figure 13.7 exhibits that the process capital development pattern of these four countries is somewhat similar to that of market capital; only the scores are lower by about ten percentile points. Consistently, Singapore has the best process capital, followed by Malaysia, Thailand, and the Philippines. Again, the Philippines lag behind. For the first 5 years, the process capital of the Philippines and Thailand remained at a similar level, yet with Thailand making progress and the Philippines regressing, the gap between the two countries has widened. Figure 13.8 shows that Singapore has far better renewal capital than the other countries in this cluster and the gap becomes wider and wider over the years. In general, the renewal capital of Malaysia, the Philippines, and Thailand ranges from the 10th to the 20th percentile, relatively low compared with other country clusters. As for the 1–10 scaled financial capital, Fig. 13.9 shows that there is not much variation in scores in this cluster, with Singapore consistently the best performer and the Philippines the poorest performer. Yet, in real dollar values of GDP per capita (PPP), over the 14 years, Malaysia achieved the growth of 87%, the Philippines 79%, Singapore 101%, and Thailand 76%. Interestingly, Singapore experienced the greatest GDP growth, in spite of the fact that its financial capital is already the largest in this country cluster. The above analyses reveal some interesting phenomena. For instance, why do the Philippines consistently lag behind the others in all five capital categories? What is the driving force of Singapore’s lasting competitiveness? These questions pose an interesting area for further study.
250
13 National Intellectual Capital of Four Southeast Asian Countries
Three-Period Progression of National Intellectual Capital Development As stated in the previous chapters, sections “National Intellectual Capital of Each Individual Country” and “Comparison of Capital Components of the Four Southeast Asian Countries” presented the results of data analysis for a total of 14 years, spanning from 1995 to 2008. However, the results are somewhat limited in nature, with comparisons focusing on the initial year (1995) and the concluding year (2008) of each form of capital in each country. To get a more complete picture of the dynamics of the capital development over the 14 years, we developed Table 13.2, which assesses the changes of capital rankings in three periods (the first and second periods each consist of 5 years and the third period consists of 4 years), namely, 1995–1999 is the first period, 2000–2004 is the second period, and 2005–2008 is the third period. This division of Table 13.2 into periods makes it easier to visualize the development and perhaps even the future trends of the five types of capital for each country. We employ the sequence of human capital, market capital, process capital, renewal capital, financial capital, and overall IC. The second column in Table 13.2 exhibits the overall ranking difference between the first period and the third period. The third column is the ranking of the first period, and the fourth and the fifth columns display respective rankings and differences with regard to the previous period. The last column compares the most recent third period ranking with the overall NICI40 ranking. Over the entire course of the three periods, Malaysia increased its ranking in human capital (7), renewal capital (1), and overall IC (2), yet decreased in market capital (−4), process capital (−1), and financial capital (−1). The Philippines decreased its ranking in human capital (−5), market capital (−8), process capital (−8), renewal capital (−6), financial capital (−1), and overall IC (−4). Singapore increased its ranking in human capital (8), process capital (4), renewal capital (8), financial capital (2), and overall IC (4), yet showed no change in market capital. Thailand increased its ranking in market capital (3), renewal capital (2), overall IC (1), and showed no change in both process capital and financial capital, yet decreased in human capital (−3). Furthermore, in comparing the ranking of the most recent third period with the 14-year NICI40 ranking reported in the abstract, Malaysia advanced two ranks (from #25 to #23), the Philippines declined 1 rank (from #39 to #40), Singapore advanced 1 rank (from #6 to #5), and Thailand had no change (#30). In general, Singapore had all positive changes and the most national IC progress over the three periods even though it had already been the top performer at the initial stage in this cluster. The Philippines declined in all capital categories over the three periods and ranked 40th in the overall NICI40 for the most recent period (2005–2008).
1 −6 8 2
−1 −1
Financial capital Malaysia Philippines
31 38
30 33 17 39 31 39
29 38 13 39
26 38 3 30
0 −1
1 −5 4 0
−5 −8 3 1
32 39
29 39 9 37
22 38 2 31
Renewal capital Malaysia Philippines Singapore Thailand
21 30 6 31
−1 0
0 −1 4 2
4 0 1 −1
−3 −1 0 −4
31 39
28 37 13 39
22 34 3 31
8 29 1 20
−1 −8 4 0
−1 −7 0 7
Process capital Malaysia Philippines Singapore Thailand
7 32 1 17
10 33 1 21
6 25 1 24
−4 −8 0 3
Market capital Malaysia Philippines Singapore Thailand
−1 0 (continued)
−1 −2 4 2
0 −4 1 0
−2 −4 0 −1
1 −2 3 0
27 34 18 32
26 36 15 32
0 −4 −1 2
3rd period ranking vs. overall NICI40 ranking NICI40 ranking Difference
3rd period (2005–2008) Ranking Difference
Table 13.2 Changes in intellectual capital rankings over the three periods 1st period to 1st period 3rd period (1995–1999) 2nd period (2000–2004) Difference (1) Ranking Ranking Difference Human capital Malaysia 7 33 26 7 Philippines −5 31 32 −1 Singapore 8 23 14 9 Thailand −3 29 34 −5
Three-Period Progression of National Intellectual Capital Development 251
1st period (1995–1999) Ranking 2nd period (2000–2004) Ranking Difference
3rd period (2005–2008) Ranking Difference
3rd period ranking vs. overall NICI40 ranking NICI40 ranking Difference
Singapore 2 4 3 1 2 1 3 1 Thailand 0 37 37 0 37 0 37 0 Overall IC Malaysia 2 25 25 0 23 2 25 2 Philippines −4 36 38 −2 40 −2 39 −1 Singapore 4 9 7 2 5 2 6 1 Thailand 1 31 30 1 30 0 30 0 Remarks: (1) The second column compares the 3rd period ranking with the 1st period ranking. (2) The last column compares the most current 3rd period ranking with the original 14-year NICI40 ranking summarized in the abstract
Table 13.2 (continued) 1st period to 3rd period Difference (1)
252 13 National Intellectual Capital of Four Southeast Asian Countries
Summary
253
General Descriptive Information on the Four Southeast Asian Countries The above four sections basically present results based on statistical analyses of IMD secondary data spanning from 1995 to 2008. To complement the quantitative data analyses, this section provides some background information for each country that may help explain the results as well as cast further light for future intellectual capital development. Due to the magnitude of relevant information, this study does not intend nor does it have the resources to provide in-depth depictions of country backgrounds in abundant detail. As a result, what we are presenting hereunder is a summary of information closely related to intellectual capital and available from public sources, including some objective indicators published by various world organizations (e.g., the United Nations’ Human Development Index), web information from http://en. wikipedia.org/wiki, and relevant articles posted on the Internet. Although different indicators cover different dimensions (e.g., the Human Development Index also covers health/life expectancy and purchasing power; PISA covers only students’ performances) and do not have an equal comparison basis, they still provide valuable information on individual nations as exhibited in Table 13.3. In addition to the statistics presented in Table 13.3 derived from 16 different sources, we summarize some qualitative information for each country with respect to human capital, market capital, process capital, renewal capital, financial capital, and future perspective in that sequence. Ranking under country name is the overall ranking of each respective capital reported in the abstract. We also include the observations that incorporate the 14-year data analysis and the relevant current indicators reported in Table 13.3. Inevitably, the summaries presented in Tables 13.4–13.9 are susceptive to subjectivity due to information availability; nevertheless, the information provided is meant to show different avenues for observing intellectual capital development. Readers are encouraged to expand their own interpretation from various information sources and different angles. To highlight the future perspectives of each country, the last four indicators of Table 13.3 have been provided for readers’ reference – World Competitiveness by the IMD, Global Competitiveness by the World Economic Forum, the Environmental Sustainability Index by Yale University, and the Environmental Performance Index by Yale University. We summarize hereunder some information that may be relevant to the intellectual development of each country.
Summary In general, the four Southeast Asian countries are ranked 6th, 25th, 30th, and 39th on the NICI40. They invest various percentages of their GDP in education, ranging from 2.5% (the Philippines) to 5.7% (Malaysia); they have different levels of
10. Mobile telephone (#/score)
18/5.7 54/2.5 52/3 32/4.4
PC (#)
63 102 28 81
– – – 43/417
12. 11. R&D Innovation score (#/%)
– – – 44/421
RC (#)
– – – 41/417
27 34 18 32
14. Global 13. World competitiveness competitiveness 15. ESI (#/score) (#/score) (#)
4.8 0.6 22.3 1.4
16. EPI (#/ score)
8 29 1 20
Malaysia 21/7.52 34/6.16 65.7 51/100.4 22 43/0.57 – 28 18 24/4.87 38/54.0 26/84.0 Philippines 45/4.62 55/4.90 21.1 83/76 34 56/0.1 – 37 43 87/3.9 125/42.3 61/77.9 Singapore 14/8.45 6/8.74 66.7 10/142 3 12/2.27 – 13 3 3/5.55 – – Thailand 28/6.36 47/5.22 20.3 21/123.8 31 53/0.2 – 39 26 36/4.56 73/49.7 53/79.2 Remark: “#” refers to ranking among respective members and the numbers are the most current data available in 2009. Please refer to the reference section for a list of the sources of these 16 indicators
9. Internet usership/ 7. Quality of life 8. e-Readiness population (%) (#/score) (#/score)
25,716 97,977 4,658 65,905
23 38 1 53
87 79 101 76
Malaysia Philippines Singapore Thailand
25 39 6 30
6. Globalization MC (#) (#)
Table 13.3 National intellectual capital-related indicators and ranking GDP per capita (PPP) 5. Broad band/ PISA 4. PISA 2. Education growth Overall HC science PISA math. reading population 2008/1995 1. Population expenditures IC (#) (#/score) (%) (#/%) 3. HDI (#/score) (#/score) (%) (000) ranking
Thailand HC40#32
Singapore HC40#18
Philippines HC40#34
Tertiary education in the public universities is heavily subsidized by the government UN Human Development Index ranking: #102 out of 179 (2008) Broadband internet subscribers – 0.6% (2009 est.) Labor force – 36.81 million (2008 est.) Unemployment – 7.5% (2009 est.) The teaching medium in the vast majority of all local schools is English UN Human Development Index ranking: #28 out of 179 (2008) Broadband internet subscribers – 22.3% (2009 est.) Labor force – 2.96 million (2008 est.) Unemployment – 3.3% (2009 est.) In 2000, there were about 600,000 foreign workers in Singapore, constituting 27% of its total work force. The Singapore city-state employs tens of thousands of foreign blue-collar workers from around the world UN Human Development Index ranking: #81 out of 179 (2008) Broadband internet subscribers – 1.4% (data up to 2007) Labor force – 37.78 million (2008 est.) Unemployment – 2.1% (2009 est.)
From Table 13.3, Thailand spent 4.4% of its GDP on education and students’ PISA performance ranked 44/43/41 for science, math, and reading, respectively, out of 57 countries. Thailand is ranked HC40#32 with a 14 percentile-point improvement over the 14 years, yet declined 3 ranks from the 1st to the 3rd period (refer to Table 13.2) Thailand has a relatively low unemployment rate
From Table 13.3, Singapore spent 3% of its GDP on education. Singapore is ranked HC40#18 with a 24 percentile-point improvement over the 14 years and advanced 8 ranks in human capital from the 1st to the 3rd period (refer to Table 13.2). Apparently, Singapore’s government has made the best use of its 3% GDP investment in education; that is, low investment yet relatively good human capital compared with countries with similar educational investment
From Table 13.3, the Philippines spent 2.5% of its GDP on education (the lowest in this cluster). The Philippines is ranked HC40#34 with a 4 percentile-point improvement over the 14 years, yet declined 5 ranks in human capital from the 1st to the 3rd period (refer to Table 2). Its broadband internet subscriber rate of 0.6% is very low, which may hamper new knowledge acquirement
Table 13.4 Background information on human capital for Southeast Asian countries Country Human capital Observations From Table 13.3, Malaysia spent 5.7% of its GDP on education Malaysia UN Human Development Index ranking: #63 out of 179 (2008) (the highest in this cluster). Malaysia is ranked HC40#27 with a 27 HC40#27 Broadband internet subscribers – 4.8% (2009 est.) percentile-point improvement over the 14 years and advanced Labor force – 11.2 million (2008 est.) 7 ranks from the 1st to the 3rd period (refer to Table 13.2) Unemployment – 3.5% (2009 est.)
Summary 255
Table 13.5 Background information on market capital for Southeast Asian countries Country Market capital Malaysia Exports – $195.7 billion f.o.b. (2008 est.), imports – $156.2 billion f.o.b. MC40#8 (2008 est.) Malaysia is one of the world’s top exporters of natural rubber and palm oil Malaysia’s major products include electronic components, semiconductor devices, and electrical goods and appliances The Malaysian Government is aggressively negotiating free trade deals. In the first 6 months of 2007, Malaysia’s total trade increased by 2.2% According to the World Bank, Malaysia ranks 24th out of 178 countries in ease of doing business Philippines Exports – $49 billion f.o.b. (2008 est.), imports – $58 billion f.o.b. MC40#29 (2008 est.) The Philippines are seeking to develop medical tourism within the country, and some private hospitals have already undergone international healthcare accreditation, or are actively seeking it The Philippines have focused on its export-oriented manufacturing sector, particularly in electronics and automotive parts. The creation of export processing zones, including the former United States’ Subic and Clark Bases, has facilitated a rise in foreign direct investment
The Philippines is ranked #38 out of 72 countries in the Globalization Index. It is ranked MC40#29 with a decline of 13 percentile points over the 14 years and declined 8 ranks from the 1st to the 3rd period (refer to Table 13.2). The endeavors described in the column at left may help create more market capital
Observations Malaysia is ranked #23 out of 72 countries in the Globalization Index. It is ranked among the top ten MC40#8 with a decline of 9 percentile points over the 14 years and declined 4 ranks from the 1st to the 3rd period (refer to Table 13.2). Aggressive negotiation of free trade deals and ease of doing business may contribute to the high level of Malaysia’s market capital
256 13 National Intellectual Capital of Four Southeast Asian Countries
Exports – $235.8 billion f.o.b. (2008 est.), imports – $219.5 billion (2008 est.) The economy depends heavily on exports and the refining of imported goods, especially in manufacturing Singapore is the world’s fourth largest foreign exchange trading center after London, New York City, and Tokyo Singapore has been rated as having the most business-friendly economy in the world Singapore’s largely corruption-free government, skilled workforce, and advanced and efficient infrastructure have attracted investments from more than 3,000 multinational corporations (MNCs) Exports – $178.4 billion f.o.b. (2008 est.), imports – $179 billion f.o.b. (2008 est.) Thailand’s key industries include electric appliances, components, computer parts, and automobiles Exports account for 60% of its GDP. Tourism contributes about 5% of the Thai economy’s GDP Thailand has a strong automotive export industry along with electronic goods manufacturing The USA is Thailand’s largest export market and second largest supplier after Japan
Singapore MC40#1
Thailand MC40#20
Market capital
Country
Thailand is ranked #53 out of 72 countries in the Globalization Index. It is ranked MC40#20 with a decline of 1 percentile point over the 14 years, yet advanced 3 ranks from the 1st to the 3rd period (refer to Table 13.2)
Singapore is ranked #1 out of 72 countries in the Globalization Index. It is also ranked the top MC40#1 with a decline of 5 percentile points over the 14 years and without any rank change from the 1st to the 3rd period (refer to Table 13.2) Singapore obtained number #1 rankings in both MC40 and the Globalization Index for a reason. In addition to the fact that Singapore has the smallest area yet the largest exports and imports volume in this cluster, investigation of raw data reveals that Singapore has particularly high scores in corporate tax friendly policies, cross-border ventures, cultural openness, globalization, and government policy transparency
Observations Summary 257
Table 13.6 Background information on process capital for Southeast Asian countries Country Process capital Observations Based on Table 13.3, Malaysia’s rankings for quality of life, Malaysia Internet usership – 65.7% of the population (2009 est.) e-readiness, and mobile telephone subscribers were #21 PC40#22 Petroleum and natural gas have contributed much to the Malaysian economy out of 57, #34 out of 70, and #51 out of 133, respectively. In 2004, Malaysia was ranked 24th in terms of world oil reserves and 13th for gas It is ranked PC40#22 with a decline of 1 percentile point With Japanese investment, heavy industries flourished and Malaysian exports became the over the 14 years and declined 1 rank from the 1st to the country’s primary growth engine 3rd period (refer to Table 13.2). Privatization efforts have Rapid growth was achieved partly through privatization of inefficient state-owned enterprises assisted economic development in Malaysia Malaysia has the largest operational stock of industrial robots in the Muslim world Based on Table 13.3, the Philippines’ rankings for quality of Philippines Internet usership – 21.1% of the population (2009 est.) life, e-readiness, and mobile telephone subscribers are #45 PC40#34 Strategies for streamlining the economy include improvements of infrastructure, more out of 57, #55 out of 70, and #83 out of 133, respectively. efficient tax systems to bolster government revenues, furthering deregulation and It is ranked PC40#34 with a decrease of 4 percentile points privatization of the economy, and increasing trade integration within the region and over the 14 years and declined 8 ranks from the 1st to across the world the 3rd period (refer to Table 13.2). The Philippines have already set up strategies to improve its infrastructure Based on Table 13.3, Singapore’s rankings for quality of life, Singapore Internet usership – 66.7% of the population (2009 est.) e-readiness, and mobile telephone subscribers are #14 out PC40#3 Manufacturing constituted 26% of Singapore’s GDP in 2005. The manufacturing of 57, #6 out of 70, and #10 out of 133, respectively. It is industry is well-diversified in electronics, petroleum refining, chemicals, mechanical ranked PC40#3 with a 6 percentile-point improvement over engineering, and biomedical sciences manufacturing the 14 years and advanced 4 ranks from the 1st to the 3rd Singapore’s port infrastructure and skilled workforce provide easier access to markets for period (refer to Table 13.2). Singapore’s high process capital both importing and exporting, and also provide the skill(s) needed to refine imports may be explained by its sound manufacturing system and into exports port infrastructure Singapore is the world busiest port in terms of tonnage shipped, transshipment traffic, and the world’s biggest ship refueling center. It is also the world’s second busiest in terms of cargo tonnage, after Shanghai Singapore Changi Airport has a network of 81 airlines connecting Singapore to 185 cities in 58 countries. It has been rated as one of the world’s best international airports Based on Table 13.3, Thailand’s rankings for quality of life, Thailand Internet usership – 20.3% of the population (2009 est.) e-readiness, and mobile telephone subscribers are #28 out PC40#31 In Thailand, paved road network coverage has reached 98.5% and electricity reaches of 57, #47 out of 70, and #21 out of 133, respectively. It is 99% of the population ranked PC40#31 with a 15 percentile-point improvement In 2008, Thailand’s 10th National Development Plan included: infrastructure and over the 14 years and without any rank change from the 1st logistics service, energy efficiency and alternative sources of energy, and a framework to the 3rd period (refer to Table 13.2) for overall infrastructure development
Singapore is aggressively promoting and developing its biotechnology industry Some multinational companies have set up their R&D centers in Singapore, such as HP and Nestle
Thailand’s growing shortage of engineers and skilled technical personnel may limit its future technological creativity and productivity Remark: These four countries are not included in the European innovation scoreboard rankings
Thailand RC40#39
Singapore RC40#13
Table 13.7 Background information on renewal capital for Southeast Asian countries Country Renewal capital Malaysia RC40#28 The Ministry of Science, Technology, and Innovation (MOSTI) provides various grants for research. Funds available are placed under specialized programs, such as the ScienceFund, TechnoFund (precommercialization and IP acquisition fund), InnoFund (enterprise innovation and community innovation fund), eHCD (human capital development fund), and the Brain Gain fund Philippines RC40#37 The future of biotechnology in the Philippines looks positive. There is unequivocal support from the government. As more scientists come back from training abroad, the nation’s capacity for biotechnology R&D continues to grow The Philippines invested 0.1% of its GDP in R&D (2008) (the lowest in this cluster and in all 40 countries). It is ranked RC40#37 with a decline of 6 percentile points over the 14 years and declined 6 ranks from the 1st to the 3rd period (refer to Table 13.2). The Philippine government has set up a strategy to focus on biotechnology R&D Singapore invested 2.27% of its GDP in R&D (2008) (the highest in this cluster). It is ranked RC40#13 with a 23 percentile-point improvement over the 14 years and advanced 8 ranks from the 1st to the 3rd period (refer to Table 13.2). Singapore is also aggressively promoting and developing its biotechnology industry Thailand invested 0.2% of its GDP in R&D (2008). It is ranked RC40#39 with a 3 percentile-point improvement over the 14 years and advanced 2 ranks from the 1st to the 3rd period (refer to Table 13.2)
Observations Malaysia invested 0.57% of its GDP in R&D (2008). It is ranked RC40#28 with 1 percentile-point improvement over the 14 years and advanced 1 rank from the 1st to the 3rd period (refer to Table 13.2). As described in the column at left, Malaysia has set up various funds to encourage R&D and innovation
Summary 259
GDP per capita (PPP) – US$14,072 (IMF 2009 report) Malaysia consistently achieved more than 7% GDP growth along with low inflation in the 1980s and the 1990s. From 1988 to 1997, the economy experienced a period of broad diversification and sustained rapid growth averaging 9% annually Manufacturing accounted for 30% of GDP (1999) GDP growth – 5.1% in 2008, 6.3% in 2007, and 5.8% in 2006 GDP per capita (PPP) – US$3,546 (IMF 2009 report) The Philippine economy dramatically fell in the early 1970s due to the mismanagement and corrupt practices of the Marcos regime and martial law The Asian Financial Crisis affected the Philippine economy tremendously. Low foreign fund inflows and its agriculture-based economy resulted in the country to grow 3% in 1999 and 4% in 2000. Hampered by political uncertainties in 2000, the peso weakened even further In 2006, the Philippine economy expanded at a rate of 5.4%, higher than the previous year’s. The government plans to accelerate the country’s GDP growth by 7% in 2007, 8% in 2008 and 9% by 2009, also known as the 7, 8, 9 project GDP growth – 4.6% in 2008, 7.2% in 2007, and 5.4% in 2006
Malaysia FC40#31
GDP per capita (PPP) – US$51,142 (IMF 2009 report) The Singaporean economy itself grew by 8.3% in 2004 and 6.4% in 2005 GDP growth – 1.2% in 2008, 7.7% in 2007, and 8.2% in 2006
GDP per capita (PPP) – US$8,225 (IMF 2009 report) Thailand had historically been a tiger economy with growth rates of 9% or more annually from the late 1970s to 1996, with periodic slowdowns mirroring the world or regional economy. However, after the 1997–1998 currency crisis, Thailand became impoverished once again, and it was not until 2001 that Thailand regained momentum over the baht and its economy In 2002/2003/2004, however, a program aimed at domestic stimulus and export revival fuelled a better performance, with real GDP growth at 5.3, 7.1, and 6.3%, respectively In Thailand, investor and consumer confidence has been degraded somewhat due to political uncertainty Due to rising oil and food prices, the annual inflation rate for 2008 shot up to 9.2% in July, a 10-year high GDP growth – 3.6% in 2008, 4.9% in 2007, and 5.2% in 2006
Singapore FC40#3
Thailand FC40#37
Philippines FC40#39
Financial capital
Country
Table 13.8 Background information on financial capital for Southeast Asian countries
The Philippines were ranked #123 in GDP per capita (PPP) in 2008 Its GDP growth rate (1995 vs. 2008) was 79%. As described in the left column, the Philippine government has set goals to revive the economy. Due to the 2008 financial crisis, 2008 saw only 4.6% growth, which did not meet the “7, 8, 9 project” goal Singapore was ranked #4 in GDP per capita (PPP) in 2008 Its GDP growth rate (1995 vs. 2008) was 101% Thailand was ranked #86 in GDP per capita (PPP) in 2008 Its GDP growth rate (1995 vs. 2008) was 76%
Malaysia was ranked #60 in GDP per capita (PPP) in 2008 Its GDP growth rate (1995 vs. 2008) was 87%
Observations
260 13 National Intellectual Capital of Four Southeast Asian Countries
Summary
261
Table 13.9 Background information on future perspectives for Southeast Asian countries Country Malaysia IMD World Competitiveness ranking: #18 out of 57 countries (2009) World Economic Forum global competitiveness: #24 out of 133 (2009–2010) Environmental Sustainability Index (ESI) – #38 out of 149 (2005, a projectbased ranking conducted in 2005) Environmental Performance Index (EPI) – #26 out of 149 (2008) The Malaysian Government is negotiating free trade deals with Australia, New Zealand, and the USA, and officials have expressed a desire for free trade agreements with Singapore and Thailand The government is moving toward a more business-friendly environment by setting up a special task force to facilitate business called PEMUDAH, which means simplify in Malay The government aims to be in the top 10 in the ease of doing business before 2010 in order to attract even more foreign investors GDP (PPP) per hour worked (2007) – no data Philippines IMD World Competitiveness ranking: #43 out of 57 countries (2009) World Economic Forum global competitiveness: #87 out of 133 (2009–2010) Environmental Sustainability Index (ESI) – #125 out of 149 (2005, a projectbased ranking conducted in 2005) Environmental Performance Index (EPI) – #61 out of 149 (2008) The Philippines will have to address several chronic problems in the future. China and India have emerged as major economic competitors, siphoning away investors who would otherwise have invested in the Philippines, particularly telecommunication companies In 2007, the gross domestic product grew 7.2%, the fastest in 31 years. It also grew the second fastest in the Southeast Asian region for that year and the fifth in Asia GDP (PPP) per hour worked (2007) – no data Singapore IMD World Competitiveness ranking: #3 out of 57 countries (2009) World Economic Forum global competitiveness: #3 out of 133 (2009–2010) On August 19, 2007, Prime Minister Lee Hsien Loong announced in his National Day Rally Speech that Singapore’s economy is expected to grow by at least 4–6% annually over the next 5–10 years Singapore is fast positioning itself as a medical tourism hub – about 200,000 foreigners sought medical care in the country each year and Singapore medical services are primed to serve one million foreign patients annually by 2012 and generate US$3 billion in revenue As Singapore looks to a future increasingly marked by globalization, the country is positioning itself as the region’s financial and high-tech center in competition with other East Asian cities By 2015, its ambitious Tourism 2015 blueprint aims to increase visitor arrivals to 17 million and raise tourism receipts to S$30 billion GDP (PPP) per hour worked (2007) – 20.93 Thailand IMD World Competitiveness ranking: #26 out of 57 countries (2009) World Economic Forum global competitiveness: #36 out of 133 (2009–2010) Environmental Sustainability Index (ESI) – #73 out of 149 (2005, a projectbased ranking conducted in 2005) Environmental Performance Index (EPI) – #53 out of 149 (2008) Thailand’s growing shortage of engineers and skilled technical personnel may limit its future technological creativity and productivity GDP (PPP) per hour worked (2007) – no data Remark: Singapore is not included in the Environmental Sustainability Index (ESI) rankings
262
13 National Intellectual Capital of Four Southeast Asian Countries
e-readiness, ranging from a ranking of #6 to #55 out of 70 countries. This is the most disparate country cluster of all, with Singapore a top ten performer and the Philippines the second lowest-ranking performer #39 among the 40 countries. Malaysia and Thailand lie between the above two poles. Interestingly, Singapore has made positive progress and the Philippines have undergone negative progress in all capital categories and overall NICI40 ranking over the three time periods as indicated in Table 13.2. In the same vein, Thailand mostly has positive or no capital ranking changes, except for its human capital. Malaysia has an equal distribution of positive and half negative ranking changes over the three time periods. The four patterns of national intellectual capital development indicate that Singapore is advancing toward the most advanced type of intangible assets; the Philippines has downgraded itself to the last rank #40 of the NICI40 in the most recent third period (2005–2008), out-positioned by the four BRIC (Brazil, Russia, India, and China) countries; Thailand is a rising star in terms of intellectual capital; and Malaysia has not exhibited much progress even though the government has put forth good development strategies. Particularly, Malaysia’s achievement of a #8 ranking in market capital did not boost its overall intellectual capital. Very likely, the comparatively low human capital (#27), process capital (#22), and renewal capital (#28) could not support its strong market capital. As a result, the overall NICI40 ranking of Malaysia of #25 did not reflect its market capital advantage. The implication of this phenomenon is that a single strong component capital is not sufficient to result in overall intellectual capital advancement. It has to be a matching mutual support, so that process capital, for example, needs to advance in tandem with market capital. The two questions posed in the first part of the present chapter are: “In the same region, how did Singapore accumulate such a high degree of national intellectual capital in such a small territory?” and “Why have the Philippines lagged behind other countries throughout all these years?” The fact that Singapore is ranked #1 in market capital, #3 in process capital, and #3 in financial capital indicates that this small country has a strong government that built a very good infrastructure, such as a sound port infrastructure, a strong internal and external transportation network (process capital), and established a good environment that facilitates national relationships, such as a business-friendly city (market capital), which has led to outstanding financial performance. The ranking advancement over the three periods indicates that Singapore continues to add its national intellectual capital, which explains its competitiveness. The aggressiveness of the government is further evidenced by the volume of its exports and imports, the largest in this country cluster. As for the Philippines, the possible reasons for its intellectual capital decline over the 14 years may partially explained by its unstable political situation, the mismanagement of the Marcos regime, and the Asian Financial Crisis in the late 1990s. In summary, the pattern of intellectual capital development of these four countries casts some light for both advanced countries and developing countries.
Chapter 14
National Intellectual Capital of the Four BRIC Countries (Brazil, Russia, India, China)
Abstract The national intellectual capital rankings of the four BRIC countries are all in the fourth quarter percentile (31–40th) of National Intellectual Capital Indices for 40 countries (NICI40). Brazil, China, India, and Russia ranked number 37, 36, 40, and 32, respectively. In comparing each individual country’s overall ranking, Brazil is better in market capital (ranked #33); China scores higher in market capital (ranked #25) and renewal capital (ranked #27); and Russia is relatively strong in renewal capital (ranked #22). Yet China is relatively weak in human capital (ranked #39), India is also weak in human capital (ranked #40), and Russia is weak in both market capital (ranked #38) and process capital (ranked #39).
Human capital
Market capital
Process capital
Overall intellectual Renewal capital Financial capital capital
Mean SD
4.43 0.64
4.77 0.50
3.17 0.27
2.10 0.55
Country Brazil China India
Score 4.43 4.18 3.79
Ranking 37 39 40
Score 4.81 5.27 4.91
Ranking 33 25 30
Score 3.11 3.49 3.22
Ranking 38 33 36
Score 1.63 2.12 1.78
Ranking 35 27 34
Score 8.43 7.49 6.96
Ranking 35 38 40
Score 22.41 22.55 20.67
Ranking 37 36 40
Russia
5.30
30
4.07
38
2.85
39
2.87
22
8.57
34
23.65
32
7.86 0.77
22.32 1.23
Introduction This chapter presents the national intellectual capital of the four BRIC countries, namely, Brazil, Russia, India, and China. Although the national intellectual capital of Brazil has been reported in Chap. 10 in the Latin American cluster, it is reported again in this chapter for a full comparison of the emerging BRIC countries. The scores for these four countries are currently at the lower part of the ranking in terms of national wealth, yet they are predicted to have enormous growth potential. Based on IMF data (International Monetary Fund April 2009 data), their GDP per capita (PPP) in US dollars are Russia (15,922), Brazil (10,326), China (5,963), and
C.Y.-Y. Lin and L. Edvinsson, National Intellectual Capital: A Comparison of 40 Countries, 263 DOI 10.1007/978-1-4419-7377-1_14, © Springer Science+Business Media, LLC 2011
264
14 National Intellectual Capital of the Four BRIC Countries
India (2,762) and are ranked 52, 77, 100, and 129, respectively, in world wealth (http://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29_per_capita). The BRIC countries are currently the four largest emerging market economies. Goldman Sachs predicts that they may become the four most dominant economies by the year 2050 (http://en.wikipedia.org/wiki/BRIC). Since they are similar not only in terms of their large territory and abundant natural resources but also in their recent emergence, it makes sense to examine them as a cluster. Their emergence has become an interesting topic for both academics and general public. What are the hidden reasons behind their upsurge? Does the last decade of their national intellectual capital development provide any clues? In addition to their abundant natural resources, do intangible resources also contribute to their recent economic achievement? Can their intangible assets help create and sustain their competitiveness? The panel data spanning from 1995 to 2008 may provide some answers. Their overall national intellectual capital ranking sequence in descending order is Russia (32), China (36), Brazil (37), and India (40). Table 14.1 shows the results of comparing five types of capital “within” each country and “between” countries in this cluster. Based on their individual country ranking, financial capital ranks first in all four countries; in other words, financial capital has the highest score. Human capital, market capital, process capital, and renewal capital are ranked as 3, 2, 4, and 5, respectively, for Brazil, China, and India; and 2, 3, 5, and 4, respectively, for Russia. As for the inter-country comparison, Table 14.1 shows that China ranks first in market capital and process capital; and Russia ranks first in human capital, renewal capital, and financial capital. In addition, Brazil is weak in renewal capital; India is weak in human capital and financial capital; and Russia is weak in market capital and process capital.
National Intellectual Capital of Each Individual Country Figures 14.1–14.4 display the characteristics and trends of national intellectual capital for each BRIC country in this chapter. In Fig. 14.1, Brazil has made the most progress in both human capital and process capital with an increase of about 11 percentile points, followed by an increase in renewal capital of eight percentile points, in comparing the figures for 1995 and 2008. Yet, it has a decrease in market capital of about four percentile points. With respect to financial capital, although the 1–10 rating score showed no change, the real dollar value of Brazil’s GDP per capita (PPP) increased from US$6,460 in 1995 to US$10,326 in 2008 for a growth rate of 60%. For further improvement and to enhance its competitiveness, Brazil should develop its lowest ranked renewal capital and its regressed market capital. Figure 14.2 indicates that China has made the most progress in human capital with an increase of about 15 percentile points, followed by an increase in financial capital of about nine percentile points, in process capital of about eight percentile points, and in renewal capital of about three percentile points, in comparing the
Table 14.1 Capital mean ratings and rankings of the four BRIC countries from 1995 to 2008 Intellectual capital Human Market Process Renewal Mean score capital capital capital capital Brazil Score 4.43 4.81 3.11 1.63 Ranking Within 3 2 4 5 Between 2 3 3 4 China Score 4.18 5.27 3.49 2.12 Ranking Within 3 2 4 5 Between 3 1 1 2 India Score 3.79 4.91 3.22 1.78 Ranking Within 3 2 4 5 Between 4 2 2 3 Score 5.3 4.07 2.85 2.87 Russia Within 2 3 5 4 Ranking Between 1 4 4 1 Financial capital 8.43 1 2 7.49 1 3 6.96 1 4 8.57 1 1
Ranking in this cluster 3
2
4
1
Overall score 22.41
22.55
20.67
23.65
32
40
36
37
Overall ranking among 40 countries
National Intellectual Capital of Each Individual Country 265
266
14 National Intellectual Capital of the Four BRIC Countries 10 Brazil Human Capital 8 Brazil Market Capital 6 Brazil Process Capital 4 Brazil Renewal Capital 2 Brazil Financial Capital
0
1995 1996 1997 1998 1999 2000 2001
2002 2003 2004 2005 2006 2007 2008
Brazil Human Capital
3.784 4.004 4.010 4.583 4.726 4.221 4.738 4.126 4.068 4.640 4.710 4.635 4.824 4.907
Brazil Market Capital
5.069 5.490 5.352 4.775 5.084 4.756 5.088 4.774 4.630 4.573 4.429 4.167 4.461 4.662
Brazil Process Capital
2.247 3.032 3.341 3.282 3.677 3.680 3.788 3.189 2.652 2.645 2.983 2.770 2.975 3.322
Brazil Renewal Capital 1.325 1.305 1.319 1.450 1.691 1.987 1.484 1.591 1.718 1.734 1.763 1.668 1.749 2.104 Brazil Financial Capital 8.487 8.459 8.440 8.413 8.392 8.400 8.390 8.397 8.393 8.413 8.415 8.431 8.459 8.489
Fig. 14.1 Trends of intellectual capital in Brazil 10 China Human Capital 8 China Market Capital 6 China Process Capital 4 China Renewal Capital 2 China Financial Capital 0
1995
1996 1997
1998 1999
2000 2001
2002 2003
2004 2005
2006 2007
2008
China Human Capital
3.383 3.667 3.619 4.177 4.383 3.825 3.704 3.921 4.189 4.158 4.931 5.044 4.664 4.857
China Market Capital
5.441 5.447 5.047 5.417 5.199 4.990 5.158 5.290 5.453 5.233 5.627 5.784 4.848 4.809
China Process Capital
2.412 2.550 3.187 3.530 3.571 3.657 3.670 3.792 3.624 3.567 4.055 4.154 3.934 3.192
China Renewal Capital 1.835 2.200 2.384 2.325 2.233 1.959 1.902 1.927 2.151 2.037 2.214 2.182 2.240 2.097 China Financial Capital 7.082 7.139 7.186 7.239 7.295 7.352 7.416 7.490 7.575 7.645 7.718 7.811 7.911 7.985
Fig. 14.2 Trends of intellectual capital in China
figures for 1995 and 2008. Yet, it has a decrease in market capital of about six percentile points. In real dollar value, the GDP per capita (PPP) of China increased from US$1,512 in 1995 to US$5,963 in 2008 for a growth rate of 294%, the highest among all 40 countries.
National Intellectual Capital of Each Individual Country
267
10 India Human Capital 8 India Market Capital 6 India Process Capital 4 India Renewal Capital 2 India Financial Capital 0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
India Human Capital
3.298 3.338 3.160 3.918 3.849 4.149 3.912 3.836 4.065 3.903 3.971 4.014 3.796 3.878
India Market Capital
4.203 4.005 4.471 4.301 4.817 4.527 4.481 4.533 5.489 5.443 5.718 5.582 5.780 5.375
India Process Capital
3.079 2.557 3.153 3.016 3.071 3.131 3.126 3.160 3.524 3.371 3.633 3.544 3.327 3.444
India Renewal Capital 1.260 1.537 1.427 1.693 1.657 1.534 1.466 1.716 1.862 2.183 2.234 2.048 2.081 2.204 India Financial Capital 6.759 6.788 6.787 6.816 6.858 6.884 6.901 6.927 6.977 7.030 7.092 7.163 7.226 7.278
Fig. 14.3 Trends of intellectual capital in India
10 Russia Human Capital 8 Russia Market Capital 6 Russia Process Capital 4 Russia Renewal Capital Russia Financial Capital
2
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Russia Human Capital
4.429 4.389 5.321 5.627 5.071 5.491 5.196 5.281 5.561 5.496 5.688 5.410 5.594 5.595
Russia Market Capital
3.945 3.962 4.384 3.789 3.899 4.434 4.433 3.929 4.281 4.036 4.008 4.127 3.994 3.694
Russia Process Capital
1.575 2.084 2.780 2.315 2.620 2.939 3.087 2.436 3.006 2.848 3.492 3.625 3.561 3.505
Russia Renewal Capital 3.173 3.314 3.387 3.132 3.038 2.963 2.724 3.018 3.013 2.496 2.478 2.490 2.348 2.619 Russia Financial Capital 8.480 8.412 8.392 8.328 8.380 8.457 8.499 8.544 8.611 8.662 8.711 8.776 8.840 8.887
Fig. 14.4 Trends of intellectual capital in Russia
From 2006 to 2008, both China’s market capital and process capital declined drastically. Analysis of the raw data reveals that the decline of market capital between 2006 and 2008 was mainly caused by several score changes, including corporate tax encouragement (from 6.19 to 4.56), cross-border ventures (from 6.31 to 4.71), government
268
14 National Intellectual Capital of the Four BRIC Countries
policy transparency (from 5.46 to 3.10), and image of country (from 7.06 to 5.88). The decline of process capital between 2006 and 2008 was mainly caused by several score changes, including business competition environment (from 5.87 to 4.09), government efficiency (from 3.0 to 1.6), IP rights protection (from 5.40 to 4.14), capital availability (from 4.92 to 3.65), and convenience of establishing new firms (from 4.79 to 5.3). For further improvement and enhancing its competitiveness, China should develop its renewal capital and process capital, its two lowest scoring areas. Figure 14.3 indicates that India has made the most progress in market capital with an increase of about 12 percentile points, followed by an increase in renewal capital of about nine percentile points, in human capital of about six percentile points, in financial capital of about five percentile points, and in process capital of about three percentile points, in comparing the figures for 1995 and 2008. In real dollar value, the GDP per capita (PPP) of India increased from US$1,083 in 1995 to US$2,762 in 2008 for a growth rate of 155%. For further improvement and to increase its competitiveness, India should develop its lowest ranking area of renewal capital. Figure 14.4 indicates that Russia has made the most progress in process capital with an increase of about 19 percentile points, followed by an increase in human capital of 12 percentile points, and in financial capital of about four percentile points, in comparing the figures for 1995 and 2008. Yet, it has a decrease in renewal capital of about six percentile points and in market capital of about two percentile points. In real dollar value, the GDP per capita (PPP) of Russia increased from US$6,419 in 1995 to US$15,922 in 2008 for a growth rate of 148%. For further improvement and to increase its competitiveness, Russia should develop its lowest scoring renewal capital. In general, the human capital and process capital of all four countries have improved over the years. Overall, the development has been relatively flat, except for a few clear upward trends such as the human capital of Brazil, China, and Russia and the process capital of Brazil and Russia. Taking a different path, Brazil achieved the highest improvement in human capital and process capital; China achieved the highest improvement in human capital; India achieved the highest improvement in market capital; and Russia achieved the highest improvement in process capital. Russia was not able to sustain its initial renewal capital advantage and is the only country in this cluster that shows a decrease in renewal capital. As for financial capital, all the countries except Brazil (no change) experienced an increase in financial capital, a clear indication that indeed this is an emerging-country cluster.
Comparison of Capital Components of the Four BRIC Countries Figures 14.5–14.9 allow for a further comparison of the five types of capital among the four BRIC countries. Figure 14.5 shows that, in general, human capital moved from the initial range of 30–45th percentiles to the 40–55th percentile range in 2008
Comparison of Capital Components of the Four BRIC Countries
269
10 Brazil Human Capital 8
China Human Capital
6
4
India Human Capital
2 Russia Human Capital 0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Brazil Human Capital 3.784 4.004 4.010 4.583 4.726 4.221 4.738 4.126 4.068 4.640 4.710 4.635 4.824 4.907 China Human Capital 3.383 3.667 3.619 4.177 4.383 3.825 3.704 3.921 4.189 4.158 4.931 5.044 4.664 4.857 India Human Capital 3.298 3.338 3.160 3.918 3.849 4.149 3.912 3.836 4.065 3.903 3.971 4.014 3.796 3.878 Russia Human Capital 4.429 4.389 5.321 5.627 5.071 5.491 5.196 5.281 5.561 5.496 5.688 5.410 5.594 5.595
Fig. 14.5 Comparison of human capital in the four BRIC countries 10 Brazil Market Capital 8
China Market Capital
India Market Capital
6
4
2 Russia Market Capital 0 Brazil Market Capital
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
5.069 5.490 5.352 4.775 5.084 4.756 5.088 4.774 4.630 4.573 4.429 4.167 4.461 4.662
China Market Capital 5.441 5.447 5.047 5.417 5.199 4.990 5.158 5.290 5.453 5.233 5.627 5.784 4.848 4.809 India Market Capital
4.203 4.005 4.471 4.301 4.817 4.527 4.481 4.533 5.489 5.443 5.718 5.582 5.780 5.375
Russia Market Capital 3.945 3.962 4.384 3.789 3.899 4.434 4.433 3.929 4.281 4.036 4.008 4.127 3.994 3.694
Fig. 14.6 Comparison of market capital in the four BRIC countries
in this cluster. Russia has the highest and India the lowest human capital score with China and Brazil mainly in-between. Figure 14.6 indicates that improvements made in market capital were relatively small in this cluster, mainly ranging between the 40th and 55th percentiles. India is
270
14 National Intellectual Capital of the Four BRIC Countries 10 Brazil Process Capital 8 China Process Capital
India Process Capital
6
4
2 Russia Process Capital 0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Brazil Process Capital 2.247 3.032 3.341 3.282 3.677 3.680 3.788 3.189 2.652 2.645 2.983 2.770 2.975 3.322 China Process Capital 2.412 2.550 3.187 3.530 3.571 3.657 3.670 3.792 3.624 3.567 4.055 4.154 3.934 3.192 India Process Capital
3.079 2.557 3.153 3.016 3.071 3.131 3.126 3.160 3.524 3.371 3.633 3.544 3.327 3.444
Russia Process Capital 1.575 2.084 2.780 2.315 2.620 2.939 3.087 2.436 3.006 2.848 3.492 3.625 3.561 3.505
Fig. 14.7 Comparison of process capital in the four BRIC countries
the country exhibiting a clear upward trend, having caught up to China in year 2003 and surpassing it in year 2007. With the market capital decline of Brazil and India’s surge, the grouping has changed from the initial leaders of Brazil/China followed by India/Russia to the leaders of China/India followed by Brazil/Russia in 2006, and finally India emerges as the leader in 2008, followed by China/Brazil, and Russia. Figure 14.7 indicates that process capital moved from an initial range of 15–30th percentiles to 30–35th percentiles in this cluster. Brazil plunged between 2001 and 2003. Analysis of the raw data reveals that the decline of Brazil’s process capital for that period of time was mainly due to declines in several scores, including business competition environment (from 5.88 to 4.72), government efficiency (from 2.53 to 1.7), IP rights protection (from 5.37 to 3.96), and convenience of establishing new firms (from 7.95 to 3.29). Russia reversed its position from the worst performer in 1995 to the best performer in 2008. Figure 14.8 shows that the renewal capital of these four countries underwent little progress over the years (except for India), moving from the 10–30th percentiles to about the 20–25th percentiles. That is, the renewal capital scores of the four countries became more closely entwined. Russia consistently posted higher renewal capital scores than did the other countries, yet it is the only country to experience a decrease in its renewal capital score over the years. As for the 1–10 scaled financial capital, Fig. 14.9 shows that the financial capital of China and India has been steadily increasing. Russia has a slight increase in financial capital and surpassed Brazil in year 2001. In terms of real dollar value of GDP per capita (PPP) over the 14 years, Brazil achieved 60% growth, China 294%
Comparison of Capital Components of the Four BRIC Countries
271
10 Brazil Renewal Capital 8
China Renewal Capital
India Renewal Capital
6
4
2 Russia Renewal Capital 0
1995 1996 1997 1998
1999 2000 2001 2002 2003 2004 2005
2006 2007 2008
Brazil Renewal Capital 1.325 1.305 1.319 1.450 1.691 1.987 1.484 1.591 1.718 1.734 1.763 1.668 1.749 2.104 China Renewal Capital 1.835 2.200 2.384 2.325 2.233 1.959 1.902 1.927 2.151 2.037 2.214 2.182 2.240 2.097 1.260 1.537 1.427 1.693 1.657 1.534 1.466 1.716 1.862 2.183 2.234 2.048 2.081 2.204
India Renewal Capital
Russia Renewal Capital 3.173 3.314 3.387 3.132 3.038 2.963 2.724 3.018 3.013 2.496 2.478 2.490 2.348 2.619
Fig. 14.8 Comparison of renewal capital in the four BRIC countries
10 Brazil Financial Capital 8
China Financial Capital
India Financial Capital
6
4
2 Russia Financial Capital 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Brazil Financial Capital 8.487 8.459 8.440 8.413 8.392 8.400 8.390 8.397 8.393 8.413 8.415 8.431 8.459 8.489 China Financial Capital 7.082 7.139 7.186 7.239 7.295 7.352 7.416 7.490 7.575 7.645 7.718 7.811 7.911 7.985 India Financial Capital
6.759 6.788 6.787 6.816 6.858 6.884 6.901 6.927 6.977 7.030 7.092 7.163 7.226 7.278
Russia Financial Capital 8.480 8.412 8.392 8.328 8.380 8.457 8.499 8.544 8.611 8.662 8.711 8.776 8.840 8.887
Fig. 14.9 Comparison of financial capital in the four BRIC countries
growth, India 155% growth, and Russia 148% growth. Indeed, the BRIC countries as a cluster (with the exception of Brazil) posted the highest GDP growth among all the country clusters in this study.
272
14 National Intellectual Capital of the Four BRIC Countries
The above analyses raise some interesting questions. For instance, what are the factors behind the rapid growth of this cluster? How has China achieved almost double the growth of the other countries? Why is India still ranked last in NICI40, even though its economic achievement has been widely acknowledged? These issues comprise an interesting area for further study.
Three-Period Progression of National Intellectual Capital Development As stated in the previous chapters, sections “National Intellectual Capital of Each Individual Country” and “Comparison of Capital Components of the Four BRIC Countries” presented the results of data analysis for a total of 14 years, spanning from 1995 to 2008. However, the results are somewhat limited in nature, with comparisons focusing on the initial year (1995) and the concluding year (2008) of each form of capital in each country. To get a more complete picture of the dynamics of the capital development over the 14 years, we developed Table 14.2, which assesses the changes of capital rankings in three periods (the first and second periods each consist of 5 years and the third period consists of 4 years), namely, 1995–1999 is the first period, 2000–2004 is the second period, and 2005–2008 is the third period. This division of Table 14.2 into periods makes it easier to visualize the development and perhaps even the future trends of the five types of capital for each country. We employ the sequence of human capital, market capital, process capital, renewal capital, financial capital, and overall IC. The second column in Table 14.2 exhibits the overall ranking difference between the first period and the third period. The third column is the ranking of the first period, and the fourth and the fifth columns display respective rankings and differences with regard to the previous period. The last column compares the most recent third period ranking with the overall NICI40 ranking. Over the entire course of the three periods, Brazil increased its ranking in renewal capital (3), yet decreased in market capital (−3), process capital (−4), and financial capital (−1). In addition, it showed no change in human capital (0) and overall IC (0). China increased its ranking in human capital (4), market capital (4), process capital (3), financial capital (1), and overall IC (4), yet decreased in renewal capital (−4). India increased its ranking in market capital (19), process capital (2), renewal capital (4), and overall IC (2). In addition, it showed no change in human capital (0) and financial capital (0). Russia increased its ranking in market capital (2), process capital (5), financial capital (6), and overall IC (2); yet decreased in human capital (−2) and renewal capital (−4). Furthermore, in comparing the ranking of the most recent third period with the 14-year NICI40 ranking reported in the abstract, Brazil showed no change (#37), China advanced one rank (from #36 to #35), India advanced two ranks (from #40 to #38), and Russia had no ranking change (#32).
3 −4 4 −4
−1 1
Financial capital Brazil China
34 39
37 26 35 21 35 38
35 28 33 22
37 32 34 39
−1 1
2 −2 2 −1
−2 4 4 1
35 38
34 30 31 25
39 33 36 35
Renewal capital Brazil China India Russia
35 36 38 40
0 0
1 −2 2 −3
−2 −1 −2 4
−3 1 12 0
35 38
35 27 34 22
38 33 36 39
33 25 30 38
−4 3 2 5
0 3 7 2
Process capital Brazil China India Russia
31 25 30 38
34 24 18 38
31 28 37 40
−3 4 19 2
Market capital Brazil China India Russia
(continued)
0 0
1 −3 3 −3
−1 0 0 4
−1 1 12 0
0 4 0 0
37 39 40 30
37 35 40 30
1 5 −1 0
3rd period ranking vs. overall NICI40 ranking NICI40 ranking Difference
3rd period (2005–2008) Ranking Difference
Table 14.2 Changes in intellectual capital rankings over the three periods 1st period 1st to 3rd period (1995–1999) 2nd period (2000–2004) Difference (1) Ranking Ranking Difference Human capital Brazil 0 37 38 −1 China 4 39 40 −1 India 0 40 39 1 Russia −2 28 30 −2
Three-Period Progression of National Intellectual Capital Development 273
1st period (1995–1999) Ranking 2nd period (2000–2004) Ranking Difference
40 34
0 5
3rd period ranking vs. overall NICI40 ranking NICI40 ranking Difference
−1 37 0 2 36 1 1 40 2 0 32 0 last column compares the most current 3rd period
0 3
3rd period (2005–2008) Ranking Difference
India 0 40 40 0 40 Russia 6 35 32 3 29 Overall IC Brazil 0 37 36 1 37 China 4 39 37 2 35 India 2 40 39 1 38 Russia 2 34 32 2 32 Remarks: (1) The second column compares the 3rd period ranking with the 1st period ranking. (2) The ranking with the original 14-year NICI40 ranking summarized in the abstract
1st to 3rd period Difference (1)
Table 14.2 (continued)
274 14 National Intellectual Capital of the Four BRIC Countries
General Descriptive Information on the Four BRIC Countries
275
In general, China and India made the most apparent national intellectual capital progress in this cluster over the three time periods, followed by Russia. Brazil experienced more ranking decreases than increases in the course of the three time periods.
General Descriptive Information on the Four BRIC Countries The above four sections basically present results based on statistical analyses of IMD secondary data spanning from 1995 to 2008. To complement the quantitative data analyses, this section provides some background information for each country that may help explain the results of this study as well as cast further light for future studies devoted to the intellectual capital development of the four BRIC countries. Due to the magnitude of relevant information, this study does not intend nor does it have the resources to provide in-depth country background descriptions in great detail. As a result, what we are presenting hereunder is a summary of information closely related to intellectual capital and available from public sources, including some objective indicators published by various world organizations (e.g., the United Nations’ Human Development Index), web information from http://en. wikipedia.org/wiki, and relevant articles posted on the Internet. Although different indicators cover different dimensions (e.g., the Human Development Index also covers health/life expectancy and purchasing power; PISA covers only students’ performances) and do not have an equal comparison basis, they still provide valuable information on individual nations as exhibited in Table 14.3. In addition to the statistics presented in Table 14.3 derived from 16 different sources, we summarize some qualitative information for each country with respect to human capital, market capital, process capital, renewal capital, financial capital, and future perspective in that sequence. Ranking under country name is the overall ranking of each respective capital reported in the abstract. We also include the observations that incorporate the 14-year data analysis and the relevant current indicators reported in Table 14.3. Inevitably, the summaries presented in Tables 14.4–14.9 are susceptive to subjectivity due to information availability; nevertheless, the information provided is meant to show different avenues for observing intellectual capital development. Readers are encouraged to expand their own interpretation from various information sources and different angles. To highlight the future perspectives of each country, the last four indicators of Table 14.3 have been provided for readers’ reference – World Competitiveness by the IMD, Global Competitiveness by the World Economic Forum, the Environmental Sustainability Index by Yale University, and the Environmental Performance Index by Yale University. We summarize hereunder some information that may be relevant to the intellectual development of each country.
4. PISA science (#/score) 50/390 – – 33/479 PISA math. (#/score) 53/370 – – 32/476
PISA reading (#/score) 46/393 – – 37/440 5. Broad band/ population (%) 5.2 6.2 0.4 2.8 HC (#) 37 39 40 30
6. Globalization (#) 67 66 71 62
MC (#) 33 25 30 38
9. Internet 14. Global 13. World 10. Mobile usership/ 7. Quality competitiveness competitiveness 15. ESI telephone 11. R&D 12. Innovation of life 8. e-Readiness population 16.EPI (#/score) (#/score) (#) (#/score) PC # (#/%) score RC # (%) (#/score) (#/score) (#/score) Brazil 44/4.8 42/5.65 34 81/77.6 38 31/1.1 – 35 40 56/4.23 11/62.2 35/82.7 China 43/4.84 56/4.85 25.3 104/47.4 33 23/1.49 – 27 20 29/4.74 133/38.6 105/65.1 India 37/5.51 54/4.96 7 116/29.2 36 38/0.75 – 34 30 49/4.3 101/45.2 120/60.3 Russia 54/2.94 59/4.42 27.1 14/132.2 39 30/1.12 – 22 49 63/4.15 33/56.1 28/83.9 Remark: “#” refers to ranking among respective members, and the numbers are the most current data available in 2009. Please refer to the reference section for a list of the sources of these 16 indicators
Table 14.3 National intellectual capital-related indicators and ranking 2. Education GDP per capita Overall IC (PPP) growth 1. Population expenditures (#/%) 3. HDI 2008/1995 (000) ranking Brazil 37 60% 198,739 30/4.5 70 China 36 294% 1,338,613 53/2.9 94 India 40 155% 1,166,079 50/3.1 132 Russia 32 148% 140,041 38/4.1 73
(continued)
Table 14.4 Background information on human capital for the BRIC countries Country Human capital Observations Brazil HC40#37 UN Human Development Index ranking: #70 out of 179 (2008) From Table 14.3, Brazil spent 4.5% of its GDP on education and students’ PISA performance ranked 50/53/46 for Broadband internet subscribers – 5.2% (2009 est.) science, math, and reading, respectively, out of 57 Labor force – 100.9 million (2008 est.) countries. Brazil is ranked HC40#37 with an 11 percentileUnemployment – 8.1% (2009 est.) point improvement over the studied 14 years and without The literacy rate is 88.6% of the population (United Nations any rank change from the 1st to the 3rd period (refer to Development Programme Report 2007/2008, p. 226) Table 14.2). Although taxes are reserved for education, the The new constitution reserves 25% of state and municipal taxes and effectiveness of Brazil’s human resource development needs 18% of federal taxes for education to be re-examined with low human capital. In addition, its broadband internet subscriber rate of 5.2% is the lowest in this cluster China HC40#39 UN Human Development Index ranking: #94 out of 179 (2008) From Table 14.3, China spent 2.9% of its GDP on education (the lowest in this cluster) and is ranked HC40#39 with a 15 Broadband internet subscribers – 6.2% (2009 est.) percentile-point improvement over the 14 years and advanced Labor force – 807.7 million (2008 est.) 4 ranks from the 1st to the 3rd period (refer to Table 14.2). Unemployment – 9% (2009 est.) With China’s huge population, developing its human resources is a challenging task India HC40#40 UN Human Development Index ranking: #132 out of 179 (2008) From Table 14.3, India spent 3.1% of its GDP on education and is ranked the lowest HC40#40 with a 6 percentile-point Broadband internet subscribers – 0.4% (data up to 2007) improvement over the 14 years and without any rank change Labor force – 523.5 million (2008 est.) from the 1st to the 3rd period (refer to Table 14.2). India Unemployment – 7.2% (2009 est.) also has a huge population; yet, the nation should be able to 60% of India’s labor force is employed in agriculture and related capitalize on its well-educated, young population and create a industries higher level of human capital in the future More recently, India has capitalized on its large pool of educated, India’s broadband internet subscriber rate of 0.4% is very low, English-speaking population to become an important outsourcing which may hamper efficient knowledge acquirement in the destination for multinational corporations. In addition, India has rapidly changing world become one of the most important high-tech hubs in the world
General Descriptive Information on the Four BRIC Countries 277
Russia HC40#30
UN Human Development Index ranking: #73 out of 179 (2008) Broadband internet subscribers – 2.8% (data up to 2007) Labor force – 75.7 million (2008 est.) Unemployment – 9.9% (2009 est.) Russia has more higher education graduates than any other country in Europe Russia’s free, widespread, and in-depth educational system, inherited with almost no changes from the Soviet Union, has produced a 100% literacy rate, with 97% of Russian children receiving their compulsory 9-year basic or complete 11-year education in Russia
Table 14.4 (continued) Country Human capital
From Table 14.3, Russia spent 4.1% of its GDP on education and students’ PISA performance ranked 33/32/37 for science, math, and reading, respectively, out of 57 countries. It is ranked HC40#30 (the highest in this cluster), with a 12 percentile-point improvement over the 14 years, yet declined 2 ranks from the 1st to the 3rd period (refer to Table 14.2) The human resources of Russia used to be well educated. Its broadband internet subscriber rate of 2.8% is relatively low
Observations
278 14 National Intellectual Capital of the Four BRIC Countries
Russia MC40#38
Exports – $476 billion (2008 est.), imports – $302 billion f.o.b. (2008 est.) Fuel and energy comprise about 42% of Russian exports Russia’s economy has adapted relatively quickly from the world’s largest centrally planned economy to a market economy and is the world’s leading natural gas exporter and the second leading oil exporter
Table 14.5 Background information on market capital for the BRIC countries Country Market capital Brazil MC40#33 Exports – $200 billion f.o.b. (2008 est.), imports – $176 billion f.o.b. (2008 est.) Brazil has aimed to strengthen ties with other South American countries, and engage in multilateral diplomacy through the United Nations and the Organization of American States China MC40#25 Exports – $1.465 trillion f.o.b. (2008 est.), imports – $1.156 trillion f.o.b. (2008 est.) At the end of 2004, China became the world’s third largest trading nation behind the USA and Germany. Of the 5 busiest ports in the world, 3 are in China India MC40#30 Exports – $175.7 billion f.o.b. (2008 est.), imports – $287.5 billion f.o.b. (2008 est.) Since 1991, India has gradually opened up its markets through economic reforms and reduced government controls on foreign trade and investment India has also become a major exporter of software as well as financial, research, and technological services
Observations Brazil is ranked #67 out of 72 countries in the Globalization Index. It is ranked MC40#33 with a decline of 4 percentile points over the 14 years and declined 3 ranks from the 1st to the 3rd period (refer to Table 14.2) China is ranked #66 out of 72 countries in the Globalization Index (refer to Table 14.3). It is ranked MC40#25 with a decline of 6 percentile points over the 14 years, yet advanced 4 ranks from the 1st to the 3rd period (refer to Table 14.2) India is ranked #71 out of 72 countries in the Globalization Index (refer to Table 14.3). It is ranked MC40#30 with a 12 percentile-point improvement over the 14 years (the greatest in this cluster) and advanced 19 ranks from the 1st to the 3rd period (refer to Table 14.2). India has the most outstanding performance in market capital among the five capital components Russia is ranked #62 out of 72 countries in the Globalization Index (refer to Table 14.3). It is ranked MC40#38 with a decline of 2 percentile points over the 14 years, yet advanced 2 ranks from the 1st to the 3rd period (refer to Table 14.2)
General Descriptive Information on the Four BRIC Countries 279
Russia PC40#39
India PC40#36
China PC40#33
Internet usership – 25.3% of the population (2009 est.) The information technology, real estate, and automobile industries have become engines of China’s economic growth, and the updating of its industrial structures will be accelerated Internet usership – 7% of the population (2009 est.) In India, the growth rate of the service sector was 11.18% in 2007 and now contributes 53% of its GDP. The industrial sector grew 10.63% in the same period and is now 29% of GDP. Agriculture makes up 17% of the Indian economy The storage and communication sector also registered a significant growth rate of 16.64% in 2007 Internet usership – 27.1% of the population (2009 est.) Russia’s short-term policy emphasis continues to be warranted for social assistance, infrastructure, and its small- and medium-sized enterprises
Table 14.6 Background information on process capital for the BRIC countries Country Process Capital Brazil PC40#38 Internet usership – 34% of the population (2009 est.) Brazilian information technology is comparable in quality and positioning to those of India and China Brazil is a large regional oil and gas producer and the world’s largest ethanol fuel producer and has been described as a bio-energy superpower Brazil has the world’s largest hydroelectric power plant
Based on Table 14.3, Russia’s rankings for quality of life, e-readiness, and mobile telephone subscribers are #54 out of 57, #59 out of 70, and #14 out of 133, respectively. It is ranked PC40#39 with a 19 percentile-point improvement over 14 years and advanced 5 ranks from the 1st to the 3rd period (refer to Table 14.2)
Observations Based on Table 14.3, Brazil’s rankings for quality of life, e-readiness, and mobile telephone subscribers are #44 out of 57, #42 out of 70, and #81 out of 133, respectively. It is ranked PC40#38 with an 11 percentile-point improvement over 14 years; yet declined 4 ranks from the 1st to the 3rd period (refer to Table 14.2). Brazil owns very good energy resources to support its infrastructure building, yet these resources have not created a high level of process capital for Brazil Based on Table 14.3, China’s rankings for quality of life, e-readiness, and mobile telephone subscribers are #43 out of 57, #56 out of 70, and #104 out of 133, respectively. It is ranked PC40#33 with an 8 percentile-point improvement over 14 years and advanced 3 ranks from the 1st to the 3rd period (refer to Table 14.2) Based on Table 14.3, India’s rankings for quality of life, e-readiness, and mobile telephone subscribers are #37 out of 57, #54 out of 70, and #116 out of 133, respectively. It is ranked PC40#36 with a 3 percentile-point improvement over 14 years and advanced 2 ranks from the 1st to the 3rd period (refer to Table 14.2)
280 14 National Intellectual Capital of the Four BRIC Countries
Table 14.7 Background information on renewal capital for BRIC countries Country Renewal capital Brazil RC40#35 Besides public universities and research institutes, investment in R&D has been growing in private universities and companies since the 1990s Brazil has the most advanced space program in Latin America, with significant capabilities to manufacture launch vehicles, launch sites, and satellites Uranium is enriched at the Resende Nuclear Fuel Factory to fuel the country’s energy demands. Plans are on the way to build the country’s first nuclear submarine Brazil has an operational Synchrotron Laboratory, a research facility for physics, chemistry, material science, and life sciences China RC40#27 Between 1997 and 2002, national and local governmental spending on research in China doubled, to approximately $9.9 billion. On top of that, multinational corporations have been racing to set up research centers in the country, and China’s own industrial titans are also plunging into R&D, realizing they have to have their own technology to compete in global markets China has become the world’s third largest investor in R&D, after the USA and Japan, when measured in purchasing-power parity dollars, according to the US National Science Foundation India RC40#34 India encourages R&D partnerships and joint ventures with US pharmaceutical firms Eli Lilly plans to establish a $20 million global clinical research center; Pfizer is conducting biometric analysis in India; and Novartis plans to establish a global clinical research center in Mumbai India’s information technology and computer companies in Bangalore have been referred to as the world’s second Silicon Valley
(continued)
India invested 0.75% of its GDP (the lowest in this cluster) in R&D (2008). It is ranked RC40#34 with a 9 percentile-point improvement over the 14 years and advanced 4 ranks from the 1st to the 3rd period (refer to Table 14.2). As described in the column at left, India should have good support for developing renewal capital
China invested 1.49% of its GDP (the highest in this cluster) in R&D (2008). It is ranked RC40#27 with a 3 percentile-point improvement over the 14 years; yet declined 4 ranks from the 1st to the 3rd period (refer to Table 14.2)
Observations Brazil invested 1.1% of its GDP in R&D (2008). It is ranked RC40#35 with an 8 percentilepoint improvement over the 14 years and advanced 3 ranks from the 1st to the 3rd period (refer to Table 14.2). Brazil has quite good resources for developing renewal capital, yet its #35 ranking demands much improvement
General Descriptive Information on the Four BRIC Countries 281
Observations
Russia RC40#22
Russian researchers and scientists developed one of the first versions of an Russia invested 1.12% of its GDP in R&D (2008). electronic computer It is ranked RC40#22, with a decline of 6 percentile points over the 14 years and declined Currently, Russia continues to produce new inventions in emerging high4 ranks from the 1st to the 3rd period (refer to technology areas such as navigation, space exploration, aviation, thin-film, Table 14.2). From the description in the column laser optics, bio-technology, manufacturing of crystals and advanced materials, at left, Russia has very good R&D support and information technology More than two million people work in over 4,500 R&D centers throughout Russia, of which at least one million are researchers and scientists, which is far more than in any other country in the world Remark: Countries in this cluster are not included in the European innovation scoreboard rankings
Table 14.7 (continued) Country Renewal capital
282 14 National Intellectual Capital of the Four BRIC Countries
Table 14.8 Background information on financial capital for BRIC countries Country Financial capital Brazil FC40#35 GDP per capita (PPP) – US$10,326 (IMF 2009 report) GDP growth – 5.2% in 2008, 5.4% in 2007, and 4% in 2006 China FC40#38 GDP per capita (PPP) – US$5,963 (IMF 2009 report) GDP growth – 9.8% in 2008, 13% in 2007, and 11.6% in 2006 In China, GDP per capita grew a paltry 17% in the 1960s, rising to 70% in the 1970s, and China surged ahead of India in registering a remarkable growth of 63% in the turbulent 1980s, finally reaching a peak growth of 175% in the 1990s India FC40#40 GDP per capita (PPP) – US$2,762 (IMF 2009 report) Foreign exchange reserves have risen from US$5.8 billion in March 1991 to US$208 billion in June 2007 GDP growth – 6.6% in 2008, 9% in 2007, and 9.6% in 2006 Russia FC40#34 GDP per capita (PPP) – US$15,922 (IMF 2009 report) GDP growth – 6% in 2008, 8.1% in 2007, and 7.7% in 2006
India was ranked #129 in GDP per capita (PPP) in 2008 Its GDP growth rate (1995 vs. 2008) was 155% The Indian economy is among the fastest growing in the world Russia was ranked #52 in GDP per capita (PPP) in 2008 Its GDP growth rate (1995 vs. 2008) was 148%
Observations Brazil was ranked #77 in GDP per capita (PPP) in 2008 Its GDP growth rate (1995 vs. 2008) was 60% China was ranked #100 in GDP per capita (PPP) in 2008 Its GDP growth rate (1995 vs. 2008) was 294%
General Descriptive Information on the Four BRIC Countries 283
284
14 National Intellectual Capital of the Four BRIC Countries
Table 14.9 Background information on future perspectives for the BRIC countries Country Brazil IMD World Competitiveness ranking: #40 out of 57 countries (2009) World Economic Forum global competitiveness: #56 out of 133 (2009–2010) Environmental Sustainability Index (ESI) – #11 out of 149 (2005, a project-based ranking conducted in 2005) Environmental Performance Index (EPI) – #35 out of 149 (2008) Brazil has been unable to translate its recent economic achievements into social development. Poverty, urban violence, growing social security debts, inefficient public services, and the low value of its minimum wage are some of the main social issues that currently challenge the Brazilian government. The rate of poverty is in part attributed to the country’s economic inequality GDP (PPP) per hour worked (2007) – 6.82 China IMD World Competitiveness ranking: #20 out of 57 countries (2009) World Economic Forum global competitiveness: #29 out of 133 (2009–2010) Environmental Sustainability Index (ESI) – #133 out of 149 (2005, a project-based ranking conducted in 2005) Environmental Performance Index (EPI) – #105 out of 149 (2008) With WTO accession, China’s economy is supported by a global market instead of only its domestic one. This means blurred division between domestic and overseas markets in future competition, and related policy-making and regulations must take into consideration the situations both at home and abroad, as well as the opportunities and pressures from both sides The nation has shifted from seeking only GDP growth to increasing wealth and optimizing economic performance, and, based on this, attaining sound, effective, and balanced development GDP (PPP) per hour worked (2007) – no data India IMD World Competitiveness ranking: #30 out of 57 countries (2009) World Economic Forum global competitiveness: #49 out of 133 (2009–2010) Environmental Sustainability Index (ESI) – #101 out of 149 (2005, a project-based ranking conducted in 2005) Environmental Performance Index (EPI) – #120 out of 149 (2008) The Indian economy has grown steadily over the last two decades; however, its growth has been uneven when comparing different social groups, economic groups, geographic regions, and rural and urban areas Despite significant economic progress, a quarter of the nation’s population earns less than the government-specified poverty threshold amount of $0.40/day. In addition, India has a higher rate of malnutrition among children under the age of three (46% in year 2007) than any other country in the world GDP (PPP) per hour worked (2007) – no data IMD World Competitiveness ranking: #49 out of 57 countries (2009) Russia World Economic Forum global competitiveness: #63 out of 133 (2009–2010) Environmental Sustainability Index (ESI) – #33 out of 149 (2005, a project-based ranking conducted in 2005) Environmental Performance Index (EPI) – #28 out of 149 (2008) With a more constrained financing environment for the government and the private sector, Russia should accelerate structural reforms aimed at raising productivity and improving diversification and competitiveness The Russian Fuel and Energy Ministry notes that almost 5% of the crude oil produced in Russia is lost through pipeline leaks. The organization in charge lacks the funding to repair or upgrade many of these malfunctioning pipelines GDP (PPP) per hour worked (2007) – no data
Summary
285
Summary Ever since Goldman Sachs published its report, BRIC countries have maintained their hold on the world’s attention. Sachs predicts China and India, respectively, to be the dominant global suppliers of manufactured goods and services while Brazil and Russia are to become similarly dominant as suppliers of raw materials (http:// en.wikipedia.org/wiki/BRIC). The four BRIC countries are ranked in the last quarter of NICI40 – 32nd, 36th, 37th, and 40th. Considering their general low GDP per capita, they invest a relatively high percentage of GDP in education, ranging from 2.9 (China) to 4.5% (Brazil); their broadband population is very low, ranging from 0.4 to 5.2%; they have middle-level e-readiness, ranging from ranking #42 to #59 out of 70 countries; and their R&D investment of GDP is low, ranging from 0.75 to 1.49%. In summary, the BRIC governments all initiated economic or political reforms to allow their countries to enter the world economy. To build up their competitiveness, these countries have simultaneously stressed education, foreign investment, domestic consumption, and entrepreneurship. However, the BRIC countries have enormous populations of extremely impoverished people, which may impede their progress by limiting government finances and limiting potential domestic economic demand. Factors such as international conflicts, civil unrest, unwise political policies, outbreaks of diseases, and terrorism are also factors that are difficult to predict. Although promising, the economic emergence of the BRICs will have unpredictable consequences for the global environment. We now return to the questions posed in the early part of this paper: What are the hidden reasons of BRICs upsurge? Does their development of the last decade provide any clues? In addition to their abundant natural resources, do intangible resources also contribute to their recent economic achievements? Can their intangible assets help create and sustain their competitiveness? Based on this set of panel data and the background information, it is pretty clear that the steady growth of human capital and government-guided transformation have served to increase the accumulation of market capital, which has contributed to their economic development. Even though China and India have become the dominant global suppliers of manufactured goods and services, and Brazil and Russia are the dominant suppliers of raw materials, these values need to be generated by intangibles, such as qualified people, sound infrastructures, and innovative systems. In other words, without the development of national intellectual capital components reported in this book, the contributions of the BRIC countries would not be able to benefit the world in the future. This set of data showed that although slow, with the incubation of about a decade, both their renewal capital and financial capital began to soar from 2004. From the perspective of intellectual capital, several implications can be derived for the policy makers in BRIC countries. First, more investment should be made in human capital accumulation, as it is the very basis of other intangible assets. Second, priority should be placed on improving process capital at the present stage; for without a good national infrastructure, market capital and renewal capital accumulation will be impeded. Third, renewal capital seems to explain the increase of
286
14 National Intellectual Capital of the Four BRIC Countries
financial capital from the period beginning in 2004. Some government-sponsored incentives can be designed to promote innovation and future earning capabilities. As continued future development of the BRIC countries can be anticipated, their major challenge may lie on how to transform their huge populations to become the very source of competitiveness rather than a heavy burden. The BRIC countries have earned great renown for their recent emergence. However, some problems still ail these countries. For example, Brazil’s economic potential has been anticipated for decades, but it has so far consistently failed to achieve investor expectations (http://en.wikipedia.org/wiki/Brazil). Operations in China which rely on cheap labor are contemplating relocations to cities in the interior or to countries such as Vietnam or Bangladesh (http://en.wikipedia.org/wiki/ China). In India, a quarter of the nation’s population earns less than the government-specified poverty threshold of US$0.40/day (http://en.wikipedia.org/wiki/ India). Russia’s aging industrial base faces a serious decline (http://en.wikipedia. org/wiki/Russia). Although the factors of social inequality, large population, large territory, and weak infrastructure may hamper their growth, various tables presented in this chapter provide some guidelines for the countries to pursue improvement. For instance, Brazil should work harder in improving process capital and renewal capital, China needs to enhance its renewal capital, India can put greater effort in upgrading its human capital, process capital, and renewal capital, and Russia should address the question of why its market capital and process capital have lagged behind.
Chapter 15
National Intellectual Capital Development: Trajectory from a Poor to a Fast Growth Country
Abstract This chapter reports the five fastest growth and the five poorest countries with China and India overlapping for a total of eight countries. The growth rate of the five fastest growth countries in descending order is China 294%, India 155%, Russia 148%, Ireland 141%, and Poland 141%, in comparing their GDP per capita (PPP) from 1995 to 2008. The 14 years mean GDP per capita (PPP) of the five poorest countries in ascending order is India US$1,708, Philippines US$2,582, China US$3,139, Thailand US$5,858, and South Africa US$7,387. National intellectual capital ranking of the five fastest growth and five poorest countries Financial capital
Overall intellectual capital
8.17 0.88
24.26 4.02
Human capital
Market capital
Renewal Process capital capital
Mean SD
4.99 0.82
5.12 1.01
3.83 1.18
Country Ireland Poland Russia China India Philippines South Africa
Score 6.42 5.61 5.30 4.18 3.79 4.85 4.71
Ranking 17 26 30 39 40 34 36
Score 7.21 4.04 4.07 5.27 4.91 4.93 4.84
Ranking 2 39 38 25 30 29 31
Score 6.58 3.23 2.85 3.49 3.22 3.25 4.02
Ranking 11 35 39 33 36 34 30
Score 3.87 1.95 2.87 2.12 1.78 1.47 1.84
Ranking 20 30 22 27 34 37 32
Score 9.70 8.77 8.57 7.49 6.96 7.38 8.37
Ranking 7 28 34 38 40 39 36
Score 33.77 23.59 23.65 22.55 20.67 21.88 23.79
Thailand
5.02
32
5.68
20
3.96
31
1.36
39
8.15
37
24.16 30
2.16 0.83
Ranking 13 33 32 36 40 39 31
Introduction Striving for improvement is every nation’s concern, whether well-developed or developing. The former mainly focuses on enhancing and sustaining national competitiveness; the latter tries to provide their citizens with a better life on the economic, social, and health levels. The dismal conditions in some developing
C.Y.-Y. Lin and L. Edvinsson, National Intellectual Capital: A Comparison of 40 Countries, 287 DOI 10.1007/978-1-4419-7377-1_15, © Springer Science+Business Media, LLC 2011
288
15 National Intellectual Capital Development
countries explain the World Bank’s call for the elimination of poverty and sustained development through its Millennium Development Goals (http://web.worldbank. org). The United Nations has a similar vision, as two of its millennium goals are to eradicate extreme poverty and hunger, and to achieve universal primary education to increase social and economic progress and improve living standards (http://www. un.org/millenniumgoals/). Since reducing poverty takes on a high priority, from an intangible intellectual capital perspective, this chapter attempts to uncover a trajectory of how the poorest countries advance to the fastest growth countries with the assumption that growth will create wealth for the nation, as the examples of China and India demonstrate. To identify the cluster of the five poorest countries, we compare the mean GDP per capita (PPP) in real dollar values of 14 years, spanning 1995–2008, based on IMF (International Monetary Fund) data from April 2009. It turns out that the five poorest countries are India, Philippines, China, Thailand, and South Africa in ascending order. The financial capital ranking sequence as reported in the abstract of this chapter is in the same order. To determine the five fastest growth countries, we calculated the growth rate based on the following formula: (2008–1995)/1995 GDP per capita (PPP) in real dollar values. Consequently, China had the most rapid growth with a rate of 2.94, followed by India, Russia, Ireland, and Poland with the rate of 1.55/1.48/1.41/1.41, respectively. Table 15.1 summarizes the characteristics of these countries. In what follows, we first present the national intellectual capital comparison of the five poorest countries, then the five fastest growth countries, followed by the comparison of the poorest and fastest growth countries, and finally the trajectory from a poor to a fast growth country.
National Intellectual Capital of the Five Poorest Countries Figures 15.1–15.5 graphically present the trend of this country cluster in terms of human capital, market capital, process capital, renewal capital, and financial capital. Figure 15.1 shows that China had made the most progress in human capital with an increase of about 15 percentile points, followed by Thailand, South Africa, Table 15.1 Growth rate of the five fastest growth countries and the mean GDP per capita (PPP) of the five poorest countries Fast growth Growth rate: (2008–1995)/1995 Mean GDP per capita countries GDP per capita (PPP) Poor countries (PPP) from 1995 to 2008 China 2.94 (294%) India US$1,708 India 1.55 (155%) Philippines US$2,582 Russia 1.48 (148%) China US$3,139 Ireland 1.41 (141%) Thailand US$5,858 Poland 1.41 (141%) South Africa US$7,387
National Intellectual Capital of the Five Poorest Countries India Human Capital
289
10
8
Philippines Human Capital
6
China Human Capital
4
Thailand Human Capital
2 South Africa Human Capital 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
India Human Capital
3.298 3.338 3.160 3.918 3.849 4.149 3.912 3.836 4.065 3.903 3.971 4.014 3.796 3.878
Philippines Human Capital
4.524 4.397 4.294 5.119 4.952 5.215 5.206 5.112 4.940 4.976 4.603 4.729 4.871 4.915
China Human Capital
3.383 3.667 3.619 4.177 4.383 3.825 3.704 3.921 4.189 4.158 4.931 5.044 4.664 4.857
Thailand Human Capital
3.965 4.386 4.368 5.570 5.844 5.205 4.978 5.028 5.021 4.958 5.145 5.078 5.372 5.375
South Africa Human Capital
3.852 4.127 4.018 4.866 5.184 5.264 5.301 4.962 4.938 4.779 4.548 4.392 4.418 5.303
Fig. 15.1 Comparison of human capital in the five poorest countries
India Market Capital
Philippines Market Capital
10
8
6 China Market Capital 4 Thailand Market Capital 2 South Africa Market Capital 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
India Market Capital
4.203 4.005 4.471 4.301 4.817 4.527 4.481 4.533 5.489 5.443 5.718 5.582 5.780 5.375
Philippines Market Capital
5.261 5.806 5.748 5.697 4.865 4.632 4.857 4.556 4.783 4.935 4.844 4.340 4.616 4.046
China Market Capital
5.441 5.447 5.047 5.417 5.199 4.990 5.158 5.290 5.453 5.233 5.627 5.784 4.848 4.809
Thailand Market Capital
5.551 5.656 5.302 5.721 5.717 5.165 5.688 6.073 6.358 6.211 5.818 5.208 5.544 5.478
South Africa Market Capital
4.782 4.687 4.668 4.451 4.709 4.508 4.824 4.938 5.287 5.219 5.414 4.963 4.463 4.882
Fig. 15.2 Comparison of market capital in the five poorest countries
India, and the Philippines of 14/14/6/4 percentile points, respectively. In general, India has the lowest human capital score and the Philippines shows the least human capital improvement over the 14 years. In general, the human capital of this cluster moves from an initial range of 30–45th percentiles to 40–55th percentiles in 2008.
290
15 National Intellectual Capital Development India Process Capital
10
8 Philippines Process Capital 6 China Process Capital Thailand Process Capital South Africa Process Capital
4
2
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
India Process Capital
3.079 2.557 3.153 3.016 3.071 3.131 3.126 3.160 3.524 3.371 3.633 3.544 3.327 3.444
Philippines Process Capital
3.517 3.271 3.353 3.364 3.466 3.202 3.150 3.355 3.069 2.988 3.303 3.017 3.317 3.107
China Process Capital
2.412 2.550 3.187 3.530 3.571 3.657 3.670 3.792 3.624 3.567 4.055 4.154 3.934 3.192
Thailand Process Capital
3.267 3.476 3.051 3.360 3.702 3.675 4.155 4.616 4.480 4.510 4.379 3.789 4.181 4.754
South Africa Process Capital 3.100 3.224 3.665 3.658 4.144 4.150 4.248 4.279 4.212 4.058 4.416 4.468 4.237 4.479
Fig. 15.3 Comparison of process capital in the five poorest countries
India Renewal Capital
10
Philippines Renewal Capital
8
6 China Renewal Capital 4 Thailand Renewal Capital 2 South Africa Renewal Capital
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
India Renewal Capital
1.26 1.53 1.42 1.69 1.65 1.53 1.46 1.71 1.86 2.18 2.23 2.04 2.08 2.20
Philippines Renewal Capital
1.96 1.86 1.38 1.65 1.47 1.52 1.40 1.34 1.07 1.51 1.28 1.35 1.43 1.36
China Renewal Capital
1.83 2.20 2.38 2.32 2.23 1.95 1.90 1.92 2.15 2.03 2.21 2.18 2.24 2.09
Thailand Renewal Capital
1.23 1.39 1.13 1.29 1.44 1.14 1.23 1.44 1.46 1.38 1.52 1.37 1.50 1.48
South Africa Renewal Capital
1.91 2.09 1.92 2.10 1.96 1.85 1.76 1.75 1.83 1.75 1.75 1.62 1.67 1.81
Fig. 15.4 Comparison of renewal capital in the five poorest countries
Figure 15.2 shows that India had the greatest improvement in market capital with an increase of about 12 percentile points, followed by South Africa of one percentile point. The Philippines, China, and Thailand experienced a decrease in market capital of about 13, 6, and 1 percentile points, respectively. In general, the market capital of this cluster kept in a range between the 40th and 55th percentiles over
National Intellectual Capital of the Five Poorest Countries India Financial Capital
291
10
Philippines Financial Capital
8
6 China Financial Capital 4 Thailand Financial Capital South Africa Financial Capital
2
0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
India Financial Capital
6.75 6.78 6.78 6.81 6.85 6.88 6.90 6.92 6.97 7.03 7.09 7.16 7.22 7.27
Philippines Financial Capital
7.34 7.34 7.34 7.30 7.31 7.33 7.32 7.34 7.37 7.39 7.41 7.44 7.48 7.50
China Financial Capital
7.08 7.13 7.18 7.23 7.29 7.35 7.41 7.49 7.57 7.64 7.71 7.81 7.91 7.98
Thailand Financial Capital
8.17 8.19 8.13 8.00 8.02 8.04 8.05 8.09 8.14 8.17 8.20 8.24 8.26 8.28
South Africa Financial Capital
8.36 8.35 8.32 8.30 8.30 8.31 8.31 8.33 8.35 8.37 8.40 8.43 8.46 8.47
Fig. 15.5 Comparison of financial capital in the five poorest countries
the 14 years with little fluctuation. Initially, India was the worst performer; yet in 2008, the Philippines earned the lowest score while India’s performance advanced to the second best. Figure 15.3 shows that Thailand had the greatest improvement in process capital with an increase of about 15 percentile points, followed by South Africa, China, and India of 14, 8, and 3 percentile points, respectively. The Philippines suffered a decrease in market capital of about four percentile points over the 14 years. In general, the process capital of this cluster ranged from the initial 25–35th percentiles to the 30–50th percentiles in 2008. Figure 15.4 shows that India experienced the greatest improvement in renewal capital with an increase of about nine percentile points, followed by both China and Thailand of three percentile points. The Philippines and South Africa show a decrease in renewal capital of about six percentile points and one percentile point, respectively, over the 14 years. In general, the renewal capital of this cluster did not undergo too much change, moving from the initial 13–20th percentiles to the 14–22nd percentiles in 2008. Yet, the Philippines declined from the initial best performer to the worst performer in 2008. The selection of the five poorest countries was based on the GDP per capita (PPP) in real dollar value, but this does not reveal the trend of their development over the 14 years. Therefore, Fig. 15.5 is still presented to highlight the changes. Figure 15.5 shows that China had the greatest financial capital increase (on a 1–10 scale) of about nine percentile points over the 14 years, followed by India and the Philippines of five and two percentile points, respectively. Thailand and South Africa show only a slight increase in financial capital of one percentile point.
292
15 National Intellectual Capital Development
In general, from 1995 to 2008, with the exceptions of China and India (also the fastest growth countries), the other three countries – the Philippines, Thailand, and South Africa – experienced little progress. From Figs. 15.1 to 15.5, basically the five types of component capital of the five countries tend to cluster together without much variation. The graphs indicate the intellectual capital characteristics of the poorest countries. The most apparent warning presented is the Philippines’ decline in market capital, process capital, and renewal capital over the 14 years, which may result in its becoming the least efficient NICI40 performer in the most current third period (2005–2008).
National Intellectual Capital of the Five Fastest Growth Countries Figures 15.6–15.10 graphically present the trend of the fastest growth countries in terms of human capital, market capital, process capital, renewal capital, and financial capital. The fast growth countries, China and India, are also included in this cluster for detecting potential growth patterns. According to Fig. 15.6, Ireland made the most progress in human capital with an increase of about 20 percentile points, followed by Poland, China, Russia, and India with increases of 18, 15, 12, and 6 percentile points, respectively, in comparing the figures for 1995 and 2008. India showed the least improvement of six percentile
10 China Human Capital 8 India Human Capital 6 Russia Human Capital 4 Ireland Human Capital 2 Poland Human Capital 0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
China Human Capital 3.383 3.667 3.619 4.177 4.383 3.825 3.704 3.921 4.189 4.158 4.931 5.044 4.664 4.857 India Human Capital
3.298 3.338 3.160 3.918 3.849 4.149 3.912 3.836 4.065 3.903 3.971 4.014 3.796 3.878
Russia Human Capital 4.429 4.389 5.321 5.627 5.071 5.491 5.196 5.281 5.561 5.496 5.688 5.410 5.594 5.595 Ireland Human Capital 5.316 5.267 5.055 5.479 5.874 6.640 6.760 7.276 7.359 6.600 6.893 6.914 7.064 7.335 Poland Human Capital 4.552 4.574 4.642 5.321 5.943 5.279 5.573 5.894 5.951 5.728 6.134 6.150 6.395 6.421
Fig. 15.6 Comparison of human capital in the five fastest growth countries
National Intellectual Capital of the Five Fastest Growth Countries China Market Capital
293
10
8 India Market Capital 6 Russia Market Capital 4 Ireland Market Capital 2 Poland Market Capital 0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
China Market Capital 5.441 5.447 5.047 5.417 5.199 4.990 5.158 5.290 5.453 5.233 5.627 5.784 4.848 4.809 4.203 4.005 4.471 4.301 4.817 4.527 4.481 4.533 5.489 5.443 5.718 5.582 5.780 5.375
India Market Capital
Russia Market Capital 3.945 3.962 4.384 3.789 3.899 4.434 4.433 3.929 4.281 4.036 4.008 4.127 3.994 3.694 Ireland Market Capital 7.077 7.205 7.441 7.403 7.824 7.520 7.349 7.127 7.022 7.046 7.341 7.236 6.965 6.444 Poland Market Capital 4.420 4.170 4.299 4.284 4.583 4.041 3.860 3.687 3.551 3.813 3.874 3.777 3.926 4.227
Fig. 15.7 Comparison of market capital in the five fastest growth countries
10 China Process Capital 8 India Process Capital 6 Russia Process Capital 4 Ireland Process Capital 2 Poland Process Capital 0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
China Process Capital 2.412 2.550 3.187 3.530 3.571 3.657 3.670 3.792 3.624 3.567 4.055 4.154 3.934 3.192 India Process Capital
3.079 2.557 3.153 3.016 3.071 3.131 3.126 3.160 3.524 3.371 3.633 3.544 3.327 3.444
Russia Process Capital 1.575 2.084 2.780 2.315 2.620 2.939 3.087 2.436 3.006 2.848 3.492 3.625 3.561 3.505 Ireland Process Capital 5.119 5.720 5.871 5.919 7.049 7.417 7.122 7.024 6.641 6.754 7.345 6.844 6.727 6.528 Poland Process Capital 2.524 2.177 2.828 3.081 3.757 3.503 3.159 3.195 3.187 3.110 3.324 3.426 4.020 3.918
Fig. 15.8 Comparison of process capital in the five fastest growth countries
points over the 14 years. A wider gap between the countries would have been expected as they are at different levels of development. Figure 15.7 shows that India had the greatest improvement in market capital with an increase of about 12 percentile points. China, Ireland, Poland, and Russia
294
15 National Intellectual Capital Development China Renewal Capital India Renewal Capital Russia Renewal Capital Ireland Renewal Capital Poland Renewal Capital
10
8
6
4
2
0
1995 1996
1997 1998
1999 2000
2001 2002 2003
2004 2005
2006 2007
2008
China Renewal Capital 1.835 2.200 2.384 2.325 2.233 1.959 1.902 1.927 2.151 2.037 2.214 2.182 2.240 2.097 1.260 1.537 1.427 1.693 1.657 1.534 1.466 1.716 1.862 2.183 2.234 2.048 2.081 2.204
India Renewal Capital
Russia Renewal Capital 3.173 3.314 3.387 3.132 3.038 2.963 2.724 3.018 3.013 2.496 2.478 2.490 2.348 2.619 Ireland Renewal Capital 3.067 3.687 3.792 4.037 4.121 4.071 3.749 3.744 3.707 3.805 3.860 3.998 4.171 4.320 Poland Renewal Capital 1.579 2.139 2.220 2.133 2.216 2.123 1.736 1.882 1.910 1.743 1.801 1.806 2.006 1.969
Fig. 15.9 Comparison of renewal capital in the five fastest growth countries
China Financial Capital
10
8 India Financial Capital 6 Russia Financial Capital 4 Ireland Financial Capital 2 Poland Financial Capital 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
China Financial Capital 7.082 7.139 7.186 7.239 7.295 7.352 7.416 7.490 7.575 7.645 7.718 7.811 7.911 7.985 India Financial Capital
6.759 6.788 6.787 6.816 6.858 6.884 6.901 6.927 6.977 7.030 7.092 7.163 7.226 7.278
Russia Financial Capital 8.480 8.412 8.392 8.328 8.380 8.457 8.499 8.544 8.611 8.662 8.711 8.776 8.840 8.887 Ireland Financial Capital 9.458 9.487 9.539 9.589 9.664 9.712 9.738 9.772 9.794 9.795 9.803 9.818 9.835 9.790 Poland Financial Capital 8.598 8.621 8.649 8.681 8.714 8.739 8.746 8.754 8.789 8.818 8.838 8.886 8.934 8.973
Fig. 15.10 Comparison of financial capital in the five fastest growth countries
showed a decrease in market capital of about six, seven, two, and two percentile points, respectively, over the 14 years. Ireland is consistently far ahead of the other countries in market capital while India has been keeping abreast of China starting from 2003. Although they are not in the poorest group, Poland and Russia lagged behind and came out at the bottom of the market capital performers in this cluster.
Comparison of the Poorest and Fastest Growth Countries
295
Figure 15.8 shows that Russia had the greatest improvement in process capital with an increase of about 19 percentile points, followed by Ireland, Poland, China, and India with increases of 14, 14, 8, and 4 percentile points, respectively. Again, Ireland is consistently far ahead of other countries in process capital. The remaining four countries mainly stayed between the initial 15–30th percentiles and the 30–40th percentiles in 2008. Figure 15.9 shows that Ireland has made the most progress in renewal capital with an increase of about 12 percentile points, followed by India, Poland, and China of nine, four, and three percentile points, respectively. Russia suffered a decrease in renewal capital of about six percentile points. Again, the renewal capital of Ireland is still far ahead of other countries. Russia’s decline in renewal capital has resulted in its being grouped together with China, India, and Poland starting from 2004. The selection of the five fastest growth countries was based on the GDP per capita (PPP) in real dollar value; it does not, however, reveal the trend of their development over the 14 years. Therefore, Fig. 15.10 is presented for a better comparison. Figure 15.10 shows that China has made the most progress in financial capital (on a 1–10 scale) of about nine percentile points, followed by India, Russia, Poland, and Ireland, with increases of five, four, and three percentile points, respectively. Ireland is consistently at the top, Poland and Russia are in the middle, and China and India find themselves at the bottom according to their level of economic development. In general, the fastest growth countries exhibit a large-scale improvement in human capital and process capital and a modest improvement in market capital and renewal capital; Poland, China, and Ireland exhibited a negative progress in market capital and Russia underwent a negative progress in market capital and renewal capital. From Figs. 15.6 to 15.10, the five capital components of the five fastest growth countries are more spread out than they are for the five poorest countries, with Ireland generally being the top performer, Poland and Russia the middle performer, and China and India the lowest performers. However, with respect to process capital and renewal capital, only two groups emerge with Ireland being the best performer while the other four countries cluster together. The graphs indicate the different growth patterns of countries at different development stages.
Comparison of the Poorest and Fastest Growth Countries For a complete comparison of the poorest and the fastest growth, we also graphically mapped the five capitals of the total eight countries (with China and India in both groups) in the same chart, as shown from Figs. 15.11 to 15.15. Ireland is consistently at the top of all five charts. A mere glance makes clear that Ireland has a much higher score than the other countries do. Figure 15.11 shows that the eight countries started out with a smaller gap in human capital with a difference between the 30th and 45th percentiles; yet by 2008, the gap is between the 40th and 75th percentiles. That is, a greater development of human capital differentiates the fastest growth from the poorest countries.
296
15 National Intellectual Capital Development China Human Capital
10
India Human Capital 8 Ireland Human Capital 6
Philippines Human Capital Poland Human Capital
4
Russia Human Capital 2
South Africa Human Capital Thailand Human Capital
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
China Human Capital
3.383 3.667 3.619 4.177 4.383 3.825 3.704 3.921 4.189 4.158 4.931 5.044 4.664 4.857
India Human Capital
3.298 3.338 3.160 3.918 3.849 4.149 3.912 3.836 4.065 3.903 3.971 4.014 3.796 3.878
Ireland Human Capital
5.316 5.267 5.055 5.479 5.874 6.640 6.760 7.276 7.359 6.600 6.893 6.914 7.064 7.335
Philippines Human Capital
4.524 4.397 4.294 5.119 4.952 5.215 5.206 5.112 4.940 4.976 4.603 4.729 4.871 4.915
Poland Human Capital
4.552 4.574 4.642 5.321 5.943 5.279 5.573 5.894 5.951 5.728 6.134 6.150 6.395 6.421
Russia Human Capital
4.429 4.389 5.321 5.627 5.071 5.491 5.196 5.281 5.561 5.496 5.688 5.410 5.594 5.595
South Africa Human Capital 3.852 4.127 4.018 4.866 5.184 5.264 5.301 4.962 4.938 4.779 4.548 4.392 4.418 5.303 3.965 4.386 4.368 5.570 5.844 5.205 4.978 5.028 5.021 4.958 5.145 5.078 5.372 5.375
Thailand Human Capital
Fig. 15.11 Comparison of human capital in the eight poor and fast growth countries China Market Capital 10 India Market Capital Ireland Market Capital Philippines Market Capital Poland Market Capital Russia Market Capital South Africa Market Capital Thailand Market Capital
8 6 4 2 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
China Market Capital
5.441 5.447 5.047 5.417 5.199 4.990 5.158 5.290 5.453 5.233 5.627 5.784 4.848 4.809
India Market Capital
4.203 4.005 4.471 4.301 4.817 4.527 4.481 4.533 5.489 5.443 5.718 5.582 5.780 5.375
Ireland Market Capital
7.077 7.205 7.441 7.403 7.824 7.520 7.349 7.127 7.022 7.046 7.341 7.236 6.965 6.444
Philippines Market Capital
5.261 5.806 5.748 5.697 4.865 4.632 4.857 4.556 4.783 4.935 4.844 4.340 4.616 4.046
Poland Market Capital
4.420 4.170 4.299 4.284 4.583 4.041 3.860 3.687 3.551 3.813 3.874 3.777 3.926 4.227
Russia Market Capital
3.945 3.962 4.384 3.789 3.899 4.434 4.433 3.929 4.281 4.036 4.008 4.127 3.994 3.694
South Africa Market Capital 4.782 4.687 4.668 4.451 4.709 4.508 4.824 4.938 5.287 5.219 5.414 4.963 4.463 4.882 Thailand Market Capital
5.551 5.656 5.302 5.721 5.717 5.165 5.688 6.073 6.358 6.211 5.818 5.208 5.544 5.478
Fig. 15.12 Comparison of market capital in the eight poor and fast growth countries
Figure 15.12 shows that, with the exception of Ireland, the market capital of the fastest growth and poorest countries do not show much variance. Generally, they remain in the range between the 40th and 55th percentiles. Actually, the two fastest growth countries, Poland and Russia, have lower market capital scores than do the five poorest countries.
Comparison of the Poorest and Fastest Growth Countries China Process Capital India Process Capital
297
10 8
Ireland Process Capital Philippines Process Capital Poland Process Capital Russia Process Capital South Africa Process Capital Thailand Process Capital
6 4 2 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
China Process Capital
2.412 2.550 3.187 3.530 3.571 3.657 3.670 3.792 3.624 3.567 4.055 4.154 3.934 3.192
India Process Capital
3.079 2.557 3.153 3.016 3.071 3.131 3.126 3.160 3.524 3.371 3.633 3.544 3.327 3.444
Ireland Process Capital
5.119 5.720 5.871 5.919 7.049 7.417 7.122 7.024 6.641 6.754 7.345 6.844 6.727 6.528
Philippines Process Capital
3.517 3.271 3.353 3.364 3.466 3.202 3.150 3.355 3.069 2.988 3.303 3.017 3.317 3.107
Poland Process Capital
2.524 2.177 2.828 3.081 3.757 3.503 3.159 3.195 3.187 3.110 3.324 3.426 4.020 3.918
Russia Process Capital
1.575 2.084 2.780 2.315 2.620 2.939 3.087 2.436 3.006 2.848 3.492 3.625 3.561 3.505
South Africa Process Capital 3.100 3.224 3.665 3.658 4.144 4.150 4.248 4.279 4.212 4.058 4.416 4.468 4.237 4.479 Thailand Process Capital
3.267 3.476 3.051 3.360 3.702 3.675 4.155 4.616 4.480 4.510 4.379 3.789 4.181 4.754
Fig. 15.13 Comparison of process capital in the eight poor and fast growth countries
China Renewal Capital India Renewal Capital Ireland Renewal Capital Philippines Renewal Capital Poland Renewal Capital Russia Renewal Capital South Africa Renewal Capital Thailand Renewal Capital
10 8 6 4 2 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
China Renewal Capital
1.835 2.200 2.384 2.325 2.233 1.959 1.902 1.927 2.151 2.037 2.214 2.182 2.240 2.097
India Renewal Capital
1.260 1.537 1.427 1.693 1.657 1.534 1.466 1.716 1.862 2.183 2.234 2.048 2.081 2.204
Ireland Renewal Capital
3.067 3.687 3.792 4.037 4.121 4.071 3.749 3.744 3.707 3.805 3.860 3.998 4.171 4.320
Philippines Renewal Capital
1.968 1.866 1.382 1.654 1.478 1.520 1.409 1.340 1.079 1.512 1.282 1.352 1.432 1.365
Poland Renewal Capital
1.579 2.139 2.220 2.133 2.216 2.123 1.736 1.882 1.910 1.743 1.801 1.806 2.006 1.969
Russia Renewal Capital
3.173 3.314 3.387 3.132 3.038 2.963 2.724 3.018 3.013 2.496 2.478 2.490 2.348 2.619
South Africa Renewal Capital 1.916 2.096 1.927 2.102 1.968 1.853 1.760 1.750 1.834 1.753 1.750 1.623 1.674 1.817 Thailand Renewal Capital
1.239 1.396 1.137 1.291 1.449 1.140 1.234 1.440 1.469 1.389 1.520 1.379 1.506 1.480
Fig. 15.14 Comparison of renewal capital in the eight poor and fast growth countries
Figure 15.13 shows that except for Ireland, the process capital of the fastest growth and the poorest countries is characterized by both ups and downs, though the process capital of the fastest growth countries experienced a larger scale of improvement as explained previously. As a whole, they ranged from the 15–35th
298
15 National Intellectual Capital Development China Financial Capital
10
India Financial Capital
8
Ireland Financial Capital Philippines Financial Capital Poland Financial Capital
6 4
Russia Financial Capital South Africa Financial Capital Thailand Financial Capital
2 0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
China Financial Capital
7.082 7.139 7.186 7.239 7.295 7.352 7.416 7.490 7.575 7.645 7.718 7.811 7.911 7.985
India Financial Capital
6.759 6.788 6.787 6.816 6.858 6.884 6.901 6.927 6.977 7.030 7.092 7.163 7.226 7.278
Ireland Financial Capital
9.458 9.487 9.539 9.589 9.664 9.712 9.738 9.772 9.794 9.795 9.803 9.818 9.835 9.790
Philippines Financial Capital
7.342 7.348 7.346 7.309 7.314 7.336 7.329 7.349 7.378 7.395 7.416 7.444 7.484 7.508
Poland Financial Capital
8.598 8.621 8.649 8.681 8.714 8.739 8.746 8.754 8.789 8.818 8.838 8.886 8.934 8.973
Russia Financial Capital
8.480 8.412 8.392 8.328 8.380 8.457 8.499 8.544 8.611 8.662 8.711 8.776 8.840 8.887
South Africa Financial Capital 8.367 8.356 8.329 8.304 8.304 8.313 8.319 8.339 8.357 8.373 8.404 8.435 8.462 8.471 Thailand Financial Capital
8.175 8.191 8.135 8.005 8.029 8.048 8.053 8.090 8.147 8.171 8.201 8.240 8.268 8.280
Fig. 15.15 Comparison of financial capital in the eight poor and fast growth countries
percentiles to the 30–50th percentiles. Generally speaking, the poorest countries do not necessarily have less process capital than the fastest growth countries. Figure 15.14 shows that for the first 9 years (1995–2003), Ireland and Russia clearly had better renewal capital than did the other countries. Yet, from 2004, Russia’s renewal capital declined to a level similar to the others. Generally speaking, it appears that both the fastest growth and poorest countries lack the capability to strengthen the renewal capital to a significant level. Over the 14 years, except for Ireland, they moved in a range from 15–30th percentiles in the initial period to 30–45th percentiles in 2008. Figure 15.15 shows that for the eight countries, the relative position of the 1–10 scaled financial capital stays the same, except for China and the Philippines switching their positions. Yet, each country displays a gradual and steady improvement.
Trajectory from a Poor to a Fast Growth Country To unveil the trajectory from a poor to a fast growth country, Table 15.2 shows the results of a further analysis by revealing the changes between the scores in 1995 and 2008 for each country – in effect, the degree of self-improvement in each country. For instance, the Philippines “−13% market capital” means that the Philippines underwent a decrease of 13 percentile points in market capital over the 14 years. For a better grouping and comparison, Table 15.2 assigns China and India in the middle, rather than in alphabetical order.
Table 15.2 Five capital score changes and change variations between 1995 and 2008 Score change Status variation HC MC PC RC FC Poor Philippines – −13% −4% −6% – South Africa – – – −1% – Thailand – −1% – – – Fast/poor China – −6% – – – India – – – – – Percentile variation of the poor Fast Ireland – −7% – – – Poland – −2% – – – Russia – −2% – −6% – Percentile variation of the fast MC – 1% – – 12% 40–55
– – – 40–65
HC 4% 14% 14% 15% 6% 30–55
20% 18% 12% 30–75
14% 14% 19% 15–65
PC – 14% 15% 8% 3% 15–50
12% 4% – 15–45
RC – – 3% 3% 9% 15–25
3% 4% 4% 70–98
FC 2% 1% 1% 9% 5% 70–85
Trajectory from a Poor to a Fast Growth Country 299
300
15 National Intellectual Capital Development
Among the poor countries, the Philippines’ intellectual capital over the 14 years mainly declined except for a marginal improvement in human capital and financial process capital. South Africa has significant improvement in human capital and process capital, yet declines a little in renewal capital. Thailand exhibited significant improvement in human capital and process capital, slight improvement in renewal capital and financial capital, yet declined somewhat in market capital. The statistics indicate that both South Africa and Thailand are very likely to become fast growth countries in the near future if they experience similar growth in market capital and renewal capital. China and India show very clearly that all five capital components have made either significant or modest improvement, except for China’s decline in market capital. Ireland experienced significant improvement in human capital, process capital, and renewal capital, and slight improvement in financial capital; yet, it declined in market capital. The growth pattern of Ireland (except in terms of market capital) can serve as a model pattern for countries aspiring to undergo steady and long-term growth. That is, with significant improvement in human capital, a higher level of process capital and renewal capital may be anticipated; this in turn may result in better financial capital. Had it not been for its market capital decline, Ireland’s financial capital could have advanced even further. Poland experienced significant improvement in human capital and process capital, slight improvement in renewal capital and financial capital; it declined, however, in market capital. Table 15.2 shows that Poland’s development pattern for intellectual capital is similar to that of Ireland except renewal capital; this is a good indication of Poland’s future potential. Russia showed significant improvement in both human capital and process capital, and slight improvement in financial capital; it declined, however, in market capital and renewal capital. Although Russia has a large pool of well-educated human resources, with other countries catching up, Russia’s innovative and renewal capability is declining, very likely due to its former socialist educational system. Comparing these two clusters, the fastest growth cluster has a wider variation than the poor country cluster in all five capital categories. Table 15.2 shows both clusters, on average, starting out in 1995 at a similar percentile in all five categories. Yet, by 2008, the fast growth cluster is ahead of the poor cluster by a growth rate of around 10–20% (refer to the rows of “percentile variation” in Table 15.2). The relatively static or capital decline in the poor cluster is in clear contrast to the significant improvement in the fast growth cluster. While Table 15.2 indicates the self-improvement of each country, Table 15.3 presents the results of external comparison – ranking in the 40-country list. Disregarding the two overlapping countries – China and India, a clear pattern emerges that distinguishes the three fastest growth and the three poorest countries. That is, the rankings of human capital and renewal capital differentiate the fast growth from the poor. In other words, having a ranking in the last quarter or the third quarter of NICI40 makes a difference. The human capital ranking of the Philippines (34)/Thailand (32)/South Africa (36) vs. Ireland (17)/Poland (26)/ Russia (30); and the renewal capital ranking of the Philippines (37)/Thailand (39)/
Fast growth China (2.94)# 4.18 39 5.27 25 3.49 33 India (1.55) 3.79 40 4.91 30 3.22 36 Russia (1.48) 5.30 30 4.07 38 2.85 39 Ireland (1.41) 6.42 17 7.21 2 6.58 11 Poland (1.41) 5.61 26 4.04 39 3.23 35 Remarks: # Growth rate: (2008–1995)/1995 GDP per capita (PPP) in real dollar value
Table 15.3 Five capital rankings for the poor and fast growth countries Human capital Market capital Process capital Country Score Ranking Score Ranking Score Ranking Poor Philippines 4.85 34 4.93 29 3.25 34 Thailand 5.02 32 5.68 20 3.96 31 South Africa 4.71 36 4.84 31 4.02 30 2.12 1.78 2.87 3.87 1.95
27 34 22 20 30
7.49 6.96 8.57 9.70 8.77
38 40 34 7 28
39 37 36
7.38 8.15 8.37
1.47 1.36 1.84
37 39 32
Financial capital Score Ranking
Renewal capital Score Ranking
22.55 20.67 23.65 33.77 23.59
21.88 24.16 23.79
36 40 32 13 33
39 30 31
Overall NICI40 Score Ranking
Trajectory from a Poor to a Fast Growth Country 301
302
15 National Intellectual Capital Development
South Africa (32) vs. Ireland (20)/Poland (30)/Russia (22) uncover the distinctive pattern as a cluster. Lagging behind in human capital and renewal capital seem to be key factors in the decline of external competitiveness. For other types of capital, the pattern difference is not distinctive. Examining the statistics of Tables 15.2 and 15.3 together shows that internal self-improvement facilitates external competitiveness. For example, by improving human capital and process capital internally, China has been able to perform relatively better in its market capital and renewal capital (China’s strong areas) in the external comparison list (Table 15.3). In other words, internal human capital and process capital improvement leads to external market capital and renewal capital competitiveness. Similarly, by improving human capital and process capital internally, Ireland also has fared better in its external market capital competitiveness. From the above analyses, several patterns have surfaced. First, poor countries are particularly weak in human capital, renewal capital, and financial capital. Second, a more efficient way to advance from a poor to a fast growth country is to undertake significant self-improvement (Table 15.2), which leads to external competitiveness (Table 15.3). In other words, investing more in upgrading the quality of human resources (human capital) and establishing a better infrastructure (process capital) result in better market capital (China and Ireland). Third, though with the lowest score in human capital, India, fortunately, compensated for that with significant improvement in internal market capital and renewal capital for a direct positive impact on its external market capital and renewal capital competitiveness. Fourth, although Poland has relatively good improvements in internal human capital and process capital (Table 15.2), it failed to make similar improvements in its external market capital and process capital (Table 15.3), and so its performance continues to lag behind. Fifth, China is growing faster than India, because it has conducted more aggressive self-improvement than India. Comparison between the fastest growth and the poorest countries up to this point shows that a greater amount of human capital development differentiate the two groups and the fastest growth countries exhibit a larger scale of process capital improvement. Both groups declined in market capital with two of the fastest growth countries, Poland and Russia, ranked #38 and #39 in market capital among the 40 countries. Therefore, both internal market capital improvement and external market capital competitiveness are not sufficient to distinguish poor from the fast growth countries. One interpretation is that poor countries are not thereby less qualified to become future fastest growth countries. Another interpretation is that some of the poorest countries are likely to catch up with the fastest growth countries in the future; as a result, the fastest growth countries need to keep on moving upward to ensure sustainable advantages. In general, we have observed the following four patterns: 1. Pattern #1: Internal human capital + internal process capital ® external market capital + external renewal capital (China). 2. Pattern #2: Internal human capital + internal process capital ® external market capital (Ireland).
Summary
303
Table 15.4 Ranking changes of the poor and fast growth countries comparing the 1st (1995–1999) and 3rd (2005–2008) time periods Ranking regression/ progression HC MC PC RC FC Overall HC MC PC RC FC Overall Philippines −5 −8 −8 −6 −1 −4 Thailand −3 +3 +0 +2 +0 +1 South Africa −3 −6 −2 +8 +0 +0 China −4 +4 +4 +3 +1 +4 India +0 +19 +2 +4 +0 +2 Russia −2 −4 +2 +5 +6 +2 Ireland −1 +4 +2 +0 +14 +1 Poland −1 −4 +0 +5 +4 +2
3. Pattern #3: Internal human capital + internal process capital ® external renewal capital (Poland and Russia). 4. Pattern #4: Internal market capital + internal renewal capital ® external market capital + external renewal capital (India – direct matching capital impact). To add the element of “time,” we have developed Table 15.4 to show the ranking changes between the first period (1995–1999) and the third period (2005–2008). The plus “+” sign indicates the progression and the negative “−” means the regression of a particular capital. Clearly, the first three poor countries have more negative signs, particularly the Philippines, and the last five fast growth countries have more plus signs.
Summary Based on this set of 14 years of panel data analyses, it is apparent that improvements in human capital and process capital with a guided government policy for aggressive international trade and structural reforms contribute to the accumulation of national market capital and renewal capital. From the perspective of intellectual capital, several implications can be derived for progressing from a poor to a fast growth country. First, one should invest more in human capital accumulation, as it is the very basis of other intangible assets. For instance, India’s human capital ranks the last (#40), and so its NICI40 ranking. Second, one should set a priority on improving process capital for immediate growth, because without a good national infrastructure, market capital and renewal capital accumulation will be impeded. For example, India compensates for its lowest human capital with relatively good market capital and process capital which lead to a higher level of renewal capital. In the case of Poland, its good human capital without matching process capital leads to very poor market capital (ranked #39). Third, for long-term lasting growth one should expend greater effort in developing ongoing human capital and renewal capital, as stronger human capital is
304
15 National Intellectual Capital Development
the foundation of market capital, process capital, and renewal capital advancement; and better renewal capital is the key source of innovation which determines future competitiveness. The fast growth countries, particularly China and India, have earned great reputations with their recent emergence. However, some problems still ail these countries. For example, foreign operations in China, which rely on cheap labor, are contemplating relocation to cities in the interior or to countries such as Vietnam or Bangladesh (http://en.wikipedia.org/wiki/China). In India, a quarter of the nation’s population earns less than the government-specified poverty threshold of $0.40/day (http://en.wikipedia.org/wiki/India). The various tables presented in this study provide some guidelines for countries pursuing improvement.
Chapter 16
Dynamic Systems in National Intellectual Capital
This book reports on the national intellectual capital of 11 country clusters, namely, Nordic, large European, small European, Southern European, East Central European, North American and Latin American countries as well as Australia and New Zealand and East Asian, Southeast Asian, and the BRIC countries. In addition, the trajectory from a poor- to a fast-growth country is also examined in Chap. 15. In order to further explore some hidden messages embedded in this rich panel data covering 14 years (1995–2008) for 40 countries, this chapter adopts a system perspective and investigates the microdynamics of the five component capitals within each country and the macrodynamics among the 40 countries, reflecting the dynamic view of Stahle and Bounfour (2008). In other words, the numbers, cross tables, and trends should reveal some kind of systems that can be linked to national financial performance, as a strong correlation of 0.88 was found between intellectual capital and GDP per capita (PPP) in real dollars for these 40 countries. To get a more complete picture of the total system of the 40 countries, this chapter covers the following sections: ranking changes of the five component capitals, GDP growth comparison, intangible asset indicators of various world organizations, paths to national intellectual capital planned growth, and illustration of current economic status.
Ranking Changes of the Five Component Capitals From Chaps. 4 to 14, we reported the five-capital ranking changes of each country cluster. However, to better compare the progression or regression of national intellectual capital of the 40 countries in the same table, we have prepared Appendices 1–6 to show the ranking changes over the three time periods (1995–1999, 2000–2004, and 2005–2008), in the sequence of human capital, market capital, process capital, renewal capital, financial capital, and overall intellectual capital (NICI40). Readers are encouraged to study those appendices to arrive at a more detailed picture of the evolution of national intellectual capital over the years. For a simpler comparison, Table 16.1 summarizes the second column results (first period and third period difference) of Appendices 1–6 by country. C.Y.-Y. Lin and L. Edvinsson, National Intellectual Capital: A Comparison of 40 Countries, 305 DOI 10.1007/978-1-4419-7377-1_16, © Springer Science+Business Media, LLC 2011
Table 16.1 Ranking changes of 40 countries of three periods by capital and by country Ranking regression HC MC PC RC FC Overall Argentina −9 −11 −3 −4 −9 Australia −1 −2 Austria −4 −2 Belgium −6 −1 −4 −3 Brazil −3 −4 −1 Canada −3 −4 −5 −1 −4 Chile −2 −2 −1 −1 China −4 Czech Republic Denmark −4 Finland −7 −8 −4 −5 France −3 −5 −12 −4 −2 Germany −8 −2 −6 −5 Greece −8 −2 −1 Hungary −6 −10 −3 Iceland India Ireland −1 Italy −7 −2 −2 −1 −2 −5 Japan −3 −9 Korea −3 Malaysia −4 −1 −1 2 Mexico −2 −3 −2 −1 Netherlands −2 −4 −1 −2 New Zealand −10 −9 −3 −2 −5 Norway −3 −5 −5 −2 Philippines −5 −8 −8 −6 −1 −4 +11 +7
+8 +6 +7 − +1 −
+13 +19
+3
+2 +4 +10 +3
+4 − +4
+1
+4 +4 +4 +2
+7 −
+7 +5
Ranking progression HC MC
+2
+3 +2
− +6 +2 +2
− −
+3 +10 +3
+8
PC
+1
+1 −
+6 +1 +11 +4 −
+2 +3 +3
+3
RC − +2 +8
−
+2
+1 − +7 − +14
+4
+1 −
− +4
+8 +2 +1
+4 +7 +3
− +6 − −
−
−
Overall
FC
306 16 Dynamic Systems in National Intellectual Capital
Poland Portugal Russia Singapore South Africa Spain Sweden Switzerland Taiwan Thailand Turkey UK USA
−1
−3
−2 −13
−3 −9
−1
−5
−2
−6 −6 −1
−3 −3
−4
RC
−4
−9
PC
−2
−1 −9
Ranking regression HC MC
−1
−1
−2
−2
FC
−4
−2 −4
Overall
− −
+3 +1 +5
+8
− +6
+3 +12 − +3 +8
+2 − +8
Ranking progression HC MC
− −
+6
+5 +4 +5 +4 −
PC
−
+4 +2 −
+2 +2
+8
+5
RC
+3
+1 −
+6 +2 − − +4
+4
FC
+1 +1 +4 +1 +5 −
+2 +2 +2 +4
Overall
Ranking Changes of the Five Component Capitals 307
308
16 Dynamic Systems in National Intellectual Capital
Numbers with a minus (−) sign indicate regression, and those with a plus (+) sign indicate progression. Those countries and capitals with a larger scope of changes (a difference of six ranks or more) are given in bold (regression) and in italics (progression). For human capital, six countries show a decline of at least six ranks, namely, New Zealand (−10), Argentina (−9), Germany (−8), Finland (−7), Italy (−7), and Hungary (−6); yet six countries advanced at least six ranks, namely, Japan (+8), Singapore (+8), Belgium (+7), Malaysia (+7), Korea (+6), and Portugal (+6). For market capital, ten countries declined six or more ranks, namely, USA (−13), Argentina (−11), Hungary (−10), New Zealand (−9), Portugal (−9), Spain (−9), Finland (−8), Greece (−8), Philippines (−8), and Belgium (−6); yet nine countries advanced not less than six ranks, namely, India (+19), Iceland (+13), Switzerland (+12), Japan (+11), Czech Republic (+10), South Africa (+8), Turkey (+8), Australia (+7), and Korea (+6). For process capital, three countries declined not less than six ranks, namely, USA (−9), Philippines (−8), and Spain (−6); yet four countries advanced at least six ranks, namely, Czech Republic (+10), Austria (+8), Iceland (+6), and Switzerland (6). For renewal capital, three countries declined at least six ranks, namely, France (−12), Philippines (−6), and South Africa (−6); yet four countries advanced at least six ranks, namely Iceland, (+11), Austria (+8), Singapore (+8), and Greece (+6). For financial capital, two countries declined at least six ranks, namely, Japan (−9) and Germany (−6); yet three countries advanced more than six ranks, namely, Ireland (+14), Iceland (+7), and Russia (+6). For overall intellectual capital, one country, Argentina (−9), declined more than six ranks; yet three countries advanced six or more ranks, namely, Iceland (+8), Czech Republic (+7), and Austria (+6). Over the three time periods, market capital exhibited the most variation in terms of the number of countries (total 19 countries) and the magnitude of change (India advanced 19 ranks). This outcome is understandable as market capital is the immediate reflection of a nation’s status stemming from the rapid economic development over the past two decades. After market capital, human capital showed the second largest variation with a total of 12 countries involved with a magnitude of change of at least 6 ranks. Other types of capital involve four to seven countries with various degrees of magnitude of change in rank. To gain another perspective, Table 16.2 presents the same information as Table 16.1, arranged instead by country clusters. In addition, ranking differences, which compare the overall 14 years NICI40 ranking with the most recent third period ranking (2005–2008) and the GDP growth rate, are also included in the table. Nordic countries experienced a greater amount of intellectual capital gains than losses, irrespective of their status as more advanced countries. In general, Denmark and Sweden exhibited increased strength in national intellectual capital over the years in this cluster. Finland declined in human capital and market capital on a relatively large scale. However, with its students’ outstanding PISA performance, Finland should have great potential to regain its human capital advantage in the future. For Iceland, in the wake of its 2008 financial crisis, the question of whether it can sustain its progress in every capital category requires further observation.
Czech Republic Hungary Poland South Africa Turkey
−3
−6
−3
−10 −1
−6
−2 −2
−8 −2 −9 −9
Greece Italy Portugal Spain
−7
−1
−6 −2
−4
Austria Belgium Netherlands Switzerland
−1 −2
−3
−5 −1
−3
−5
−4
PC
−8
MC
−3 −8
−7
HC
France Germany Ireland UK
Denmark Finland Iceland Norway Sweden
−4 −6
−1
−4 −4 −2
−5
−1
−2 −2
−2 −3 −1 −2
−2
−3
−4
−1 −5
−2
−2 −5
−12 −2
−5
Overall
−2 −4 −6
FC −4
−5
RC
−
−
+4
+6
+1
+7 +1 +1
+4 −
+4 − +3
HC +2
+8 +8
+10
+12
+5
+3
+3
+13
MC +3
Table 16.2 Ranking changes of 40 countries for three periods by country cluster
− +5 − −
+10
+4
+2 +6
+8
− − +2
+6
PC +3
−
+1
+2
+5 +2
+6
+8
−
+2
RC +3 +3 +11
− +4 −
−
−
+1
+14 +3
+4 +7 − +4
FC
+5
+2
+7
+2
+1
+6 −
+1 −
+1
+8
Overall +3
−3 +2 −3 +1
+5
− −3 +2 −3
+2 −1 −1 −
−1 − −1 +1
(1) Rank difference +2 −5 +3 +1 +1
116.2 141.2 77.2 96.3 (continued)
99.9
104.5 48.8 63.6 78.4
72.7 65.7 74.8 62.8
61.0 60.4 141.3 80.2
(2) GDP growth (%) 60.9 100.6 94.0 73.1 80.0
Ranking Changes of the Five Component Capitals 309
−2
Brazil China India Russia
−3
PC
−4
−1 −8
−1
−2 −3
−3 −4 −2 −3
−5 −9
RC
−4
−4
−6
−3 −3
−2
−1
−1
−1 −1
−9
−2
−4 −1 −1 −2
−1
FC
Overall
−4
−5
−1 −1
−9
−4 −4
− +4 −
+8
+7
+8 +6 +5
− +4 −
HC
+4 +19 +2
− +3
+11 +7 −
+7
+2
MC
+3 +2 +5
+4 −
+3 +2
PC
+4
+3
+8 +2
+1
+4
+2 +1
−
− +3
−
RC
FC
+1 − +6
+2 −
+2 +1
−
−
− +4 +2 +2
+4 +1
+2
− +4 +4
−
−
Overall
− +1 +2 –
+2 −1 +1 −
+1 +1 +1
− −1
−1 − − −1
−2 −2
(1) Rank difference
59.8 294.3 155.1 148.0
87.3 79.2 101.4 75.8
52.1 116.8 111.3
75.3 66.7
82.9 59.8 91.3 80.2
72.0 68.8
(2) GDP growth (%)
Remarks: (1) Ranking difference compares the 3rd period ranking (2005–2008) with the overall 14-year NICI40 reported in the abstract of each chapter. (2) GDP per capital (PPP) growth percentage is based on (2008–1995)/1995
−3
Malaysia Philippines Singapore Thailand
−4 −8
−9
−1 −10
Australia New Zealand
−5
−2
Japan Korea Taiwan
−11 −3
−9
Argentina Brazil Chile Mexico
MC
−4 −13
−3 −1
Canada USA
HC
Table 16.2 (continued)
310 16 Dynamic Systems in National Intellectual Capital
Ranking Changes of the Five Component Capitals
311
For the four relatively large European countries, France and Germany experienced more difficulty in accumulating human capital, renewal capital, and financial capital. Germany and France show a relatively low GDP growth, and Ireland is the country that made the most intellectual capital progress in this cluster. As for the smaller European countries, Austria and Switzerland mainly exhibit intellectual capital increases, while Belgium and the Netherlands show decreases. As a whole, this cluster declined in renewal capital and financial capital. For the four Southern European countries, Italy and Spain have decreased in most of the categories and ranking changes (the next to last column); in addition, Italy experienced the lowest GDP growth rate among the 40 countries over the 14 years. Portugal decreased in market capital and financial capital, yet made modest progress in process capital and renewal capital. The three East Central European countries, South Africa, and Turkey are mainly on the positive side, especially Czech Republic, Poland, and Turkey. Hungary with a relatively good GDP growth of 116% declined in human capital, market capital, and overall ranking. Both Canada and USA declined in national intellectual capital, which should send a warning to these two nations concerning their future intangible assets competitiveness. The intellectual capital of the four Latin American countries also declined, with Argentina suffering the greatest decrease in all capital categories. For two countries from the southern hemisphere, New Zealand is clearly declining, while Australia experienced increases in its market capital and renewal capital. The three East Asian countries made advances in most capital categories except for Japan, which declined in financial capital. Japan, Korea, and Taiwan each gained one rank, as can be seen in the most recent third period and the overall NICI40 ranking. For the four Southeast Asian countries, the Philippines is the poorest performer, yet Singapore shows continuous progress. The four BRIC countries are largely making gains in intellectual capital. The most noticeable advancement is that of India which moved up 19 ranks in market capital. With the exception of Brazil, the other three countries experienced outstanding GDP growth, ranging from 148 to 294%. Using the data of Tables 16.1 and 16.2, we have developed Table 16.3 to show the potential problems of certain countries as well as the achievements made by others. For easier reference, we added up both the negative and positive ranking changes in the five-capital categories for each country, and then listed the ten countries exhibiting the greatest decline and the ten showing the most positive increase in terms of GDP growth rate. The rationale for adding up the ranking changes of each individual capital is to emphasize the importance of matching development. For instance, Argentina has negative ranking changes of −9, −11, −3, −4, and −9 for all five types of capital, which added up to −36 points. The stark fact that Argentina declined a total of −36 points in intellectual capital is more informative than the single source report of its 83% GDP growth over the 14 years. Its decent GDP growth rate may conceal the nation’s problem of losing intangible assets competitiveness among the 40 countries. This matching development of IC components is in line with the Systems Dynamics approach of the “Intellectual Capital Statement – Made in Europe (InCaS)” (http://www.incas-europe.org/
312
16 Dynamic Systems in National Intellectual Capital
Table 16.3 Countries with most negative and positive ranking changes and GDP growth rate Overall change in GDP Overall change GDP positive growth growth in negative ranking rate (%) Ranking Country ranking Ranking Country rate (%) #1 Argentina −36 83 #1 Iceland +49 94 #2 Philippines −32 79 #2 Czech +33 100 Republic #3 New −29 67 #3 Austria +27 73 Zealand #4 USA −28 69 #3 India +27 155 #5 France −26 61 #5 Singapore +26 101 #6 Finland −24 101 #6 Japan +22 52 #7 Spain −22 78 #7 Ireland +21 141 #8 Germany −21 60 #7 Korea +21 117 #9 Hungary −19 116 #9 Switzerland +20 63 #9 Italy −19 49 #10 Portugal +17 64
European%20ICS%20Guideline.pdf) and with the microenterprise level in this era of intangible assets. Based on Table 16.3, the ten countries which regressed the most in national intellectual capital are Argentina (−36), Philippines (−32), New Zealand (−29), USA (−28), France (−26), Finland (−24), Spain (−22), Germany (−21), Hungary (−19), and Italy (−19); the ten countries which progressed the most are Iceland (+49), Czech Republic (+33), Austria (+27), India (+27), Singapore (+26), Japan (+22), Ireland (+21), Korea (+21), Switzerland (+20), and Portugal (+17). With respect to the development of intangible assets, Argentina and Philippines may be in deep trouble, as over the three periods of 14 years they declined at a relatively large rate for every type of capital. Their unstable political situation may partially explain the outcome for these two nations. New Zealand, USA, and France exhibit a worrisome intellectual capital decline as well. Lagging behind its neighboring country (Australia), New Zealand has a relatively serious problem in the development of its human capital and market capital. USA has significant problems in market capital and process capital development, very likely due to its over-reliance on overseas production and support. France declined in renewal capital, irrespective of its renowned fashion industries. Finland, Germany, Hungary, and Italy declined in human capital; Finland, Hungary, and Spain declined in market capital; and Spain declined in process capital as well. Such findings should send strong signals to these countries that although most of them have experienced a respectable GDP per capita (PPP) growth during the past 14 years, they are in a rather disadvantageous situation with regard to their competitiveness in the future intangible assets, which leads in turn to the creation of national wealth. On the positive side, Iceland experienced the greatest positive ranking changes based on the past 12-year data (1995–2006), though the data for 2007 and 2008 data are lacking due to its 2008 banking system meltdown. As mentioned previously,
GDP Growth Comparison
313
irrespective of its recent financial crisis, Iceland did have an outstanding performance based on the past data. In addition, with the IMF providing $2.1 billion in loans and another $2.5 billion worth of loans and currency swaps from Norway, Sweden, Finland, and Denmark agreed on at the end of 2008, and other financial support coming from Poland, Russia, Germany, the Netherlands, and the UK, Iceland should be able to emerge from the troubled water in the near future with its foreign currency debt service of only $215 million in 2009, which is well within the government’s ability to pay (http://en.wikipedia.org/wiki/2008%E2%80%932009_Icelandic_financial_crisis). Czech Republic made the most progress in market capital and process capital, which is clearly responsible for its leading intellectual capital standing among the East European countries. Austria is progressing relatively well in intellectual capital in comparison with its European peers. Without doubt, India’s outstanding performance has attracted worldwide attention. One observation worth mentioning is the continuous intellectual capital advancement of several developed countries, including Singapore, Japan, Ireland, and Switzerland. It is praiseworthy that these nations have made continuous efforts to enhance their intangible assets for sustainable competitiveness. Korea’s economic development is also well known, and should be correlated with its intangible assets development, especially its human capital and market capital. Portugal encountered some financial problems (reflected in Table 16.2) in early 2010, yet its intellectual capital progress is rather encouraging. Although the development of intellectual capital does not result in a direct improvement in a nation’s economic development, these analyses should be useful in interpreting the past, current, and even future competitiveness in this knowledgeeconomy century.
GDP Growth Comparison Since GDP is a key national performance indicator, to know how well intellectual capital reflects financial performance, we have developed Table 16.4, which displays the GDP of 1995 and 2008 in US dollars, its respective growth rate, and the growth rate of the top five countries in three GDP groups (high/middle/low); thus, for year 1995 we divide GDP per capita (PPP) growth into groups above US$20,001, between US$10,001 and $20,000, and below US$10,000. There are a total of 17 countries in the high GDP group, 9 countries in the middle GDP group, and 14 countries in the low GDP group, with a mean growth rate of 70.82%, 98.12%, and 113.2%, respectively. The top five countries in terms of growth in descending order are Singapore, Iceland, UK, Sweden, and Australia in the high GDP group; Ireland, Korea, Taiwan, Greece, and Finland in the middle GDP group; and China, India, Russia, Poland, and Hungary in the low GDP group. To further explore the relationship between national intellectual capital and financial performance, we correlated the sum of the human capital, market capital, process capital, and renewal capital scores with GDP per capita (PPP) in real dollars for the 40 countries, and a strong correlation of 0.88 was found. This result indicates
314
16 Dynamic Systems in National Intellectual Capital
Table 16.4 GDP growth rate and top five ranking clusters for high, middle, and low GDP 1995 GDP 2008 GDP Growth Top five in Mean 1995–2008 Country (US$) (US$) (%) growth (US$) Australia 21,281 37,299 75.3 #5 28,797 Austria 22,945 39,634 72.7 30,281 Belgium 21,868 36,235 65.7 28,364 Canada 22,777 39,183 72.0 30,577 Denmark 23,158 37,266 60.9 29,849 France 21,244 34,208 61.0 27,253 Germany 22,089 35,442 60.4 27,738 Iceland 20,635 40,025 94.0 #2 29,548 Italy 20,552 30,581 48.8 25,530 Japan 22,418 34,100 52.1 27,228 Netherlands 23,135 40,431 74.8 31,147 Norway 30,885 53,451 73.1 41,677 Singapore 25,397 51,142 101.4 #1 36,065 Sweden 20,689 37,245 80.0 #4 28,283 Switzerland 26,272 42,783 62.8 33,026 UK 20,268 36,523 80.2 #3 27,790 USA 27,763 46,859 68.8 36,788 High GDP cluster Mean growth – 70.82% Czech Republic 12,706 25,395 99.9 17,360 Finland 18,058 36,217 100.6 #5 26,438 Greece 14,928 30,535 104.5 #4 21,350 Ireland 17,632 42,539 141.3 #1 31,134 Korea 12,754 27,647 116.8 #2 18,909 New Zealand 16,232 27,060 66.7 21,152 Portugal 13,567 22,190 63.6 18,098 Spain 17,167 30,621 78.4 23,729 Taiwan 14,616 30,881 111.3 #3 21,929 Middle GDP cluster Mean growth – 98.12% Argentina 7,882 14,413 82.9 9,948 Brazil 6,460 10,326 59.8 7,815 Chile 7,587 14,510 91.3 10,572 China 1,512 5,963 294.3 #1 3,139 Hungary 9,018 19,499 116.2 #5 13,760 India 1,083 2,762 155.1 #2 1,708 Malaysia 7,513 14,072 87.3 10,096 Mexico 8,082 14,560 80.2 11,124 Philippines 1,979 3,546 79.2 2,582 Poland 7,249 17,482 141.2 #4 11,503 Russia 6,419 15,922 148.0 #3 9,509 South Africa 5,710 10,119 77.2 7,387 Thailand 4,679 8,225 75.8 5,858 Turkey 96.3 6,693 13,138 9,248 Low GDP cluster Mean growth – 113.20% Remarks: (1) Based on 1995 GDP, the 40 countries were clustered into three groups: High GDP group – US$20,000 and above; Middle GDP group – US$10,001–$20,000; and Low GDP group – below US$10,000. (2) GDP per capita (PPP) growth rate is based on (2008–1995)/1995
Paths for Planned National Intellectual Capital Growth
315
that the national intellectual capital model proposed in this book carries very valuable information in explaining national economic development and competitiveness. That is, the results presented in this book support to a significant degree the issues which the policy makers are concerned about: bottom-line financial performance. Therefore, NICI40 can serve as an extension of GDP or other commonly used economic indicators, particularly for the intangibles. While GDP reflects the present economic situation, NICI40 is not only an indicator of future wealth creation capabilities, but also has good explaining power for current financial performance.
Intangible Asset Indicators of Various World Organizations In Chaps. 4–14, we provided 16 intangible-assets-related indicators and rankings reported by various world organizations, such as OECD and the United Nations. For easier reference, we have combined that information in Tables 16.5 and 16.6, first by country and then by country cluster.
Paths for Planned National Intellectual Capital Growth Although the national intellectual capital reported in this book reflects mainly the past performance, the 14-year trend analyses can shed some light for the future development. Table 16.2 reveals valuable information with respect to intellectual capital growth. The ranking difference reported in the next-to-last column of Table 16.2 is the ranking gain or loss of the most recent third period (2005–2008). Austria, Czech Republic, Korea, China, and India are the best examples to show that the increase of both market capital and process capital is taken together to explain a major part of the ranking gains of the third period. For instance, +10 ranking gains in both market capital and process capital explain mainly the +5 ranking difference of Czech Republic. The effect of India’s +19 market capital and +2 process capital can primarily be seen in its +2 ranking difference for the third period. In other words, short-term or more efficient national intellectual capital development may result from the increase of market capital and process capital. On the other hand, increases in human capital and renewal capital may also lead to improvement in national intellectual capital, yet with a moderate or long-term progress. Countries belonging to this category include Sweden, Portugal, Malaysia, and Singapore. For example, the +6 human capital and +5 renewal capital scores of Portugal led to its +2 ranking for the third period; and the +8 human capital and +8 renewal capital scores of Singapore go far in explaining its +1 ranking gain for the third period. In other words, the combined increase in human capital and renewal capital, while it may lead to only moderate progress in intellectual capital, may indicate a potential for future sustainable intellectual capital development.
Table 16.5 Intangible asset indicators and ranking of countries by world organizations GDP per capita (PPP) 4. PISA 2. Education growth Overall science 1. Population expenditure NICI40 2008/ (#/score) (#/%) 3. HDI ranking 1995 (%) (000) Argentina 38 83 40,914 37/4.2 46 50/391 Australia 11 75 21,263 29/4.9 4 5/527 Austria 12 73 8,210 12/5.9 14 12/511 Belgium 16 66 10,414 11/6 17 14/510 Brazil 37 60 198,739 30/4.5 70 50/390 Canada 10 72 33,487 13/5.9 3 3/534 Chile 28 91 16,602 48/3.2 40 40/438 China 36 294 1,338,613 53/2.9 94 – Czech 27 100 10,212 43/3.9 35 12/513 Republic Denmark 4 61 5,501 4/7.4 13 22/496 Finland 1 101 5,250 15/5.9 12 1/563 France 20 61 64,058 14/5.9 11 22/495 Germany 15 60 82,330 40/4 23 10/516 Greece 29 105 10,737 55/2.3 18 35/473 Hungary 23 116 9,906 16/5.8 38 19/504 Iceland 7 94 307 3/7.7 1 25/491 India 40 155 1,166,079 50/3.1 132 – Ireland 13 141 4,203 33/4.4 5 15/508 Italy 24 49 58,126 31/4.5 19 35/475 Japan 14 52 127,079 42/3.9 8 3/531 PISA reading (#/score) 51/374 6/513 15/490 10/501 46/393 4/527 37/442 – 22/483 14/494 2/547 18/488 12/495 34/460 23/482 23/484 – 5/517 31/469 11/498
PISA math. (#/score) 50/381 10/520 15/505 8/520 53/370 5/527 44/411 – 14/510 13/513 1/548 21/496 16/504 38/459 24/491 16/506 – 17/501 37/462 6/523
36.8 30.6 28.6 27.4 13.5 15.4 32.9 0.4 20.4 19.1 23.5
5. Broad band/ population (%) 8 24.5 21.4 28.3 5.2 29 8.5 6.2 17.3 1 4 15 20 28 19 7 40 17 23 13
HC (#) 31 10 12 9 37 3 33 39 29
6 18 25 22 45 24 – 71 5 34 28
6. Global ization (#) 54 13 14 15 67 8 43 66 19
4 5 35 23 32 19 7 30 2 36 37
MC (#) 40 14 13 18 33 9 6 25 22
316 16 Dynamic Systems in National Intellectual Capital
Korea Malaysia Mexico Netherlands New Zealand Norway Philippines Poland Portugal Russia Singapore South Africa Spain Sweden Switzerland Taiwan Thailand Turkey UK USA
21 25 35 8 18 9 39 33 26 32 6 31 22 2 3 17 30 34 19 5
117 87 80 75 67 73 79 141 64 148 101 77 78 80 63 111 76 96 80 69
48,509 25,716 111,212 16,716 4,213 4,661 97,977 38,483 10,708 140,041 4,658 49,052 40,525 9,060 7,604 22,974 65,905 76,806 61,113 307,212
36/4.2 18/5.7 3/7.5 25/5.1 17/5.8 20/5.4 54/2.5 23/5.2 2/7.6 38/4.1 52/3 7/6.7 34/4.4 6/7 19/5.4 39/4 32/4.4 51/3.1 10/6.1 8/6.3
25 63 51 6 20 2 102 39 33 73 28 125 16 7 10 – 81 76 21 15
7/522 – 48/410 6/525 3/530 27/487 – 22/498 35/474 33/479 – – 26/488 20/503 13/512 3/532 44/421 43/424 12/515 24/489
1/547 – 46/406 5/531 8/522 25/490 – 22/495 35/466 32/476 – – 31/480 17/502 5/530 1/549 43/417 41/424 22/495 32/474
1/556 – 41/410 8/507 4/521 22/484 – 7/508 29/472 37/440 – – 34/461 7/507 11/499 12/496 41/417 37/447 14/495 –
32 4.8 7.1 35 21.7 34 0.6 9 15.9 2.8 22.3 0.8 20.2 37.3 33 21.8 1.4 7.6 28.3 25.6
22 27 35 11 14 5 34 26 25 30 18 36 24 2 8 16 32 38 21 6
35 23 49 3 16 17 38 41 31 62 1 59 29 11 4 37 53 65 42 7
34 8 28 3 11 15 29 39 26 38 1 31 24 10 12 16 20 27 21 17 (continued)
Paths for Planned National Intellectual Capital Growth 317
Argentina Australia Austria Belgium Brazil Canada Chile China Czech Republic Denmark Finland France Germany Greece Hungary Iceland India Ireland Italy Japan Korea Malaysia
5/8.83 13/8.42 22/7.92 14/8.39 30/6.72 33/6.30 – 54/4.96 21/8.03 25/7.55 18/8.08 15/8.34 34/6.16
4/9.36 9/9.07 15/8.26 10/9.05 38/5.25 41/4.97 2/9.56 37/5.51 18/8.05 26/6.7 24/7.05 32/5.86 21/7.52
84.2 82.9 67.7 67.1 45.9 55.5 89.3 7 67.3 50.1 74 77.3 65.7
9. Internet usership/ 8. e-Readiness population (%) (#/score) 44/5.56 48.9 4/8.83 79.6 10/8.63 68.2 20/8.04 67.3 42/5.65 34 12/8.49 71.7 32/6.57 50.4 56/4.85 25.3 31/6.68 48.9
7. Quality of life (#/score) 49/4.41 6/9.2 2/9.57 13/8.79 44/4.8 5/9.21 27/6.41 43/4.84 22/7.32
Table 16.5 (continued)
28/120.1 17/129 62/93.6 16/129.9 22/123.5 24/122.2 44/108.8 116/29.2 32/115.3 6/150.3 72/86.3 61/94.3 51/100.4
10. Mobile telephone (#/score) 31/116.5 47/105.6 18/128.9 36/112.8 81/77.6 92/64.7 67/88.1 104/47.4 13/135.3 2 1 20 16 29 27 9 36 11 23 19 26 22
PC # 40 7 13 18 38 12 25 33 28 10/2.55 3/3.47 14/2.08 11/2.53 42/0.57 32/0.97 7/2.83 38/0.75 24/1.31 29/1.13 4/3.4 5/3.01 43/0.57
11. R&D (#/%) 46/0.51 13/2.09 9/2.56 16/1.87 31/1.1 15/1.89 40/0.68 23/1.49 21/1.54 0.57 0.61 0.50 0.58 0.36 0.32 0.47 – 0.53 0.35 0.6 – –
12. Innova tion score – 0.36 0.53 0.51 – 0.44 – – 0.40 7 3 10 6 29 26 9 34 20 23 5 19 28
RC # 38 18 16 15 35 12 33 27 24 5 9 28 13 52 45 7 30 19 50 17 27 18
13. World competi tiveness (#) 55 7 16 22 40 8 25 20 29 5/5.46 6/5.43 16/5.13 7/5.37 71/4.04 58/4.22 26/4.8 49/4.3 25/4.84 48/4.31 8/5.37 19/5 24/4.87
14. Global competi tiveness (#/score) 85/3.91 15/5.15 17/5.13 18/5.09 56/4.23 9/5.33 30/4.7 29/4.74 31/4.67
26/58.2 1/75.1 36/55.2 31/56.9 67/50.1 54/52.0 5/70.8 101/45.2 21/59.2 69/50.1 30/57.3 122/43.0 38/54.0
15. ESI (#/score) 9/62.7 13/61.0 10/62.7 112/44.4 11/62.2 6/64.4 42/53.6 133/38.6 92/46.6
25/84.0 4/91.4 10/87.8 13/86.3 44/80.2 23/84.2 11/87.6 120/60.3 34/82.7 24/84.2 21/84.5 51/79.4 26/84.0
16. EPI (#/score) 38/81.8 46/79.8 6/89.4 57/78.4 35/82.7 12/86.6 29/83.4 105/65.1 68/76.8
Mexico 47/4.54 40/5.88 24.6 89/69.9 37 49/0.46 – 40 46 60/4.19 95/46.2 47/79.8 Netherlands 11/8.94 7/8.74 85.4 27/121.1 10 18/1.7 0.48 8 10 10/5.32 40/53.7 55/78.7 New Zealand 12/8.88 16/8.28 79.7 42/109.6 14 27/1.18 – 21 15 20/4.98 14/60.9 7/88.9 Norway 3/9.56 11/8.60 85.7 40/110.5 5 20/1.57 0.38 14 11 14/5.17 2/73.4 3/93.1 Philippines 45/4.62 55/4.90 21.1 83/76 34 56/0.1 – 37 43 87/3.9 125/42.3 61/77.9 Poland 46/4.57 41/5.83 52 45/108.7 35 44/0.56 0.31 30 44 46/4.33 102/45.0 42/80.5 Portugal 30/6.24 27/7.38 41.6 12/139.8 24 26/1.18 0.36 31 34 43/4.4 37/54.2 18/85.8 Russia 54/2.94 59/4.42 27.1 14/132.2 39 30/1.12 – 22 49 63/4.15 33/56.1 28/83.9 Singapore 14/8.45 6/8.74 66.7 10/142 3 12/2.27 – 13 3 3/5.55 – – South Africa 34/5.59 39/5.95 9.4 64/92.2 30 33/0.92 – 32 48 45/4.34 93/46.2 97/69.0 Spain 19/7.69 26/7.46 70.6 38/111.4 21 25/1.2 0.37 25 39 33/4.59 76/48.8 30/83.1 Sweden 6/9.2 3/8.85 80.5 34/113.7 4 2/3.64 0.64 2 6 4/5.51 4/71.7 2/93.1 Switzerland 1/9.7 9/8.67 75.8 30/116.9 6 6/2.9 0.68 1 4 1/5.6 7/63.7 1/95.5 Taiwan 33/5.78 19/8.05 65.9 41/110.3 17 8/2.62 – 11 23 12/5.2 145/32.7 40/80.8 Thailand 28/6.36 47/5.22 20.3 21/123.8 31 53/0.2 – 39 26 36/4.56 73/49.7 53/79.2 Turkey 40/4.98 43/5.64 34.5 71/86.8 32 41/0.58 0.21 36 47 61/4.16 91/46.6 72/75.9 UK 20/7.68 8/8.68 79.8 20/123.8 15 17/1.76 0.55 17 21 13/5.19 65/50.2 14/86.3 USA 16/8.18 1/8.95 74.1 69/87.6 8 7/2.67 0.55 4 1 2/5.59 45/52.9 39/81.0 Remarks: References of the 16 indicators in Tables 16.5 and 16.6 are provided in the first section of “References.” For instance, HDI – United Nations Human Development Index Ranking (2008) “#” refers to the ranking among respective members, and the numbers are the most current data available in 2009
100
116
29 24 26 22
27
23
Czech Republic Hungary
105 49 64 78
9,906
10,212
10,737 58,126 10,708 40,525
8,210 10,414 16,716 7,604
16/5.8
43/3.9
55/2.3 31/4.5 2/7.6 34/4.4
12/5.9 11/6 25/5.1 19/5.4
38
35
18 19 33 16
14 17 6 10
19/504
12/513
35/473 35/475 35/474 26/488
12/511 14/510 6/525 13/512
24/491
14/510
38/459 37/462 35/466 31/480
15/505 8/520 5/531 5/530
Greece Italy Portugal Spain
73 66 75 63
22/495 10/516 15/508 12/515
12 16 8 3
11 23 5 21
Austria Belgium Netherlands Switzerland
14/5.9 40/4 33/4.4 10/6.1
21/496 16/504 17/501 22/495
64,058 82,330 4,203 61,113
20 15 13 19
France Germany Ireland UK
61 60 141 80
PISA math. (#/score) 13/513 1/548 16/506 25/490 17/502
Table 16.6 Intangible asset indicators and ranking of country cluster by world organization GDP per capita (PPP) 4. PISA 2. Education growth science 1. Population expenditure Overall IC 2008/ (#/score) (#/%) 3. HDI 1995 (%) (000) ranking Denmark 4 61 5,501 4/7.4 13 22/496 Finland 1 101 5,250 15/5.9 12 1/563 Iceland 7 94 307 3/7.7 1 25/491 Norway 9 73 4,661 20/5.4 2 27/487 Sweden 2 80 9,060 6/7 7 20/503
23/482
22/483
34/460 31/469 29/472 34/461
15/490 10/501 8/507 11/499
18/488 12/495 5/517 14/495
PISA reading (#/score) 14/494 2/547 23/484 22/484 7/507
15.4
17.3
13.5 19.1 15.9 20.2
21.4 28.3 35 33
28.6 27.4 20.4 28.3
5. Broad band/ population (%) 36.8 30.6 32.9 34 37.3
19
29
28 23 25 24
12 9 11 8
15 20 17 21
HC (#) 1 4 7 5 2
24
19
45 34 31 29
14 15 3 4
25 22 5 42
6. Global ization (#) 6 18 – 17 11
19
22
32 36 26 24
13 18 3 12
35 23 2 21
MC (#) 4 5 7 15 10
33 31 34
10 5
38 37 28 35
11 18 14 21 17 25 39 6 30
37 36 40 32
Poland South Africa Turkey
Canada USA
Argentina Brazil Chile Mexico
Australia New Zealand Japan Korea Taiwan Malaysia Philippines Singapore Thailand
Brazil China India Russia
60 294 155 148
75 67 52 117 111 87 79 101 76
83 60 91 80
72 69
141 77 96
198,739 1,338,613 1,166,079 140,041
21,263 4,213 127,079 48,509 22,974 25,716 97,977 4,658 65,905
40,914 198,739 16,602 111,212
33,487 307,212
38,483 49,052 76,806
30/4.5 53/2.9 50/3.1 38/4.1
29/4.9 17/5.8 42/3.9 36/4.2 39/4 18/5.7 54/2.5 52/3 32/4.4
37/4.2 30/4.5 48/3.2 3/7.5
13/5.9 8/6.3
23/5.2 7/6.7 51/3.1
70 94 132 73
4 20 8 25 – 63 102 28 81
46 70 40 51
3 15
39 125 76
50/390 – – 33/479
5/527 3/530 3/531 7/522 3/532 – – – 44/421
50/391 50/390 40/438 48/410
3/534 24/489
22/498 – 43/424
53/370 – – 32/476
10/520 8/522 6/523 1/547 1/549 – – – 43/417
50/381 53/370 44/411 46/406
5/527 32/474
22/495 – 41/424
46/393 – – 37/440
6/513 4/521 11/498 1/556 12/496 – – – 41/417
51/374 46/393 37/442 41/410
4/527 –
7/508 – 37/447
5.2 6.2 0.4 2.8
24.5 21.7 23.5 32 21.8 4.8 0.6 22.3 1.4
8 5.2 8.5 7.1
29 25.6
9 0.8 7.6
37 39 40 30
10 14 13 22 16 27 34 18 32
31 37 33 35
3 6
26 36 38
67 66 71 62
13 16 28 35 37 23 38 1 53
54 67 43 49
8 7
41 59 65
33 25 30 38 (continued)
14 11 37 34 16 8 29 1 20
40 33 6 28
9 17
39 31 27
30/6.72 25/7.55 27/7.38 26/7.46
31/6.68
33/6.30 41/5.83 39/5.95 43/5.64
2/9.57 13/8.79 11/8.94 1/9.7
38/5.25 26/6.7 30/6.24 19/7.69
22/7.32
41/4.97 46/4.57 34/5.59 40/4.98
France Germany Ireland UK
Austria Belgium Netherlands Switzerland
Greece Italy Portugal Spain
Czech Republic Hungary Poland South Africa Turkey
10/8.63 20/8.04 7/8.74 9/8.67
22/7.92 14/8.39 21/8.03 8/8.68
15/8.26 10/9.05 18/8.05 20/7.68
Denmark Finland Iceland Norway Sweden
55.5 52 9.4 34.5
48.9
45.9 50.1 41.6 70.6
68.2 67.3 85.4 75.8
67.7 67.1 67.3 79.8
9. Internet usership/ 8. e-Readiness population (%) (#/score) 5/8.83 84.2 13/8.42 82.9 – 89.3 11/8.60 85.7 3/8.85 80.5
7. Quality of life (#/score) 4/9.36 9/9.07 2/9.56 3/9.56 6/9.2
Table 16.6 (continued)
24/122.2 45/108.7 64/92.2 71/86.8
13/135.3
22/123.5 6/150.3 12/139.8 38/111.4
18/128.9 36/112.8 27/121.1 30/116.9
62/93.6 16/129.9 32/115.3 20/123.8
10. Mobile telephone (#/score) 28/120.1 17/129 44/108.8 40/110.5 34/113.7
27 35 30 32
28
29 23 24 21
13 18 10 6
20 16 11 15
PC (#) 2 1 9 5 4
32/0.97 44/0.56 33/0.92 41/0.58
21/1.54
42/0.57 29/1.13 26/1.18 25/1.2
9/2.56 16/1.87 18/1.7 6/2.9
14/2.08 11/2.53 24/1.31 17/1.76
11. R&D (#/%) 10/2.55 3/3.47 7/2.83 20/1.57 2/3.64
0.32 0.31 – 0.21
0.40
0.36 0.35 0.36 0.37
0.53 0.51 0.48 0.68
0.50 0.58 0.53 0.55
12. Innova tion score 0.57 0.61 0.47 0.38 0.64
26 30 32 36
24
29 23 31 25
16 15 8 1
10 6 20 17
RC (#) 7 3 9 14 2
45 44 48 47
29
52 50 34 39
16 22 10 4
28 13 19 21
13. World competi tiveness (#) 5 9 7 11 6
58/4.22 46/4.33 45/4.34 61/4.16
31/4.67
71/4.04 48/4.31 43/4.4 33/4.59
17/5.13 18/5.09 10/5.32 1/5.6
16/5.13 7/5.37 25/4.84 13/5.19
14. Global competi tiveness (#/score) 5/5.46 6/5.43 26/4.8 14/5.17 4/5.51
54/52.0 102/45.0 93/46.2 91/46.6
92/46.6
67/50.1 69/50.1 37/54.2 76/48.8
10/62.7 112/44.4 40/53.7 7/63.7
36/55.2 31/56.9 21/59.2 65/50.2
15. ESI (#/score) 26/58.2 1/75.1 5/70.8 2/73.4 4/71.7
23/84.2 42/80.5 97/69.0 72/75.9
68/76.8
44/80.2 24/84.2 18/85.8 30/83.1
6/89.4 57/78.4 55/78.7 1/95.5
10/87.8 13/86.3 34/82.7 14/86.3
16. EPI (#/score) 25/84.0 4/91.4 11/87.6 3/93.1 2/93.1
4/8.83 16/8.28
18/8.08 15/8.34 19/8.05
Australia 6/9.2 New Zealand 12/8.88
24/7.05 32/5.86 33/5.78
21/7.52 45/4.62 14/8.45 28/6.36
44/4.8 43/4.84 37/5.51 54/2.94
Japan Korea Taiwan
Malaysia Philippines Singapore Thailand
Brazil China India Russia
42/5.65 56/4.85 54/4.96 59/4.42
34/6.16 55/4.90 6/8.74 47/5.22
44/5.56 42/5.65 32/6.57 40/5.88
49/4.41 44/4.8 27/6.41 47/4.54
Argentina Brazil Chile Mexico
12/8.49 1/8.95
5/9.21 16/8.18
Canada USA
34 25.3 7 27.1
65.7 21.1 66.7 20.3
74 77.3 65.9
79.6 79.7
48.9 34 50.4 24.6
71.7 74.1
81/77.6 104/47.4 116/29.2 14/132.2
51/100.4 83/76 10/142 21/123.8
72/86.3 61/94.3 41/110.3
47/105.6 42/109.6
31/116.5 81/77.6 67/88.1 89/69.9
92/64.7 69/87.6
38 33 36 39
22 34 3 31
19 26 17
7 14
40 38 25 37
12 8
31/1.1 23/1.49 38/0.75 30/1.12
43/0.57 56/0.1 12/2.27 53/0.2
4/3.4 5/3.01 8/2.62
13/2.09 27/1.18
46/0.51 31/1.1 40/0.68 49/0.46
15/1.89 7/2.67
– – – –
– – – –
0.6 – –
0.36 –
– – – –
0.44 0.55
35 27 34 22
28 37 13 39
5 19 11
18 21
38 35 33 40
12 4
40 20 30 49
18 43 3 26
17 27 23
7 15
55 40 25 46
8 1
56/4.23 29/4.74 49/4.3 63/4.15
24/4.87 87/3.9 3/5.55 36/4.56
8/5.37 19/5 12/5.2
15/5.15 20/4.98
85/3.91 56/4.23 30/4.7 60/4.19
9/5.33 2/5.59
11/62.2 133/38.6 101/45.2 33/56.1
38/54.0 125/42.3 – 73/49.7
30/57.3 122/43.0 145/32.7
13/61.0 14/60.9
9/62.7 11/62.2 42/53.6 95/46.2
6/64.4 45/52.9
35/82.7 105/65.1 120/60.3 28/83.9
26/84.0 61/77.9 – 53/79.2
21/84.5 51/79.4 40/80.8
46/79.8 7/88.9
38/81.8 35/82.7 29/83.4 47/79.8
12/86.6 39/81.0
324
16 Dynamic Systems in National Intellectual Capital
Based on the above observations, two scatter plots can be meaningfully drawn to show the paths for planned intellectual capital growth. For nations that intend to plan for long-term (i.e., 10 years or more) sustainable competitiveness, human capital and renewal capital may prove to be better predictors under the condition that market capital and process capital have made a certain level of progress; on the other hand, when targeting for short-term national progress (i.e., about 5 years), market capital and process capital may be better predictors. As a result, we are presenting two scatter plots hereunder as references for readers. Figure 16.1 maps human capital and renewal capital on a coordinate. Clearly, three clusters are evident; countries in the lower left group are mainly emerging economies, such as China, India, and Russia; countries in the middle group are promising economies with good perspectives, such as Ireland, Korea, and Germany; countries in the upper right group, meanwhile, are advanced economies still with the potential to grow, such as Japan, Sweden, and Switzerland. This graph indicates that certain conditions must be met to be in the middle or high groups, such as high levels of skilled labor, internet subscribers, business R&D spending, R&D percentage of GDP, and the number of scientific articles. These are the targets developing countries need to reach in the future. Figure 16.2 maps market capital and process capital on a coordinate. Interestingly, most nations are clustered in the center of around 4 × 5 cells with a clear positive correlation between the two capitals. As mentioned in Chap. 1, market capital refers to the general assets embodied in a nation’s relationship with international markets while process capital refers to national infrastructure, such as information systems and the number of days required to start a new business. For short-term competition, these are the two types of capital that can be expected to produce faster results if a nation is willing to engage in more extensive investment. In addition, such results seem to be more easily attainable for most countries, as they are clustered in a relatively small central area, unlike Fig. 16.1 with its three distinctive groups. In addition, Chap. 15 indicated that the process capital of a poor country is not necessarily lower than that of a fast-growth country; in other words, national relationships, infrastructure, and policies are more easily attainable as long as a given nation is willing to invest its time and resources toward such improvement. Yet, human capital and renewal capital need to be evaluated based on unpredictable human performance and renewal capital comes from the outcome of qualified human resources. To further illustrate the above-stated phenomena that human capital and renewal capital together predict long-term intellectual capital increase, whereas market capital and process capital together predict a short-term increase, we take as examples of Iceland and the PIGS (Portugal, Ireland, Greece, and Spain) countries (http://news.bbc.co.uk/2/hi/8510603.stm) to reflect the influence of the 2008 financial crisis and the early 2010 economic status of several EU (European Union) countries. Two scatter plots for each country are presented hereunder. For Iceland, Fig. 16.3 shows a sharper growth of human capital and renewal capital up to 2006 (after which data are unavailable, as explained in Chap. 4) at a level of around 8.5. Since 2001, human capital/renewal capital stays within the
Scatter plot of Human Capital vs. Renewal Capital 0
1
2
3
4
5
6
7
8
9
10 10
10
Human Capital
8 PorHun Spa Pol Mal Ita Gre Arg CR Rus Tha Chile Phi SA Mex Bra Tur China Ind
6 4
9
Den Can Nor Ice Australia Bel Austria Net NZ Fra Tai Ire Kor Siin Ger UK
Swe USA
8
Swi
Fin
7
Jap
6 5 4
Figure 16.1b
2
3 2
Figure 16.1a
1 0
0 0
2
4
6
8
10
Renewal Capital
a
Scatter plot of Human Capital vs. Renewal Capital 6.5
Hun Spa
Por
6.0
Human Capital
Pol
Mal Gre
5.5
5.0
Tha
Arg Chile
Phi
Mex
SA
4.5
Tur
Bra China
4.0
Ind
1.2
1.4
1.6
1.8
2.0
2.2
2.4
2.6
Renewal Capital
b
Scatter plot of Human Capital vs. Renewal Capital 8.0
Can Nor
Human Capital
7.5
Australia
7.0
Bel Austria
6.5
Fra
Tai
Sin UK
Kor
6.0
4.2
4.3
4.4
4.5
4.6
4.7
Renewal Capital
Fig. 16.1 Scatter plot of human capital vs. renewal capital
4.8
4.9
5.0
Scatter plot of Market Capital vs. Process Capital 0
1
2
3
4
5
6
7
8
9
10
10
10 9
Sin
Market Capital
8
8
Ire Net Ice DenFin Can Swe Swi NZ Austria Australia Tai Nor USA Bel Hun Tha CR UK Spa Ger China Por Mex Phi Tur SAGre Kor Fra Ind Bra Ita Jap Rus Pol Arg Chile Mal
6 4
7 6 5 4
Figure 16.2b
2
3 2
Figure 16.2a
1
0
0 0
2
4
6
8
10
Process Capital
a
Scatter plot of Market Capital vs. Process Capital 5.8
Tha
5.6
Market Capital
5.4
China
5.2 Mex
5.0 Bra
4.8
Tur
Ind Phi
4.6 4.4 4.2 4.0
Arg
Rus
Pol
2.8
3.0
3.2
3.4
3.6
3.8
4.0
Process Capital Scatter plot of Market Capital vs. Process Capital
b 8.5
Sin
Market Capital
8.0 7.5
Ire Net
7.0
Den
Ice
6.5
NZ
Austria
Can
Swi Australia USA Nor
6.0
Swe
UK Ger
5.5 6.0
6.2
6.4
6.6
6.8
Process Capital
Fig. 16.2 Scatter plot of market capital vs. process capital
7.0
7.2
7.4
Paths for Planned National Intellectual Capital Growth
327
Scatter plot of Human Capital vs. Renewal Capital of Iceland 8.5 2001
8.0
Human Capital
2006
2004
2005 2003
2002
2000
7.5 1999 1998
7.0 1995 1996
1997
6.5 3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
Renewal Capital Fig. 16.3 Scatter plot of human capital vs. renewal capital of Iceland
Scatter plot of Market Capital vs. Process Capital of Iceland 2005
7.25
2006
Market Capital
7.00
2004
2003
6.75
2001
6.50
2002
1999
1998
2000
6.25 1997
6.00 1996
5.75 1995
5.50 6.0
6.2
6.4
6.6
6.8
7.0
7.2
7.4
7.6
Process Capital Fig. 16.4 Scatter plot of market capital vs. process capital of Iceland
small upper-right-hand corner area until its financial meltdown. An early sign of this might be detected in the first decline of market capital/process capital in 2001, and then a second one in 2006 as shown in Fig. 16.4.
328
16 Dynamic Systems in National Intellectual Capital
In early 2010, people began to talk about the PIGS countries. “PIGS” is an acronym for a group of four countries: Portugal, Ireland, Greece, and Spain – all in deep economic trouble in the eurozone (http://news.kyero.com/2009/1/26/pigs-portugal-irelandgreece-spain). Our dataset also reflects the troubles of these countries. The following presentation proceeds according to the alphabetical order of country names. The recent discovery of the weak situation of Greece might have been possible to detect in 2000. Figure 16.5 shows that the combination of human capital and renewal capital has been going up since 1995, reaching a plateau in human capital of slightly above 5.75 in 2003 and has remained there for the following five consecutive years. The positive correlation between human capital and renewal capital in Greece explains the desirable trend that renewal capital goes up in tandem with human capital. However, with regard to the short-term intangible of value creation, Fig. 16.6 indicates that market capital/process capital peaked in 2000, after which it continued to fall until it halted at a very low level in 2008 – a clear negative correlation line from 2000 to 2008. Consequently, the financial capability of Greece eroded into its current situation that requires external loan support. Somehow, our data predicted what has been reported by EU governments, namely, that Greece shocked bond markets and its deficit in 2009 was a staggering 12.5% of GDP, far above its estimate of 3.7% made in the spring (http://www.taipeitimes.com/News/ worldbiz/archives/2010/01/14/2003463439). This downturn somewhat reflects Greece’s troubling 9.7% unemployment rate for 2009, and the forecast of gross debt in 2010 of 125% GDP and stock performance of −10.5% as of February 11, 2010 (http://news.bbc.co.uk/2/hi/8510603.stm). For Ireland, Fig. 16.7 shows that its development of human capital and renewal capital is much more uneven, with an initial regression of renewal capital in 2001,
Scatter plot of Human Capital vs. Renewal Capital of Greece 6.00
2008
2003
2001
2004
5.75
2005
2006 2007
Human Capital
2002 2000
5.50 1999
5.25
1998
5.00 4.75 1996
4.50 1995
1.4
1.5
1997
1.6
1.7
1.8
1.9
2.0
Renewal Capital Fig. 16.5 Scatter plot of human capital vs. renewal capital of Greece
2.1
2.2
2.3
Paths for Planned National Intellectual Capital Growth
329
Scatter plot of Market Capital vs. Process Capital of Greece 1996
1999
5.5 1997
1998
Market Capital
1995
2000
5.0
2006 2005 2004
4.5
2003
2001 2002
2007
4.0 2008
3.5 3.0
3.5
4.0
4.5
5.0
5.5
Process Capital Fig. 16.6 Scatter plot of market capital vs. process capital of Greece
whereas human capital reaches a peak of around 7.5 in 2003 after an extended period of decline for 4 years followed by an increase to approximately the same previous high in 2008. However, there are two positive correlation lines between human capital and renewal capital – the lines of 1997–1998–1999 and of 2004–2006–2007–2008. Generally speaking, human capital and renewal capital in Ireland progress together hand in hand, with the exception of the years 2002 and 2003. With respect to the value-creating capability of market capital and process capital, a peak is reached in 2000, then a decline sets in until 2003, with a short upturn to 2005, and then a decline to a low level in 2008 as shown in Fig. 16.8. However, the negative correlation between market capital and process capital from year 2000 onward up to 2008 is a strong watershed signal. Most notably, the big slide from 2007 to 2008 reflects the 2008 financial crisis and shows that economic activity in Ireland dropped sharply in 2008–2009 as it entered into a recession for the first time in more than a decade (http://www.theodora.com/wfbcurrent/ireland/ ireland_economy.html). The current economic status of Ireland is further evidenced by Lin and Edvinsson’s (2010) report that its GDP per capita (PPP) for 2006, 2007, and 2008 was 5.7%, 6.0%, and −1.7%, respectively. These downturns partially explain Ireland’s troubling 13.3% unemployment rate in 2009, a projected gross debt in 2010 of 82.9% GDP, and stock market decline of −1.5% as of February 11, 2010 (http://news.bbc.co.uk/2/hi/8510603.stm). For Portugal, Fig. 16.9 shows that the development of human capital and renewal capital is a clearly positive correlation starting from 2002 onward with a larger gain in human capital. However, as shown in Fig. 16.10, its short-term value-creating capability began to slide in 1998, with market capital declining year after year
330
16 Dynamic Systems in National Intellectual Capital
Scatter plot of Human Capital vs. Renewal Capital of Ireland 7.5
2003 2002
2008 2007 2005
7.0
Human Capital
2001
2006 2000
2004
6.5
6.0
1999
1998
5.5
1995
1996 1997
5.0 3.0
3.2
3.4
3.6
3.8
4.0
4.2
4.4
Renewal Capital Fig. 16.7 Scatter plot of human capital vs. renewal capital of Ireland
Scatter plot of Market Capital vs. Process Capital of Irelan d 8.00 1999
Market Capital
7.75 2000
7.50
1997
2001
1998
7.25
2005
2006
1996 1995
2003
7.00
2002
2004 2007
6.75 6.50
2008
5.0
5.5
6.0
6.5
Process Capital Fig. 16.8 Scatter plot of market capital vs. process capital of Ireland
7.0
7.5
Paths for Planned National Intellectual Capital Growth
331
Scatter plot of Human Capital vs. Renewal Capital of Portugal 7.5
2008 2007 2006
7.0
2005 2004
Human Capital
2003
6.5 2002
6.0
1999 1998
5.5 2001
5.0
1996 1997
2000
1995
4.5 1.50
1.75
2.00
2.25
2.50
2.75
3.00
Renewal Capital Fig. 16.9 Scatter plot of human capital vs. renewal capital of Portugal
Scatter plot of Market Capital vs. Process Capital of Portugal 6.2 6.0
1996
1997
1995
Market Capital
5.8 1998
5.6
1999
5.4
2003
5.2 2006
2002 2001
5.0 2004
2000 2008
2005
4.8
2007
4.6 3.0
3.5
4.0
4.5
Process Capital
5.0
Fig. 16.10 Scatter plot of market capital vs. process capital of Portugal
5.5
6.0
332
16 Dynamic Systems in National Intellectual Capital
Scatter plot of Human Capital vs. Renewal Capital of Spain 2007
6.6
2008
2005
6.4 2001
2003
Human Capital
6.2
2002
2006
2004
6.0
1998
2000
5.8
1999
5.6 5.4 5.2 1995
1997
1996
5.0 2.0
2.2
2.4
2.6
2.8
3.0
Renewal Capital Fig. 16.11 Scatter plot of human capital vs. renewal capital of Spain
although a slight improvement in process capital was recorded. This downturn reflects Portugal’s troubling 10.4% unemployment rate in 2009, a projected gross debt in 2010 of 84.6% GDP, and a stock market decline of −9.7% as of February 11, 2010 (http://news.bbc.co.uk/2/hi/8510603.stm). For Spain, Fig. 16.11 shows that the development of human capital and renewal capital fluctuates, with a clear decline in renewal capital in 2000, a short upturn in 2002, and then a regression in 2003 and 2004; yet from 2005 onward the growing trend is obvious. With regard to the development of market capital and process capital, as shown in Fig. 16.12, a generally negative correlation appears to be starting from 2001 and hitting rock bottom in 2008. The declining short-term value-creating capability partially explains Spain’s disturbing 19.5% unemployment rate in 2009, a projected gross debt in 2010 of 66.3% GDP, and a stock market decline of −13% as of February 11, 2010 (http://news.bbc.co.uk/2/ hi/8510603.stm). Spain has been very hard-hit by huge declines in its property markets, and so it remains the only major economy in Europe still in recession; as a result, Spain government announced a 50bn-euro austerity package, including a civil-service hiring freeze, at the end of January 2010 (http://news.bbc.co.uk/2/ hi/8510603.stm). By looking back at the 14 years of historical data, early signals of the symptoms that have recently surfaced are present for the countries in the above sample. If warnings can be detected much earlier, the problems encountered might be mitigated to a manageable level. “Learning from history” certainly is a wise piece of advice for national policy makers.
Summary
333
Scatter plot of Market Capital vs. Process Capital of Spain 1996
6.0
1998 1999
1997
2001
Market Capital
2000 1995
5.5
2003
2002
2006
5.0
2004 2007
4.5
2005
2008
3.0
3.5
4.0
4.5
5.0
5.5
6.0
Process Capital
Fig. 16.12 Scatter plot of market capital vs. process capital of Spain
Summary This book covers the national intellectual capital of 40 major countries in the world. Although all the comparisons are limited to these 40 countries over a period of 14 years, the dynamics generated from this system are as much as we can handle. Systematic observations can stem from the smallest element of each individual capital of a particular country to a holistic comparison with the 16 external indicators (Tables 16.5 and 16.6) reported by various world organizations. For example, a first step could be taken by observing the ups and downs of each capital in turn, such as human capital, market capital, process capital, and so on in a particular country over the 14 years. The second step could examine the progress or regress of each individual capital over a three-time period and pay special attention to the performance for the most recent third period (2005–2008) and its overall NICI40 ranking change to check its external competitiveness among the 40 countries. The third step could be an investigation whether any significant economic, social, or political change occurred during the 14 years that might explain a country’s intellectual capital variation over the years. The fourth step could compare the intellectual capital performance of a country with the counterparts of the same country cluster. The fifth step would be to gain insight from comparing and contrasting each individual capital ranking with a compatible external ranking, such as comparing the “globalization ranking” and “NICI40 market capital ranking” (the last two columns of Table 16.5). The sixth step comparison would be to undertake a cross-study of
334
16 Dynamic Systems in National Intellectual Capital
different country clusters and different regions. Finally, for the seventh step, the most comprehensive comparison would be a holistic view of the 16 different world organization indicators presented in Tables 16.5 and 16.6. However, these 16 indicators have different assessment criteria and different ranking purposes; as a result, interpretation of this ultimate comparison needs to be done cautiously. This set of bountiful statistics, information, and preliminary interpretations are for readers to explore and to fit into their specific set of needs and settings. Hopefully, further practical wisdom, or phronesis, can be generated from the emerging patterns of the NICI40 data reported in this book. In addition, plotting NICI40 data together with a relevant intangible indicator, such as health, should also prove valuable in the future.
Appendices As in each chapter, the second column in Appendices 1–6 exhibits the overall ranking difference between the first (first) period and the third (third) period. The third column is the ranking of the first period, and the fourth and the fifth columns display respective rankings and differences with regard to the previous period. The last column compares the most recent third period ranking with the overall NICI40 ranking.
Ranking changes of human capital over the three periods for 40 countries 1st period – 1st period 2nd period 3rd period (1995–1999) (2000–2004) Human Difference Ranking Ranking Difference capital Argentina −9 24 35 −11 Australia −1 11 9 2 Austria −4 9 13 −4 Belgium 7 13 12 1 Brazil 0 37 38 −1 Canada −3 2 3 −1 Chile 4 35 31 4 China 4 39 40 −1 Czech Republic 4 32 29 3 Denmark 2 3 1 2 Finland −7 1 7 −6 France −3 14 18 −4 Germany −8 15 21 −6 Greece 1 30 27 3 Hungary −6 16 20 −4 Iceland 4 7 5 2 India 0 40 39 1 Ireland 4 20 15 5 Italy −7 17 24 −7 Japan 8 18 10 8 Korea 6 26 19 7
Appendix 1 3rd period (2005–2008) Ranking 33 12 13 6 37 5 31 35 28 1 8 17 23 29 22 3 40 16 24 10 20 Difference 2 −3 0 6 1 −2 0 5 1 0 −1 1 −2 −2 −2 2 −1 −1 0 0 −1
(continued)
3rd period ranking vs. overall NICI40 ranking Ranking Difference 31 −2 10 −2 12 −1 9 3 37 0 3 −2 33 2 39 4 29 1 1 0 4 −4 15 −2 20 −3 28 −1 19 −3 7 4 40 0 17 1 23 −1 13 3 22 2
Appendix 1 335
1st period – 3rd period Difference
7 0 1 −10 0 −5 0 6 −2 8 −3 −3 3 1 5 −3 0 0 −1
Human capital
Malaysia Mexico Netherlands New Zealand Norway Philippines Poland Portugal Russia Singapore South Africa Spain Sweden Switzerland Taiwan Thailand Turkey UK USA
(continued)
33 34 12 8 4 31 27 25 28 23 36 22 5 10 19 29 38 21 6
1st period (1995–1999) Ranking 26 36 11 16 4 32 28 25 30 14 33 23 2 8 17 34 37 22 6
2nd period (2000–2004) Ranking 7 −2 1 −8 0 −1 −1 0 −2 9 3 −1 3 2 2 −5 1 −1 0
Difference 26 34 11 18 4 36 27 19 30 15 39 25 2 9 14 32 38 21 7
3rd period (2005–2008) Ranking 0 2 0 −2 0 −4 1 6 0 −1 −6 −2 0 −1 3 2 −1 1 −1
Difference 27 35 11 14 5 34 26 25 30 18 36 24 2 8 16 32 38 21 6
1 1 0 −4 1 −2 −1 6 0 3 −3 −1 0 −1 2 0 0 0 −1
3rd period ranking vs. overall NICI40 ranking Ranking Difference
336 16 Dynamic Systems in National Intellectual Capital
Ranking changes of market capital over the three periods for 40 countries 1st period – 1st period 3rd Period (1995–1999) 2nd period ‑(2000–2004) Difference Ranking Ranking Difference Market capital Argentina −11 29 40 −11 Australia 7 18 13 5 Austria 5 14 10 4 Belgium −6 13 18 −5 Brazil −3 31 31 0 Canada −4 9 9 0 Chile 2 8 6 2 China 4 28 25 3 Czech Republic 10 26 21 5 Denmark 3 7 8 −1 Finland −8 4 4 0 France −5 32 37 −5 Germany 3 23 23 0 Greece −8 27 36 −9 Hungary −10 16 19 −3 Iceland 13 15 5 10 India 19 37 30 7 Ireland −1 2 2 0 Italy −2 34 34 0 Japan 11 39 35 4 Korea 7 36 26 10
Appendix 2
3rd period (2005–2008) Ranking Difference 40 0 11 2 9 1 19 −1 34 −3 13 −4 6 0 24 1 16 5 4 4 12 −8 37 0 20 3 35 1 26 −7 2 3 18 12 3 −1 36 −2 28 7 29 −3
3rd period ranking vs. overall NICI40 ranking Ranking Difference 40 0 14 3 13 4 18 −1 33 −1 9 −4 6 0 25 1 22 6 4 0 5 −7 35 −2 23 3 32 −3 19 −7 7 5 30 12 2 −1 36 0 37 9 34 5 (continued)
Appendix 2 337
1st period – 3rd Period Difference
−4 −2 −2 −9 −3 −8 −1 −9 2 0 8 −9 3 12 0 3 8 −2 −13
Market capital
Malaysia Mexico Netherlands New Zealand Norway Philippines Poland Portugal Russia Singapore South Africa Spain Sweden Switzerland Taiwan Thailand Turkey UK USA
(continued)
6 30 3 5 12 25 38 21 40 1 35 22 11 19 17 24 33 20 10
1st period (1995–1999) Ranking 7 29 3 16 20 32 39 27 38 1 28 22 12 11 14 17 33 24 15
−1 1 0 −11 −8 −7 −1 −6 2 0 7 0 −1 8 3 7 0 −4 −5
2nd period ‑(2000–2004) Ranking Difference 10 32 5 14 15 33 39 30 38 1 27 31 8 7 17 21 25 22 23
−3 −3 −2 2 5 −1 0 −3 0 0 1 −9 4 4 −3 −4 8 2 −8
3rd period (2005–2008) Ranking Difference 8 28 3 11 15 29 39 26 38 1 31 24 10 12 16 20 27 21 17
−2 −4 −2 −3 0 −4 0 −4 0 0 4 −7 2 5 −1 −1 2 −1 −6
3rd period ranking vs. overall NICI40 ranking Ranking Difference
338 16 Dynamic Systems in National Intellectual Capital
Ranking changes of process capital over the three periods for 40 countries 1st period – 1st period 3rd period (1995–1999) 2nd period (2000–2004) Difference Ranking Ranking Difference Process capital Argentina −3 37 40 −3 Australia −2 7 6 1 Austria 8 16 11 5 Belgium −1 17 17 0 Brazil −4 35 37 −2 Canada −5 8 13 −5 Chile −2 24 24 0 China 3 36 32 4 Czech Republic 10 33 27 6 Denmark 3 4 2 2 Finland −4 1 1 0 France 0 20 19 1 Germany 0 15 16 −1 Greece −2 28 29 −1 Hungary 0 27 28 −1 Iceland 6 10 8 2 India 2 38 34 4 Ireland 2 13 10 3 Italy −2 23 22 1 Japan 3 19 21 −2 Korea 2 26 23 3
Appendix 3
3rd period (2005–2008) Ranking Difference 40 0 9 −3 8 3 18 −1 39 −2 13 0 26 −2 33 −1 23 4 1 1 5 −4 20 −1 15 1 30 −1 27 1 4 4 36 −2 11 −1 25 −3 16 5 24 −1
3rd period ranking vs. overall NICI40 ranking Ranking Difference 40 0 7 −2 13 5 18 0 38 −1 12 −1 25 −1 33 0 28 5 2 1 1 −4 20 0 16 1 29 −1 27 0 9 5 36 0 11 0 23 −2 19 3 26 2 (continued)
Appendix 3 339
1st period – 3rd period Difference
−1 −3 2 −3 −5 −8 5 4 5 4 0 −6 −1 6 −1 0 0 −3 −9
Process capital
Malaysia Mexico Netherlands New Zealand Norway Philippines Poland Portugal Russia Singapore South Africa Spain Sweden Switzerland Taiwan Thailand Turkey UK USA
(continued)
21 34 12 11 2 30 39 25 40 6 29 22 5 9 18 31 32 14 3
1st period (1995–1999) Ranking 26 36 9 18 12 38 35 25 39 3 31 20 4 5 14 30 33 15 7
−5 −2 3 −7 −10 −8 4 0 1 3 −2 2 1 4 4 1 −1 −1 −4
2nd period (2000–2004) Ranking Difference 22 37 10 14 7 38 34 21 35 2 29 28 6 3 19 31 32 17 12
4 −1 −1 4 5 0 1 4 4 1 2 −8 −2 2 −5 −1 1 −2 −5
3rd period (2005–2008) Ranking Difference 22 37 10 14 5 34 35 24 39 3 30 21 4 6 17 31 32 15 8
0 0 0 0 −2 −4 1 3 4 1 1 −7 −2 3 −2 0 0 −2 −4
3rd period ranking vs. overall NICI40 ranking Ranking Difference
340 16 Dynamic Systems in National Intellectual Capital
37 17 14 11 35 10 34 28 24 6 3 12 8 27 26 7 33 20 23 5 19
1 −1 5 2 2 2 −3 −2 0 3 2 −5 −2 7 1 11 2 0 0 −3 −4
−1 3 3 −6 1 −3 1 −2 2 0 1 −7 0 −1 0 0 2 0 −1 0 1
38 14 11 17 34 13 33 30 22 6 2 19 8 28 26 7 31 20 24 5 18
38 16 19 13 37 12 31 26 24 9 5 7 6 34 27 18 35 20 23 2 15
Argentina Australia Austria Belgium Brazil Canada Chile China Czech Republic Denmark Finland France Germany Greece Hungary Iceland India Ireland Italy Japan Korea
0 2 8 −4 3 −1 −2 −4 2 3 3 −12 −2 6 1 11 4 0 −1 −3 −3
3rd period (2005–2008) Ranking Difference
Ranking changes of renewal capital over the three periods for 40 countries 1st period – 1st period 3rd period (1995–1999) 2nd period (2000–2004) Difference Ranking Ranking Difference Renewal capital
Appendix 4
38 18 16 15 35 12 33 27 24 7 3 10 6 29 26 9 34 20 23 5 19
(continued)
0 4 5 −2 1 −1 0 −3 2 1 1 −9 −2 1 0 2 3 0 −1 0 1
3rd period ranking vs. overall NICI40 ranking Ranking Difference
Appendix 4 341
1st period – 3rd period Difference
1 0 −4 1 −5 −6 −4 5 −4 8 −6 2 2 −2 4 2 0 −5 0
Renewal capital
Malaysia Mexico Netherlands New Zealand Norway Philippines Poland Portugal Russia Singapore South Africa Spain Sweden Switzerland Taiwan Thailand Turkey UK USA
(continued)
30 40 8 22 10 33 28 32 21 17 29 25 3 1 14 39 36 11 4
1st period (1995–1999) Ranking 29 40 9 21 16 38 30 31 22 13 32 25 1 2 15 39 36 18 4
1 0 −1 1 −6 −5 −2 1 −1 4 −3 0 2 −1 −1 0 0 −7 0
2nd period (2000–2004) Ranking Difference 29 40 12 21 15 39 32 27 25 9 35 23 1 3 10 37 36 16 4
0 0 −3 0 1 −1 −2 4 −3 4 −3 2 0 −1 5 2 0 2 0
3rd period (2005–2008) Ranking Difference 28 40 8 21 14 37 30 31 22 13 32 25 2 1 11 39 36 17 4
−1 0 −4 0 −1 −2 −2 4 −3 4 −3 2 1 −2 1 2 0 1 0
3rd period ranking vs. overall NICI40 ranking Ranking Difference
342 16 Dynamic Systems in National Intellectual Capital
Ranking changes of financial capital over the three periods for 40 countries 1st period – 1st period 3rd period (1995–1999) 2nd period (2000–2004) Difference Ranking Ranking Difference Financial capital Argentina −4 29 33 −4 Australia 0 12 11 1 Austria −2 7 8 −1 Belgium −3 11 12 −1 Brazil −1 34 35 −1 Canada 0 8 7 1 Chile −1 30 30 0 China 1 39 38 1 Czech Republic 0 25 26 −1 Denmark −4 6 9 −3 Finland 4 19 18 1 France −4 13 16 −3 Germany −6 10 15 −5 Greece 1 23 23 0 Hungary 0 27 27 0 Iceland 7 14 10 4 India 0 40 40 0 Ireland 14 18 5 13 Italy −2 17 19 −2 Japan −9 9 17 −8 Korea 2 26 24 2
Appendix 5
3rd period (2005–2008) Ranking Difference 33 0 12 −1 9 −1 14 −2 35 0 8 −1 31 −1 38 0 25 1 10 −1 15 3 17 −1 16 −1 22 1 27 0 7 3 40 0 4 1 19 0 18 −1 24 0
(continued)
3rd period ranking vs. overall NICI40 ranking Ranking Difference 32 −1 11 −1 8 −1 12 −2 35 0 6 −2 30 −1 38 0 26 1 9 −1 18 3 17 0 14 −2 23 1 27 0 10 3 40 0 7 3 19 0 16 −2 24 0
Appendix 5 343
1st period – 3rd period Difference
−1 −2 −1 −2 0 −1 4 −2 6 2 0 0 4 −2 1 0 −1 3 −1
Financial capital
Malaysia Mexico Netherlands New Zealand Norway Philippines Poland Portugal Russia Singapore South Africa Spain Sweden Switzerland Taiwan Thailand Turkey UK USA
(continued)
31 28 5 21 1 38 32 24 35 4 36 20 15 3 22 37 33 16 2
1st period (1995–1999) Ranking 31 29 6 22 1 39 28 25 32 3 36 20 13 4 21 37 34 14 2
0 −1 −1 −1 0 −1 4 −1 3 1 0 0 2 −1 1 0 −1 2 0
2nd period (2000–2004) Ranking Difference 32 30 6 23 1 39 28 26 29 2 36 20 11 5 21 37 34 13 3
−1 −1 0 −1 0 0 0 −1 3 1 0 0 2 −1 0 0 0 1 −1
3rd period (2005–2008) Ranking Difference 31 29 5 22 1 39 28 25 34 3 36 20 13 4 21 37 33 15 2
−1 −1 −1 −1 0 0 0 −1 5 1 0 0 2 −1 0 0 −1 2 −1
3rd period ranking vs. overall NICI40 ranking Ranking Difference
344 16 Dynamic Systems in National Intellectual Capital
Ranking changes of overall NICI40 over the three periods for 40 countries 1st period – 1st period 3rd period (1995–1999) 2nd period (2000–2004) Difference Ranking Ranking Difference Overall NICI40 Argentina −9 30 40 −10 Australia 0 11 11 0 Austria 6 16 12 4 Belgium 0 17 15 2 Brazil 0 37 36 1 Canada −4 8 9 −1 Chile −1 27 27 0 China 4 39 37 2 Czech Republic 7 29 26 3 Denmark 3 5 5 0 Finland −5 1 1 0 France −2 19 20 −1 Germany −5 10 17 −7 Greece −1 28 29 −1 Hungary −3 23 23 0 Iceland 8 12 6 6 India 2 40 39 1 Ireland 1 15 13 2 Italy −5 22 24 −2 Japan 0 13 14 −1 Korea 4 24 21 3
Appendix 6
3rd period (2005–2008) Ranking Difference 39 1 11 0 10 2 17 −2 37 −1 12 −3 28 −1 35 2 22 4 2 3 6 −5 21 −1 15 2 29 0 26 −3 4 2 38 1 14 −1 27 −3 13 1 20 1
3rd period ranking vs. overall NICI40 ranking Ranking Difference 38 −1 11 0 12 2 16 −1 37 0 10 −2 28 0 36 1 27 5 4 2 1 −5 20 −1 15 0 29 0 23 −3 7 3 40 2 13 −1 24 −3 14 1 21 1 (continued)
Appendix 6 345
1st period – 3rd period Difference
2 −1 −2 −5 −2 −4 2 2 2 4 −2 −4 1 1 4 1 5 0 −4
Overall NICI40
Malaysia Mexico Netherlands New Zealand Norway Philippines Poland Portugal Russia Singapore South Africa Spain Sweden Switzerland Taiwan Thailand Turkey UK USA
(continued)
25 35 7 14 6 36 33 26 34 9 32 21 2 4 20 31 38 18 3
1st period (1995–1999) Ranking 25 34 8 19 10 38 33 28 32 7 31 22 2 3 16 30 35 18 4
0 1 −1 −5 −4 −2 0 −2 2 2 1 −1 0 1 4 1 3 0 −1
2nd period (2000–2004) Ranking Difference 23 36 9 19 8 40 31 24 32 5 34 25 1 3 16 30 33 18 7
2 −2 −1 0 2 −2 2 4 0 2 −3 −3 1 0 0 0 2 0 −3
3rd period (2005–2008) Ranking Difference 25 35 8 18 9 39 33 26 32 6 31 22 2 3 17 30 34 19 5
2 −1 −1 −1 1 −1 2 2 0 1 −3 −3 1 0 1 0 1 1 −2
3rd period ranking vs. overall NICI40 ranking Ranking Difference
346 16 Dynamic Systems in National Intellectual Capital
Chapter 17
Policy Implications and Future Perspectives
Introduction Over the past few decades, intangible assets or intellectual capital, such as knowledge, patents, and innovation, have been identified as fundamental sources of wealth and progress. These assets represent a major concern for business firms, their stakeholders, as well as for policy makers (Garcia-Ayuso 2003). Measuring intellectual capital at the national level has the potential to reveal a huge knowledge repository in the public sector with a significant implication for the creation of collective wealth. The first three chapters of this book lay the groundwork and describe the motivation for publishing this book. Chapters 4–14 report national intellectual capital in various formats for a total of 40 countries in 11 country clusters. Chapter 15 presents the trajectory of how a country can move from a poor- to a fast-growth country from the perspective of intellectual capital. Chapter 16 illustrates the dynamic systems in national intellectual capital by synthesizing the results of all previous country cluster chapters. This last chapter concludes with policy implications and future perspectives for the on-going development of national intellectual capital. Probing into the intellectual capital of a nation reveals the hidden value of the individuals, companies, institutions, and communities that constitute current and potential sources for national wealth creation. Its measurement not only assists nations in analyzing and benchmarking their competencies and capabilities, but also facilitates the adoption of policies and practices for promoting holistic national development (Malhotra 2003). Up to the present, some nations have been more proactive than others in establishing formal, systematic measurement criteria to document and report intellectual capital progress according to key factors that under gird the prosperity of the nation. For instance, the intellectual capital picture of Israel (Pasher and Shachar 2007) reports the hidden values and the key driving success factors throughout the 60 years of its existence in such areas as education, patents, scientists engaged in research and development, international openness, computers, and communication infrastructure. The report concludes that the global competition in creating new opportunities and businesses is mainly based upon the optimal acquisition and exploitation of the intangibles.
C.Y.-Y. Lin and L. Edvinsson, National Intellectual Capital: A Comparison of 40 Countries, 347 DOI 10.1007/978-1-4419-7377-1_17, © Springer Science+Business Media, LLC 2011
348
17 Policy Implications and Future Perspectives
As described in Chap. 2, national intellectual capital assessments so far have been local, discontinuous, or on a small scale without the capacity for on-going cross-country and cross-region comparisons; this book, however, overcomes these constraints and provides abundant statistics and information covering 40 countries with 14 years of data for readers to interpret and contemplate. An extra value of this book is the summary tables of 16 external relevant indicators (please refer to Tables 16.5 and 16.6, and “References” section regarding “common references for 16 indicators in Chaps. 4–14”) based on the reports collected from such wideranging world organizations as the OECD, the United Nations, and the World Economic Forum. Those indicators provide a good deal of variety in viewing national intangible assets from different perspectives and facilitate future relevant and informed conversations. As a wealth of information is reported in this book, some suggestions and policy implications are elaborated hereunder for the purpose of arousing more awareness and stimulating more conversations along this line of topics. In what follows, we first uncover both internal and external national intellectual capital issues; then we share some policy implications; afterwards, we propose some on-going national intellectual capital development measures, and finally we provide suggestions for the BRIC (Brazil, Russia, India, and China) countries.
Internal and External National Intellectual Capital Issues To illustrate both the internal and external issues, we have developed Table 17.1 for ease of reference, which shows changes in the ranking of national intellectual capital for seven countries on the negative side (internal issues) and eight countries on the positive side (external issues). Iceland should be on the positive side as well, yet due to its 2008 banking system meltdown and the absence of relevant data for 2007 and 2008, it is not included in this table to simplify the discussion. Generally speaking, countries with long-term national intellectual capital stagnation on the negative side are more likely to be facing internal problems such as economic, social, and political issues. Economic and social factors may go far to explain the reduced national intellectual capital of the first five countries, namely, Canada, France, Italy, Mexico, and USA; whereas political issues may be the major problem of Argentina and the Philippines. For the purpose of interpreting economic and social issues, Italy’s status may provide a good example. IMF reports indicate that the fundamental factor accounting for Italy’s weak competitiveness and a decade of disappointing economic performance is its slow productivity growth. During the period 1996–2004, growth of output per hour worked in Italy was the lowest among all industrial countries (http://fistfulofeuros. net/afem/euro/the-political-fallout-of-italys-growth-problem/). In addition, one of Italy’s biggest problems is unemployment and its underground economy as a consequence of increasing unemployment rates. Other negative aspects of Italy are the great divergence between North and South and its aging population
−1 −9 −5
MC −4 −5 −2 −2 −13 −11 −8
−2 −3 −9 −3 −8
PC −5
−6
RC −1 −12 −1 −4 −2 −2 −1 −4 −1
FC
Overall −4 −2 −5 −1 −4 −9 −4 −
HC
MC −
PC
− − −
RC
FC –
Overall
Rank difference −2 −1 −3 −1 −2 −1 −1
GDP growth (%) 72.0 61.0 48.8 80.2 68.8 82.9 79.2
Austria −4 −2 +5 +8 +8 +6 +2 72.7 China −4 +4 +4 +3 +1 +4 +1 294.3 Czech +4 +10 +10 +2 – +7 +5 99.9 Republic Denmark −4 +2 +3 +3 +3 +3 +2 60.9 Korea −3 +6 +7 +2 +2 +4 +1 116.8 Singapore +8 – +4 +8 +2 +4 +1 101.4 Taiwan −1 +5 – +4 +1 +4 +1 111.3 Turkey −1 – – – +5 +1 96.3 +8 Remarks: (1) This table presents countries from Table 16.2 based on the criteria that the top seven countries had no capital ranking gains, while the bottom eight countries gained more than three ranks in the overall ranking. (2) Argentina and Philippines are purposely placed together in the middle for easier interpretation
Canada France Italy Mexico USA Argentina Philippines
HC −3 −3 −7
Table 17.1 Ranking changes of sample declining and progressing countries over three periods
Internal and External National Intellectual Capital Issues 349
350
17 Policy Implications and Future Perspectives
(Magnelli 2009). With respect to the description of the PIGS countries presented in Chap. 16, some analyses include Italy in this configuration since it is Europe’s longstanding biggest debtor (http://news.bbc.co.uk/2/hi/8510603.stm). Indeed, according to Table 17.1, Italy has declined in every type of capital and shows the lowest GDP growth over the 14 years. With respect to political factors, both Argentina and the Philippines suffer from the negative impact of political instability. In Argentina, at the beginning of the twentieth century, the economy grew at a sustained rate; a modern transport system united the country; a massive influx of immigrants populated the land and progress was made in the field of education; yet by the second half of the century, growth not only stalled but also eventually collapsed (http://www.ebookee.com.cn/ The-Political-Economy-of-Argentina-in-the-Twentieth-Century_242809.html). In 1930, a military coup toppled the democratic regime, making way for over half a century of political instability. Until 1983, Argentine governance fluctuated between civilian and military rule. Although poverty and unemployment decreased under the former government’s leadership, its expansionary monetary policy and placement of price controls on food and energy led to problems in its economic development (http://argentinastravel.com/basics/politics/). The Philippines is a nation beset with numerous economic and political problems. In 1986, Corazon Aquino was sworn into the presidency and renounced the dictatorial powers that she had inherited from President Marcos and returned the Philippines to the rule of law (http://countrystudies.us/philippines/2.htm). Unfortunately, the Philippines’ political problems were compounded by a series of natural disasters in 1990 and 1991, including a massive earthquake, a devastating typhoon, and the eruption of Mount Pinatubo for the first time in 600 years. Currently, the political problems of the Philippines, including corruption and the frequent political infighting within the government, have yet to be resolved (http://wiki.answers.com/Q/Three_ major_political_problems_of_the philippines). The positive side of Table 17.1 reports eight countries whose overall ranking increased by at least three ranks. The overall ranking advancement represents a nation’s external competitiveness among 40 countries. It is apparent that these countries have relatively balanced capital gains for the five types of capital, with some decline in only one or two categories. Furthermore, their progress shows that it is not necessary to experience a large increase in one particular type of capital. As long as there is matching improvement in most of the areas, the country can reap intellectual capital gains as is evident in the cases of China, Denmark, and Taiwan. In addition, GDP growth is not a strong indicator of an increase in national intellectual capital. For instance, Table 17.1 reveals that Argentina experienced a GDP growth of 82.9%, yet it suffered a decrease in intellectual capital on a relatively large scale. On the other hand, with respective GDP growth rates of only 72.7% and 60.9%, Austria and Denmark have demonstrated solid intellectual capital progress. Very likely, balanced and continuous progress may be more important than a shortterm large jump. Consequently, good national policies that coordinate and facilitate the mutual support of the various types of capital may explain their improved intellectual capital performance.
Policy Implications
351
When comparing the negative and positive performance of national intellectual capital, other interesting issues surface, such as: How can a former communist country like Czech Republic advance itself so fast in a decade? How can Czech Republic make a big stride in market capital and process capital and yet the USA with more resources suffered a significant decline in these two capital categories? And how can Singapore keep on progressing whereas Canada and USA are declining in most of the capital categories over the years? Actually, internal and external issues cannot be separated and must be examined simultaneously. Continuous and steady internal development should lead to external competitiveness. Therefore, undertaking internal improvement should have the goal of enhancing external competitiveness at the same time.
Policy Implications Since this book embodies a plethora of intangible asset messages, it is worthwhile to probe the embedded policy implications. To make the implications easier to follow, we use the well performing “3S” countries – Singapore, Sweden, and Switzerland as examples, listing their NICI40 ranking, population, 2008 GDP per capita (PPP), GDP growth rate, global competitiveness, human development index (HDI), and quality of life in Table 17.2. Implications can be approached from the viewpoint of GDP implication, national context implication, currency effect implication, effectiveness implication, and IC Formula I – turning liability into potential and into value.
GDP Implications Based on Table 17.2, Sweden has the largest population of the “3S” countries, yet has the lowest GDP. What information can we derive from this table? The 2008 GDP ratio of Sweden/Singapore shows US$37,245/51,152 = 73% and Sweden/ Switzerland shows US$37,245/42,783 = 87%. That is, although Sweden has a higher level of national intellectual capital (ranked #2) than both Singapore (ranked #6) and Switzerland (ranked #3), its financial achievement is only 73% and 87%
Table 17.2 Comparison of the “3S” countries Global GDP 2008 GDP growth rate competiti NICI40 Population per capita (Table 16.4) veness/133 HDI/179 countries countries (%) (PPP) ranking (000) Singapore #6 4,658 US$51,142 101 #4 (3%) #28 (16%) Sweden #2 9,060 US$37,245 80 #2 (2%) #7 (4%) Switzerland #3 7,604 US$42,783 63 #5 (4%) #10 (6%) Remark: HDI – United Nations Human Development Index Ranking (2008)
Quality of life/57 countries #14 (25%) #6 (11%) #1 (2%)
352
17 Policy Implications and Future Perspectives
Table 17.3 Liability index for the eight runners-up based on 2008 GDP per capita (PPP) Czech USD Austria China Republic Denmark Korea Singapore Taiwan Turkey Austria 39,634 – China 5,963 −33,671 – Czech 25,395 −14,239 +19,432 – Republic Denmark 37,266 −2,368 +31,303 +11,871 – Korea 27,647 −11,987 +21,684 +2,252 −9,619 – Singapore 51,142 +11,508 +45,179 +25,747 +13,876 +23,495 – Taiwan 30,881 −8,753 +24,918 +5,486 −6,385 +3,234 −20,261 – Turkey 13,138 −26,496 +7,175 −12,257 −24,128 −14,509 −38,004 −17,743 –
that of Singapore and Switzerland, respectively. In other words, Sweden has a US$13,897 (US$51,152 − $37,245) and a US$5,538 (US$42,783 − $37,245) liability compared with Singapore and Switzerland, respectively. The liability may result from variations in the five types of capital, its political agenda, government administration, leadership, geographical constraints, currency performance, or population. Policy makers reading this book can draw information about the various types of statistics to contemplate the origins of the liability and decide whether such a liability needs to be and can be remedied. To provide further information, we also developed Table 17.3, which shows the liability index of the eight runners-up in Table 17.1. The interpretation can start by comparing the vertical country column GDP (first column) with that of the horizontal country row (first row). For example, China has a GDP liability of −33,671 compared with that of Austria, while Denmark has a GDP liability of −2,368 compared with that of Austria. The embedded message can trigger a number of questions for policy makers to explore, such as “Why is Denmark lagging behind Austria in GDP performance, even though the former apparently has a higher level of national intellectual capital than the latter?”
National Context Implications Table 17.2 shows that the “3S” countries are in the top 4% of global competitiveness, the top 16% in the HDI, and the top 25% in quality of life. Which country has more intangible assets? An actuality test of the value of national intangible assets is a simple question of whether “I prefer to be a citizen of Singapore where the quality of life is average, yet enjoys very strong purchasing power and mid-level national future prospects (NICI40#6),” or “I prefer to be a citizen of Sweden with its good quality of life, yet with only a middle level of purchasing power but the best national future prospects (NICI40#2),” or “I prefer to be a citizen of Switzerland, which enjoys the best quality of life in the world and with a rather high level of purchasing power plus high-level national future prospects (NICI40#3).”
Policy Implications
353
Such a question needs to be coupled with the physical reality of each country. For instance, its lower ranking in the HDI and the quality of life in Singapore has a lot to do with its densely populated area of limited size. Since there is no way the Singaporeans can change this reality, does it mean that they have fewer intangible assets than Switzerland? As a result, the interpretation of national intangible assets may need to be evaluated from multiple perspectives and multiple indicators. Making national comparisons without considering context factors is a partial explanation only, as each nation has its own unique context which definitely impacts the accumulation and creation of intellectual capital.
Currency Effect Implications Does a currency system affect national intellectual capital development? For instance, in Europe does joining the European Union (EU) and adopting the Euro monetary system facilitate national financial performance? Indeed, among the top five NICI40 countries, three countries, Denmark, Finland, and Sweden are EU members; yet, enlarging the number to the top ten NICI40 countries, only one more EU country, the Netherlands, is added to the list. That is, two other European countries, Switzerland and Norway, are not EU members, yet they perform as well, if not better, than the above-stated EU countries. Another indicator is that among EU countries, the financial capital of Finland, Sweden, and Ireland did advance from 4 to 14 ranks over the three time periods; yet Denmark, France, Germany, Austria, and the Netherlands declined from 1 to 6 ranks in financial capital (Table 16.9). In other words, EU members are both good and bad financial capital performers. In addition, this result applies not only to financial capital, but also to the other four types of capital. Therefore, the currency system should not be a critical factor influencing intellectual capital development.
Effectiveness Implications Effectiveness matters; a lower rate of education investment based on GDP percentage or a lower rate of R&D investment does not necessarily mean worse performance. For example, Finland and Denmark invest 5.9% and 7.4% of GDP on education, respectively, yet the PISA performance of students in Finland (ranked 1/1/2 for science/math/reading) is much better than those of Denmark (ranked 22/13/14 for science/math/reading). With respect to R&D investment, Switzerland, Sweden, and Finland invest 2.9%, 3.64%, and 3.47% of GDP, respectively; yet their renewal capital ranking is #1, #2, and #3 in that order. Clearly, tangible inputs do not guarantee matching outputs; effective policies and practices play major roles as well. Taking market capital creation as an example, expanding international trade should be supported by foreign company tax encouragement, ease of setting up new firms, and government efficiency.
354
17 Policy Implications and Future Perspectives
IC Formula I: Turning Liability into Potential and into Value The data presented in this book contain a number of explicit as well as implicit messages for readers to explore. An extra feature of this book is the possibility of uncovering each country’s intangible assets status, which may be a gateway to “IC Formula I,” i.e., turning liability into potential and into value. Singapore has set an excellent example for such an endeavor. With a total area of 710.2 km2, about 1/58 of Switzerland and 1/532 of Japan, Singapore has capitalized its geographical location and turned the liability of its tiny territory into a market capital superstar, ranked #1 among the 40 countries. Every country has such potential, as long as efforts can be synthesized to unveil its liability and then try to address it with positive measures for value generation.
On-Going National Intellectual Capital Development For on-going national intellectual capital development, effective guidelines may include an IC agenda of the following: Promote national intellectual capital creation routes Encourage three types of national intellectual capital growth patterns Create an intellectual capital accelerator Establish an intellectual capital incubator
Promote National Intellectual Capital Creation Routes Based on the information on the right-hand side (positive side) of Table 16.2, six national intellectual capital creation routes can be identified. The selection criteria are the increase in rank of both financial capital and overall IC.
Route #1
HC + MC + PC →
FC + overall IC
Route #2 Route #3 Route #4 Route #5 Route #6
HC + MC + RC → HC + PC + RC → HC + PC → HC + RC → PC →
FC + overall IC FC + overall IC FC + overall IC FC + overall IC FC + overall IC
(China, Korea) (Sweden) (Singapore) (Ireland) (Taiwan) (Poland)
The above six routes indicate that human capital (HC) occurs five times, process capital (PC) occurs four times, renewal capital (RC) occurs three times, and market
On-Going National Intellectual Capital Development
355
capital (MC) occurs two times. This observation reveals that human capital potential is the foundation of intellectual capital development; process capital is critical in developing countries, such as China and Poland; renewal capital is important in advanced countries, such as Singapore and Sweden; and market capital enhances intellectual capital in both developing and advanced countries, such as China, Korea, and Sweden. From the viewpoint of balancing development, the matching development of at least three types of capital is a better model, as indicated in Routes #1, #2, and #3. Our further study supports this matching development statement of at least three types of capital. An examination of Table 3.3 (Chap. 3), with its overall NICI40 ranking, reveals that Ireland (Route #4 HC + PC ) is already very strong in market capital (ranked #2); Taiwan (Route #5 HC + RC ) has a relatively balanced development in market capital (ranked #16) and process capital (ranked #17), compared with its overall NICI40 ranking of #17; and Poland (Route #6 with strong PC) is relatively better in human capital (ranked #26) and renewal capital (ranked #30), compared with its overall NICI40 ranking of #33. In other words, Routes #4, #5, and #6 are also supported by relatively developed matching capitals. Concluding from the above findings, it is fair to say that for an on-going national intellectual capital development, a matching increase of at least three capitals is strongly recommended. In general, human capital is a “must have” key element for creating intellectual capital; process capital is a “crucial” element for developing countries; renewal capital is a “crucial” element for developed countries; and market capital is an “accelerating” element for all countries.
Encourage Three Types of National Intellectual Capital Growth Patterns From this set of panel data, the gaps between various capitals in various countries present three types of growth potential. That is, from A to A+, Big Stride, and Good to Better as illustrated hereunder.
High
Good →
A→
Better
A+
GDP Growth
Big Current Status Low
Stride
Intellectual Capital Growth
High
356
17 Policy Implications and Future Perspectives
Pattern #1: From A to A+ (Capital Score Percentile from 70th to 90th) Pattern #1 mainly lays the groundwork for more advanced countries that already have a high level of national intellectual capital. Their track records indicate that they still have great potential in continuous growth in the various capital categories. For example, Fig. 13.3 shows that the intellectual capital of Singapore is mainly around or above the 70th percentile; in addition, Table 16.2 indicates that Singapore has increased its ranking in each individual capital category over the 14 years and in the third period (2005–2008) as well. These results demonstrate that Singapore has great potential and moved from an “A” to an “A+” country in terms of national intellectual capital. Other countries representative of this type of growth potential may include Austria, Denmark, Singapore, Sweden, and Switzerland (refer to Table 16.2 and Chaps. 4, 6, and 13). Iceland could be in this category, were it not for its economic meltdown at the end of 2008. Currently, the individual capitals of these countries are generally around the 70th percentile, except for renewal capital. To further present this type of growth, Figs. 17.1 and 17.2 indicate the national intellectual capital progress of Denmark from A to A+ with initial high scores. Pattern #2: A Big Stride (Capital Score Percentile from 50th to 90th) Pattern #2 mainly shows the path for some developed or newly developed countries that have made good progress in intellectual capital over the years. With their track
Scatter plot of Human Capital vs. Renewal Capital of Denmark 4
4.5
5
5.5
9.0 2000
6.5
7
7.5
8
9
2003
2001
8.5
Human Capital
6
2002
2007 2005 2008 2004 2006
8.5 8
8.0 1998
7.5
1999
7.5
1997
1996
7
7.0 1995
6.5
6.5
6.0
6
4
5
6
Renewal Capital
7
Fig. 17.1 Scatter plot of human capital vs. renewal capital of Denmark
8
On-Going National Intellectual Capital Development
357
Scatter plot of Market Capital vs. Process Capital of Denmark
Market Capital
4
4.5
5
5.5
6
6.5
7
7.5
8
9.0
9
8.5
8.5
8.0
8
7.5
7.5 2006
7.0
1995 1997
6.5
1998
6.0 4
5
6
2005
2008 2007
1996
2003 2004 2001 2002 1999 2000
7
7 6.5 6
8
Process Capital Fig. 17.2 Scatter plot of market capital vs. process capital of Denmark
records, they have great potential in continuous growth by making a big stride. For example, Fig. 8.1 shows that except for renewal capital, each individual capital of Czech Republic is mainly above the 50th percentile; in addition, Table 16.2 indicates that Czech Republic has increased its ranking of each individual capital over the 14 years and increased five ranks in the third period (2005–2008) as well. These results demonstrate that Czech Republic has great potential moving forward with a “big stride” pattern in terms of its national intellectual capital development. Countries representative of this type of growth potential may include Czech Republic, Korea, Malaysia, Portugal, and Taiwan (refer to Table 16.2 and Chaps. 7, 8, 12, and 13). Currently, the intellectual capital of countries in this category is generally around the 50th percentile, except for renewal capital. Trend analysis reveals that they have great potential in making a big stride in enhancing their intellectual capital in the years to come. Let us take Czech Republic as an example. Figure 17.3 indicates a big stride in terms of human capital and Fig. 17.4 also demonstrates a big stride in process capital of Czech Republic, based on the initial low scores. With these past records, Czech Republic should also have a great potential in advancing its renewal capital and market capital with more concentrated efforts. Pattern #3: From Good to Better (Capital Score Percentile from 40th to 60th) Pattern #3 mainly shows the path for the countries in emerging markets. With their progress in accumulating intellectual capital, they have great potential in continuous
358
17 Policy Implications and Future Perspectives
Scatter plot of Human Capital vs. Renewal Capital of Czech Republic 2
2.5
3
3.5
4
4.5
5
5.5
6
2008
6.0
Human Capital
2002
6
2005 2007
2006
2004 2003 2001
5.5
5.5
2000 1998
5.0
1999
5
1997
4.5
4.5 1995
1996
4
4.0 2
3
4
Renewal Capital
5
6
Fig. 17.3 Scatter plot of human capital vs. renewal capital of Czech Republic
Scatter plot of Market Capital vs. Process Capital of Czech Republic 2
2.5
3
3.5
4
4.5
5
1995
6.0
5.5
6
2007
6
1996
Market Capital
2001 2005 2008 2004 2002
5.5
1997
2003 2000
5.5
2006
1999
5.0
5
1998
4.5
4.5
4.0
4 2
3
4
Process Capital
5
Fig. 17.4 scatter plot of market capital vs. process capital of Czech Republic
6
On-Going National Intellectual Capital Development
359
Scatter plot of Human Capital vs. Renewal Capital of Turkey
Human Capital
1
1.5
2
2.5
3
3.5
4
4.5
5.5
5.5
5.0
5 2005 200620072008 2000 2004 2003 1999 2001 2002
4.5
4.5
1998
4.0
4
1996 1997 1995
3.5
3.5 1
2
3
Renewal Capital
4
5
Fig. 17.5 Scatter plot of human capital vs. renewal capital of Turkey
growth from good to better in the years to come. For example, Fig. 14.3 shows that except for its renewal capital, each individual capital of India is mainly around the 40th percentile; in addition, Table 16.2 indicates that India has increased its ranking in each individual capital category over the 14 years and improved two ranks in the third period (2005–2008) as well. These results demonstrate that India has great potential in moving from a “good” to “better” pattern in terms of its national intellectual capital development. Countries representative of this type of growth potential may include China, India, Poland, and Turkey (refer to Table 16.2 and Chaps. 8 and 14). Currently, the intellectual capital of countries in this category is generally around the 30–50th percentile, except for renewal capital. Trend analysis reveals that they have great potential in advancing from good to better, yet without a big stride improvement mainly due to their large populations. Figures 17.5 and 17.6 indicate that both the human capital/renewal capital and market capital/process capital of Turkey cluster in two groups not too far apart, a typical example of Pattern #3 “From Good to Better.”
Create Intellectual Capital Accelerator As elaborated earlier, the effect of pursuing national intellectual capital enhancement without considering the context factor will be discounted. Settings such as
360
17 Policy Implications and Future Perspectives
Scatter plot of Market Capital vs. Process Capital of Turkey 1
1.5
2
2.5
3
3.5
5.5
4.5 5.5
2004 1999 1995 1996
5.0
Market Capital
4
2003 1997
2008 2007
2005 2006
5
1998
2002 2001 2000
4.5
4.5
4.0
4
3.5
3.5 1
2
3
Process Capital
4
5
Fig. 17.6 Scatter plot of market capital vs. process capital of Turkey
national culture, relationship, or trust level may either accelerate or impede the building of each type of capital. For instance, national market capital relies heavily on international relationships and trust for a lasting international trade. Relevant parties that are concerned about intellectual capital creation need to identify key accelerators and have them ready for facilitating the development of national intellectual capital. Based on early mapping as well as the Danish governmental thrust on knowledge in Denmark, the government formed a special task force and shaped in 2002 a special experimental and prototyping Mind Lab as an area for creative and rapid Public Policy Development (http://www.mind-lab.dk). This initiative was later followed by the Dutch government which formed several Future Centers or Knowledge Labs in the Public Sector to leverage and renew its IC. Both were inspired by the IC accelerator formed by Skandia who started a special Skandia Future Center in 1996 under Leif Edvinsson’s leadership to work on IC visualization and IC acceleration. In France, a successful test was undertaken to commercialize the hidden value of the Louvre Museum in 2007 with its Chief Financial Officer at that time, Julien Anfruns. He is now Director General for the International Council of Museums and engages in research on such hidden IC potential value. This led to, among other initiatives, a special French governmental agency in 2008 to leverage the hidden value from earlier investments in the public sector.
Suggestions for BRIC Countries
361
Establish an Intellectual Capital Incubator An effective and efficient way to create national intellectual capital is to establish an intellectual capital incubator to speed-up value creation. With identified intellectual capital accelerators, a national government can actually set up an Intellectual Capital Park with the right environment, right policies, and right leadership to incubate the experiments for turning liability into potential and into value. Public and private organizations, even cities, can join the experiments for the purpose of crystallizing the best model for replication of collective intellectual capital development. Today, there are globally more than 25 such incubators or spaces for the refinement and renewal of intangibles and intellectual capital both in the public and in the private sectors. In 2006, the European Commission initiated a survey of the findings from many of these Future Centers, and published a special recipe book on the subject (http://www.open-futures.net). One of the core dimensions of an IC incubator is to have a special space for prototyping the various dimensions of IC development, akin to clinical research, but with the focus on Rapid Prototyping.
Suggestions for BRIC Countries Throughout the world, people are setting their eyes on the development of the BRIC (Brazil, Russia, India, and China) countries, as they may become the four most dominant economies by the year 2050. Goldman Sachs estimated that two billion people could join the global middle class by 2030, mainly from the BRICs. China and India are also set to dominate infrastructure demand over the next decade; in addition, India could be 40 times bigger by 2050 (http://www2.goldmansachs.com/ ideas/brics/ten-things-for-india.html; http://www2.goldmansachs.com/ideas/brics/ nifty-50.html). To achieve these goals, the four emerging markets need to implement many changes including the intangibles, such as raising basic educational standards, improving governance, liberalizing financial markets, enhancing infrastructure and environmental quality, and increasing trade with their neighbors. The BRICs will definitely compete with each other in the national development racing game. Our data provide clear guidance for each country to strategize their investments in enhancing their “NIP – National Intangible Potentials.” The following eight figures (two for each country in the sequence of Brazil, China, India, and Russia), Figs. 17.7–17.14, are plotted on the same scale for easier comparison. As explained in Chap. 16, the scatter plot of human capital/renewal capital demonstrates the long-term intangible potentials, whereas market capital/process capital exhibits short-term value creation. Matching development is more desirable than a single capital jump. In observing Figs. 17.7, 17.9, 17.11, and 17.13 of the human capital/renewal capital scatter plots, readers can see that Brazil and India have relatively matching development and are positioned for the better development
362
17 Policy Implications and Future Perspectives
Scatter plot of Human Capital vs. Renewal Capital of Brazil 1
2
3
4
5
6
6.0
Human Capital
5.5 5.0 2001 1999
2007
5
2008
2005 1998 2006 2004
4.5
1997 1996
4.0
2002 2003
2000
4
1995
3.5
3
3.0 1
2
3
4
5
Renewal Capital Fig. 17.7 Scatter plot of human capital vs. renewal capital of Brazil
Scatter plot of Market Capital vs. Process Capital of Brazil 1
2
3
4
5 6
6.0 1996 1997
Market Capital
5.5
1999
1995
5.0 2003 2004 2007
4.5
2002
2001
5
1998 2000 2008
2005
2006
4
4.0 3.5
3
3.0 1
2
3
Process Capital
Fig. 17.8 Scatter plot of market capital vs. process capital of Brazil
4
5
Suggestions for BRIC Countries
363
Scatter plot of Human Capital vs. Renewal Capital of China 1
2
3
4
5 6
6.0
Human Capital
5.5 2006
5.0
5
2005
2008
2007
4.5
1999 2004
4.0
2003
2002 2000 2001
3.5
1998
4 1996
1997
1995
3
3.0
1
2
3
4
Renewal Capital
5
Fig. 17.9 Scatter plot of human capital vs. renewal capital of China
a
Scatter plot of Market Capital vs. Process Capital of China 1
2
3
4
5
6.0
6 2006 1995 1996
Market Capital
5.5
2003 2002 1999 2004 1997 2001
2005
1998
5.0
2000 2008
5
2007
4.5 4.0
4
3.5 3.0
3 1
2
3
Process Capital
4
5
Fig. 17.10 (a) Scatter plot of market capital vs. process capital of China enlarged with connecting lines
364
17 Policy Implications and Future Perspectives
b
Scatter plot of Market Capital vs. Process Capital of China 2006
5.8 2005
Market Capital
5.6 1995
1996
1998
2003
5.4 2002 2004 1999
5.2
2001
1997
5.0
2000 2007
2008
4.8 2.50
2.75
3.00
3.25
3.50
3.75
4.00
4.25
Process Capital Fig. 17.10 (b) Scatter plot of market capital vs. process capital of China enlarged with connecting lines
Scatter plot of Human Capital vs. Renewal Capital of India 1
2
3
4
5 6
6.0
Human Capital
5.5 5
5.0 4.5 2000
4.0
2001
3.5
1995
2003
2006 2005 1998 2004 2008 1999 2002 2007
4
1996 1997
3.0 1
3 2
3
4
Renewal Capital Fig. 17.11 Scatter plot of human capital vs. renewal capital of India
5
Suggestions for BRIC Countries
365
Scatter plot of Market Capital vs. Process Capital of India 1
2
3
4
6.0
6
2007
2005
2006 2003 2004 2008
5.5
Market Capital
5
5.0
5
1999
4.5 1996
4.0
2002 2000 2001 1997 1998 1995
4
3.5 3
3.0 1
2
3
4
5
Process Capital Fig. 17.12 Scatter plot of market capital vs. process capital of India
Scatter plot of Human Capital vs. Renewal Capital of Russia 1
2
3
4
5
6.0
6 2007
Human Capital
5.5
2006
2005 2008 2003 2004 2000 2001
1998 2002 1999
5.0 4.5
1997
5
1995 1996
4.0
4
3.5 3.0
3 1
2
3
4
Renewal Capital Fig. 17.13 Scatter plot of human capital vs. renewal capital of Russia
5
366
17 Policy Implications and Future Perspectives
Scatter plot of Market Capital vs. Process Capital of Russia 1
2
3
4
5
6
6.0
Market Capital
5.5 5
5.0 1997 20002001
4.5 1995
4.0
1996 1998
2003
2004 2002
2005
2006
4
2007
1999 2008
3.5 3
3.0 1
2
3
Process Capital
4
5
Fig. 17.14 Scatter plot of market capital vs. process capital of Russia
of these two capitals with India progressing more slowly than Brazil; China has experienced fast growth in human capital, yet without a matching development in renewal capital; Russia used to have a better foundation for these two capitals than the other three countries, yet its renewal capital has decreased in recent years. Observing Figs. 17.8, 17.10, 17.12, and 17.14, which present market capital/ process capital scatter plots, it is apparent that, with the exception of Brazil, the other three countries show a different degree of negative correlation of these two capital types from 2006 to 2008 with China undergoing the greatest decline. Interestingly, although Brazil achieved a relatively better market capital/process capital value in 2001, it experienced a much earlier regression than the other three countries in the following years up until 2006; yet, Brazil bounced back from 2006 to 2008 and is one of the few countries that was almost not impacted by the 2008 financial crisis, as evidenced by its GDP growth of 4.0%, 5.4%, and 5.2% in 2006, 2007, and 2008, respectively (Lin and Edvinsson 2010). Specifically, our suggestion for Brazil is to maintain its steady and matching progress, following the paths of its current two scatter plots; it should also invest more in its human capital development as this long-term endeavor needs to be undertaken as early as possible. China’s renewal capital needs to progress together with the improvement of its human capital; the rapid decline of both its market capital and process capital from 2006 to 2008 has uncovered the fierce competition China needs to face from other countries moving up. Figure 17.10(b) is an enlarged map to show the unexpected downswing of China’s short-term value creating capability,
Conclusion
367
which reflects its recent export and currency evolution. For India, the most challenging task is how to upgrade its human capital and renewal capital with its huge population and class inequality; the slight decline in its market capital/process capital should be temporary and may bounce back as it recovers from the 2008 financial crisis. With this future prospect, India could invest more in enhancing its process capital, mainly by setting up better infrastructure to support the increase in its market capital. For Russia, it is pitiful to see a decline in its renewal capital since it has the best human capital among the BRIC countries. Policy makers are advised to look for possible explanations, such as a rigid social atmosphere that stifles innovation or its export of manpower; in addition, the market capital of Russia is perennially the lowest among the BRICs. To boost its short-term economic prosperity, Russia should look to its market capital as an accelerating factor that cannot be ignored.
Limitations and Future Perspectives Although this book reports a plethora of information, it has some limitations as well. First, international comparisons are limited by the availability of published data, a consistent problem in studies of national-level intellectual capital. Second, the panel data can describe only national intellectual capital in the past, rather than its current and future status. Third, the value of the results relies heavily on the quality of the raw data in the IMD World Competitiveness Yearbook, particularly for qualitative ratings. Suggestions for a future report include the following. First, the variables in each type of capital can be weighted according to experts’ perceptions of their importance, as some of them may have different degrees of importance; second, the casual relationships between the different types of capital can be examined to provide further insights.
Conclusion Although assessing a nation’s intellectual capital is a daunting task, various reports that have been published in the last few years have drawn the attention of managers and policy makers to the increasing importance of intangible assets as the basis for future national development. One of the countries that very early started to see this need for another focus on intangibles was Japan. They formed a special Softnomics Center in the mid-1980s with support from the Ministry of Finance as well as from its banking industry. Today the METI, i.e., the Ministry of Economics, Trade and Industry, in Japan has been very active in various IC projects. The same is true for many governments
368
17 Policy Implications and Future Perspectives
in Europe as well as Asia, such as Denmark, Finland, Germany, Austria, Netherlands, Poland, France, UK, Spain, Australia, China, and Brazil. The OECD has also been active in this area since the late 1990s. In the USA, the University of Maryland in cooperation with the Federal Reserve recently published a collection of pioneering studies on investment into intangibles and highlighted their importance (Corrado 2007). President Sarkozy in France also shaped a special commission in 2009, including the Noble prize laureates J. Stiglitz, A. Sen, and Professor Fitoussi, entitled the “Measurement of Economic Performance and Social Progress.” This is a quest for supplementary economic indicators other than the traditional GDP. Findings are also pointing toward indicators of wellbeing and quality of life (http:// www.stiglitz-sen-fitoussi.fr). Another very interesting and recent development on the national intellectual capital is the creation of programs and support for social entrepreneurship in, among others, the UK, Denmark, and Sweden. Special programs on societal entrepreneurship and innovation, such as Finland’s New Aalto Innovation University, are also on the ascendant. The European Commission is adding this into the perspective of social media and also recently launched a report on Digital Europe. The pattern is that social entrepreneurship is focused on human capital, the program for societal entrepreneurship and innovation is focused on structural capital, and the digital agenda is about relational capital. Addressing the IC of Nations and the development of the knowledge economy was also the aspiration of the New Club of Paris, formed in 2006. The New Club of Paris is the Agenda developer for the knowledge economy. The Club’s main objective is to increase awareness on what the knowledge society is and what it will be. It also aims to support nations, regions, cities, communities’ organizations, and companies in their transformation into the knowledge economy (http://www.new-club-of-paris.org). In addition to the above endeavors, this book provides a framework that allows not only to compare a nation’s competitive ability with another country in terms of intellectual capital, but also to identify the areas on which it should be focusing as it strives for excellence. After delving into national intellectual capital research for years, the authors have arrived at the increasingly strong conviction that national intellectual capital measurement models are generally designed from government, governance, and the policy development point of view, such as resource allocation, resource amplification or leverage, effective investment, economic development, and GDP growth. In other words, national intellectual capital indices help nations identify key intangible factors for future competitiveness and wealth creation for the next generation and beyond. The underlying motives are economic, future competitiveness, and value maximization. Yet the whole purpose of a government is to create a safe, healthy, and prosperous living environment so that its citizens can have opportunities for self-actualization, with a sufficient amount of purchasing power, as well as the quality of life, stated in the report by Stiglitz et al. (http://www.stiglitz-sen-fitoussi.fr). Therefore, national intangible assets from the point of view of citizens may not be as economic oriented as that of government officials. As a result, the concept of “NIP – National Intangible Potential,” which embodies such issues as quality of
Conclusion
369
life, social welfare, and environmental performance, should warrant a broader term than “national intellectual capital.” In conclusion, this study of 40 countries covering 14 years has formed a closed comparative system. That is, although there are internal dynamics and external dynamics, all comparisons are limited to the 40 countries. In other words, all the variations and comparisons occur within the confined parameters of the 40 countries. The positive aspect of such a closed system is that it is easier to see the changes and the ebb and flow of each of the countries within these limitations; the negative side is that competition is very stressful with an emerging new star arrives on the scene to outperform the advanced countries. For example, Finland is ranked #1 in NICI40 for the entire 14-year period, yet for the most recent third period (2005–2008) ranking, Finland dropped to #6. Its human capital, market capital, and process capital have all been outperformed by other countries, such as India, which jumped +19 ranks and Korea, which jumped +7 in market capital over the three time periods. In hindsight, the comparisons of national intellectual capital reported in this book should be of great value in providing an abundance of hard-core information for policy makers to strategize their future national wealth and peace development. Yet, the 16 indicators of the various world organizations reported in Tables 16.5 and 16.6 are also very precious in balancing competitiveness maximization and citizens’ welfare expectations. Improved leadership and management of national intangibles based on the national intellectual capital analyses presented in this book are anticipated, as the analyses provide guiding criteria and the context to develop relevant initiatives for the sustainability and the future development of nations.
wwwwwwwwww
After Note: Looking from Outside
On November 6, 2009, the first author had the pleasure to interview Dr. Markku Markkula from Finland, the Director of TKK Dipoli Team Leader of Aalto University Foundation at the “Second Knowledge Cities Summit Shenzhen Conference.” The main purpose of the interview was to seek Dr. Markkula’s comments about why the intellectual capital of Finland as a whole was decreasing in recent years and his opinion about the importance of intangible assets. In this book, in addition to the overall intellectual capital ranking of the 40 countries, we also broke down the 14 years data into three periods, namely 1995–1999, 2000–2004, and 2005–2008. Comparing the first and the third period rankings, we found that Finland’s human capital decreased seven ranks, market capital decreased eight ranks, and process capital decreased four ranks; yet, renewal capital increased three ranks and financial capital increased four ranks. In addition, the overall ranking based on the composite score of these five capital decreased by five ranks. A special note is that this is a closed ranking comparison among the studied 40 countries. That is, the ranking is relative; for example, the uprising of market capital in India will push down other used to be high ranking countries. Over the 14 years, some emerging countries have great improvement in intangible assets as well, such as China and India. The following few paragraphs are the summaries of how Dr. Markkula interpreted Finland’s recent intellectual capital phenomena. During the 1990s, Finland government and parliament increased a lot of investment in education and R&D, but then stay at the same level since the 2000s. In recent years, Finland tried to keep the R&D investment of 4% of GDP, but have some difficulties (3.47% in 2008). Since the GDP base is enlarging, yet the money stays the same; as a result, the ratio is down. Finland is fast in technology development, which is the main driver of innovation development. R&D money from government agencies is publicly available; yet, more industry money can invest in R&D as well. For the decrease of market capital, Finland has strong metal industry and pulp industry; but at the present, it is not profitable to have the industry stay in Finland and some companies are totally sold to multinational corporations. Recently, there is not much foreign investment these years. Even Nokia is all around the world. So the revenue is not shown in Finland’s statistics. In addition, taxation is lower 371
372
After Note: Looking from Outside
for the Finns. Major companies normally share-invest by Finns for tax reasons. Therefore, the number of cross-border venture is down. Besides, Icelanders bought a lot of property in Finland, not through investing in setting up companies or manufactures. For the process capital, 1990s was the fastest growth period in Finland. It was the time new companies started growing. In the old time, people worked for one company in their life time. Now, they have to change their mind set and need to work for different companies in their life time, need to broaden their education, change companies to get more experience. For future competitiveness and the value of intangible assets, Finland envisions itself to be 5–10 years ahead of others. Fortunately, at the end of 1980s and early 1990s, Finland already had Open Innovation awareness and moved from traditional technological to culture innovation with business innovation investment inputs go to the public citizens. Finland would like to be an “innovation hub,” although the results have not shown yet. Therefore, Finland need to create knowledge, develop creative industry, and investment should be knowledge based. It should also develop caring attitude, encourage the young people to create something new. What matters is not technology but rather the mental issues. To achieve the goal, Finland invites international evaluation companies to evaluate the culture, the concept, and the mental mind of Finns. Finland would like to implement the strong societal research that encourages university–company cooperation funded by the States. In addition, Finland has a steering group, including parliament members discussing the desired future. Although members have differences, they all agree on important issues; such as “keep the culture strong, commit, focus on promising aspects, benchmark, build on trust, and develop the value that gets the change going.” In addition, what matters is not technology but rather the intangibles. Looking from outside, Dr. Markkula pointed out the name of the future winning game – committed vision with the consensus of key national leaders; in the case of Finland, to be an “innovation hub” and 5–10 years ahead of others. Once the national goal is set, the intellectual capital development track reported in this book provides plentiful information for decision makers to strategize their resources allocation policies and procedures. Based on Dr. Markkula’s viewpoint, Finland’s 2005–2008 national intellectual capital decrease has its background. As the researchers who know that the school children PISA performance of Finland is outstanding plus its uprising renewal capital and clear vision reported in this interview, we do not worry too much about Finland’s future national intellectual capital, although there is a temporary drop.
References
Common references for 16 indicators for Chap. 4 through Chap. 14 (Table 4.3, Table 5.3…Table 14.3) 2009 Population rounded by thousand (000) from https://www.cia.gov/ data updated July 2009est. Education expenditure – ranking/% of education expenditure, from “2009 IMD world competitiveness yearbook”. HDI – United Nations Human Development Index Ranking. 2008. http://www.hdr.undp.org/en/ statistics/ (ranking 1–75: High Human Development; 76–153: Medium Human Development; 154–179: Low Human Development). PISA ranking/score – 2006 OECD international assessment of student science, math and reading performance ranking based on 57 countries and actual scores, OECD international assessment of student performance (PISA). http://www.oecd.org/dataoecd/15/13/39725224.pdf. Percentage of broadband internet subscribers of total population (June 2009 update), The global competitiveness report 2009–2010. http://www.weforum.org/pdf/GCR09/GCR20092010full report.pdf. Globalization index ranking out of 72 countries. 2007. http://www.foreignpolicy.com/story/cms. php?story_id=4030. Quality of life ranking out of 57 countries, from “2009 IMD world competitiveness yearbook”. E-readiness ranking out of 70 countries (2008) by the Economist Intelligence Unit. http://www.en. wikipedia.org/wiki/E-readiness#Economist_Intelligence_Unit_e-readiness_rankings. Percentage of internet usership (updated for June 30, 2009). http://www.internetworldstats.com/ stats.htm. Mobile telephone subscribers ranking out of 133 countries (June 2009 update). The global competitiveness report 2009–2010. http://www.weforum.org/pdf/GCR09/GCR20092010fullreport. pdf. R&D expenditure – percentage of GDP, from “2009 IMD world competitiveness year book”. European Innovation Scoreboard ranking out of 33 countries (2008). http://www.proinno-europe. eu/EIS2008/website/docs/EIS_2008_Final_report.pdf. IMD world competitiveness ranking out of 57 countries, from “2009 IMD world competitiveness yearbook”. Global competitiveness out of 133 countries, The global competitiveness report 2009–2010. http:// www.weforum.org/pdf/GCR09/GCR20092010fullreport.pdf. Environmental sustainability index (ESI) out of 149 countries. http://www.yale.edu/esi/ESI2005_ Main_Report.pdf. Environmental performance index (EPI). http://www.yale.edu/epi/files/2008EPI_Text.pdf.
373
374
References
Chapter 1 Bontis, N. 2001a. Assessing knowledge assets: A review of the models used to measure intellectual capital. International Journal of Management Reviews 3(1): 41–60. Bontis, N. 2004a. National intellectual capital index: The benchmarking of Arab countries. Journal of Intellectual Capital 5(1): 13–39. Bounfour, A. 2003a. “The IC-dVal approach”. Journal of Intellectual Capital 4(3): 396–412. Bounfour, A., and L. Edvinsson. 2004a. IC for communities, nations, regions, cities, and other communities. Boston: Elsevier Butterworth-Heinemann. Edvinsson, L. 2002. The new knowledge economics. Business Strategy Review 13: 72–76. Edvinsson, L., and M. Bonfour. 2005. Intellectual for capital communities, nations & regions, cities, districts. Boston: Elsevier Butterworth-Heinemann. Edvinsson, L., and M.S. Malone. 1997a. Intellectual capital: Realizing your company’s true value by defining its hidden brainpower. New York: Harper Business. Edvinsson, L. National intellectual capital in waiting: A strategic IC quest. http://www.fm-kp.si/ zalozba/ISBN/961-6486-71-3/009-012.pdf. Garcia-Ayuso, M. 2003a. Intangibles: Lessons from the past and a look into the future. Journal of Intellectual Capital 4(4): 597–604. Hervas-Oliver, J., and J. Dalmau-Porta. 2007. Which IC components explain national IC stocks? Journal of Intellectual Capital 8(3): 444–469. Hill, P. (2002) The measurement of intellectual capital formation in the system of national accounts, PRISM working paper #5. http://www.euintangibles.net. IMD. 2009a. The world competitiveness yearbook. Lausanne: IMD. Jarehov, M., and C. Stenfelt. 1998. IC on National level, Stockholm University, Market Academy, Master thesis. Malhotra, Y. 2000a. Knowledge assets in the global economy: Assessment of national intellectual capital. Journal of Global Information Management 8(3): 5–15. Malhotra, Y. 2003. Managing and measuring knowledge assets in the public sector. Working paper, Syracuse University. Pasher, E., and S. Shachar. 2007. The intellectual capital of the state of Israel: 60 years of achievement. http://www.moital.gov.il/ic. Rembe, A. 1999. The governmental invest in Sweden Agency – ISA: Report 1999. Halls Offset AB, Stockholm. Available at: http://www.isa.se. Stähle, P., and A. Pöyhönene. 2005. Intellectual capital and national competitiveness: a critical examination. Case Finland. Proceedings of the 6th European Conference of Knowledge Management (ECKM), University of Limerick, Limerick. Stahle, P., and S. Stahle. 2006. Intellectual capital and national competitiveness: Conceptual and methodological challenges. In Capital immatériel, connessaince et performance, ed. A. Bounfour. Paris: L’Harmattan. Stewart, T.A. 1997a. Intellectual capital: The new wealth of organizations. New York: Nicholas Brealey. Weziak, D. 2007. Measurement of national intellectual capital application to EU countries. http:// www.ceps.lu/pdf/11/art1294.pdf. World Bank. 1998a. World development report: Knowledge for development. New York: Oxford University Press.
Chapter 2 Andriessen, D. 2004. Making sense of intellectual capital. Burlington: Butterworth Heinemann.
References
375
Bontis, N., N.C. Dragonetti, K. Jacobsen, and G. Roos. 1999. The knowledge toolbox: A review of the tools available to measure and manage intangible resources. European Management Journal 17: 391–401. Bontis, N. 2001b. Assessing knowledge assets: A review of the models used to measure intellectual capital. International Journal of Management Reviews 3(1): 41–60. Bontis, N. 2004b. National intellectual capital index: A United Nations initiative for the Arab region. Journal of Intellectual Capital 5(1): 13–39. Bounfour, A. 2003b. The IC-dVal approach. Journal of Intellectual Capital 4(3): 396–412. Bounfour, A., and L. Edvinsson. 2004b. IC for communities, nations, regions, cities, and other communities. Boston: Butterworth-Heinemann. Carr, N.G. 2003a. IT doesn’t matter. Harvard Business Review 81(5): 41–49. Collins, J. 2001a. Level 5 leadership: The triumph of humility and fierce resolve. Harvard Business Review 79(1): 7–76. Edvinsson, L., and M. Malone. 1997b. Intellectual capital. New York: Harper Business. Klein, P.A. 2000a. National statistics, portrait of the value floor. Journal of Economy Issues 34: 445–452. Malhotra, Y. 2000b. Knowledge assets in the global economy: Assessment of national intellectual capital. Journal of Global Information Management 8(3): 5–15. Malhotra, Y. 2003. Managing and measuring knowledge assets in the public sector. Working paper, Syracuse University. OECD. 2001a. The wellbeing of nations: The role of human and social capital. Center for educational research and innovation research paper. Paris: OECD. Pasher, and Shachar. 2007. The intellectual capital of the state of Israel: 60 years of achievement. http://www.moital.gov.il/ic. Pasher, E. 1999a. The intellectual capital of the state of Israel. Herzlia Pituach: Kal. Petty, R., and J. Guthrie. 2000. Intellectual capital literature overview: Measurement, reporting and management. Journal of Intellectual Capital 1(2): 155–176. Pomeda, J.R., C.M. Moreno, C.M. Rivera, and L.V. Martil. 2002. Towards an intellectual capital report of Madrid: New insights and developments. Presented at “The transparent enterprise. The value of intangibles”, Nov. 25–26, 2002, Madrid, Spain. Rembe, A. 1999. The governmental invest in Sweden Agency – ISA: Report 1999. Halls Offset AB, Stockholm. Available at: http://www.isa.se. Roos, G., A. Bainbridge, and K. Jacobsen. 2001. Intellectual capital analysis as a strategic tool. Strategy and Leadership Journal 29(3): 21–26. Spring Project. 2002. Available at: http://www.cordis.europa.eu/data/PROJ_FP5/ ACTIONeqDndSESSIONeq21722 200595ndDOCeq104ndTBLeqEN_PROJ.htm. Stähle, P., and Pöyhönene, A. 2005. Intellectual capital and national competitiveness: a critical examination. Case Finland. Proceedings of the 6th European Conference of Knowledge Management (ECKM), University of Limerick, Limerick. Sveiby, K.E. 2002. Methods for measuring intangible assets. Available at: http://www.sveiby.com/ articles/IntangibleMethods.htm. United National Development Programme (UNDP). 2000. Survey of economic and social development in the ESCWA region 1999–2000. United National Development Programme Research Paper. New York, NY. United Nations Economic Commission for Europe. 2003. Status of and trends in the development of e-government. New York, NY. World Bank. 2001a. World development indicators. Washington, DC: World Bank. World Bank. 2002. The knowledge assessment methodology and scoreboards. Available from http://www1.worldbank.org. http://www.effas.com. http://www.worldici.com. http://www.info.worldbank.org/etools/docs/library/235909/s4_p1.pdf. http://www.entovation.com/whatsnew/ic-nations.htm.
376
References
Chapter 3 APEC. 2000. Towards knowledge based economy in APEC Australia Department of Industry, Science and Resource Branch. 2000. Available at: http://www. innovation.gov.au/Documents/NEBTowardsKBEsummary.doc. Bontis, N. 2004c. National intellectual capital index: A United Nations initiative for the Arab region. Journal of Intellectual Capital 5(1): 13–39. Commission of European Community. 2000. Available at: http://www.ec.europa.eu/economy_ finance/publications/publication1716_en.pdf. Malhotra, Y. 2000c. Knowledge assets in the global economy: Assessment of national intellectual capital. Journal of Global Information Management 8(3): 5–15. Malhotra, Y. 2002. Knowledge assets in the global economy: Assessment of national intellectual capital. In Advanced topics in global information management, ed. F. Tan, 329–345. Hershey, PA: Idea Group. Malhotra, Y. 2003. Managing and measuring knowledge assets in the public sector. Working paper, Syracuse University. OECD. 2000. International science and technology co-operation: Towards sustainable development. Proceedings of the OECD Seoul conference. Paris: OECD. Pomeda, J.R., C.M. Moreno, C.M. Rivera, and L.V. Martil. 2002. Towards an intellectual capital report of Madrid: New insights and developments. Presented at “The transparent enterprise. The value of intangibles”, Nov. 25–26, 2002, Madrid, Spain. Singapore Department of Trade and Industry. 2001. Available at: http://app.mti.gov.sg/data/ pages/507/doc/ERC_HUM_MainRepor. UK Department of Trade and Industry. 2000. Available at: http://www.berr.gov.uk/files/file11034. pdf. US Department of Commerce. 2000. Available at: http://www.eda.gov/ImageCache/EDAPublic/ documents/pdfdocs/0g3lr_5f6_5fjarboe_2epdf/v1/1g3lr_5f6. World Bank. 2002. The knowledge assessment methodology and scoreboards. Available at: http:// www1.worldbank.org.
Chapter 4 Bontis, N., W. Chua, and S. Richardson. 2000a. Intellectual capital and the nature of business in Malaysia. Journal of Intellectual Capital 1(1): 58–100. Bontis, N. 2004d. National intellectual capital index: A United Nations initiative for the Arab region. Journal of Intellectual Capital 5(1): 13–39. Bounfour, A. 2003c. The IC-dVal approach. Journal of Intellectual Capital 4(3): 396–412. Bounfour, A., and L. Edvinsson. 2004c. IC for communities, nations, regions, cities, and other communities. Boston: Butterworth-Heinemann. Carr, N.G. 2003b. IT doesn’t matter. Harvard Business Review 81(5): 41–49. Collins, J. 2001b. Level 5 leadership: The triumph of humility and fierce resolve. Harvard Business Review 79(1): 67–76. Drucker, P.F. 1993a. Post-capitalist society, 1st ed. New York: HarperCollins. Edvinsson, L., and M. Malone. 1997c. Intellectual capital. New York: Harper Business. Garcia-Ayuso, M. 2003b. Intangibles: Lessons from the past and a look into the future. Journal of Intellectual Capital 4(4): 597–604. GDP per capita (ppp) from the IMF (International Monetary Fund April 2009 data). http://www. en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29_per_capita. IMD. 1994a. The world competitiveness yearbook. Lausanne: IMD. IMD. 2009b. The world competitiveness yearbook. Lausanne: IMD.
References
377
IMD. May 11, 2006 Press release. Publication: IMD world competitiveness yearbook 2006. http:// www02.imd.ch/documents/wcc/content/pr.pdf Klein, P.A. 2000b. National statistics, portrait of the value floor. Journal of Economy Issues 34: 445–452. Malhotra, Y. 2003. Managing and measuring knowledge assets in the public sector. Working paper, Syracuse University. Number of broadband internet subscribers. http://www.en.wikipedia.org/wiki/List_of_ countries_by_broadband_users OECD. 2000. International science and technology co-operation: towards sustainable development. Proceedings of the OECD Seoul conference. Paris: OECD. Pasher, E. 1999b. The intellectual capital of the state of Israel. Herzlia Pituach: Kal. Pomeda, J.R., C.M. Moreno, C.M. Rivera, and L.V. Martil. 2002. Towards an intellectual capital report of Madrid: New insights and developments. Presented at “The transparent enterprise. The value of intangibles”, Nov. 25–26, 2002, Madrid, Spain. Rembe, A. 1999. The governmental invest in Sweden agency – ISA: Report 1999. Halls Offset AB, Stockholm. Available at: http://www.isa.se. Stahle, P. (ed.). 2007. “Five steps for Finland’s future: A high-level round table”, initiated by the New Club of Paris held in Helsinki, November 11th, 2006 with and for Prime Minister Matti Vanhanen, Technology Review 202/2007. Helsinki: Tekes. Stewart, T.A. 1997b. Intellectual capital: The new wealth of organizations. New York: Nicholas Brealey. United Nations Economic Commission for Europe. 2003. Status of and trends in the development of e-government. New York, NY. World Bank. 2002. The knowledge assessment methodology and scoreboards. Available from http://www1.worldbank.org. World Bank. 2007. Global economic prospects 2007. Available from http://www.web.worldbank.org. World Bank. 1998b. World development report: Knowledge for development. New York: Oxford University Press. http://www.en.wikipedia.org/wiki. http://www.en.wikipedia.org/wiki/2008%E2%80%932009_Icelandic_financial_crisis. http://www.en.wikipedia.org/wiki/Broadband_Internet_access_worldwide#Sweden. http://www.en.wikipedia.org/wiki/Denmark. http://www.en.wikipedia.org/wiki/Finland. http://www.en.wikipedia.org/wiki/Iceland. http://www.en.wikipedia.org/wiki/List_of_countries_by_number_of_Internet_users. http://www.en.wikipedia.org/wiki/Norway. http://www.en.wikipedia.org/wiki/Sweden. http://www.foreignpolicy.com/story/cms.php?story_id=4030. http://www.imd.ch/ research/publications/wcy/upload/Overall_ranking_5_years.pdf. http://www.norway-un.org/News/Latest+news/300309_IMF.htm. http://www.nytimes.com/2009/05/14/business/global/ 14frugal.html?_r=2&hp. http://www.oecd.org/dataoecd/15/13/39725224.pdf. http://www.oecd.org/document/32/0,3343,en_2649_34569_37216992_1_1_1_1,00.html. http://www.thelocal.se/10000/20080215/.
Chapter 5 Amidon, D.M. 2001. The Intellectual Capital (IC) of Nations. Available at http://www.entovation. com/whatsnew/ic-nations.htm. APEC. 2000. Towards knowledge based economy in APEC. Bontis, N. 2004e. National intellectual capital index: A United Nations initiative for the Arab region. Journal of Intellectual Capital 5(1): 13–39.
378
References
Bontis, N., W. Chua, and S. Richardson. 2000b. Intellectual capital and the nature of business in Malaysia. Journal of Intellectual Capital 1(1): 58–100. Bounfour, A. 2003d. The IC-dVal approach. Journal of Intellectual Capital 4(3): 396–412. Bounfour, A., and L. Edvinsson. 2004d. IC for communities, nations, regions, cities, and other communities. Boston: Butterworth-Heinemann. Carr, N.G. 2003c. IT doesn’t matter. Harvard Business Review 81(5): 41–49. Collins, J. 2001c. Level 5 leadership: The triumph of humility and fierce resolve. Harvard Business Review 79(1): 67–76. Drucker, P.F. 1993b. Post-capitalist society, 1st ed. New York, NY: HarperCollins. Edvinsson, L., and M. Malone. 1997d. Intellectual capital. New York: Harper Business. Edvinsson, L. 2003. IC entrepreneurship for knowledge capital as the new source of wealth of nations. Garcia-Ayuso, M. 2003c. Intangibles: Lessons from the past and a look into the future. Journal of Intellectual Capital 4(4): 597–604. GDP per capita (ppp) from the IMF (International Monetary Fund April 2009 data). http://www. en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29_per_capita. IMD. 1994b. The World Competitiveness Yearbook. Lausanne: IMD. Klein, P.A. 2000c. National statistics, portrait of the value floor. Journal of Economy Issues 34: 445–452. Leadbeater, C. 1999. New measures for the new economy. Available from http://www.oecd.org. Malhotra, Y. 2000d. Knowledge assets in the global economy: Assessment of national intellectual capital. Journal of Global Information Management 8(3): 5–15. Malhotra, Y. 2003. Managing and measuring knowledge assets in the public sector. Working paper, Syracuse University. Number of broadband internet subscribers. http://en.wikipedia.org/wiki/List_of_countries_ by_broadband_users. OECD. 1999. OECD science, technology and industry scoreboard 1999: Benchmarking knowledge-based economies. OECD. 2000. International science and technology co-operation: Towards sustainable development. Proceedings of the OECD Seoul Conference. Paris: OECD. OECD. 2001b. The wellbeing of nations: The role of human and social capital. Center for educational research and innovation research paper. Paris: OECD. Pasher, E. 1999c. The intellectual capital of the state of Israel. Herzlia Pituach: Kal. Pomeda, J.R., C.M. Moreno, C.M. Rivera, and L.V. Martil. 2002. Towards an intellectual capital report of Madrid: New insights and developments. Presented at “The transparent enterprise. The value of intangibles”, Nov. 25–26, 2002, Madrid, Spain. PWC Netherlands. 1999. Reporting on intangible assets. Rembe, A. 1999. Invest in Sweden: Report 1999. Halls Offset AB, Stockholm. Available at: http:// www.isa.se. Seetharaman, A., Hadi Helmi Bin Zaini Sooria, and A.S. Saravanan. 2002. Intellectual capital accounting and reporting in the knowledge economy. Journal of Intellectual Capital 3(2): 128–148. Stewart, T.A. 1997c. Intellectual capital: The new wealth of organizations. New York: Nicholas Brealey. Strassman, P.A. 1998. The value of knowledge capital. Available from http://www.strassman.com. United National Development Programme (UNDP). 2000. Survey of economic and social development in the ESCWA region 1999–2000. United National Development Programme Research Paper. New York, NY. World Bank. 2001b. World development indicators. Washington, DC: World Bank. World Bank Institute. 2002. The knowledge assessment Methodology and Scoreboards. Available from http://www1.worldbank.org. World Bank and Government of Finland. 2003. Case studies on implementing knowledge economy strategies. Available from http://www.helsinkikef.org/eca.
References
379
World Bank. 1998c. World development report: Knowledge for development. New York: Oxford University Press. http://www.en.wikipedia.org/wiki/Broadband_Internet_access_worldwide#Sweden. http://www.en.wikipedia.org/wiki/European_Innovation_Scoreboard. http://www.en.wikipedia.org/wiki/France. http://www.en.wikipedia.org/wiki/Germany. http://www.en.wikipedia.org/wiki/Ireland. http://www.en.wikipedia.org/wiki/UK. http://www.en.wikipedia.org/wiki/Western_Europe. http://www.finfacts.com/irecon.htm. http://www.foreignpolicy.com/story/cms.php?story_id=4030. http://www.mkeever.com/france.html. http://www.oecd.org/dataoecd/15/13/39725224.pdf. http://www.oecd.org/document/32/0,3343,en_2649_34569_37216992_1_1_1_1,00.html. http://www.thelocal.se/10000/20080215/.
Chapter 6 http://www.en.wikipedia.org/wiki/Austria. http://www.en.wikipedia.org/wiki/Belgium. http://www.en.wikipedia.org/wiki/List_of_countries_by _GDP_%28PPP%29_per_capita. http://www.en.wikipedia.org/wiki/Netherlands. http://www.en.wikipedia.org/wiki/Switzerland. http://www.government.nl/News/Press_releases_and_news_items/2007/Janurary/ More_foreign_investment_in_the_Netherlands.
Chapter 7 Kapsi, M. (2000) Recent administrative reforms in Greece: Attempts toward decentralization, democratic consolidation and efficiency. http://www.hks.harvard.edu/kokkalis/GSW2/Kapsi. PDF. Lin, C.Y.Y., and L. Edvinsson. 2008a. National intellectual capital: Comparison of the Nordic countries. Journal of Intellectual Capital 9(4): 525–545. Southern Europe. http://www.maps.unomaha.edu/Peterson/funda/Notes/Notes_Exam2/SE. html. The Scottish Office. 1999. Scotland: Towards the knowledge economy. The report of the knowledge economy taskforce. Available from http://www.scotland.gov.uk. United Nations Economic Commission for Europe. 2003. Status of and trends in the development of e-government. New York, NY. http://www.en.wikipedia.org/wiki/Greece. http://www.en.wikipedia.org/wiki/Italy. http://www.en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29_per_capita. http://www.en.wikipedia.org/wiki/Portugal. http://www.en.wikipedia.org/wiki/Spain. http://www.maps.unomaha.edu/Peterson/funda/Notes/Notes_Exam2/SE.html. http://www.elke.gr/. http://www.finfacts.com/irecon.htm. http://www.mapsofworld.com/italy/research-innovations-in-italy.html.
380
References
Chapter 8 Blanke, J., and I. Mia. 2006. Turkey’s competitiveness in a European context, World Economic Forum. http://www.weforum.org. http://www.en.wikipedia.org/wiki/Czech Republic. http://www.en.wikipedia.org/wiki/Economy_of_South_Africa. http://www.en.wikipedia.org/wiki/Hungary. http://www.en.wikipedia.org/wiki/List_of_countries_ by_GDP _%28PPP%29_per_capita. http://www.en.wikipedia.org/wiki/List_of_countries_by_unemployment_rate. http://www.en.wikipedia.org/wiki/Poland. http://www.en.wikipedia.org/wiki/South Africa. http://www.en.wikipedia.org/wiki/South_Africa#Economy. http://www.en.wikipedia.org/wiki/Turkey. http://wwwen.wikipedia.org/wiki/Western_Europe. http://www.en.wikipedia.org/wiki/Western_Europe. http://www.european-american-business.com/2007/p_220.php. http://www.itdh.com/engine.aspx?page=itdh_priority_sectors_randd. http://www.nsfc.gov.cn/nsfc/cen/lt/lt1/07.htm (paper published in 2001).
Chapter 9 http://www.en.wikipedia.org/wiki/Canada. http://www.en.wikipedia.org/wiki/Economy_of_the_United_States. http://www.en.wikipedia.org/wiki/Energy_policy_of_the_United_States. http://www.en.wikipedia.org/wiki/List_of_countries_by_GDP _%28PPP%29_per_capita. http://www.en.wikipedia.org/wiki/USA. http://www.energyefficiencynews.com/policy/i/1416/.
Chapter 10 http://www.books.google.com.tw/books?id=iB0_YHH2oasC&pg=PT197&lpg=PT197&dq=chile +R%26D&source=bl&ots=_-kWsms-DF&sig=7X0ElantBTb4al32Hf9bLFuSaMM&hl=zhTW&ei=onqjSvl5lKCRBbGd3PIP&sa=X&oi=book_result&ct=result&resnum=4#v=onepage &q=chile%20R%26D&f=false. http://www.en.wikipedia.org/wiki/ List_of_countries_by_GDP_%28PPP%29_per_capita. http://www.en.wikipedia.org/wiki/Argentina. http://www.en.wikipedia.org/wiki/Brazil. http://www.en.wikipedia.org/wiki/Chile. http://www.en.wikipedia.org/wiki/Mexico.
Chapter 11 http://www.en.wikipedia.org/wiki/Australia. http://www.en.wikipedia.org/wiki/List_of_countries_ by_GDP_%28PPP%29_per_capita. http://www.en.wikipedia.org/wiki/New Zealand.
References
381
Chapter 12 http://www.en.wikipedia.org/ wiki/List_of_countries_by_GDP_%28PPP%29_per_capita. http://www.en.wikipedia.org/wiki/Japan. http://www.en.wikipedia.org/wiki/South Korea. http://www.en.wikipedia.org/wiki/Taiwan. http://www.en.wikipedia.org/wiki/South_Korea#Economy.
Chapter 13 http://www.en.wikipedia.org/wiki/Economy_of_Singapore. http://www.en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29 _per_capita. http://www.en.wikipedia.org/wiki/Malaysia. h t tp://www.en.wik ipedia.org/wiki/Ministry_Of_S c i e n c e % 2 C_ Te c h n o l o g y _ a n d _ Innovation_%28Malaysia%29. http://www.en.wikipedia.org/wiki/Philippines. http://www.en.wikipedia.org/wiki/Singapore. http://www.en.wikipedia.org/wiki/Singapore. http://www.en.wikipedia.org/wiki/Thailand. h t t p : / / w w w. s i t e r e s o u r c e s . w o r l d b a n k . o r g / I N T T H A I L A N D / R e s o u r c e s / 3 3 3 2 0 0 1177475763598/3714275-1234408023295/5826366-1234408105311/chapter1-overview-ofthailand-infrastructure-development.pdf. http://www.nestle.com/NestleResearch/GlobalRnD/ResearchCenters/RnDSingapore.htm. http://www.shoutasia.com/hp/HP%20Integrity%20Server%20R_D%20Center%20in%20 Singapore.htm.
Chapter 14 h t t p : / / w w w. e c o n . w o r l d b a n k . o rg h t t p : / / e n g l i s h . p e o p l e d a i l y. c o m . c n / 2 0 0 3 0 9 / 2 3 / eng20030923_124758.shtml. http://www.en.wikipedia.org/wiki/Brazil. http://www.en.wikipedia.org/wiki/BRIC. http://www.en.wikipedia.org/wiki/China. http://www.en.wikipedia.org/wiki/India. http://www.en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29_per_capita. http://www.en.wikipedia.org/wiki/Russia. http://www.web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/ECAEXT/RUSSIANFED ERATIONEXTN/0,,contentMDK:20888536~menuPK:2445695~pagePK:1497618~piPK:217 854~theSitePK:305600,00.html. http://www.dataart.com/software-development/research-and-development/. http://www.economywatch.com/indianeconomy/indian-economy-overview.html. http://www.edn.com/article/CA610433.html. http://www.nationsencyclopedia.com/economies/Europe/Russia-INTERNATIONAL-TRADE. html. http://www.pinr.com/report.php?ac=view_report&report_id=511&language_id=1.
382
References
Chapter 15 Lin, Y.Y., and L. Edvinsson. 2008b. National intellectual capital: Comparison of the Nordic countries. Journal of Intellectual Capital 9(4): 525–545. The Scottish Office. 1999. Scotland: Towards the knowledge economy. The report of the knowledge economy taskforce. Available from http://www.scotland.gov.uk. http://www.en.wikipedia.org/wiki/China. http://www.en.wikipedia.org/wiki/India. http://www.en.wikipedia.org/wiki/Ireland. http://www.en.wikipedia.org/wiki/Philippines. http://www.en.wikipedia.org/wiki/Poland. http://www.en.wikipedia.org/wiki/Russia. http://www.en.wikipedia.org/wiki/South Africa. http://www.en.wikipedia.org/wiki/Thailand. http://www.web.worldbank.org. http://www.un.org/millenniumgoals/.
Chapter 16 Lin, Y.Y., and L. Edvinsson. 2010. What national intellectual capital indices can tell about the global economic crisis of 2007–2009? 2nd European conference on intellectual capital, March 29–30, 2010, Lisbon, Portugal. Stahle, P., and A. Bounfour. 2008. Understanding dynamics of intellectual capital of nation. Journal of Intellectual capital 9(2): 164–178. http://www.en.wikipedia.org/wiki/2008%E2%80%932009_Icelandic_financial_crisis. http://www.hdrstats.undp.org/en/countries/country_fact_sheets/cty_fs_ISL.html. http://www.news.bbc.co.uk/2/hi/8510603.stm. http://www.news.kyero.com/2009/1/26/pigs-portugal-ireland-greece-spain. http://www.incas-europe.org/European%20ICS%20Guideline.pdf. http://www.taipeitimes.com/News/worldbiz/archives/2010/01/14/2003463439. http://www.theodora.com/wfbcurrent/iceland/iceland_economy.html. http://www.theodora.com/wfbcurrent/ireland/ireland_economy.html. http://www.traveldocs.com/is/economy.htm.
Chapter 17 Corrado, C. 2007. Intangible capital and the symmetry dimension: Implications for economic growth. World conference on intellectual capital for communities, 24–25 May, 2007. Hugh, E. 2005 Dec. 14. The political fallout of Italy’s growth problem. http://www.fistfulofeuros. net/afem/euro/the-political-fallout-of-italys-growth-problem/. Lin, Y.Y., and L. Edvinsson. 2010. What national intellectual capital indices can tell about the global economic crisis of 2007–2009? 2nd European conference on intellectual capital, March 29–30, 2010, Lisbon, Portugal. Rembe, A. 1999. The governmental invest in Sweden agency – ISA: Report 1999. Halls Offset AB, Stockholm. Available at: http://www.isa.se. http://www.new-club-of-paris.org. http://www.argentinastravel.com/basics/politics/.
References http://www.wiki.answers.com/Q/Three_major_political_problems_of_the_philippines. http://www.shvoong.com/books/1928902-problems-antecipate-contemporary-italy/. http://www2.goldmansachs.com/ideas/brics/nifty-50.html. http://www2.goldmansachs.com/ideas/brics/ten-things-for-india.html. http://www.effas.com. http://www.mind-lab.dk. http://www.open-futures.net. http://www.stiglitz-sen-fitoussi.fr. http://www.worldici.com.
383
wwwwwwwwww
Glossary
CEO
Chief Executive Officer
Component capital
Each individual capital, including human capital, market capital, process capital, renewal capital, and financial capital
EPI
Environmental Performance files/2008EPI_Text.pdf)
Index
(http://www.yale.edu/epi/
ESI
Environmental Sustainability ESI2005_Main_Report.pdf)
Index
(http://www.yale.edu/esi/
FC40
Financial Capital Index for 40 countries
Financial capital
Refers to GDP, external debt, industrial production by major branches and inflation. It is represented by GDP per capital (ppp)
HC40
Human Capital Index for 40 countries
Human capital
Includes knowledge, wisdom, expertise, intuition, and the ability of individuals to realize national tasks and goals. This focal area also includes the values encompassed within the culture and philosophy of the nation. Human capital constitutes a population’s total capabilities as reflected in education, knowledge, health, experience, motivation, intuition, entrepreneurship, and expertise; in addition, a highly skilled labor force, the availability of scientists and engineers, a female labor force, and health (life expectancy, physicians) are also good indicators
HDI
Human Development Index, devised by the United Nations in the 1990s as a measure of human well being. It comprises a social welfare index based upon education/adult literacy, health/life expectancy, and purchasing power of income/economy. Economically more developed countries tend to have the highest human development index (over 0.9). Those that are economically less developed score lowest, (0.25 HDI) (http://www.encyclopedia.farlex.com/Unit ed+Nations+Human+Development+Index).
IC
Intellectual capital
385
386
Glossary
IMD
International Institute for Management Development in Switzerland
IMF
International Monetary Fund
MC40
Market Capital Index for 40 countries
Market capital Refers to the general assets embodied in the nation’s relationship with the international market. It is the aggregate of a country’s capabilities and successes in providing an attractive, competitive solution to the needs of its international clients, a country’s investment and achievements in foreign relations, coupled with its exports of quality products and services National IC
National intellectual capital is composed of the knowledge, wisdom, capability, and expertise that provide a country with a competitive advantage over other countries and determine its potential for future growth
NICI40
National Intellectual Capita Index for 40 countries, NICI40 is used to represent the set of 29-indicator National IC model developed in this study and consists of national human capital, market capital, process capital, renewal capital, and financial capital. To avoid confusion, for each individual component capital, HC40 (Human Capital Index for 40 countries), MC40 (Market Capital Index for 40 countries), PC40 (Process Capital Index for 40 countries), RC40 (Renewal Capital Index for 40 countries), and FC40 (Financial Capital Index for 40 countries) are used whenever referring to the ranking in each component capital among the studied 40 countries
PC40
Process Capital Index for 40 countries
Process capital Process capital is the cooperation and flow of knowledge that require structural intellectual assets, such as information systems, hardware, software, databases, laboratories, and national infrastructure, including transportation, information technology skills, communications and computerization, technological readiness and telecom services, personal computers, cellular subscribers, cyber security, quality scientific research institutions, knowledge transfer, a legal environment for entrepreneurship, a minimum number of days to start a business, a quality management system, and agricultural productivity RC40
Renewal Capital Index for 40 countries
Renewal capital Renewal capital refers to a nation’s capabilities and real investments made in an effort to increase its competitive strength in future markets, which, in turn, encourages future growth. Renewal and development assets include investments in research and development, patents, trademarks, start-up companies, the number of scientific publications, the number of patents registered in the USA, EPO patent applications, total expenditure on R&D, and capacity for innovation OECD
Organization for economic cooperation and development
Glossary
387
OECD It brings together the governments of countries committed to democracy and the market economy from around the world to (1) support sustainable economic growth, (2) boost employment, (3) raise living standards, (4) maintain financial stability, (5) assist other countries’ economic development, and (6) contribute to growth in world trade. The Organization provides a setting where governments compare policy experiences, seek answers to common problems, identify good practice, and coordinate domestic and international policies. (http://www.oecd. org/pages/0,3417,en_36734052_36734103_1_1_1_1_1,00.html) R&D Research and development
wwwwwwwwww
Author Index
A
H
Amidon, 377 Andriessen, 8
Hervas-Oliver, 3 Hill, 374 Hugh, 382
B Blanke, 380 Bontis, 1, 2, 4, 8, 11, 12, 17–18, 20, 27–29 Bounfour, 1, 2, 11, 12, 305
C Carr, 10 Chua, 376 Collins, 10 Corrado, 368
D Dalmau-Porta, 3 Dragonetti, 375 Drucker, 1
J Jacobsen, 375 Jarehov, 2
K Kapsi, 379 Klein, 12
L Leadbeater, 378 Lin, 329, 366
M
Edvinsson, 2, 3, 11, 329, 360, 366
Malhotra, 3–5, 7, 8, 10, 12–15, 27–29, 347 Malone, 2, 3, 11 Martil, 375 Mia, 380 Moreno, 375
G
P
Garcia-Ayuso, 1, 347 Guthrie, 8
Pasher, 2, 4, 8, 12–15, 347 Petty, 8
E
389
390 Pomeda, 11, 12, 27 Poyhonene, 375
R Rembe, 2, 8, 11 Richardson, 376 Rivera, 375 Roos, 375
Author Index
S Shachar, 4, 8, 12–15, 347 Stahle, 61, 305 Stenfelt, 2 Stewart, 1 Strassman, 378 Sveiby, 8
W Weziak, 3, 12
Subject Index
B BRIC countries, 22, 262–286, 305, 311, 348, 361–367
262, 270–272, 285, 292, 295, 300, 305, 308, 311, 312 Currency effect implications, 351, 353
C Capital availability, 4, 15, 18, 19, 20, 28, 30, 37–39, 41–43, 47, 53, 61, 75, 91–92, 99, 123, 142, 150, 166, 167, 172, 193, 214, 225, 231, 246, 253, 268, 275, 367 Component capitals financial capital, 4–5, 21, 34, 40, 43–44, 64, 68, 71–72, 88, 93, 95, 96, 119, 120, 123, 146, 169, 170, 189, 207, 211–212, 226, 228, 229, 249, 270–271, 305, 308, 311 human capital, 2, 4–5, 8, 16, 21, 34, 40, 41, 44, 64, 68, 69, 72, 88, 93, 95, 117, 120, 123, 143, 144, 147, 167, 170, 186, 187, 190, 207, 209, 212, 226, 229, 242, 246–248, 250, 268–269, 272, 285, 295, 300, 305, 308, 311–313 market capital, 2, 4–5, 8, 16, 21, 34, 40, 41, 44, 64, 68–72, 85, 88, 93–96, 117, 118, 120, 123, 144, 146, 147, 167, 168, 170, 186, 187, 189, 207, 209, 210, 212, 226, 227, 229, 242, 246–250, 262, 269, 270, 272, 285, 292, 295, 300, 305, 308, 311–313 process capital, 2, 4–5, 8, 16, 21, 34, 40–42, 44, 61, 64, 68, 70–72, 84, 88, 94–96, 118–120, 123, 145–147, 167, 168, 170, 186–188, 207, 209, 210, 212, 226, 227, 229, 242, 246, 248–250, 262, 270, 272, 285, 292, 295, 300, 305, 308, 311–313 renewal capital, 2, 4–5, 8, 16, 21, 34, 40, 42–44, 61, 64, 68, 70–72, 84, 88, 93, 95, 96, 119, 120, 123, 145–147, 168–170, 186, 188, 189, 207, 209, 211, 212, 226, 228, 229, 242, 246, 248–250,
E Effectiveness implications, 351, 353 F Financial crisis, 1, 5, 22, 38, 43, 57, 59, 61, 62, 162, 179, 218, 260, 262, 308, 312–313, 324, 329, 366, 367 Future growth, 3–4, 8, 47, 62, 75, 99, 123, 150, 172, 214, 231, 253, 286, 300, 302, 313, 315, 347 G Government policy policy implications, 347–369 Gross domestic product (GDP) growth comparison, 305, 311, 313–315 H Human capital (HC) index employee training, 18–20, 27, 30, 49, 60–61, 179 higher education enrollment, 18, 19, 27, 30 internet subscribers, 18–20, 27, 30, 49–50, 77, 101, 125, 152, 174, 195–196, 216, 233, 255, 277–278, 324 literacy rate, 18, 19, 27, 30, 50, 77, 195–196, 277–278 public expenditure on education, 18–20, 27, 30 pupil-teacher ratio, 18–20, 27, 30 skilled labor, 4, 13, 18–20, 27, 30, 49–50, 60, 179, 324 391
392 I Innovation Scoreboard Report, 55–56, 81, 84, 106, 109, 130–131, 158–159, 177, 218 Intangible assets, 1, 3, 7–8, 12, 16, 21, 61, 62, 85, 109–110, 120, 170, 179, 181–182, 203, 220, 262, 264, 268, 285, 303, 305, 311–313, 315, 316, 320, 347, 348, 351–354, 367 Intellectual capital accelerator, 354, 359–360 Intellectual capital (IC) Formula I, 351, 354 Intellectual capital incubator, 354, 361 K Knowledge economy knowledge assets, 7–8, 109, 220, 313, 368 L Liability index, 351, 352, 354, 361 M Market capital (MC) index corporate tax incentives, 90, 112, 116, 117, 142, 182, 239 cross-border ventures, 18–20, 28, 30, 36, 38, 40, 112, 116, 166, 167, 182, 203, 208, 209, 225, 226, 242, 245, 246, 267–268 exports of goods, 18–20, 28 globalization, 4, 13, 18–20, 28, 30, 51–52, 62, 68, 71, 72, 78–79, 84, 90, 92, 94, 102–103, 109, 116, 126–127, 133, 142, 154–155, 166, 167, 175, 182, 197, 203, 208, 209, 216–217, 225, 226, 234, 256–257, 279, 333 government policy transparency, 36, 38–40, 52, 68, 91–92, 94, 102, 112, 116, 117, 126, 142, 166, 167, 182, 203, 226, 242, 245, 256 image of country, 18, 21, 28, 39, 68, 71, 72, 78, 84, 92, 94, 102, 112, 126, 142, 166, 167, 182, 208, 209, 219, 225, 226, 242, 245, 267–268 openness of culture, 18, 28, 30, 72 Measurement model IC measurement, 4–5, 8–12, 15–18, 368 NICI40 measurement model, 21, 30 Multiple perspectives, 17–18, 353 N National competitiveness, 1–2, 5–6, 8, 12, 16, 287–288
Subject Index National context implications, 351–353 National financial performance, 305, 353 National intellectual capital creation routes, 354–355 National intellectual capital growth patterns, 354–359 National intellectual capital model, 7–9, 11–12, 21, 313, 314 P Process capital (PC) index business competition environment, 18–20, 30, 37, 38, 39, 42, 54, 268, 270 capital availability, 15, 18, 19, 28, 30, 38, 39, 41, 42, 53, 61, 91, 92, 142, 166, 167, 225, 246, 268 computers in use per capita, 18, 19, 28, 30 convenience of establishing new firms, 18, 19, 28, 30, 38, 39, 42, 71, 91, 166, 167, 225, 268, 270 government efficiency, 18–20, 28, 30, 37–39, 41, 42, 53–54, 71, 91, 92, 142, 166, 167, 225, 246, 268, 270 intellectual property rights protection, 18–20, 28, 30 mobile phone subscribers, 18–20, 28, 30, 39, 42, 53, 54 R Renewal capital (RC) index basic research, 18–20, 29, 30 business R&D spending, 18–20, 29, 30, 324 cooperation between universities and enterprises, 18–20, 29, 30 patents per capita (USPTO + EPO), 18, 20, 29 R&D researchers, 18–20, 29, 30, 220, 239 R&D spending/GDP, 18, 19, 29, 30 scientific articles, 18, 20, 29, 30, 324 S Sustainable intellectual capital development, 315 V Value creation, 3–5, 328, 361–366
