Identification of Content of International Benchmarking and Field Survey

Transcription

1 Identification of Content of International Benchmarking and Field Survey 1. Objectives of the Project The main objective of the project is to boost TFP in the Turkish manufacturing industry by focusing especially on enhancing productive capacities of SMEs and strengthening the involvement of domestic firms both in global and local value chains. In doing this, the project will use firms as unit of analysis and try to identify and address gaps in productivity as compared to sectoral, regional and international competitors. In this respect, specific attention will be paid on productivity challenges firms face and develop policy proposals to meet these challenges. In parallel to this objective the project involves two inter-linked sub-components: (1) Benchmarking Turkey s Growth Prospects with a Convergence Perspective; and (2) Assessment of the Factors Limiting [and Driving] Total Factor Productivity at the Company Level. DoA documents specifies two objectives for the benchmarking analyses: (1) identify convergence trends on institutional quality, technology, innovation capacity, quality of physical infrastructure, quality of human capital, level of development of financial markets, and impact of such factors on growth, productivity, competitiveness, employment, labour force participation, income distribution, sustainability and inclusiveness etc. in order to figure out Turkey s growth prospects with a convergence perspective, and (2) compare growth dynamics of Turkey to those of G20 economies (mostly European), as a complement the company-level assessments, and provide insights on the bigger picture considerations regarding the growth prospects of Turkey. In this respect, developing a long-term view of the growth dynamics in Turkey in a comparative fashion and providing inputs to firm level survey analyses are two expected outcomes of international benchmarking study. Regarding the relation between 1

2 benchmarking exercise and survey analyses, a possible design for the international benchmarking component is elaborated below. 2. Content of the Benchmarking Analysis Related to firm level survey component of the project, the benchmarking essentially involves identification of productivity gaps in the Turkish economy as compared to sectoral, regional and international competitors. This would include identification of gaps in the productivity levels and trends in productivity growth (convergence dynamics), as well as underlying policies implemented at macro and micro levels and institutional setup. The benchmarking may incorporate comparison of manufacturing industry performance of Turkey with G20 countries (comparator countries) in terms of productivity for the period. Assessing the current position of economy (sectors), projecting possible convergence dynamics and drive lessons for Turkey are the prime expected benefits of the benchmarking analyses. Benchmarking has been widely used in assessing the comparative performance of production unit (national economies, sectors, firms). It involves gauging the areas of successes and shortcomings of production units. In general, the level and trends in efficiency or productivity of production units as compared to competitors is the main variable of interest (performance indicator) in these analyses. Depending of the nature of production unit and objective of the study a variety of performance indicators (growth rate of value added, competitiveness, employment, profitability, volume of sales, cost of production, export performance, sustainability, inclusiveness, etc.) can be used as other performance indicators. Concerning productivity measures, depending the nature of production units (national economy, sectoral analyses and firm level analyses) a variety of indicators have been used in empirical analyses. Total factor productivity level and growth, partial productivities (labor productivity, (material) input productivity and capital productivity) have been widely used in assessing the productivity performance at aggregate economy or sectoral 2

3 levels. Sales per employee, profit margin, the rate of profitability, return on capital employed, return on net assets, sales turnover/overheads ratio, manufacturing cycle time, physical output/input ratios, overall equipment effectiveness, orders not delivered on time, orders rejected during warranty, labor turnover, days lost to absenteeism per employee, accidents per employee, stock turns, sub-standard supplies, value of supplies per supplier, etc. measures can be used (depending availability of data) in evaluating sectoral and firm level productivity performance. After locating the comparative position of production units, this analyses are generally followed by an extensive study on diagnosing possible (positive and/or negative) factors responsible for this positioning. These factors may entail process of production, scale of production, product mix, organisational structure of firms, structure of industry, human capital, managerial capabilities and practices, innovative activities, macroeconomic environment, public policies, institutional quality, etc. Finally, the benchmarking studies are usually accompanied by an analyses on necessary political and/or institutional changes to be adopted by production unit in order to close the productivity (performance) gap as appose to competitors. In this regard, it can be stated that benchmarking is a means to an end. Identifying competitive position of a production unit through benchmarking is worthless unless it is supplemented by main (structural) factors determining this positioning and best practices and an action plan that needs to be put into place for upgrading. Mapping global, domestic and regional value chains (forward and backward linkages across sectors and firms) is another fundamental dimension of the projects as stated in the DoA document. This implies identification of firms (interlinked) external and internal value creation processes as a whole. With respect to the benchmarking study, the value chain process can be analysed by sketching out the structure of Global Value Chains (GVCs) in some selected sectors (relevant for survey analyses) with an emphasis on how production processes are 3

4 fragmented across countries and firms, possible driving forces and/or rationales behind this fragmentation (monopolistic competition, increasing returns to scale, new division of labour with a view to minimise the cost of production, etc.), and main outcomes (such as international relocation of production stages, rise in trade in intermediate goods, change (reduction) in value added content of domestic production stages, etc.). A brief analyses on transformation in GCVs in sectors of interest in terms of retrospect and prospect will significantly improve our understanding of how this phenomenon will effect sectors, overall economics activities and organisational structure of firms in coming years. This may include any possible new form of GVCs in terms of organisational structure and geographical coverage, new or prospective sectors for GVCs, possible new capabilities that will closely associate with better involvement or upgrading in GVC, etc. Specifics attention could be paid on factors that determine the transformation of GVCs (new technologies, change in consumer preferences, emergence of new growth poles or changes in economic geography (particularly of the rise of Asian economies in global economic activities), effect of government policies, etc.). There is no doubt that our better understanding of the prospect of GVCs this will provide opportunities for public and private institutions in exploiting benefits offered by (better) integration to GVCs. Identification of the current position of Turkey (domestic firms) in sector-specific GVCs will considerably add to the usefulness of the benchmarking study. This may entail Turkey s nature of current position in GVCs (high-value added segment, middle-value added segment or low-value added segment), productivity impact of this positioning, it s main competitors, suppliers and buyers relations, the role of FDI in integration to GVCs, impacts of GVCs in sectoral growth performance, productivity, employment, competitiveness, export and import (trade) volume of respective industries and overall (macro) economy, etc.). It would be highly relevant if this analysis could provide additional information on possible areas (segments of production process) of improvement (upgrading) for the Turkish economy at sectoral detail. 4

5 As mentioned before, it can be stated that benchmarking is not an end itself but it is a means to reach to an end. This implies that identification of the comparative position of a production unit (countries or sectors in case of our project) should be supplemented by policy assessment regarding best practices in competitor countries (policy lessons learned from other/successful countries) and a set of policy options that needs to be put into place for upgrading of domestic economy (sectors). This assessment and policy recommendations could be extended beyond short-term and/or medium term policy prescription by diagnosing institutional structures (such as legal systems, supervisory and observatory mechanisms, enforcement systems, the role of financial system, structure and functioning of labour and product market, the role and nature of labour unions, clustering mechanisms, collaborations/partnerships between public and private sectors, nature of education systems, organisational structures of (dominant) firms, etc.) in countries covered in the study. In this respect, a comparative study on the link between sectoral performance and institutions and policies, and on the link between the transformation of GVCs and institutions and policies would give fruitful lessons for closing productive gap between Turkish economy and benchmark countries. Moreover, finding from an analysis on the role of institutions and policies in affecting establishment and operation of firms (including firms integrated in GVCs) (legal costs of having larger scale, market entry and exits costs, public sector supports to innovation/r&d activities, institutional quality and capacity, investment climate, etc.) in Turkey and in comparator countries will provide highly valuable insight/inputs in developing specific policy recommendations for the Turkish economy. By taking together the main elements of benchmarking analyses and the requirements of our firm-level surveys, the main pillars of the benchmarking component can be simplified as follows: Main Pillar of the Benchmarking Analyses: 5

6 Objective: Identification of trends in growth, productivity and policies, comparison of Turkey with G20 countries (comparator countries) in terms of productivity for the period, and derive lessons for Turkey Approach: Country-, industry- and GVC analysis, national and international data i. Aggregate performance 1- Trends in aggregate output (GDP) and productivity (GDP per capita), compare Turkey with other countries, measure the lag, and check if there is any convergence 2- Decomposition of aggregate output and productivity (TFP, labor productivity, capital productivity, capital per worker, working age population/population ratio, labor force participation ratio, employment ratio, hours worked per capita. Employment variables by gender) 3- Costs of factor inputs (labor, capital, land, knowledge/technology) 4- Investment rate, savings rate, FDI rate 5- Sectoral composition of output and employment ii. Sectoral performance (NACE Rev 2. 1-digit level and selected subsectors) 1- Trends in sectoral output (sectoral output and VA), labor productivity (VA per capita), capital productivity and TFP, compare Turkey with other countries, measure the lag, and check if there is any convergence 2- Productivity distributions/differences by firm size, region, ownership, age, informality, life cycle (entrant/survivor/exitor) 3- Investment by type (ICT, machinery and equipment, infrastructure, buildings, etc.) 4- R&D expenditures, innovation expenditures, ICT investment, patent statistics 5- Type of employment (formal/informal, full time/part time, wage earner/self employed/employer, etc) 6- Size distribution of firms 7- Firm demography (entry, exit, growth) 8- Sectoral factors that determine productivity (network and agglomeration externalities, economies of scale, market structure, etc.) 9- The direction of change in global production, technology and productivity iii. Global Value Chains (selected GVCs) 1- The structure of GVCs (fragmentation of the production process, international relocation of production stages, value added content of production stages, etc.) 6

7 2- The position of Turkey in GVCs (its position, productivity, competitors, suppliers and buyers, the role of FDI, etc.) 3- Transformation in global value changes in retrospect and prospect 4- The factors that determine the transformation of GVCs (technology, consumer preferences, government policies, etc.) iv. Institutions and policies 1- Institutions and policies affecting establishment and operation of firms (legal costs of having larger scale, market entry and exits costs, public sector supports to innovation/r&d activities, institutional quality and capacity, investment climate, etc.) in Turkey and in comparator countries 2- The links between sectoral performance and institutions and policies 3- The links between the transformation of GVCs and institutions and policies 3. Content of the Firm Level Survey Theoretical and applied researches in economics literature propose a wide range of factors in order to explain productivity performance of firms. Some of these factors can be grouped as factors effective in short term while some other can be named as structural factors that are effective in the long-run. The level of internal and/or external demand in the shortterm or the level of capacity utilization firm faces could be regarded as examples for the first group of factors and culture, norms or ethics for the second for the second group. From a different point of view, the first group constitutes the transitory elements of productivity (growth) and the second represents structural/institutional part of it that public policies may not yield expected outcome in foreseeable future. In this regard, the project will have medium term (10-15 years) perspective with a focus on high-return, effective and practical policy proposals and solutions. These may include supply chain management, efficient use of resources, adoption of best practice management techniques, etc. Based on finding from theoretical and empirical research the long-list of research objectives of the project is determined as below. Existing literature on determinants of productivity can be divided in three broad categories: Macro, sectoral and firm level 7

8 analysis. Testing the relevance of convergence in productivity levels, effects from high quality investments, the role of human capital, R&D expenditures and openness to trade on productivity and analyzing the effects of shift of resources from low productivity sectors (agriculture) to high productive ones (manufacturing and/or services) or from informal sectors to formal sectors are examples of macro level analyses. Studies on sectoral level analyses generally focus on the relation between the organizational structures of industries (entry barriers to industries, effect of competitive market structures versus monopolistic markets, the role of labor unions, etc.) and productivity. The role of managerial talent, scale of firms, organizational structures of firms (i.e. vertically integrated versus horizontally integrated firm firms), pay or incentive systems, product mix are examples of variables analyzed in firm-level studies. In order to assess the factors limiting or driving productivity the project will focus on firm level performances and try to find a link between these performances and factors internal and external to the firms. This will require measurement of productivity and performance at the firm level, locating the sources of bottlenecks/drivers that reduce/increase productivity, and identifying the internal and external factors that create these bottlenecks or drivers. Here, internal factors refers to factors under the control of firms (factors that directly forms/shapes the internal operation of firms and have direct impact on the productivity) and external factors represents factors (mostly) out of the control of individual firms (conditions prevalent in the sector and/or overall economy) but potentially induce or prevent productivity improvements. Analysing productivity by using these to broad categories (or factors) offers a number of advantages in assessing different dimensions of productivity. Notably, these are; It will help us to identify firms internal value creation process through better understanding of firms modes of behaviours, rationalities, decision-making processes and internal structures with a view to develop/propose/implement micro level policy tools, 8

9 It will provide an opportunity to analyse interactions between firms level internal characteristics and market environment (including networks, institutional structures, public policies, locational or regional dynamics), It will enable us in mapping global, domestic and regional value chains (forward and backward linkages). The long list of research questions (internal and external factors) are given below. Long List of Research Questions i. Internal factors (controlled by firms) 1- Entrepreneurial Practices and Organization of Production 2- Quality of Labor 3- Learning Mechanisms of Entrepreneurs and Labor 4- Quality of Inputs and Physical Capital 5- R&D and Information Technology 6- Product and Process Innovation 7- Organizational Structure (Traditional, Vertically Integrated, Conglomerate) 8- Economies of Scale (and Scope) 9- Competitive advantage 10- Strategy 11- Positioning in GVCs ii. External factors (firms' social and economic environment) 1- Productivity Spillovers (Externalities arising from all types of networks including clusters, collaborations) 2- Competition Local Market and International Market 3- Regulatory Framework/Institutional Quality 4- Input Market Flexibility 5- Adequacy and Quality of Infrastructure 6- Access to Finance 7- Macroeconomic and Political Stability 8- Public Technology Policies 9

10 9- Nature of Demand (responsiveness of demand to price and non-price characteristics of commodities) 10- Location of Production (regional dynamics) 4. Linkage Between Benchmarking Analysis and Firm Level Survey Benchmarking and firm level survey components are interconnected elements of the projects. Taking into account objectives mentioned in DoA document, the expected inputs from benchmarking analyses that can be used in designing and conducting firm level surveys as follows: a) Providing information on level and trend in productivity gap in the Turkish economy as compared to competitor countries in terms of both aggregate economy and sectoral levels: This information will be used in selection of sectors to be surveyed, compiling sample of firms and design of survey questions. b) Providing information on sources of productivity gap (supply-side sources of growthdecomposition of growth) organisational structures of industries and firms, product mix, nature of labour market, organisation of production, etc.). This information will be used in design of survey questions and compiling of sample of firms. c) Pinpointing weakness and strengths points for the Turkish economy as compared to competitor countries (or firms). This information will be used in design of survey questions and narrowing the list of research questions (preparing short list of questions). d) Providing information on policies and institutional changes (or structures) adopted in best practice countries conducive for a higher rate of productivity growth. This information will be used in design of survey questions and narrowing the list of research questions. 10

11 e) Information on transformation in GCVs in sectors of interest in terms of retrospect and prospect. This information will be used in selection of sectors to be surveyed, compiling sample of firms and design of survey questions. f) Information on current position of Turkey in GVCs and possible areas of improvement (upgrading) for the Turkish economy at sectoral detail. This information will be used in selection of sectors to be surveyed, compiling sample of firms and design of survey questions. g) Proposing policy measures and institutional reforms based on lessons drawn from competitors countries related to positioning on GVCs and other dimensions of productivity growth. This information will be used in design of survey questions and narrowing the list of research questions. h) Suggesting policy toolkits in order to productivity based on experience of best practice countries in the benchmarking analyses. This information will be used in design of survey questions and narrowing the list of research questions. 11