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Some explanations to the weak industry performance of Greek ICT sector – with reference

to how IT technology markets work in the periphery of Europe (P4)

Petros KAVASSALIS, UAegean Yannis CALOGHIROU, NTUA (

Σεμινάρια  Ερμούπολης  2013:  Η  πρόκληση  της  εξόδου  από  την  κρίση:  Η  δυνητική  συνεισφορά  των  Τεχνολογιών  Πληροφορικής  

και  Επικοινωνιών  και  των  Ενεργειακών  Καινοτομιών  

①  Greek ICT industry during the “catching-up” years: Growth but weak performance… ②  A qualitative view on the “catching-up” years – and the way ahead ③  EU says, Greece needs more growth via innovation. But is it rational to expect a different

growth trajectory for the Greek ICT industry? – How is this possible? ④  The “Knowledge Intensive Services Challenge”… and the lesson learnt from the past of the

Greek economy

Agenda

Petros KAVASSALIS <pkavassalis@atlantis-group.gr>

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GROWTH BUT WEAK PERFORMANCE…

Greek ICT industry during the the “catching-up” years:

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n  2007-2008 (the maximum point of the ICT development curve) n  Greek ICT weight in this year: 3.5 % of the GDP (EU average: 4%) n  Global Sales: 10-12 billion euros

>  Telecommunications: 60% (<10% of the total number of sector firms) >  IT Services: 20% (35% of the total number of sector firms) >  Manufacturing: 10% >  Retail: 10%

n  Very dispersed industrial structure >  % of firms with more than 250 employees: 4% >  % of firms with more than 50 employees: 13% >  % of firms having fewer than 10 employees: 43%

n  Non-sufficient internal market

The Greek ICT industry in numbers

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Greek ICT Industry in 2000s (1)

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n  Greece (and Portugal, Italy and, to a lesser extent, Spain) shows a significant increase in the shares of the ICT sector in their economies >  as measured by ICT value

added/GDP (in percentage points)

n  This is a clear catching-up phenomenon

n  Of course, this situation changes with the ongoing recession…

Greek ICT Industry in 2000s (2)

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n  Very little R&D >  BERD: Business

Expenditures in R&D

Greek ICT Industry in 2000s: a more detailed picture (1)

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n  Weak export activity in ICT Services – and ICT goods (Source: OECD IT Outlook 2010)

Greek ICT Industry in 2000s: a more detailed picture (2)

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CAGR: Compound Average Growth Rate

n  Limited innovative capacity: low indicators for knowledge flow and clustering (Source: OECD IT Outlook 2010 & EC)

Greek ICT Industry in 2000s: a more detailed picture (3)

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n  A limited number of Greek ICT firms (1/4) can be seen as “high technology intensity” business (IOBE & NTUA, 2011-12)

>  Nearly one-quarter of sector’s firms have been classified in the “low technology intensity” segment!

n  A few firms have classified their performance as AAA

>  An AAA degree implies a good performance in terms of financial position, technology capacity and human capital quality

Greek ICT Industry in 2000s: a more detailed picture (4)

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n  Patents n  SMEs participation in EU Programmes n  ICT spending n  ICT business use n  “Network readiness” n  …

There are many other indicators confirming the weak industry performance…

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“CATCHING-UP” YEARS – AND THE WAY AHEAD A “qualitative” view on the

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n  T. Kollintzas et al, 2012: The main contribution to growth comes from capital, not from Total Factor Productivity (TFP) >  TFP: includes technical know-how, improvements in business organization, and managerial efforts

that reduce costs >  ICT investments create TFP gains

n  How does TFP “behave” in 2000s? The “little TFP-based growth” phenomenon affects all industrial sectors, but how precisely does it affect ICT growth patterns in Greece?

Greece grows considerably in 2000s but…

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n  Catching-up in Greek ICT industry is more related to the investment capital availability (including government spending boosted by EU structural funds…) and to high capital productivity, non-related however to significant TFP growth?

n  Technical Efficiency Change has been more important contributor to TFP growth than Technological Change? (does banking sector TFP increase has something to say?)

n  Some definitions are necessary >  Technical Efficiency Change (catch-up):

o  the change in efficiency between current (t) and next (t+1) periods, i.e. catching-up to the frontier

>  Technological Change (innovation): o  a shift upwards of the production frontier o  development of new products, or new production methods and improvements over the existing ones, i.e.

develop, or acquire from abroad, new technology

n  One more (related) question? “Catching up in wages” and low ICT export capacity: is there a clear relationship (as in the rest of the economy)?

Explain ICT growth in 2000s: more questions than responses (for the moment)…

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n  In brief: The ICT industry in Greece has been able to catch-up but, somehow, has not been improving well…

n  ICT industry - Stylized facts (SEV-IOBE ICT Panel) >  Non-sustainable business development >  Low product sophistication (an perfect example: the so-called… “Greek ERPs”) >  Limited range of specialized/differentiated products and standardization (the incorporation of SAP is

perhaps the only “success story”…) o  ICT firms used to develop very customized products in the objective of “locking-in” the customer into a

proprietary technology (and its provider) >  Small scale matters… >  Business development through external growth (and sales increase) not through building

capabilities >  Organizational behaviors strongly influenced by the inefficiencies of public procurement

o  The strategy of “contract-management to increase profitability at the expense of product output quality” in government ICT projects

From macro-economics to micro-economic evidence

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n  A conclusion: A set of “localized strategies” drive the industry to a low performance technological trajectory… However, this is not the only issues to discuss

n  Knowledge transfer from North to South of Europe is very imperfect >  Industries and firms with higher potential growth are

concentrated in the Northern euro zone; the ongoing process of European integration does not help much Southern Europe to benefit from the stock of knowledge accumulated in the North of Europe (Artus and Gravet, 2011)

>  Business activities in the ICT sector tend to be rather concentrated geographically around the so-called blue-banana of Europe, i.e. the area going from the South of the UK, the Benelux and Denmark, the French region of Ile-de-France, the Western regions of Germany and the North of Italy (Barrios et al, 2008)

A low performance technological trajectory as a result of the interplay between industry strategies and institutional patterns

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n  Reference: Arora et al, Markets for Technology n  The division of innovative labor in am integrated economy exemplifying asymmetries and

the lack of downstream local specialized providers >  induce "cognitive limitations" to knowledge transfer >  from upstream international technology suppliers that commercialise software and ICT core

technologies

Once again, (technology) markets are imperfect

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STAGE 2 STAGE 1

BUT IS IT RATIONAL TO EXPECT A DIFFERENT GROWTH TRAJECTORY FOR THE GREEK ICT INDUSTRY? – HOW IS THIS POSSIBLE?

EU says, Greece needs more growth via innovation

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n  Stobbe & Pawlicki, 2012 >  Greece, Ireland and Portugal (GIP) require economic growth. Since the countries in EMU have no

way of improving their competitiveness via external devaluation, a main focus has to be on boosting productivity

>  The conditions for innovation need to be improved and measures taken to simplify the establishment and development of high-tech companies

>  Greece’s innovation system displays serious weaknesses: high- and medium-high-tech industrial sectors and knowledge-intensive service sectors carry very little weight in the overall economy

>  The upgrading of traditional industries and services in Greece (and Portugal) is of major significance

n  Aiginger, 2012 >  In the southern periphery of Europe, boosting productivity via technology transfer, or stimulating

domestic business demand, seems to be the appropriate strategy for improving competitiveness and increasing investments, attracting new firms and inward FDI

The prescription is… innovation (not coming from Troika)

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n  ICT industry should focus on: >  Providing opportunities for increasing productivity in the other sectors of the Greek economy >  Improving its export capacity (perhaps more in extra EU trade)

n  This implies a lot of industry restructuring (has it already started?), strategic re-positioning and public industrial policy toward a knowledge-driven economy. Options: >  Invest in R&D >  Update production structure with ICT “sophisticated products” >  Alliance and mergers with EU ICT industry >  Clustering and specialization

o  Improve collaboration between industry and research-academia o  The emerging start-ups as “innovation gatekeepers”… (*)

>  A specific industrial policy for the periphery of Europe to stimulate innovation (Southern countries need to use more easily and efficiently technologies, production knowledge and investment capital from the North…)

n  The definition of metrics for the implementation of these changes may be the first effective step!

That means, catch-up is not enough for the ICT industry

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n  ICT industry in Greece, and in the South of Europe, needs to move beyond the catch-up towards a development trajectory that generates technology progress stimulating productivity

n  Key issue: the increase in product sophistication n  That means, ICT development in southern Europe

need to be considered as a “problem to solve”, different from both >  ICT in developed countries where there is autonomous

technological progress >  ICT in emerging countries where the issue is to acquire

new technology… >  (needs further elaboration…)

How is this possible?

Petros KAVASSALIS <pkavassalis@atlantis-group.gr>

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AND THE LESSON LEARNT FROM THE PAST OF THE GREEK ECONOMY

The “Knowledge Intensive Services Challenge”…

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n  Product sophistication >  What enables ICT industries to increase product sophistication? (Anand et al, 2012)

o  Educated workforce: yes, we can o  External liberalization: learn how to explore the benefits of globalization o  Good information (knowledge) flows: the real big issue for the Greek ICT industry …

n  Increase product or… service sophistication? >  Services are going to become more productive, tradable, and unbundled…

>  Knowledge-Intensive Services (KIS) o  The ongoing revolution of cloud computing…

n  In the past (1990s), >  Greece drastically shifted its export structure away from textile and clothing sectors, in which it sustained

significant share losses, and towards transport value added services – resulting in a remarkable 68 percent market share increase in services (Bennett et al, 2008)

n  It is time to organize the next shift upwards: KIS for transport, tourism and business…

The ICT “increase product specification” trajectory has a KIS determinant

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