The Urgent Imperative for SME’s to contribute to

Silburn Clarke, FRICS

Chairman, Jamaica Business Development Corporation

ByGrowing the GDP

&Improving the Current Account Deficit

The National Growth and Development Agenda

a. Macroeconomic Challenges and the SME’s Role in Export and Economic Stability

b. Nature of Global Knowledge Economy

c. The Innovation – Productivity – Competitiveness – Connexions

e. A Sustainable Competitive Advantage Model

f. Findings on Motivation from US High-Tech firms

f. Case Study: Born Globals / International New Ventures

g. Case study: Jamaica’s first Global Enterprise

h. Take Home Messages

PRESENTATION OUTLINE

The world is betting that Jamaica will fail !!

“Jamaica is in a high-risk programme, a last-ditch effort to avoid a massive adjustment, even a collapse.”

Financial Times, May 2013

The Urgent National Export Imperative

Radical Reversal of Persistent Unsustainable Trade & Services Deficits

Current Account Deficit is Staggering

Avg 5yr CA deficit : US$1.8bln

Output must grow by 6% minimum to maintain economic stability

Planned Primary Surplus for 2012/2013 5.2% of GDPNew Taxes 1.3%NHT Contributions 0.8%

Planned Primary Surplus (post-implementation) 7.3%

Interest Cost on Debt -8.2%NDX Interest Savings 1.3%Cost of Principal Repayment -6.5%

Net Primary Surplus -6.1%

Minimum GDP Growth Required 6.1%

Source: Caribbean Association of Actuaries

Economic Stability Model

In stable economies;

Debt Primary Surplusapproximates to ________

GDP Long Term Interest Rate

The higher the tendency to a level of equality is the more stable the economy is.

but in unstable economies ;

Debt Primary Surplusis not equal to __________

GDP Long Term Interest Rate

Source: Caribbean Association of Actuaries

The higher the level of disequilibrium is the higher the tendency to instability

In Jamaica’s case: Our Debt to GDP ratio is severely out of alignment with our ratio of Primary Surplus to LT Interest Rates

The numbers: 140% to 67%

Source: Caribbean Association of Actuaries

Economic Stability Model

Innovation drives Productivity

JPC: 2001-2010 period

Contribution of Industrial Sectors to Overall Performance

GDP Performance 2002-2011

Henrekson, Stockholm School of Economics

Growth Drivers and Firm Types

Replicative Firms

Efficiency Factors

Innovating Firms

Small

Businesses

SME’s are VITAL to Country’s Survival

Imagine 1000 SME’s exporting US$1million in goods and services: That’s US$1.0billion contributing to our Current Account

Now imagine 2000 SME’s exporting US$1million in goods and services:

SME’s combined would add US$2.0billion and so

CLOSE OUR CURRENT ACCOUNT DEFICIT

GROW OUR GDP

STABILISE OUR ECONOMY

•The models of the last 2 eras (agricultural and industrial ) rested on Land, Labour (low-cost) and Capital (LLC) as key factors of economic production

• In the current period Knowledge is the main resource

The Global Knowledge Economy

Umemoto 2006

Global economy has been in transition since the 1980’s to what is variously termed a New Economy, Digital Economy or a Knowledge Economy

THE NEW KNOWLEDGE ECONOMY

Global Shift to the Knowledge Economy

(variance in GDP explained by KEI in model)

RESOURCE-BASED ECONOMIES EFFICIENCY-BASED ECONOMIES INNOVATION ECONOMIES

TransitionI to II

JamaicaGuyana

TransitionII to III

TrinidadBarbados

Stage II

Dom RepPanama

Costa Rica

Stage III

???

Stage I

HondurasNicaragua

Countries compete based on their factorendowments: primarily unskilled labourand natural resources.

Compete on the basis of price and sellbasic products or commodities, withtheir low productivity reflected in lowwages.

Countries begin to develop more efficientproduction processes and increase productquality.

Competitiveness is increasingly driven by highereducation and training.

Wages have risen and they cannot increaseprices

Companies must compete by producing newand different goods using the mostsophisticated production processes andthrough innovation.

Wages will have risen by so much that theyare only able to sustain those higher wagesand the associated standard of living byhigher value production

The Shift to Knowledge and Innovation

Thoughts on Innovation

Pronounced uniform regional group inflexion

Mission: To create new Innovation Outcomes for Firms

What is Innovation

Innovation....

Creation of added-value from new or Improved products, processes, methodologies, services, business models, or markets

Schumpeter 1934

The Innovation-Productivity-Competitiveness-

Export Link

Innovative Capacity

Competitiveness Improvement

Competitive Global Marketspaces

Begins with knowledgeable engaged motivated human resources

IncreasedProductivity

Export Entry

NATIONAL INNOVATION BEGINS WITH INDIVIDUAL INNOVATION

Clarke 2012

Going Global

Typically the most productive local firms are the earliest to go global:

a. The firm has the confidence that they can play on the global stage

a. Having maxed out markets domestically, they need the global marketspace in order to maintain their growth trajectory

GROWING SUSTAINABLE COMPETITIVE ADVANTAGE

Is the resource or capability VALUABLE ?

Is it homogeneouslydistributed across

all firms ?Ie RARE

Is resource or capability IMPERFECTLY mobile ?

Competitive disadvantage

Competitive parity

Sustained Competitive Advantage

Temporary Competitive Advantage

YES

NO

YES

NO

YES

NO

Mata, Feurst, Barney (1995)

Acquired /Imported Innovations

IndigenousInnovations

Is the ORGANISATIONALmodel embedded

?

YES

V.R.I.O MODEL

Study of IWB of Employees in US High-Tech Services Firms

OrganisationalContext

Individual Motivation

Employee Innovative Behaviour

inWorkplace

Intrinsic Motivation

Integrated Motivation

Identified Motivation

Organisational Context β=0.327 β=0.267 β=0.195

Model explains (Rsq) 24% 21% 14%

Employee Innovative Work Behaviour

Autonomous Motivation Explains 36.1%

• Four 17 year olds straight out of school (Campion) decided on recording career

• Travelling, performing and harvesting revenues globally within 3 years of start-up

• Classic INV firm• SCA based on their unique content and

singing style (VRIO)• Recently completed a multi-year deal for

“The Voice / Guiding Light” to be on Japan Air Line (JAL) playlist for inter-continental and domestic flights

Born Globals / International New Ventures (INV)

T. O. K.

Case Study #1

Jamaica’s first global enterprise ?

At its peak in the 1920 the UNIA had over Divisions : 1,900Countries : 40 globallyincluding : United States, Cuba, Panama, Costa Rica, Ecuador, Venezuela, Ghana, Sierra Leone, Liberia, India, Australia, Nigeria, Namibia, Canada, Nigeria and South Africa.

The first Jamaican Global Enterprise

The UNIA

If you have not confidence in self, you are twice defeated in the race of life. With confidence, you have won even before you have started.

Case Study

eCLIPSE

• Enhancing Competitiveness through Leadership, Innovation, Productivity, Self-Determinism and Entrepreneurship.

• Complements business planning, accounting, budgeting training with,

• Global mindset orientation, innovation, creative problem-solving

• GoJ / IMF mandate for JBDC and SME’s and as part of the GrowthAgenda

• MSME and Entrepreneurship Policy tabled in May and passed this week in Parliament

• Legislative Agenda: Secured Interests Personal Property , Insolvency , Copyright, Trademark, Companies Act, Superform

• $63million of Capital Support from MIIC in 2013/2014 for CreativeIndustries and Business Incubation and Acceleration

• $2billion in loan support to micro-enterprise sector ($700million) and SME sector ($1.3billion)

HISTORIC SME POLICY SUPPORT FRAMEWORK

• Need to structure economic payoffs to favour innovators and the innovating firms in order to drive sustainability, resilience, flexibility, competitiveness, export growth and prosperity

• SME’s are vital to increasing exports and stabilising the economy

• Jamaica cannot assert any globally distinctive VRIO resources or capabilities from factors derived from and structurally bounded tothe old agro-industrial era

• Your mental models, global mindset, confidence, persistence,motivation are critical factors for taking your firm global

• With confidence you are a winner before you get started (Garvey)

MESSAGES TO TAKE HOME

THANK YOU !

Silburn Clarke, FRICS

silburn@spatialvision.com