GLOBAL BENCHMARK REPORT

DI ANALYSIS Ready for globalisation? GLOBAL BENCHMARK REPORT Including themes on global investment flows and Africa

READY FOR GLOBALISATION Global benchmark report 2014

2 GLOBAL BENCHMARK REPORT 2014 Published by the Confederation of Danish Industry Edited by Kathrine Klitskov, Mathias Secher, Marie Gad, Michael Meineche, Nanna Bøgesvang Olesen and Mads Dal Jørgensen Printed by Zeuner Grafisk as ISSN: 1901-6948 1000.3.14

GLOBAL BENCHMARK REPORT 2014 FOREWORD 3 FOREWORD Businesses across the EU are beginning to see signs that a badly needed confidence is returning to the economy as an indication that the European economy could return to moderate growth in 2014. But the situation remains fragile. In order for Europe to emerge stronger from the financial crisis and restore long-term growth, we need to do much more to strengthen the fundamental determinants of competitiveness. We need a reduction of financial, trade and labour market imbalances in all the European countries in order to build a strong foundation for future growth. And we must be much better at combining national and European reforms so they become mutually reinforcing. A continued focus on fiscal consolidation and growth enhancing structural reforms is key to improving Europe s international competitiveness, growth and employment prospects. With its rich data and insightful assessments, DI s Global Benchmark Report provides a useful overview of the national policies that ultimately determine Europe s overall competitiveness. It can help each and every European member state to identify its strengths and weaknesses in facing international competition. BUSINESSEUROPE strongly supports this continued effort to provide facts and figures for a fruitful dialogue on best practices. The DI Global Benchmark Report complements our own annual European Reform Barometer. We hope both publications can inform and inspire policymakers to work on the difficult task of designing and implementing policies that will support businesses in their efforts to make the best of the opportunities presented by global markets and help return the EU economy to stronger growth and full employment. March 2014 Markus J. Beyrer Director General, BUSINESSEUROPE

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GLOBAL BENCHMARK REPORT 2014 PREFACE 5 PREFACE Economic recovery in the wake of the financial crisis is slow and uneven. Forecasts predict some acceleration of growth in 2014 and 2015, though still hesitant. However, we have yet to realise these expectations. In the current context, governments must avoid complacency in preparing nations for the future economic landscape. Clear and credible strategies are needed to make the growth path irreversible and sustainable. These strategies require a strong commitment to long overdue structural reforms. It is DI s intention that policymakers and business leaders can make use of the Global Benchmark Report to identify strengths and weaknesses of their nations and apply these insights in the pursuit of creating open and prosperous nations capable of creating and sustaining growing economies in balanced societies. The Global Benchmark Report 2014 is the tenth in a series of reports presenting DI s annual assessment of how the global challenge is met in the member states. Across five pillars comprising level of globalisation, productivity and innovation, qualified labour, public economy and costs, each nation is benchmarked on the basis of 87 indicators that support the common aspiration for growth and prosperity. The report provides a snapshot of each country s ability to develop attractive business environments and seize opportunities presented by globalisation. The conditions for doing business in the global economy are constantly changing presenting new challenges and opportunities. Therefore, the two theme chapters of the Global Benchmark Report address how to make the most of these challenges and opportunities. The first theme chapter focuses on the struggle to attract foreign direct investment, an issue of growing concern in several member states. Globalisation has increased foreign direct investment flows and new, viable destinations for investment have emerged putting pressure on the business and investment climates in several countries. Foreign direct investment introduces new technologies and offers something unique in terms of innovation and productivity. It is vital to continually improve conditions that attract and retain foreign companies. The second theme chapter highlights opportunities of tapping into the vast and growing African market and emphasises the major development results that can be achieved from combining aid and trade promotion. March 2014 Karsten Dybvad CEO, Confederation of Danish Industry (DI)

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GLOBAL BENCHMARK REPORT 2014 CONTENT 7 CONTENT 9 Performance in the global arena 18 Benchmarking 20 Level of globalisation 30 Productivity and innovation 46 Qualified labour 62 Public economy 70 Costs 78 Theme chapters 80 New trends in global investment flows 96 Africa: Open for business 123 Methodology, definitions and sources 127 Description of sources 131 Summary of benchmarks 137 Index to benchmarks

GROWTH Seizing opportunities presented by globalisation Developing high productivity and innovation Pillars Having access to qualified and motivated labour Sustaining a balanced and efficient public sector Maintaining a competitive cost level

GLOBAL BENCHMARK REPORT 2014 PERFORMANCE IN THE GLOBAL ARENA 9 PERFORMANCE IN THE GLOBAL ARENA For the tenth consecutive year, the Global Benchmark Report examines how the global challenge is met in the member states. The report highlights strengths and weaknesses of each member state in facing international competition and gives a picture of each country s ability to develop attractive business environments and utilise the opportunities presented by globalisation. The Global Benchmark Report is an annually recurring publication intended as a benchmarking tool for business leaders and policymakers to identify obstacles and opportunities presented in the global business arena. This year, the report also includes two chapters on New trends in global investment flows and "Africa: Open for business". The first theme chapter focuses on the struggle of attracting companies and their investment, an issue of growing concern in several member states. Foreign investment introduces new technologies and offers something unique in terms of innovation and productivity. The second chapter highlights opportunities of tapping into the vast and growing African market and emphasizes the major development results that can be achieved from combining aid and trade promotion. International benchmarking The report compares the performance of 33 member states and their business environments. When possible, data from Brazil, Russia, India and China is included. The report is based upon five fundamental pillars of competitiveness. Together these five pillars constitute the foundation for creating open and prosperous nations capable of creating and sustaining growing economies in balanced societies. Thus, the comparison is based on 87 benchmarks divided into Level of globalisation, Productivity and innovation, Qualified labour, Public economy and Costs. 87 benchmarks Level of globalisation Productivity and innovation Qualified labour Public economy Costs

10 GLOBAL BENCHMARK REPORT 2014 PERFORMANCE IN THE GLOBAL ARENA An agenda for growth Optimism is carefully returning to the global economy creating a slow recovery in business confidence and economic activity. However, the recovery remains precarious. Macroeconomic policies are under acute pressure in several countries that still face many challenges including low growth, high fiscal deficits, high debt and high unemployment. For the member states, success across the five pillars that form the basis of this report is a prerequisite for future growth and prosperity. Again, excels as the country with the highest average GDP growth in the period 2009-2013. The Eurozone has been especially challenged by economic decline over the past five years. Among the BRIC nations, China and India have recorded remarkable growth in spite of the global crisis. GDP growth, 2009-2013 (average) China India Brazil Russia -6-4 -2 0 2 4 6 8 10 Per cent Source Economic Outlook No. 94 and DI calculations

GLOBAL BENCHMARK REPORT 2014 PERFORMANCE IN THE GLOBAL ARENA 11 GDP per capita, Purchasing power parity, 2013 Russia Brazil China India 0 10,000 20,000 30,000 40,000 50,000 60,000 USD Source IMF, World Economic Outlook October 2013 The most prosperous members of the continue to be, and. The Norwegian first place ranking is mainly due to the country's major oil production. Despite high growth for several years, the BRIC countries still have low per capita GDP.

12 GLOBAL BENCHMARK REPORT 2014 PERFORMANCE IN THE GLOBAL ARENA Competitiveness index of the Global Benchmark Report 2014 Based on a competitiveness index, the Global Benchmark Report provides an overview of how the countries are ranked in terms of competitiveness and not only within the single pillars. This comprehensive index captures results from benchmarks divided across the five pillars of national competitiveness. Competitiveness index of the Global Benchmark Report, 2014 Average rank of countries across all five pillars* in the Global Benchmark Report 1 (1) 2 (2) 2 (3) 4 (8) 5 (4) 6 (7) 7 (5) 8 (13) 8 (9) 10 (6) 10 (15) 12 (12) 13 (10) 14 (17) 15 (11) 16 (19) 16 (18) 18 (14) 19 (16) 19 (21) 21 (20) 21 (23) 23 (22) 24 (26) 25 (24) 26 (28) 27 (24) 28 (30) 29 (28) 29 (27) 31 (31) 32 (32) 33 (33) 0 5 10 15 20 25 30 * All pillars have equal weights The overall average ranks of countries (1-33) Note The numbers in the brackets indicate the countries ranks in the competitiveness index for 2013. The coloured circle specifies if the country has either improved, worsened or kept its position. tops the competitiveness index yet again Yet again, wins the title as the most competitive member state based on the benchmarks in the Global Benchmark Report. and take the runner-up positions. and are placed at the bottom as the least competitive member states.

GLOBAL BENCHMARK REPORT 2014 PERFORMANCE IN THE GLOBAL ARENA 13 1. Level of globalisation Several member states are still struggling with weak domestic demand. Improved access to major international export markets can help countries tap into global economic growth. The process of globalisation cultivates interaction between countries and increases international sales. In this first pillar, a nation's level of globalisation is determined by the degree of global market involvement in terms of exports, foreign direct investment, global mindset among citizens and businesses, and the extent of cultural openness, to mention a few. The members of the should strive to seize the opportunities offered by globalisation in order to create future growth. has the position as the country with the highest Level of globalisation. The Irish lead is based on several top rankings including the largest share of exports relative to GDP, highest freedom to trade internationally, efficient customs authorities, highest cultural openness, and a population with the most positive attitude towards globalisation. ranks second. no. 1 in Level of globalisation 2. Productivity and innovation The stage of development varies across the, and so does the specific need for development in productivity and innovation. The most advanced countries strongly rely on the design and development of cutting-edge innovations in order to maintain their competitive advantage. Countries less advanced can still reap benefits from adopting existing technologies. This pillar measures a nation's level of productivity and innovation by addressing labour productivity, investment activity, the institutional environment and infrastructure. The goal is for each country to develop high productivity and product quality. excels with the highest levels of Productivity and innovation. The country has particularly strong university/industry research collaboration and is leading in both patent applications and innovation performance. has been successful in attracting several businesses in sectors with high patent activity. Finally, has the most widespread use of fixed broadband subscriptions and is one of the most energy efficient countries in the. is the runner-up. no. 1 in Productivity and innovation 3. Qualified labour A well-educated workforce contributes significantly to a nation's economic value creation through productivity and business innovation. It is therefore of paramount importance that the business conditions of society support education and R&D and that businesses have access to employees with the desired competences. In this pillar, the availability of qualified labour in the member states is determined by measuring investment in education, levels of educational attainment, business conditions provided by society, and labour market participation. tops the Qualified labour pillar with a highly educated population and strong focus on tertiary education. Furthermore, Canadian senior managers assess that the country's legislation on equal opportunities supports economic growth. and together rank second with a series of solid performances. no. 1 in Qualified labour

14 GLOBAL BENCHMARK REPORT 2014 PERFORMANCE IN THE GLOBAL ARENA 4. Public economy Among other lessons, the financial crisis and the following European debt crisis have taught the world the importance of monitoring the health of a country's public sector. A country's economic robustness is dependent not only on a strong and thriving private sector but also an efficient and balanced public sector. Therefore, among other indicators, this fourth pillar assesses budget balance, public debt, public expenditure, and corruption levels. no. 1 in Public economy excels as the member with the best average ranking in Public economy. The country has the lowest public expenditure as a proportion of GDP. Additionally, is one of the only member states with a structural surplus on its public budgets, and the Swiss public sector is among the smallest in. is the runner-up. 5. Costs The final pillar of the Global Benchmark Report is Costs. The competitiveness of businesses in a global economy depends on whether productivity and the quality of the product offset the costs of production. Production costs and taxes are therefore important indicators of competitiveness. In this pillar, the level of costs in the countries is determined by benchmarks that measure taxes, consumer prices and compensation costs. Maintaining a competitive cost level is the fifth and final component of creating growth. no. 1 in Costs is the most competitive country in terms of Costs. This rank is earned as a result of low marginal tax rates for especially medium wage earners and low inflation. Furthermore, Swiss businesses have easy access to capital markets, and this minimises financial costs and helps to stimulate economic growth. holds second place.

GLOBAL BENCHMARK REPORT 2014 PERFORMANCE IN THE GLOBAL ARENA 15 New trends in global investment flows For the first time ever, in 2012 less foreign direct investment (FDI) went to member states than to the world s other countries. The distinct shift is a natural consequence of the fact that, for many years, an increasing proportion of the world s FDI has sidestepped the. Most of the capital, however, still comes from the, and as a result, many countries have developed a gap between their outward and inward FDI with outbound FDI increasingly exceeding inbound FDI. Many member states have developed a gap in FDI The trend is particularly evident in EU-15, where the gap has nearly tripled in the past decade and currently constitutes 15 per cent of the countries overall GDP. Although many countries have experienced this development, the scope varies greatly as well as the underlying reasons for the development of the investment gap. The situation is particularly problematic for countries experiencing a declining inflow since FDI can raise both employment and productivity wherever it occurs. It is therefore important for all countries to be able to attract FDI. In general, the pattern of the global FDI flows indicates that several affluent member states have difficulties attracting and maintaining businesses and jobs. However, it is possible to reverse the trend and increase a country s attractiveness as a FDI destination. This involves reducing administrative burdens, better interaction between private and public investment, and enhanced direct financial incentives to invest. The FDI gap has grown significantly in EU-15 EU-15 outward FDI stock less inward FDI stock Per cent of GDP 18 16 14 12 10 8 6 4 2 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source and DI

16 GLOBAL BENCHMARK REPORT 2014 PERFORMANCE IN THE GLOBAL ARENA Potential for European companies in Africa Africa: Open for business Over the past decade, Africa has developed from being an extremely poor continent with dark prospects for the future to becoming the region with the highest growth rates in the world. This provides a potential for European companies, but also affects Europe s involvement as an aid donor and trade partner for Africa. The high African growth rates are thanks to a strong increase in inward foreign direct investment and major demand for African raw materials from growth countries such as China, India and. Contributing directly to the growth and attracting FDI, the African consumer has become a significant player. African consumers demand a wealth of new products and services and often pay for them through their mobile telephones. This generates business opportunities that many companies have gradually spotted. Business conditions have also improved significantly in the African countries. Some countries are even competing to implement most business-friendly reforms in order to be attractive for FDI. It is, however, important to realise that there are major differences across the continent. Not all countries have been able to achieve skyhigh growth rates, and a group of African countries are still dominating the bottom of all kinds of ranking from corruption to education. Some European countries have had strong trade relations with Africa over many years, and the EU is still Africa s greatest trading partner. There are, however, major differences as to how much the individual countries trade with Africa, and it is particularly the EU-15 member states that have high trade with Africa while the new member states are lagging behind. At the same time, several donor countries and African partner countries have spotted the advantages of co-thinking aid and trade cooperation and in this way achieved synergic effects between public development aid and private investment. Historically, as Africa s largest donor, the EU has placed the highest priority on oth- Africa will be world champion in economic growth in the next five years Expected average annual GDP growth, 2013-2018 Sub-Saharan Africa Africa Asia * G7 are,,,,, UK and USA. Note Africa includes Northern Africa Source IMF, World Economic Outlook, Database, October 2013 Middle East Central and Eastern Europe G7* 0 1 2 3 4 5 6 Per cent

GLOBAL BENCHMARK REPORT 2014 PERFORMANCE IN THE GLOBAL ARENA 17 er types of aid that aid with focus on job creation and growth. There are signs, however, that in future the EU will place greater emphasis on industrialisation and private sector development with focus on job creation. The chapter ends with a number of recommendations for how the development aid can be structured so that it harmonises most efficiently with the activities of businesses with a view to optimising both development and business effects.

GLOBAL BENCHMARK REPORT 2014 XXXX Global Benchmark Report

GLOBAL BENCHMARK REPORT 2014 XXX 1.00 Level of globalisation Average ranks of countries 1 (1) 2 (2) 3 (3) 4 (5) 5 (4) 6 (7) 7 (6) 8 (8) 9 (10) 10 (12) 11 (14) 11 (9) 13 (11) 14 (13) 15 (18) 16 (16) 17 (15) 18 (21) 19 (19) 19 (20) 21 (23) 22 (17) 23 (29) 23 (22) 25 (26) 26 (27) 27 (24) 28 (25) 29 (28) 30 (30) 31 (31) 32 (32) 33 (33) tops the list in terms of average ranking in the benchmarks for Level of globalisation. 0 5 10 15 20 25 30 The average ranks of countries in the Level of globalisation pillar

GLOBAL BENCHMARK REPORT 2014 LEVEL OF GLOBALISATION 21 LEVEL OF GLOBALISATION Several countries are still struggling with weak domestic demand. Improved access to major international export markets can help countries tap into global economic growth. The process of globalisation cultivates interaction between countries and increases international sales. In order to take advantage of the many new opportunities presented by globalisation, great demands are placed on the global outlook of citizens, companies and policy makers. A positive attitude towards globalisation and openness towards foreign ideas and cultures are prerequisites for success. The top three countries in Level of globalisation,, and, have retained the same positions as last year. is the country with the highest rank in Level of globalisation. The Irish lead is based on several top rankings including the largest share of exports relative to GDP, highest degree of freedom to trade internationally, efficient customs authorities, highest degree of cultural openness and a population with the most positive attitude towards globalisation. is second with a series of solid performances. The country has the most positive image abroad and excels in terms of both attracting foreign investments and investing abroad. ranks third. The country has the highest share of upmarket exports to EU15, Swiss senior managers have the highest degree of international experience and, additionally, is a major investor abroad.

22 GLOBAL BENCHMARK REPORT 2014 LEVEL OF GLOBALISATION 1.01 Growth in exports, 2009-2013 (average) Export growth is an expression of how successful countries are at converting international business opportunities into increased sales. As a consequence of the financial crisis, many countries have experienced major export setbacks, and this decline is only slowly recuperated., and the Slovak Republic top this benchmark. China India Brazil -4-2 0 2 4 6 8 10 Source Economic Outlook No. 94 and DI calculations Average annual real growth in per cent 1.02 Exports as a percentage of GDP, 2013 A country s export percentage indicates to which degree the country participates in the international division of labour. Small countries typically have a higher export percentage than large countries because the domestic market is too small to support a highly specialised production. continues to be the country with the largest export as a percentage of GDP. is followed by the and. has been able to attract international companies that sell a large proportion of their production outside the Irish domestic market. Note Exports should be viewed in relation to total production, but in international comparisons it is often most practical to use GDP (production adjusted for product taxes and consumption in production). Source Economic Outlook No. 94 and DI calculations 0 20 40 60 80 100 120 Per cent of GDP

GLOBAL BENCHMARK REPORT 2014 LEVEL OF GLOBALISATION 23 1.03 Export performance, 2009-2013 (average) India China Russia Brazil -0.4-0.2 0.0 0.2 0.4 0.6 0.8 1.0 Export performance indicates whether a country s exports increase more or less than the general import growth on the export markets. Positive values indicate that market shares are won abroad while negative values mean loss of market shares. If exports are parallel with imports on the export markets, the country s export performance will equal zero. is the top scorer this year with exports in the period 2009-2013 that have developed significantly faster than the imports of its export markets. India and China stand out among the BRIC countries. For several years, they have both won market shares to a much higher degree than all the countries. Source Economic Outlook No. 94 and DI calculations Export index divided by market index 1.04 Upmarket exports to EU15, 2008-2012 (average) India Brazil China Russia Companies in high-cost countries often focus on upmarket products which, due to their quality, design or service concept, are able to earn a higher price than corresponding products from other countries. 85 per cent of Swiss exports to the EU15 are upmarket products, and this again earns a clear first place, with and taking the two following rankings. Note Upmarket exports are defined as exported products that achieve a price at least 15 per cent higher than the average price for the product in the EU15 states. Source Eurostat and DI calculations 0 10 20 30 40 50 60 70 80 90 Per cent of total exports of goods to EU15

24 GLOBAL BENCHMARK REPORT 2014 LEVEL OF GLOBALISATION 1.05 Exports to emerging markets (non- countries), 2012 (2011) Several markets outside the, including the BRIC markets, have a high export potential due to the size of their populations, increasing middle classes and economic growth potential. A positive development is closely linked to the ability to reach these markets., and are once again at the top. This should be viewed in the light of their proximity to high-growth markets in Asia, particularly China. Note Data only includes goods exports. Source.Stat and DI calculations 0 10 20 30 40 50 60 70 Per cent of total exports of goods 1.06 Foreign direct investment holdings as a percentage of GDP, 2012 (2011) (2010) (2011) (2011) (2011) (2011) Brazil Russia India (2009) China Globalisation is characterised by increasing investment across national borders. This development should be viewed in the light of a wish to strengthen ties with foreign customers and benefit from favourable production conditions in other parts of the world. The holdings of foreign direct investment indicate the attractiveness of a country s general business conditions such as taxes, access to raw materials, wages and level of education. is the country where FDI holdings take up the greatest share of the economy. and come next. Source UNCTAD 0 50 100 150 200 250 Per cent of GDP

GLOBAL BENCHMARK REPORT 2014 LEVEL OF GLOBALISATION 25 1.07 Direct investment holdings abroad as a percentage of GDP, 2012 Russia Brazil India China Direct investment abroad is an indication that the country is an active participant in the international division of labour. It can also, however, be an indication that businesses prefer to invest in countries other than their own. takes the lead regarding investment abroad. Source UNCTAD 0 50 100 150 200 250 Per cent of GDP 1.08 Foreign direct investments, inflow 2008-2012 (average) Russia Brazil India China The ability to attract foreign investment is central for domestic companies in a globalised world economy and vital for economic growth in society. A high investment flow indicates that foreign investors anticipate a major growth potential. has clearly recorded the highest average inflow of FDI in the past 5 years corresponding to almost 18 per cent of GDP. and take the following two places. Source UNCTAD 0 5 10 15 20 Per cent of GDP

26 GLOBAL BENCHMARK REPORT 2014 LEVEL OF GLOBALISATION 1.09 Foreign direct investments, outflow 2008-2012 (average) Russia China India Brazil -10-5 0 5 10 15 Outflow of direct investment is a sign that a country is an active participant in the international division of labour and aims to take part in growth found outside of the country. It can, however, also be a sign that companies prefer to invest abroad rather than in their own country. has the largest outflow of direct investment followed by and. Source UNCTAD Per cent of GDP 1.10 Direct investment holding in emerging markets, 2012 (2011) Korea (2011) (2011) (2011) An increasing share of direct investments takes place in markets outside the. Such investments can be explained by low production costs, but another important goal is to get hold of a share of the high growth in several of these markets. has the greatest share of its direct investment holding in emerging markets. and are runners-up. Note Emerging markets are markets outside the. Source.Stat and DI calculations 0 20 40 60 80 100 Per cent of total investments

GLOBAL BENCHMARK REPORT 2014 LEVEL OF GLOBALISATION 27 1.11 Freedom to trade internationally, 2011 Brazil China India Russia Cato s index for international freedom of trade measures the degree to which general business conditions in the country support internationalisation and the export and import activities of companies. The index focuses on aspects such as customs barriers and other trade barriers, as well as barriers to foreign investment. Freedom to trade creates a broader sales potential for companies. In addition, the freedom to trade contributes to stimulating competitiveness due to the presence of foreign goods and services. takes first place closely followed by the and. Note High values indicate few barriers for international trade and FDI. Source Cato Institute, Economic Freedom of the World, 2013 0 1 2 3 4 5 6 7 8 9 10 Index 0-10 1.12 Efficient customs authorities, 2013 China India Russia Brazil Efficient customs authorities ensure smooth trade across national borders and are a vital precondition for international business activities. In a period of increasing digitalisation and growing numbers of IT-based reporting systems, it is important that these work optimally and do not constitute a barrier for imports and exports. has conquered the top rank followed by and. Note High values indicate that local senior managers find the country s customs authorities efficient. Source IMD World Competitiveness Yearbook 2013 (survey, scale 0-10) 0 1 2 3 4 5 6 7 8 9 10 Index 0-10

28 GLOBAL BENCHMARK REPORT 2014 LEVEL OF GLOBALISATION 1.13 Attitudes toward globalisation, 2013 India China Brazil Russia A positive attitude to globalisation in society helps to promote the ability of businesses to benefit from the opportunities of globalisation and continuously adapt to the changes needed in international competition., and hold the top 3 positions in that order. Note This benchmark indicates the degree to which local senior managers assess that there is a positive attitude to globalisation in society. Source IMD World Competitiveness Yearbook 2013 (survey, scale 0-10) 0 1 2 3 4 5 6 7 8 9 10 Index 0-10 1.14 Cultural openness, 2013 China Brazil India Russia Globalisation gives companies access to new partners across the globe. Therefore, adaptation and acceptance of foreign ideas and cultures are important in order to take an active part in globalisation and exploit its benefits. This applies for instance to the ability to attract foreign investment and highly skilled workers. is once again in first place. China, Brazil and India have a high degree of openness at a level with the best countries. Note This benchmark indicates the degree to which local senior managers assess that society is open to foreign ideas. Source IMD World Competitiveness Yearbook 2013 (survey, scale 0-10) 0 1 2 3 4 5 6 7 8 9 10 Index 0-10

GLOBAL BENCHMARK REPORT 2014 LEVEL OF GLOBALISATION 29 1.15 International experience for senior managers, 2013 Brazil India China Russia A high degree of international experience of senior managers is vital when strategic decisions have to be made on global issues, and when employees across national borders have to be managed as efficiently as possible. is still number one in this benchmark. The country is headquarters of many global corporations and organisations, and is characterised by an attractive business environment, including a favourable tax system for highly educated people. Note A high value indicates that senior managers generally have major international experience. Source IMD World Competitiveness Yearbook 2013 (survey, scale 0-10) 0 1 2 3 4 5 6 7 8 9 10 Index 0-10 1.16 Image abroad, 2013 Brazil China India Russia A positive image abroad can help to promote exports and international relations and contribute to attracting investment to the country. A country's image abroad is affected by many different factors including sports performances, tourist attractions, major events, business strengths and the international commitment of the country., and top the benchmark this year. Note This benchmark shows to which degree local senior managers assess that the image abroad of their country helps to promote international business developments. Source IMD World Competitiveness Yearbook 2013 (survey, scale 0-10) 0 1 2 3 4 5 6 7 8 9 10 Index 0-10

30 GLOBAL BENCHMARK REPORT 2014 PRODUCTIVITY AND INNOVATION 2.00 Productivity and innovation Average ranks of countries 1 (1) 2 (2) 3 (3) 3 (5) 5 (9) 6 (6) 7 (4) 8 (10) 9 (8) 10 (11) 11 (7) 12 (12) 13 (13) 14 (14) 15 (17) 16 (16) 17 (19) 18 (15) 19 (18) 20 (20) 21 (21) 22 (22) 23 (23) 24 (24) 25 (25) 25 (26) 27 (27) 28 (27) 29 (29) 30 (29) 31 (31) 32 (32) 33 (33) is most successful in terms of average ranking in benchmarks for Productivity and innovation. 0 5 10 15 20 25 30 The average ranks of countries in the Productivity and innovation pillar

GLOBAL BENCHMARK REPORT 2014 PRODUCTIVITY AND INNOVATION 31 PRODUCTIVITY AND INNOVATION The level of development varies across the, and so does the specific need for development in the areas of productivity and innovation. The most advanced countries are strongly reliant on the design and development of cutting-edge innovations in order to maintain their competitive advantage. Countries less advanced can still reap benefits from adopting existing technologies. Developing a country's level of productivity and innovation includes prioritizing investment in research and development, taking out patents and facilitating entrepreneurship. excels as the country with the highest levels of Productivity and innovation. The country has particularly strong university/industry research collaboration and is leading in both patent applications and innovation performance. has been successful in attracting businesses in sectors with high patent activity. Finally, has the most widespread use of fixed broadband subscriptions and is one of the most energy efficient countries in the. is the runner-up in Productivity and innovation, and good rankings include high patent activity including European patent applications and triadic patent families. The country also has a high level of innovation performance. The earns third place as a result of the high quality of infrastructure, efficient supply of electricity, and a large number of fixed broadband subscribers.

32 GLOBAL BENCHMARK REPORT 2014 PRODUCTIVITY AND INNOVATION 2.01 Investments as a percentage of GDP, 2013 China India Russia Brazil Investment is an important driving force behind productivity gains and growth. Many factors are involved in the level of investment in the various countries, including economic development, access to financing and general business conditions. Investment in new equipment, means of transport, buildings and information technology makes production more efficient. Investment in research and innovation supports the development of new products while investment in infrastructure and energy supply provides more efficient conditions for businesses. takes the lead with investments corresponding to almost a third of the country's GDP. Far ahead of both the countries and the other BRIC countries, China has an impressive investment share of almost 50 per cent of GDP. Note Investment covers private sector investment, public sector investment and housing investment. Source IMF, World Economic Outlook October 2013 0 10 20 30 40 50 Per cent 2.02 Public sector investments as percentage of GDP, 2011 Public sector investment can contribute to enhancing growth in the private sector. Investment in infrastructure and information technology, for example, may contribute to increased mobility, flexibility and productivity., and have the highest proportions of public investment in relation to GDP among the countries. Comparisons of public sector investment across countries are influenced by the fact that some countries have developed the public sector at a much earlier stage than others, and currently do not need investment at the same scale. Furthermore, the definition of public investment differs among the countries suggesting cautious interpretation of the figure. Russia (2009) Source IMF, World Economic Outlook October 2013 0 1 2 3 4 5 6 Per cent of GDP

GLOBAL BENCHMARK REPORT 2014 PRODUCTIVITY AND INNOVATION 33 2.03 Labour productivity, 2013 Brazil Wealth creation in a society is closely connected with labour productivity. tops the list with the highest productivity per working hour. s considerable production per working hour is particularly ascribed to oil and therefore less a reflection of labour productivity on the Norwegian mainland. The, and the are runners-up with labour productivity significantly above the average. This shows that these countries are capable of generating high prosperity per working hour. Source The Conference Board Total Economy Database, January 2014 0 10 20 30 40 50 60 70 80 USD per working hour (PPP) 2.04 Growth in labour productivity, 2009-2013 (average) Brazil Countries with a low level of productivity will often develop faster than countries with a high productivity level because the aforementioned countries can more easily improve their productivity through imports of modern capital equipment and reorganisation of their production structure., and win the three top ranks and, accordingly, have recorded the highest average growth in labour productivity over the past five years. Source The Conference Board Total Economy Database, January 2014-3 -2-1 0 1 2 3 4 Average annual growth in GDP per working hour in per cent

34 GLOBAL BENCHMARK REPORT 2014 PRODUCTIVITY AND INNOVATION 2.05 Total research and development expenditure as a percentage of GDP, 2011 (2009) (2008) (2010) (2010) (2010) Investment in research and development is a vital parameter in global competition. This applies to private as well as public investments. For the fourth consecutive year, captures the top position with slightly more than four per cent of GDP invested in research and development. Several global companies have chosen to locate research centres in. China Russia Source.Stat, Main Science and Technology Indicators 0 1 2 3 4 5 Per cent of GDP 2.06 Public expenditure on research and development as a percentage of GDP, 2011 (2009) (2010) (2010) (2009) (2010) (2010) (2009) (2010) (2010) (2009) (2010) Russia China In order to ensure a high level of knowledge in society, it is vital that public funds for research and development have high priority. holds the first place followed by and. Note Countries with only older available data (2009 and 2010) may have an unfairly high ranking compared with countries with 2011 data due to the probability of cuts in R&D budgets as a consequence of the financial crisis. Source.Stat, Main Science and Technology Indicators 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 Per cent of GDP

GLOBAL BENCHMARK REPORT 2014 PRODUCTIVITY AND INNOVATION 35 2.07 Quality of scientific research institutions, 2012-2013 (average) Grækenland India China Brazil Russia High quality in scientific institutions is central to a high level of research and makes it easier to attract foreign students and scientists as well as foreign investment in R&D. has the top rank this year. s position has to do with its massive investment in R&D in recent years. Note High index values indicate that senior managers in the country assess that the local scientific research institutions are among the best in the world in their specific field. Source WEF 2013-2014, survey 1 2 3 4 5 6 7 Index 1-7 2.08 University/industry research collaboration, 2012-2013 (average) China India Brazil Russia Strong research collaboration between universities and industry is essential in order to guarantee relevant research for both businesses and society. It is also an important path for the transfer of new knowledge between businesses and universities. takes the rank as number one followed by and the. According to senior managers, these countries have the best research collaboration between universities and industry. Note High index values indicate that senior managers in the country assess that research collaboration between universities and industry is widespread. Source WEF 2013-2014, survey 1 2 3 4 5 6 7 Index 1-7

36 GLOBAL BENCHMARK REPORT 2014 PRODUCTIVITY AND INNOVATION 2.09 European patent applications, 2012 China Russia Brazil India The number of European patent applications is an indicator of the degree to which companies in the country perceive the European countries as key markets for their innovative products and processes. Similar to previous years, is in a superior position ahead of all other countries with the highest number of patent applications per million inhabitants. has attracted many businesses in the most patent-active sectors, including the pharmaceutical industry. The appeal is mainly due to the combination of low tax rates, researcher programmes, corporate law, infrastructure and location. Note A European patent is achieved through application to the European Patent Office (EPO). Following submission of application, the patents must be designated in the individual country at the national patent authorities. The figures here only indicate submission of applications to EPO and do not say which EU member states were designated afterwards. Source European Patent Office, IMF, and DI calculations 0 100 200 300 400 500 600 700 800 900 Applications per million inhabitants 2.10 Triadic patent families, 2011 China Russia Brazil India A triadic patent is a patent that is taken out at the same time in the, and the EU. The triadic patents are taken out to ensure broad international protection in three of the world s major markets. It should be noted that global companies increasingly also take out patents in one or several BRIC countries and in other emerging markets. Similar to preceding years,, and top the list of this type of patent. One of the reasons is that all three countries are knowledge societies with focus on sectors with frequent patenting such as the IT and telecom industry, the pharmaceutical industry and high technology in general. Source.Stat, IMF World Economic Outlook October 2013 and DI calculations 0 10 20 30 40 50 60 70 80 90 100 110 Patents per million inhabitants

GLOBAL BENCHMARK REPORT 2014 PRODUCTIVITY AND INNOVATION 37 2.11 Innovation performance, 2012 In a world of tough international competition, the continual innovation and development of products, processes and services are a precondition for creating growth and prosperity in society. The European Innovation Scoreboard tracks 25 socio-economic and company-specific factors that are central to the ability of companies to be innovative. These factors include number of patents, innovation expenditure and the launch of new products and services by small companies. takes the innovation prize again this year. Source European Innovation Scoreboard, Summary Innovation Index 2012 0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 Index 0-1 2.12 Growth expectations among entrepreneurs, 2012 (2011) (2011) (2011) (2010) Russia China Brazil The most important job creation takes place among small and, in particular, newly established businesses. It is vital that entrepreneurs are able to grow and develop their enterprises. The entrepreneurs own expectations for their growth are an indication of their future situation. Since growth expectations often work as a mental benchmark for the individual entrepreneur, there is often close correlation between expectations and reality. holds first place with the highest growth expectations among the country's entrepreneurs. Note The share of entrepreneurs who expect to take on at least five new employees in the next five years. Entrepreneurs are defined as people in the 18-64 age group who are either in the process of starting a business or are actually operating a newly established firm (maximum 3.5 years old). This data was also included in the Global Benchmark Report 2013. Additional information is provided in the section on methodology. Source GEM 2013 0 10 20 30 40 50 Per cent

38 GLOBAL BENCHMARK REPORT 2014 PRODUCTIVITY AND INNOVATION 2.13 Entrepreneurial activity, 2012 (2010) (2011) (2011) Brazil China Russia Entrepreneurial activity is an important precondition for economic growth. ranks highest on the list again this year followed by and the as the countries with the greatest share of new entrepreneurs in the. It is normal to distinguish between entrepreneurship driven by necessity and entrepreneurship driven by opportunity. Countries such as and with a relatively low level of prosperity typically have a large share of entrepreneurs driven by necessity. Note The share of the population in the 18-64 age group which is either in the process of starting a business or is actually operating a newly established firm (maximum 3.5 years old). This data was also included in the Global Benchmark Report 2013. Additional information is provided in the section on methodology. Source GEM 2013 0 5 10 15 20 25 Per cent 2.14 Framework conditions for entrepreneurship, 2013 Russia China India Brazil In order to support the establishment of new businesses it is important that the structures and legislation of society provide good conditions for entrepreneurship. Again this year, wins most points and gets the maximum score (100 per cent). and are close to 100 per cent in second and third place. Note This benchmark is an indicator of the scope of procedures, time and costs required for a small or medium-sized enterprise to get started and to function formally. has the best business conditions for entrepreneurship and is therefore assigned a score of 100 per cent. The other countries are benchmarked in relation to. Source World Bank, Doing Business 2014 0 10 20 30 40 50 60 70 80 90 100 Per cent

GLOBAL BENCHMARK REPORT 2014 PRODUCTIVITY AND INNOVATION 39 2.15 Average time to complete the procedure of closing a business, 2013 China Russia Brazil India Entrepreneurs who start a new business after bankruptcy or closure grow faster than other newly established businesses. This is why it should be easy to close the old business and get started again with a new one after bankruptcy. In it takes less than six months to close a business and once again this puts in the top position in this indicator. It is important to create a comeagain-culture in society in order to encourage entrepreneurs to start again after a bankruptcy or closure. The procedures of closing a business generally take longer in the BRIC countries. Particularly in India where it takes more than four years, on average, to complete the closing of a business. Note The estimated time it takes to handle a bankruptcy case and close/reorganise a bankrupt company from presumed information about the company. Source World Bank, Doing Business 2014 0 1 2 3 4 5 Years 2.16 Venture capital investments as a percentage of GDP, 2009-2012 (average) Access to risk capital is essential for entrepreneurs in order to realise their ideas and start their own business. Venture capital is particularly important for entrepreneurs for whom return on investment lies relatively far into the future. These enterprises are often based on technology and knowledge that it takes a long time to develop, but which, on the other hand, are vital for productivity. Therefore, access to venture capital is not only important for the individual entrepreneur, but also for the general improvement of productivity in society. This year, is the country with the best access to risk capital as seen as an average over the period 2009-2012. Note Data shows the level of seed and early stage investments. Source Eurostat and DI calculations 0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 0.40 0.45 Per cent of GDP

40 GLOBAL BENCHMARK REPORT 2014 PRODUCTIVITY AND INNOVATION 2.17 Gazelle enterprises, 2010 (2009) (2009) Manufacturing Service Gazelles are the subset of high-growth enterprises up to five years old with average annualised growth greater than 20 per cent over a three-year period and at least 10 employees. Gazelles are an indication of how favourable the environment in which the enterprises operate is. Countries such as the and have a very low starting point, and therefore it is relatively easy for them to achieve a higher proportion of gazelles. (2009) * * Data for is gleaned from Statistics and is based on market sectors while the has categorised data according to service and manufacturing. Data therefore is not directly comparable, but gives an indication of levels. The ranking is based on manufacturing enterprises. Source, Entrepreneurship at a Glance, 2013 and Statistics 0.0 0.2 0.4 0.6 0.8 1.0 1.2 Share of enterprises with 10 or more employees, per cent 2.18 Mentality of society supporting competitiveness, 2013 India China Brazil Russia Strong competitiveness contributes to increasing the incentive to qualify further and achieve good results both individually and at company-level. For the tenth consecutive year, the is the country assessed to have the most competitive mentality. American society is permeated by a strong competitive mentality that is cultivated already in the educational system with tracking and privileges for the best pupils. This continues onto the labour market where schemes such as the employee of the month help to promote competition among the employees of a company. Note This indicator shows to which degree senior managers in the country assess the mentality of society to support competition. Source IMD World Competitiveness Yearbook 2013 (survey, scale 0-10) 0 1 2 3 4 5 6 7 8 9 10 Index 0-10