27 June 2017
Orkestra-Basque Institute of Competitiveness of Deusto University, has prepared a diagnosis of the evolution of the competitiveness of the Basque Country in the last ten years and has pointed to some of the most important future challenges the Basque Country must face in order to continue driving its economic and social progress. The generation of skilled employment and the sustainable competitiveness of Basque companies and the Basque economy are fundamental in order to ensure the well-being of individuals and social cohesion, according to the Basque Country Competitiveness Report 2017.
The main indicators of competitiveness reflect that the Basque Economy has performed and evolved positively over the last ten years, even in the worst moments of the crisis. Currently, the Autonomous Community of the Basque Country (CAPV) occupies 33rd position out of 192 European regions in terms of GDP per capita. The Basque Country’s productivity rate is amongst the highest in Europe and has been reinforced in the last two years, offsetting the higher labour costs in the Basque Country compared with other regions and countries.
The Report prepared by Orkestra indicates, however, that other indicators of a social nature, though they have also improved in recent years, have done so less than in other regions, which has seen the CAPV fall in the rankings. One of the aspects that most impacts upon these indicators is employment, which has had a negative evolution during the crisis. And despite the fact that figures have improved during the last two years, the creation of quality employment continues to be one of the most important challenges facing the Basque Country.
Especially relevant too in this context is the need to address a changing demography, with an increasingly ageing population and a decrease in the active population, which may have significant consequences for the competitiveness del Basque Country. In this respect, Orkestra’s Report suggests that an increase in the retirement age and the growth in employment rates will not be sufficient to compensate for the fall in the active population, which is why it will be necessary to attract a more highly qualified immigrant population and, at the same time, continue to train those already living in the Basque Country.
In addition, with regard to the ageing population, the report recommends stimulating new business activities based on the new business opportunities that arise to respond to consumption patterns and the needs of older people in the sphere of the “silver economy”.
The education system needs to evolve, according to the Orkestra analyses, so as to improve its capacity to respond to existing training requirements. The population as a whole is much better prepared, but not enough jobs are being created for certain more qualified profiles, which has a two-fold effect: on the one hand, there is a high percentage of people occupying positions for which they are over-qualified, and on the other, highly-qualified people are emigrating to other countries. For this reason, the Report on Competitiveness recommends implementing an integral strategy of between the worlds of work and education, promoting activities such as dual training.
Entrepreneurial ambidexterity: innovation, internationalisation
The Basque Country Competitiveness Report 2017 underlines the need for companies to develop greater ambidexterity as a key factor in order to attain levels of long-term competitiveness. The concept of ambidexterity refers to the capacity to manage changes of an incremental nature (exploitation) and others of a more radical scope (exploration), something fundamental if companies are to prosper. The competitiveness of Basque companies requires them, according to Orkestra, to exploit their existing potential and, at the same time, explore more radical changes capable of generating new opportunities.
Orkestra’s diagnosis analyses ambidexterity in the innovation and internationalisation strategies of Basque companies, and concludes that their current position is based more upon activities that exploit their capacities than upon the exploration of new long-term opportunities.
The analyses reflect that the pattern of innovation of Basque companies is focussed on incremental technological innovation, directed towards improving current products and processes, and concentrated on medium-sized and large companies. The Report warns of the existence of two very different realities and advocates the promotion of policies which improve the capacity for innovation and competitiveness of small companies, and the development of strategies that explore innovation to seek longer term objectives.
In internationalisation, ambidexterity combines the exploitation of sales possibilities and competitively priced production overseas, and the exploration of tastes and preferences of other segments of the world market. After falling significantly in 2009, Basque exports have enjoyed a positive evolution, recovering pre-crisis levels by 2011. This growth has stagnated in the last two years as exports have fallen slightly. As a positive aspect, there has been an increase in both the number of exporting companies and in foreign trade as a percentage of companies’ total turnover, though export activity is still concentrated primarily on markets that geographically and culturally are closest. The number of implantaciones abroad has also increased, with companies clearly preferring to maintain control (subsidiaries) rather than participate in joint ventures. This data shows that the internationalisation of Basque companies is based on exploitation and there is a tendency towards consolidation in familiar markets, rather than an exploratory approach.
The diagnosis concludes that, in spite of the fact that Basque companies have refined their strategies during the past decade, they continue to favour activities of exploitation. There is also evidence once again of the, risk of experiencing a two-speed economy, as small and medium-sized/large companies obtain very different results in the various indexes. The adoption of an ambidextrous strategy will depend on the availability of funds for its financing. The perceived better capitalisation and lower indebtedness of Basque companies indicate that there is margin for companies to implement more ambidextrous strategies in innovation and internationalization.
Other relevant aspects
The sectorial analysis performed in this Report reflects the major transformation in sectorial specialisation in the CAPV between 2008 and 2013, characterised above all by a reduction in industrial specialisation and construction, and the increase in the importance of services. Since 2013, industry has ceased to lose influence in the economy as a whole and has become a driving element again, with a real growth of 3.6%.
Cluster analysis gives a general impression of an economy in transition, in which some more traditional clusters are in decline, whilst others are working to maintain their international competitiveness and strengthening their future commitment to emerging specialisations. Cluster policy has also adapted to environmental changes and to smart specialisation strategies. In spite of the progress made, Orkestra identifies other questions to be addressed, such as the reduced participation of small companies, the need to understand the different kinds of global value chains in which the diverse clusters are integrated and to respond to these or the improvement of intercluster collaboration.
The energy sector is crucial given its significance with the Basque economy and its impact upon the activity of other sectors. The analyses performed illustrate some competitive advantages of the CAPV in this activity and a relative degree of specialisation. The upwards trend of the price of energy has led to an improvement in the energy efficiency of the Basque economy. Thus, the Basque Country has progressed in its own energy transition, via a reduction of the dependence on coal and increased use of gas. Petroleum-derived fuels continue to represent 80% of total energy consumption.
Mobility and transport appear as the next policy areas in which to reduce consumption and pollutant emissions. This aspect, notes the report, is an opportunity to create production centres to satisfy the demands of an emerging market and reinforce the growing importance of component manufacture. Similarly, it represents an opportunity for the development of alternative energies and a challenge for the oil-refining sector.
The Basque innovation system has focussed its efforts during the last ten years on aligning the capacities of scientific-technological agents with the needs of the industrial fabric and making it easier for advances in knowledge and technology to reach the market, overcoming the so-called “valley of death”. However, the relationship with the industrial fabric must continue to advance and it is necessary to encourage new collaboration mechanisms like, for instance, staff mobility between companies and scientific and technological centres.
The complexity of the transformations and of the economic and social challenges facing the Basque Country make it necessary to address the innovation of the public sector in its own organisational structures and in its relations with other agents, seeking greater efficiency in the use of public resources. The analysis highlights the need to continue driving the efficiency of the system by tackling its rationalisation and dimension. It also recommends development of strategic coordination between different departments within each administration and between the different administrations.
The great challenge: rethinking the Basque welfare model
The Basque Country Competitiveness Report 2017 poses a major challenge: the Basque welfare model. Thus, it concludes that the major global changes that will continue to occur in coming years reveal clear difficulties vis-à-vis the maintenance of the current model.
Facing this great future challenge involves the need to generate a broad social consensus with regard to what should be the nature of this welfare model in order to achieve balanced development and combine the commitment of economic, social and political agents, opening the process to the participation of citizens.
Orkestra identifies three axes in order to contribute to the sustainability of the welfare model. The first is the promotion of long-term sustainable competitiveness with the support of public administrations, cluster associations and agents of science, technology and innovation. The second axis is the achievement of improved coordination between the education system and the world of work, so as to increase employability, especially that of young people, and stimulate lifelong training initiatives. The third axis has to do with the interconnection between generations, and proposes the availability of spaces oriented towards fomenting cohabitation between young and old, in order to generate a diversity and complementarity that can fuel innovation.
Along with these three axes, Orkestra considers it necessary to engage in strategic reflection upon the Basque welfare model and seek innovation mechanisms both in the generation of capacities and resources and in the services that will be necessary to respond to social needs. The report emphasises that the sustainability of this model requires permanent dialogue between policies of economic development and of social welfare.
