Overview Bizkaia is one of three provinces in the autonomous Basque - - PowerPoint PPT Presentation

Industrial Strategy in Practice:

Innovation and Management Best Practices in the Automobile, Energy and Aerospace Clusters in Bizkaia

May 8, 2017

LSE - Shaw Library, Sixth floor, Old Building Dr Alexander Grous

Department of Media and Communications

2

Overview

• Bizkaia is one of three provinces in the autonomous Basque Country located in the

North of Spain.

• The Basque Country has a concentration of over 700 firms in industrial clusters including

three major clusters: automotive, energy and aerospace.

• These firms generate a global turnover of €64bn and 23% of Basque GDP.
• Bizkaia also represents ’government in action’, with the Administration actively engaged

in the innovation process.

• This research assessed the management practices of 10 firms drawn across the three

clusters using leading methodology developed by the LSE and McKinsey & Co.

• Results place Bizkaia firms in the top 5th percentile of firms surveyed globally since 2005

for 20,000 firms in 35 countries.

• Success in Bizkaia reflects industrial practice in action between Government, industry,

learning-institutions and society.

• 40 years of cluster development, Government investment, a strategic location with

infrastructure and logistical acess, and leading suppliers and customers.

Socioeconomic Fundamentals

0.322 1.138 0.71 3.047 2.217 1.98 15% 52% 33% 42% 31% 27% 0% 10% 20% 30% 40% 50% 60% 0.5 1 1.5 2 2.5 3 3.5

Araba/Álava Bizkaia Gipuzkoa

POPULATION & LAND PROPORTION (%) POPULATION (MILLION) & LAND (000 SQKM) Population (million) Area (000 sq km) Population % Area (%)

• Basque population of 2.17 million people, 7,230 km².
• 251 municipalities in 3 provinces- Araba, Gipuzkoa

and Bizkaia: population of 0.32 million (15%), 2.138 million (52%) and 0.71 million (33%) respectively.

• The highest percentage of gross domestic product

(GDP) invested in R&D: 2.12% in 2014 vs Spain’s average of 1.3%, and EU average of 2.06%. Bizkaia has the highest GDP of the three Basque Country provinces.

• Strong broad financial base in the

economy: capital and mortgages up.

• 2nd highest GDP per capita in Spain

€30,459 behind Madrid (€31, 812); 35% higher than national average.

3

Establishing an Innovation Culture

• The Basque Government and Bizkaia Administration have an ‘innovation tradition’.
• €1bn investment made in major cluster industries: energy, automotive and aerospace.
• European Regional Development Fund (ERDF) 2014-2020 plan for the Basque Country

is €353m with 50% being provided by the ERDF.

• The Diputación foral de Bizkaia will invest €53.7m of these funds via 2014-2020 plan.
• The Basque Country has the highest innovation intensity in Spain: 4.22% of companies

are actively engaged in innovation activities.

• 58% of companies spend their R&D in the Basque Country vs obtaining 35% of their

revenue

• Bizkaia accounts for 46% of the Basque Region’s R&D expenditure, the highest of the

three Provinces.

4

The Basque Country is one of the most intensive regions in Europe for innovation centres, that bring together companies, universities, R&D facilities and technology transfer centres.

Innovation Through Collaboration

• The Basque Country is one of the most intensive regions in Europe for innovation centres

that bring together companies, universities, R&D facilities and technology transfer centres.

• Four major technology parks developed including in Bizkaia:
• Contributing factors to innovation and social development:

(1) political stability since 1978; (2) technology parks; (3) universities less of a role than other regions; (4) applied research focus vs ‘basic research’. Create knowledge and draw further companies into the cluster

5

“Business clusters and ‘clustering can be understood as new and advanced forms of business organisation and networking. Moreover, the creation of clusters is regarded as market driven. They form because SMEs want to strengthen their competitiveness through cooperation strategies.”

EU Observatory of European SMEs, Report 2002/No. 3

6

7

• The Basque Country has been developing clusters for over 30 years.
• Three leading clusters dominate: €63.7bn global turnover.
• Energy: 343 companies; global turnover €46.8bn ; a presence in 67 countries;

employs 63,000 people globally, including 21,000 in the Basque Country.

• Automotive: Over 300 suppliers; global turnover €15bn ; 22% of the Country’s

GDP; €470m spend in R&D.

• Aerospace: 47 major companies; global turnover €1.93bn ; exporting €1.3bn;

employing 12,440 people globally; 5.8% to the Spanish industrial GDP; doubled in size since 2006.

• Major global companies in Bizkaia, including subsidiaries from the world’s biggest co-
• p, Mondragon, such as Batz Group.
• Very strong company ethos in Bizkaia and Basque Country of social responsibility.
• Developed road, sea and air infrastructure accessing global markets.
• Key access point for S. Europe and Latin America (common language).

Leading Global Clusters

8

• Biggest cluster encompassing Wind, Wave,

Smart-Grids, Oil & Gas. ‘RIS3 Plan’.

• €1.3bn annually in R&D: €240m in Basque
• Country. Emerging energy focus.
• Wind Energy: 100 companies with €7.3bn

turnover; 15,000 people employed.

• Global leaders: Gamesa, Adwen, Iberdrole,

‘creating’ the market.

• 6.4% of energy workforce; €100m spend.

Energy Cluster

• Wave Energy: €8m turnover; €7m R&D.
• 30 companies; pioneering EU projects,

Mutriku, OPERA, BIMEP, Oceantec.

• Oil & Gas: €17.9bn turnover and 10,000 people

employed.

• Major Co’s: Petronon/Repsol and EDP

Naturogas, Vicinay Cadenas, in Bizkaia.

• Significant sector with R&D high.
• Smart Grids: €14bn turnover; 23,000

employed; €69.5m R&D.

• 90 companies; e.g. JV- Bidelek Sareak.

€60m investment; 400k smart meters.

• Bizkaia HQ: Arteche, CEC Enerigune,

Ormazabal Veletia, Ingeteam.

Source: Cluster Energia

Energy Cluster: Major Participants

Source: Cluster Energia

9

• One of the most developed

clusters.

• Produces 45% of Spain’s

automotive output, 22% of Basque Country’s GDP.

• 271% increase in turnover 1995-

2015.

• Automotive Intelligence Centre

(AIC): key initiative

Automotive Cluster

• 30 foreign automotive multinationals

located in Bizkaia and Basque Country: 90%

• f local revenue from global projects.
• 700 factories: 270 outside Spain.
• Car production = 68% of total; light

commercial (13%); light industrial (8.6%).

• Global brands present.
• Strong social ethos.

Source: ACICAE Source: ACICAE

10

Automotive Cluster: Automotive Intelligence Center

Source: CICA

11

• Contributes to exports and Spanish

aerospace position of 5th globally.

• 84% exported.
• Contributes 6.1% of industrial GDP

for Basque County.

• R&D investment high at 8.4% of

turnover

Aerospace Cluster

• Global revenue of cluster grew by 10%.
• Principal production areas were:

aerostructures (53.2%); Engines (39.4%); Systems & Equipment (5%); Space (2.4%).

• Companies in Bizkaia and Basque Country

contribute to Primes such as Airbus, Boeing, Rolls Royce, Eurofighter, Embraer, others.

Source: HEGAN

12

Source: TEDAE and ICEX

Management Practices

13

”There’s nothing wrong with my management style. It’s the company that isn’t performing.” Plant Manager, SME, UK.

TEDAE and ICEX TEDAE and ICEX

14

Practices Matter

• Improving management practices matters: Applied research and trials to enhance practices

revealed:

• Defects reduced by 50%;
• Inventory reduced by 2 %;Output raised by 10%;
• 1 point in the review of their operations correlate with significant potential

performance improvements: 23% higher productivity; 14% higher market capitalisation; 1.4% higher annual sales growth rate

• Firms in Bizkaia had similar characteristics regardless of sector:
• Lean practices had been adopted by all of the recipients;
• Best or better practices were being followed for operations and performance

monitoring;

• Targets set were ‘hard’ and ‘stretching’ for firms;
• The recruitment and retention of people was a high priority and any performance

issues were addressed quickly with a ‘respect for the individual’.

• Dominant social ethos in both co-op and non co-op companies.

15

‘Practice Makes Perfect’: Management Practices in Bizkaia

• LSE-McKinsey developed methodology to quantify the quality of management practices.
• Unique global work since 2005 with 20,000 interviews in 35 countries to date.
• Management quality measured in 18 practices in 4 areas: Operations; Performance

Monitoring; Target Setting; Talent Management.

• 10 firms sampled in Bizkaia drawn from Energy, Automotive and Aerospace, with interviews

conducted with managers and CxO function, both by telephone and on-site visits.

• The average of firms across all sectors placed them in the top 5th percentile of firms

interviewed to date.

• The sample firms in Bizkaia displayed very strong management practices.

16

Average Results: Management Practices in Bizkaia

17

“ ‘IT’ ain’t what you do but the way that you do ‘IT’ "

Management practice score Top quartile Bottom quartile Bottom quartile Top quartile Intensity of IT deployment

• Technology investment

has a low impact if companies are poorly managed

• Corporations must

have the right management practices to get the most out of IT investments Increase in total factor productivity %

+8% +20% +2%

Source: LSE Management Matters Database; Team analysis

• IT alone = 2% increase…..Practices alone = 8% increase…..IT & Practices = 20% increase

Case Studies

18

19

Case Studies:

• Owned by world’s largest cooperative Mondragon,

Spain’s 5th largest company.

• Founded in 1956 with HQ in Bizkaia and blue-chip

customer base.

• Turnover of €228m, employing 1,600 people in 16

locations in four businesses: Stamping Dies, Automotive Systems, Energy and Aerospace.

• 95% of the workforce employed in automotive.
• Batz’s

management practices were in the top 5th percentile

• verall.
• Very strong practices across all 18

areas measured.

• Co-op origin drives social focus.
• Shared same core success factors

with non co-op companies.

20

Case Study:

• Supplies,

manufactures and services equipment for petroleum refining, chemical, petrochemical, and renewable sources - solar thermal power and hydropower.

• Established 1918, employing 300 people today.
• Two main facilities: 40,000sqm and 50,000sqm including in

Port of Bilbao to transport directly via sea.

• Reactors
• Condensers
• Feed water heaters
• Heat exchangers
• Boilers
• Piping
• Refineries & hydrocarbons
• Generation power plants
• Combined cycle nuclear
• Power plants upstream
• Process chemical plants
• Ammonia & urea
• Solar power plants
• Offshores

Sectors Products

• Recipient of ON Bizkaia 2017 Prize for a spin-off company.
• Management practices in the

top 5th percentile overall.

• Bizkaia ‘roots’ maintained

with strong social ethos.

• Commercial strategy strong.
• Expansion into key growth

areas not well served to date.

21