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
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 5 th 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. 2
Socioeconomic Fundamentals • Basque population of 2.17 million people, 7,230 km². 3.5 60% POPULATION (MILLION) & LAND (000 SQKM) 52% 3.047 POPULATION & LAND PROPORTION (%) 3 50% • 251 municipalities in 3 provinces- Araba, Gipuzkoa 2.5 42% 40% and Bizkaia: population of 0.32 million (15%), 2.138 2.217 1.98 2 33% million (52%) and 0.71 million (33%) respectively. 30% 31% 1.5 27% 1.138 20% • The highest percentage of gross domestic product 1 15% 0.71 10% (GDP) invested in R&D: 2.12% in 2014 vs Spain’s 0.5 0.322 0 0% average of 1.3%, and EU average of 2.06%. Araba/Álava Bizkaia Gipuzkoa Population (million) Area (000 sq km) Population % Area (%) • Strong broad financial base in the economy: capital and mortgages up. • 2 nd highest GDP per capita in Spain €30,459 behind Madrid (€31, 812); 35% higher than national average. Bizkaia has the highest GDP of the three Basque Country provinces. 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. 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. 4
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; Create knowledge and draw (2) technology parks; further companies into the (3) universities less of a role than other regions; cluster (4) applied research focus vs ‘basic research’. 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
Leading Global Clusters 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- • op, 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). • 7
Energy Cluster 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. • Source: Cluster Energia Wave Energy: €8m turnover; €7m R&D. • 30 companies ; pioneering EU projects, • Mutriku, OPERA, BIMEP, Oceantec. • Smart Grids: €14bn turnover; 23,000 Oil & Gas: €17.9bn turnover and 10,000 people • employed; €69.5m R&D. employed. • 90 companies ; e.g. JV- Bidelek Sareak. Major Co’s: Petronon/Repsol and EDP • €60m investment; 400k smart meters. Naturogas, Vicinay Cadenas, in Bizkaia. • Bizkaia HQ: Arteche, CEC Enerigune, Significant sector with R&D high. • 8 Ormazabal Veletia, Ingeteam.
Energy Cluster: Major Participants Source: Cluster Energia 9
Automotive Cluster 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 Source: ACICAE • 30 foreign automotive multinationals located in Bizkaia and Basque Country: 90% of 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. 10 Source: ACICAE
Automotive Cluster: Automotive Intelligence Center Source: CICA 11
Aerospace Cluster • Contributes to exports and Spanish aerospace position of 5 th globally. • 84% exported. • Contributes 6.1% of industrial GDP for Basque County. • R&D investment high at 8.4% of turnover Source: HEGAN • 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: TEDAE and ICEX 12
Management Practices ”There’s nothing wrong with my management style. It’s the company that isn’t performing.” Plant Manager, SME, UK. 13
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%; • TEDAE and ICEX 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; TEDAE and ICEX 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. • 14
‘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 5 th percentile of firms • interviewed to date. The sample firms in Bizkaia displayed very strong management practices. • 15
Average Results: Management Practices in Bizkaia 16
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