• Structural factors (or drivers) of UNIDO scoreboard include technology in generic sense (domestic technology effort measured by R&D and acquiring foreign technology through FDI and licensing), skills and infrastructure.

• Structural factor analysis reveals different patterns of national industrial capability building and different strategies.

• Rankings by structural factors show considerable stability over time, indicating that it is difficult for economies to change their structural drivers in the short to medium term and that industrial capability building is a gradual process, requiring time and effort. Only two countries experienced a few major changes over the period, notably Republic of Korea and Taiwan Province of China.

• The distribution of drivers of industrial performance is uneven within the global economy and this is growing more uneven.

• The top 20 countries—mainly industrialized economies— account for the lion’s share of skills, domestic technological effort, new technology acquired through FDI and through licenses, and modern infrastructure factors.

• Among the top 20, there are also notable exceptions from developing economies. They include Republic of Korea, Russian Federation and Taiwan Province of China in skills; Republic of Korea, Singapore and Taiwan Province of China in R&D spending per capita; Singapore, Hong Kong SAR, Malaysia, Chile and Hungary as recipients of FDI; Singapore, Hong Kong SAR, Malaysia, Taiwan Province of China and Republic of Korea in royalties per capita; and Singapore, Bahrain and Hong Kong SAR in physical infrastructure.

• From the regional perspective, East Asia dominates other developing country regions by almost every driver, while Sub-Saharan Africa is consistently the weakest.

• The bottom 30 economies account for only 2 per cent of developing country FDI inflows in 1998, and their R&D expenditure, technology license payments and Internet hosts are almost negligible.

• Underlying structural relationships between drivers generally reinforce each other and the strength and significance of these relationships vary by countries. This indicates that industrial development requires all structural factors to grow but not necessarily in tandem at all stages of development and that countries need different combinations of structural drivers at different levels of industrializations.

STRATEGIES FOR ENHANCING INDUSTRIAL PERFORMANCE THROUGH ACQUIRING NEW TECHNOLOGY

• The leading industrialized economies rely heavily on domestic R&D efforts for acquiring new technology, but their reliance on FDI has increased, helping them to tap other economies’ R&D efforts. They have high R&D spending per unit of high-tech exports and per unit of inward FDI. They have developed a strong technological base, and they lead in high-tech exports.

• Most developing countries continue to languish at the bottom of the technological ladder, with no perceptible rise in domestic technology effort. Some have managed to attract fair amounts of FDI (as a share of domestic investment), but only a few managed to break into integrated global production systems.

• Malaysia, the Philippines and Singapore—all highly dependent on FDI—have the largest shares of high-tech products in manufactured exports. Most other developing countries continue to have very small shares of high-tech products in their manufactured exports. At the bottom of the scale are developing countries specializing in assembly and testing.

• Relatively few developing countries have managed to combine heavy dependence on FDI with domestic technology effort and have done so relying extensively on industrial policy (Singapore is an example).

• Acquiring new technology through domestic R&D is strategy that is more autonomous and involves large investments in skills. For industrial latecomers it is also a riskier strategy, because it tends to involve extensive use of industrial policy. Republic of Korea and Taiwan Province of China have been most dependent developing economies on R&D, but their reliance on FDI has also increased.

• Acquiring new technology through FDI can take countries a long way without a need for strong local R&D. But countries that succeed with this strategy tend to raise their investments in R&D over time, with transnational corporations shifting some innovative functions to them.

DO THE DRIVERS EXPLAIN PERFORMANCE?

• Technology in the generic sense—domestic technology effort and access to foreign technology through FDI and licensing—has a powerful influence on industrial performance.

• Domestic technological effort is statistically the most important drivers of industrial performance, in both 1985 and 1998 and over time, highlighting the need for domestic technological effort even at low levels of industrial development. When measured by R&D financed by productive enterprises, this is the most consistent and significant of the drivers. But the ability to undertake domestic technological effort clearly depends on the availability of skilled manpower and access to foreign technologies.

• Access to foreign technology through licensing is also statistically significant, but its role appears to be diminishing.

• Access to foreign technology through FDI has grown in significance due to the increasing role of integrated production system and networks, governed by transnational corporations. But FDI inflows account for a small share of global investment and are highly concentrated, particularly for high-technology products and components.

• The significance of skills is also increasing, in line with the conventional wisdom on the importance of human capital and technology for competitive industrial performance.

• Infrastructure remains important over the period but strongly associated with industrial growth and technology upgrading, and more as a permissive than a causal factor.

BALANCE BETWEEN DRIVERS AND PERFORMANCES

• A set of selected structural drivers is strongly associated with industrial performance: regions and countries that do well in their industrial capabilities do well in their performances, but there are several notable exceptions.

• Some economies performed in line with their industrial capabilities. Others outperformed achieving an industrial performance higher than expected, such as Singapore, Taiwan Province of China, Malaysia, Mexico, the Philippines and Thailand. Still, some other economies underperformed achieving industrial performance lower than expected, such as Bahrain, Chile, Hong Kong SAR and Panama.

• Industrialized countries have a balance of performances and associated drivers above the average for the whole sample of countries.

• Most developing economies have a balance of performances and associated drivers below the average of the sample, except the mature Asian Tigers. Some developing countries, such as Malaysia, Mexico, the Philippines and Thailand, have above average performances but below average drivers.

• The overperformers among developing economies, apart from Taiwan Province of China, have undergone rapid export growth and technological upgrading in recent years by plugging into global production systems and networks. Participating in high-tech export activity has enabled many of them to overcome gaps in domestic industrial capabilities.

• Strong performance based on weak drivers raises the question of industrial sustainability and signals a need to expand the base of structural factors. This strategy can make economies vulnerable to an erosion of competitiveness (due to the rising wages or changing technologies) and can easily lead to a rapid fall-off in performance.

• Achieving lower industrial performance than expected is usually caused by disabling regulatory environment, macroeconomic instability and other fundamental factors.

• Benchmarking industrial performances and drivers of that performance is a natural starting point to provide policy-makers with useful information for formulating national strategies and polices. As a useful benchmarking tool, the Scoreboard can facilitate diagnosis of a country’s technological capability in broad areas of strengths and weaknesses relative to its neighbors, immediate competitors or potential competitors. Countries with more advanced industry and technology are good benchmarks to which to aspire. Scoreboard can help policymakers identify what technological capabilities to develop, what global value chains to latch onto and what industrial support services to support for innovation and learning. But for formulating country-specific policies, the Scoreboard must be supplemented with deeper qualitative analyses of the policy and regulatory regime, institutions, linkages and other factors.