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Table 4.5.4<br />
Comparison of the indices of innovation capacity and<br />
business sophistication<br />
Innovation<br />
capacity<br />
High<br />
Middle<br />
Innovation<br />
capacity<br />
better than<br />
business<br />
sophistication<br />
Finland<br />
Taiwan<br />
Israel<br />
Singapore<br />
South Korea<br />
Canada<br />
New Zealand<br />
Estonia<br />
Hungary<br />
Costa Rica<br />
Business<br />
sophistication<br />
better than<br />
innovation<br />
capacity<br />
Netherlands<br />
Austria<br />
Chile<br />
Low Uruguay Slovakia<br />
Both almost<br />
equal<br />
Switzerland<br />
Denmark<br />
Ireland<br />
Czech Republic<br />
Slovenia<br />
nies in Costa Rica are able to make use of their international<br />
competitive advantage, which is apparently their<br />
relatively inexpensive production location, which is close<br />
to the U.S. markets; the utilisation of top tech nology is<br />
also rated as being quite good. Chile stands out primarily<br />
for its good marketing skills and the existence of clusters.<br />
In all the Asian states in the sample, their positions<br />
are better in the innovation index than in the BSI,<br />
but as a rule, their business sophistication indicators<br />
are high. Singapore lags behind the others as far as the<br />
quantity of local suppliers (caused by the small size of<br />
the state) and the strong role of foreign participation in<br />
the state’s economy. South Korea has very good indicators<br />
related to the position of its companies in the value<br />
chain and control of distribution channels. However,<br />
the WEF methodology does not want to accept South<br />
Korea’s closed cooperative system of monopoly conglomerates<br />
(chaebols), and punishes it with low marks for the<br />
state’s decentralisation capability, which reduces South<br />
Korea’s general BSI rating. As a whole, the business<br />
enterprises in the selected Asian countries, except for<br />
the companies in Taiwan, have relatively strong control<br />
over the entire value chain, and they all use the world’s<br />
top technology. In this group of states, the development<br />
of clusters is especially essential in Taiwan and Singapore.<br />
It would be beneficial for Estonia to investigate this<br />
concrete business development.<br />
In Table 4.5.4, we see that the majority of the states<br />
in our sample get a better assessment in the innovation<br />
index, than in the BSI. It can be assumed that the reason<br />
for this is the singularity of our sample – the sample is<br />
dominated by small states. In large states, like the U.S.,<br />
Japan and Germany, there are definitely better opportunities<br />
for controlling the value chain and for using local<br />
suppliers. One can also assume that developing business<br />
networks takes more time than the development of innovation<br />
potential, and that government policies have less<br />
of an impact on them.<br />
In Table 4.5.4, we can see that the business sophistication<br />
index is positively impacted by a country’s geographical/logistical<br />
position. The geographical location of<br />
the Netherlands, Austria or the Czech Republic is definitely<br />
more favourable for appropriating key positions in<br />
the value chain, than are the locations of Estonia or New<br />
Zealand. But this cannot be changed. Insofar that it is<br />
clear that poor positioning in business networks limits<br />
the possibilities for making one’s economy more innovative,<br />
Estonia must look for answers for how to compensate<br />
for this shortcoming.<br />
The first possibility is to have Estonia’s companies<br />
appropriate positions in servicing and processing the<br />
goods and raw materials flows that, for rational logistical<br />
reasons, tend to cross the territory of our state – for<br />
instance the transport and processing of goods and raw<br />
materials related to Finland and Russia. However, this<br />
presupposes the establishment of appropriate transport<br />
channels (for example, Rail Baltic) and the development<br />
of a business-friendly climate in foreign policy. The<br />
second possibility would be a more purposeful national<br />
policy for cluster creation. And the third possibility, a<br />
policy for attracting foreign high tech firms to the country,<br />
which would encompass the development of collaboration<br />
networks that involve domestic companies, right<br />
from the start.<br />
4.5.4<br />
Foreign versus domestic capital<br />
The reference states can be generally divided into two<br />
groups: the ones whose economic development has<br />
occurred based primarily on domestic capital, and those<br />
that have developed with the help of foreign investments.<br />
The most conspicuous examples of countries in<br />
the first group are Austria and Switzerland; the most significant<br />
representatives of the second group are Slovakia,<br />
the Czech Republic and Hungary.<br />
Most of the countries with highly developed economies<br />
belong to the first group. The exception is Ireland,<br />
where the strong development is based on foreign investments.<br />
Canada and New Zealand comprise an interim<br />
group, since the control of their distribution channels<br />
tends to be in the hands of foreigners, to a fairly large<br />
extent. Of the CEE countries, only Slovenia belongs to the<br />
first group, all the other countries in the sample belong<br />
to the second group, some even in an extreme manner.<br />
Of the comparative group of Latin American countries,<br />
Chile belongs to the first group, while Costa Rica and<br />
Uruguay are, rather, in the second group. However, none<br />
of these classifications are of an extreme nature. Of the<br />
Asian countries in the comparative group, Singapore,<br />
quite clearly, belongs to the second group. The other<br />
Asian countries in the sample belong to first group.<br />
A weakness of the development that is based on<br />
foreign investments is the risk that foreign-owned companies<br />
tend to bring less sophisticated and cheaper functions<br />
to the destination state, while the functions at the<br />
top of the value chain, as well as the more complex and<br />
expensive production, tends to remain in the country of<br />
origin. Based on our sample, we will examine whether<br />
this risk is actually realised, by using the indicators for<br />
value chain breadth and the complexity of the production<br />
processes to find the answer. Since the correlation<br />
between these indicators is quite high, we arrive at the<br />
following three classifications:<br />
Estonian Human Development Report 2012/2013<br />
185