What is clear is the need for greater rigor on where governments and businesses invest limited capital. Yet many of the available industrial policy and industry competitiveness frameworks governments can use to measure competitiveness limit analysis. The metrics these frameworks employ to benchmark countries’ competitive standings often do not apply to specific industries with technical and complex value chains, such as semiconductors.
Boosting the labor market and export capacity, including autonomy in critical supply chains, can strengthen US gross domestic product, economic resilience and national security. With greater competitiveness that pushes the boundaries of existing technologies, leaders can innovate and reshape the tide of global trade. The EY-Parthenon team has developed and refined a system of metrics that may help countries and their leaders better understand their competitiveness in the current economy. This three-pronged framework for analysis can help the US and other nations measure where additional investment and support are needed.
If policymakers in any country can identify comparative advantages in specific industries and value chain segments, they can identify initiatives to support areas that will most impact industry competitiveness and their ability to compete in and contribute to the global economy. To measure global competitiveness in one industry, the EY-Parthenon competitiveness framework defines and measures industry competitiveness in three categories:
- Global market leadership
- Business leadership
- Innovation leadership
Each of these three categories contains metrics — including global market size, research and development (R&D) expenditures, and export volume — that guide assessment of an industry’s value chain. Each metric applies to one stage of an industry’s value chain, and value chains are assessed for each country individually. Once information is gathered, the framework calculates comparative leadership scores for each segment of the value chain in each country. The framework estimates the current strength of the value chain stage and potential future strength of the value chain stage for each country being considered. For example, in studying the semiconductor industry, the score for materials in the US value chain will be different than materials in China’s value chain.
After each value chain segment receives a score, it is possible to assess an entire industry’s competitiveness by synthesizing all individual scores. Not every industry analysis can include every metric, depending on data availability. In some cases, proxy data, synthetic benchmarks or qualitative insights may substitute certain defined metrics. In all cases, qualitative analysis by industry experts must be used to synthesize various metrics on a replicable, repeatable basis. The three-part framework can be advantageous when studying industry competitiveness by country and industrial policy focused on a specific industry with a technical and complex value chain.
In outlining our framework, we consider semiconductor competitiveness in the United States vs. China’s semiconductor value chain. The PDF linked on this page provides detail on that and each layer of the three-part EY-Parthenon competitiveness framework. Here is the rough framework:
Global market leadership
The first layer of the EY-Parthenon competitiveness framework is global market leadership. It aims to identify a country’s economic position within a global industry, with areas of strength and weakness compared to another country or region. The category considers metrics regarding market share and level of government support.
Market share metrics evaluate industry competitiveness and if the country of interest is leading in the global market of a particular industry compared to other countries. These metrics can be assessed by industry or by value chain stage and include global market size, global market growth, market share by country, market share over time by country and market concentration.
The second area of global market leadership, government support, evaluates if companies in an industry receive more government support compared to foreign companies in the industry. The metrics are intended to be evaluated respectively for all companies of interest.
Business leadership
Business leadership, the second area in the EY-Parthenon competitiveness framework addresses the financial strength of companies within an industry to identify the relative financial leadership of companies in the country of interest compared to companies in other countries used in the comparison. There are two subcategories within the business leadership category: export strength and financial strength.
Export strength evaluates the extent to which a country of interest is leading in exports in an industry compared to other countries. These metrics can be assessed by industry or by value chain stage and include export volume, export contribution, export growth, export market share and foreign market penetration:
Financial strength, the second group of metrics in business leadership, provides insights on average financial performance of the public companies operating in the value chain of interest. Financial strength includes multiple metrics that rely on measurements from a specific year, preferably the most recent fiscal year. The financial strength category includes average revenue, revenue growth, net income, return on invested capital, employment potential and management scoring. Qualitative data may supplement financial strength analysis.
Innovation leadership
The third category of the EY-Parthenon competitiveness framework, innovation leadership, assesses a country’s position as an innovation leader in an industry or value chain stage.
The two pillars of the category are innovation strength and R&D.