Lessons from Valencia, Spain

The Good Oil * by Rod Brown

The OECD recently completed a review of the policy challenges for the internationalisation of the Valencia economy, to help the local agencies respond to globalisation and the knowledge economy. This review was undertaken by a multilateral team of experts.

The team suggested at the outset that a successful innovation strategy for a city economy involves the building of human capital, fostering entrepreneurship, attracting knowledge intensive firms, increasing public and private sector R&D activity, and strengthening science industry linkages. Such prescription is not exactly earth shattering, but it is very relevant to Valencia, and to Australian cities and regions, and I will explain why.

Valencia is Spain’s third largest city, with a population of around one million. It has two public universities, with some 130,000 students in graduate and postgraduate programs. This is an extremely high figure, and most of their students are Spanish, unlike here in Australia. It also has excellent scientific knowledge and highly qualified graduate output. Despite this, Valencia has not attracted significant volumes of knowledge intensive foreign investment. A key reason is its weak university industry linkages.

Another reason is that the locals are not big on speaking English – this is a real constraint given that many of the knowledge economy’s tools are English based. Also, Valencia’s industrial base is weighted towards traditional manufacturing, where China, India and Brazil loom large.

Value chains and knowledge maps

The review team suggested that Valencia should capitalise on the disintegration of value chains across a broad range of technologically advanced sectors by attracting niche foreign investments in design, R&D, technology centres and business support services. To this end, it should undertake an in depth location audit of Valencia as a host for ICT, life sciences and high value added business support services such as headquarter operations, shared service centres, technology centres, benchmarked with key competitor cities in Spain and Europe.

The audit should focus on quantifying skills availability, profiling clusters, elaborating on technical competencies, preparing case studies on successful or innovative companies, and benchmarking operational cost overheads. All Australian cities and regions should be doing this on a regular basis.

Another suggestion was that Valencia should rebrand itself, and possibly sell itself as the city in Europe that has systematically engaged with the dynamic Asian economies. In this regard, China and South Korea are looking for a doorway to the EC, and Valencia Port and the vast Valencia Expo building are great assets. Valencia is also at the crossroads of the Muslim and Christian worlds – can they turn a threat into a competitive advantage?

The commissioning of a ‘City Knowledge Map’ was recommended, to help research institutions, local firms and foreign investors to understand who’s who, and to facilitate collaboration. And a small, but important, suggestion was made to expand its ‘breakfast club’. The beauty of the exercise was that it provided a snapshot through fresh and international eyes.

The approximate cost of such a review is 70,000 euros (around $AU113,000). But you’d better hurry. There are a couple of Federal programs that might fit a funding cocktail with State and Local Government. Please contact us for further details.

Qantas swoops on Silverhawk

My close friend, Silverhawk, was reading the newspaper on a Qantas flight from Canberra to Sydney a couple of weeks back. The flight attendant asked him to put his tray table up. But Silverhawk fumbled with his newspaper, and he and the hostie found themselves pushing the tray up together. The said hostie gave him a withering look, and snapped, “Touch me again and I’ll report you for assault!” What is going on with this once great airline?

‘Economies of expertise’ says IBM guru

I heard a fantastic speaker at the recent AIIA Borderless World conference in Sydney. His name is Michael Cannon-Brookes of IBM (VP – Business Development, China and India) who resides in Shanghai. Some of his no nonsense views were:

l work flows to places where it’s done best

l the information age should be renamed the talent age, and talent is mobile. This is driving the shift to global resourcing. The economics of every industry is being redefined – Michael has coined a new phrase, ‘economies of expertise’ to describe firms that take advantage of skill sets wherever they are. He explained that IBM Asia Pacific has its human resources function mostly in Manila, procurement in Shenzhen, accounts payable in Shanghai, accounting in Kuala Lumpur (a ‘fantastic source’ of such skills) and help desk/customer services in Brisbane. In the case of Brisbane, it has a ‘very good multilingual pool’

l the horizontalisation of business (away from vertically integrated structures) needs collaboration to deliver maximum results

l India is producing one million engineers a year, whereas the US and Australia produce 70,000 and 5,000 respectively (Gulp!)

l three factors determine why business flows to countries, regions or cities. The first is economics, the second is expertise (especially differentiated skills) and the third is openness (business environment, trade, tax policies and innovation).

Not many companies or local development authorities have caught up on these realities. What this suggests is that regions, cities and even towns should aim to develop the skill sets that differentiate them from the pack. The Valencia folk will surely take interest.

The dumbing down of regions?

In today’s knowledge based economies, a region’s growth prospects depend in part on its ability to generate and use innovation. This, in turn, depends on the skills level of the regional labour force. It is therefore noteworthy that the OECD’s biennial ‘Regions at a Glance’ report has identified considerable regional variations in educational levels in Australia, France, the United Kingdom and Canada.

In these countries, differences in tertiary educational attainments between the best and worst performing regions exceeded 30 percentage points. The Department of Education, Science and Technology is helping us verify this data.

For information, go to Vincenzo.Spiezia@oecd.org

*Articles in the Good Oil column are provided by members of the Cockatoo network – an international group of individuals and organisations that collaborate on industry and regional issues. Contact apd@orac.net.au for membership details.