UNIDO’s Programme for Industrial Upgrading and Restructuring

1. UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION UNIDO’s Programme for Industrial Upgrading and Restructuring

2. UNITED NATIONS INDUSTRIAL DEVELOPMENT ORGANIZATION UNIDO’s Programme for Industrial Upgrading and Restructuring Gerardo Patacconi - Otto Loesner, Quality & Productivity Group Quality, Technology and Investment Branch UNIDO - P.O. Box 300 A-1400 Vienna, Austria Tel. +43-1-26026-3605 Fax +43-1-26026-6840 e-mail: gpatacconi@unido.org

3. Accreditation: Pre-peer Evaluation Process PPEP (IAF and ILAC) Trade Facilitation: QSM for Market Access UNIDO Integrated Programmes and Projects UNIDO Industrial Upgrading and Restructuring Global Forum, Software, manuals, surveys Quality & Productivity Group Quality, Technology and Investment Branch Focus

4. Strengthening the legal and regulatory framework • B) Standardization and Conformity Assessment • Develop/implement quality and productivity policies including quality awards. • develop/harmonize legal and regulatory framework relating to quality, standardization and metrology for better protection of consumer health and safety, of the environment and to act against frauds. • Establish or strengthen the capacity of existing standardization bodies • Promote the adoption of standards at national and regional level, and assist participation in regional and international standards setting fora and networks. • Establish or strengthen the capacity of accreditation bodies to achieve recognition by the International Accreditation Forum (IAF) or the International Laboratory Accreditation Cooperation (ILAC) by conducting pre-peer evaluations • Establish or strengthen laboratory capacities for sampling, inspection, material and product testing including microbiological and chemical analysis • Support for the harmonization of testing procedures. Quality and Productivity

5. C) Metrology (measurement) D) Industrial Restructuring and Upgrading • Establish or strengthen laboratory capacities for industrial and legal metrology by identifying calibration, verification and equipment requirements, assisting in the physical set-up and start-up of laboratories; upgrading of measurement equipment according to international standards; training of technicians and assistance in networking, inter -comparisons, mutual recognition arrangements and accreditation. • Implement UNIDO software Measurement and Control-Chart Toolkit (MCCT) to improve laboratory management and facilitate the implementation of ISO 17025 Quality, Standardization and Metrology Group • Build capacities in public and private sector institutions to develop national industrial upgrading and restructuring policies, support mechanisms including financing schemes, restructuring and upgrading (mise à Niveau) programmes. • Develop national consulting capability to address the restructuring and upgrading needs.

6. E) Global Forum functions • Foster linkages and cooperation among regional and international organizations, standardization and accreditation bodies such as ISO, WTO,ILAC, IAF, PTB, OIML… to facilitate networking, promotion of mutual recognition of certificates and harmonization of standards. • Monitor global trends in standardization, conformity assessment, metrology and testing to facilitate trade and ensure protection of consumers and of the environment • Conduct applied research and benchmarking studies to identify best practices and produce handbooks, manuals and improvement tools • Conduct training of trainers in QSM field • Develop and improve business excellence software tools such as the business performance navigator (PHAROS) Quality, Standardization and Metrology Group

7. Quality & Productivity Group Quality, Technology and Investment Branch

8. A new Initiative for CEE/NIS: E4PQ - E-Productivity and Qu@lity • UNIDO has launched the development of an innovative high-tech Regional Programme to upgrade and restructure SMEs andimprove their productivity and quality through web-based technologies in the countries of Central and Eastern Europe and the Newly Independent States. • To review the proposed programme, UNIDO, in cooperation with the Polish Government, a Regional Forum on e-Productivity and Qu@lity brought together high-level representatives, national and international experts, public and private institutions and enterprises: • 21-23 November 2001 in Warsaw, Poland. • The programme is expected to lead to the setting up of a regional structure for industrial quality and productivity with emphasis on application of web-based technologies. Audit and Inspection via Internet is one of the key areas addressed in the Programme. Contact: gpatacconi@unido.orgwww.unido.org/e4pq

9. A new Initiative for CEE/NIS: E4PQ - E-Productivity and Qu@lity • To foster the competitiveness of Central and Eastern European enterprises through the upgrading of quality & productivity, skills, systems and processes and the implementation of world “best-in-class” practices; • To facilitate the process of integration of the target countries in the European Union and in the global (traditional and e-)economy; • To increase the overall standard of living. Contact: gpatacconi@unido.orgwww.unido.org/e4pq

10. Economies in transition • Have a Quality Infrastructureand skills not always updated nor conforming to international standards/regulations……. • and most of their Enterprises: • are often unable to produce goods with proven, credible and constantquality at a competitive price; • Have problems to meet stringentstandards and the challenges of globalization; • Need to become to World Class to compete in foreign and domestic markets; • Should be upgraded in order toenter international production and trade chains.

11. The CHALLENGETo enter and stay in both the traditional and in the e-market, enterprises need: • High QUALITY • RELIABILITY (production and delivery) • COST-effectiveness • CONFORMITY to standards and technical regulations • CUSTOMER-focus (satisfaction to delight)……

12. The CHALLENGETO PRODUCE GOODS AND SERVICES Right CUSTOMER (s) Right PRODUCT (s) Right QUANTITY (ies) Right QUALITY (ies) Right TIME Right PRICE (s)

13. The CHALLENGETO IMPROVE QUALITY AND PRODUCTIVITY It is a Total Business (company-wide) concept rather than just the “rationalization of production”: • Doing things right at the least possible cost • In the least possible time • With the highest possible quality • To the maximum level of satisfaction of the customers and employees; • Implies Continuous Improvement

14. The RESPONSETO IMPROVE QUALITY AND PRODUCTIVITY • The UNIDO Quality Approach enables the enterprises to enter into self-sustained and continuous improvements without the need for continued assistance by: • Building institutional and human capacity at the level of Governments and Institutions for implementing quality assurance/management methodologies and systems (TQM, ISO 9000:2000, QS 9000, 6-Sigma, SPC, lean manufacturing, e-productivity….. • Identifying, adapt and promoting best manufacturing practices. • Improve quality throughout the production and distribution supply chains • Facilitating trade and overcoming TBTs

15. The RESPONSETO IMPROVE QUALITY AND PRODUCTIVITY • The UNIDO Quality Approach enables the enterprises to enter into self-sustained and continuous improvements without the need for continued assistance by: • Promoting productivity by establishing Regional and National Quality and Productivity Centers that act as one-stop -shop for productivity and quality improvements in manufacturing sector at the level of enterprises,industrial sectors, supply chains, technology institutes and policy -related government bodies. • Practical demonstration in groups of pilot-enterprises for improving their quality and productivity. • Practical demonstration in groups of pilot-enterprises for improving their quality and productivity.

16. The RESPONSETO IMPROVE QUALITY AND PRODUCTIVITY Practical demonstration in groups of pilot-enterprises for improving their quality and productivity. • Allow to create a cooperative environment where full understanding of the performance and enablers of "best in class" business processes can be obtained and shared at reasonable cost. • Allows to use the efficiency of the groups to obtain process performance data and related best practices of companies including those that are ISO Certified. • Allows to save consultancy and certification costs.

17. The RESPONSETO IMPROVE QUALITY AND PRODUCTIVITY Practical demonstration in groups of pilot-enterprises for improving their quality and productivity. • Allows to transfer know-how and to train national trainers and experts • Allows to bring professionals of companies together to share information on how to improve business processes and enterprise business performance and carry out upgrading and restructuring plans

18. THE MODEL: UNIDO’s Continuous Improvement System Approach 1 has been applied in in hundreds of enterprises in developing countries and economies in transition. 1 Cfr. Juran Quality Handbook, 5th edition, Mc Graw Hill, 1999, J.M. Juran, A. B. Godfrey

19. UNIDO’s Continuous Improvement System Approach THE EXTERNAL ENVIRONMENT Competitors Government policies Physical infrastructure Economic performance (National and International) Suppliers Local regulations Industrial property, patents… ISO 9000, WTO Environment regulations STRATEGIES Target market Relative quality Performance Success factors PRODUCTION UNIT Production unit potential Skilled workers Raw material Parts and components Suppliers / Services Maintenance Standards and Metrology OBJECTIVES RESULTS Quality Loop TECHNICAL PERFORMANCE MEASUREMENT Productivity and quality levels Plant level Inspection Statistical Process Control….. Mgmt. Loop BUSINESS PERFORMANCE MEASUREMENT Consumer satisfaction Production Operation Financial Quality Timing

20. NEW APPROACH: INDUSTRIAL UPGRADING and RESTRUCTURING • From business plan to e-business plan • Emphasis on quality, cost reduction and market access • Look at supply chain/clusters • Stronger export-orientation and trade facilitation infrastructure • Larger use of local experts and consultancy companies

21. NEW APPROACH: INDUSTRIAL UPGRADING and RESTRUCTURING • Comprehensive and multidisciplinary overall approach for restructuring and upgrading priority industries (with high value added and export potentials) and their environment. • UNIDO approach is inspired by similar successful programs implemented in countries such as Portugal, Ireland and Chile with the support of the EU

22. NEW APPROACH: INDUSTRIAL UPGRADING and RESTRUCTURING Objective: The aim of the restructuring and upgrading program is to support the process of recovery of industrial productive capacity, to strengthen capacities of support institutions, to improve productivity, increase growth of industries and employment, facilitate market access and foster integration in the context of economic and trade liberalization.

23. EXAMPLE TUNISIA INDUSTRIAL UPGRADING Tunisia signed a free trade zone agreement with the European Union in 1995. With the assistance of UNIDO, Tunisia developed a National Upgrading Programme (NUP) . UNIDO assisted in the implementation of the pilot programme in 1996 and is now implementing the integrated programme focusing on Upgrading and Improvement of Industrial Competitiveness.

24. FUNDING TUNISIA INDUSTRIAL UPGRADING • Sources of funding of the Tunisia National Upgrading Programme: • the national fund for improvement of competitiveness (FODEC) established in 1995 in order to cover financial incentives provided to enterprises accessing to the NUP; • the European Union, through the MEDA programme; • the World Bank (through loans for upgrading technical centers); • UNIDO and other international agencies.

25. FUNDING TUNISIA INDUSTRIAL UPGRADING Progress of the Tunisia Upgrading Programme(as of December 2001) Number of enterprises which access to the programme 2005 enterprises; Upgrading programmes approved and under implementation: 1100 enterprises; Total Upgrading Investment: around US$ million 2080; from which non material investments: US$ million 300;   Financial incentives provided to the enterprises: around US$ million 300;

26. FUNDING TUNISIA INDUSTRIAL UPGRADING Impact of the Tunisia Upgrading Programme: (based on assessment of 590 enterprises) -          Production and sales: increase per year: 11%; -          Export: increase per year: 18%; -          Export by new enterprises: 11% in year 2001; -          Employment (workers): increase per year: 9%; -          Employment (supervisors): increase per year: 16%; -          ISO Certification: 220 enterprises.

27. The aim of the integrated restructuring and upgrading programme is to support the process of restructuring, competitiveness, integration and growth of industries in the context of economic and trade liberalisation. Modernizing the Industrial environment Strengthening the capacities of support institutions Promoting the development of competitive industries Restructuring and upgrading programme Improving the competitiveness and development of industrial enterprises

28. THE UPGRADING PROCESS with focus on Supply Chains/Clusters Strategic and value chain diagnosis Institutional & regulatory environment Formulation of the upgrading plan and financing scheme Infrastructure and services Banking and financial environment Approval of the upgrading plan Investment incentives and promotion Implementation and follow-up of the upgrading plan Export Consortia/cluster & supply chain Modernisation of equipment Organisation & management systems Production systems Training & skills development B2B B2C B2G Quality & certification Marketing & Export Alliance Partnership Supply chain Export market The local market CLUSTER/ENTERPRISE LEVEL AT THE ENVIRONMENT LEVEL Productivity, Price, Quality COMPETITIVENESS

29. UPGRADING PROCESS: SUMMARY TABLE OF RESULTS AND ACTIVITIES FirstComponent Assistance in the design, implementation and follow-up of a national industrial restructuring and upgrading programme (BENFICIARY: Ministry of Industry) Short term Long term Result 1 Formulating and assisting in the implementation of an upgrading programme Activity 1 Formulating and assisting in the implementation of an upgrading programme X Activity 2 Designating the steering committee and agency to be responsible for implementing the upgrading programme; identifying the other interface agencies and organizations X X Activity 3 Establishing an information and awareness-raising programme X X Training a body of specialists to be responsible for implementation Activity 4 X X Result 2 Design and formalization of the procedures and regulatory framework Activity 1 Formalizing the procedures for implementing the upgrading programme X Activity 2 Updating legislation or regulations directly concerned with enterprise recovery X Result 3 Study for setting up an upgrading monitoring programme Activity 1 Identifying needs by a survey of users (enterprises, administration) X Activity 2 Drawing up specifications X Activity 3 Defining a mechanism for inputting, processing and retrieving information; identifying the technical, financial and regulatory conditions for its operation X Activity 4 Submitting the project to the steering committee X

30. UPGRADING PROCESS: SUMMARY TABLE OF RESULTS AND ACTIVITIES Second Component Strengthening the capacities of enterprise support systems Short term Long term Result 1 Strengthening the capacities of research organizations Activity 1 Organization of a training session on strategic diagnosis and the upgrading plan X Result 2 Strengthening the capacities of the banks and investment promotion agency Activity 1 Organizing a training session on diagnosis and preparation of the upgrading plan X Activity 2 Organizing a trig. session on the evaluation and follow-up of the upgrading plan X Result 3 Blueprint for a network of technological and commercial resources (all priority sectors) Activity 1 Surveying and identifying the existing facilities (all priority sectors) X Activity 2 Programming the upgrading of existing facilities (all priority sectors) X X Result 4 Study of the foreign-trade support mechanism Activity 1 Studying of the establishment of an enterprise foreign-trade information and promotion mechanism X Activity 2 Studying the enterprise access and network operating conditions X Activity 3 Setting up the financial and banking procedures X

31. ENTERPRISES RESTRUCTURING • What is Restructuring?? • A Definition: “fundamental rearrangement of factor inputs (human, financial and physical resources) in search of factor productivity, system equilibrium, and enterprise competitiveness” • Goal: “a redefinition of the relationship between products, markets and technologies, and the underlying corporate structure” Restructuring - Privatisation -Commercialization

32. ENTERPRISES RESTRUCTURING SUB-SECTOR ECONOMY ENTERPRISE Management Organisation Marketing/Sales Operations Management Finance/Cost Accounting Quality Management Maintenance Strategic Plans Human Resource Development Research & Development Taxation Competition RESTRUCTURE Tariffs Technology REHABILITATE Economic climate Factor prices Legal environment Investment climate Industry R & D Political environment INTERNAL Environment Demand pattern Policy framework Trading policy Institutional structure EXTERNAL Environment INFLUENCE the operation of all ENTERPRISES The INTERNAL and EXTERNALEnvironments

33. ENTERPRISES RESTRUCTURING • Product/Market Focus • Sell Excess Non core assets • Reduce costs/ Cost Controls • Improve liquidity/ Financial controls • Improve Operations Management • (Management, Quality, Production Planning, maintenance) • Improve Organizational Structure • (structure, staffing, incentives/motivation)

34. UNIDO ENTERPRISES RESTRUCTURING PROJECTS • Enterprise Restructuring • CEE/FSU (Poland, Slovakia, Romania, Albania) • (Kazakstan, Uzbekistan, Tajikistan) • OTHER(North Africa, Lesotho, Sri Lanka, • TanzaniaVietnam, Thailand) • Management Consulting Development • Romania, Moldova • Company Towns • Kazakstan

35. “CLASSIC”ENTERPRISES RESTRUCTURING • Financial Restructuring • Production & Operations Restructuring • Physical Restructuring • Ownership Restructuring (Privatisation)

36. Reasons for Government Intervention in Restructuring • Debt/equity swap necessary prior to any investor interest • Labour reduction/resistance to sale-better by Government • Privatisation takes time,restructure to keep company afloat • Higher total value and more buyers, when large/vertically integrated enterprises restructured/broken up • New owners cannot restructure (Specially MEBO) • No investor interest without restructuring (bad shape) • Strategic enterprise/ Ensure future sector competitiveness • Value, viability, future investments need to be determined

37. KEY OBJECTIVE OF RESTRUCTURING Enhancing Enterprise Performance and Competitiveness • RESULTS FROM • THE UK/UNIDO RESTRUCTURING PROJECT • POLAND 1991- 1996 • 20 Enterprises assisted • Not privatised at the time- only commercialised • Converted to Joint stock companies

38. UNIDO Restructuring Project in Poland

39. UNIDO Restructuring Project in Poland

40. UNIDO Restructuring Project in Poland

41. UNIDO Restructuring Project in Poland Key changes in restructuring (1991 - 1997)

42. UNIDO Restructuring Project in Poland

43. CONCLUSIONS • Complex problem facing CEE/NIS countries • No clear cut methodology or answers • Restructuring first or privatise first • Privatise first or not • Political climate in the country is important • Capacity building in the country important • Clear evidence that Restructuring works • Poland enterprise data UK/UNIDO • Poland general economic data 5% GDP growth • Poland - other positive factors also contributed

44. CONCLUSIONS The Upgrading approach seems to be more appropriate at this stage of development of the EU Candidate Countries For CEEC/NIS countries (with state ownership still important) the “classic” restructuring Programme could be more appropriate.