Competitiveness a New Economic Strategy for Peru

8/8/2019 Competitiveness a New Economic Strategy for Peru

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1 Copyright 2009 Professor Michael E. P orter20091130 Peru.ppt

Professor Michael E. PorterHarvard Business School

Lima, PeruNovember 30, 2009

This presentation draws on ideas from Professor Porters books and articles, in particular, Competitive Strategy(The Free Press, 1980); CompetitiveAdvantage (The Free Press, 1985); What is Strategy? (Harvard Business Review, Nov/Dec 1996); Strategy and the Internet (Harvard BusinessReview, March 2001); and a forthcoming book. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form orby any meanselectronic, mechanical, photocopying, recording, or otherwisewithout the permission of Michael E. Porter. Additional information may

be found at the website of the Institute for Strategy and Competitiveness, www.isc.hbs.edu. Version: November 27, 2009

Competitiveness:

A New Economic Strategy for Peru
http://www.isc.hbs.edu/http://www.isc.hbs.edu/http://www.isc.hbs.edu/http://www.isc.hbs.edu/http://www.isc.hbs.edu/http://www.isc.hbs.edu/http://www.isc.hbs.edu/http://www.isc.hbs.edu/


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$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

0% 2% 4% 6% 8% 10% 12% 14%

Source: EIU (2009), authors calculations

PPP-adjusted GDP perCapita, 2008 ($USD)

Growth of Real GDP per Capita (PPP-adjusted), CAGR, 2004 to 2008

Bahrain

China

Vietnam

South Africa

Latvia

Oman

Croatia

Czech Republic

Saudi Arabia

Thailand

Estonia

Russia

Costa RicaBrazil

HondurasIndia

Turkey

Egypt

Lithuania

Israel

Slovakia

Hungary

Mexico

Slovenia

Belize

Chile

Other countriesLatin American countries

Prosperity PerformanceSelected Lower and Middle Income Countries

Argentina

South Korea

Poland

Malaysia

Philippines

Sri Lanka

New Zealand

Bulgaria

Dominican Republic

Colombia

Romania Uruguay

Ukraine

GuatemalaGeorgia

Bosnia

Jordan

Peru

Paraguay

Nicaragua

Guyana

Panama

BoliviaEl Salvador

Venezuela

Kazakhstan

Belarus

UAE Greece ($30,650)

Cyprus

Portugal

Libya

Lebanon

Albania

Trinidad & Tobago

Ecuador TunisiaAlgeria

Iran

Pakistan


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$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

Perus Prosperity Performance

Note: PPP using Geary Khamis calculation methodology.

Source: Groningen Growth and Development Centre, Total Economy Database (June 2009)

GDP per Capita(in 1990 PPP US$)

CAGR:

+2.07%

CAGR:

+5.19%

CAGR:

- 0.65%

2008


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0%

2%

4%

6%

8%

10%

12%

14%

-6% -5% -4% -3% -2% -1% 0% 1% 2%

Unemployment PerformanceSelected CountriesUnemployment

Rate, 2008

Change of Unemployment Rate in Percentage Points, 2004 to 2008

Source: EIU (2009)

Improving Deteriorating

Greece

Syria

Tunisia

El Salvador

Ukraine

Lithuania

Czech Rep.

Poland (-8.4%)

Estonia

Mexico

Slovenia

Malaysia

Portugal HungaryPhilippines

China

Turkey

Slovakia

Vietnam

Indonesia

Albania

Thailand

Brazil

RussiaIndia

Chile

Romania

Bulgaria

Egypt

South Africa (22.9%)

Croatia

Saudi Arabia

Costa RicaLatvia

Pakistan

Argentina

IrelandIsrael

Iran


Colombia

Peru

BoliviaEcuadorVenezuela

NicaraguaPanama T&T Paraguay

Honduras

Dominican Republic (15.5%)

JordanAlgeria

Kazakhstan

Sri Lanka

Cyprus

Korea

Uruguay


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Poverty RatesPeru, 2001 to 2007% of Population Under

the Poverty Line

0%

10%

20%

30%

40%

50%

60%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Source: Informacion Socio Demografica, from El Instituto Nacional de Estadistica e Informatica (INEI), 2009


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0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

-15% -10% -5% 0% 5% 10% 15% 20%

Export PerformanceSelected Countries

Exports of Goods andServices (% of GDP), 2008

Change in Exports of Goods and Services (% of GDP), 2004 to 2008

Russia

Thailand

Jordan

Saudi Arabia

China

MacedoniaChile

Philippines South Africa

Ireland

India

Bolivia

Brazil

Cambodia

Indonesia

Czech Republic

Slovakia

Turkey

MexicoSri Lanka

Pakistan

Argentina

Vietnam

Malaysia (103.5%)

Ethiopia

Croatia

Source: EIU (2008), authors analysis

Egypt

Poland

Slovenia

Peru

Israel

BulgariaBelarus Belize

Romania

Greece

Estonia

Hungary

Lithuania

LatviaUkraine (-17.5%)

Other countriesLatin American Countries

Nicaragua

Honduras

Costa Rica

Trinidad & Tobago

Paraguay

Panama

Ecuador

Guatemala

VenezuelaUruguay

El Salvador

ColombiaAlbania

AlgeriaCyprus

Kazakhstan

IranLebanon

Libya

Malta

MoroccoPortugalSyria

Tunisia

Georgia


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8/738 Copyright 2009 Professor Michael E. P orter20091130 Peru.ppt

0

2,000

4,000

6,000

8,000

10,000

12,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

0

50

100

150

200

250

300

350

Unprocessed Goods Exports (current prices)

Unprocessed Goods Exports (1997 prices)

Price of Copper (current price, $.01/pound)

Perus Exports By Type of IndustryPeruvian

Export, $US Commodity Price (US$)



0%

10%

20%

30%

40%

50%

60%

70%

80%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Inbound Foreign Investment PerformanceStocks and Flows, Selected Countries

Source: UNCTAD, World Investment Report (2009)

Inward FDI Stocks as % ofGDP, Average 2003 - 2007

FDI Inflows as % of Gross Fixed Capital Formation, Average 2003 - 2007

Iran

Russia

Saudi Arabia

Turkey

Slovenia

HungaryVietnam

SlovakiaCzech Republic

Chile

PolandColombia

Estonia

Malaysia

Thailand

South Africa

Indonesia

Lithuania

India

Brazil

Pakistan

Croatia

El Salvador

Latvia

Nicaragua

Tunisia

China

Mexico

Portugal

Ecuador

Cambodia

Cyprus

Jordan (46.5%, 81.8%)

Paraguay

Costa RicaRomania

Uruguay

Macedonia

Guatemala

Bolivia

Kazakhstan

Honduras


Bulgaria (69%)

Egypt

Dominican Republic

Belize

Peru

ArgentinaVenezuela

Panama (48.2%)

Trinidad & Tobago

Israel

Libya

Morocco

UAE

Lebanon (6.7%)

Sri Lanka

Georgia

Ukraine

Bosnia

Malaysia



0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

-30% -20% -10% 0% 10% 20% 30% 40% 50% 60%

Source: USPTO (2009), EIU (2009)

Average U.S. patents per 1million population, 2004-2008

CAGR of US-registered patents, 2004 2008

Innovative CapacityInnovation Output of Selected Countries

Saudi Arabia

RussiaPortugal

Turkey

India

Poland

Czech Republic

China

South Africa

Greece

120 patents =

Argentina

Brazil

Croatia

Bulgaria

PhilippinesEcuador

Chile

ThailandRomania

Peru

VenezuelaMexico

ColombiaUkraine



The Peruvian Economy in 2009

Peru has had a long history of instability

Since 2001, Peru has experienced high rates of economic growth

Recent surge in FDI and exports has been driven by commodities

Implementation of sound macroeconomic policies has allowed Peru to weather thecurrent global crisis

Perus economy has been one of the most resilient in Latin America

BUT

Prosperity remains low and large segments of the population lack access to basicneeds

High unemployment and inequality persist

Peru is overly dependent on commodity exports with limited potential to drive job growth

and economic diversification

Returning to 8 to 9% growth is possible only if Peru can substantially improvecompetitiveness

Peru will need an ambitious economic and social strategy, building on the countrys

unique competitive advantages



What is Competitiveness?

Only competitive businesses can create wealth and jobs

Nations compete to offer the most productive environment for business

The public and private sectors play different but interrelated roles increating a productive economy

Competitiveness depends on the productivity with which a nation usesits human, capital, and natural resources.

Productivity sets the sustainable standard of living (wages, returns oncapital, returns on natural resources)

It is not what industries a nation competes in that matters for prosperity, buthow productively it competes in those industries

Productivity in a national economy arises from a combination of domesticand foreign firms

The productivity of local or domestic industries is fundamental tocompetitiveness, not just that of export industries



$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

-3% 0% 3% 6% 9%

Comparative Labor ProductivitySelected Countries

Growth of real GDP per employee (PPP-adjusted), 1990 to 2008

Real GDP per employee(PPP adjusted US$), 2008

Source: authors calculation Groningen Growth and Development Centre (2009), EIU (2009)

Peru (Avg. growth 2001to 2008)

Mexico

New Zealand

Australia

Iran

Slovakia

Pakistan

Brazil

Malaysia

Germany

Poland

Slovenia

Argentina

ChinaPhilippines

Russia

Indonesia

Bosnia

Korea

India

Thailand

Japan

Egypt

Belarus

Czech Republic

Georgia

Romania

Saudi Arabia

South Africa

Syria

Spain

Croatia

Chile

Oman

Cambodia

Kazakhstan

UAE

Ukraine

Portugal

Lithuania

Kuwait

Israel

Jordan

Greece

Hungary

Azerbaijan

Cyprus

Armenia

Albania

Macedonia

Austria

Malta

Estonia

Singapore

Bulgaria

Switzerland

Latvia

Vietnam

Serbia

Turkey

Peru



Macroeconomic Competitiveness

Microeconomic Competitiveness

Sophistication

of CompanyOperations andStrategy

Quality of the

NationalBusinessEnvironment

MacroeconomicPolicies

SocialInfrastructureand PoliticalInstitutions

State of ClusterDevelopment

Macroeconomic competitiveness creates the potential for high productivity, but is notsufficient

Productivity ultimately depends on improving the microeconomic capability of theeconomy and the sophistication of local competition

Determinants of Competitiveness

Natural Endowments





Sophisticationof Company

Operations andStrategy

Quality of theNationalBusiness

Environment

SocialInfrastructure

and PoliticalInstitutions


Natural Endowments

Macroeconomic

Policies


Fiscal policy: publicspending aligned withrevenues over time

Monetary policy: lowlevels of inflation

Macroeconomic

management: avoidingstructural imbalancesand cyclicaloverheating

MacroeconomicPolicy


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Environment




Natural Endowments

Macroeconomic

Policies


The internal companyskills, capabilities,and managementpractices needed toattain the highest levelof productivity and

innovation possible






The external businessenvironmentconditions that allowcompanies to reachhigh levels ofproductivity and

innovation

Quality of theNational Business

Environment Macroeconomic Competitiveness





Environment




Natural Endowments

Macroeconomic

Policies




A critical mass of firmsin particular fields,together with specializedskills, infrastructure, andsupporting institutions, tosupport high productivitythrough efficiencies andsynergies







Environment




Natural Endowments

Macroeconomic

Policies

C i i d P R d i



Competitiveness and Poverty Reduction

SocialDevelopment

There is a strong connection between economic and socialdevelopment

Improving competitiveness and decreasing poverty requiresimproving the economic and social context simultaneously

EconomicDevelopment



Perus Competitiveness Profile, 2009ISC Country Competitiveness Model

MacroeconomicCompetitiveness (82)

MicroeconomicCompetitiveness (73)

Social Infra-structure and Pol.

Institutions (90)

Macroeconomic

Policy (69)

BusinessEnvironment Quality

(74)

CompanySophistication

(70)

Note: Rank versus 133 countries; overall, Peru ranks 71st in 2008 PPP adjusted GDP per capita and 75th in 2009 Global CompetitivenessSource: Country Competitiveness Model (CCM), Institute for Strategy and Competitiveness, Harvard University (2009)

Perus GDP per capita rank is71st versus 133 countries


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Perus Macroeconomic Competitiveness

Macroeconomic Policy

Conservative fiscal policy

Go ernment B dget Balances


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Government Budget BalancesSelected Countries

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

1996 1998 2000 2002 2004 2006 2008

Chile

PeruArgentina

Colombia

Mexico

Brazil

Source: EIU, 2009

Budget Balance(% of GDP)

Ranked bySurplus, 2008

P M i C i i


24/73





Sound macroeconomicmanagement

Stabilization fund

However

Perus macroeconomic position

remains overly dependent oncommodities and commodity prices

P M i C i i


25/73






Stabilization fund

However



Social Infrastructure andPolitical Institutions

Continued problems with corruption


26/73


-20 -15 -10 -5 0 5 10 15 20

Corruption Perception Index, 2007

Note: Ranks only countries available in both years (91 countries total)Source: Global Corruption Report, 2008

Change in Rank, Global Corruption Report, 2007 versus 2001

Rank inGlobal

CorruptionIndex,2007

91

1 Finland

Canada

Bangladesh

Indonesia

Ireland

Portugal

Egypt

Iceland

Czech Republic

Slovakia

South Korea

Latvia

India

Slovenia

Thailand

Switzerland

France

RomaniaTurkey

Estonia

Austria GermanyJapan

Vietnam

China

NorwayUK

Malaysia

Lithuania

Colombia

HungaryTaiwan

Spain

Hong Kong

ChileUnited States

South Africa

Mexico

Croatia

Italy

Poland

Brazil

Argentina

Israel

Venezuela

Russia

Uruguay

New ZealandSweden

Tunisia

Peru

Tanzania

Uganda

Senegal

Philippines

Zimbabwe Cote dIvoire Nigeria

Pakistan

GreeceJordan

Ukraine

Panama

Worsening Improving

Highcorruption

Low

corruption

Belgium

Singapore

Netherlands

Botswana

Mauritius

El SalvadorGhana

Dominican RepublicGuatemala

Uzbekistan

Kazakhstan

Honduras

Malawi

Namibia

Kenya

Cameroon

Nicaragua

Moldova

Ecuador

Costa Rica

Bolivia

P M i C titi


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Stabilization fund

However




Continued problems with corruption

Sharp inequality between indigenousgroups and other citizens

Weak education system

Inadequate health care system,despite some improvements

Weak legal system and effectivenessof property rights

Unstable political processes and

institutions Government institutions are

inefficient and held in low esteem bythe public

P M i C titi


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Maintain macroeconomicstability

Broaden the tax base andimprove collections


Modernize political andgovernmental institutions to improvepolicy formulation and execution

Tackle corruption at every level of

government Improve the effectiveness of the legal

system

Improve property rights

Improve human development

Rapid improvements in education,health, and nutrition are needed

Create equal opportunity for all

groups

Perus Macroeconomic CompetitivenessAction Priorities

Microeconomic Competitiveness: Quality of the Business


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Microeconomic Competitiveness: Quality of the BusinessEnvironment

Context forFirm

Strategy

and Rivalry

Related andSupporting

Industries

Factor(Input)

Conditions

DemandConditions

Demanding and sophisticated localcustomers and needs

e.g., Strict quality, safety, andenvironmental standards

Consumer protection laws

Many things matter for competitiveness Successful economic development is a process of successive upgrading, in which the

business environment improves to enable increasingly sophisticated ways of competing

Efficient access to high qualitybusiness inputs Human resources Capital availability Physical infrastructure Administrative infrastructure (e.g.

registration, permitting, transparency) Scientific and technological

infrastructure Efficient utilization of natural

endowments

Availability of suppliers, related industries,and supporting institutions

Open and vigorous localcompetition

Openness to foreign competition Competition laws

Local rules and incentives thatencourage investment and

productivity e.g. incentives for capital

investment, intellectual propertyprotection, corporate governancestandards

Per s B siness En ironment


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WEAKNESSESSTRENGTHS

Perus Business EnvironmentOverall Strengths and Weaknesses

Trade and Investment Liberalization

Openness to foreign investment Low restrictions on capital flows

Simplification of custom procedures

Low trade barriers

Improvements in investor protections

Improving Financial Markets Soundness of banks

Improving financial market

IT Infrastructure

Good quality of telecom infrastructure

Sound IT policies

Other Good management training

Improving sophistication of local buyers

Efforts to strengthen competition policy

Physical Infrastructure

Low quality of air, transport and portinfrastructure

Inadequate electricity supply

Workforce Development and Training

Poor quality of the higher education system

Low skill level of the labor force

Limited availability of scientists andengineers

Competitive Context

Low intensity of local competition

Difficulty in business formation

Burdensome government regulations

Rigidity of employment

Weak intellectual property protection High informality in the economy

Innovation Infrastructure

Limited technological capacity

Weak university-industry researchcollaboration

Low patenting rates

D B


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0

20

40

60

80

100

120

Ease ofDoing

Business

GettingCredit

ProtectingInvestors

RegisteringProperty

PayingTaxes

TradingAcrossBorders

Closing aBusiness

EmployingWorkers

Starting aBusiness

EnforcingContracts

Dealingwith

Licenses

Ease of Doing BusinessPeru, 2009

Ranking, 2009(of 183 countries)

Source: World Bank Report, Doing Business (2009/10)

Favorable Unfavorable

Perus per capita GDP rank: 72


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Microeconomic Competitiveness: Cluster Development


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Sources: HBS student team research (2003) - Peter Tynan, Chai McConnell, Alexandra West, Jean Hayden

Hotels

Attractions andActivities

e.g., theme parks,casinos, sports

Airlines,Cruise Ships

Travel agents Tour operators

Restaurants

PropertyServices

MaintenanceServices

Government agenciese.g. Australian Tourism Commission,

Great Barrier Reef Authority

Educational Institutionse.g. James Cook University,

Cairns College of TAFE

Industry Groupse.g. Queensland Tourism

Industry Council

FoodSuppliers

Public Relations &Market Research

Services

Local retail,health care, and

other services

Souvenirs,Duty Free

Banks,Foreign

Exchange

LocalTransportation

Microeconomic Competitiveness: Cluster DevelopmentTourism Cluster in Cairns, Australia

Cluster in Developing Countries


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Government Agencies, NGOs & I ndustry Associations

Education, Research & Quality Standards Organizations

FlowerFarming

Post-HarvestHandling;

Transport toMarket

FreightForwarders

Clearing andForwarding

Agents

Air Carriers(Commercial /

Charters)

PlantstockTrade & Industry Associations

Kenya Flower Council (KFC)Fresh Produce Exporters Association of Kenya (FPEAK)

Regional Growers Associations e.g., North & South Kinangop; Lake Naivasha, etcGreenhouse;

ShadingStructures

Pre-CoolingTechnology

Irrigationtechnology

Grading /Packaging Sheds

Post-HarvestCooling

Technology

AgriculturalCluster

HorticulturalCluster

(Fruits & Vegetables)

Public universities with post graduate degrees inhorticulture:

University of Nairobi; Jomo Kenyatta University of Agriculture & Technology

Horticultural Crops Development Authority (HCDA)Government Export Policies targeting Horticulture

Government Policy for Revitalizing Agriculture; National Export Strategy; ExportPromotion Council (EPC)

Fertilizers,pesticides,herbicides

Research Institutions:Kenya Agricultural Research Institute (KARI)

International Center for Insect Physiology and Ecology (ICIPE)

RefrigeratedTrucks

Quality & Standards:EUREGAP Standard (UK & Dutch Supermarkets)

Kenya Plant Health Inspectorate Services (KEPHIS)

Non-Governmental OrganizationsThe Rural Enterprise Agri-Business Promotion Project (USAID, CARE, IFAD)

Horticultural Produce Handling Facilities Project (JBIC)

Packaging &

LabelingMaterials

TourismCluster

Cluster in Developing CountriesKenyas Cut Flower Cluster

Sources: Student team research by Kusi Hornberger, Nick Ndiritu, Lalo Ponce-Brito, Melesse Tashu, and Tijan Watt,Microeconomics of Competitiveness Course, 2007

Th A li Wi Cl


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The Australian Wine ClusterHistory

1955

Australian WineResearch

Institute founded

1970

Winemakingschool at Charles

Sturt Universityfounded

1980

Australian Wineand BrandyCorporationestablished

1965

Australian WineBureauestablished

1930

First oenologycourse atRoseworthyAgriculturalCollege

1950s

Import ofEuropean winerytechnology

1960s

Recruiting ofexperiencedforeign investors,e.g. Wolf Bass

1990s

Surge in exportsand internationalacquisitions

1980s

Creation oflarge number ofnew wineries

1970s

Continued inflowof foreign capitalandmanagement

1990

WinemakersFederation ofAustralia

established

1991 to 1998

New organizationscreated for education,research, marketinformation, andexport promotions

Source: Michael E. Porter and rjan Slvell, The Australian Wine Cluster Supplement, Harvard Business School Case Study, 2002

The Evolution of Regional Economies


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The Evolution of Regional EconomiesSan Diego

U.S.Military

Communications

Equipment

Sporting Goods

Analytical Instruments

Power Generation

Aerospace Vehiclesand Defense

Transportationand Logistics

Information Technology

1910 1930 1950 19901970

BioscienceResearchCenters

ClimateandGeography

Hospitality and

Tourism

Medical Devices

Biotech / Pharmaceuticals

Education andKnowledge Creation

Clusters and Economic Diversification


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FurnitureBuildingFixtures,

Equipment &Services

Fishing &FishingProducts

Hospitality& TourismAgricultural

Products

Transportation& Logistics

Clusters and Economic DiversificationLinkages Across Clusters

Plastics

Oil &Gas

Chemical

Products

Biopharma-ceuticals

PowerGeneration

AerospaceVehicles &

Defense

Lightning &Electrical

Equipment

FinancialServices

Publishing& Printing

Entertainment

InformationTech.

Communi-cations

Equipment

AerospaceEngines

Business

Services

DistributionServices

ForestProducts

HeavyConstruction

Services

ConstructionMaterials

PrefabricatedEnclosures

HeavyMachinery

Sporting& Recreation

Goods

Automotive

ProductionTechnology

Motor DrivenProducts

Mining & MetalManufacturing

Apparel

Leather &RelatedProducts

Jewelry &PreciousMetals

Textiles

Footwear

ProcessedFood

Tobacco

MedicalDevices

Analytical

InstrumentsEducation &Knowledge

Creation

Note: Clusters with overlapping borders or identical shading have at least 20% overlap(by number of industries) in both directions.

Cl t T l F E i P li


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Clusters as a Tool For Economic Policy

A forum for collaboration between government, the private sector,trade associations, educational institutions, and research institutions

Brings together firms of all sizes, including SMEs

Creates a mechanism for constructive business-governmentdialogue

A tool to identify problems and concrete action recommendations A vehicle for identifying investments that strengthen multiple

firms/institutions simultaneously

A framework for implementing government polices towards business

Foster more sophisticated competition rather than distorting themarket

Perus Export Portfolio


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0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

-0.4% -0.2% 0.0% 0.2% 0.4% 0.6%

Peru s Export Portfolio1997 to 2007

Change in Perus world export market share, 1997 to 2007

Source: Prof. Michael E. Porter, International Cluster Competitiveness Project, Institute for Strategy and Competitiveness, Harvard BusinessSchool; Richard Bryden, Project Director. Underlying data drawn from the UN Commodity Trade Statistics Database and the IMF BOP statistics.

Perusworldexportmarketshare,2007

Change In Perus OverallWorld Export Share: +0.07%

Perus Average WorldExport Share: 0.20%

Exports of US$2.4 Billion =

Hospitality and Tourism

Fishing

Agriculture

Construction MaterialsFinancial Services

Publishing and Printing

Jewelry, Precious Metals and Collectibles (0.88%, 1.69%)

Metal, Mining and Manufacturing

Apparel

Textiles

Communication Services

Oil & Gas


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Malaysias Export Portfolio


41/73


0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

-1.5% -1.0% -0.5% 0.0% 0.5% 1.0%

Malaysia s Export Portfolio1997 to 2007

Change in Malaysias world export market share, 1997 to 2007

Source: Prof. Michael E. Porter, International Cluster Competitiveness Project, Institute for Strategy and Competitiveness, Harvard BusinessSchool; Richard Bryden, Project Director. Underlying data drawn from the UN Commodity Trade Statistics Database and the IMF BOP statistics.

Malaysiasworldexp

ortmarketshare,2007

Change In Malaysias OverallWorld Export Share: -0.20%

Malaysias Average World

Export Share: 1.24%

Exports of US$9.3 Billion =

Hospitality and Tourism

Fishing & Fish Products

Agriculture

Construction Materials

Publishing and Printing

Jewelry, Precious Metals and CollectiblesMetal, Mining and Manufacturing

Apparel

Textiles

Communication Services

Oil & Gas

Transportation and Logistics

Biopharmaceuticals

Production Technology

ChemicalProducts

Prefabricated Enclosures and Structures

SportBusiness Services (-2.36%)

Financial Services

Heavy Machinery

Motor Driven Products

Communications Equipment

Furniture

Footwear

Forest Products

Building Fixtures and Equipment

Plastics

Processed Foods

Power and Power Generation Equipment

Information Technology (6.46%)

Analytical Instruments

Lighting and Electrical Equipment

Entertainment and ReproductionEquipment (2.19%, 3.09%)

Construction Services

Medical Devices

Marine Equipment

Aerospace Vehicles and Defense

Automotive

Share of World Exports by Cluster


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Equipment &Services

Fishing &FishingProducts Hospitality

& Tourism

AgriculturalProducts


Share of World Exports by ClusterPeru, 2007

Plastics

Oil &Gas

Chemical

Products

Biopharma-ceuticals

PowerGeneration

AerospaceVehicles &

Defense


Equipment

FinancialServices


InformationTech.

Communi-cations

Equipment

BusinessServices


ForestProducts

HeavyConstruction

Services



Apparel


Jewelry &Precious

Metals

Textiles

Footwear

ProcessedFood

Tobacco

MedicalDevices

Analytical


Creation

Note: Clusters with overlapping borders have at least 20% overlap (by number of industries) in both directions.

MarineEquipment

AerospaceEngines

HeavyMachinery


Goods

Automotive




0.2% - 0.5%

0.5% - 1.0%

> 1.0%

Enter-tainment

World Market Share

Share of World Exports by Cluster


43/73



Equipment &Services

Fishing &FishingProducts Hospitality

& Tourism

AgriculturalProducts


Share of World Exports by ClusterMalaysia, 2007

Plastics

Oil &Gas

Chemical

Products

Biopharma-ceuticals

PowerGeneration

AerospaceVehicles &

Defense


Equipment

FinancialServices


InformationTech.

Communi-cations

Equipment

BusinessServices


ForestProducts

HeavyConstruction

Services



Apparel


Jewelry &PreciousMetals

Textiles

Footwear

ProcessedFood

Tobacco

MedicalDevices

Analytical


Creation

Note: Clusters with overlapping borders have at least 20% overlap (by number of industries) in both directions.

MarineEquipment

AerospaceEngines

HeavyMachinery


Goods

Automotive




1.24% - 1.75%

1.75% - 2.25%

> 2.25%

Enter-tainment

World Market Share

State of Cluster Development in Peru


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State of Cluster Development in Peru

Peru has strengths in several clusters, including mining, fishing,agribusiness, tourism, jewelry and apparel

Perus clusters are based heavily on natural endowments, with limitedfurther upgrading

Perus clusters are shallow, with weak supplier bases and supportinginstitutions

The limited cluster development efforts underway in Peru suffer from

poor coordination between the private and public sectors

Clusters are so far an unexploited dimension of economic policy atthe national and regional levels

Cluster Development in Peru


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Cluster Development in PeruAction Priorities

Adopt cluster development as a central tool for organizing businessdevelopment and implementation of economic policies supporting businesses

Use cluster development to encourage value-add upgrading within existingclusters Promote spillovers and synergies to upgrade local economies

Apply a cluster based approach to economic diversification



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Develop Related Clusters

Upgrade Existing ExportProducts and Services


Deepen Existing Clusters

Turn Products Into Clusters Local firms MNCs

Perus Agriculture Cluster, 1997 2007


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0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

-0.8% -0.6% -0.4% -0.2% 0.0% 0.2% 0.4% 0.6% 0.8%

Change in Subclusters share of World Exports, 1997 2007

SubclustersshareofW

orldexports,2007

gExports by Subcluster

Vegetables and Fruits

Subcluster OverallExport Share: 0.50%

Overall change in Subcluster WorldExport Share : - 0.06%

Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director.Exports of US$200 million =

Fertilizers

Coffee, Tea, Cocoa and Spices

Meat and Related Products

Miscellaneous VegetableMaterials (4.54%, 1.91%)

Crude Fertilizers

Oils and Fats

Sugars, Molasses and HoneyFeeding Materials

GrainsPlants and Flowers

Specialty Agricultural Products

Perus Metal Mining and Manufacturing Cluster, 1997 2007S


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0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

-0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5%

Change in Subclusters share of World Exports, 1997 2007

SubclustersshareofW

orldexports,2007

g gExports by Subcluster

Other Metals

Subcluster OverallExport Share: 1.13%

Overall change in Subcluster WorldExport Share : + 0.49%

Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director.Exports of US$1.5 billion =

Iron and Steel

Copper

Wire and Springs

Iron and Steel Mill and

Foundry Products

Nonferrous Metal Processing

Fabricated Metal Products

Cluster Development in Peru


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C uste e e opme t e uAction Priorities

Adopt cluster development as a central tool for organizing businessdevelopment and implementation of economic policies supporting businesses

Use cluster development to encourage value-add upgrading within existingclusters Promote spillovers and synergies to upgrade local economies

Apply a cluster based approach to economic diversification

Leverage clusters to attract FDI and facilitate integration with the globaleconomy

Use cluster initiatives to engage the private sector in more effective

collaboration with government at the national and regional levels Cluster development is an effective approach to promote private sector-ledgrowth

Create Institutions for Collaboration (e.g., trade associations) to organize clusterparticipants

Geographic Influences on Competitiveness


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Regions and Cities

Nation


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Specialization by Cluster, Turkish Regions 2007


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p y g

Note: Source: European Cluster Observatory, 2009

IstanbulTextilesLeather and ApparelDistribution ServicesJewelry

Bati AnadoluFurnitureConstruction MaterialsDistribution ServicesAerospace

AkdenzizTextilesHospitality and TourismApparelDistribution Services

Orta AnadoluFurnitureTextilesAgricultural Products

Metal Mining and Manufacturing

Bati KaradenizTobaccoApparelMetal Mining and Manufacturing

Forest Products

Dogu KaradenizFood ProcessingDistribution ServicesFurniture

Forest Products

Ortadogu AnadoluTextilesAgricultural ProductsApparelDistribution Services

Guneydogu Anadolu

TextilesTobaccoOil and GasFood Processing

Bati MarmaraApparelTextilesChemicals

Construction Materials

Dogu MarmaraTextilesAutomotiveApparelFurniture

EgeTobaccoTextilesConstruction MaterialsApparel

Kuzeydogu AnadoluAgricultural ProductsFootwearDistribution ServicesHospitality and Tourism


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Competitiveness of Perus Regions


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p g

Strong disparities existacross Peruvian regions inbusiness environment,

innovative capacity, andeconomic performance

Prosperity Performance


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0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%

Prosperity PerformancePerus Regions

GDP per Capita, 2008 (1994New Peruvian Soles)

Growth in GDP per Capital (CAGR), 2001 to 2008

Perus Weighted

Average: 6.0%

Source: Fuente: Instituto Nacional de Estadistica e Informatica - Direccin Nacional de Cuentas Nacionales

Perus WeightedAverage: 6,513

Ayachucho

Areguipa

Huancavelica

Cusco

La Libertad

Lima

Moquegua

Ica

Piura

Amazonas

Apurimac

Ancash

San Martin

TumbesLambayeque

Madre de Dios

Ucayali

Puno

Tacna

Pasco

Loreto

Huanuco

Cajamarca

Junin

Competitiveness of Perus Regions


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p g

Strong disparities existacross Peruvian regions inbusiness environment,

innovative capacity, andeconomic performance

Decentralization remainsincomplete and hasproduced some socialtension and unrest

There is weak planning,design, andimplementation capacity

at the local level

Sub-national governmentsare highly dependent ontransfers from the centralgovernment

Perus Regions


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Action Priorities

Continue decentralization of responsibilities and resources tosub-national governments

Improve the capacity of local governments to plan, designand implement development polices

Improve national-regional collaboration to implementregional programs

Adopt specific steps to reduce corruption at the regional level

Improve physical connections among regions to supporteconomic and social integration

Promote greater linkages between resource clusters andregional economies

Address the underlying causes of inequality between thehighland, coastal and Amazon regions Strengthen human development in the poorer highland regions



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Neighboring Countries

Regions and Cities

Nation

Economic Coordination with Neighboring Countries


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g g

Competitiveness and the Neighborhood


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Competitiveness and the Neighborhood

Opening trade and investment among neighbors fuels growth andspecialization

A countrys neighbors are its most natural trading and investment partners

The most natural path for internationalization by local firms is theneighborhood

Open trade and investment make each country a more attractive location forforeign investment

Economic coordination with neighbors drives improvements in thebusiness environment

Capturing synergies in policy and infrastructure

Gaining greater clout in international negotiations

External agreements help overcome domestic political barriers toreform

Economic Integration Among Neighbors


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Eliminatingtrade andinvestmentbarriers withinthe region

Simplifying andharmonizingcross-borderregulations andpaperwork

Coordinatinganti-monopolyand faircompetition

policies

Openinggovernmentprocurementwithin the regionHarmonizingenvironmental

standards

Harmonizingproduct safetystandards

Establishingreciprocalconsumerprotection laws

Improving theefficiency of theregionaltransportationnetwork

Creating an efficientenergy network

Enhancing regionalcommunicationsand connectivity

Harmonizingadministrativerequirements for

businesses Linking financial

markets

Facilitating themovement ofstudents for highereducation

Facilitating cross-border clusterdevelopment

e.g., Suppliernetworks

Transport &Logistics

Qualitystandards

FactorConditions

Context forStrategy

and Rivalry

Related andSupporting

Industries

DemandConditions

g g gCapturing Synergies

MacroeconomicCompetitiveness

Coordinatingmacroeconomicpolicies

Coordinatingprograms toimprove securityand public safety

Peru and the Neighborhood


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Peru and the Neighborhood

Assessment Peru remains a relatively isolated country for geographic reasons

Peru has weak relations with some of its neighbors Peru has taken some positive steps to improve relations with someneighbors

Perus recent trade liberalization program, including with the U.S. andChina, has created significant opportunities for new economiclinkages with neighbors

Action Agenda Economic coordination with neighboring countries is an important

tool in economic development Peru can take a proactive leadership role in promoting trade

liberalization efforts with particular neighbors and the region Peru can be a platform for South American firms seeking to access

the U.S. and Asian markets Leverage inbound and outbound FDI with neighbors to upgrade

local competitiveness


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The Need for an Economic Strategy


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National Value Proposition

Refining Unique Strengths Addressing Crucial Constraints

What elements of the businessenvironment and institutional contextcan be unique strengths relative topeers/neighbors?

What existing and emerging clusterscan be developed?

What are the crucial weaknesses andconstraints that must be addressed toachieve parity with peer countries andallow the country to move to the nextlevel?

What are the distinctive competitive assets of the nationseconomy given its location, legacy, rate of progress, existingstrengths, and potential strengths? What unique value as a business location? In what types of fields / clusters? What roles with neighbors, the broader region, and the wider world?

Priorities and sequencing are a necessity in economic development

Toward a Peruvian Economic Strategy


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Implications

Reduce and Eliminate Corruption

Implement Next Stage RegulatoryReforms to Improve the Business

Environment

Improve the Quality of Education andWorkforce Training

Unique Strengths

Abundant naturalendowments

Vast biodiversity andecosystems

Central location in SouthAmerica

Young, hard working

population Rich culture and history Legacy of domestic

collaboration to overcomeobstacles

Open to FDI and capital

flows Privileged access to majorforeign markets (UnitedStates, China, etc.)

Foster Cluster Development AroundResource Strengths

Upgrade Ground, Air and PortTransportation Infrastructure to Connect

Peruvian Regions with Neighbors andthe World

Create New, More Stable EffectivePolitical Institutions

Upgrade Perus competitive assets to achieve high rates of sustainableeconomic growth while improving welfare of the poor

Accelerating Poverty Reduction in Peru


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Increase

CompetitivenessReduce Poverty

The Process of Economic Development


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The Process of Economic DevelopmentShifting Roles and Responsibilities

Old Model

The central government drives

economic development throughpolicy decisions, spending andincentives

New Model

Economic development is a

collaborative process involvinggovernment at multiple levels,companies, educational andresearch institutions, and privatesector organizations

Competitiveness must be a bottom-up process in which manyindividuals, companies, and institutions take responsibility and act

Organizing for Competitiveness in Peru


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Assessment

Peru has weak coordination among government ministries and

agencies responsible for improving competitiveness Across different ministries to align policies

Across geographic levels of government

The National Council on Competitiveness was created in 2002,a positive step, but it has had limited impact

There are few competitiveness initiatives at the regional level tomobilize strategic thinking and drive action

The private sector has limited engagement in competitivenessdevelopment

Revitalizing Perus Organization to Drive CompetitivenessA i A d


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Action Agenda

Create an effective coordination structure within governmentacross ministries and agencies

Restart the National Council on Competitiveness to build consensuson an overall economic strategy and track implementation The council will require strong private sector leadership

Create Regional Competitiveness Councils to drive consensus onstate plans and monitor implementation Involve representatives from the private, public and academic sectors as

well as federal government participation

The private sector must assume a catalytic role in economicstrategy formulation and implementation

Integrating Business and the Society


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There is an inevitable link between business and society

A healthy business depends on a healthy community to create

demand for its products and provide a supportive businessenvironment

A healthy society depends on competitive companies that cancreate jobs, support high wages, build wealth, buy local goods, andpay taxes

There is a long-term synergy between economic and social objectives

SocialObjectives

Economic

Objectives

Competitiveness and Social Issues


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CompanyProductivity

Energy Use

Water Use

EmployeeHealth

Gender Equity

Worker Safety

WorkerEducation and

Skills

Poverty inthe CompanysCommunities

EnvironmentalImpact

Corporate Role in Competitiveness


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The Concept of Shared Value

Find the points of convergence between economic and social objectives, notassumed tradeoffs or the need for redistribution These points of convergence are growing

Achieving shared value requires new thinking, new technologies, and newapproaches to management

Shared value opportunities are even greater in developing countries

Shared value thinking applies equally to NGOs and governments

Shared Value: Policies and practices that enhance thecompetitiveness of a company while simultaneouslyadvancing economic and social conditions in thecommunities in which it operates

Corporate Role in CompetitivenessA i A d


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Action Agenda

Organize the private sector to have a collective voice in

competitiveness Participate actively in national and regional competitiveness

initiatives

Inform government on business needs and constraints bearing

on company and cluster development Nurture local suppliers and attract foreign suppliers

Work closely with local educational and research institutions toimprove their quality and create specialized programsaddressing the clusters needs

Collaborate with other companies to enhance competitivenessthrough trade associations and other mechanisms

Focus corporate social responsibility initiatives on enhancingthe business environment

Competitiveness a New Economic Strategy for Peru

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