Competitiveness: Creating a Mongolian Economic Strategy
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Transcript of Competitiveness: Creating a Mongolian Economic Strategy
1GCR South Africa 062007.ppt
Copyright © 2007 Professor Michael E. Porter
This presentation draws on ideas from Professor Porter’s articles and books, in particular, The Competitive Advantage of Nations (The Free Press, 1990), “Building the Microeconomic Foundations of Competitiveness,” in The Global Competitiveness Report 2006 (World Economic Forum, 2006), “Clusters and the New Competitive Agenda for Companies and Governments” in On Competition (Harvard Business School Press, 1998), and ongoing research on clusters and competitiveness. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means - electronic, mechanical, photocopying, recording, or otherwise - without the permission of Michael E. Porter.Further information on Professor Porter’s work and the Institute for Strategy and Competitiveness is available at www.isc.hbs.eduVersion: July 21, 2008, 4pm
Competitiveness: Creating a Mongolian Economic Strategy
Professor Michael E. PorterInstitute for Strategy and Competitiveness
Harvard Business School
July, 2008
2 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
$0
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$24,000
$28,000
-3.0% -1.5% 0.0% 1.5% 3.0% 4.5% 6.0% 7.5% 9.0%
Prosperity PerformanceSelected Middle- and Lower-Income Countries
PPP-adjusted GDP per Capita, 2007
Growth of Real GDP per Capita (PPP-adjusted), CAGR, 1998-2007Source: EIU (2008), authors calculations. Mongolia data for 1998-2006, from World Development Indicators
United Arab Emirates
China
Vietnam
Poland
Russia
Saudi Arabia
TurkeyThailand
ChileCroatia
Philippines
Mexico
Brazil
India
Iran
Indonesia
Argentina Malaysia
South AfricaRomania
Lithuania
Ukraine
Cambodia
Sri Lanka
Togo
Venezuela
Bangladesh
Egypt
Cote d’Ivoire
Dominican Republic
Tunisia
Libya
Costa Rica
Colombia
El Salvador
Portugal
Czech RepublicCyprus
Estonia
Latvia
HungarySlovakia
Kenya
Slovenia
South Korea
Senegal
Botswana
Laos
Ghana
Jordan
Belize
Uruguay
NigeriaPakistan
SyriaPapua New Guinea
Madagascar
Georgia
Oman
Rwanda
Ecuador Algeria
Mongolia
Azerbaijan (14.9%)
Turkmenistan
UzbekistanKyrgyz Rep.
Kazakhstan
3 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
Mongolia’s Competitive Position in 2008
• Mongolia has experienced fast GDP growth since 2000, reaping the benefits of earlier reforms and benevolent external conditions
However
• Growth is narrowly based on few sectors of the economy and driven by external factors, i.e. world prices of natural resource
• The macroeconomic challenges of fast growth are not under control with inflation at high and rising levels
• Political pressure to move focus from economic reforms towards the distribution of windfall gains from exports
• Mongolia needs a new focus on upgrading competitiveness
4 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
What is Competitiveness?
• Nations compete to offer the most productive environment for business
• The public and private sectors play different but interrelated roles in creating a productive economy
• Competitiveness depends on the productivity with which a nation uses its human, capital, and natural resources.
– Productivity sets the sustainable standard of living (wages, returns on capital, returns on natural resources) that a country can sustain
– It is not what industries a nation competes in that matters for prosperity, but howproductively it competes in those industries
– Productivity in a national economy arises from a combination of domestic and foreign firms
– The productivity of “local” or domestic industries is fundamental to competitiveness, not just that of export industries
5 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
Sources of Prosperity
Inherited ProsperityInherited Prosperity
• Prosperity is derived from selling or exploiting inherited natural resources
• Prosperity is constrained
• Government is the central actor in the economy as the owner and distributor of resource wealth– Resource revenues allow
unproductive policies and practices to persist
• Government’s role gravitates towards the distribution of wealth as interest groups seek a bigger share of the pie
• Prosperity is derived from selling or exploiting inherited natural resources
• Prosperity is constrained
• Government is the central actor in the economy as the owner and distributor of resource wealth– Resource revenues allow
unproductive policies and practices to persist
• Government’s role gravitates towards the distribution of wealth as interest groups seek a bigger share of the pie
Created ProsperityCreated Prosperity
• Prosperity is derived from creating more and more valuable products and services with rising efficiency
• Prosperity is unlimited
• Companies are the central actors in the economy
– Prosperity can only be created byfirms
• Government’s role is to create the enabling conditions for productivityand foster private sector development
• Prosperity is derived from creating more and more valuable products and services with rising efficiency
• Prosperity is unlimited
• Companies are the central actors in the economy
– Prosperity can only be created byfirms
• Government’s role is to create the enabling conditions for productivityand foster private sector development
6 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
Mongolia’s Export Share Trends
0.00%
0.01%
0.02%
0.03%
0.04%
0.05%
0.06%
0.07%
0.08%
1996 1998 2000 2002 2004 2006
Processed GoodsSemi-processed GoodsUnprocessed GoodsServicesTOTAL
Source: WTO (2008)
World Export Market Share (current USD)
7GCR South Africa 062007.ppt
Copyright © 2007 Professor Michael E. Porter
Inward Foreign Investment FlowsMongolia, 1991 - 2006
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
1991 1994 1997 2000 2003 2006Note: Data not available for 1994.Source: UNCTAD (2007)
Inward FDI (USD, millions)
8 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
Foreign Direct InvestmentBy Industry Destination, 2006
Source: Annual Report, 2006), Mongolia Central Bank (2008)
9 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
Macroeconomic Competitiveness
Microeconomic Competitiveness
Sophisticationof Company
Operations andStrategy
Quality of the NationalBusiness
Environment
MacroeconomicPolicies
SocialInfrastructure and PoliticalInstitutions
State of Cluster Development
• Macroeconomic competitiveness creates the potential for high productivity, but is not sufficient
• Productivity ultimately depends on improving the microeconomic capability of the economy and the sophistication of local competition
Determinants of Competitiveness
Endowments
10 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
Macroeconomic Competitiveness
• Basic human capacity– Education– Health
• Safety and security
• Political institutions
• Rule of law
• Fiscal policy
• Monetary policy
• Economic openness
Social Infrastructure and Political Institutions
Macroeconomic Policies
11 Copyright 2008 © , M. Porter
Corruption Perception IndexCentral Asian Countries
0
20
40
60
80
100
120
140
160
180
China
Georgi
a
Mongo
lia
Russia
Kazak
hstan
Kyrgyz
stan
Azerba
ijan
Tajikis
tanTurk
menist
anUzb
ekist
an
2005 CPI Rank2006 CPI Rank2007 CPI Rank
Ranking (constant sample, 158 countries)
Note: Ranks only available starting in 2005 for all 5 countries Source: Global Corruption Report, 2007
12 Copyright 2008 © , M. Porter
0
20
40
60
80
100
120
140
160
Kazakh
stan
Bulgari
aRomaniaArm
enia
Ukraine
Mongoli
a
Kyrgyz
Rep
ublic
Turkmen
istan
Azerba
ijan
Tajikis
tanTha
iland
Indon
esia
Burma
ChinaSri L
anka
Uzbek
istan
Korea,
South
Pakist
an Viet
nam Iran
Laos
Cambodia
India
Russia
Bangla
desh
Openness to Trade
Selected Countries, 2008Rank (157 countries)
Source: Index of Economic Freedom (2008), Heritage Foundation
13 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
Business ComptitivenessIndex
Company Operations &Strategy
National BusinessEnvironment
20062007
Microeconomic CompetitivenessMongolia’s Position over Time
Rank
101
95
97
99
96
98
100
Note: Rank versus 111 countries; overall, Mongolia ranks 90th in 2007 PPP adjusted GDP per capita and 99th in Business Competitiveness.Source: Institute for Strategy and Competitiveness, Harvard University (2007), Mongolia GDP from the World Bank
14 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
Access to high quality business inputs
– Natural endowments– Human resources– Capital availability– Physical infrastructure– Administrative infrastructure
(e.g. registration, permitting)– Information infrastructure
(e.g., transparency)– Scientific and technological
infrastructure
Microeconomic Competitiveness: Quality of the Business Environment
Context for Firm
Strategy and Rivalry
Context for Firm
Strategy and Rivalry
Related and Supporting Industries
Related and Supporting Industries
Factor(Input)
Conditions
Factor(Input)
ConditionsDemand
ConditionsDemand
Conditions
Availability of suppliers and supporting industries
Sophistication of local customers and needs
–Strict quality, safety, and environmental standards
• 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
Local rules and incentives that encourage investment and productivity
– e.g. salaries, incentives for capital investments, intellectual property protection
Vigorous local competition– Openness to foreign and local
competition
15 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
0
25
50
75
100
125
150
175
Ease ofDoing
BusinessRank
RegisteringProperty
ProtectingInvestors
EnforcingContracts
Dealingwith
Licenses
Starting aBusiness
EmployingWorkers
GettingCredit
PayingTaxes
Closing aBusiness
TradingAcrossBorders
Ease of Doing BusinessMongolia, 2007
Ranking, 2007 (of 178 countries) Favorable
Source: World Bank Report, Doing Business (2008)
Unfavorable
Mongolia’s per capita GDP rank: 127
Median Ranking, East Asia and Pacific
16 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
Availability of scientists and engineers 46
Quality of math and science education 58
Railroad infrastructure development 64
Business costs of corruption 67
Cooperation in labor-employer relations 68
Freedom from corruption 72
University/industry research collaboration 74
Local equity market access 79
Quality of scientific research institutions 81
Quality of public schools 88
Competitive Advantages Relative to GDP per Capita
Competitive Disadvantages Relative to GDP per Capita
Port infrastructure quality 110Ease of access to loans 110Venture capital availability 110Overall infrastructure quality 109Air transport infrastructure quality 107Quality of management schools 107Efficiency of legal framework 99Quality of electricity supply 97Telephone/fax infrastructure quality 96Reliability of police services 96Judicial independence 96Laws relating to ICT 95Financial market sophistication 94
Factor (Input) ConditionsMongolia’s Relative Position 2007
Factor(Input)
Conditions
Factor(Input)
Conditions
Change up/down of more than 5/10 ranks since 2006
Note: Rank versus 111 countries; overall, Mongolia ranks 90th in 2007 PPP adjusted GDP per capita and 99th in Business Competitiveness.Source: Institute for Strategy and Competitiveness, Harvard University (2007), Mongolia GDP from the World Bank
17 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
Context for Strategy and RivalryMongolia's Relative Position 2007
Competitive Disadvantages Relative to GDP per Capita
Property rights 108
Prevalence of trade barriers 108
Decentralization of corporate activity 107
Intellectual property protection 103
Favoritism in decisions of government 101 officials
Competitive Advantages Relative to GDP per Capita
Context for Firm Strategy and Rivalry
Context for Firm Strategy and Rivalry
Change up/down of more than 5/10 ranks since 2006
Note: Rank versus 111 countries; overall, Mongolia ranks 90th in 2007 PPP adjusted GDP per capita and 99th in Business Competitiveness.Source: Institute for Strategy and Competitiveness, Harvard University (2007), Mongolia GDP from the World Bank
18 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
Demand ConditionsMongolia's Relative Position 2007
Competitive Disadvantages Relative to GDP per Capita
Competitive Advantages Relative to GDP per Capita
Demand ConditionsDemand
Conditions
Change up/down of more than 5/10 ranks since 2006
Stringency of environmental regulations 111
Presence of demanding regulatory 101 standards
Government procurement of advanced 90 technology products
Note: Rank versus 111 countries; overall, Mongolia ranks 90th in 2007 PPP adjusted GDP per capita and 99th in Business Competitiveness.Source: Institute for Strategy and Competitiveness, Harvard University (2007), Mongolia GDP from the World Bank
19 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
Related and Supporting IndustriesMongolia's Relative Position 2007
Competitive Disadvantages Relative to GDP per Capita
Competitive Advantages Relative to GDP per Capita
Related and Supporting Industries
Related and Supporting Industries
Local availability of specialized research 78 and training services
Change up/down of more than 5/10 ranks since 2006
Local supplier quantity 110
Local supplier quality 109
Local availability of process machinery 100
Note: Rank versus 111 countries; overall, Mongolia ranks 90th in 2007 PPP adjusted GDP per capita and 99th in Business Competitiveness.Source: Institute for Strategy and Competitiveness, Harvard University (2007), Mongolia GDP from the World Bank
20 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
BCI Value, 2007
High
Low
Below average Above averageAverage
Dynamism Score, 2006 - 2007
Rate of Competitiveness ImprovementLow Income Countries, 2006 - 2007
Note, dynamism score uses moving average, using data from 2005 –2007. Source: Global Competitiveness Report 2007
Benin
Zimbabwe
UgandaTanzania
Honduras
Indonesia
Sri Lanka
Bolivia
Mali
Kenya
Pakistan
Nicaragua
India
Bangladesh
Paraguay
El Salvador
Chad
Mozambique
Madagascar
Nigeria Vietnam Gambia
Ethiopia
Cameroon
MoldovaMongolia
Tajikistan
Kyrgyz Rep.
Georgia
Cambodia
21 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
Sources: HBS student team research (2003) - Peter Tynan, Chai McConnell, Alexandra West, Jean Hayden
HotelsHotels
Attractions andActivities
e.g., theme parks, casinos, sports
Attractions andActivities
e.g., theme parks, casinos, sports
Airlines, Cruise Ships
Airlines, Cruise Ships
Travel agentsTravel agents Tour operatorsTour operators
RestaurantsRestaurants
PropertyServicesPropertyServices
MaintenanceServices
MaintenanceServices
Government agenciese.g. Australian Tourism Commission,
Great Barrier Reef Authority
Government agenciese.g. Australian Tourism Commission,
Great Barrier Reef Authority
Educational Institutionse.g. James Cook University,
Cairns College of TAFE
Educational Institutionse.g. James Cook University,
Cairns College of TAFE
Industry Groupse.g. Queensland Tourism
Industry Council
Industry Groupse.g. Queensland Tourism
Industry Council
FoodSuppliers
FoodSuppliers
Public Relations & Market Research
Services
Public Relations & Market Research
Services
Local retail, health care, andother services
Local retail, health care, andother services
Souvenirs, Duty Free
Souvenirs, Duty Free
Banks,Foreign
Exchange
Banks,Foreign
Exchange
Local Transportation
Local Transportation
Microeconomic Competitiveness: State of Cluster DevelopmentTourism Cluster in Cairns, Australia
22 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
1990 1992 1994 1996 1998 2000 2002 2004 20060.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
ValueMarket Share
The Kenyan Cut Flower ClusterTrade Performance
Kenyan Cut FlowerExports in thousand US $
Kenyan Cut FlowerWorld Export Market Share
Source: International Cluster Competitiveness Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. Underlying data drawn from the UN Commodity Trade Statistics Database.
23 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
Kenya’s 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
24 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
Process of Cluster DevelopmentThe Australian Wine Cluster
1955
Australian Wine Research Institute founded
1970
Winemaking school at Charles Sturt University founded
1980
Australian Wine and Brandy Corporation established
1965
Australian Wine Bureau established
1930
First oenology course at Roseworthy Agricultural College
1960s
Recruiting of experienced foreign investors, e.g. Wolf Bass
1950s
Import of European winery technology
1990s 2005
Surge in exports and international acquisitions
1980s
Creation of large number of new wineries
1970s
Continued inflow of foreign capital and management
1990
Winemaker’s Federation of Australia established
1991 to Present
New organizations created for education, research, market information, and export promotions
Source: Michael E. Porter and Örjan Sölvell, The Australian Wine Cluster – Supplement, Harvard Business School Case Study, 2002
25 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
0.00%
0.02%
0.04%
0.06%
0.08%
0.10%
-0.03% -0.02% -0.01% 0.00% 0.01% 0.02% 0.03% 0.04% 0.05% 0.06% 0.07% 0.08% 0.09% 0.10%
National Cluster Export PortfolioMongolia, 1997-2006
Change in Mongolia’s world export market share, 1997 – 2006Source: Prof. Michael E. Porter, International Cluster Competitiveness Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. Underlying data drawn from the UN Commodity Trade Statistics Database and the IMF BOP statistics.
Mon
golia
’s w
orld
exp
ort m
arke
t sha
re, 2
006
Change In Mongolia’s Overall
World Export Share: 0.00748%
Mongolia’s Average World Export Share: 0.0158%
Exports of US$160 Million =
Hospitality and Tourism
Agricultural Products
Transportation and Logistics
Chemical Products
TextilesLeather and Related Products
Furniture
Metal Mining and Manufacturing
Apparel
Jewelry, Precious Metals and Collectibles (+0.118%, +0.118%)
Communication Services
Coal and Briquettes
26 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
0.0000%
0.0005%
0.0010%
0.0015%
0.0020%
0.0025%
0.0030%
0.0035%
0.0040%
-0.004% -0.003% -0.002% -0.001% 0.000% 0.001% 0.002% 0.003% 0.004%
National Cluster Export PortfolioMongolia, 1997-2006
Change in Mongolia’s world export market share, 1997 – 2006Source: Prof. Michael E. Porter, International Cluster Competitiveness Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. Underlying data drawn from the UN Commodity Trade Statistics Database and the IMF BOP statistics.
Mon
golia
’s w
orld
exp
ort m
arke
t sha
re, 2
006
Exports of US$6.6 Million =
Automotive
Motor Driven Products
Oil and Gas
PlasticsAnalytical Instruments
Prefabricated Enclosures and Structures
Information Technology
Financial Services
Production Technology
Heavy Machinery
Footwear
Forest Products
Sporting, Recreational and Children's Goods
Communications Equipment
Aerospace Vehicles and Defense
Lighting and Electrical Equipment
Business Services
Tobacco Publishing and Printing
Entertainment
Communication Services
27 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
0.000%
0.005%
0.010%
0.015%
0.020%
0.025%
0.030%
-0.008% -0.006% -0.004% -0.002% 0.000% 0.002% 0.004% 0.006% 0.008%
Change in Subcluster’s share of World Exports, 1997 – 2006
Subc
lust
er’s
sha
re o
f Wor
ld e
xpor
ts, 2
006
Mongolia Exports by SubclusterAgriculture, 1997 - 2006
Plants and Flowers
Vegetables and Fruits
Specialty Agricultural Products
Agriculture Subcluster Overall Export Share: +0.008%
Overall change in the Agriculture Subcluster World
Export Share : -0.005%
Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director.
Meat and Related Products
Oils and Fats
Exports of US$6.5 million =
Sugars and Molasses
Spirits and Misc. Fermented Beverages
Feeding Materials
28 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
FurnitureBuilding Fixtures,
Equipment & Services
Fishing & Fishing Products Hospitality
& TourismAgricultural
ProductsTransportation
& Logistics
Creating CompetitivenessLinkages Across Clusters
Plastics
Oil & Gas
Chemical Products
Biopharma-ceuticals
Power Generation
Aerospace Vehicles &
Defense
Lightning & ElectricalEquipment
Financial Services
Publishing & Printing
Entertainment
Information Tech.
Communi-cations
Equipment
Aerospace Engines
Business Services
DistributionServices
Forest Products
Heavy Construction
Services
ConstructionMaterials
Prefabricated Enclosures
Heavy Machinery
Sporting & Recreation
Goods
Automotive
Production Technology
Motor Driven Products
Metal Manufacturing
Apparel
Leather & Related Products
Jewelry & Precious Metals
Textiles
Footwear
Processed Food
Tobacco
Medical Devices
Analytical InstrumentsEducation &
Knowledge Creation
Note: Clusters with overlapping borders or identical shading have at least 20% overlap(by number of industries) in both directions.
29 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
The Evolution of Regional EconomiesSan Diego
U.S. Military
U.S. Military
CommunicationsEquipment
Sporting andLeather Goods
Analytical Instruments
Power GenerationAerospace Vehicles
and Defense
Transportationand Logistics
Information Technology
19101910 19301930 19501950 1990199019701970
Bioscience Research Centers
Bioscience Bioscience Research Research CentersCenters
Climate and
Geography
Climate and
Geography
Hospitality and Tourism
Medical Devices
Biotech / Pharmaceuticals
Education andKnowledge Creation
30 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
• Competitiveness requires that local companies upgrade the quality of the value chain
Microeconomic Competitiveness: Company Sophistication
SupportActivities
Marketing& Sales
(e.g. Sales Force,
Promotion, Advertising,
Proposal Writing, Web
site)
InboundLogistics
(e.g. Incoming Material
Storage, Data Collection,
Service, Customer Access)
Operations
(e.g. Assembly, Component Fabrication,
Branch Operations)
OutboundLogistics
(e.g. Order Processing,
Warehousing, Report
Preparation)
After-Sales Service
(e.g. Installation, Customer Support,
Complaint Resolution,
Repair)
Ma
rg
in
Primary Activities
Firm Infrastructure(e.g. Financing, Planning, Investor Relations)
Procurement(e.g. Components, Machinery, Advertising, Services)
Technology Development(e.g. Product Design, Testing, Process Design, Material Research, Market Research)
Human Resource Management(e.g. Recruiting, Training, Compensation System)
Value
What buyers are willing to pay
31 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
Company SophisticationRelative Position of Mongolian Companies, 2007
Value chain presence 111Breadth of international markets 108Reliance on professional management 106Control of international distribution 105Extent of marketing 101Degree of customer orientation 100Extent of incentive compensation 97Willingness to delegate authority 96Extent of regional sales 94Prevalence of foreign technology 94 licensing
Competitive Disadvantages Relative to GDP per Capita
Competitive Advantages Relative to GDP per Capita
Change up/down of more than 5/10 ranks since 2006
Note: Rank versus 111 countries; overall, Mongolia ranks 90th in 2007 PPP adjusted GDP per capita and 99th in Business Competitiveness.Source: Institute for Strategy and Competitiveness, Harvard University (2007), Mongolia GDP from the World Bank
Nature of competitive advantage 75Production process sophistication 80Company spending on research and 83 developmentExtent of staff training 84
32 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
Geographic Influences on Competitiveness
Broad Economic AreasBroad Economic Areas
Groups of Neighboring Nations
Groups of Neighboring Nations
States, ProvincesStates, Provinces
Metropolitan AreasMetropolitan Areas
NationNation
World EconomyWorld Economy
Rural AreasRural Areas
Sub-National Economies
33 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
Specialization of Regional EconomiesSelected U.S. Geographic Areas
BostonAnalytical InstrumentsEducation and Knowledge CreationCommunications Equipment
BostonAnalytical InstrumentsEducation and Knowledge CreationCommunications Equipment
Los Angeles AreaApparelBuilding Fixtures,
Equipment and Services
Entertainment
Los Angeles AreaApparelBuilding Fixtures,
Equipment and Services
Entertainment
ChicagoCommunications EquipmentProcessed FoodHeavy Machinery
ChicagoCommunications EquipmentProcessed FoodHeavy Machinery
Denver, COLeather and Sporting GoodsOil and GasAerospace Vehicles and Defense
Denver, COLeather and Sporting GoodsOil and GasAerospace Vehicles and Defense
San DiegoLeather and Sporting GoodsPower GenerationEducation and Knowledge Creation
San DiegoLeather and Sporting GoodsPower GenerationEducation and Knowledge Creation
San Francisco-Oakland-San Jose Bay AreaCommunications EquipmentAgricultural ProductsInformation Technology
San Francisco-Oakland-San Jose Bay AreaCommunications EquipmentAgricultural ProductsInformation Technology
Seattle-Bellevue-Everett, WAAerospace Vehicles and DefenseFishing and Fishing ProductsAnalytical Instruments
Seattle-Bellevue-Everett, WAAerospace Vehicles and DefenseFishing and Fishing ProductsAnalytical Instruments
HoustonOil and Gas Products and ServicesChemical ProductsHeavy Construction Services
HoustonOil and Gas Products and ServicesChemical ProductsHeavy Construction Services
Pittsburgh, PAConstruction MaterialsMetal ManufacturingEducation and Knowledge
Creation
Pittsburgh, PAConstruction MaterialsMetal ManufacturingEducation and Knowledge
Creation
Atlanta, GAConstruction MaterialsTransportation and LogisticsBusiness Services
Atlanta, GAConstruction MaterialsTransportation and LogisticsBusiness Services
Raleigh-Durham, NCCommunications EquipmentInformation TechnologyEducation andKnowledge Creation
Raleigh-Durham, NCCommunications EquipmentInformation TechnologyEducation andKnowledge Creation
Wichita, KSAerospace Vehicles and
DefenseHeavy MachineryOil and Gas
Wichita, KSAerospace Vehicles and
DefenseHeavy MachineryOil and Gas
Note: Clusters listed are the three highest ranking clusters in terms of share of national employment.Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School, 11/2006.
34 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
Mongolia’s Provinces (Aimags)
35 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
Geographic Influences on Competitiveness
Broad Economic AreasBroad Economic Areas
Groups of Neighboring Nations
Groups of Neighboring Nations
States, ProvincesStates, Provinces
Metropolitan AreasMetropolitan Areas
NationNation
World EconomyWorld Economy
Rural AreasRural Areas
The Neighborhood
36 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
The NeighborhoodNortheast Asia
• Economic coordination among neighboring countries can significantly enhance competitiveness• Integration offers greater opportunities than participation in broader economic forums (e.g., APEC)
37 Copyright 2008 © , M. PorterEast African Business Summit – final.ppt
Regional Economic Strategy• Defining a strategic role for the region in the continent and the world
economy• Opening internal trade and investment• Achieving synergies in enhancing the business environment• Facilitating cross-border cluster development• Enhancing company capabilities and non-traditional exports
• Raising productivity• Increasing the attractiveness of the region as a whole for foreign investment• Winning greater support from the international community• Accelerating economic policy at the national level
But
• Cross-national collaboration is not a substitute for national microeconomic reforms
38 Copyright 2008 © , M. PorterEast African Business Summit – final.ppt
• Eliminating trade and investment barriers within the region
• Simplifying and harmonizing cross-borderregulations and paperwork
• Coordinatinganti-monopoly and fair competition policies
• Harmonizing environmental standards
• Harmonizing product safetystandards
• Establishing reciprocal consumerprotection laws
• Opening governmentprocurementwithin the region
• Improving regional transportationinfrastructure
• Creating an efficient energynetwork
• Enhancing regional communicationsand connectivity
• Linking financialmarkets
• Opening the movement of students for higher education
• Harmonizing administrative requirements for businesses
• Facilitating cross-bordercluster upgrading, e.g.
– Tourism
– Agribusiness
– Transport & Logistics
– Business services
• Creating a regional strategy and marketing program
• Sharing bestpractices in government operations
• Creating regional institutions
– Dispute resolution mechanisms
– Regional development bank
• Developing a regional position with international organizations
Factor (Input)
Conditions
Factor Factor (Input)(Input)
ConditionsConditions
Regional Strategy & Governance
Regional Strategy & Governance
Context for Strategy
and Rivalry
Context for Context for Strategy Strategy
and Rivalryand Rivalry
Related and Supporting Industries
Related and Supporting Industries
Demand ConditionsDemand Demand
ConditionsConditions
Economic Coordination Among NeighborsCapturing Synergies
Macroeconomic Competitiveness
Macroeconomic Competitiveness
• Coordinating programs to improve publicsafety
• Coordinating macro-economicpolicies
39 Copyright 2008 © , M. PorterEast African Business Summit – final.ppt
Roads
AirportsPorts
Logistic Corridor
Strategy for Cross-National RegionsCentral American Logistical Corridor
Mexico
Belize
Honduras
El SalvadorNicaragua
Costa Rica Panama
Guatemala
Country Boundary
40 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
The Process of Economic DevelopmentShifting Roles and Responsibilities
Old ModelOld Model
• Government drives economic development through policy decisions and incentives
• Government drives economic development through policy decisions and incentives
New ModelNew Model
• Economic development is a collaborative process involving government at multiple levels, companies, teaching and research institutions, and private sector organizations
• Economic development is a collaborative process involving government at multiple levels, companies, teaching and research institutions, and private sector organizations
• Competitiveness must become a bottom-up process in which many individuals, companies, and institutions take responsibility
• Every community and cluster can take steps to enhance competitiveness
• The private sector must become more engaged in competitiveness to improve rapidly
41 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
Role of the Private Sector in Economic Development
• A company’s competitive advantage depends partly on the quality of the business environment
• A company gains advantages from being part of a cluster• Companies have a strong role to play in upgrading their business environment
• Take an active role in upgrading the local infrastructure• Nurture local suppliers and attract foreign suppliers • Work closely with local educational and research institutions, to upgrade
their quality and create specialized programs addressing the cluster’s needs
• Inform government on regulatory issues and constraints bearing on cluster development
• Focus corporate philanthropy on enhancing the local business environment
• An important role for trade associations– Greater influence if many companies are united– Cost sharing between members
42 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
National Value PropositionNational Value Proposition
Defining an Economic Strategy
Developing Unique StrengthsDeveloping Unique Strengths Achieving and Maintaining Parity with Peers
Achieving and Maintaining Parity with Peers
• What elements of macroeconomic competitiveness and the business environment are crucial priorities?
• What existing and emerging clustersshould be developed first?
• What weaknesses must be addressed to achieve parity with peer countries?
• What is the unique competitive position of the nation or region given its location, legacy, and existing and potential strengths?
– What roles with neighbors, the region, and the broader world?– What unique value as a business location?– For what types of activities and clusters?
• Priorities and sequencing are necessity in economic development
43 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
Some ImplicationsWhat is Unique about Rwanda?
• Low corruption• Stable• Secure and safe• Clean• Responsive• Integrated economic and social
development• Unique climate and growing conditions• Central location on the African
continent• Established positions in tea, coffee,
tourism• Opportunity to lead the region in ICT
and services• Social innovator in health, education,
reconciliation, gender equality, and other areas
• Disproportionate external interest in the country
• Rwanda must maintain stability, safety, orderliness, and lack of corruption at all costs
• Rwanda must accelerate improvement of skills and business infrastructure, managerial skills, ease of doing business
• Kigali must become a vibrant capital city• Rwanda should seize the opportunity to
transform agriculture• Rwanda is unlikely to be competitive in
exporting bulky goods with low value-to-weight
• Rwanda should develop air freightable goods and services exports to nullify its logistical disadvantages– eg, silk, flowers
• Rwanda in inextricably linked with its neighbors
Toward A Rwandan Economic Strategy
• A new model of African development
44 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
Rwanda’s Competitiveness Agenda
Business EnvironmentBusiness Environment
• Land use• Physical infrastructure
– Airport / air service– Connectivity– Economic zones
• Energy– Renewable
• Skills development• Build towns and increase urbanization
outside of Kigali• Institutional capacity building• Improve government efficiency and cross
agency coordination
Cluster DevelopmentCluster Development
• Activate a formal cluster development program led by the private sector
• Established clusters– Tea– Coffee– Tourism– Mining
• Emerging clusters– Logistics and transport– Construction and real estate– ICT services– Specialty agriculture (e.g., silk, flowers)– Health and other social services– Arts and culture (Hillywood)
Private SectorPrivate Sector
• Upgrade private sector capabilities• Engage the private sector in economic
development• Support cooperative private investment funds
to jumpstart the private equity market
NeighborhoodNeighborhood
• Lead economic integration with neighboring countries
– e.g., Road transportation efficiency– Railway development– Energy grid
45 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
Economic Diversification
Upgrade the Quality and Efficiency of Existing Export
Products and Services
Upgrade the Quality and Efficiency of Existing Export
Products and Services
Broaden Existing Clusters, Including Resources ClustersBroaden Existing Clusters,
Including Resources ClustersBuild Clusters Around Strong
MNCsBuild Clusters Around Strong
MNCs
Develop Related ClustersDevelop Related Clusters
Build Positions in Clusters that are Strong in Neighboring
Regions
Build Positions in Clusters that are Strong in Neighboring
Regions
Invest in Enabling Conditions for Areas with Some cluster
Specific Advantages
Invest in Enabling Conditions for Areas with Some cluster
Specific Advantages
Upgrade local industries/clusters
Upgrade local industries/clusters
46 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
Clusters and Economic Policy
ClustersClusters
Physical Infrastructure
Natural Resource Protection
Environmental Stewardship
Science and TechnologyInvestments (e.g., centers, university departments, technology transfer)
Education and Workforce Training
Business Attraction
Export Promotion
• Clusters provide a framework for implementing public policy and organizing public-private collaboration to enhance competitiveness
Standard setting and quality initiatives
Market Information and Disclosure
Management Training
47 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
“Mongolia is at a critical juncture. Having completed its transition to a market-oriented economy, the challenge now is to attain global competitiveness. This requires a concerted and coordinated effort among all stakeholders, private and public, domestic and foreign.”
David Dollar, Country Director for Mongolia, World Bank, 29. January 2008
48 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
Industry ClusterWorld Export Share
Change in Share (1997-
2006)
Export Value (in $thousands)
1 Copper ores and concentrates Metal Mining and Manufacturing 2.16% -1.62% 635,426$ 2 Gold, non-monetary, excluding ores Jewelry, Precious Metals and Collectibles 0.53% 0.53% 270,105$ 3 Wool, other animal hair Textiles 3.11% 2.15% 157,305$ 4 Zinc ores and concentrates Metal Mining and Manufacturing 1.08% 1.08% 91,140$ 5 Ores and concentrates of molybdenum, etc. Metal Mining and Manufacturing 0.51% -0.48% 47,793$ 6 Coal, not agglomerated Coal and Briquettes 0.09% 0.09% 45,076$ 7 Quartz, mica, felspar, fluorspar, etc. Chemical Products 3.85% -0.09% 35,067$ 8 Sheep, lamb skin leather Leather and Related Products 2.26% 2.26% 24,578$ 9 Crude petroleum oils Oil and Gas Products 0.00% 0.00% 19,841$ 10 Women’s trousers, breeches and shorts Apparel 0.09% 0.07% 18,183$ 11 Jerseys, pullovers, cardigans, knitted Apparel 0.06% 0.02% 17,617$ 12 Copper, copper anodes and alloys Metal Mining and Manufacturing 0.03% -0.01% 16,202$ 13 T-shirts, other vests, knitted Apparel 0.05% 0.05% 13,241$ 14 Other meat, meat offal Agricultural Products 0.03% 0.03% 11,488$ 15 Iron Ore and Concentrates Metal Mining and Manufacturing 0.04% 0.04% 11,478$ 16 Men’s or boys’ shirts Apparel 0.11% 0.05% 10,390$ 17 Goat or kid skin leather Leather and Related Products 1.34% 1.34% 7,985$ 18 Women’s suits, dresses, skirts, knitted Apparel 0.06% 0.06% 6,908$ 19 Fruit, nuts excluding oil nuts Agricultural Products 0.01% 0.01% 6,428$ 20 Other bovine, equine leather Leather and Related Products 0.04% 0.04% 6,285$ 21 Petroleum Oils Oil and Gas Products 0.00% 0.00% 5,317$ 22 Hides, skins (excluding furs), raw Agricultural Products 0.09% -0.33% 5,219$ 23 Other animal materials Agricultural Products 0.10% -0.02% 4,830$ 24 Men’s trousers, breeches and shorts Apparel 0.02% 0.02% 4,748$ 25 Bovine meat Agricultural Products 0.02% -0.05% 4,734$
Established Mongolian Export ProductsLeading Exports by Value, 2006
Source: Prof. Michael E. Porter, International Cluster Competitiveness Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. Underlying data drawn from the UN Commodity Trade Statistics Database.
Top 25 Industries (by value) as % of Mongolia’s total goods exports: 95.79% ProcessedSemi-ProcessedUnprocessed
49 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
Industry ClusterWorld Export Share
Change in Share (1997-
2006)
Export Value (in $thousands)
1 Quartz, mica, felspar, fluorspar, etc. Chemical Products 3.85% -0.09% 35,067$ 2 Wool, other animal hair Textiles 3.11% 2.15% 157,305$ 3 Sheep, lamb skin leather Leather and Related Products 2.26% 2.26% 24,578$ 4 Copper ores and concentrates Metal Mining and Manufacturing 2.16% -1.62% 635,426$ 5 Goat or kid skin leather Leather and Related Products 1.34% 1.34% 7,985$ 6 Zinc ores and concentrates Metal Mining and Manufacturing 1.08% 1.08% 91,140$ 7 Gold, non-monetary, excluding ores Jewelry, Precious Metals and Collectibles 0.53% 0.53% 270,105$ 8 Ores of molybdenum, titanium, zirconium Metal Mining and Manufacturing 0.51% -0.48% 47,793$ 9 Balloons, and other non-powered aircraft Aerospace Vehicles and Defense 0.24% 0.24% 63$ 10 Bones, horns, ivory, coral and like products Agricultural Products 0.12% -0.65% 379$ 11 Men’s or boys’ shirts Apparel 0.11% 0.05% 10,390$ 12 Other animal materials Agricultural Products 0.10% -0.02% 4,830$ 13 Other non-ferrous ores and concentrates Metal Mining and Manufacturing 0.10% 0.03% 1,249$ 14 Carpets and other floor coverings, knotted Textiles 0.10% 0.10% 1,467$ 15 Coal, not agglomerated Coal and Briquettes 0.09% 0.09% 45,076$ 16 Hides, skins (excluding furs), raw Agricultural Products 0.09% -0.33% 5,219$ 17 Women’s trousers, breeches and shorts Apparel 0.09% 0.07% 18,183$ 18 Lignite Coal and Briquettes 0.08% 0.08% 124$ 19 Women’s blouses, and shirts, knitted Apparel 0.08% 0.08% 4,548$ 20 Other plastic waste and scrap Plastics 0.07% 0.07% 1,448$ 21 Men’s or boys’ shirts, knitted Apparel 0.06% 0.05% 3,109$ 22 Women’s suits, dresses, skirts, knitted Apparel 0.06% 0.06% 6,908$ 23 Jerseys, pullovers, cardigans, knitted Apparel 0.06% 0.02% 17,617$ 24 Men’s or boys’ jackets and blazers Apparel 0.06% 0.05% 2,309$ 25 Women’s or girls’ suits and ensembles Apparel 0.05% 0.05% 1,557$
Established Mongolian Export ProductsLeading Exports by Share, 2006
Source: Prof. Michael E. Porter, International Cluster Competitiveness Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. Underlying data drawn from the UN Commodity Trade Statistics Database.
Top 25 Industries (by share) as % of Mongolia’s total goods exports: 90.38% ProcessedSemi-ProcessedUnprocessed
50 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
Cluster Cluster World Export Share Subcluster Industry
Industry Share of World
Exports
Change in Share (1997-
2006)
Export Value (in $thousands)
Meat and Related Products Bones, horns, ivory, coral, etc. 0.12% -0.65% 379$ Meat and Related Products Other animal materials 0.10% -0.02% 4,830$ Meat and Related Products Hides, skins (excluding furs), raw 0.09% -0.33% 5,219$ Meat and Related Products Other meat, meat offal 0.03% 0.03% 11,488$ Meat and Related Products Bovine meat 0.02% -0.05% 4,734$
Chemical Products 0.008% Misc. Crude Materials Quartz, mica, felspar, fluorspar, etc. 3.85% -0.09% 35,067$
Oil and Gas Machinery Other boring machinery, not self-propelled 0.03% 0.03% 641$
Oil and Gas Machinery Rock drills, earth borers 0.02% 0.02% 404$
Prefabricated Enclosures and
Structures0.002% Prefabricated Buildings Prefabricated buildings 0.02% 0.01% 1,101$
Heavy Machinery 0.002% Mining Machinery Rock/tunneling machinery, not self-propelled 0.02% 0.02% 85$ Furniture 0.001% Wood Furnishings Wood for domestic use, not furniture 0.05% 0.05% 1,483$
Aerospace Vehicles and Defense
0.001% Aircraft Balloons, and other non-powered aircraft 0.24% 0.24% 63$
Motor Driven 0.001% Appliances Sewing machines and parts 0.03% 0.03% 1,230$ Automotive 0.001% Motor Vehicles Assembly Other special purpose vehicles 0.03% 0.03% 1,195$
Plastics 0.000% Plastic Waste Other plastic waste and scrap 0.07% 0.07% 1,448$
0.008%
0.002%Oil and Gas Products
Agricultural Products
Upgrading Mongolian Export PortfolioNiche Positions Outside of Leading Clusters
Source: Prof. Michael E. Porter, International Cluster Competitiveness Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. Underlying data drawn from the UN Commodity Trade Statistics Database.
ProcessedSemi-ProcessedUnprocessed
51 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.pptSource: Annual Report, 2006), Mongolia Central Bank (2008)
Foreign Direct InvestmentBy Source Country, 2006
52 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
0
10
20
30
40
50
60
70
Georgi
aAze
rbaija
nUkra
ineTha
iland
Cambo
diaRus
siaSri L
anka
Philipp
ines
Kazak
hstan
Brazil
Kyrgyz
stan
Pakist
anBan
glade
shUzb
ekist
anLa
osMala
ysia
Korea
Taiwan
India
Indon
esia
Mongo
lia Iran
Vietna
mChin
aSing
apore
Austra
lia
New Zea
land
Japa
n
Size of the Informal EconomySelected Countries
Source: World Bank Doing Business and Friedrich Schneider
% of GDP in the Informal Economy, 2003
53 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
0
10
20
30
40
50
60
South
Africa
Brazil
Papua
New
Guin
eaMala
ysia
China
Philipp
ines
Hong K
ong,
China
Singap
oreTha
iland
Cambo
diaGeo
rgia
Turkmen
istan
Sri Lan
ka
Russia
n Fed
eratio
nInd
ones
ia
Iran,
Islam
ic Rep
.Viet
nam
India
Uzbek
istan
Azerba
ijan
Austra
liaLa
o PDR
Kazak
hstan
Tajikis
tanBan
glade
shMon
golia
Korea,
Rep.
Pakist
an
Kyrgyz
Rep
ublic
Japa
nIncome InequalitySelected Countries
Gini Index
Note: Most recent Gini index data available for each country (1999 – 2003).Source: World Bank, World Development Indicators, 2007.
54 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
Tests of a National Economic Strategy
• Has the country articulated a distinctive position?– That will create a positive identity for the country?– That will inspire citizens?
• Does the strategy build on strengths?– Are the strengths realistic versus neighbors and other peer countries?
• Does the strategy fit with trends in the region and the world economy?• Is the strategy realistic given the country’s weaknesses. Can those
weaknesses inconsistent with the strategy be neutralized?• Are social and political reforms integrated with economic reforms
pursued simultaneously?• Is there the political will and the political consensus to implement
the strategy?
55 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
Tests of a National Economic Strategy – cont’d
• Do the policy priorities fit the strategy?– The choice of policies to address– The sequence in which policies are implemented?
• Has the strategy been communicated clearly to the stakeholders?• Is the private sector engaged?• Is government organized around the strategy?• Is there an overall coordinating structure for economic
development?• Is the quality of governmental agencies and other institutions sufficient
for effective implementation?• Are there mechanisms to measure progress and review / modify the
strategy as prosperity improves or conditions change?