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 20, 2008
Competitiveness: Creating a Rwandan Economic Strategy
Professor Michael E. PorterInstitute for Strategy and Competitiveness
Harvard Business School
Kigali, RwandaJuly 2008
2 Copyright 2008 © , M. PorterEast African Business Summit – final.ppt
$0
$3,000
$6,000
$9,000
$12,000
$15,000
-6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0%
PPP-adjusted GDP per Capita, 2007 ($USD)
Growth of Real GDP per Capita (PPP-adjusted), CAGR, 1998-2007Note: highlighted countries are part of the East African Community (EAC). Source: EIU (2008), authors calculations
Swaziland China
Vietnam
South Africa
Angola
Tanzania
Papua New GuineaLesotho Philippines India
Indonesia
Eritrea
Thailand
Namibia
Sri Lanka
TogoZimbabwe
Gabon
Mozambique
Cote d’Ivoire
Burundi
Guinea
Ethiopia Burma
Senegal
Botswana
Kenya Cambodia
Mauritius
Malaysia
LaosNigeriaPakistan
Malawi Rwanda
Congo
Uganda
Singapore ($39,356) South Korea ($23,094)
Cameroon
African countriesAsian countriesEast African Community
Prosperity PerformanceEast Africa versus Other Developing Countries
3 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
ANGOLAETHIOPIASUDANCHADMOZAMBIQUENIGERIAUGANDAKENYAMALAWIZAMBIAGHANALIBYABOTSWANARWANDAMADAGASCARTHE GAMBIACONGO (Dem Rep.)SOUTH AFRICANAMIBIABURKINA FASOSENEGALMACEDONIAALGERIABENINMOROCCOBURUNDICAMEROONGABONTOGOGUINEACOTE D'IVOIREZIMBABWE
Comparative Economic PerformanceReal GDP Growth Rates
Source: EIU (2007)
Countries sorted by 2003-2007 annual real GDP growth rate (CAGR)
Annual growth rateof real GDP (US$
2005 prices)
4 Copyright 2008 © , M. Porter
Rwanda Competitiveness in 2008
• Rwanda continues to be on a positive track for continuing growth and improvements in prosperity levels
• The economic gains are a reflection of the policy reforms undertaken as well as the bouncing back from low current levels of GDP
• Rwanda has also weathered the impact of political disturbances in Kenya, a weakening global economy, and continued political tensions with individual European countries
• Despite these achievements, Rwanda will need further efforts to realize the ambitious goals of its longer-term economic strategy
• Key areas for action are– Better alignment of government and donor activities with core
competitiveness needs of the Rwandan economy– Better coordination across different areas of policy– Stronger focus on the barriers for private sector development in
physical infrastructure and government rules and regulations
5 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
6 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
7 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
Decomposing Prosperity
Per Capita IncomePer Capita IncomePer Capita Income
Labor Productivity
Labor Productivity
Labor Utilization
Labor Utilization
Domestic Purchasing
Power
Domestic Purchasing
Power• Local prices
– Efficiency of local industries
– Level of local market competition
• Consumption taxes
ProsperityProsperityProsperity
• Skills• Capital stock• Total factor productivity
• Standard of living• Inequality
• Workforce participation rate– Population age profile
• Unemployment• Working hours
8 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
0
250
500
750
1000
1250
1500
1750
2000
2250
1980 1985 1990 1995 2000 2005
Cote d'Ivoire
Ghana
Kenya
Madagascar
Mali
Nigeria
Rwanda
Senegal
Tanzania
Uganda
Zambia
GDP per person employed (constant
1990 PPP $)
Labor ProductivitySelected Countries
Source: World Bank Development Indicators (2008)
9 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
Decomposition of Rwandan Prosperity Growth
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
1980-1989 1995-2003
Total Factor Productivity
Capital
Labor
Growth Rate
Source: World Bank (2007)
10 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
Rwandan Export Share Trends
0.000%
0.001%
0.002%
0.003%
0.004%
0.005%
0.006%
0.007%
0.008%
1996 1998 2000 2002 2004 2006
Processed GoodsSemi-processed GoodsUnprocessed GoodsServicesTOTAL
Source: UNComtrade (2008)
World Export Market Share (current USD)
11 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
-30% -25% -20% -15% -10% -5% 0% 5% 10% 15% 20%
Export SharesSelected Countries
Exports as Share of GDP (in %, 2007)
Change of Exports as Share of GDP, 2003 to 2007
Source: UN Comtrade (2007), authors’ analysis
African countriesAsian countriesEast African CommunitySwaziland
China
South Africa
Angola
Uganda
Philippines
BeninPakistan
Eritrea
Thailand
Namibia
Sri LankaTogo
Bangladesh
Mozambique
Cote d’Ivoire
Burundi
Guinea
Ethiopia
Burma
SenegalKenya
Cambodia
Mauritius
Malaysia
Laos
Nigeria
India
Malawi
Rwanda
Congo
Tanzania
Cameroon
Chad
Gabon
Zambia
Gambia
Japan
TunisiaKorea
Ghana
Sudan
Vietnam
Indonesia
Botswana
Lesotho
Papua New Guinea
12 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
0%
10%
20%
30%
40%
50%
60%
70%
0% 5% 10% 15% 20% 25% 30% 35% 40%
Inbound Foreign Investment PerformanceSelected Countries
Source: UNCTAD, World Investment Report (2007)
Inward FDI Stocks as % of GDP, Average 2002 -
2006
FDI Inflows as % of Gross Fixed Capital Formation, Average 2002 - 2006
Japan
Philippines
Vietnam
Kazakhstan
Mongolia
Azerbaijan (116.4%, 48.5%)
New Zealand
IndonesiaIndia
PakistanKorea
Sri LankaTaiwan
Malaysia
Thailand
Burma Cambodia
Georgia
Tajikistan (70.4%)
Turkmenistan
Kyrgyz Republic
Ukraine
RussiaBrazilLaos
Belarus / Uzbekistan
China
Moldova
Armenia
Australia
Ghana
Rwanda
Kenya
Cote d’Ivoire
MaliGuinea
Togo
Central African Republic Burundi
Cameroon
Gabon
Ethiopia
Somalia
Tanzania
South Africa
Namibia
Botswana
Malawi
Congo
Nigeria (52.8%)
Guinea-Bissau
Tunisia
Egypt
African countriesOther countriesEast African Community
Uganda
13GCR South Africa 062007.ppt
Copyright © 2007 Professor Michael E. Porter
Inward Foreign Investment FlowsRwanda, 1970 - 2006
$0.0
$3.0
$6.0
$9.0
$12.0
$15.0
$18.0
$21.0
1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006Note: Data not available for 1994.Source: UNCTAD (2007)
Inward FDI (USD, millions)
14 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
-10% -5% 0% 5% 10% 15% 20% 25%
Gross Fixed Investment as % of GDP (2006)
Source: EIU, 2007.CAGR Gross Fixed Investment (as % of GDP), 2001 - 2006
Equatorial Guinea
Nigeria
ZambiaEthiopia
Tanzania
Morocco Togo
SudanBenin
Gambia
Kenya
RwandaBurundi
Senegal
Burkina FasoCameroon
AlgeriaNamibia
Gabon
Zimbabwe
Ghana
Tunisia
MadagascarUganda
Fixed Investment RatesSelected Countries
MozambiqueBotswana
Chad (-25.9%)Libya
GuineaCote d’Ivoire
Malawi
South Africa
15 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
International Aid and Assistance FlowsEast African Community, 2002 - 2006
0
1
1
2
2
3
3
4
4
5
Burundi Kenya Rwanda Tanzania Uganda
200120022003200420052006
Source: World Development Indicators (2008)
Aid as % Gross Capital
Formation
16 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
17 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
18 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
BOTSWANA
SOUTH AFRICANAMIBIA
GHANA
MOZAMBIQUE
SENEGALTANZANIA
ZAMBIAGAMBIAMALA
WIGABON
RWANDAUGANDA
NIGER
KENYACAMEROON
ETHIOPIA
ANGOLALIB
ERIACONGOBURUNDINIG
ERIAGUINEA
CENTRAL AFR. REP.CHAD
SUDAN
COTE D'IV
OIREZIM
BABWE
Voice and AccountabilityPolitical StabilityGovernment EffectivenessRegulatory QualityRule of LawControl of Corruption
Governance IndicatorsSelected Countries
Note: Sorted left to right by decreasing average value across all indicators. The ‘zero’ horizontal line corresponds to the median country’s average value across all indicators.Source: World Bank (2008)
Worstcountry in the world
Index of Governance
Quality,2006
Best country in the world
19 Copyright 2008 © , M. Porter
-30 -20 -10 0 10 20 30
Corruption Perception Index, 2007
Note: Ranks only countries available in both years (158 countries total) Source: Global Corruption Report, 2007
Change in Rank, Global Corruption Report, 2007 versus 2005
Rank in Global
CorruptionIndex,2007
158
1ImprovingDeteriorating
Highcorruption
Lowcorruption
Finland / New ZealandCanada
Bangladesh
Indonesia
Ireland
Greece
Egypt
Iceland
Czech Republic
Panama
Korea
India
Slovenia
Thailand
Switzerland
Swaziland
Turkey
Estonia
Austria Germany Japan
Vietnam
China
Norway
MalaysiaHungary
Spain
Costa Rica
ChileUnited States
South Africa
MexicoCroatia
Italy
Poland
Brazil
Argentina
Serbia
Haiti
Russia
Uruguay
Denmark
Botswana
Tunisia
Uganda
Senegal
Philippines
ZimbabweCote d’Ivoire
NigeriaPakistan
Tanzania
Jordan
Ukraine
Romania
UzbekistanCongo (Dem. Rep.)
Kenya
CameroonHonduras
Ecuador
El Salvador Ghana
Bolivia
Malta
NamibiaBahrain
Oman
AngolaEthiopia
BurundiNiger
Kazakhstan
MadagascarGabon Montenegro
Turkmenistan
ChadEquatorial Guinea
SudanSomalia
Congo LiberiaGambia
Iran
Belize
Rwanda
Sri Lanka
Saudi Arabia
Mozambique
ZambiaBenin
African countriesOther countriesEast African Community
20 Copyright 2008 © , M. Porter
Corruption Perception IndexEast African Countries
0
20
40
60
80
100
120
140
160
Tanzania Rwanda Uganda Burundi Kenya
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
21 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
0
20
40
60
80
100
120
140
160
Namibi
a
Madag
asca
rKen
ya
South
Africa
Tanza
niaAng
ola
Mozam
bique
Ugand
aSen
egal
Zambia
Rwanda
Maurita
niaTog
oMali
Botswan
aMala
wiNige
rNige
riaGha
naEthi
opia
Chad
Cote d'
Ivoire
Guinea
Camero
onGab
onZim
babw
e
Congo
, Rep
ublic
of
Centra
l Afric
an R
ep.
Burund
iOpenness to Trade
Selected African Countries, 2008Rank (157 countries)
Source: Index of Economic Freedom (2008), Heritage Foundation
Sub-Saharan Average: 112.2
22 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
23 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
0
20
40
60
80
100
120
140
160
180
Ease ofDoing
Business
EnforcingContracts
PayingTaxes
Starting aBusiness
EmployingWorkers
Dealingwith
Licenses
RegisteringProperty
GettingCredit
ProtectingInvestors
Closing aBusiness
TradingAcrossBorders
Ease of Doing BusinessRwanda, 2007
Ranking, 2007 (of 178 countries)
Source: World Bank Report, Doing Business (2008)
Favorable Unfavorable
Rwanda per capita GDP rank: 162
Median Ranking, Africa
24 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
Ease of Doing Business
Starting a Business
Dealing with Licenses
Employing Workers
Registering Property
Getting Credit
Protecting Investors
Paying Taxes
Trading Across Borders
Enforcing Contracts
Closing a Business
South Africa 35 53 45 91 76 26 9 61 134 85 68Namibia 43 101 31 33 128 36 64 48 144 33 47Botswana 51 99 122 70 36 26 107 14 145 95 26Kenya 72 112 9 66 114 13 83 154 148 107 76Ghana 87 138 140 138 26 115 33 75 61 51 96Ethiopia 102 106 58 89 147 97 107 29 150 77 70Nigeria 108 80 161 30 173 84 51 107 138 93 89Zambia 116 82 148 121 125 97 64 30 160 86 84Uganda 118 114 81 11 163 158 122 55 141 119 48Malawi 127 108 117 90 87 84 64 78 161 135 135Tanzania 130 95 170 151 160 115 83 104 100 35 109Gambia 131 94 70 29 133 135 165 173 73 61 116Mozambique 134 125 147 162 126 97 33 72 140 138 134Gabon 144 147 44 163 148 115 147 93 106 145 130Madagascar 149 61 139 150 165 176 51 86 126 151 178Rwanda 150 63 124 95 137 158 165 50 166 44 178Benin 151 137 123 115 105 115 147 161 124 166 106Zimbabwe 152 143 172 123 79 97 107 144 169 74 151Cameroon 154 160 154 120 134 115 107 166 132 172 92Togo 156 176 143 146 150 135 138 138 81 153 90Mauritania 157 167 142 117 52 115 141 171 152 89 143Mali 158 149 101 88 90 135 147 151 162 157 107Burkina Faso 161 105 169 152 170 115 138 133 170 109 91Senegal 162 159 64 160 155 135 158 164 136 148 73Guinea 166 171 158 99 151 135 165 163 102 127 111Angola 167 173 136 172 166 84 51 120 164 176 138Niger 169 153 155 161 63 135 147 115 163 132 133Chad 173 177 68 135 123 135 122 124 157 167 178Burundi 174 124 171 99 122 170 147 109 167 148 178Congo, Republic of 175 154 67 167 168 115 147 176 171 156 110Central African Rep. 177 139 133 149 95 115 122 175 172 169 178African Average 133.625 126.875 111.275 113.05 125.05 109.425 110.325 105.075 131.375 113 115.65
Doing BusinessSelected African Countries
Rank out of 178 countries. East African countries highlighted. Source: World Bank Doing Business (2008).
25 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
26 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
Institutions for CollaborationSelected Massachusetts Organizations, Life Sciences
Industry / Cluster AssociationsIndustry / Cluster Associations
Massachusetts Biotechnology CouncilMassachusetts Medical Device Industry CouncilMassachusetts Hospital Association
Massachusetts Biotechnology CouncilMassachusetts Medical Device Industry CouncilMassachusetts Hospital Association
Broader Business AssociationsBroader Business Associations
Associated Industries of MassachusettsGreater Boston Chamber of CommerceHigh Tech Council of Massachusetts
Associated Industries of MassachusettsGreater Boston Chamber of CommerceHigh Tech Council of Massachusetts
University – Company InitiativesUniversity – Company Initiatives
Harvard Biomedical CommunityMIT Enterprise ForumBiotech Club at Harvard Medical SchoolTechnology Transfer offices
Harvard Biomedical CommunityMIT Enterprise ForumBiotech Club at Harvard Medical SchoolTechnology Transfer offices
Informal networksInformal networks
Company alumni groupsVenture capital communityUniversity alumni groups
Company alumni groupsVenture capital communityUniversity alumni groups
Joint Research InitiativesJoint Research Initiatives
New England Healthcare InstituteWhitehead Institute For Biomedical ResearchCenter for Integration of Medicine and Innovative Technology (CIMIT)
New England Healthcare InstituteWhitehead Institute For Biomedical ResearchCenter for Integration of Medicine and Innovative Technology (CIMIT)
Kenya’s Cut Flower Cluster
27 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
Sources: Student team research by Kusi Hornberger, Nick Ndiritu, Lalo Ponce-Brito, Melesse Tashu, and Tijan Watt, Microeconomics of Competitiveness Course, 2007
28 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.
29 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
30 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
Company Sophistication: Measures from the Global Competitiveness Report
Strategy and operational effectiveness• Nature of competitive advantage• Production process sophistication• Degree of customer orientation• Extent of marketing• Value chain breadth• Company spending on research
and development• Capacity for innovation
Internationalization of Firms• Extent of regional sales• Breadth of international markets• Control of international distribution• Prevalence of foreign technology
licensing
Organizational Practices• Reliance on professional management• Willingness to delegate authority• Extent of staff training• Performance-based compensation
31 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
32 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
33 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
34 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
35 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
$50,000
$55,000
$60,000
0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5%
Regional Economic PerformanceU.S. States
Note: Southern states as defined by the U.S. census highlighted in blue. All figures in chained 2000 dollars.Source: BEA, 2007
Real Gross State Product per Capita, 2006
Change in Real Gross State Product per Capita, CAGR, 1997-2006
New Jersey
Illinois
GeorgiaMichigan
U.S. average
U.S. average
Massachusetts
Idaho
North Dakota (4.1%)
Alaska
Delaware
New York
Louisiana
Wyoming
MississippiWest Virginia
Connecticut
IowaVermont
Washington
Montana
Kentucky
Oregon
New Mexico
South Carolina
Colorado Minnesota
Texas
Virginia
Maryland
Alabama
Florida
ArkansasOklahoma
North Carolina
TN
California
Hawaii
OhioMissouri
Utah
Nebraska
Arizona
SD
Maine
New Hampshire
KansasPA
NV
WisconsinIN
Rhode Island
36 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
Rwandan Provinces
37 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.
38 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
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The NeighborhoodEast Africa
Source: Google Maps
• Economic coordination among neighboring countries can significantly enhance competitiveness• Integration with neighbors offers greater opportunities than participation in broader economic forums
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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
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• 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
Macro-economic
Competitiveness
Macro-economic
Competitiveness
• Coordinating programs to improve publicsafety
• Coordinating macro-economicpolicies
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Roads
AirportsPorts
Logistic Corridor
Strategy for Cross-National RegionsCentral American Logistical Corridor
Mexico
Belize
Honduras
El SalvadorNicaragua
Costa Rica Panama
Guatemala
Country Boundary
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Regional Economic Strategy InitiativesSuccess Factors
• Common understanding of competitiveness
• Develop a regional value proposition = a strategy
• Emphasis microeconomic aspects of competitiveness, not just macro
• Focus on specific projects and initiatives
• Led by the private sector with the participation of all regional actors and representation from the national governments
• Institutionalized through formal enabling structures
• Measure and report progress
• Bottoms up, win-win projects, rather than grand political and macroeconomic declarations
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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
45 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt
Some ImplicationsWhat is Unique about Rwanda?
Toward A Rwandan Economic Strategy
• 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 freightablegoods and services exports to nullify its logistical disadvantages– eg, silk, flowers
• Rwanda in inextricably linked with its neighbors
• A new model of African development
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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
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