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Professor Michael E. Porter Harvard Business School Advanced Management Program April 15, 2009
This presentation draws on ideas from Professor Porters 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 (World Economic Forum), Clusters and the New Competitive Agenda for Companies and Governments in On Competition (Harvard Business School Press, 2008), 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 Porters work and the Institute for Strategy and Competitiveness is available at www.isc.hbs.edu Version: April 15, 12pm
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Internal
External
Competitive advantage resides inside the company Competitive success depends on company choices
Competitive advantage resides in the locations in which the company is based Cluster participation is an important contributor to competitiveness
Prosperity Performance
Selected Countries
PPP-adjusted GDP per Capita, 2007 ($USD)
Australia Taiwan
Italy
Sweden UK Finland Japan Germany France Spain Israel New Zealand UAE
Slovenia Czech Republic Slovakia Hungary Estonia Lithuania Russia Latvia (12.6%)
Bahrain
Saudi Arabia
Oman
Libya
Croatia
Mexico Lebanon
Iran South Africa Thailand Egypt Syria Jordan Pakistan Philippines China (13.0%) Laos India Vietnam Cambodia
Yemen
$0 2% 4% 6% 8% 10% 12%
Growth of Real GDP per Capita (PPP-adjusted), CAGR, 2000 to 2007
Note: highlighted countries are part of the East African Community (EAC). Source: EIU (2009), authors calculations
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What is Competitiveness?
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 how productively 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
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
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Innovative Capacity
Innovation Output of Top 25 Patent Producing Countries
Average U.S. patents per 1 million population, 2003-2007
350
300
250
Taiwan
200
Switzerland Swede n Germany Israel Finland
150
100
Denmark Austria France Italy
Canada Singapore UK Belgium Spain Netherlands Norway Ireland Russia Hong Kong
Korea
50
0 -10%
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Brazil
-5%
0%
6
5%
10%
15%
10,000 patents =
Copyright 2009 Professor Michael E. Porter
Determinants of Competitiveness
Microeconomic Competitiveness
Quality of the National Business Environment State of Cluster Development Sophistication of Company Operations and Strategy
Macroeconomic Competitiveness
Social Infrastructure and Political Institutions Macroeconomic Policies
Natural Endowments
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
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Demand Conditions
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
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Travel agents
Tour operators
Maintenance Services
Government agencies
e.g. Australian Tourism Commission, Great Barrier Reef Authority
Educational Institutions
e.g. James Cook University, Cairns College of TAFE
Industry Groups
e.g. Queensland Tourism Industry Council
Sources: HBS student team research (2003) - Peter Tynan, Chai McConnell, Alexandra West, Jean Hayden
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Medical Equipment
Biological Products
Biopharmaceutical Products
Diagnostic Substances
Research Organizations
Containers
Analytical Instruments
Educational Institutions
Harvard University, MIT, Tufts University, Boston University, UMass
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Copyright 2009 Professor Michael E. Porter
United States Design and marketing Focus on specific market segments like sport and recreational shoes and boots Manufacturing only in selected lines such as hand-sewn casual shoes and boots
Italy Design, marketing, and production of premium shoes Export widely to the world market
Brazil Low to medium quality finished shoes, inputs, leather tanning Shift toward higher quality products in response to Chinese price competition
Vietnam/Indonesia OEM Production Focus on the low cost segment mainly for the European market
Source: Research by HBS student teams in 2002 Van Thi Huynh, Evan Lee, Kevin Newman, Nils Ole Oermann
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11
15%
Plastics Chemical Products
Publishing and Printing Biopharmaceuticals Analytical Instruments Tobacco (8.55%) Aerospace Vehicles and Defense
Forest Products Power and Power Generation Equipment Germanys Average World Export Share: +9.22% Sporting, Recreational and Children's Goods
Construction Materials
10%
Business Services Commercial Services Aerospace Engines Furniture Transportation and Logistics Marine Equipment Information Technology
5%
Apparel Entertainment Financial Services Leather and Related Products Hospitality and Tourism Agricultural Products Oil and Gas Coal
0% -3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
Exports of US$44 Billion =
5.0%
Footwear
2.0%
Furniture
Building Fixtures and Equipment (-3.75%)
1.5%
1.0%
Indonesias Average World Export Share: +0.82%
Entertainment Motor Driven Products Construction Materials Chemical Products Publishing and Printing Sporting Goods Leather and Related Products Transportation and Logistics Communication Services Lighting and Electrical Equipment Marine Processed Food Equipment Power and Power Generation Equipment Heavy Machinery Production Technology Automotive Aerospace Engines
0.5%
Prefabricated Enclosures and Structures Jewelry, Precious Metals and Collectibles Business Services Information Technology Medical Devices Biopharmaceuticals
0.0% -2.0%
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
Exports of US$4.2 Billion =
2.0%
University Initiatives
Massachusetts Biotechnology Council Massachusetts Medical Device Industry Council Massachusetts Hospital Association
Harvard Biomedical Community MIT Enterprise Forum Biotech Club at Harvard Medical School Technology Transfer offices
Informal networks
Associated Industries of Massachusetts Greater Boston Chamber of Commerce High Tech Council of Massachusetts
Massachusetts Technology Collaborative Mass Biomedical Initiatives Mass Development Massachusetts Alliance for Economic Development
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New England Healthcare Institute Whitehead Institute For Biomedical Research Center for Integration of Medicine and Innovative Technology (CIMIT)
Copyright 2009 Professor Michael E. Porter
U.S. States
Delaware
$55,000
Connecticut
$50,000
New York
Massachusetts
$45,000
Alaska New Jersey
$40,000
$35,000
$30,000
California Virginia Colorado Minnesota Wyoming Washington Maryland Hawaii U.S. GDP per Capita: $38,020 Texas Oregon New Hampshire Nebraska Rhode Island South Dakota North Carolina Kansas Iowa Georgia Pennsylvania Wisconsin Louisiana North Dakota Ohio Tennessee Vermont Arizona Florida Michigan Utah Indiana Missouri New Mexico Kentucky Maine Idaho Alabama Oklahoma South Carolina Montana Arkansas Nevada Illinois Mississippi West Virginia
$25,000
$20,000
0.0% 0.5% 1.0% 1.5%
2.0%
2.5%
3.0%
3.5%
Seattle-BellevueEverett, WA Aerospace Vehicles and Defense Fishing and Fishing Products Analytical Instruments
San FranciscoOakland-San Jose Bay Area Communications Equipment Agricultural Products Information Technology
Los Angeles Area Apparel Building Fixtures, Equipment and Services Entertainment
San Diego Leather and Sporting Goods Power Generation Education and Knowledge Creation
Houston Oil and Gas Products and Services Chemical Products Heavy Construction Services
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.
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30%
25%
20%
Europe United States
15%
10%
5%
0% Median Region
Source: European Cluster Observatory
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$2,700,000 $2,400,000 $2,100,000 8.0% $1,800,000 $1,500,000 $1,200,000 $900,000 $600,000 2.0% $300,000 $0 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 0.0% 4.0% 6.0% Value Market Share 10.0%
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.
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Source: Michael E. Porter and rjan Slvell, The Australian Wine Cluster Supplement, Harvard Business School Case Study, 2002
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U.S. Military
Biotech / Pharmaceuticals
1910
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1930
1950
20
1970
1990
Copyright 2009 Professor Michael E. Porter
Furniture Building Fixtures, Equipment & Services Lightning & Electrical Equipment Power Generation Heavy Construction Services Forest Products Construction Materials Processed Food
Aerospace Vehicles & Information Defense Tech. Analytical Instruments Medical Devices
Business Services Financial Services Publishing & Printing Education & Knowledge Creation
Communications Equipment
Plastics
Aerospace Engines
Footwear
Note: Clusters with overlapping borders or identical shading have at least 20% overlap (by number of industries) in both directions.
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The Neighborhood
Nation
States, Provinces
Metropolitan Areas
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The Neighborhood
Southeast Asia
Economic coordination among neighboring countries can significantly enhance competitiveness Integration offers greater opportunities than participation in broader economic forums (e.g., APEC)
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Old Model
New Model
Economic development is a collaborative process involving government at multiple levels, companies, teaching and research institutions, and private sector organizations
Competitiveness must become a bottoms-up process in which many individuals, companies, and institutions take responsibilities Every community and cluster can take steps to enhance competitiveness The rapid sector must become more engaged in competitiveness to improve rapidly
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Take an active role in upgrading 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 clusters needs Inform government on regulatory issues and constraints bearing on cluster development Focus corporate philanthropy on enhancing the local business environment Leverage trade associations for competitiveness
Greater influence if many companies are united Cost sharing between members
Businesses must drive the process of competitiveness improvement at the national and regional level
25
Copyright 2009 Professor Michael E. Porter
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Innovation
Science, technology, R&D
Entrepreneurship Free and open competition Capital markets (current uncertainty) Economic decentralization
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