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1 Copyright © 2011 Professor Michael E. Porter20110707 – Malaysia VC – v3 07072011 – prepared by RA Stacie Rabinowitz
The Competitive Advantage of Nations, States and Regions
Professor Michael E. PorterHarvard Business School
National Council of ProfessorsKuala Lumpur, Malaysia
July 7, 2011This 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 (World Economic Forum), “Clusters and the NewCompetitive Agenda for Companies and Governments” in On Competition (Harvard Business School Press, 2008), and ongoing research on clusters andcompetitiveness. 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 theInstitute for Strategy and Competitiveness is available at www.isc.hbs.edu
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2 Copyright © 2011 Professor Michael E. Porter20110707 – Malaysia VC – v3 07072011 – prepared by RA Stacie Rabinowitz
PPP-adjusted GDP per Capita, 2010 ($USD)
Growth of Real GDP per Capita (PPP-adjusted), CAGR, 2000-2010Note: Luxembourg ExcludedSource: EIU (2011), authors calculations
Prosperity PerformanceOECD Countries
Australia
Belgium
Chile
Denmark
France
Greece
Iceland
Israel
Japan
Estonia
Netherlands
Portugal
Slovenia
Sweden
Turkey
United States
Austria Canada
Czech Republic
FinlandGermany
Hungary
Ireland
ItalySouth Korea
Mexico
New Zealand
Poland
Slovakia
Spain
Switzerland
UK
$0
$10,000
$20,000
$30,000
$40,000
$50,000
1% 2% 3% 4% 5% 6% 7% 8%
OECD Average: 3.68%
OECD Average: $30,592
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3 Copyright © 2011 Professor Michael E. Porter20110707 – Malaysia VC – v3 07072011 – prepared by RA Stacie Rabinowitz
PPP-adjusted GDP per Capita, 2010 ($USD)
Growth of Real GDP per Capita (PPP-adjusted), CAGR, 2000-2010
Source: EIU (2011), authors calculations
Prosperity PerformanceLower and Middle Income Countries
Sample Average: 5.67%
Sample Average: $6,720
CroatiaLithuaniaPanama
RussiaArgentina
LatviaTrinidad and Tobago
Malaysia Uruguay
LebanonMauritiusBotswana
Venezuela BulgariaRomaniaIran
Kazakhstan
SerbiaDominican RepublicBrazil
South AfricaCosta Rica
MacedoniaColombia Bosnia and Hercegovina
PeruTunisiaThailand
AlgeriaEcuador AlbaniaGuatemala Angola (11.05%)
China (12.47%)
Namibia UkraineEl Salvador
EgyptJordanJamaica Sri LankaSyria GeorgiaBolivia Morocco
Paraguay
IndonesiaHonduras MongoliaPhilippines IndiaVietnamNicaragua Moldova
Pakistan NigeriaKyrgyz Republic
Cameroon CambodiaMauritaniaSenegal
Benin KenyaChad
Ghana
Zambia BangladeshUganda TanzaniaBurkina Faso Mali
Nepal EthiopiaMadagascarRwandaMozambique MalawiZimbabwe (-2.89%)$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
$20,000
2% 3% 4% 5% 6% 7% 8% 9% 10%
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4 Copyright © 2011 Professor Michael E. Porter20110707 – Malaysia VC – v3 07072011 – prepared by RA Stacie RabinowitzSource: USPTO (2010), Groningen Growth and Development Centre, Total Economy Database (2010)
Average U.S. utility patents per 1 million population, 2007-2009
CAGR of US-registered patents, 1999 to 2009
Innovation OutputSelected Countries, 1999 to 2009
10,000 patents (avg. 1999 – 2009) =
United States
Japan
Germany
UKFrance
Canada
South KoreaSwitzerland
Italy
Sweden
Netherlands
Australia
Israel
Belgium Austria
Finland
Denmark
China (33.80%)
Spain
Norway
India
Singapore
Hong Kong
South Africa Hungary
New ZealandIreland
RussiaMexico Malaysia0
50
100
150
200
250
-5% 0% 5% 10% 15% 20%
Taiwan
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5 Copyright © 2011 Professor Michael E. Porter20110707 – Malaysia VC – v3 07072011 – prepared by RA Stacie Rabinowitz
What is Competitiveness?
• Only business can create wealth• 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 is 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)
– It is not what industries a nation competes in that matters for prosperity, but how it competes in those industries
– Productivity in a national economy arises from a combination of domestic and foreign firms
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6 Copyright © 2011 Professor Michael E. Porter20110707 – Malaysia VC – v3 07072011 – prepared by RA Stacie Rabinowitz
What Determines Competitiveness?
Endowments
• Endowments create a foundation for prosperity, but true prosperity is created by productivity in the use of endowments
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7 Copyright © 2011 Professor Michael E. Porter20110707 – Malaysia VC – v3 07072011 – prepared by RA Stacie Rabinowitz
Macroeconomic Competitiveness
MacroeconomicPolicies
Human Development and PoliticalInstitutions
What Determines Competitiveness?
Endowments
• Macroeconomic competitiveness sets the potential for high productivity, but is not sufficient• Endowments create a foundation for prosperity, but true prosperity is created by productivity in the use
of endowments
MacroeconomicPolicies
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8 Copyright © 2011 Professor Michael E. Porter20110707 – Malaysia VC – v3 07072011 – prepared by RA Stacie Rabinowitz
Macroeconomic Competitiveness
•
• Fiscal policy– Government surplus/deficit– Government debt
• Monetary policy– Inflation– Business cycle management– Savings
Macroeconomic Policies
•
• Human development– Basic education– Health
• Political institutions– Political freedom– Voice and accountability– Political stability– Government effectiveness– Decentralization of economic policymaking
• Rule of law– Security – Civil rights– Judicial independence– Efficiency of legal framework– Freedom from corruption
Social Infrastructure and Political Institutions
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9 Copyright © 2011 Professor Michael E. Porter20110707 – Malaysia VC – v3 07072011 – prepared by RA Stacie Rabinowitz
Corruption Perception Index, 2009
Note: Ranks only countries available in both years (161 countries total) Source:Global Corruption Report, 2010
Albania
BangladeshBelarus
Brazil
Cambodia
Canada
Chile
ChinaColombia
Costa Rica
CroatiaCuba
El Salvador
Finland
FYR MacedoniaGeorgia
Greece
Guatemala
Haiti
Honduras
Hong Kong
Hungary
Iceland
India
Iran
Iraq
Israel
Italy
Jamaica
Kuwait
Laos
Lebanon
Malaysia
Mexico
Mongolia
Myanmar
Netherlands New Zealand
Norway
Pakistan
Panama
Paraguay
Philippines
Poland
Portugal
Romania
Russia
Saudi Arabia
Serbia
Spain
Thailand
Turkmenistan
Ukraine
United Kingdom United States
Uzbekistan
Venezuela
VietnamAlgeria
Botswana
Burkina Faso
Cameroon
Chad
Côte d´Ivoire
DRC
Egypt
Equatorial Guinea
Ethiopia
Gambia
Ghana
Guinea
Madagascar
Malawi
Mali
Mauritania
Mauritius
Mozambique
Namibia
Niger
Nigeria
Senegal
South Africa
Sudan
Swaziland
Togo
Tunisia
Zambia
Zimbabwe
Burundi
Kenya
Rwanda
TanzaniaUganda
High corruption
Low corruption
Worsening ImprovingChange in Rank, Global Corruption Report, 2009 versus 2006
Rank in Global Corruption Index,
2009
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10 Copyright © 2011 Professor Michael E. Porter20110707 – Malaysia VC – v3 07072011 – prepared by RA Stacie Rabinowitz
Macroeconomic Competitiveness
Microeconomic Competitiveness
Sophisticationof Company
Operations andStrategy
Quality of the NationalBusiness
Environment
MacroeconomicPolicies
Human Development and PoliticalInstitutions
State of Cluster Development
What Determines Competitiveness?
Endowments
• Productivity ultimately depends on improving the microeconomic capability of the economy and the sophistication of local competition
• Macroeconomic competitiveness sets the potential for high productivity, but is not sufficient• Endowments create a foundation for prosperity, but true prosperity is created by productivity in the use
of endowments
MacroeconomicPolicies
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11 Copyright © 2011 Professor Michael E. Porter20110707 – Malaysia VC – v3 07072011 – prepared by RA Stacie Rabinowitz
Macroeconomic Competitiveness
Microeconomic Competitiveness
Sophisticationof Company
Operations andStrategy
Quality of the NationalBusiness
Environment
SocialInfrastructure and PoliticalInstitutions
MacroeconomicPolicies
State of Cluster Development
What Determines Competitiveness?
Endowments
The external business environment conditions
that enable company productivity and
innovation
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12 Copyright © 2011 Professor Michael E. Porter20110707 – Malaysia VC – v3 07072011 – prepared by RA Stacie Rabinowitz
Quality of the National Business EnvironmentContext for
Firm Strategy
and Rivalry
Related and Supporting Industries
Factor(Input)
ConditionsDemand
Conditions
• Sophisticated and demanding local customers and needs
– e.g., Strict quality, safety, and environmental standards
– Consumer protection laws
• Many things matter for competitiveness• Successful economic development is a process of successive upgrading, in which the
business environment improves to enable increasingly sophisticated ways of competing
• Local rules and incentives that encourage investment and productivity
– e.g. salaries, incentives for capital investments, intellectual property protection, corporate governance standards
• Open and vigorous local competition– Openness to foreign competition– Competition laws• Access to high quality business
inputs– Human resources– Capital availability– Physical infrastructure– Administrative and information
infrastructure (e.g., registration, permitting, transparency)
– Scientific and technological infrastructure
– Efficient access to natural endowments• Availability of suppliers and supporting
industries
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13 Copyright © 2011 Professor Michael E. Porter20110707 – Malaysia VC – v3 07072011 – prepared by RA Stacie Rabinowitz
Macroeconomic Competitiveness
Microeconomic Competitiveness
Sophisticationof Company
Operations andStrategy
Quality of the NationalBusiness
Environment
MacroeconomicPolicies
SocialInfrastructure and PoliticalInstitutions
State of Cluster Development
What Determines Competitiveness?
Endowments
A critical mass of firms and institutions in each
field to harness efficiencies and externalities across
related entities
SocialInfrastructure and PoliticalInstitutions
MacroeconomicPolicies
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14 Copyright © 2011 Professor Michael E. Porter20110707 – Malaysia VC – v3 07072011 – prepared by RA Stacie RabinowitzSources: HBS student team research (2003) - Peter Tynan, Chai McConnell, Alexandra West, Jean Hayden
Hotels
Attractions andActivities
e.g., theme parks, casinos, sports
Airlines, Cruise Ships
Travel agents Tour operators
Restaurants
PropertyServices
MaintenanceServices
Government agenciese.g. Australian Tourism Commission,
Great Barrier Reef Authority
Educational Institutionse.g. James Cook University,
Cairns College of TAFE
Industry Groupse.g. Queensland Tourism
Industry Council
FoodSuppliers
Public Relations & Market Research
Services
Local retail, health care, andother services
Souvenirs, Duty Free
Banks,Foreign
Exchange
Local Transportation
State of Cluster DevelopmentTourism Cluster in Cairns, Australia
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15 Copyright © 2011 Professor Michael E. Porter20110707 – Malaysia VC – v3 07072011 – prepared by RA Stacie Rabinowitz
Kenya’s Cut Flower Cluster
Sources: MOC student team research by Kusi Hornberger, Nick Ndiritu, Lalo Ponce-Brito, Melesse Tashu, Tijan Watt, Harvard Business School, 2007
Government Agencies, NGOs & Industry Associations
Education, Research & Quality Standards Organizations
FlowerFarming
Post-HarvestHandling;
Transport toMarket
FreightForwarders
Clearing andForwarding
Agents
Air Carriers(Commercial /
Charters)
PlantstockTrade & Industry Associations
Kenya Flower Council (KFC)Fresh Produce Exporters Association of Kenya (FPEAK)
Regional Growers Associations e.g., North & South Kinangop; Lake Naivasha, etcGreenhouse;Shading
Structures
Pre-CoolingTechnology
Irrigationtechnology
Grading /Packaging Sheds
Post-HarvestCooling
Technology
AgriculturalCluster
HorticulturalCluster
(Fruits & Vegetables)
Public universities with post graduate degrees inhorticulture:
University of Nairobi; Jomo Kenyatta University of Agriculture & Technology
Horticultural Crops Development Authority (HCDA)Government Export Policies targeting Horticulture
Government Policy for Revitalizing Agriculture; National Export Strategy; ExportPromotion Council (EPC)
Fertilizers,pesticides,herbicides
Research Institutions:Kenya Agricultural Research Institute (KARI)
International Center for Insect Physiology and Ecology (ICIPE)
RefrigeratedTrucks
Quality & Standards:EUREGAP Standard (UK & Dutch Supermarkets)
Kenya Plant Health Inspectorate Services (KEPHIS)
Non-Governmental OrganizationsThe Rural Enterprise Agri-Business Promotion Project (USAID, CARE, IFAD)
Horticultural Produce Handling Facilities Project (JBIC)
Packaging &LabelingMaterials
TourismCluster
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16 Copyright © 2011 Professor Michael E. Porter20110707 – Malaysia VC – v3 07072011 – prepared by RA Stacie Rabinowitz
Development of the 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
1950s
Import of European winery technology
1960s
Recruiting of experienced foreign investors, e.g. Wolf Bass
1990s
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 1998
New collective 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
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17 Copyright © 2011 Professor Michael E. Porter20110707 – Malaysia VC – v3 07072011 – prepared by RA Stacie Rabinowitz
National Cluster Export PortfolioMalaysia, 1999-2009
Change in Malaysia’s world export market share, 1999 – 2009
Mal
aysi
a’s
wor
ld e
xpor
t mar
ket s
hare
, 200
9
Exports of US$2.3 Billion = 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 and the IMF BOP statistics.
Change In Malaysia’s average world export share: - 0.16%
Malaysia’s average world export share: 1.34%
Rising Exports
Declining Exports
Change (99-09)
Information Technology (6.24%)
Oil and Gas
Products
Hospitality and Tourism (1.22%)
Agricultural Products
Entertainment and Reproduction Equipment
Plastics
Metal Mining and Manufacturing
Communications Equipment
Chemical ProductsTransportation and Logistics
Business Services
Analytical Instruments Processed Food
Apparel
Building Fixtures and Equipment
LightingAnd
Electrical
Production Technology
Furniture
Motor Driven Products
Jewelry, Precious Metals and Collectibles
Communications Services
Construction Materials (1.12%)
Textiles
Automotive
Forest Products
Medical Devices
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
-1.2% -1.0% -0.8% -0.6% -0.4% -0.2% 0.0% 0.2% 0.4%
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18 Copyright © 2011 Professor Michael E. Porter20110707 – Malaysia VC – v3 07072011 – prepared by RA Stacie Rabinowitz
Aerospace Vehicles &
Defense
FurnitureBuilding Fixtures,
Equipment & Services
Fishing & Fishing Products
Hospitality & TourismAgricultural
Products
Transportation & Logistics
Cluster Linkages and Economic Diversification
Plastics
Oil & Gas
Chemical Products
Biopharma-ceuticals
Power Generation
Lightning & ElectricalEquipment
Financial Services
Publishing & Printing
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
Mining & Metal Manufacturing
Apparel
Leather & Related Products
Jewelry & Precious Metals
Textiles
Footwear
Processed Food
Tobacco
Enter-tainment
Information Tech.
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.
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19 Copyright © 2011 Professor Michael E. Porter20110707 – Malaysia VC – v3 07072011 – prepared by RA Stacie Rabinowitz
FurnitureBuilding Fixtures,
Equipment & Services
Fishing & Fishing Products Hospitality
& TourismAgricultural
ProductsTransportation
& Logistics
Share of World Exports by ClusterMalaysia, 2009
Plastics
Oil & Gas
Chemical Products
Biopharma-ceuticals
Power Generation
Aerospace Vehicles &
Defense
Lightning & ElectricalEquipment
Financial Services
Publishing & Printing
Information Tech.
Communi-cations
Equipment
Business Services
DistributionServices
Forest Products
Heavy Construction
Services
ConstructionMaterials
Prefabricated Enclosures
Apparel
Leather & Related Products
Jewelry & Precious Metals
Textiles
Footwear
Processed Food
Tobacco
Medical Devices
Analytical InstrumentsEducation &
Knowledge Creation
Marine Equipment
Aerospace Engines
Heavy Machinery
Sporting & Recreation
Goods
Automotive
Production Technology
Motor Driven Products
Mining & Metal Manufacturing
Enter-tainment
LQ > 4
LQ > 2
LQ > 1.
LQ, or Location Quotient, measures the country’s share in cluster exports relative to its overall share of world exports.An LQ > 1 indicates an above average export share in a cluster.
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20 Copyright © 2011 Professor Michael E. Porter20110707 – Malaysia VC – v3 07072011 – prepared by RA Stacie Rabinowitz
Geographic Influences on Competitiveness
Neighboring Countries
Regions and Cities
Nation
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21 Copyright © 2011 Professor Michael E. Porter20110707 – Malaysia VC – v3 07072011 – prepared by RA Stacie Rabinowitz
Prosperity PerformanceU.S. States, 1999 to 2009
Gross Domestic Product per Capita Real Growth Rate, 1999 to 2009
$30,000
$35,000
$40,000
$45,000
$50,000
$55,000
$60,000
$65,000
$70,000
-1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0%
U.S. GDP per Capita: $46,093
High and rising prosperity versus U.S.
Notes: Real GDP figures in 2005 chained US dollars from the Bureau of Economic Analysis. Growth rate is calculated as compound annual growth rate. D.C. excluded
U.S. GDP per CapitaReal Growth Rate: 0.86%
Gross Domestic Product per Capita Real Growth Rate, 1999 to 2009
Gro
ss D
omes
tic P
rodu
ct p
er C
apita
, 200
9
High but declining versus U.S.
Low and declining versus U.S. Low but rising versus U.S.
Illinois
Wyoming
North Dakota
South Dakota
Delaware
AlaskaConnecticut
Wisconsin
Nevada
Arizona
New York
New JerseyMassachusetts
California
West Virginia
Mississippi
VermontOklahoma
IowaNebraska
North Carolina
Georgia Florida
Michigan
IdahoSouth Carolina
Texas
Oregon
Rhode Island
Louisiana
PennsylvaniaKansas
New Hampshire
Arkansas
Maine
ColoradoWashington
Virginia
Minnesota
HawaiiMaryland
Alabama Montana
KentuckyNew Mexico
MissouriOhio
IndianaUtah
Tennessee
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22 Copyright © 2011 Professor Michael E. Porter20110707 – Malaysia VC – v3 07072011 – prepared by RA Stacie Rabinowitz
Regions and Competitiveness
• Economic performance varies significantly across sub-national regions (e.g., provinces, states, metropolitan areas)
• Many essential levers of competitiveness reside at the regional level
• Regions specialize in different sets of clusters
• Cluster strength directly impacts regional performance
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23 Copyright © 2011 Professor Michael E. Porter20110707 – Malaysia VC – v3 07072011 – prepared by RA Stacie Rabinowitz
Specialization of Regional EconomiesLeading Clusters by U.S. Economic Area, 2008
Boston, MA-NHAnalytical Instruments Education and Knowledge CreationMedical DevicesFinancial Services
Los Angeles, CAEntertainmentApparelDistribution ServicesHospitality and Tourism
San Jose-San Francisco, CABusiness ServicesInformation TechnologyAgricultural ProductsCommunications EquipmentBiopharmaceuticals
New York, NY-NJ-CT-PAFinancial ServicesBiopharmaceuticalsJewelry and Precious MetalsPublishing and Printing
Seattle, WAAerospace Vehicles and DefenseInformation TechnologyEntertainmentFishing and Fishing Products
San Diego, CAMedical DevicesAnalytical InstrumentsHospitality and TourismEducation and Knowledge Creation
Chicago, IL-IN-WIMetal ManufacturingLighting and Electrical EquipmentProduction TechnologyPlastics
Denver, COBusiness ServicesMedical DevicesEntertainmentOil and Gas Products and Services
Raleigh-Durham, NCEducation and Knowledge CreationBiopharmaceuticalsCommunications EquipmentTextiles
Atlanta, GATransportation and LogisticsTextilesMotor Driven ProductsConstruction Materials
DallasAerospace Vehicles and DefenseOil and Gas Products and ServicesInformation TechnologyTransportation and Logistics
Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director.
Houston, TXOil and Gas Products and ServicesChemical ProductsHeavy Construction ServicesTransportation and Logistics
Pittsburgh, PAEducation and Knowledge CreationMetal ManufacturingChemical ProductsPower Generation and Transmission
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24 Copyright © 2011 Professor Michael E. Porter20110707 – Malaysia VC – v3 07072011 – prepared by RA Stacie Rabinowitz
The Evolution of Regional EconomiesSan Diego
U.S. Military
Communications
Equipment
Sporting Goods
Analytical Instruments
Power Generation
Aerospace Vehicles
and Defense
Transportation
and Logistics
Information Technology
1910 1930 1950 19901970
Bioscience Bioscience Research Centers
Geography
Climate and
Geography
Hospitality and Tourism
Medical Devices
Biotech / Pharmaceuticals
Education and
Knowledge Creation
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25 Copyright © 2011 Professor Michael E. Porter20110707 – Malaysia VC – v3 07072011 – prepared by RA Stacie Rabinowitz
Regions and Competitiveness
• Economic performance varies significantly across sub-national regions (e.g., provinces, states, metropolitan areas)
• Many essential levers of competitiveness reside at the regional level
• Regions specialize in different sets of clusters
• Cluster strength directly impacts regional performance
• Each region needs its own distinctive competitiveness strategy and action agenda
• Improving competitiveness requires effective policy collaborationbetween regions and the national government
• Decentralization is important to foster regional specialization, internal competition, and greater government accountability
• Effective decentralization requires clarity on roles and responsibilities, and sufficient administrative capacity at local and regional level
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26 Copyright © 2011 Professor Michael E. Porter20110707 – Malaysia VC – v3 07072011 – prepared by RA Stacie Rabinowitz
Competitiveness and Integration with Neighboring CountriesTurkey’s Neighborhood
• Turkey sits at the crossroad between Europe and the Middle East• Economic coordination among neighboring countries can significantly enhance competitiveness• Integration offers greater opportunities than participation in broader economic forums (e.g., EU)
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27 Copyright © 2011 Professor Michael E. Porter20110707 – Malaysia VC – v3 07072011 – prepared by RA Stacie Rabinowitz
Competitiveness and the Neighborhood
• Opening trade and investment among neighbors
– Expands the available market– A nation’s neighbors are its most natural trading and investment partners
– The natural path of internationalization for local firms is the neighborhood
– Open trade and investment make each country a more attractive location for investment
• Economic coordination to drive improvements in the business environment– Capture synergies in policy and infrastructure
– Gain greater clout in international negotiations
• External agreements to help overcome domestic political and economic barriers to reform
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28 Copyright © 2011 Professor Michael E. Porter20110707 – Malaysia VC – v3 07072011 – prepared by RA Stacie Rabinowitz
Roads
AirportsPorts
Logistic Corridor
Competitiveness and Integration with Neighboring CountriesCentral American Logistical Corridor
Mexico
Belize
Honduras
El SalvadorNicaragua
Costa Rica Panama
Guatemala
Country Boundary
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29 Copyright © 2011 Professor Michael E. Porter20110707 – Malaysia VC – v3 07072011 – prepared by RA Stacie Rabinowitz
The Shifting Process of Economic Development
Old Model
• Government drives economic development through policy decisions
New Model
• Economic development is a collaborative process involving government at multiple levels, companies, teaching and research institutions, and private sector organizations
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30 Copyright © 2011 Professor Michael E. Porter20110707 – Malaysia VC – v3 07072011 – prepared by RA Stacie Rabinowitz
National Value Proposition
Creating a National Economic Strategy
• What is the distinctive competitive position of a nation given its location, legacy, existing strengths, and potential strengths?
– What unique value as a business location?– For what types of activities and clusters?– And what roles with neighbors, the region, and the broader
world?
Developing Unique Strengths Achieving and Maintaining Parity with Peers
• What elements of the business environment can be unique strengths relative to peers/neighbors?
• What existing and emerging clustersrepresent local strengths?
• What weaknesses must be addressed to remove key constraints and achieve parity with peer countries?
• Priorities and sequencing are necessity in economic development
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31 Copyright © 2011 Professor Michael E. Porter20110707 – Malaysia VC – v3 07072011 – prepared by RA Stacie Rabinowitz
Universities’ Role in Competitiveness
• Educate future managers, researchers, and employees
• Transfer of technology and knowledge• Adapt global knowledge to local
circumstances• Act as a launching pad for new
companies and clusters• Create networks of alumni and other
partners to enable collaboration• Collect and provide data on all aspects
of the economy• Create new knowledge• Raise visibility and provide profile to the
region and its economy
• Generate specific data and analysis on competitiveness
• Educate public and private leaders about competitiveness
• Provide a platform for public-private action
• Initiate and lead competitiveness efforts
Competitiveness Efforts
Business EnvironmentQuality
• Competition in the global economy is increasingly knowledge-driven, putting universities at the very heart of the competitiveness agenda
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32 Copyright © 2011 Professor Michael E. Porter20110707 – Malaysia VC – v3 07072011 – prepared by RA Stacie Rabinowitz
Universities and Cluster Development
• Universities should identify and reach out to local clusters
• Universities should focus on clusters where they have a material impact on cluster performance
• Universities should consider specializing in areas in which the local economy has an established position
• Universities should, alone or with others, get involved in upgrading the cluster-specific cluster environment
– Conduct joint R&D programs with companies– Develop training programs with the cluster– Participate in the attraction of companies and research centers
important for the development of the cluster
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