creating a competitive rwanda files/20070627_rwanda_5d0cc… · 2007-06-27 · botswana namibia...
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1 Copyright 2007 © Professor Michael E. PorterKenya CAON 2007 June-07.ppt
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.edu
Creating a Competitive Rwanda
Professor Michael E. PorterHarvard Business School
Kigali, RwandaJune 2007
2 Copyright 2007 © Professor Michael E. PorterKenya CAON 2007 June-07.ppt
The Changing Nature of International Competition
• Fewer barriers to trade and investment• Rapidly increasing stock and diffusion of knowledge• Competitiveness upgrading in many countries
• Globalization of markets• Globalization of capital investment• Globalization of value chains• Increasing knowledge and skill intensity of competition• Value migrating to the service component of the value chain
Drivers
Market reaction
• Improving competitiveness is increasingly essential to Rwanda’s prosperity
3 Copyright 2007 © Professor Michael E. PorterKenya CAON 2007 June-07.ppt
$0
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$10,000
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$14,000
$16,000
-4% -3% -2% -1% 0% 1% 2% 3% 4% 5% 6%
Prosperity Performance Selected Countries
Real PPP-adjusted GDP per Capita, 2006
Growth of Real GDP per Capita (PPP-adjusted), CAGR, 1998-2006Source: EIU (2007)
Botswana
South Africa
Gabon Namibia
Cape VerdeSwaziland
Mauritius
Chad
Angola (6.2%)
TanzaniaNigeria
Zimbabwe (-6.3%) Cote D’Ivoire
Eritrea TogoMalawi
LesothoGuinea
BurundiMadagascarKenya Rwanda
Cameroon
Ghana
Uganda, Zambia EthiopiaMozambique
4 Copyright 2007 © Professor Michael E. PorterKenya CAON 2007 June-07.ppt
Comparative Economic Performance Real GDP Growth Rates
-15%
-10%
-5%
0%
5%
10%
15%
20%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
ANGOLAMOZAMBIQUETANZANIANIGERIAETHIOPIAUGANDABURKINA FASOGHANACAPE VERDEMALAWIBOTSWANANAMIBIARWANDACONGO (BRAZZAVILLE)ZAMBIASOUTH AFRICASENEGALSAO TOME AND PRINCIPEKENYABENINTHE GAMBIACAMEROONMAURITIUSGUINEABURUNDILESOTHOTOGOSWAZILANDMADAGASCARERITREAGABONCOTE D'IVOIREZIMBABWE
Source: EIU (2007)
Countries sorted by 2001- 2006 annual real GDP growth rate (CAGR)Annual growth rate
of real GDP
5 Copyright 2007 © Professor Michael E. PorterKenya CAON 2007 June-07.ppt
Income Inequality Selected Countries
Gini Index
0
10
20
30
40
50
60
70
Haiti
Brazil
South
Africa
Chile
Argenti
naMex
icoMad
agas
car
China
Cote d'
Ivoire
Camero
onNige
riaUga
nda
Zambia
Burkina
Faso
Ghana
Maurita
niaBen
inTan
zania
Indon
esia
Ethiop
iaRwan
da
Note: Most recent Gini index data available for each country (1999 – 2003). Rwanda’s data is from 2000. Source: World Bank, World Development Indicators, 2007.
6 Copyright 2007 © Professor Michael E. PorterKenya CAON 2007 June-07.ppt
The Rwandan Economy in 2007
• Economic growth rates have rebounded strongly since 2003• Many areas of the Rwandan business environment have improved
(e.g., communications and IT, education) • Established clusters (coffee, tea, tourism) have performed well
However
• The global economic environment has been favorable• Rwanda’s growth rates are still moderate relative to peers• Numerous areas of the business environment need further
improvement• Strengthening the private sector and increasing public-private
collaboration is essential to achieving the next level of progress
• Rwanda must dramatically improve its competitiveness
720070511 AMP – Final 20070508 Copyright © 2007 Professor Michael E. Porter
• Competitiveness is determined by the productivity (value per unit of input) with which a nation uses its human, capital, and natural resources.
What is Competitiveness?
– Productivity depends on the prices that a nation’s products and services command (e.g. uniqueness, quality), not just on efficiency
– It is not what industries a nation competes in that matters for prosperity, but how it competes in those industries
– Productivity requires a combination of domestic and foreign firms operating in the nation
– The productivity of “local” or domestic industries is fundamental to competitiveness, not just that of traded industries
– Devaluation does not make a country more competitive
• Only business can create wealth
• Nations compete in offering the most productive environment for business
• The public and private sectors play different but interrelated roles in creating a productive economy
– Productivity sets a the standard of living (wages, returns on capital, returns on natural resources) that a nation can sustain
8 Copyright 2007 © Professor Michael E. PorterKenya CAON 2007 June-07.ppt
Enablers and Indicators of Competitiveness
Productivity
Competitiveness Environment
ExportsInbound
Foreign Direct Investment
Outbound Foreign Direct
Investment
Domestic Innovation
Domestic Investment
9 Copyright 2007 © Professor Michael E. PorterKenya CAON 2007 June-07.ppt
Foreign Inward Investment Stocks and Flows Selected Countries
Source: UNCTAD (2007)
0%
10%
20%
30%
40%
50%
60%
70%
0% 5% 10% 15% 20% 25% 30% 35% 40%
FDI Stocks as % of GDP, Average 2002 - 2005
FDI Inflows as % of Gross Fixed Capital Formation, Average 2002 - 2005
Rwanda
Cameroon
Zimbabwe
Kenya
Madagascar
Ethiopia
Ghana
Zambia
Eritrea
Lesotho
SwazilandMozambique
Namibia
Uganda
South Africa
Tanzania
Botswana
Malawi
Mauritius
Nigeria
Angola (94%, 80%)
LibyaNiger
IndiaAlgeria
Congo
Sudan
Mali
Gambia
Morocco
Uganda
EgyptBrazil
Russia
Tunisia
Australia
Canada
ChinaSenegal
10 Copyright 2007 © Professor Michael E. PorterKenya CAON 2007 June-07.ppt
Inward Foreign Investment Flows Rwanda, 1990 – 2005
$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
$7.0
$8.0
$9.0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Note: Data not available for 1994. Source: UNCTAD (2007)
Inward Foreign Direct Investment,
$M
11 Copyright 2007 © Professor Michael E. PorterKenya CAON 2007 June-07.ppt
Investment Rates Selected Countries
0
5
10
15
20
25
30
35
40
45
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
ChinaSenegalGhanaIndiaZambiaNamibiaNigeriaMadagascarThe GambiaUgandaMozambiqueEthiopiaRwandaKenyaTanzaniaBotswanaSouth AfricaRussiaCameroonBrazilZimbabweBurundiMalawi
Gross Fixed Investment as % of GDP Sorted by 2006 Share
Source: EIU, 2007.
12 Copyright 2007 © Professor Michael E. PorterKenya CAON 2007 June-07.ppt
Determinants of Competitiveness
Microeconomic CompetitivenessMicroeconomic Competitiveness
Quality of the Quality of the BusinessBusiness
EnvironmentEnvironment
SophisticationSophisticationof Companyof Company
Operations andOperations andStrategyStrategy
Macroeconomic, Political, Legal, and Social ContextMacroeconomic, Political, Legal, and Social ContextMacroeconomic, Political, Legal, and Social Context
• A sound context creates the potential for competitiveness, but is not sufficient• Competitiveness ultimately depends on improving the microeconomic capability
of the economy and the sophistication of local competition
State of Cluster State of Cluster DevelopmentDevelopment
13 Copyright 2007 © Professor Michael E. PorterKenya CAON 2007 June-07.ppt
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
MauritiusBotswanaSouth AfricaNamibiaUgandaMadagascarBrazilKenyaSenegalGhanaZambiaMozambique TanzaniaIndiaMalawiEthiopiaCameroonLesothoChinaRussiaMaliNigerMauritaniaEgyptNigeriaAlgeriaRwandaChadZimbabweLibya
Free
Index of Economic Freedom 1996 - 2007
Source: Index of Economic Freedom (2007), author’s analysis.
14 Copyright 2007 © Professor Michael E. PorterKenya CAON 2007 June-07.ppt
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
Conditions Demand
Conditions
Improving the Business Environment: The Diamond
• Successful economic development is a process of successive upgrading, in which the business environment improves to enable increasingly sophisticated ways of competing
Local demand with improving sophisticationLocal customer needs that anticipate those elsewhereUnusual local demand in specialized segments that can be served nationally and globally
Presence of high quality, specialized inputs available to firms
–Human resources–Capital resources–Physical infrastructure–Administrative infrastructure–Information infrastructure–Scientific and technological
infrastructure–Natural resource availability
Access to capable, locally based suppliersand firms in related fields
A local context and rules that encourage investment and productivity
–e.g., Intellectual property protection
Meritocratic incentive systems in businesses and other institutionsOpen and vigorous local competition
–e.g., Anti-monopoly laws, openness to imports
15 Copyright 2007 © Professor Michael E. PorterKenya CAON 2007 June-07.ppt
0
20
40
60
80
100
120
140
160
180
DoingBusiness
Starting aBusiness
EnforcingContracts
PayingTaxes
EmployingWorkers
Dealingwith
Licenses
RegisteringProperty
Closing aBusiness
ObtainingCredit
ProtectingInvestors
TradingAcrossBorders
Ease of Doing Business Rwanda
Ranking, 2006 (of 175 countries)
Source: World Bank Doing Business (2007)
Favorable Unfavorable
Rwanda’s GNI per capita rank: 168
Median Ranking, Sub-Saharan Africa
16 Copyright 2007 © Professor Michael E. PorterKenya CAON 2007 June-07.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
Property Services Property Services
Maintenance Services
Maintenance Services
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
Food Suppliers
Food Suppliers
Public Relations & Market Research
Services
Public Relations & Market Research
Services
Enhancing Cluster Development Tourism Cluster in Cairns, Australia
Local retail, health care, and other services
Local retail, health care, and other services
Souvenirs, Duty Free
Souvenirs, Duty Free
Banks,Foreign
Exchange
Banks,Foreign
Exchange
Local Transportation
Local Transportation
17 Copyright 2007 © Professor Michael E. PorterKenya CAON 2007 June-07.ppt
$0
$50,000
$100,000
$150,000
$200,000
$250,00019
90
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
ValueMarket Share
The Kenyan Cut Flower Cluster Trade Performance
Kenyan Cut Flower Exports in thousand US $
Kenyan Cut Flower World Export Market Share
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.
18 Copyright 2007 © Professor Michael E. PorterKenya CAON 2007 June-07.ppt
Kenya’s Cut Flower Cluster
Sources: HBS student team research (2007) - Kusi Hornberger, Nick Ndiritu, Lalo Ponce-Brito, Melesse Tashu, Tijan Watt
19 Copyright 2007 © Professor Michael E. PorterKenya CAON 2007 June-07.ppt
National Cluster Export Portfolio Rwanda, 1997-2003
Change in Rwanda’s world export market share, 1997 – 2003Source: 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.
Rw
anda
’s w
orld
exp
ort m
arke
t sha
re, 2
003
0.000%
0.001%
0.002%
0.003%
0.004%
0.005%
0.006%
0.007%
0.008%
-0.004% -0.003% -0.002% -0.001% 0.000% 0.001% 0.002% 0.003% 0.004%
Change In Rwanda’s Overall World Export Share: 0.00%
Rwanda’s Average World Export Share: 0.0012%
Exports of US$10 Million =
Hospitality and Tourism
Automotive
Agricultural Products
Transportation and Logistics
Metal Mining and Manufacturing
Leather and Related Products
Processed FoodTextiles
Oil and Gas Products
2020070511 AMP – Final 20070508 Copyright © 2007 Professor Michael E. Porter
Achieving Superior Company Performance
Differentiation(Higher Price)
Lower Cost
CompetitiveAdvantage
CompetitiveAdvantage
2120070511 AMP – Final 20070508 Copyright © 2007 Professor Michael E. Porter
• Competing in a business involves performing a set of discrete activities, in which competitive advantage resides
Competitiveness and the Value Chain
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
2220070511 AMP – Final 20070508 Copyright © 2007 Professor Michael E. Porter
• Low cost fast food chicken tailored to the tastes and preferences of the Central American customer
• Low cost fast food chicken tailored to the tastes and preferences of the Central American customer
• Service with a “human touch,” including some table service
• Heavy and distinctive marketing and promotion – “An affordable treat for the whole family”– Frequent gimmicks and promotions, targeting
every member of the family – Strong civic pride and social awareness
• Emphasize high productivity in the labor force through incentives, education, and training
• Engineering department studies motion to improve restaurant efficiency
• Company-owned chicken farms to ensure high quality raw materials
• Service with a “human touch,” including some table service
• Heavy and distinctive marketing and promotion – “An affordable treat for the whole family”– Frequent gimmicks and promotions, targeting
every member of the family– Strong civic pride and social awareness
• Emphasize high productivity in the labor force through incentives, education, and training
• Engineering department studies motion to improve restaurant efficiency
• Company-owned chicken farms to ensure high quality raw materials
Strategic Positioning Pollo Campero, Guatemala
Value PropositionValue PropositionValue Proposition Set of Activities
Set of Set of ActivitiesActivities
• The low cost strategy expands the market• Pollo Campero competes effectively against U.S. fast food companies in
Central America through better understanding of local customer needs • Pollo Campero is penetrating the Latino segment in the U.S. West Coast
• The low cost strategy expands the market• Pollo Campero competes effectively against U.S. fast food companies in
Central America through better understanding of local customer needs• Pollo Campero is penetrating the Latino segment in the U.S. West Coast
Source: Condo, A. “Internationalization of Firms Based in Developing Countries.” Ph.D. dissertation, Harvard Business School, Boston, 2000.
23 Copyright 2007 © Professor Michael E. PorterKenya CAON 2007 June-07.ppt
Rwanda’s Role in the Neighborhood
24 Copyright 2007 © Professor Michael E. PorterKenya CAON 2007 June-07.ppt
• Coordinate macroecono- mic policies
• Eliminate trade and investment barriers within the region
• Simplify and harmonize cross-border regulations and paperwork
• Harmonize environmental standards
• Harmonize product safety standards
• Establish reciprocal consumer protection laws
• Coordinate antimonopoly and fair competition policies
• Improve regional transportation infrastructure
• Create an efficient energy network
• Interconnect regional communications
• Link financial markets
• Facilitate the movement of students to enhance higher education
• Harmonize regulatory requirements for business
• Coordinate programs to improve public safety
• Coordinate development of cross-border clusters, e.g.
– Tourism
– Agribusiness
– Transport & Logistics
– Business services
• Share best practices in government operations
• Create regional institutions
– Dispute resolution mechanisms
– Regional development bank
• Develop a regional marketing strategy
Factor (Input)
Conditions
Factor Factor (Input)(Input)
ConditionsConditionsRegional
GovernanceRegional
GovernanceContext 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
Regional Economic Coordination Illustrative Policy Areas
25 Copyright 2007 © Professor Michael E. PorterKenya CAON 2007 June-07.ppt
The Process of Economic Development Shifting 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, the private sector, universities, research institutions, and business associations
• Economic development is a collaborative process involving government at multiple levels, the private sector, universities, research institutions, and business associations
• Competitiveness must become a bottom-up process in which many individuals, companies, clusters, and institutions take responsibility
26 Copyright 2007 © Professor Michael E. PorterKenya CAON 2007 June-07.ppt
Clusters and Economic Policy
ClustersClusters
Specialized Physical Infrastructure
Natural Resource Protection
Environmental Stewardship
Science and Technology Investments (e.g., centers, university departments, technology transfer)
Education and Workforce TrainingBusiness Attraction
Export Promotion
• Clusters provide a framework for organizing the implementation of public policy and public investments towards economic development
Standard settingMarket Information and Disclosure
27 Copyright 2007 © Professor Michael E. PorterKenya CAON 2007 June-07.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 address 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– Collaboration, cost sharing, and increasing influence
28 Copyright 2007 © Professor Michael E. PorterKenya CAON 2007 June-07.ppt
Rwanda’s Competitiveness Agenda
Business EnvironmentBusiness Environment
• Land use• Physical infrastructure
– Roads– Airport– Economic zones
• Energy– Renewable
• Urbanization outside of Kigali• Skills development• Capacity-building across institutions• 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– Niche mining
• Emerging clusters– Construction and real estate,
logistics, silk, ICT services, horticulture
Private SectorPrivate Sector
• Engage the private sector in economic development
• Support cooperative private investment vehicles to jumpstart the private equity market
NeighborhoodNeighborhood
• Initiate actionable economic integration initiatives with each neighboring country
• Kenya represents an important potential strategic partner
29 Copyright 2007 © Professor Michael E. PorterKenya CAON 2007 June-07.ppt
Value PropositionValue Proposition
Defining a National Economic Strategy
Developing Unique StrengthsDeveloping Unique Strengths Achieving and Maintaining Parity with Peers
Achieving and Maintaining Parity with Peers
• What elements of context and the business environment become crucial priorities?
• What existing and emerging clusters should be developed first?
• What weaknesses must be addressed to achieve parity with peer countries?
• What is the unique competitive position of the nation 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?
Competitiveness cannot be achieved only by reducing weaknesses, but by building on existing and potential strengths
30 Copyright 2007 © Professor Michael E. PorterKenya CAON 2007 June-07.ppt
National Value Proposition
Creating Unique Strengths
Mitigating Weaknesses
Macro/political/legal/social e.g., Absence of corruption
National Diamonde.g., Singapore’s physical infrastructure
Cluster Developmente.g., Singapore’s logistical services, financial services, petrochemical processing, tourism
Company Capabilitiese.g., large number of world-class multinationals with regional headquarters and significant operations in Singapore
Geographic Levelse.g., Growth Triangle, ASEAN
Macro/political/legal/sociale.g., Expand cultural attractions
National Diamonde.g., Upgrade Singapore’s research institutions; improve the efficiency of Singaporean domestic economy
Cluster Developmente.g., Develop more Singaporean SMEs to deepen clusters; improve the number and quality of IFCs
Company Capabilitiese.g., build the capability of Singaporean companies and encourage regional strategies
Geographic Levels e.g., Create friendly relationships with ASEAN neighbors
National Economic Strategy Singapore
• What roles in regional and world economy? e.g., Business, financial, and knowledge hub of Southeast Asia
• What unique value as a business location? e.g., Highly efficient place to do business; access to skilled and hardworking staff
• For what range of clusters, activities within clusters? e.g., clusters benefiting from a business hub but not dependent on a large home market or physical proximity to markets
31 Copyright 2007 © Professor Michael E. PorterKenya CAON 2007 June-07.ppt
Some ImplicationsWhat is Unique about Rwanda?
Toward A Rwandan Economic Strategy
• Corruption-free• Stable with social progress• Secure• Clean• Responsive• Unique climate and growing
conditions• Central location on the African
continent• Growing position in tea, coffee,
tourism• Opportunity to lead the region in ICT
and services
• Rwanda must accelerate improvement of business infrastructure, the ease of doing business, and improve Kigali
• Rwanda should seize the opportunity to transform agriculture
• Rwanda is unlikely to be competitive in exporting bulky goods with low value-to-weight
• Air freight and services exports nullify Rwanda’s logistical disadvantages
• Rwanda must create a positive image for economic and social development
“Switzerland of Africa”