Competitiveness: Implications for Central and
Europe and the Czech Republic
Professor Michael E. Porter
Harvard Business School
Prague, Czech Republic
22 October 2007
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
20071022 Czech Republic - DRAFT.ppt
1
Copyright 2007 © Professor Michael E. Porter
Perspectives on Firm Success
External
Internal
•
•
Competitive
advantage resides
solely inside a
company or in its
industry
Competitive success
depends primarily on
company choices
20071022 Czech Republic - DRAFT.ppt
2
•
Competitive advantage (or
disadvantage) resides
partly in the locations at
which a company’s
business units are based
•
Cluster participation is an
important contributor to
competitiveness
Copyright 2007 © Professor Michael E. Porter
Prosperity Performance
Selected Countries
PPP-adjusted GDP
per Capita, 2006
$50,000
Norway
$45,000
$40,000
USA
Netherlands
Denmark
Switzerland
$35,000
Austria
France
Germany
$30,000
Ireland
Iceland
UK
Finland
Sweden
Greece
Spain
$25,000
Slovenia
Portugal
Czech Republic
$20,000
$15,000
Croatia
$10,000
$5,000
Latvia
Poland
Russia
Turkey
Turkey
Macedonia Bosnia &
Albania
Herzegovina
Serbia &
Montenegro
Estonia
Hungary
Lithuania
Slovakia
Bulgaria
Ukraine
Armenia
(10.9%)
Moldova
$0
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
Growth of Real GDP per Capita (PPP-adjusted), CAGR, 1998-2006
Source: EIU (2007), authors calculations
20071022 Czech Republic - DRAFT.ppt
3
Copyright 2007 © Professor Michael E. Porter
Central and Eastern European Economies in 2007
Common Themes
• Strong economic growth and fast rate of prosperity catch-up
• Opening to foreign investment and European integration have
driven growth
However
• Rapid wage growth is threatening a key traditional source of the
region’s attractiveness
• Concerns about macroeconomic overheating are rising
• The region needs to prepare for the next stage of economic
development in a more challenging global economic environment
20071022 Czech Republic - DRAFT.ppt
4
Copyright 2007 © Professor Michael E. Porter
What is Competitiveness?
• Competitiveness is determined by the productivity with which a nation
uses its human, capital, and natural resources.
– Sets the standard of living (wages, returns on capital, returns on natural resources)
that a country can sustain
– Productivity depends on the prices per unit that a nation’s products and services can
command (due to uniqueness and 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
• 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
20071022 Czech Republic - DRAFT.ppt
5
Copyright 2007 © Professor Michael E. Porter
What Creates Sustainable Prosperity?
Prosperity
Prosperity
Productivity
Productivity
Competitiveness
Innovative
Innovative Capacity
Capacity
20071022 Czech Republic - DRAFT.ppt
6
Copyright 2007 © Professor Michael E. Porter
Decomposing Prosperity
• Standard of living
• Inequality
Prosperity
Prosperity
Domestic
Domestic
Purchasing
Purchasing
Power
Power
Per
PerCapita
CapitaIncome
Income
• Consumption taxes
• Local prices
– Efficiency of local
industries
– Level of local market
competition
Labor
Labor
Productivity
Productivity
Labor
Labor
Utilization
Utilization
• Skills
• Capital stock
• Total factor productivity
20071022 Czech Republic - DRAFT.ppt
• Working hours
• Unemployment
• Workforce participation rate
– Population age profile
7
Copyright 2007 © Professor Michael E. Porter
Comparative Labor Productivity Performance
Selected Developing Countries
100,000
Norway
90,000
Austria
GDP per
employee
(PPP
adjusted) in
US-$, 2006
80,000
France
70,000
Switzerland
Denmark
Spain
Germany
60,000
Untied States
Ireland
Netherlands
Greece
UK
Sweden
Iceland
Slovenia
50,000
Portugal
Czech Republic
Slovakia
40,000
Hungary
Croatia
Poland
30,000
Bulgaria
Romania
20,000
Estonia
Lithuania
Turkey
Latvia
Macedonia
Ukraine
10,000
0
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
Compound annual growth rate (CAGR) of real GDP per employee (PPPadjusted), 2001-2006
Source: EIU (2007)
20071022 Czech Republic - DRAFT.ppt
8
Copyright 2007 © Professor Michael E. Porter
IC
E
D LA
EN N
PO M D
A
R RK
TU
N GA
C
O
ZE G R L
C ER WA
H
RE MA Y
PU NY
SW E B L
S I
U
NI ITZ TO C
TE E N
I
U D RL A
NI KI AN
TE NG D
D D
ST OM
S W AT
E
ED S
IR E
EL N
A
LA N D
C TV
Y I
SL PR A
O US
VA
KI
A
LI S P
TH A I
U N
U AN
KR IA
N
ET FR AIN
H A E
ER N
L CE
BU AN
L DS
SL G A
O RIA
V
G EN
R IA
E
PO EC
L E
R AN
M OM D
AC A
ED NIA
O
AU N
IA
H ST
UN RI
M GA A
O
LD RY
C OV
RO A
A
TU TI
R A
KE
Y
Labor Force Mobilization
Selected Countries
Employees as % of Population, 2006
0.6
0.5
0.4
0.3
0.2
0.1
0
Source: EIU, 2007
20071022 Czech Republic - DRAFT.ppt
9
Copyright 2007 © Professor Michael E. Porter
Labor Mobilization
Hours Worked Per Employee
2,000
United States
1,900
EU-8
1,800
1,700
1,600
EU-15
20
06
20
05
20
04
20
03
20
02
20
01
20
00
19
99
19
98
19
97
19
96
19
95
19
94
19
93
19
92
19
91
19
90
1,500
Source: Groningen Growth and Development Center (2007)
20071022 Czech Republic - DRAFT.ppt
10
Copyright 2007 © Professor Michael E. Porter
Unemployment Performance
Selected Countries
Unemployment
Rate, 2006
18%
Macedonia
(35%)
Croatia
Improving
Deteriorating
16%
Poland
(6.2%)
14%
12%
10%
8%
Spain
(-10.1%)
Germany
Slovakia
Bulgaria
Slovenia
France
Turkey
Greece
Czech Republic
Hungary
Portugal
Latvia
6%
Estonia
Sweden
Romania
Denmark
Ireland
4%
Lithuania
UK
Untied States
Netherlands
Austria
Norway
Switzerland
Ukraine
2%
Iceland
0%
-6%
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
Change of Unemployment Rate in Percentage Points,
1998 - 2006
Source: EIU (2007)
20071022 Czech Republic - DRAFT.ppt
11
Copyright 2007 © Professor Michael E. Porter
Enablers and Indicators of Competitiveness
Productivity
Exports
Imports
Inbound
Foreign Direct
Investment
Domestic
Investment
Outbound
Foreign Direct
Investment
Domestic
Innovation
Competitiveness Environment
20071022 Czech Republic - DRAFT.ppt
12
Copyright 2007 © Professor Michael E. Porter
Export Intensity
Selected Countries
Exports as %
GDP (2006)
80%
Slovakia
70%
Czech Republic
Hungary
Netherlands
60%
Estonia
Slovenia
Belarus
Bulgaria
Ireland
(-8.9%)
50%
Lithuania
Sweden
40%
Germany
Ukraine
Norway
30%
Austria
Macedonia
Moldova
Russia
France
Croatia
Romania
Iceland
Switzerland
Finland
Latvia
Denmark
Poland
(11.1%)
Bosnia &
Herzegovina
Portugal
20%
UK
Spain
10%
Cyprus
(-8.9%)
US
Greece
0%
-5%
-3%
-1%
1%
3%
5%
Compound Annual Growth Exports (as % of GDP), 2001 - 2006
7%
9%
USD 100M =
Source: EUI (2007), authors’ analysis
20071022 Czech Republic - DRAFT.ppt
13
Copyright 2007 © Professor Michael E. Porter
Inbound Foreign Investment Performance
Stocks and Flows, Selected Countries
FDI Stocks as % of GDP,
Average 2002 - 2006
Ireland
(112.4%))
Estonia
80%
Netherlands
70%
60%
Hungary
Switzerland
Cyprus
Czech Republic
50%
Sweden
Denmark
40%
30%
20%
10%
Bulgaria
Portugal
Croatia
Slovakia
Lithuania
Finland
Latvia
Poland
Germany
Romania
Austria
Slovenia
Ukraine
Turkey
United States
Greece
Spain
United Kingdom
France
Norway
0%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
FDI Inflows as % of Gross Fixed Capital Formation, Average 2002 - 2006
Source: UNCTAD (2007), EIU (2007)
20071022 Czech Republic - DRAFT.ppt
14
Copyright 2007 © Professor Michael E. Porter
Fixed Investment Rates
Selected Countries
Gross Fixed Investment
as % of GDP (2006)
35%
Latvia
Estonia
Armenia
(13.5%)
33%
Iceland
31%
Croatia
Spain
29%
Belarus
27%
Slovakia
Czech Republic
Ireland
Greece
Slovenia
25%
Albania
23%
Denmark
Hungary
21%
Poland
Netherlands
Finland
19%
Germany
Russia
17%
15%
-6%
Switzerland
Portugal Austria
-4%
-2%
Bulgaria
Romania
Ukraine
Lithuania
Turkey
France
Cyprus
Norway
UK
Sweden
US
0%
Moldova
Macedonia
2%
4%
6%
8%
10%
12%
CAGR Gross Fixed Investment (as % of GDP), 2001 - 2006
Source: EIU, 2007.
20071022 Czech Republic - DRAFT.ppt
15
Copyright 2007 © Professor Michael E. Porter
International Patenting Output
Selected Countries
Annual U.S. patents per 1
million population, 2006
70.0
Belgium
60.0
Norway
Hong Kong
50.0
Ireland
40.0
30.0
20.0
Slovenia
Croatia
10.0
Hungary
Russia
0.0
-5%
0%
Latvia
Greece
Czech Republic
Poland
Slovakia
Ukraine
Lithuania
Brazil
Romania
5%
10%
15%
Philippines
Turkey
China
India
20%
25%
30%
35%
CAGR of US-registered patents, 1998 – 2006
Source: USPTO (2006)
20071022 Czech Republic - DRAFT.ppt
16
Copyright 2007 © Professor Michael E. Porter
Determinants of Competitiveness
Macroeconomic, Political, Legal, and Social Context
Microeconomic Competitiveness
The
TheQuality
Qualityof
ofthe
the
Microeconomic
Microeconomic
Business
Business
Environment
Environment
The
TheSophistication
Sophistication
of
ofCompany
Company
Operations
Operationsand
and
Strategy
Strategy
State
Stateof
ofCluster
Cluster
Development
Development
• A strong context creates the potential for competitiveness, but is not
sufficient
• Competitiveness ultimately depends on improving the microeconomic
competitiveness of the economy
20071022 Czech Republic - DRAFT.ppt
17
Copyright 2007 © Professor Michael E. Porter
Macroeconomic, Political, Legal, and Social Context
Macroeconomic policies
Political governance
• Sound fiscal and monetary policies create
stability and encourage business investment
and upgrading
• Due process in political decisions and
orderly transfers of power create a stable
planning horizon for business
• Sound and stable macroeconomic
conditions hold down interest rates and
provide accurate price signals for market
transactions
• Checks and balances in the political system
mitigate instability and the abuse of power
Legal system
Social conditions
• An independent, timely, effective and
trusted legal system solidifies the rule of law
and provides a fair environment for
business, encouraging investment
• Improving social conditions in basic
education, housing, health, and absence of
discrimination enhance productivity
• A functioning social safety net gives citizens
the confidence to accept and deal with change
in the economy
• Improvements of social conditions signal
the benefits of reforms and increase the
political support for policies to enhance
competitiveness
• Strict monitoring and prosecution of
corruption rewards productivity instead of
favoritism
20071022 Czech Republic - DRAFT.ppt
18
Copyright 2007 © Professor Michael E. Porter
Corruption Perception Index, 2007
1
Iceland
Finland
Denmark
Netherlands
Deteriorating
Low
corruption
Switzerland
Austria
Canada
Hong Kong
Ireland
United States Chile
Spain
Hungary
Italy
Rank in
Global
Corruption
Index,
2007
Japan
Germany
France
Portugal
Estonia
Slovenia
Taiwan
Israel
Improving
Norway
UK
South Korea
Czech Republic
Slovakia
Malaysia
Lithuania
South Africa
Latvia
Bulgaria
Colombia
Poland
Turkey
Croatia
Argentina
Mexico
Thailand
China
India
Romania
Brazil
Vietnam
Indonesia
Russia
High
corruption
Venezuela
Bangladesh
91
-20
-15
-10
-5
0
5
10
15
20
Change in Rank, Global Corruption Report, 2007 versus 2001
Note:
Ranks only countries available in both years (91 countries total)
Source: Global Corruption Report, 2007
20071022 Czech Republic - DRAFT.ppt
19
Copyright 2007 © Professor Michael E. Porter
Improving the Business Environment: The Diamond
Context
Contextfor
for
Firm
Firm
Strategy
Strategy
and
andRivalry
Rivalry
z
– e.g., incentives for capital
investments, intellectual
property protection
Factor
Factor
(Input)
(Input)
Conditions
Conditions
z
z
High quality, efficient and
specialized inputs to
business
–
–
–
–
–
Natural endowments
Human resources
Capital availability
Physical infrastructure
Administrative infrastructure
(e.g. registration, permitting)
– Scientific and technological
infrastructure
Local rules and incentives
that encourage investment
and productivity
Vigorous local competition
– Openness to foreign and
local competition
Related
Relatedand
and
Supporting
Supporting
Industries
Industries
z
z
Demand
Demand
Conditions
Conditions
z
Demanding and sophisticated
local customers and needs
– Challenging quality, safety,
and environmental
standards
Capable, locally based suppliers and
supporting industries
The presence of clusters instead of
isolated firms
• Successful economic development is a process of successive upgrading, in which the business
environment improves to enable increasingly sophisticated ways of competing
20071022 Czech Republic - DRAFT.ppt
20
Copyright 2007 © Professor Michael E. Porter
Quality of the Business Environment
Czech Republic
Competitive Advantages
Relative to GDP per Capita
Competitive Disadvantages
Relative to GDP per Capita
Cellular Telephones per 100 inhabitants
4
Control of international distribution
59
Availability of scientists and engineers
5
56
Quality of math and science education
8
Neutrality in decisions of government
officials
Quality of primary education
10
Local equity market access
53
Absence of trade barriers
10
Reliability of police services
51
Intensity of local competition
11
Efficiency of legal framework
51
Decentralization of economic policymaking 13
Venture capital availability
49
Extent of regional sales
16
Ease of access to loans
48
Stringency of environmental regulations
16
Quality of port infrastructure
45
Local supplier quantity
16
Extent of incentive compensation
43
Quality of electricity supply
22
Business costs of corruption
43
Presence of demanding regulatory
standards
22
Nature of competitive advantage
42
Financial market sophistication
42
Local supplier quality
23
Degree of customer orientation
41
Judicial independence
41
Source: Global Competitiveness Report 2007.
20071022 Czech Republic - DRAFT.ppt
Change up/down of more than 5
ranks21since 2002
Copyright 2007 © Professor Michael E. Porter
Ease of Doing Business
Czech Republic
Ranking, 2006 (of
175 countries)
Favorable
Unfavorable
120
Median Ranking,
EU8 countries
100
80
60
40
Czech Republic per capita GDP rank: 33
20
0
Doing
Business
Getting
Credit
Trading
Across
Borders
Registering Employing
Property
Workers
Dealing
with
Licenses
Protecting Starting a
Investors Business
Enforcing
Contracts
Closing a
Business
Paying
Taxes
Source: World Bank Doing Business (2007)
20071022 Czech Republic - DRAFT.ppt
22
Copyright 2007 © Professor Michael E. Porter
Enhancing Cluster Development
Tourism Cluster in Cairns, Australia
Public
Public Relations
Relations &&
Market
Market Research
Research
Services
Services
Travel
Travel agents
agents
Tour
Tour operators
operators
Restaurants
Restaurants
Attractions
Attractions and
and
Activities
Activities
Food
Food
Suppliers
Suppliers
e.g.,
e.g., theme
theme parks,
parks,
casinos,
casinos, sports
sports
Property
Property
Services
Services
Maintenance
Maintenance
Services
Services
Airlines,
Airlines,
Cruise
Cruise Ships
Ships
Hotels
Hotels
Local
Local retail,
retail,
health
health care,
care, and
and
other
other services
services
Local
Local
Transportation
Transportation
Souvenirs,
Souvenirs,
Duty
Duty Free
Free
Banks,
Banks,
Foreign
Foreign
Exchange
Exchange
Government
Government agencies
agencies
Educational
Educational Institutions
Institutions
Industry
Industry Groups
Groups
e.g.
e.g. Australian
Australian Tourism
Tourism Commission,
Commission,
Great
Barrier
Reef
Authority
Great Barrier Reef Authority
e.g.
e.g. James
James Cook
Cook University,
University,
Cairns
College
of
Cairns College of TAFE
TAFE
e.g.
e.g. Queensland
Queensland Tourism
Tourism
Industry
Council
Industry Council
Sources: HBS student team research (2003) - Peter Tynan, Chai McConnell, Alexandra West, Jean Hayden
20071022 Czech Republic - DRAFT.ppt
23
Copyright 2007 © Professor Michael E. Porter
State of Cluster Development
Massachusetts, Life Sciences
Health
Healthand
and Beauty
Beauty
Products
Products
Cluster
Cluster Organizations
Organizations
MassMedic,
MassMedic, MassBio,
MassBio, others
others
Teaching
Teaching and
and Specialized
Specialized Hospitals
Hospitals
Surgical
Surgical Instruments
Instruments
and
Suppliers
and Suppliers
Specialized
Specialized Business
Business
Services
Services
Medical
Medical Equipment
Equipment
Dental
Dental Instruments
Instruments
and
and Suppliers
Suppliers
Biopharma
Biopharmaceutical
ceutical
Products
Products
Biological
Biological
Products
Products
Banking,
Banking, Accounting,
Accounting, Legal
Legal
Specialized
Specialized Risk
Risk Capital
Capital
Ophthalmic
Ophthalmic Goods
Goods
VC
VC Firms,
Firms, Angel
Angel Networks
Networks
Diagnostic
Diagnostic Substances
Substances
Specialized
Specialized Research
Research
Service
Service Providers
Providers
Containers
Containers
Analytical
Analytical Instruments
Instruments
20071022 Czech Republic - DRAFT.ppt
Research
Research Organizations
Organizations
Laboratory,
Laboratory, Clinical
Clinical Testing
Testing
Educational
Educational Institutions
Institutions
Harvard
Harvard University,
University, MIT,
MIT, Tufts
Tufts University,
University,
Boston
University,
UMass
Boston University, UMass
24
Copyright 2007 © Professor Michael E. Porter
Institutions for Collaboration
Selected Massachusetts Organizations, Life Sciences
Life
Life Sciences
Sciences Industry
Industry Associations
Associations
University
University Initiatives
Initiatives
Harvard
Harvard Biomedical
Biomedical Community
Community
zz MIT
MIT Enterprise
Enterprise Forum
Forum
zz Biotech
Biotech Club
Club at
at Harvard
Harvard Medical
Medical School
School
zz Technology
Technology Transfer
Transfer offices
offices
Massachusetts
Massachusetts Biotechnology
Biotechnology Council
Council
zz Massachusetts
Massachusetts Medical
Medical Device
Device Industry
Industry
Council
Council
zz Massachusetts
Massachusetts Hospital
Hospital Association
Association
zz
zz
General
General Industry
Industry Associations
Associations
Informal
Informal networks
networks
Associated
Associated Industries
Industries of
of Massachusetts
Massachusetts
zz Greater
Greater Boston
Boston Chamber
Chamber of
of Commerce
Commerce
zz High
High Tech
Tech Council
Council of
of Massachusetts
Massachusetts
Company
Company alumni
alumni groups
groups
zz Venture
Venture capital
capital community
community
zz University
University alumni
alumni groups
groups
zz
zz
Economic
Economic Development
Development Initiatives
Initiatives
Joint
Joint Research
Research Initiatives
Initiatives
Massachusetts
Massachusetts Technology
Technology Collaborative
Collaborative
zz Mass
Mass Biomedical
Biomedical Initiatives
Initiatives
zz Mass
Mass Development
Development
zz Massachusetts
Massachusetts Alliance
Alliance for
for Economic
Economic
Development
Development
New
New England
England Healthcare
Healthcare Institute
Institute
zz Whitehead
Whitehead Institute
Institute For
For Biomedical
Biomedical
Research
Research
zz Center
Center for
for Integration
Integration of
of Medicine
Medicine and
and
Innovative
Technology
(CIMIT)
Innovative Technology (CIMIT)
zz
20071022 Czech Republic - DRAFT.ppt
zz
25
Copyright 2007 © Professor Michael E. Porter
Czech National Cluster Export Portfolio
1997-2005
2.5%
Czech Republic's world export market share, 2005
Building Fixtures and Equipment
Power and Power
Generation Equipment
Motor Driven
Products
2.0%
Prefabricated Enclosures and Structures
Lighting and
Electrical Equipment
1.5%
Automotive
Construction Materials
Metal Mining and Manufacturing
Coal and Briquettes
Publishing
and Printing
Textiles
Furniture
1.0%
Production
Technology
Heavy Machinery
Processed Food
Forest Products
Information Technology
Hospitality and Tourism
Footwear
Construction Services
Communications Equipment
Analytical Instruments
Apparel
Business Services
-0.5%
Transportation and Logistics
Agricultural
Products
Oil and Gas Products
0.0%
-1.0%
Czech Republic's Overall
World Export Share: 0.790%
Plastics
Chemical Products
0.5%
Entertainment and
Reproduction Equipment
Change In Czech Republic's Overall
World Export Share: +0.295%
0.0%
0.5%
1.0%
1.5%
Change in Czech Republic's world export market share, 1997 – 2005
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.
26
20071022 Czech Republic - DRAFT.ppt
Exports of US$3 Billion =
Copyright 2007 © Professor Michael E. Porter
The Process of Economic Development
Shifting Roles and Responsibilities
Old
Old Model
Model
New
New Model
Model
•• Government
Government drives
drives economic
economic
development
development through
through policy
policy
decisions
decisions and
and incentives
incentives
•• Economic
Economic development
development is
is aa
collaborative
collaborative process
process involving
involving
government
government at
at multiple
multiple levels,
levels,
companies,
companies, teaching
teaching and
and
research
research institutions,
institutions, and
and
institutions
institutions for
for collaboration
collaboration
• Competitiveness must become a bottoms-up process in which many individuals,
companies, and institutions take responsibility
• Every community and cluster can take steps to enhance competitiveness
20071022 Czech Republic - DRAFT.ppt
27
Copyright 2007 © Professor Michael E. Porter
Ranking Microeconomic Competitiveness
Business Competitiveness Index, 2007
2006 GDP per Capita
(PPP- adjusted)
Norway
45,000
United States
Qatar
40,000
35,000
Kuwait
Greece
30,000
Bahrain
25,000
Italy
Spain
Switzerland
Denmark
Finland
Sweden
Germany
Israel
New Zealand
Slovenia
Portugal
Cyprus
Korea
Czech Republic
20,000
Hungary
15,000
10,000
Hong Kong
Iceland
Australia
Ireland
France
Taiwan
Japan
Libya
Argentina
Latvia
Poland
Russia
Venezuela
Colombia
Estonia
Slovakia
Lithuania
Chile
Jordan
5,000
Malaysia
Costa Rica
Thailand Tunisia
India
Indonesia
Variation in BCI score explains 82%
of variation in GDP per capita
0
Kenya
Low
Business Competitiveness Index
High
Source: Global Competitiveness Report 2007
20071022 Czech Republic - DRAFT.ppt
28
Copyright 2007 © Professor Michael E. Porter
Competitiveness versus Wage Level Across Countries
Hourly Wage in
Manufacturing (USD),
2005
45
40
Norway
35
Denmark
Germany
Finland
Netherlands
Belgium
Austria
Sweden
30
France
Australia
25
Ireland
Italy
20
Switzerland
Canada
UK
USA
Japan
Spain
15
Greece
10
Korea
Israel
Portugal
Hungary
5
New Zealand
Mexico
Sri Lanka
Hong Kong
Czech
Republic
Poland
Brazil
Taiwan
Singapore
0
Low
Source: Global Competitiveness Report
2005-2006 and US Bureau of Labor Statistics
20071022 Czech Republic - DRAFT.ppt
Business Competitiveness Index 2005
29
High
Copyright 2007 © Professor Michael E. Porter
Rate of Competitiveness Improvement
2002 - 2007
BCI Value, 2007
High
United States
Sweden
Finland
Netherlands
United Kingdom Canada
Australia
France
New Zealand
Japan
Hong Kong
Norway
Estonia
India
Indonesia
Thailand
Lithuania
Turkey
Costa Rica
Sri Lanka
Panama
Kenya
Romania
Peru
Pakistan
Honduras
Mali
Spain
Czech Republic
Italy
Hungary
Brazil
Trinidad and Tobago
Slovenia
Slovakia
Latvia
Poland
China
Jamaica
Tanzania
Dominican Republic
Zambia
Uganda
Nicaragua
Zimbabwe
Bangladesh
Low
Chad
Below average
Korea
Malaysia
Average
Guatemala
Ecuador
High-income
Middle-income
Low-income
Above average
Dynamism Score, 2002 - 2007
20071022 Czech Republic - DRAFT.ppt
30
Copyright 2007 © Professor Michael E. Porter
Historical Economic Growth Model
Czech Republic
• Strong manufacturing legacy
• Skill base at attractive wage levels
• Proximity to Germany and other Western European economies
• Strong focus on FDI attraction
• Export-led growth
20071022 Czech Republic - DRAFT.ppt
31
Copyright 2007 © Professor Michael E. Porter
Improving Czech Competitiveness
• Improve business regulation and governance
• Upgrade financial markets
• Drive cluster development, including the strengthening of local supplier
networks around foreign investments
• Improve innovative capacity
• Strengthen collaboration with neighbors
20071022 Czech Republic - DRAFT.ppt
32
Copyright 2007 © Professor Michael E. Porter
The Australian Wine Cluster
History
1991 to 1998
1930
1965
1980
First oenology
course at
Roseworthy
Agricultural
College 1955
Australian Wine
Bureau
established
Australian Wine
and Brandy
Corporation
established 1990
1970
New organizations
created for education,
research, market
information, and
export promotions
Winemaker’s
Federation of
Australia
established
Winemaking
school at Charles
Sturt University
founded
Australian Wine
Research
Institute founded
1950s
1960s
1970s
1980s
1990s
Import of
European winery
technology
Recruiting of
experienced
foreign investors,
e.g. Wolf Bass
Continued inflow
of foreign capital
and
management
Creation of
large number of
new wineries
Surge in exports
and international
acquisitions
Source: Michael E. Porter and Örjan Sölvell, The Australian Wine Cluster – Supplement, Harvard Business School Case Study, 2002
20071022 Czech Republic - DRAFT.ppt
33
Copyright 2007 © Professor Michael E. Porter
Clusters and Economic Policy
Business Attraction
Education and Workforce Training
Export Promotion
Clusters
Market Information
and Disclosure
Science and Technology
Investments
(e.g., centers, university
departments, technology
transfer)
Standard setting
Specialized Physical
Environmental Stewardship
Infrastructure
Natural Resource Protection
• Clusters provide a framework for organizing the implementation of public policy and public
investments towards economic development
20071022 Czech Republic - DRAFT.ppt
34
Copyright 2007 © Professor Michael E. Porter
The Evolution of National and Regional Economies
San Diego
Hospitality and Tourism
Climate
Climate
and
and
Geography
Geography
Sporting and
Leather Goods
Transportation
and Logistics
Power Generation
Communications
Equipment
Aerospace Vehicles
and Defense
U.S.
U.S.
Military
Military
Information Technology
Analytical Instruments
Education and
Knowledge Creation
Medical Devices
Bioscience
Bioscience
Research
Research
Centers
Centers
1910
20071022 Czech Republic - DRAFT.ppt
1930
1950
Biotech / Pharmaceuticals
1970
35
1990
Copyright 2007 © Professor Michael E. Porter
Diversifying the Economy
Harnessing Linkages Across Clusters
Fishing &
Fishing
Products
Entertainment
Hospitality
& Tourism
Textiles
Prefabricated
Enclosures
Agricultural
Products
Jewelry &
Precious
Metals
Furniture
Transportation
& Logistics
Distribution
Services
Aerospace
Vehicles &
Information
Defense
Tech.
Business
Services
Education &
Knowledge
Creation
Financial
Services
Publishing
& Printing
Analytical
Instruments
Medical
Devices
Construction
Materials
Forest
Products
Power
Generation
Heavy
Machinery
Motor Driven
Products
Production
Technology
Tobacco
Oil &
Gas
Plastics
Aerospace
Engines
Footwear
Note: Clusters with overlapping borders or identical shading have at
least
20%
overlap
number of industries) in both directions.
20071022
Czech
Republic -(by
DRAFT.ppt
Processed
Food
Heavy
Construction
Services
Lightning &
Electrical
Equipment
Communications
Equipment
Biopharmaceuticals
Chemical
Products
Apparel
Leather &
Related
Products
Building
Fixtures,
Equipment &
Services
Metal
Automotive
Manufacturing
Sporting
& Recreation
Goods
36
Copyright 2007 © Professor Michael E. Porter
Geographic Influences on Competitiveness
Levels of Influence
World
WorldEconomy
Economy
Broad
BroadEconomic
EconomicAreas
Areas
Groups
Groupsof
ofNeighboring
Neighboring
Nations
Nations
Nations
Nations
States,
States,Provinces
Provinces
Metropolitan
MetropolitanAreas
Areas
Distressed
DistressedUrban
Urbanand
and
Rural
Communities
Rural Communities
20071022 Czech Republic - DRAFT.ppt
37
Copyright 2007 © Professor Michael E. Porter
The Role of European Union Membership
Key Advantages
Key Disadvantages
• Access to large markets
• Complex rules and regulations
not aligned with needs of transition
economies
• Rapid implementation of credible
and tested regulatory framework
• Bureaucracy and inflexibility
• Stabilization of fragile political
systems through external anchor,
i.e. reforms needed to achieve EU
membership
• Access to financial resources for
competitiveness upgrading
20071022 Czech Republic - DRAFT.ppt
38
Copyright 2007 © Professor Michael E. Porter
Central European Neighborhood
•Neighboring countries can move further than the European Union on economic integration
•Neighboring countries can together influence EU policies more effectively than alone
20071022 Czech Republic - DRAFT.ppt
39
Copyright 2007 © Professor Michael E. Porter
Regional Economic Coordination
Illustrative Policy Areas
Factor
Factor
(Input)
(Input)
Conditions
Conditions
• Improve regional
transportation
infrastructure
• Create an efficient
energy network
• Interconnect regional
communications
• Link financial markets
Context
Contextfor
for
Strategy
Strategy
and
andRivalry
Rivalry
• Coordinate
• Coordinate
macroecono- antimonopoly
mic policies
and fair
competition
• Eliminate trade
policies
and
investment
barriers within
the region
• Simplify and
harmonize
• Facilitate the
cross-border
movement of students
regulations and
to enhance higher
paperwork
education
Demand
Demand
Conditions
Conditions
• Harmonize
environmental
standards
• Harmonize
product safety
standards
• Establish
reciprocal
consumer
protection laws
Related
Relatedand
and
Supporting
Supporting
Industries
Industries
• Coordinate
development of
cross-border
clusters, e.g.
– Tourism
– Agribusiness
– Transport &
Logistics
– Business
services
Regional
Regional
Governance
Governance
• Share best
practices in
government
operations
• Create regional
institutions
– Dispute
resolution
mechanisms
– Regional
development
bank
• Develop a
regional
marketing
strategy
• Harmonize regulatory
requirements for
business
• Coordinate programs
to improve public
safety
20071022 Czech Republic - DRAFT.ppt
40
Copyright 2007 © Professor Michael E. Porter
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
20071022 Czech Republic - DRAFT.ppt
41
Copyright 2007 © Professor Michael E. Porter