The 2010 Vietnam Competitiveness Report
Professor Michael E. Porter
Harvard Business School
Vietnam Competitiveness 20101130 – v8 Mon Nov 22 10AM
Vietnam Competitiveness Report Launch
Hanoi, Vietnam
November 30, 2010
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Copyright 2010 @ Professor Michael E. Porter
The Vietnam Competitiveness Report
Objectives
• Provide policy makers and external observers with a data-rich
assessment of Vietnam’s competitiveness, using a comprehensive
internationally-accepted methodology
• Develop an integrated set of policy recommendations, supported by a
transparent logic and data
• Engage decision makers from different constituencies in a dialogue on
the future of Vietnam’s competitiveness
Partners
Vietnam Competitiveness 20101130 – v8 Mon Nov 22 10AM
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Copyright 2010 @ Professor Michael E. Porter
The 2010 Vietnam Competitiveness Report
• Vietnam’s Economic Position and Development Model
• Assessing Vietnam’s Competitiveness
• A Competitiveness Strategy for Vietnam
Vietnam Competitiveness 20101130 – v8 Mon Nov 22 10AM
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Vietnam’s Position in 2010
• Significant growth over the last two decades
• Widespread reduction in poverty
• Resilience in the face of the global economic crisis
Vietnam Competitiveness 20101130 – v8 Mon Nov 22 10AM
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Vietnam’s Long-Term Prosperity Growth
1975 - 2009
GDP per
Capita,
PPP adjusted
$3,500
in 1990 US$
CAGR:
+2.47%
CAGR:
+5.00%
CAGR:
+6.15%
$3,000
$2,500
$2,000
1986:
Doi Moi Reform
$1,500
Global
Financial
Crisis
$1,000
1997:
Asian Crisis
$500
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
$0
Source: Groningen Growth and Development Centre and The Conference Board (2010)
Vietnam Competitiveness 20101130 – v8 Mon Nov 22 10AM
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Vietnam’s Position in 2010
• Significant growth over the last two decades
• Widespread reduction in poverty
• Resilience in the face of the global economic crisis
BUT
• Still low level of prosperity and productivity
• Growing concerns about the economic sustainability of Vietnam’s
current development model
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Prosperity Performance
Selected Countries, 1999 to 2009
PPP-adjusted GDP per
Capita, 2009 ($USD)
$50,000
United States
$45,000
Hong Kong
Australia
$40,000
Singapore
$35,000
Taiwan
Japan
$30,000
New Zealand
South Korea
$25,000
$20,000
$15,000
Malaysia
$10,000
Thailand
China
$5,000
Philippines
Bangladesh
Indonesia
Laos
Vietnam
India
Cambodia
$0
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
Growth of Real GDP per Capita (PPP-adjusted), CAGR, 2000 to 2009
Source: EIU (2010)
Vietnam Competitiveness 20101130
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22 10AM
, authors
calculations
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Copyright 2010 @ Professor Michael E. Porter
Vietnam’s Labor Productivity
PPP-adjusted GDP per
Employee, 1990-$USD
$45,000
$40,000
South Korea
$35,000
$30,000
$25,000
$20,000
$15,000
Thailand
$10,000
China
Indonesia
Vietnam
$5,000
$0
1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
Source: Groningen Growth and Development Centre and The Conference Board (2010)
Vietnam Competitiveness 20101130 – v8 Mon Nov 22 10AM
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Vietnam’s Current Development Model
• Structural change, fuelled by Vietnam’s integration into the global economy,
has been the key driver of Vietnam’s growth
• Foreign investors have combined capital with Vietnamese labor and imported
inputs to serve global markets, and increasingly also domestic demand
Vietnam Competitiveness 20101130 – v8 Mon Nov 22 10AM
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Drivers of Structural Change: Economic Openness
Openness to Trade
Openness to Investment
10%
Vietnam
Vietnam
8%
40%
Change in net flows of inward FDI
as % of GDP (1989-2009)
Change in Exports as % of GDP (1989-2009)
50%
Thailand
30%
Malaysia
20%
China
India
10%
Philippines
Indonesia
0%
6%
4%
India
2%
Indonesia
0%
Thailand
Philippines
-2%
Malaysia
-4%
Myanmar
Singapore
China
-6%
-10%
0%
20%
40%
60%
80%
0%
100%
5%
10%
Net flows of inward FDI as % of GDP, 2009
Total Exports as % of GDP, 2009
Source: EIU (2010)
Vietnam Competitiveness 20101130 – v8 Mon Nov 22 10AM
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The Growth of the FDI Sector
Profits (return on
fixed capital)
Growth (2000 = 100)
450
30%
400
Profits
25%
350
300
20%
250
15%
200
150
10%
# Firms
100
Workers
50
5%
Fixed Capital
0
0%
2000
2001
2002
2003
2004
2005
2006
2007
Source: Data from General Statistics Office, Vietnam.
Vietnam Competitiveness 20101130 – v8 Mon Nov 22 10AM
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Structural Change and Vietnamese Growth
Decomposing Vietnamese Labor Productivity Growth, 2000 - 2008
Source: General Statistics Office, Vietnam; ACI calculations
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Copyright 2010 @ Professor Michael E. Porter
Vietnam’s Current Development Model
• Structural change, fuelled by Vietnam’s integration into the global economy,
has been the key driver of Vietnam’s growth
• Foreign investors have combined capital with Vietnamese labor and imported
inputs to serve global markets, increasingly also domestic demand
• Despite increasing exports of processed goods, value added and productivity in
Vietnam’s export sector remains low
• Vietnam’s strongest export market position is in labor- and natural endowmentdriven clusters with little direct linkages between them
• Vietnam’s attractiveness to investors is almost solely the result of the low
prevailing wages
• In a changing global market environment, this is unlikely to be sufficient for
sustained growth
Vietnam Competitiveness 20101130 – v8 Mon Nov 22 10AM
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Relative Wages: Selected Countries
Avg. monthly wage
(US$)
2000
$1,809.91
1800
1600
1400
1200
$1,146.47
1000
$829.71
800
$540.45
600
$336.04
400
$166.95
200
$156.19
$117.15
$82.29
$48.72
$47.36
am
bo
d
ia
m
C
/J
a
In
d
on
es
ia
he
n
a/
S
hi
n
C
Vi
et
na
ka
rt
a
en
zh
an
gk
/B
nd
ai
la
Th
/M
et
ro
M
an
ok
ila
a
ay
si
Ph
ili
pp
in
es
M
al
an
iw
Ta
Ko
re
a
h
So
ut
po
re
Si
na
Ja
pa
n
0
Source: Philippines Department of Labor and Employment (2010)
Vietnam Competitiveness 20101130 – v8 Mon Nov 22 10AM
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Vietnam’s Exports By Type of Industry
World Export Market
Share (current USD)
Processed Goods
0.8%
Semi-processed Goods
Unprocessed Goods
Services
0.7%
TOTAL
0.6%
0.5%
0.4%
0.3%
0.2%
0.1%
0.0%
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Source: UNComTrade, WTO (2010)
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Vietnam’s Cluster Export Portfolio
1997 - 2009
5.0%
Footwear (4.67%, 8.21% )
Change In Vietnam’s average
world export share: 0.275%
Vietnam’s world export market share, 2009
4.5%
Fishing and Fishing Products
4.0%
3.5%
3.0%
Apparel
Coal and Briquettes
2.5%
Agricultural Products
2.0%
Lighting and
Electrical
1.5%
1.0%
Leather and Related Products
Building Fixtures
and Equipment
Oil and
Gas
Furniture
Entertainment and
Reproduction Equipment
Textiles
Construction Materials
Vietnam’s average world
export share: 0.416%
Communications Equipment
0.5%
Motor Driven Products
Metals and Mining Plastics
Information Technology
0.0%
0.0%
0.5%
Jewelry, Precious Metals and
Collectibles
1.0%
1.5%
2.0%
2.5%
3.0%
Change in Vietnam’s world export market share, 1997 – 2009
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.
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Exports of US $2 Billion =
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Share of World Exports by Cluster
Vietnam, 2008
World Market Share
0.5% - 1.5%
1.5% - 5%
5% - 10%
Fishing &
Fishing
Products
Hospitality
& Tourism
Agricultural
Products
Transportation
& Logistics
Processed
Food
Distribution
Services
Jewelry &
Precious
Metals
Business
Services
Financial
Services
Entertainment
Textiles
Prefabricated
Enclosures
Furniture
Building
Fixtures,
Equipment &
Services
Aerospace
Vehicles &
Information
Defense
Tech.
Motor Driven
Products
Heavy
Machinery
Production
Technology
Tobacco
Automotive
Oil &
Gas
Footwear
Forest
Products
Power
Generation
ceuticals
Chemical
Products
Apparel
Heavy
Construction
Services
Lightning &
Electrical
Equipment
Analytical
Education &
Instruments
Knowledge
Medical
Creation
Devices
Communications
Publishing
Equipment
& Printing
Biopharma-
Construction
Materials
Aerospace Mining & Metal
Engines Manufacturing
Plastics
Leather &
Related
Products
Sporting
& Recreation
Goods
Marine
Equipment
Note: Clusters with overlapping borders have at least 20% overlap (by number of industries) in both directions.
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The External Environment in 2010
Opportunities
Threats
• Opportunities to serve new
demand
– Emergence of Asia
– Increasing market of
consumers with similar needs
as in Vietnam
• Disruptions that could limit
demand
– Rising protectionism
– Overheating in China; sluggish
growth elsewhere
– Climate change
• New opportunities as a supply
base
– Cost pressure on global
companies
– China + 1 strategy of MNCs
• Competition that could reduce
Vietnams attractiveness
– From other low-wage locations
– From within the increasingly
open ASEAN region
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Vietnam’s Current Development Model
Emerging Weaknesses
• Low sophistication in the export sector coupled with strong domestic demand
drive growing trade deficit
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Vietnam’s Balance of Trade
1995 – 2008
US$M
Source: Data from General Statistics Office, Vietnam.
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Vietnam’s Current Development Model
Emerging Weaknesses
• Low sophistication in the export sector coupled with strong domestic demand
drive growing trade deficit
• Real appreciation of the Dong further contributes to the deficit
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Vietnam’s Currency Valuation
Index (2000 = 100)
160
CPI VN/
CPI USA
150
140
130
120
Exchange Rate
Index VN
110
100
90
80
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Source: 2000-2008 data – WDI; 2009 data – EIU
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Vietnam’s Current Development Model
Emerging Weaknesses
• Low sophistication in the export sector coupled with strong domestic demand
drive growing trade deficit
• Real appreciation of the Dong further contributes to the deficit
• Significant capital inflows fuel domestic demand growth and inflation
• Expansionary fiscal and monetary policies worsen inflation, rather than
control it
Vietnam Competitiveness 20101130 – v8 Mon Nov 22 10AM
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Rate of Inflation
Selected Countries, 2000 - 2009
% change in CPI
25%
20%
15%
Vietnam
Indonesia
10%
Malaysia
China
Thailand
5%
0%
-5%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Source: EIU 2010
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Copyright 2010 @ Professor Michael E. Porter
Vietnam’s Current Development Model
Emerging Weaknesses
• Low sophistication in the export sector coupled with strong domestic demand
drive growing trade deficit
• Real appreciation of the Dong further contributes to the deficit
• Significant capital inflows fuel domestic demand growth and inflation
• Expansionary fiscal and monetary policies worsen inflation, rather than
control it
• Falling ratio of GDP growth to investment increases the need for capital
inflows to maintain the growth rate
• Demand growth is outstripping the existing microeconomic capacity in terms of
skills and infrastructure
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Ease of Worker Recruitment
Percentage of Firms that report Difficulty in Recruiting
Source: Junichi Mori , Nguyen Thi Xuan Thuy, and Pham Truong Hoang (2009) – data drawn from Japanese-Affiliated
Manufacturers in Asia, JETRO. Note: Surveys in 2003-2004 did not include questions about recruitment of general workers
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Copyright 2010 @ Professor Michael E. Porter
Vietnam’s Current Development Model
Emerging Weaknesses
• Low sophistication in the export sector coupled with strong domestic demand
drive growing trade deficit
• Real appreciation of the Dong further contributes to the deficit
• Significant capital inflows fuel domestic demand growth and inflation
• Expansionary fiscal and monetary policies worsen inflation, rather than
control it
• Falling ratio of GDP growth to investment increases the need for capital
inflows to maintain the growth rate
• Demand growth is outstripping the existing microeconomic capacity in terms of
skills and infrastructure
• The gap between announced and implemented FDI is rising
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Foreign Direct Investment in Vietnam
1988 - 2008
US $M
70,000
Registered
60,000
Actively Invested
50,000
40,000
30,000
20,000
10,000
0
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Source: General Statistics Office,Vietnam
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The 2010 Vietnam Competitiveness Report
• Vietnam’s Economic Position and Development Model
• Assessing Vietnam’s Competitiveness
• A Competitiveness Strategy for Vietnam
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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
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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Macroeconomic Competitiveness
Social Infrastructure and
Political Institutions
•
•
•
•
Fiscal policy
–
–
Basic education
Health system
•
Political institutions
–
–
–
–
–
•
•
Human development
–
–
Macroeconomic
Policies
Monetary policy
–
Political freedom
Voice and accountability
Political stability
Government effectiveness
Centralization of economic policymaking
Government surplus/deficit
Government debt
Inflation
Rule of law
–
–
–
–
–
Security
Judicial independence
Efficiency of legal framework
Business costs of corruption
Civil rights
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Determinants of Competitiveness
Microeconomic Competitiveness
Quality of the
National
Business
Environment
State of Cluster
Development
Sophistication
of Company
Operations and
Strategy
Sophistication
of Company
Operations and
Strategy
Macroeconomic Competitiveness
Social
Infrastructure
and Political
Institutions
•
Macroeconomic
Policies
Endowments
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The internal skills,
capabilities, and management
practices needed for
companies to attain the
highest level of productivity
and innovation possible
Copyright 2010 @ Professor Michael E. Porter
Determinants of Competitiveness
Microeconomic Competitiveness
Quality of the
National Business
Environment
•
Quality of the
National
Business
Environment
Macroeconomic Competitiveness
Social
Infrastructure
and Political
Institutions
The external business
environment conditions that
allow companies to reach high
levels of productivity and
innovation
Vietnam Competitiveness 20101130 – v8 Mon Nov 22 10AM
Sophistication
of Company
Operations and
Strategy
State of Cluster
Development
Macroeconomic
Policies
Endowments
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Quality of the National Business Environment
Context for
Firm
Strategy
and Rivalry
Factor
(Input)
Conditions
• Local rules and incentives that
encourage investment and productivity
 Open and vigorous local competition
Demand
Conditions
• Access to high quality business
inputs
• Sophisticated and demanding local
customers and needs
Related and
Supporting
Industries
• Availability of suppliers and supporting
industries
• 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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Copyright 2010 @ Professor Michael E. Porter
Determinants of Competitiveness
Microeconomic Competitiveness
Quality of the
National
Business
Environment
Sophistication
of Company
Operations and
Strategy
State of Cluster
Development
Macroeconomic Competitiveness
Social
Infrastructure
and Political
Institutions
State of Cluster
Development
•
Endowments
A geographic concentration of
firms, specialized assets, and
institutions in particular fields.
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Macroeconomic
Policies
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Copyright 2010 @ Professor Michael E. Porter
The Thai Automotive Cluster
Assemblers
Steel
Plastics
Motorcycles
Passenger
Cars
Distribution
Pickup
Trucks
Finance
Rubber&Tires
Testing
Electronics
Glass
Leather &
Fabric
Components and Module Makers
(1st tier)
Engines, Drivetrains, Steering, Suspension, Brake, Wheel, Tire,
Bodyworks, Interiors, Electronics and Electrical Systems
Specialized
Consultants
Services
Parts (2nd & 3rd tiers)
Machinery
Stamping, Plastics, Rubber, Machining, Casting, Forging,
Function, Electrical, Trimming
Tools
Mold&Die
Government
Jig&Fixture
Vietnam
Competitiveness
20101130
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Nov 22study
10AM
Source:
Sasin-team
analysis,
2003
Education and
Technical
Institutions
36
Associations
Copyright 2010 @ Professor Michael E. Porter
Clusters and Competitiveness
• Clusters increase productivity and operational efficiency
• Clusters stimulate and enable innovations
• Clusters facilitate commercialization and new business formation
• Clusters reflect the fundamental influence of linkages and spill-overs
across firms and associated institutions in competition
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Stages of National Competitive Development
Shifting Policy Imperatives
Factor-Driven
Economy
InvestmentDriven Economy
Low Cost Inputs
Productivity
• Macro, political, and legal
stability
• Improving human capital
• Efficient basic
infrastructure
• Lowering regulatory costs
of doing business
•
•
•
•
Increasing local rivalry
Market opening
Advanced infrastructure
Incentives and rules
encouraging productivity
• Cluster formation and
activation
InnovationDriven Economy
Unique Value
• Advanced skills
• Scientific and technological
institutions
• Incentives and rules
encouraging innovation
• Cluster upgrading
Source: Porter, Michael E., The Competitive Advantage of Nations, Macmillan Press, 1990
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Vietnam’s Competitiveness Profile
Position Relative to Current Prosperity
Overall Competitiveness
Macroeconomic
Competitiveness
Political
Institutions
Microeconomic
Competitiveness
Macroeconomic
Policy
National Business
Environment
Company
Operations and
Strategy
Rule of Law
Significant
advantage
Moderate
advantage
Human
Development
Neutral
Moderate
disadvantage
Significant
disadvantage
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Corruption Perception Index, 2009
Rank in Global
Corruption Index,
2009
-1
Low
corruption
Denmark
New Zealand
Switzerland
Finland Singapore
Australia
Canada
Iceland
Improving
Hong Kong
Luxembourg
Norway
Germany
Ireland
United Kingdom
Austria
Japan
USA
Belgium
Chile
France
Israel
Spain Taiwan
Portugal
South Korea
Hungary
Poland
Czech Republic
Slovakia
Malaysia
Turkey
Deteriorating
-11
-21
-31
-41
Italy
Greece
Brazil
-51
China
Thailand
-61
India
Mexico
Indonesia
High
corruption
Vietnam
Argentina
-71
Philippines
-81
Russia
-91
-20
-15
-10
-5
0
5
10
15
20
Change in Rank, Global Corruption Report, 2009 versus 2001
Note:
Ranks only countries available in both years (91 countries total)
Source: Global Corruption Report, 2009
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Copyright 2010 @ Professor Michael E. Porter
Vietnam’s National Business Environment
Context for
Firm
Strategy
and Rivalry
Factor
(Input)
Conditions

Basic physical infrastructure in place;
low effectiveness of the significant
ongoing further investments

Solid communication infrastructure as a
result of liberalization and competition

Growing but still shallow financial
system; highly volatile and speculative,
with limited access to credit for new
private companies

Education system is expanding but
provides largely insufficient quality;
serious shortage of skilled labor

Modest performance on administrative
infrastructure, but major reforms (e.g.
Project 30) under way

Poor innovation infrastructure
Vietnam Competitiveness 20101130 – v8 Mon Nov 22 10AM

High level of openness to foreign investors

WTO/ASEAN liberalization commitments but
remaining important barriers

Weak competition policy and enforcement

Unequal competition among companies,
with SOEs receiving special treatment

Competition focused on price, not quality

Unclear separation of government role as a
regulator from that as an owner

Equitization of SOEs not oriented towards
improving performance
Demand
Conditions

Sizeable and growing market

Low, yet improving, sophistication
of local customers

Weak regulatory quality standards
and enforcement
Related and
Supporting
Industries

Natural emergence of clusters, but focus on
narrow activities with weak presence of local
suppliers and service providers

Shallow roots of FDI in the local economy

Sector-oriented policies ineffective and not
systematically focused on clusters
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Copyright 2010 @ Professor Michael E. Porter
Regulatory Quality: Selected Countries
Composite Measure
of Regulatory Quality
0.8
0.6
0.4
0.2
Malaysia
0.0
Thailand
China
Vietnam
-0.2
-0.4
-0.6
-0.8
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Source: World Bank Institute, Global governance indicators, 2009. Values for 1997, 1999 and 2001 have been interpolated.
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Sophistication of Vietnamese Companies
• High levels of flexibility and responsiveness to market opportunities
• Short-term, opportunistic company strategies
• Compete primarily on cost, not quality
• Low level of operational sophistication
• Large SOEs operating as corporate groups with little synergy
• Huge gap in operational effectiveness and productivity between
Vietnamese SOEs, Vietnamese private companies, and foreign MNCs
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Vietnam’s Competitiveness in 2010: Summary
• Vietnam’s key current competitive advantages are based on inherited
endowments, especially its geographic location and demographic profile
• Government has realized these advantages through market opening and
investments in basic infrastructure
• Vietnam has not created new, distinctive competitive advantages
• Government efforts to meet the infrastructure and regulatory needs of a growing
economy are hampered by a regulatory approach focused on control
• While the development model has been successful, signs of its fragility are
increasing
• Vietnam needs an economic strategy based on a new development model
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Copyright 2010 @ Professor Michael E. Porter
The 2010 Vietnam Competitiveness Report
• Vietnam’s Economic Position and Development Model
• Assessing Vietnam’s Competitiveness
• A Competitiveness Strategy for Vietnam
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Towards a New Strategy: Three Guiding Principles
A new orientation towards competitiveness
• From a focus on macroeconomic drivers of structural change to
upgrading macro- and microeconomic foundations of productivity
Structural transformation in the role of the private sector
• From a focus on SOEs and foreign MNCs to a market-driven
combination of private firms, MNCs, and transformed SOE’s
A new role for government
• From a government controlling a transition economy to a government
creating competitive advantages in a market economy
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Vietnam’s Competitiveness Agenda
Strategic Action Priorities
Address emerging
challenges
Manage the
growing
macroeconomic
imbalances
Prepare for the next
stage of development
Address
emerging
bottlenecks in
key input factors
Secure current growth
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Create the
foundations for
higher
productivity
Enable future growth
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Manage Macroeconomic Imbalances
Key Action Proposals
• Increase transparency of fiscal position of the government and SOEs
– Create central entity with mandate to report on fiscal position of all
government entities and of SOEs and on the current state of the economy
• Enhance budget discipline
– Establish regular monitoring/auditing of public spending
– Strengthen quality and effectiveness of public debt management
• Pursue a consistent and predictable monetary policy
– Clarify roles of the National Assembly, the government, and the Central
Bank
– Set clear monetary policy goals
• Improve financial market regulation
– Enhance regulatory oversight of the financial system through the Central
Bank
• Coordinate overall macroeconomic policy over time
– Strengthen mandate and operations of the Central Committee for
Financial and Monetary Policies
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Address Microeconomic Bottlenecks
Key Action Proposals
• Microeconomic bottlenecks are emerging in physical infrastructure
(transport, energy), workforce skills, and administrative capacity
• The government has identified all of these areas as action priorities
• However, current policies lack effectiveness, despite sometimes
significant financial commitments
Outlines of a new approach
• Identify and alleviate problems in established regional clusters
• Focus individual cluster efforts on the most pressing bottlenecks
• Create cluster-based task-forces with the mandate and power to take
action
• Learn from cluster problems about general issues and possible
nation-wide solutions
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Possible Cluster Initiatives
Electronics & engineering cluster in Hanoi and
neighboring regions: Local supplier capacity
Tourism cluster in the Central Region:
Concept and related services
Garment cluster in Ho Chi Minh Region:
Workforce skills
Logistics cluster in Ho Chi Minh City region:
Infrastructure
Agro-processing cluster in the Mekong Delta region:
Value-added Activities
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Create the Foundations for Higher Productivity
Key Action Proposals: Policies
• Enhance education and workforce skills
– Develop a national workforce strategy with rigorous studies on the type
of skills and competencies required for future growth
– Reform the regulatory framework for the education sector
– Promote vocational training
– Set up a National Productivity Fund to support cluster-based initiatives in
skill upgrading efforts
• Improve physical infrastructure
– Create a centralized planning mechanism to coordinate, oversee and
evaluate infrastructure development
– Strengthen the system for managing public procurement
– Provide viable market-based financing options for infrastructure
investment
– Address electricity shortages through a utility action package of
investment, market regulation and technological measures
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Create the Foundations for Higher Productivity
Key Action Proposals: Policies (continued)
• Improve governance of State-Owned Enterprises (SOEs)
– Separate the role of the government as an owner from that as a regulator
– Define and enforce modern governance standards for SOEs
– Ensure competition and market discipline in the markets in which SOEs
operate
– Improve the equitization process and define policy for effective
management of divestment proceedings
• Enhance the approach to Foreign Direct Investment (FDI) Attraction
– Develop a new FDI attraction strategy for Vietnam
– Strengthen the capacity of the Foreign Investment Agency (FIA)
– Set up outreach initiatives with foreign MNCs to build the local supplier
base and clusters around foreign investments
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Create the Foundations for Higher Productivity
Key Action Proposals: Policies (continued)
• Pursue a Cluster-Based Development Model
– Re-organize existing policies around clusters, especially in areas linked
to investment attraction, workforce skill development, industrial parks, and
SME/private sector-development.
– Conduct a national cluster mapping project to identify and assess
clusters across the country
– Encourage the launch of pilot cluster initiatives through the creation of a
Vietnamese Cluster Initiative Fund
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The Role of Government in Cluster Initiatives
Government
should
• Support all existing
and emerging
clusters
• Participate
• Enable data
collection and
dissemination at
the cluster level
• Be ready to
implement
recommendations
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Government
may
• Initiate/
Convene
• Co-Finance
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Government
should not
• Pick favored
clusters
• Pick favored
companies
• Subsidize or
distort
competition
• Define cluster
action
priorities
Copyright 2010 © Professor Michael E. Porter
Industrial Policy versus Cluster-Based Policy
Industrial Policy
Cluster-Based Policy
• Leverage existing assets, history,
and geographic location
• Target areas of perceived market
demand or attractive technology
• All clusters are good
• Intervene in competition (subsidies,
protection, etc.)
• Enable competition to be more
productive and sophisticated
• Favor domestic companies
• Neutral on ownership
• Require sustained financial
commitment by the public sector
• Require sustained participation by
all actors
• Centralize decisions at the national
level
• Encourage initiative at all geographic
levels
• Has a high failure rate; short term
impact but low sustainability
• Has rising impact over time; some
quick successes are possible
Distort and impede competition
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Enhance and upgrade competition
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Copyright 2010 @ Professor Michael E. Porter
Organize Public Policy around Clusters
Business Attraction
Education and Workforce Training
Science and Technology
Infrastructure
(e.g., centers, university
departments, technology
transfer)
Export Promotion
Clusters
Market Information
and Disclosure
Setting standards
Specialized Physical
Environmental Stewardship
Infrastructure
Natural Resource Protection
• Clusters provide a framework for organizing the implementation of many
public policies and public investments directed at economic development
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Clusters, Growth, and Diversification
Grow activities
in related clusters
Grow activities in new industries
within existing clusters
Upgrade the quality of
activities in existing clusters
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Create the Foundations for Higher Productivity
Key Action Proposals: Architecture
• Professionalize the Policy Process
– Creation of a central Regulatory Impact Assessment (RIA) unit to review
existing and a new laws and regulations
– Establishment of an institutionalized review process for draft laws and
regulations hat invites stakeholders to comment
– Development of a medium-term budget planning process with rolling
updates
• Enhance Public Sector Capacity
– Establishment a Prime Minister’s Policy Unit
– Launch an anti-corruption campaign
– Review of the current training system for public officials, starting with
pilot agencies
– Develop comprehensive civil service reform program with modernization
of organizational structures and HR practices, including hiring, pay,
promotion, etc.
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The Process of Economic Development
Shifting Roles and Responsibilities
Old Model
New Model
• Government drives economic
development through policy
decisions and incentives
• Economic development is a
collaborative process involving
government at multiple levels,
companies, teaching and
research institutions, and private
sector organizations
• Competitiveness is the result of both top-down and bottom-up processes in
which many individuals, companies, and institutions take relevant decisions
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Create the Foundations for Higher Productivity
Key Action Proposals: Architecture (continued)
• Strengthen Regional government
– Launch funding competition for development of regional economic
development strategies
– Develop a knowledge and skill infrastructure for regional development
– Review the current structure of authority delegation between the central
and regional governments
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Geographic Levels Influencing Competitiveness
World Economy
WTO
Broad Economic Areas
South-East Asia
Groups of
Neighboring Nations
Greater Mekong
Region
• The business environment at a given
location is the cumulative outcome of
policy at all levels of geography
• Microeconomic competitiveness
raises the importance of lower
levels of geography
Nations
Vietnam
States, Provinces
Vietnamese
provinces
Metropolitan and Rural Areas
Hanoi region
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• The allocation of responsibilities
across levels of geography is a
crucial policy challenge
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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
• Region’s specialize in different sets of clusters
• Cluster strength directly impacts regional performance
• Each region requires its own distinctive competitiveness agenda
• Improving competitiveness requires effective policy collaboration
between 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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Implementation Model
Creating a National Competitiveness Council
National Competitiveness Council
Coordinate
Task Forces
Agencies
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Monitor
Action
Report
Action
Action
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Public
Government
Copyright 2010 @ Professor Michael E. Porter
Sequencing Microeconomic Reforms
National
Institutional
Reforms
National Policy
Reforms
Regional Cluster
Efforts
• Upgrade quality of
policy design through
institutional reforms
• Translate cluster
experience into better
national policies
• Develop local
solutions in regional
clusters
• A bottom-up approach with gradually increasing scope is more likely to
engage all relevant constituencies than traditional top-down efforts
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Creating a National Economic Strategy for Vietnam
National Value Proposition
• What is the distinctive competitive position of Vietnam
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?
Achieving and Maintaining Parity
with Peers
Developing Unique Strengths
• What elements of the business
environment can be unique strengths
relative to peers/neighbors?
• What existing and emerging clusters
represent 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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Role of a National Value Proposition
• The value proposition should be an inspiration to the Vietnamese
population
• The value proposition is a signal to companies from abroad and at
home about what assets and conditions can expect to find in
Vietnam
• The value proposition is a signal to policy makers in Vietnam of what
type of improvements are most critical in order to make the value
proposition a reality
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Towards A Value Proposition for Vietnam
What is Unique
about Vietnam?
What is Vietnam’s
Value Proposition?
• Location
• Access to a growing market and
region
• Demographics
• Legacy of influence from China,
Europe, US
• Second manufacturing location
• Natural resources
• Established positions in selected
global markets (footwear, apparel,
coffee, and seafood products)
• Strong clusters in areas like
footwear, apparel, coffee, and
seafood products with potential to
upgrade sophistication
• Others
• Others
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• Integration/access to ASEAN
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Copyright 2010 @ Professor Michael E. Porter
Vietnam’s Competitiveness Challenge:
From Ambition to Action
Provide access
to existing
comparative
advantages
Enable emergence
of new
competitive
advantages
Low labor costs
Natural endowments
Productivity
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