Israel Competitiveness Snapshot
Professor Michael E. Porter
Harvard Business School
December 6, 2012
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 (World Economic Forum), “Clusters and the New Competitive Agenda for
Companies and Governments” in On Competition (Harvard Business School Press, 2008), and ongoing research on clusters and competitiveness. No part of this publication
may be reproduced, stored in a retrieval system, or transmitted in any form or by any means - electronic, mechanical, photocopying, recording, or otherwise - without the
permission of Michael E. Porter. Further information on Professor Porter’s work and the Institute for Strategy and Competitiveness is available at www.isc.hbs.edu
Prosperity Performance
OECD Countries
PPP-Adjusted GDP per
Capita, 2011 ($USD)
$60,000
OECD Average: 4.06%
Norway
United States
$50,000
Denmark
Switzerland
Netherlands
Austria
Ireland
$40,000
Canada
Iceland
France
Japan
Belgium
United Kingdom
Sweden
Australia
Germany
Finland
OECD Average: $33,432
Spain
$30,000
Italy
South Korea
Israel
New Zealand
Slovenia
Czech Republic
Greece
Portugal
Slovakia
Estonia
$20,000
Poland
Hungary
Chile
Mexico
Turkey
$10,000
1.5%
2.5%
3.5%
4.5%
5.5%
6.5%
7.5%
Growth in Real GDP per Capita (PPP-adjusted), CAGR, 2001-2011
Note: Luxembourg Excluded
Source: EIU (2012), authors calculations
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Copyright 2012 © Professor Michael E. Porter
Labor Productivity Level and Growth
OECD Countries
Real GDP per
Employee (1990 GK$),
2011
$65,000
OECD Average: 1.20%
United States
Austria
$55,000
Netherlands
Norway
Belgium
France
Finland
Canada
Australia
Sweden
Italy
Denmark
U.K.
Japan
Israel
Iceland
Switzerland
Ireland
$45,000
Germany
$35,000
Slovenia
South Korea
OECD Average: $39,773
Estonia
New Zealand
Spain
Greece
Chile
Turkey
$25,000
Portugal
Slovakia
Czech Republic
Poland
Mexico
$15,000
-1.0%
0.0%
Hungary
1.0%
2.0%
3.0%
4.0%
5.0%
Growth in Real GDP per Employee, CAGR, 2001-2011
Note: Luxembourg omitted.
Source: Groningen Growth and Development Centre, Total Economy Database (January 2012). GDP calculated using Geary Khamis calculation methodology.
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Copyright 2012 © Professor Michael E. Porter
Labor Productivity Growth vs. GDP Growth
OECD Countries
Growth in Real GDP
per Employee , CAGR,
2001-2011
5.0%
OECD Average: 4.06%
Slovakia
Turkey
4.0%
Poland
South Korea
3.0%
Estonia
Czech Republic
Slovenia
Sweden
Finland
2.0%
Netherlands
Iceland
1.0%
Japan
France
Greece
0.0%
U.S.
Denmark
Chile
Hungary
Israel
OECD Average: 1.20%
Germany
Norway
Austria Australia
Belgium
Mexico
U.K.Canada
New Zealand Switzerland
Ireland
Portugal
Italy
Spain
-1.0%
1.5%
2.5%
3.5%
4.5%
5.5%
6.5%
7.5%
Growth in Real GDP per Capita (PPP-adjusted), CAGR, 2001-2011
Note: Luxembourg omitted.
Source: Groningen Growth and Development Centre, Total Economy Database (January 2012); EIU Data (2012).
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Copyright 2012 © Professor Michael E. Porter
Workforce Participation
OECD Countries
Labor Force
Participation (2011)
65.0%
Declining Participation
OECD Average: 1.59%
Improving Participation
Switzerland
60.0%
Iceland
55.0%
Canada Australia
Germany
New Zealand
Norway Sweden
Portugal
Japan
Denmark
Finland
50.0%
United States
Czech Republic
United Kingdom
Slovakia
France
Spain
South Korea
OECD Average: 49.09%
Belgium
Ireland
45.0%
Estonia
Netherlands
Slovenia
Poland
Chile
Israel
Austria
Greece
Mexico
Hungary
Italy
40.0%
Turkey
35.0%
-3.5%
-2.5%
-1.5%
-0.5%
0.5%
1.5%
2.5%
3.5%
4.5%
5.5%
6.5%
7.5%
Change in Labor Force Participation Rate, 2001-2011
Note: Luxembourg omitted.
Source: EIU (2012), authors calculations
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Copyright 2012 © Professor Michael E. Porter
Unemployment Performance
OECD Countries
Unemployment Rate,
2011 (%)
18.0%
OECD Average: 1.41%
Greece
Spain (11.10%, 21.65%)
16.0%
Ireland
14.0%
Slovakia
Estonia
Portugal
Poland
12.0%
Slovenia
Hungary
Czech Republic
10.0%
Turkey
France
Italy
8.0%
Finland Canada
Chile
Belgium
Germany
6.0%
Australia
2.0%
-6.0%
Austria
Japan
Improving
Unemployment
-4.0%
OECD Average: 8.52%
United Kingdom
Sweden
Iceland
New Zealand
Denmark
Mexico
Israel
4.0%
United States
Netherlands
South Korea
Norway
-2.0%
0.0%
Worsening
Unemployment
Switzerland
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Change in Unemployment Rate in Percentage Points, 2001-2011
Note: Luxembourg omitted.
Source: EIU (2012), authors calculations
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Copyright 2012 © Professor Michael E. Porter
Working Hours
OECD Countries
Hours Worked per
Employee, 2011
2,200
South Korea (-1.28%; 2,204)
OECD Average: -0.34%
Mexico
2,100
Chile
Poland
Greece
2,000
Portugal
Hungary
Israel
1,900
Estonia
Turkey
Czech Republic
Ireland
1,800
Slovakia
Italy
Japan
1,700
Australia
Canada
Austria
Iceland
OECD Average: 1,750
Spain
United Kingdom
Switzerland
Sweden
Slovenia
New Zealand
1,600
United States
Finland
Belgium
Denmark
1,500
France
Germany
1,400
Norway
Netherlands
1,300
Declining
Working Hours
1,200
-0.9%
-0.8%
Longer
Working Hours
-0.7%
-0.6%
-0.5%
-0.4%
-0.3%
-0.2%
-0.1%
0.0%
0.1%
0.2%
Change in Hours Worked per Employee, CAGR, 2001-2011
Note: Luxembourg omitted.
Source: Groningen Growth and Development Centre and The Conference Board, 2012
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Copyright 2012 © Professor Michael E. Porter
Intermediate Indicators and Enablers of
Productivity
Productivity
Domestic
investment
Exports
Domestic
innovation
Imports
Inbound
foreign direct
investment
Outbound
foreign direct
investment
Country Competitive Environment
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Copyright 2012 © Professor Michael E. Porter
Domestic Investment Performance
OECD Countries
Gross Fixed
Investment (% of GDP),
2011
28.0%
OECD Average: -2.34%
Australia
South Korea
26.0%
Czech Republic
24.0%
Chile
Slovakia
Estonia
22.0%
Austria
Mexico
Belgium
Japan
Spain
Turkey
France
Norway
Poland
Switzerland
20.0%
Italy
Finland
Israel
Slovenia
18.0%
New Zealand
Germany
Denmark
Hungary
OECD Average: 19.47%
Sweden
Netherlands
Portugal
Canada
16.0%
Greece
United Kingdom
14.0%
Iceland
12.0%
United States
Ireland (-12.27%, 10.09%)
10.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
Change in Gross Fixed Investment (% of GDP), 2001-2011
Note: Includes inbound FDI; excludes Luxembourg.
Source: EIU, 2012
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Copyright 2012 © Professor Michael E. Porter
Export Performance
OECD Countries
Exports of Goods and
Services (% of GDP),
2011
120.0%
OECD Average: 6.81%
Ireland
100.0%
Estonia
Hungary
Slovakia
Belgium
Netherlands
80.0%
Czech Republic
Slovenia
60.0%
Denmark
Sweden
OECD Average: 49.10%
Norway
40.0%
New Zealand
Switzerland
Chile
Israel
France
Portugal
Spain
Mexico
U.K.
Italy
Turkey
20.0%
Germany
Iceland
South Korea
Poland
Finland
Canada
Austria
Greece
Japan
Australia
United States
0.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Change in Exports of Goods and Services (% of GDP), 2001-2011
Note: Luxembourg omitted
Source: EIU (2012), authors calculations
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Copyright 2012 © Professor Michael E. Porter
Import Performance
OECD Countries
Imports of Goods and
Services (% of GDP),
2011
100.0%
OECD Average: 5.68%
Estonia
90.0%
Slovakia
Ireland
80.0%
Belgium
Hungary
Netherlands
Slovenia
Czech Republic
70.0%
60.0%
Austria
South Korea
Denmark
50.0%
Switzerland
Portugal
New Zealand
40.0%
Greece
Israel
Spain
30.0%
Finland
Chile
U.K.
Germany
Poland
OECD Average: 46.81%
Turkey
Mexico
Canada
France
Norway
20.0%
Sweden
Iceland
Australia
Italy
Japan
United States
10.0%
0.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Change in Imports of Goods and Services (% of GDP), 2001-2011
Note: Luxembourg omitted
Source: EIU (2012), authors calculations
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Copyright 2012 © Professor Michael E. Porter
Innovative Output
Selected Countries
Average U.S. patents per 1
million population, 2007-2009
400
350
Taiwan
United States
300
Japan
250
200
Finland
Israel
Switzerland
150
Sweden
South Korea
Germany
Canada
100
Netherlands
UK
France
South Africa
0
-5%
Singapore
Denmark
Belgium
50
Hong Kong
Russia
0%
Austria
Norway
New Zealand
Italy
Hungary Brazil
Spain
5%
Australia
Ireland
India
10%
15%
CAGR of US-registered patents, 1999-2009
China (30.78%)
20%
25%
10,000 patents =
Source: USPTO (2010), Groningen Growth and Development Centre, Total Economy Database (2010)
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Copyright 2012 © Professor Michael E. Porter
Inbound Foreign Investment Performance
Stocks and Flows, OECD Countries
Inward FDI Stocks as %
of GDP, Average 20002010
80.0%
Iceland
(32.39%, 134.45%)
OECD Average: 19.18%
Ireland
(39.24%, 107.90%)
Belgium
(94.53%, 132.93%)
Netherlands
Estonia
70.0%
Chile
Switzerland
Hungary
60.0%
Sweden
New Zealand
50.0%
Czech Republic
Denmark
Slovakia
France
Portugal
40.0%
OECD Average: 44.75%
United Kingdom
Australia
30.0%
Austria
Norway
United States
20.0%
Slovenia
Canada
Poland
Finland
Israel
Mexico
Germany
Greece
10.0%
Spain
Italy
Turkey
South Korea
Japan
0.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
FDI Inflows as % of Gross Fixed Capital Formation, Average 2000-2010
Note: Luxembourg omitted
Source: UNCTAD, World Investment Report (2012)
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Copyright 2012 © Professor Michael E. Porter
Outbound Foreign Investment Performance
Stocks and Flows, OECD Countries
Outward FDI Stocks as
% of GDP, Average
2000-2010
80.0%
Belgium (87.81%, 127.83%)
Iceland (43.13%, 186.83%)
Netherlands (50.66%, 104.05%)
Switzerland (46.33%, 127.16%)
OECD Average: 18.40%
Ireland
70.0%
United Kingdom
60.0%
Sweden
France
Denmark
50.0%
Finland
OECD Average: 39.28%
40.0%
Canada
Germany
Australia
30.0%
Spain
Norway
United States
Austria
20.0%
Portugal
New Zealand
Greece
Mexico
Slovenia
10.0%
Chile
Estonia
Italy
Israel
Japan
Hungary
South Korea
Poland
0.0%
0.0%
5.0%
Czech Republic
Turkey Slovakia
FDI
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
Outflows as % of Gross Fixed Capital Formation, Average 2000-2010
Note: Luxembourg omitted.
Source: UNCTAD, World Investment Report (2012)
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Copyright 2012 © Professor Michael E. Porter
What Determines Competitiveness?
Microeconomic Competitiveness
Quality of the
Business
Environment
State of Cluster
Development
Sophistication
of Company
Operations and
Strategy
Macroeconomic Competitiveness
Sound Monetary
and Fiscal Policies
Human Development
and Effective
Political Institutions
Endowments
Productivity ultimately depends on improving the microeconomic capability of the economy and the
sophistication of local competition revealed at the level of regions and clusters
• Macroeconomic competitiveness sets the economy-wide context for productivity to emerge, but is not
sufficient to ensure productivity
• Endowments, including natural resources, geographical location, population, and country size, create
a foundation for prosperity, but true prosperity arises
from productivity in the use of endowments
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15
•
ISC Competitiveness Model
Israel’s Competitiveness Profile, 2012
Country Competitiveness
29
Macroeconomic
Competitiveness
Microeconomic
Competitiveness
30
23
Political Institutions
48
Macroeconomic
Policy
National Business
Environment
Company Operations
and Strategy
58
27
13
Rule of Law
29
Israel’s GDP per capita rank is 25th
versus 128 countries
Human
Development
26
Significant
disadvantage
Moderate
disadvantage
Neutral
Moderate
advantage
Significant
advantage
Note:
Rank versus 128 countries; *Color coding based on comparison relative to income;
Source:
Institute for Strategy and Competitiveness, Harvard University (2012), based in part on survey data from the World Economic Forum; analysis prepared based on research findings by Scott Stern, Mercedes
Delgado, and Christian Ketels.
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Copyright 2012 © Professor Michael E. Porter
ISC Competitiveness Model
Israel’s Competitiveness Profile, 2012
Macroeconomic Competitiveness
30
Microeconomic Competitiveness
23
Political Institutions
Effectiveness of law -making bodies
Public trust of politicians
(Low ) Wastefulness of government spending
(Low ) Favoritism in decisions of government officials
Government effectiveness in reducing poverty and inequality
Transparency of government policymaking
Decentralization of economic policymaking
Freedom of the press
Voice and Accountability (WB)
48
56
58
64
42
89
67
*
16
42
National Business Environm ent
Factor (input) conditions
- Logistical infrastructure
- Communications infrastructure
- Administrative infrastructure
- Capital market infrastructure
- Innovation infrastructure
Demand conditions
Supporting and related industries and clusters
Context for strategy and rivalry
27
28
56
27
61
24
20
22
28
34
Rule of Law
Safety
Judicial independence
Efficiency of legal framew ork
Property rights
(Low occurrence of) Diversion of public funds
(Low occurrence of) Irregular payments by firms
(Low ) Business costs of corruption
Ethical behavior of firms
Control of Corruption (WB)
Rule of Law (WB)
29
39
18
50
29
23
26
*
29
35
32
Com pany Operations and Strategy
Strategy and operational effectiveness
Organizational practices
Internationalization of firms
13
10
29
10
Hum an Developm ent
Quality of primary education
Quality of healthcare services
Accessibility of healthcare services
Health expenditure
Life expectancy
(Low ) Malaria incidence
(Low ) Tuberculosis incidence
(Low ) Infant mortality
Primary enrollment
Secondary enrollment
(Low ) Gender inequality
26
67
24
36
47
8
1
9
19
38
1
22
Macroeconom ic Policy
Government surplus/deficit
Government debt
Inflation
58
61
108
44
Note:
Rank versus 128 countries; *Color coding based on comparison relative to income;
Source:
Institute for Strategy and Competitiveness, Harvard University (2012), based in part on survey data from the World Economic Forum; analysis prepared based on research findings by Scott Stern, Mercedes
Delgado, and Christian Ketels.
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Copyright 2012 © Professor Michael E. Porter
Corruption Perception Index
OECD Countries
Rank in Global
Corruption Index, 2011
New Zealand
Denmark
Sweden
Finland
Switzerland
Australia
Austria
Iceland
United Kingdom
United States
France
Spain
Canada
Norway
Netherlands
Low
corruption
Japan
Germany
Belgium
Ireland
Chile
Estonia
Portugal
Israel
Slovenia
South Korea
Poland
Hungary
Czech Republic
Turkey
Slovakia
Italy
Greece
Mexico
Worsening
Improving
High
corruption
Change in Rank, Global Corruption Report, 2011 versus 2006
Note:
Methodology for comparison is based on adjusted rankings only for countries available in both years (161 countries total)
Source: Global Corruption Report, 2011
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Copyright 2012 © Professor Michael E. Porter
Microeconomic Competitiveness Indicators
Ease of Doing Business Rankings (Israel, 2013)
Ranking, 2010
(vs. 183 countries)
Favorable
Unfavorable
140
120
100
80
60
40
Israel’s GDP per
capita rank: 26
20
0
Ease of
Doing
Business
Rank
Protecting
Investors
Trading
Across
Borders
Getting Credit
Starting a
Business
Resolving
Insolvency
Paying Taxes
Getting
Electricity
Enforcing
Contracts
Dealing with
Construction
Permits
Registering
Property
Source: World Bank Report, Doing Business (2012).
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Copyright 2012 © Professor Michael E. Porter
Composition of Exports
Israel’s Exports By Type of Good
World Export Market
Share (current USD)
1.80%
Processed Goods
Semi-processed Goods
Unprocessed Goods
Services
TOTAL
1.60%
1.40%
1.20%
1.00%
0.80%
0.60%
0.40%
0.20%
0.00%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
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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Copyright 2012 © Professor Michael E. Porter
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Israel’s National Cluster Export Portfolio
2000-2010
4.50%
Change in Israel’s Overall
World Export Share: -0.16%
Jewelry, Precious Metals and
Collectibles
4.00%
World Export Market Share, 2010
3.50%
3.00%
Communications Services
2.50%
Aerospace Vehicles and
Defense
2.00%
Biopharmaceuticals
1.50%
Chemical Products
Medical Devices
Business Services
1.00%
Construction Services
Analytical Instruments
Plastics
Textiles
Communications Equipment
0.50%
Israel’s Overall
World Export Share: 0.47%
0.00%
-4.00%
Hospitality and Tourism
Production Technology Processed Food
-3.00%
-2.00%
Entertainment and
Reproduction Equipment
Metal Mining and
Manufacturing
Oil and Gas Products
-1.00%Motor Driven 0.00%
Products
Automotive
Change in World Export Market Share, 2000-2010
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1.00%
2.00%
= $1.5 billion
Copyright 2012 © Professor Michael E. Porter
Cluster Linkages and Economic Diversification
Israel, 2010
World Market Share
0.25% - 0.46%
Fishing &
Fishing
Products
0.47% - 1.00%
> 1.00%
Textiles
Agricultural
Products
Processed
Food
Jewelry &
Precious
Metals
Transportation
& Logistics
Distribution
Services
Business
Services
Financial
Services
Medical
Devices
Forest
Products
Power
Generation
Heavy
Machinery
Motor Driven
Products
Production
Technology
Tobacco
Oil &
Gas
Aerospace
Engines
Leather &
Related
Products
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Construction
Materials
Heavy
Construction
Services
Lightning &
Electrical
Equipment
Communications
Services and
Equipment
Plastics
Footwear
Building
Aerospace
Fixtures,
Vehicles &
Defense Equipment &
Services
Analytical
Instruments
Biopharmaceuticals
Chemical
Products
Apparel
Furniture
Entertainment
Information
Tech.
Education &
Knowledge
Creation
Publishing
& Printing
Prefabricated
Enclosures
Hospitality
& Tourism
Mining & Metal
Automotive
Manufacturing
Sporting
& Recreation
Goods
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Copyright 2012 © Professor Michael E. Porter