Competitiveness: Creating a Rwandan
Economic Strategy
Professor Michael E. Porter
Institute for Strategy and Competitiveness
Harvard Business School
Kigali, Rwanda
July 2008
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
Version: July 20, 2008
GCR South Africa 062007.ppt
1
Copyright © 2007 Professor Michael E. Porter
Prosperity Performance
East Africa versus Other Developing Countries
PPP-adjusted GDP per
Capita, 2007 ($USD)
$15,000
Singapore ($39,356)
South Korea ($23,094)
Botswana
Gabon
Malaysia
$12,000
African countries
Asian countries
East African Community
Mauritius
South Africa
$9,000
Thailand
$6,000
$3,000
Papua New Guinea
Cote d’Ivoire
Eritrea
$0 Zimbabwe
-6.0%
-4.0%
Togo
Burundi
-2.0%
China
Namibia
Swaziland
Sri Lanka
Angola
Indonesia
Lesotho Philippines
India
Guinea
Vietnam
Pakistan
Laos
Senegal Cameroon
Nigeria
Cambodia
Kenya
Congo
Tanzania
Mozambique
Malawi
Burma
Rwanda Uganda Ethiopia
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
Growth of Real GDP per Capita (PPP-adjusted), CAGR, 1998-2007
Note: highlighted countries are part of the East African Community (EAC). Source: EIU (2008), authors calculations
East African Business Summit – final.ppt
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Copyright 2008 © , M. Porter
Comparative Economic Performance
Real GDP Growth Rates
Annual growth rate
of real GDP (US$
2005 prices)
Countries sorted by 20032007 annual real GDP
growth rate (CAGR)
30%
25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
ANGOLA
ETHIOPIA
SUDAN
CHAD
MOZAMBIQUE
NIGERIA
UGANDA
KENYA
MALAWI
ZAMBIA
GHANA
LIBYA
BOTSWANA
RWANDA
MADAGASCAR
THE GAMBIA
CONGO (Dem Rep.)
SOUTH AFRICA
NAMIBIA
BURKINA FASO
SENEGAL
MACEDONIA
ALGERIA
BENIN
MOROCCO
BURUNDI
CAMEROON
GABON
TOGO
GUINEA
COTE D'IVOIRE
ZIMBABWE
Source: EIU (2007)
Competitiveness Master - 2008-05-22.ppt
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Copyright 2008 © Professor Michael E. Porter
Rwanda Competitiveness in 2008
• Rwanda continues to be on a positive track for continuing growth and
improvements in prosperity levels
• The economic gains are a reflection of the policy reforms undertaken as
well as the bouncing back from low current levels of GDP
• Rwanda has also weathered the impact of political disturbances in Kenya,
a weakening global economy, and continued political tensions with
individual European countries
• Despite these achievements, Rwanda will need further efforts to realize
the ambitious goals of its longer-term economic strategy
• Key areas for action are
– Better alignment of government and donor activities with core
competitiveness needs of the Rwandan economy
– Better coordination across different areas of policy
– Stronger focus on the barriers for private sector development in
physical infrastructure and government rules and regulations
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Copyright 2008 © , M. Porter
What is Competitiveness?
• Competitiveness depends on the productivity with which a nation uses its
human, capital, and natural resources.
– Productivity sets the sustainable standard of living (wages, returns on capital,
returns on natural resources) that a country can sustain
– It is not what industries a nation competes in that matters for prosperity, but how
productively it competes in those industries
– Productivity in a national economy arises from a combination of domestic and
foreign firms
– The productivity of “local” or domestic industries is fundamental to
competitiveness, not just that of export industries
• Nations compete to offer the most productive environment for business
• The public and private sectors play different but interrelated roles in creating
a productive economy
Competitiveness Master - 2008-05-22.ppt
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Copyright 2008 © Professor Michael E. Porter
Sources of Prosperity
Inherited
Inherited Prosperity
Prosperity
Created
Created Prosperity
Prosperity
•• Prosperity
Prosperity is
is derived
derived from
from selling
selling or
or
exploiting
exploiting inherited
inherited natural
natural resources
resources
•• Prosperity
Prosperity is
is derived
derived from
from creating
creating more
more
and
and more
more valuable
valuable products
products and
and
services
services with
with rising
rising efficiency
efficiency
•• Prosperity
Prosperity is
is constrained
constrained
•• Prosperity
Prosperity is
is unlimited
unlimited
•• Government
Government is
is the
the central
central actor
actor in
in the
the
economy
economy as
as the
the owner
owner and
and distributor
distributor of
of
resource
resource wealth
wealth
–– Resource
Resource revenues
revenues allow
allow
unproductive
unproductive policies
policies and
and practices
practices
to
to persist
persist
•• Government’s
Government’s role
role gravitates
gravitates towards
towards
the
the distribution
distribution of
of wealth
wealth as
as interest
interest
groups
groups seek
seek aa bigger
bigger share
share of
of the
the pie
pie
•• Companies
Companies are
are the
the central
central actors
actors in
in the
the
economy
economy
–– Prosperity
Prosperity can
can only
only be
be created
created by
by
firms
firms
Competitiveness Master - 2008-05-22.ppt
•• Government’s
Government’s role
role is
is to
to create
create the
the
enabling
enabling conditions
conditions for
for productivity
productivity
and
and foster
foster private
private sector
sector development
development
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Copyright 2008 © Professor Michael E. Porter
Decomposing Prosperity
• Standard of living
• Inequality
Prosperity
Prosperity
Domestic
Domestic
Purchasing
Purchasing
Power
Power
Per
PerCapita
CapitaIncome
Income
• Local prices
– Efficiency of local
industries
– Level of local market
competition
• Consumption taxes
Labor
Labor
Utilization
Utilization
Labor
Labor
Productivity
Productivity
• Skills
• Capital stock
• Total factor productivity
Competitiveness Master - 2008-05-22.ppt
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• Workforce participation rate
– Population age profile
• Unemployment
• Working hours
Copyright 2008 © Professor Michael E. Porter
Labor Productivity
Selected Countries
GDP per person
employed (constant
1990 PPP $)
2250
Cote d'Ivoire
2000
Ghana
1750
Kenya
1500
Madagascar
Mali
1250
Nigeria
1000
Rwanda
750
Senegal
Tanzania
500
Uganda
250
Zambia
0
1980
1985
Source: World Bank Development Indicators (2008)
Competitiveness Master - 2008-05-22.ppt
1990
1995
8
2000
2005
Copyright 2008 © Professor Michael E. Porter
Decomposition of Rwandan Prosperity Growth
Growth Rate
12%
10%
Total Factor Productivity
Capital
8%
Labor
6%
4%
2%
0%
-2%
-4%
1980-1989
1995-2003
Source: World Bank (2007)
Competitiveness Master - 2008-05-22.ppt
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Copyright 2008 © Professor Michael E. Porter
Rwandan Export Share Trends
World Export Market
Share (current USD)
0.008%
Processed Goods
Semi-processed Goods
Unprocessed Goods
Services
TOTAL
0.007%
0.006%
0.005%
0.004%
0.003%
0.002%
0.001%
0.000%
1996
1998
2000
2002
2004
2006
Source: UNComtrade (2008)
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Copyright 2008 © Professor Michael E. Porter
Export Shares
Selected Countries
Exports as Share of
GDP (in %, 2007)
100%
90%
Malaysia
Papua New Guinea
Swaziland
African countries
Asian countries
East African Community
Angola
80%
70%
Vietnam
Thailand
Lesotho
60%
Cambodia
Nigeria
50%
Chad
Zambia
Tunisia
40%
China
Gabon
Namibia
Botswana
Korea
Burma
Cote d’Ivoire
Philippines
Ghana
Malawi Mauritius
Indonesia
Togo
Laos
Sri
Lanka
South Africa
Guinea
Cameroon
Bangladesh
Sudan
Japan
Kenya
Uganda
Senegal
Pakistan
Benin
Tanzania
Ethiopia
India Rwanda
Burundi
Eritrea
Gambia
Mozambique
30%
20%
10%
0%
-30%
Congo
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
Change of Exports as Share of GDP, 2003 to 2007
Source: UN Comtrade (2007), authors’ analysis
Competitiveness Master - 2008-05-22.ppt
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Copyright 2008 © Professor Michael E. Porter
Inbound Foreign Investment Performance
Selected Countries
Inward FDI Stocks as %
of GDP, Average 2002 2006
70%
Azerbaijan (116.4%, 48.5%)
Tunisia
Vietnam
60%
Congo
Namibia
New Zealand
African countries
Other countries
East African Community
50%
Cambodia
Burma
Tanzania
Malaysia
40%
Australia
30%
Togo
South Africa
Malawi
Ghana
20%
Russia
Rwanda
10%
0%
Laos
Brazil
Kazakhstan
Moldova
Thailand
Armenia
Egypt
Mongolia
Georgia
Nigeria (52.8%)
Turkmenistan
Ethiopia
Cote d’Ivoire
Kyrgyz Republic
Uganda
Guinea-Bissau
Cameroon
Mali Ukraine
Tajikistan (70.4%)
Guinea
Central African Republic
Burundi
Botswana
Philippines
China
Taiwan
Sri Lanka
Kore
Pakistan
a Belarus / Uzbekistan
India
Kenya
Indonesia
Gabon
Japan
Somalia
0%
5%
10%
15%
20%
25%
30%
35%
40%
FDI Inflows as % of Gross Fixed Capital Formation, Average 2002 - 2006
Source: UNCTAD, World Investment Report (2007)
Competitiveness Master - 2008-05-22.ppt
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Copyright 2008 © Professor Michael E. Porter
Inward Foreign Investment Flows
Rwanda, 1970 - 2006
Inward FDI
(USD, millions)
$21.0
$18.0
$15.0
$12.0
$9.0
$6.0
$3.0
$0.0
1970
1973
Note: Data not available for 1994.
Source: UNCTAD (2007)
GCR South Africa 062007.ppt
1976
1979
1982
1985
1988
13
1991
1994
1997
2000
2003
2006
Copyright © 2007 Professor Michael E. Porter
Fixed Investment Rates
Selected Countries
Gross Fixed Investment as
% of GDP (2006)
45%
40%
Senegal
Equatorial Guinea
35%
Ghana
30%
Namibia
Zambia
Ethiopia
Madagascar
Algeria
Uganda
Morocco Gambia
Gabon Nigeria
Togo
Tunisia
Rwanda
Tanzania
South Africa
Mozambique
Benin
Kenya
Sudan
Botswana
Burkina
Faso
Zimbabwe
Cameroon
25%
20%
Burundi
15%
10%
Chad (-25.9%)
Libya
Guinea
Cote d’Ivoire
Malawi
5%
0%
-10%
-5%
0%
5%
10%
15%
20%
25%
CAGR Gross Fixed Investment (as % of GDP), 2001 - 2006
Source: EIU, 2007.
Competitiveness Master - 2008-05-22.ppt
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Copyright 2008 © Professor Michael E. Porter
International Aid and Assistance Flows
Aid as %
Gross Capital
Formation
East African Community, 2002 - 2006
5
2001
2002
2003
2004
2005
2006
4
4
3
3
2
2
1
1
0
Burundi
Source: World Development Indicators (2008)
Competitiveness Master - 2008-05-22.ppt
Kenya
Rwanda
15
Tanzania
Uganda
Copyright 2008 © Professor Michael E. Porter
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
Competitiveness Master - 2008-05-22.ppt
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Copyright 2008 © Professor Michael E. Porter
Macroeconomic Competitiveness
Social Infrastructure and
Political Institutions
Macroeconomic
Policies
• Basic human capacity
• Fiscal policy
– Education
– Health
• Safety and security
• Monetary policy
• Political institutions
• Economic openness
• Rule of law
Competitiveness Master - 2008-05-22.ppt
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Copyright 2008 © Professor Michael E. Porter
Governance Indicators
Selected Countries
Best
country in
the world
Voice and Accountability
Political Stability
Government Effectiveness
Regulatory Quality
Rule of Law
Control of Corruption
Index of
Governance
Quality,
2006
UT
SO
BO
TS
W
H AN
AF A
R
N A I CA
M
IB
G IA
M
H
O
ZA AN
A
M
B
S E I QU
N E
E
TA G A
NZ L
A
Z A NI A
M
G B IA
AM
M BIA
AL
A
G WI
AB
RW O N
AN
UG DA
AN
D
NI A
G
E
KE R
CA
N
Y
M
ER A
E T OO
HI N
O
A N PIA
G
O
LI L A
BE
R
CO IA
N
B U GO
RU
N
N
CE
IG D I
ER
NT
I
R
G
AL
U A
I
AF N E
A
R.
RE
P
CH .
A
CO
SU D
TE
D
D' A N
ZI IV O
M IR
BA E
BW
E
Worst
country in
the world
Note: Sorted left to right by decreasing average value across all indicators. The ‘zero’ horizontal line
corresponds to the median country’s average value across all indicators.
Source: World Bank (2008)
Competitiveness Master - 2008-05-22.ppt
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Copyright 2008 © Professor Michael E. Porter
Corruption Perception Index, 2007
1
Finland / New Zealand
Denmark
Iceland Norway
Improving
Switzerland Canada
Austria Germany
Japan
United States
Ireland
Uruguay
Chile
Estonia
Slovenia
Spain
Malta
Hungary South Africa
Botswana
Czech Republic
Italy
Bahrain Malaysia Korea
Costa Rica
Jordan
Namibia Greece
Tunisia
Poland
Turkey
Croatia
El Salvador
Ghana
Romania
Senegal
China
Mexico
India
Brazil
Serbia
Saudi Arabia
Gabon
Montenegro
Swaziland
Sri Lanka
Tanzania
Madagascar
Deteriorating
Low
corruption
Oman
Rank in
Global
Corruption
Index,
2007
Belize
Egypt
Thailand
Panama
Argentina
Rwanda
Mozambique
Benin
Ukraine
Zambia Vietnam
Philippines
Honduras
Niger
Burundi
Ethiopia Cameroon
Pakistan
Gambia
Russia Indonesia
Angola
Nigeria
Kenya
Zimbabwe Kazakhstan
Ecuador
Congo
Liberia
Cote d’Ivoire
Turkmenistan
Bangladesh
Congo (Dem. Rep.)
Equatorial
Guinea
Uzbekistan
Sudan
Chad
Haiti
Somalia
Iran
High
corruption
158
-30
Bolivia
Uganda
-20
-10
0
10
Change in Rank, Global Corruption Report, 2007 versus 2005
Note: Ranks only countries available in both years (158 countries total)
Source: Global Corruption Report, 2007
19
20
30
African countries
Other countries
East African Community
Copyright 2008 © , M. Porter
Corruption Perception Index
Ranking (constant
sample, 158 countries)
160
East African Countries
2005 CPI Rank
2006 CPI Rank
140
2007 CPI Rank
120
100
80
60
40
20
0
Tanzania
Rwanda
Uganda
Burundi
Kenya
Note: Ranks only available starting in 2005 for all 5 countries
Source: Global Corruption Report, 2007
20
Copyright 2008 © , M. Porter
M Na
ad m
ag ibia
as
So K car
ut en
h ya
A
Ta fric
nz a
a
M A nia
oz ng
am ol
bi a
U que
ga
Se nd
ne a
Za ga
m l
R bia
w
M an
au da
rit
an
To ia
go
Bo M
ts ali
w
a
M na
al
aw
N i
i
N ger
ig
e
G ria
h
Et an
hi a
op
C
ot C ia
e ha
d' d
Iv
o
G ire
C ui
am ne
er a
o
C
on
G on
C go Zim abo
en , R b n
tra e ab
l A pu we
fri blic
ca o
n f
R
Bu ep
ru .
nd
i
Openness to Trade
Rank (157
countries)
120
Source: Index of Economic Freedom (2008), Heritage Foundation
Competitiveness Master - 2008-05-22.ppt
Selected African Countries, 2008
160
140
Sub-Saharan Average: 112.2
100
80
60
40
20
0
21
Copyright 2008 © Professor Michael E. Porter
Microeconomic Competitiveness: Quality of the
Business Environment
Context
Contextfor
for
Firm
Firm
Strategy
Strategy
and
andRivalry
Rivalry
z
Factor
Factor
(Input)
(Input)
Conditions
Conditions
z
Local rules and incentives that
encourage investment and
productivity
– e.g. salaries, incentives for
capital investments, intellectual
property protection
z
Vigorous local competition
– Openness to foreign and local
competition
Access to high quality
business inputs
Natural endowments
Human resources
Capital availability
Physical infrastructure
Administrative infrastructure
(e.g. registration, permitting)
– Information infrastructure
(e.g., transparency)
– Scientific and technological
infrastructure
Demand
Demand
Conditions
Conditions
–
–
–
–
–
Related
Relatedand
and
Supporting
Supporting
Industries
Industries
z
z
Sophistication of local
customers and needs
– Strict quality, safety, and
environmental standards
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
Competitiveness Master - 2008-05-22.ppt
22
Copyright 2008 © Professor Michael E. Porter
Ease of Doing Business
Rwanda, 2007
Ranking, 2007
(of 178 countries)
Favorable
Unfavorable
180
Rwanda per capita GDP rank: 162
160
140
120
100
80
60
40
20
0
Ease of
Doing
Business
Enforcing
Contracts
Paying
Taxes
Starting a Employing
Business Workers
Dealing Registering
with
Property
Licenses
Protecting
Investors
Closing a
Business
Trading
Across
Borders
Median Ranking,
Africa
Source: World Bank Report, Doing Business (2008)
Competitiveness Master - 2008-05-22.ppt
Getting
Credit
23
Copyright 2008 © Professor Michael E. Porter
Doing Business
Selected African Countries
South Africa
Namibia
Botswana
Kenya
Ghana
Ethiopia
Nigeria
Zambia
Uganda
Malawi
Tanzania
Gambia
Mozambique
Gabon
Madagascar
Rwanda
Benin
Zimbabwe
Cameroon
Togo
Mauritania
Mali
Burkina Faso
Senegal
Guinea
Angola
Niger
Chad
Burundi
Congo, Republic of
Central African Rep.
African Average
Ease of Doing Starting a Dealing with Employing Registering Getting Protecting Paying Trading Across Enforcing Closing a
Business
Business Licenses
Workers
Property Credit Investors Taxes
Borders
Contracts Business
35
53
45
91
76
26
9
61
134
85
68
43
101
31
33
128
36
64
48
144
33
47
51
99
122
70
36
26
107
14
145
95
26
72
112
9
66
114
13
83
154
148
107
76
87
138
140
138
26
115
33
75
61
51
96
102
106
58
89
147
97
107
29
150
77
70
108
80
161
30
173
84
51
107
138
93
89
116
82
148
121
125
97
64
30
160
86
84
118
114
81
11
163
158
122
55
141
119
48
127
108
117
90
87
84
64
78
161
135
135
130
95
170
151
160
115
83
104
100
35
109
131
94
70
29
133
135
165
173
73
61
116
134
125
147
162
126
97
33
72
140
138
134
144
147
44
163
148
115
147
93
106
145
130
61
139
150
165
176
51
86
126
151
178
149
150
63
124
95
137
158
165
50
166
44
178
151
137
123
115
105
115
147
161
124
166
106
152
143
172
123
79
97
107
144
169
74
151
154
160
154
120
134
115
107
166
132
172
92
156
176
143
146
150
135
138
138
81
153
90
157
167
142
117
52
115
141
171
152
89
143
158
149
101
88
90
135
147
151
162
157
107
161
105
169
152
170
115
138
133
170
109
91
162
159
64
160
155
135
158
164
136
148
73
166
171
158
99
151
135
165
163
102
127
111
167
173
136
172
166
84
51
120
164
176
138
169
153
155
161
63
135
147
115
163
132
133
173
177
68
135
123
135
122
124
157
167
178
174
124
171
99
122
170
147
109
167
148
178
175
154
67
167
168
115
147
176
171
156
110
139
133
149
95
115
122
175
172
169
178
177
133.625
126.875
111.275
113.05
125.05
109.425 110.325 105.075
131.375
113
115.65
Rank out of 178 countries. East African countries highlighted.
Competitiveness
Master
- 2008-05-22.ppt
Source:
World
Bank
Doing Business (2008).
24
Copyright 2008 © Professor Michael E. Porter
Microeconomic Competitiveness: State of 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,
sports
casinos, 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
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Institutions for Collaboration
Selected Massachusetts Organizations, Life Sciences
Industry
Industry // Cluster
Cluster Associations
Associations
University
University –– Company
Company 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
zz
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
Broader
Broader Business
Business 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
Joint
Joint Research
Research Initiatives
Initiatives
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
Innovative Technology
Technology (CIMIT)
(CIMIT)
zz
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Kenya’s Cut Flower Cluster
Sources: Student team research by Kusi Hornberger, Nick Ndiritu, Lalo Ponce-Brito, Melesse Tashu, and Tijan Watt,
Microeconomics of Competitiveness Course, 2007
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Copyright 2008 © Professor Michael E. Porter
The Kenyan Cut Flower Cluster
Trade Performance
Kenyan Cut Flower
Exports in thousand US $
Kenyan Cut Flower
World Export Market Share
5.0%
$350,000
Value
4.5%
Market Share
$300,000
4.0%
$250,000
3.5%
3.0%
$200,000
2.5%
$150,000
2.0%
1.5%
$100,000
1.0%
$50,000
0.5%
0.0%
$0
1990
1992
1994
1996
1998
2000
2002
2004
2006
Source: 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.
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Microeconomic Competitiveness: Company Sophistication
Firm Infrastructure
(e.g. Financing, Planning, Investor Relations)
Human Resource Management
Support
Activities
(e.g. Recruiting, Training, Compensation System)
Technology Development
(e.g. Product Design, Testing, Process Design, Material Research, Market Research)
M
Procurement
(e.g. Components, Machinery, Advertising, Services)
Inbound
Logistics
Operations
(e.g. Incoming
Material
Storage, Data
Collection,
Service,
Customer
Access)
(e.g. Assembly,
Component
Fabrication,
Branch
Operations)
Value
a
r
g
Outbound
Logistics
Marketing
& Sales
After-Sales
Service
(e.g. Order
Processing,
Warehousing,
Report
Preparation)
(e.g. Sales
Force,
Promotion,
Advertising,
Proposal
Writing, Web
site)
(e.g. Installation,
Customer
Support,
Complaint
Resolution,
Repair)
i
n
What
buyers are
willing to
pay
Primary Activities
• Competitiveness requires that local companies upgrade the quality of
the value chain
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Company Sophistication: Measures from the Global
Competitiveness Report
Strategy and operational effectiveness
Internationalization of Firms
•
•
•
•
•
•
•
•
•
•
Nature of competitive advantage
Production process sophistication
Degree of customer orientation
Extent of marketing
Value chain breadth
Company spending on research
and development
• Capacity for innovation
Competitiveness Master - 2008-05-22.ppt
Extent of regional sales
Breadth of international markets
Control of international distribution
Prevalence of foreign technology
licensing
Organizational Practices
30
•
•
•
Reliance on professional management
Willingness to delegate authority
Extent of staff training
•
Performance-based compensation
Copyright 2008 © 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 private
private
sector
sector organizations
organizations
• Competitiveness must become a bottom-up process in which many individuals,
companies, and institutions take responsibility
• Every community and cluster can take steps to enhance competitiveness
• The private sector must become more engaged in competitiveness to improve
rapidly
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Clusters and Economic Policy
Science and
Technology
Investments
(e.g., centers, university
departments, technology
transfer)
Standard setting and
quality initiatives
Education and
Workforce Training
Management Training
Business Attraction
Clusters
Environmental
Stewardship
Export Promotion
Market Information
and Disclosure
Natural Resource
Protection
Physical
Infrastructure
• Clusters provide a framework for implementing public policy and
organizing public-private collaboration to enhance competitiveness
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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
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Copyright 2008 © Professor Michael E. Porter
Geographic Influences on Competitiveness
World
WorldEconomy
Economy
Broad
BroadEconomic
EconomicAreas
Areas
Groups
Groupsof
ofNeighboring
Neighboring
Nations
Nations
Nation
Nation
States,
States,Provinces
Provinces
Metropolitan
MetropolitanAreas
Areas
Sub-National Economies
Rural
RuralAreas
Areas
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Regional Economic Performance
U.S. States
Real Gross State Product
per Capita, 2006
$60,000
U.S. average
Delaware
$55,000
Connecticut
$50,000
Massachusetts
$45,000
$40,000
Alaska
Colorado
New York
New Jersey
Virginia
Minnesota
California
NV
Illinois
Washington
Maryland
Wyoming
Oregon
New Hampshire
Hawaii
Texas
North Carolina
Nebraska Rhode Island
Iowa
SD
Wisconsin
Georgia
PA
Vermont
North Dakota
Ohio
Kansas TN
IN
Arizona
Florida
Missouri
Michigan
(4.1%)
Louisiana
Utah
New Mexico
Idaho
Kentucky
Maine
Alabama
South Carolina
Oklahoma
Montana
Arkansas
U.S. average
$35,000
$30,000
$25,000
$20,000
0.0%
West Virginia
0.5%
1.0%
Mississippi
1.5%
2.0%
2.5%
3.0%
3.5%
Change in Real Gross State Product per Capita, CAGR, 1997-2006
Note:
Southern states as defined by the U.S. census highlighted in blue. All figures in chained 2000 dollars.
Source: BEA, 2007
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Rwandan Provinces
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Copyright 2008 © Professor Michael E. Porter
Specialization of Regional Economies
Selected U.S. Geographic Areas
Seattle-BellevueSeattle-BellevueEverett,
Everett,WA
WA
Aerospace
AerospaceVehicles
Vehicles
and
andDefense
Defense
Fishing
Fishingand
andFishing
Fishing
Products
Products
Analytical
AnalyticalInstruments
Instruments
Denver,
Denver,CO
CO
Leather
Leatherand
andSporting
SportingGoods
Goods
Oil
and
Gas
Oil and Gas
Aerospace
AerospaceVehicles
Vehiclesand
andDefense
Defense
Chicago
Chicago
Communications
CommunicationsEquipment
Equipment
Processed
ProcessedFood
Food
Heavy
HeavyMachinery
Machinery
Wichita,
Wichita,KS
KS
Aerospace
AerospaceVehicles
Vehiclesand
and
Defense
Defense
Heavy
HeavyMachinery
Machinery
Oil
and
Oil andGas
Gas
Pittsburgh,
Pittsburgh,PA
PA
Construction
ConstructionMaterials
Materials
Metal
Manufacturing
Metal Manufacturing
Education
Educationand
andKnowledge
Knowledge
Creation
Creation
San
San FranciscoFranciscoOakland-San
Oakland-San Jose
Jose
Bay
Bay Area
Area
Communications
Communications
Equipment
Equipment
Agricultural
Agricultural
Products
Products
Information
Information
Technology
Technology
Los
Los Angeles
Angeles Area
Area
Apparel
Apparel
Building
Building Fixtures,
Fixtures,
Equipment
Equipment and
and
Services
Services
Entertainment
Entertainment
Boston
Boston
Analytical
AnalyticalInstruments
Instruments
Education
Educationand
andKnowledge
KnowledgeCreation
Creation
Communications
Equipment
Communications Equipment
Raleigh-Durham,
Raleigh-Durham,NC
NC
Communications
CommunicationsEquipment
Equipment
Information
InformationTechnology
Technology
Education
Educationand
and
Knowledge
KnowledgeCreation
Creation
San
SanDiego
Diego
Leather
Leatherand
andSporting
SportingGoods
Goods
Power
Generation
Power Generation
Education
Educationand
andKnowledge
Knowledge
Creation
Creation
Houston
Houston
Oil
Oiland
andGas
GasProducts
Productsand
andServices
Services
Chemical
Products
Chemical Products
Heavy
HeavyConstruction
ConstructionServices
Services
Atlanta,
Atlanta,GA
GA
Construction
ConstructionMaterials
Materials
Transportation
Transportationand
andLogistics
Logistics
Business
Services
Business Services
Note: Clusters listed are the three highest ranking clusters in terms of share of national employment.
Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School, 11/2006.
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Copyright 2008 © Professor Michael E. Porter
Geographic Influences on Competitiveness
World
WorldEconomy
Economy
Broad
BroadEconomic
EconomicAreas
Areas
Groups
Groupsof
ofNeighboring
Neighboring
Nations
Nations
The Neighborhood
Nation
Nation
States,
States,Provinces
Provinces
Metropolitan
MetropolitanAreas
Areas
Rural
RuralAreas
Areas
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Copyright 2008 © Professor Michael E. Porter
The Neighborhood
East Africa
• Economic coordination among neighboring countries can significantly enhance competitiveness
• Integration with neighbors offers greater opportunities than participation in broader economic forums
Source:
Google
East African
BusinessMaps
Summit – final.ppt
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Copyright 2008 © , M. Porter
Regional Economic Strategy
• Defining a strategic role for the region in the continent and the world
economy
• Opening internal trade and investment
• Achieving synergies in enhancing the business environment
• Facilitating cross-border cluster development
• Enhancing company capabilities and non-traditional exports
• Raising productivity
• Increasing the attractiveness of the region as a whole for foreign
investment
• Winning greater support from the international community
• Accelerating economic policy at the national level
But
• Cross-national collaboration is not a substitute for national microeconomic
reforms
East African Business Summit – final.ppt
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Copyright 2008 © , M. Porter
Economic Coordination Among Neighbors
Capturing Synergies
Factor
Factor
(Input)
(Input)
Conditions
Conditions
Context
Contextfor
for
Strategy
Strategy
and
andRivalry
Rivalry
• Improving regional
transportation
infrastructure
• Eliminating
trade and
investment
barriers within
the region
• Creating an
efficient energy
network
• Enhancing regional
communications
and connectivity
• Linking financial
markets
• Opening the
movement of
students for higher
education
• Simplifying
and
harmonizing
cross-border
regulations
and paperwork
• Coordinating
anti-monopoly
and fair
competition
policies
Related
Relatedand
and
Supporting
Supporting
Industries
Industries
Demand
Demand
Conditions
Conditions
• Harmonizing
environmental
standards
• Facilitating
cross-border
cluster
upgrading, e.g.
• Harmonizing
product safety
standards
– Tourism
– Agribusiness
• Establishing
reciprocal
consumer
protection laws
– Transport &
Logistics
– Business
services
• Opening
government
procurement
within the region
Competitiveness
Competitiveness
Regional
Regional
Strategy
Strategy&&
Governance
Governance
• Coordinating
programs to
improve public
safety
• Creating a
regional strategy
and marketing
program
• Coordinating
macro-economic
policies
• Sharing best
practices in
government
operations
• Creating regional
institutions
– Dispute
resolution
mechanisms
– Regional
development
bank
• Developing a
regional position
with
international
organizations
• Harmonizing
administrative
requirements for
businesses
East African Business Summit – final.ppt
MacroMacroeconomic
economic
41
Copyright 2008 © , M. Porter
Strategy for Cross-National Regions
Central American Logistical Corridor
Belize
Mexico
Guatemala
Honduras
Nicaragua
El Salvador
Roads
Ports
Airports
Logistic Corridor
Costa Rica
Country Boundary
East African Business Summit – final.ppt
42
Panama
Copyright 2008 © , M. Porter
Regional Economic Strategy Initiatives
Success Factors
• Common understanding of competitiveness
• Develop a regional value proposition = a strategy
• Emphasis microeconomic aspects of competitiveness, not just macro
• Focus on specific projects and initiatives
• Led by the private sector with the participation of all regional actors and
representation from the national governments
• Institutionalized through formal enabling structures
• Measure and report progress
• Bottoms up, win-win projects, rather than grand political and macroeconomic
declarations
East African Business Summit – final.ppt
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Copyright 2008 © , M. Porter
Defining an Economic Strategy
National
NationalValue
ValueProposition
Proposition
•
What is the unique competitive position of the nation or
region 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?
Achieving
Achievingand
andMaintaining
MaintainingParity
Parity
with
withPeers
Peers
Developing
DevelopingUnique
UniqueStrengths
Strengths
• What elements of macroeconomic
competitiveness and the business
environment are crucial priorities?
• What existing and emerging clusters
should be developed first?
• What weaknesses must be addressed to
achieve parity with peer countries?
• Priorities and sequencing are necessity in economic development
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Copyright 2008 © Professor Michael E. Porter
Toward A Rwandan Economic Strategy
What is Unique about Rwanda?
•
•
•
•
•
•
•
•
•
•
•
•
Some Implications
Low corruption
Stable
Secure and safe
Clean
Responsive
Integrated economic and social
development
Unique climate and growing conditions
Central location on the African
continent
Established positions in tea, coffee,
tourism
Opportunity to lead the region in ICT
and services
Social innovator in health, education,
reconciliation, gender equality, and
other areas
Disproportionate external interest in
the country
•
Competitiveness Master - 2008-05-22.ppt
•
•
•
•
•
•
•
Rwanda must maintain stability, safety,
orderliness, and lack of corruption at all
costs
Rwanda must accelerate improvement of
skills and business infrastructure,
managerial skills, ease of doing business
Kigali must become a vibrant capital city
Rwanda should seize the opportunity to
transform agriculture
Rwanda is unlikely to be competitive in
exporting bulky goods with low value-toweight
Rwanda should develop air freightable
goods and services exports to nullify its
logistical disadvantages
– eg, silk, flowers
Rwanda in inextricably linked with its
neighbors
A new model of African development
45
Copyright 2008 © Professor Michael E. Porter
Rwanda’s Competitiveness Agenda
Business
Business Environment
Environment
Cluster
Cluster Development
Development
• Land use
• Physical infrastructure
– Airport / air service
– Connectivity
– Economic zones
• Energy
– Renewable
• Skills development
• Build towns and increase urbanization
outside of Kigali
• Institutional capacity building
• Improve government efficiency and cross
agency coordination
• Activate a formal cluster development
program led by the private sector
• Established clusters
– Tea
– Coffee
– Tourism
– Mining
• Emerging clusters
– Logistics and transport
– Construction and real estate
– ICT services
– Specialty agriculture (e.g., silk, flowers)
– Health and other social services
– Arts and culture (Hillywood)
Private
Private Sector
Sector
Neighborhood
Neighborhood
• Upgrade private sector capabilities
• Engage the private sector in economic
development
• Support cooperative private investment funds
to jumpstart the private equity market
East African Business Summit – final.ppt
46
• Lead economic integration with
neighboring countries
– e.g., Road transportation efficiency
– Railway development
– Energy grid
Copyright 2008 © , M. Porter