The Competitive Advantage of Nations:
Implications for Rwanda
Professor
P
f
Michael
Mi h l E
E. P
Porter
t
Harvard Business School
Kigali, Rwanda
Kigali
July 22, 2010
Thi presentation
This
t ti draws
d
on ideas
id
f
from
P f
Professor
P t ’ articles
Porter’s
ti l and
d books,
b k in
i particular,
ti l
Th Competitive
The
C
titi Advantage
Ad
t
off Nations
N ti
(Th Free
(The
F
P
Press,
1990)
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
20100722 – RDB Rwanda.ppt
1
Copyright © 2010 Professor Michael E. Porter
PPP-adjusted
GDP per Capita,
2009 ($USD)
Prosperity Performance
East African versus Other Developing Countries
$15,000
Gabon
Malaysia
Botswana
$12 000
$12,000
East African Community
Other African countries
Asian countries
South Africa
$9 000
$9,000
Mauritius
Thailand
Angola
China
Namibia
$6,000
Swaziland
Sri Lanka
Indonesia
Papua New Guinea
$3,000
$0
Pakistan
K
Kenya
Lesotho Ghana
Cote d’Ivoire Cameroon
Gambia
Senegal
Eritrea
Guinea
Zambia Uganda
Malawi
Togo
Madagascar
Burundi
Zimbabwe
-1%
1%
(-4.05%, $154)
Source: EIU (2010), authors calculations
20100722 – RDB Rwanda.ppt
Philippines
Chad
1%
Congo (Brazzaville)
Cape Verde
India
Vietnam
Myanmar
Nigeria
Laos
Tanzania
Cambodia
Ethiopia
Mozambique
Rwanda
3%
5%
7%
9%
Growth of Real GDP per Capita (PPP-adjusted), CAGR, 1999-2009
11%
In 2009, Rwanda’s real GDP per capita grew 6.4%
2
Copyright © 2010 Professor Michael E. Porter
Export Performance
Selected Countries
Exports of Goods and
Services (% of GDP), 2009
100%
Malaysia
90%
80%
70%
East African Community
Other African countries
Asian countries
Thailand
Papua New Guinea
Angola
Vietnam
Gabon
60%
50%
South Korea
Mauritius
Cambodia
Cote d'Ivoire
Namibia
Ghana
40%
Chad
Lesotho
30%
20%
10%
Zambia
Togo
Botswana
Philippines
Guinea Kenya
China
Nigeria
The Gambia
Senegal
Tanzania
Indonesia
South Africa
Sri Lanka Mozambique
India Uganda
Cameroon
Cape Verde
Madagascar
Pakistan
Malawi
Rwanda
Ethiopia
Eritrea
Burundi
0%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
Change in Exports of Goods and Services (% of GDP), 2003 to 2009
Source: EIU (2010), authors’ analysis
20100722 – RDB Rwanda.ppt
3
Copyright © 2010 Professor Michael E. Porter
Rwandan Export Share Trends
World Export Market
Share (current USD)
0.010%
Processed Goods
Semi-processed Goods
Unprocessed Goods
Services
TOTAL
0.009%
0.008%
0.007%
0.006%
0.005%
0.004%
0.003%
0.002%
0.001%
0 000%
0.000%
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Source: UNComtrade (2010)
20100722 – RDB Rwanda.ppt
4
Copyright © 2010 Professor Michael E. Porter
Inward Foreign Investment Flows
Rwanda, 1970 - 2008
Inward FDI (USD
(USD,
millions)
$100.0
$80.0
$60.0
$40.0
$20.0
$0.0
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Note:
20100722 – RDB Rwanda.ppt
Data not available for 1994.
Source: UNCTAD (2009)
5
Copyright © 2010 Professor Michael E. Porter
Inbound Foreign Investment Performance
Stocks and Flows, Selected Countries
Inward FDI Stocks as % of
GDP, Average 2003 - 2008
100%
East African Community
Other African countries
Asian countries
90%
80%
Gambia
Zambia
70%
Chad
C
ad
60%
Mauritania
Vietnam
Zimbabwe
50%
Namibia
Cape Verde
Lesotho
Mozambique Cambodia
40%
Tanzania
Thailand
Myanmar
Malaysia
South Africa
Mongolia
Togo
30%
Cote d' Ivoire
Laos Ghana
South
Uganda
Malawi
Korea
Guinea-Bissau
Cameroon
E hi i
Ethiopia
20%
%
China Mauritius Mali
Central African Republic
Madagascar
Pakistan
India
Benin
10% Kenya
Botswana
Gabon
Niger
Burundi
Burkina
Faso Senegal
0%
0%
Rwanda
10%
Nigeria
Guinea
Sierra Leone
20%
30%
40%
50%
60%
70%
FDI Inflows as % of Gross Fixed Capital Formation, Average 2003 - 2008
Note: Data unavailable for GDP for Gabon in 2003, GFCF for Burundi (2003), Chad (2005)
Source: UNCTAD, World Investment Report (2009)
20100722 – RDB Rwanda.ppt
6
Copyright © 2010 Professor Michael E. Porter
Domestic Fixed Investment Rates
Selected Countries
Gross Fixed Investment
as % of GDP
GDP, 2009
50%
45%
40%
East African Community
Other African countries
Asian countries
China
35%
Cape Verde
Thailand
India
30%
Si
Singapore
25%
Botswana
Sri Lanka
Lesotho
Zambia
20%
Gabon
Philippines
The Gambia
Mauritius
Namibia
South Korea South Africa
Cambodia
Kenya
Rwanda
Laos Ethiopia
Zimbabwe
Uganda
Togo
Mozambique
M
bi
Myanmar
Tanzania
Cameroon
Pakistan
Guinea
Papua New Guinea
Malaysia
Angola
Swaziland
15%
Burundi
Nigeria
10%
Cote d'Ivoire
5%
0%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
Change in Gross Fixed Investment (as % of GDP), 2003 to 2009
Note: Includes inbound FDI
Source: EIU, 2010
20100722 – RDB Rwanda.ppt
7
Copyright © 2010 Professor Michael E. Porter
International Aid and Assistance Flows
Aid as % Gross
Capital
Formation
East African Community, 2004 - 2008
450%
2004
2005
400%
2006
350%
2007
2008
300%
250%
200%
150%
100%
50%
0%
Burundi
Rwanda
Tanzania
Uganda
Kenya
Source:World Development Indicators (2010)
20100722 – RDB Rwanda.ppt
8
Copyright © 2010 Professor Michael E. Porter
What is Competitiveness?
• C
Competitiveness
titi
iis th
the productivity
d ti it with
ith which
hi h a nation
ti uses its
it h
human, capital,
it l
and natural resources
– Productivity sets the standard of living
– Productivity
P d ti it growth
th d
determines
t
i
sustainable
t i bl economic
i growth
th
• Productivity and prosperity depends on how a nation competes, not what
industries it competes in
– Productivity in the modern global economy arises from a combination of domestic
and foreign firms
• Relentless upgrading and innovation is necessary to drive productivity
growth and enable the standard of living to rise
– Technology, skills, products, and organizational methods
•
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
20100722 – RDB Rwanda.ppt
9
Copyright © 2010 Professor Michael E. Porter
Decomposing Prosperity
• Standard
St d d off living
li i
Prosperity
Domestic
Purchasing
Power
• Inequality
Per Capita Income
• Local prices
– Efficiency of local
industries
– Level of local market
competition
• Consumption taxes
Labor
Utilization
Labor
Productivity
• Skills
• Workforce participation rate
• Capital stock
– Population age profile
• Total factor productivity
• Unemployment rate
• Working hours
20100722 – RDB Rwanda.ppt
10
Copyright © 2010 Professor Michael E. Porter
Determinants of Competitiveness
Inherited Endowments
20100722 – RDB Rwanda.ppt
11
Copyright © 2010 Professor Michael E. Porter
Determinants of Competitiveness
Macroeconomic Competitiveness
Social
Infrastructure
and Political
Institutions
Macroeconomic
Policies
• Fiscal policy: public
spending aligned with
revenues over time
• Monetary policy: low
levels of inflation
• Macroeconomic
management: avoiding
structural imbalances
and cyclical
overheating
Inherited Endowments
20100722 – RDB Rwanda.ppt
Macroeconomic
Policy
12
Copyright © 2010 Professor Michael E. Porter
Determinants of Competitiveness
Social
Infrastructure
and Political
Institutions
Macroeconomic Competitiveness
Social
Infrastructure
and Political
Institutions
• Human Development:
basic education and
health care
• Rule of Law: property
rights and due process
• Political Institutions:
stable and effective
political and
governmental
processes and
organizations
20100722 – RDB Rwanda.ppt
Macroeconomic
Policies
Inherited Endowments
13
Copyright © 2010 Professor Michael E. Porter
Rank in Global
Corruption Index,
2009
Corruption Perception Index, 2009
Netherlands New Zealand
Canada
Hong Kong
United States
Qatar
Finland
Iceland
Norway
United Kingdom
Low
corruption
Lebanon
High
corruption
Iran
Spain
Israel
Dominica
Portugal Chile
Botswana
Bahrain
Mauritius
Costa Rica
Malta
Hungary
P l d
Poland
Bhutan Malaysia
South Africa
Seychelles
Namibia
Italy
Cuba
Turkey
Saudi Arabia
Tunisia
Croatia
Kuwait
Georgia
Bulgaria
Romania
FYR Macedonia
Greece
Ghana
China
Colombia
Brazil
Suriname
Thailand
Swaziland
Burkina Faso
Guatemala
Serbia
El Salvador
India
M l i
Malawi
Panama
Lesotho
Mexico
Sri Lanka
Zambia
Rwanda
Albania
Senegal
Jamaica
Dominican
Republic
Madagascar
Gambia
Niger
Argentina
Egypt
Algeria Gabon Mali
Togo
Vietnam
Ethiopia
Tanzania
g
Eritrea Uganda Mongolia
Guyana
Mauritania
Libya Nicaragua Honduras
Nigeria
Mozambique
Pakistan
Bangladesh
Timor-Leste Philippines
Cameroon
Nepal
Belarus
Kenya
Ukraine
Russia
Zimbabwe
Côte d´Ivoire
Paraguay
Papua New Guinea
Cambodia
CAR
Laos
Venezuela
DRC
Congo Brazz.
Brazz
Haiti
Burundi
Chad
Turkmenistan
Guinea
Iraq
Myanmar
Uzbekistan
Worsening
g
Equatorial Guinea
Sudan
Improving
p
g
Change in Rank, Global Corruption Report, 2009 versus 2006
Note:
Ranks only countries available in both years (161 countries total)
Source: Global Corruption Report, 2010
20100722 – RDB Rwanda.ppt
14
East African Community
Other African countries
Other continents
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 supporting
company productivity
and innovation
20100722 – RDB Rwanda.ppt
Sophistication
of Company
Operations and
Strategy
State of Cluster
Development
Macroeconomic
Policies
Inherited Endowments
15
Copyright © 2010 Professor Michael E. Porter
Quality of the Business Environment
Context for
Competition
• Local rules and incentives that
encourage investment and productivity
Factor
Inputs
– e.g. incentives for capital investments,
intellectual property protection, corporate
governance standards

Demand
Conditions
Open and vigorous
igoro s local competition
– Openness to foreign competition
– Competition laws
• Sophisticated and demanding local
• Access to high quality business inputs
customers and needs
and infrastructure
– e.g., human resources, capital, physical
infrastructure, administrative rules,
scientific and technological infrastructure
Related and
Supporting
Industries
– e.g., Strict quality, safety, and
environmental standards
– Consumer protection laws
• Availability of suppliers and supporting
industries
• Many things matter for competitiveness
• Successful economic development is a process of successive upgrading, in
20100722 – RDB Rwanda.ppt
which the business environment improves to enable increasingly sophisticated
16
ways of competing
Copyright © 2010 Professor Michael E. Porter
Ease of Doing Business
Rwanda, 2010
Ranking, 2010 (of
183 countries)
i )
Favorable
Unfavorable
200
180
160
Rwanda per capita GDP rank: 157
140
120
100
80
60
40
20
Bu
si
ne
ss
a
lo
si
ng
C
Tr
a
di
ng
Ac
ro
ss
Pe
rm
Bo
rd
er
s
its
di
t
Cr
e
D
ea
l in
g
w
ith
C
on
st
ru
ct
io
n
et
ti n
g
Em
G
pl
oy
in
g
W
or
ke
rs
Ta
xe
s
Pa
yi
ng
In
ve
st
or
s
ts
on
tra
c
Pr
ot
ec
t in
g
C
Pr
op
er
ty
En
fo
rc
in
g
R
eg
is
te
rin
g
Bu
sin
es
s
a
St
ar
tin
g
Ea
se
of
D
oi
ng
Bu
sin
es
s
0
Median Ranking, EAC
Note: GDP per capita only available for 170 countries in sample
Source: World Bank Report, Doing Business (2010)
20100722 – RDB Rwanda.ppt
17
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
The presence off a
concentration of firms in
particular fields, together
with specialized skills,
infrastructure, and
supporting institutions,
enabling productivity through
externalities
t
liti across related
l t d
entities
20100722 – RDB Rwanda.ppt
Macroeconomic
Policies
Inherited Endowments
18
Copyright © 2010 Professor Michael E. Porter
State of Cluster Development
Tourism Cluster in Cairns, Australia
Public Relations &
Market Research
Travel agents
Tour operators
Locall retail,
L
t il
health care, and
other services
Attractions and
Local
Transportation
Services
Food
Suppliers
Activities
Restaurants
e.g., theme parks,
casinos, sports
Property
Services
Maintenance
Services
Airlines,
Hotels
Cruise Ships
Souvenirs,
Duty Free
Banks,
Foreign
Exchange
Government agencies
Educational Institutions
Industry Groups
e.g. Australian Tourism Commission,
Great Barrier Reef Authority
e.g. James Cook University,
Cairns College of TAFE
e.g. Queensland Tourism
Industry Council
Sources: HBS student team research (2003) - Peter Tynan, Chai McConnell, Alexandra West, Jean Hayden
20100722 – RDB Rwanda.ppt
19
Copyright © 2010 Professor Michael E. Porter
Kenya’s Cut Flower Cluster
Sources: MOC student team research by Kusi Hornberger, Nick Ndiritu, Lalo Ponce-Brito, Melesse Tashu, Tijan Watt, Harvard Business School, 2007
20100722 – RDB Rwanda.ppt
20
Copyright © 2010 Professor Michael E. Porter
The Kenyan Cut Flower Cluster
Trade Performance
Kenyan Cut Flower
Exports in millions US $
Kenyan Cut Flower
World Export Market Share
$600
7.0%
Value
V
l
Market Share
$500
6.0%
5.0%
$400
4.0%
$300
3.0%
$200
2.0%
$100
1.0%
$0
0.0%
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
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.
20100722 – RDB Rwanda.ppt
21
Copyright © 2010 Professor Michael E. Porter
Development of the Australian Wine Cluster
1930
1965
1980
1991 to 1998
First oenology
course at
Roseworthy
Agricultural
College 1955
Australian Wine
Bureau
established
Australian Wine
and Brandy
Corporation
established
1990
New collective
organizations created
for education,
research,, market
information, and
export promotions
1970
Winemaking
school at Charles
Sturt University
y
founded
Australian Wine
Research
Institute founded
•
Winemaker’s
Federation of
Australia
established
1950s
1960s
1970s
1980s
1990s
Import of
European winery
technology
Recruiting of
experienced
foreign investors,
e.g. Wolf Bass
Continued inflow
of foreign capital
and
management
Creation of
large number of
new wineries
Surge in exports
and international
acquisitions
Cluster development is a long-term process in which a location accumulates skills, technology, and a critical
mass of firms and supporting institutions
Source: Michael E. Porter and Örjan Sölvell, The Australian Wine Cluster – Supplement, Harvard Business School Case Study, 2002
20100722 – RDB Rwanda.ppt
22
Copyright © 2010 Professor Michael E. Porter
National Cluster Export Portfolio
Rwanda, 2003-2008
Rwanda’s w
world export m
market share, 2008
0.030%
Change in Rwanda’s average
world export share: +0.0022%
Agricultural Products
0.025%
0.020%
H
Hospitality
it lit and
dT
Tourism
i
0.015%
Transportation and
Logistics
Processed Food
0.010%
0 005%
0.005%
Jewelry, Precious
Metals and Collectibles
Metal Mining and
Manufacturing
Footwear
Construction Materials
Leather and Related
Products
Textiles
Motor Driven Products
0.000%
-0.005%
0 005%
Rwanda’s
R
d ’ average world
ld
export share: +0.0034%
Financial Services
0 000%
0.000%
Furniture
Plastics
0 005%
0.005%
Biopharmaceuticals
0 010%
0.010%
Change in Rwanda’s world export market share, 2003–2008
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.
23
20100722 – RDB Rwanda.ppt
0 015%
0.015%
0 020%
0.020%
Exports of US $11 million =
Copyright © 2010 Professor Michael E. Porter
Clusters as a Tool For Economic Policy
• A forum for collaboration between the private sector, trade
associations, government, educational, and research institutions
• Brings together firms of all sizes
sizes, including SME’s
SME s
• Creates a mechanism for constructive business-government
dialog
• A tool to identify problems and action recommendations
• A vehicle for investments that strengthen multiple
firms/institutions simultaneously
• Fosters greater competition rather than distorting the market
20100722 – RDB Rwanda.ppt
24
Copyright © 2010 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
The internal
company skills,
capabilities, and
management
practices required
to attain a given
level of productivity
and innovation
Macroeconomic
Policies
Inherited Endowments
20100722 – RDB Rwanda.ppt
Sophistication
p
of Company
Operations and
Strategy
25
Copyright © 2010 Professor Michael E. Porter
Turkey’s Competitiveness Profile, 2009
Country Competitiveness (64)
Microeconomic
C
Competitiveness
ii
((53)
3)
Macroeconomic
Competitiveness (71)
P liti l IInstitutions
Political
tit ti
(92)
Business
Environment Quality
(56)
Macroeconomic
M
i
Policy (68)
Company
Sophistication
(41)
Rule of Law (75)
Human Development
(73)
Note:
Rank versus 128 countries; overall, Turkey ranks 57th in 2008 PPP adjusted GDP per capita and 64th in Global Competitiveness
Source: World Economic Forum and nstitute for Strategy and Competitiveness, Harvard University (2009)
20100722 – RDB Rwanda.ppt
26
Copyright © 2010 Professor Michael E. Porter
Geographic Influences on Competitiveness
W ld Economy
World
E
Broad Economic Areas
Groups of Neighboring
Nations
Nation
States, Provinces
Cities and
Metropolitan Areas
Rural Regions
20100722 – RDB Rwanda.ppt
27
Copyright © 2010 Professor Michael E. Porter
Sub-National Regions and Competitiveness
• Economic performance varies significantly across sub-national
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 / activities
• Cluster strength directly impacts regional performance
• Each region
g
needs its own distinctive competitiveness
p
agenda
g
• Competitiveness requires effective policy collaboration between
regions and the national government
• Decentralization of economic policy is especially important in large
countries
t i to
t foster
f t regional
i
l specialization,
i li ti
iinternal
t
l competition,
titi
and
d
accountability
20100722 – RDB Rwanda.ppt
28
Copyright © 2010 Professor Michael E. Porter
State Prosperity
U.S. States, 1998 to 2008
$60,000
Highly productive and
productivity rising versus U.S.
Average
Delaware
$55,000
C
Connecticut
Gross State Pro
G
oduct per Cap
pita, 2008
$50,000
New York
Massachusetts
$45,000
New Jersey
Alaska
$40,000
U.S. average GSP per capita:
$37,899
$35,000
$30,000
Minnesota
Colorado
Illinois
Washington
Nevada
New Hampshire
Texas
Pennsylvania
y
North Carolina
Wisconsin
Georgia
Tennessee
Ohio
Louisiana
Michigan
Missouri
Arizona
Utah
Indiana
Maine
Kentucky
Alabama
South Carolina
Arkansas
Virginia
California
Wyoming
Maryland
Hawaii
Nebraska
Iowa
Rhode Island
Kansas
Oregon
South Dakota
North Dakota
Vermont
Florida
New Mexico
Idaho
Oklahoma
Montana
West Virginia
$25,000
Mississippi
U.S. average GSP per
capita growth: 1
1.5%
5%
$20,000
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
Gross State Product per Capita Growth Rate, 1998 to 2008
3.5%
4.0%
Source: Bureau of Economic Analysis. Growth calculated using compound annual growth rates. Gross state product figures in 2000 chained US dollars.
Notes:
District of Columbia: $126,407, 2.63%. Growth rate calculated as compound
annual growth rate (CAGR).
29
20100722 – RDB Rwanda.ppt
Copyright © 2010 Professor Michael E. Porter
Specialization of Regional Economies
Leading Clusters by U.S. Economic Area, 2007
Denver, CO
Business Services
Medical Devices
Entertainment
Oil and Gas Products and Services
Chicago, IL-IN-WI
Metal Manufacturing
Lighting and Electrical Equipment
Production Technology
Plastics
Pittsburgh, PA
Education and Knowledge Creation
Metal Manufacturing
Chemical Products
Power Generation and Transmission
Boston, MA-NH
Analytical Instruments
Education and Knowledge Creation
Medical Devices
Financial Services
Seattle, WA
Aerospace Vehicles and Defense
Information Technology
Entertainment
Fishing and Fishing Products
New
e York,
o , NY-NJ-CT-PA
JC
Financial Services
Biopharmaceuticals
Jewelry and Precious Metals
Publishing and Printing
San Jose-San Francisco, CA
Business Services
Information Technology
Agricultural Products
Communications Equipment
Biopharmaceuticals
Los Angeles, CA
Entertainment
Apparel
Distribution Services
Hospitality and Tourism
San Diego, CA
Medical Devices
Analytical Instruments
H
Hospitality
i li and
dT
Tourism
i
Education and Knowledge Creation
Raleigh-Durham, NC
Education and Knowledge Creation
Biopharmaceuticals
Communications Equipment
Textiles
Dallas
Aerospace Vehicles and Defense
Oil and Gas Products and Services
I f
Information
i Technology
T h l
Transportation and Logistics
Houston, TX
Oil and Gas Products and Services
Chemical Products
H
Heavy
C
Construction
i S
Services
i
Transportation and Logistics
Atlanta, GA
Transportation and Logistics
Textiles
M
Motor
Driven
Di
P
Products
d
Construction Materials
Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director.
30
20100722 – RDB Rwanda.ppt
Copyright © 2010 Professor Michael E. Porter
The Evolution of Regional Economies
San Diego
Climate
and
Geography
Hospitality and
Tourism
Sporting Goods
Transportation
and Logistics
Power Generation
Aerospace Vehicles
and Defense
U.S.
Military
Communications
Equipment
Information Technology
Analytical Instruments
Education and
Knowledge Creation
Medical Devices
Bioscience
Research
Centers
1910
20100722 – RDB Rwanda.ppt
1930
1950
Biotech / Pharmaceuticals
1970
31
1990
Copyright © 2010 Professor Michael E. Porter
Economic Integration Among Neighboring Countries
Turkey’s Neighborhood
• Turkey sits at the crossroad between Europe and the Middle East
• Economic coordination among neighboring countries can significantly enhance competitiveness
• Integration offers greater opportunities than participation in broader economic forums (e.g., EU)
20100722 – RDB Rwanda.ppt
32
Copyright © 2010 Professor Michael E. Porter
Competitiveness and the Neighborhood
• Opening trade and investment among neighbors
– A nation’s neighbors are its most natural trading and investment partners
– The natural path of internationalization for local firms is the neighborhood
– Open trade and investment make each a more attractive location for
investment
• Economic coordination to drive improvements in the business
environment
– Capturing synergies in policy and infrastructure
– Gaining greater clout in international negotiations
• External agreements to help overcome domestic political and
economic barriers to reform
20100722 – RDB Rwanda.ppt
33
Copyright © 2010 Professor Michael E. Porter
Competitiveness Upgrading Among Neighbors
Capturing Synergies
Macroeconomic
Policy
Business Environment
Factor (Input) Conditions
• Coordinating
macroeconomic
policies
• Improving efficiency and interconnectivity of
transportation infrastructure
• Enhancing regional communications
• Regional development
bank
• Creating an efficient energy network
• Linking financial markets
• Coordinated capital
requirements
• Opening the movement of students for training or higher
education
Context for Strategy and Rivalry
• Eliminating trade and investment barriers within the
region
Political
P
liti l
Institutions and
Governance
• Sharing best
practices in
government
operations
• Creating regional
iinstitutions
tit ti
– Dispute
resolution
mechanisms
– Harmonizing
economic
statistics
• Developing a regional
• Simplifying and harmonizing cross-border regulations,
paperwork and visas
position with
international
organizations
g
• Coordinating antitrust and competition policies
D
Demand
dC
Conditions
diti
• Harmonizing environmental and energy standards
• Harmonizing product safety standards
• Establishing reciprocal consumer protection laws
• Opening government procurement within the region
Related and Supporting Industries
• Facilitating cross-border cluster upgrading
20100722 – RDB Rwanda.ppt
34
Copyright © 2010 Professor Michael E. Porter
Strategy for Cross-National Regions
Central American Logistical Corridor
Belize
Mexico
Guatemala
Honduras
Nicaragua
El Salvador
Roads
Ports
Ai
Airports
Logistic Corridor
Country Boundary
20100722 – RDB Rwanda.ppt
Costa Rica
35
Panama
Copyright © 2010 Professor Michael E. Porter
The Process of Economic Development
Shifting
g Roles and Responsibilities
p
Old Model
New Model
• Th
The central
t l governmentt drives
di
economic development through
policy decisions, spending and
incentives
• E
Economic
i d
development
l
t iis a
collaborative process involving
government at multiple levels,
companies educational and
companies,
research institutions, and private
sector organizations
• Competitiveness
p
must be a bottom-up
p process
p
in which many
y
individuals, companies, and institutions take responsibility and act
20100722 – RDB Rwanda.ppt
36
Copyright © 2010 Professor Michael E. Porter
Role of the Private Sector in Economic Development
•
The competitive advantage of companies depends partly on the quality of
the business environment at the national and regional level
•
A company gains advantages from being part of a strong cluster
Corporate role in competitiveness
•
government on business needs and constraints bearing
g on
Inform g
company and cluster development
•
Nurture local suppliers and attract foreign suppliers
•
Work closely with local educational and research institutions to improve
their quality and create specialized programs addressing the cluster’s
needs
•
p
to enhance competitiveness
p
through
g
Collaborate with other companies
trade associations and other mechanisms
•
Participate actively in national and regional competitiveness initiatives
•
Focus corporate social responsibility initiatives on enhancing the
business environment
20100722 – RDB Rwanda.ppt
37
Copyright © 2010 Professor Michael E. Porter
Defining a National Economic Strategy
National Value Proposition
•
What are the distinctive competitive assets of the
nation’s
nation
s economy given its location,
location legacy,
legacy existing
strengths, rate of progress, and potential strengths?
– What unique value as a business location?
– In what areas of the economy / clusters?
– Playing
y g what roles with neighbors,
g
, the region,
g , and the broader
world?
Developing Unique Strengths
Addressing Crucial Constraints
• What elements of institutional context and
• What are the crucial weaknesses and
the business environment can be unique
q
strengths relative to peers/neighbors?
• What existing and emerging clusters
can be built upon?
constraints that must be addressed to
achieve parity with peer countries and
allow the country to move to the next
level?
• Priorities and sequencing are a necessity in economic development
20100722 – RDB Rwanda.ppt
38
Copyright © 2010 Professor Michael E. Porter
Rwanda’s Challenges
• Relatively small home market
• Landlocked with high logistical costs
• Skill and capacity shortages
• Limited private sector and agricultural development
20100722 – RDB Rwanda.ppt
39
Copyright © 2010 Professor Michael E. Porter
What is Unique About Rwanda?
• Established positions in tea, coffee, and tourism
• Unique climate and growing conditions for a range of products
• Central location on the African continent and a stable oasis among
a neighborhood of 290 million people
• Low corruption
• Stable,
Stable secure,
secure and safe
• Tidy and orderly
• Responsive government
• Streamlined business processes
• Opportunity to lead the region in many services
• Social innovator in health, education, reconciliation, gender
g
equality, and other areas
• Disproportionate external interest in the country
20100722 – RDB Rwanda.ppt
40
Copyright © 2010 Professor Michael E. Porter
Towards a Rwandan Strategic Positioning
•
•
•
•
•
•
•
•
A safe, stable, transparent, and efficient hub for the region
Among the easiest places to do business in Africa
Kigali as a vibrant capital city with a high quality of life
High-value positions in specialty agricultural products and
processing
An increasingly diversified services economy
A leader in social services and social entrepreneurship
Growing self-sufficiency in the manufacture of logistically
sensitive
iti products
d t
A catalyst for driving advancement in the East African Community
20100722 – RDB Rwanda.ppt
41
Copyright © 2010 Professor Michael E. Porter
Rwanda’s Competitiveness Agenda, 2010
B i
Business
E
Environment
i
t
Cl t D
Cluster
Development
l
t
Address critical constraints in the business environment
Activate an aggressive public/private cluster development
program to accelerate the growth and upgrading of
Rwandan business
Emerging clusters
Established clusters
– Logistical infrastructure
– Energy cost and access
– Training and skills development
– Specialty Agriculture
– Land property rights
– Tourism
– Food processing
– Logistics and
– Management capacity
Transport
– Access to risk capital
– Construction
– Effectiveness in attracting foreign investment
– ICT services
– Urban centers outside of Kigali
– Business services
– Health and other
social services
– Arts and Culture
P i t Sector
Private
S t
N i hb h d
Neighborhood
Lead economic coordination and integration with neighboring
countries to address crucial weaknesses while maintaining
R
Rwandan
d competitiveness
titi
Upgrade private sector capabilities in planning, operations,
finance, and technology
20100722 – RDB Rwanda.ppt
42
Copyright © 2010 Professor Michael E. Porter