Malaysia’s Competitiveness:
Moving to the Next Stage
Professor Michael E. Porter
Institute for Strategy and Competitiveness
Harvard Business School
Kuala Lumpur, Malaysia
6 May, 2003
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 2002, (World Economic Forum, 2002),
“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
CAON Malaysia 2003 05-06-03 CK.ppt
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Copyright 2003 © Professor Michael E. Porter
Perspectives on Firm Success
External
Internal
• Competitive advantage
resides solely inside a
company or in its
industry
• Competitive advantage (or
disadvantage) resides partly in
the locations at which a
company’s business units are
based
• Competitive success
depends primarily on
company choices
• Cluster participation is an
important contributor to
competitiveness
CAON Malaysia 2003 05-06-03 CK.ppt
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Copyright 2003 © Professor Michael E. Porter
What is Competitiveness?
•
Competitiveness is determined by the productivity with which a nation uses its
human, capital, and natural resources. Productivity sets a nation’s or region’s
standard of living (wages, returns to capital, returns to natural resource endowments)
– Productivity depends both on the value of products and services (e.g.
uniqueness, quality) as well as the efficiency with which they are produced.
– It is not what industries a nation competes in that matters for prosperity, but how
firms compete in those industries
– Productivity in a nation is a reflection of what both domestic and foreign firms
choose to do in that location. The location of ownership is secondary for
national prosperity.
– The productivity of “local” industries is of fundamental importance to
competitiveness, not just that of traded industries
– Devaluation does not make a country more competitive
•
Nations compete in offering the most productive environment for business
•
The public and private sectors play different but interrelated roles in creating a
productive economy
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Copyright 2003 © Professor Michael E. Porter
Innovation and Competitiveness
Prosperity
Prosperity
Productivity
Productivity
Competitiveness
Innovative
Innovative Capacity
Capacity
• Innovation is more than just scientific discovery
• There are no low-tech industries, only low-tech firms
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Copyright 2003 © Professor Michael E. Porter
Patenting Growth and Prosperity Growth
Selected OECD Countries
Compound annual
growth rate of USregistered patents,
1990 - 2001
40%
Singapore
35%
30%
South Korea
25%
R2 = 0.53
20%
Taiwan
15%
Spain
Israel
10%
Ireland
Sweden
Japan
5%
Switzerland
0%
0%
UK
Norway
Netherlands
France
1%
US
2%
3%
4%
5%
6%
7%
Compound annual growth rate of real GDP,
1990-2000
Source: IMF (2001), US Patent and Trademark Office (2002)
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Copyright 2003 © Professor Michael E. Porter
Malaysia’s Economic Situation 2003
•
Malaysia has achieved strong progress in the last several decades,
and has weathered the Asian Crisis better than many of its
regional neighbors
•
Currently, however, the slowdown in the world economy and
especially in IT/electronics is having a strong impact on Malaysian
exports and revealing challenges in Malaysian competitiveness
•
Malaysia will need a new strategy to move the economy to the next
level
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Copyright 2003 © Professor Michael E. Porter
Comparative Economic Performance
Selected Middle- and Lower-Income Economies
GDP per Capita,
2001, US=100
40%
Hungary
Argentina
Slovak Republic
30%
South Africa
Malaysia
Uruguay
20%
10%
Romania
Thailand
Colombia
Venezuela
Jordan
Jamaica
Ecuador
Honduras
Bulgaria
Peru
Ukraine
Indonesia
Bolivia
Haiti
0%
-4.0%
Russia
Brazil
Chile
Mexico
Poland
Croatia
Costa Rica Lithuania
Botswana
Tunisia
Namibia
Turkey
Estonia
(30%, +4.3%)
Latvia
(22%, +3.7%)
Dominican Rep.
El Salvador
Philippines
Guatemala
Morocco
China
(12%, +4.5%)
Sri Lanka
India
Nicaragua
Vietnam
Nigeria
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
CAGR of GDP per Capita Relative to the
US, 1995-2001
Source: World Development Indicators 2002
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Copyright 2003 © Professor Michael E. Porter
Comparative Labor Productivity Performance
Selected Asian Economies
Labor Productivity
(GDP per Employee), 2000
$60,000
Singapore
$50,000
Hong Kong
Taiwan
$40,000
$30,000
$20,000
$10,000
Malaysia
Thailand
Philippines
Indonesia
$0
-2%
0%
Vietnam
2%
4%
China
Myanmar
6%
8%
10%
Change of Labor Productivity, CAGR, 1995-2000
• Malaysia’s labor productivity growth is average among Asian economies,
lagging the more dynamic economies
Source: EIU (2002)
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Copyright 2003 © Professor Michael E. Porter
Prosperity and Productivity Performance
Selected Asian Economies
Labor Productivity
(GDP (PPP) per Employee),
2000
$70,000
Singapore
$60,000
Taiwan
$50,000
Hong Kong
GDP per Capita
(PPP):
$40,000
$20,000
$30,000
$20,000
$10,000
Malaysia
$10,000
$0
30%
Philippines
35%
Indonesia
Myanmar
40%
Thailand
Vietnam
45%
$5,000
China
50%
55%
60%
Employees as % of Population
Source: EIU (2002)
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Copyright 2003 © Professor Michael E. Porter
Comparative Inward Foreign Investment Flows
Selected Asian Economies
FDI Inflows as
percentage of
GDP
20%
15%
Singapore
10%
5%
China
Thailand
Philippines
Malaysia
0%
Indonesia
-5%
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
• Malaysia has recently received relatively less foreign direct investment than
many of its neighboring countries, after high inflow before the Asian Crisis
Source: World Development Indicators, World Bank, SMC Analysis
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Copyright 2003 © Professor Michael E. Porter
International Patenting Output
Annual U.S. patents
per 1 million
population, 2001
400
350
USA
300
Taiwan
250
Japan
200
150
Germany
Sweden
Finland
Israel
Canada
100
Netherlands
UK
50
Singapore
South Korea
= 10,000
patents
granted in
2001
New Zealand
Australia
Malaysia
0
0%
10%
20%
30%
40%
Compound annual growth rate of US-registered patents, 1990 - 2001
Source: US Patent and Trademark Office (www.uspto.gov). Author’s analysis.
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Copyright 2003 © Professor Michael E. Porter
Determinants of Productivity and Productivity Growth
Macroeconomic,
Macroeconomic, Political,
Political, Legal,
Legal, and
and Social
Social
Context
Context for
for Development
Development
Microeconomic
Microeconomic Foundations
Foundations of
of Development
Development
Sophistication
Sophistication
of
ofCompany
Company
Operations
Operationsand
and
Strategy
Strategy
Quality
Qualityof
ofthe
the
Microeconomic
Microeconomic
Business
Business
Environment
Environment
• A sound macroeconomic, political, legal, and social context creates the
potential for competitiveness, but is not sufficient
• Competitiveness ultimately depends on improving the microeconomic
capability of the economy and the sophistication of local companies and
local competition
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Copyright 2003 © Professor Michael E. Porter
Productivity, Innovation, and the Business Environment
Context
Context for
for
Firm
Firm
Strategy
Strategy
and
and Rivalry
Rivalry
z
Factor
Factor
(Input)
(Input)
Conditions
Conditions
z
Presence of high quality,
specialized inputs available
to firms
–Human resources
–Capital resources
–Physical infrastructure
–Administrative infrastructure
–Information infrastructure
–Scientific and technological
infrastructure
–Natural resources
z
z
z
z
A local context and rules that
encourage investment and
sustained upgrading
–e.g., Intellectual property
Demand
protection
Demand
Conditions
Meritocratic incentive system
Conditions
across institutions
Open and vigorous competition
among locally based rivals z Sophisticated and demanding
local customer(s)
z Local customer needs that
anticipate those elsewhere
Related
and
Related and
z Unusual local demand in
Supporting
Supporting
specialized segments that can be
Industries
served nationally and globally
Industries
Access to capable, locally based suppliers
and firms in related fields
Presence of clusters instead of isolated
industries
• Successful economic development is a process of successive economic upgrading, in which
the business environment in a nation evolves to support and encourage increasingly
sophisticated ways of competing
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Copyright 2003 © Professor Michael E. Porter
The California Wine Cluster
Grapestock
Grapestock
Fertilizer,
Fertilizer, Pesticides,
Pesticides,
Herbicides
Herbicides
State Government Agencies
(e.g., Select Committee on Wine
Production and Economy)
Barrels
Barrels
Bottles
Bottles
Caps
Caps and
and Corks
Corks
Grape
Grape Harvesting
Harvesting
Equipment
Equipment
Irrigation
Irrigation Technology
Technology
Winemaking
Winemaking
Equipment
Equipment
Growers/Vineyards
Growers/Vineyards
Wineries/Processing
Wineries/Processing
Facilities
Facilities
Labels
Labels
Public
Public Relations
Relations and
and
Advertising
Advertising
Specialized
SpecializedPublications
Publications
(e.g.,
(e.g.,Wine
WineSpectator,
Spectator,
Trade
TradeJournal)
Journal)
California
California
Agricultural
Agricultural Cluster
Cluster
Educational,
Educational, Research,
Research, && Trade
Trade
Organizations
Organizations (e.g.
(e.g. Wine
Wine Institute,
Institute,
UC
UC Davis,
Davis, Culinary
Culinary Institutes)
Institutes)
Tourism
Tourism Cluster
Cluster
Food
Food Cluster
Cluster
Sources: California Wine Institute, Internet search, California State Legislature. Based on research by MBA
1997 students R. Alexander, R. Arney, N. Black, E. Frost, and A. Shivananda.
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Copyright 2003 © Professor Michael E. Porter
Clusters and Competitiveness
Clusters increase productivity and efficiency
•
•
•
•
Efficient access to specialized inputs, services, employees, information, institutions, and
“public goods” (e.g. training programs)
Ease of coordination and transactions across firms
Rapid diffusion of best practices
Ongoing, visible performance comparisons and strong incentives to improve vs. local
rivals
Clusters stimulate and enable innovation
•
•
•
Enhanced ability to perceive innovation opportunities
Presence of multiple suppliers and institutions to assist in knowledge creation
Ease of experimentation given locally available resources
Clusters facilitate commercialization
•
•
Opportunities for new companies and new lines of established business are more
apparent
Commercializing new products and starting new companies is easier because of available
skills, suppliers, etc.
Clusters reflect the fundamental influence of externalities / linkages
across firms and associated institutions in competition
Levels of Clusters
• There is often an array of clusters in a given field in different locations,
each with different levels of specialization and sophistication
• Global innovation centers, such as Silicon Valley in semiconductors, are
few in number. If there are multiple innovation centers, they normally
specialize in different market segments
• Other clusters focus on manufacturing, outsourced service functions, or
play the role of regional assembly or service centers
• Firms based in the most advanced clusters often seed or enhance
clusters in other locations in order to reduce the risk of a single site,
access lower cost inputs, or better serve particular regional markets
• The challenge for an economy is to move from isolated firms to an array
of clusters, and then to upgrade the breadth and sophistication of
clusters to more advanced activities
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Copyright 2003 © Professor Michael E. Porter
Leading Footwear Clusters
Romania
• Production subsidiaries
of Italian companies
• Focus on lower to
medium price range
Portugal
• Production
• Focus on shortproduction runs in the
medium price range
Italy
• Design, marketing,
and production of
premium shoes
• Export widely to the
world market
United States
• Design and marketing
• Focus on specific market
segments like sport and
recreational shoes and boots
• Manufacturing only in
selected lines such as handsewn casual shoes and boots
Source: Research by HBS student teams in 2002
CAON Malaysia 2003 05-06-03 CK.ppt
China
• OEM Production
• Focus on low cost
segment mainly for the
US market
17
Vietnam/Indonesia
• OEM Production
• Focus on the low cost
segment mainly for the
European market
Copyright 2003 © Professor Michael E. Porter
Institutions for Collaboration
General
General
••
••
••
••
••
••
Chambers
Chambers of
of Commerce
Commerce
Professional
Professional associations
associations
School
School networks
networks
University
University partner
partner groups
groups
Religious
Religious networks
networks
Joint
Joint private/public
private/public advisory
advisory
councils
councils
•• Competitiveness
Competitiveness councils
councils
• Institutions for collaboration (IFC) are formal
and informal organizations that
- facilitate the exchange of information
and technology
- conduct joint activities
- foster coordination among firms
• IFCs can improve the business environment
by
- creating relationships and level of trust
that make them more effective
- defining of common standards
Cluster
-specific
Cluster-specific
- conducting or facilitating the organization
of collective action in areas such as
procurement, information gathering, or
international marketing
••
••
Industry
Industry associations
associations
Specialized
Specialized professional
professional
associations
associations and
and societies
societies
•• Alumni
Alumni groups
groups of
of core
core cluster
cluster
companies
companies
•• Incubators
Incubators
CAON Malaysia 2003 05-06-03 CK.ppt
- defining and communicating common
beliefs and attitudes
- providing mechanisms to develop a
common economic or cluster agenda
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Copyright 2003 © Professor Michael E. Porter
Institutions for Collaboration
Selected Institutions for Collaboration, San Diego
General
General
Cluster-Specific
Cluster-Specific
zz
San
San Diego
Diego Chamber
Chamber of
of Commerce
Commerce
Telecommunication
Telecommunication
zz
San
San Diego
Diego MIT
MIT Enterprise
Enterprise Forum
Forum
zz
zz
Corporate
Corporate Director’s
Director’s Forum
Forum
zz
San
San Diego
Diego Dialogue
Dialogue
Biotech
Biotech
zz
Service
Service Corps
Corps of
of Retired
Retired Executives,
Executives, San
San Diego
Diego
zz
Hybritech
Hybritech Alumni
Alumni
zz
Scripps
Scripps Research
Research Institute
Institute Alumni
Alumni
zz
BIOCOMM
BIOCOMM
zz
UCSD
UCSD Connect
Connect
zz
San
San Diego
Diego Regional
Regional Economic
Economic Development
Development
Corporation
Corporation
zz
Center
Center for
for Applied
Applied Competitive
Competitive Technologies
Technologies
zz
San
San Diego
Diego World
World Trade
Trade Center
Center
zz
UCSD
UCSD Alumni
Alumni
zz
San
San Diego
Diego Regional
Regional Technology
Technology Alliance
Alliance
zz
San
San Diego
Diego Science
Science and
and Technology
Technology Council
Council
zz
Office
Office of
of Trade
Trade and
and Business
Business Development
Development
Source: Clusters of Innovation project (www.compete.org)
Linkabit
Linkabit Alumni
Alumni
Stages Of Competitive Development
Factor
-Driven
Factor-Driven
Economy
Economy
Investment
Investment-Driven
Driven Economy
Economy
Innovation
Innovation-Driven
Driven Economy
Economy
Low Input
Cost
Efficiency Through
Heavy Investment
Unique
Value
Source: Porter, Michael E., The Competitive Advantage of Nations,
The Free Press: New York (1990)
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Copyright 2003 © Professor Michael E. Porter
Malaysia’s Competitiveness Agenda 2003
•
Prepare the business environment for the next stage of
economic development
•
Engage in cluster development
•
Strengthen regional and cross-border initiatives for competitiveness
•
Redefine the roles of government and the private sector in
economic development
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Copyright 2003 © Professor Michael E. Porter
Factor
Factor
(Input)
(Input)
Conditions
Conditions
Factor (Input) Conditions
Malaysia's Relative Position
Competitive Advantages
Relative to GDP per Capita
Competitive Disadvantages
Relative to GDP per Capita
Country Ranking,
Arrows indicate a
change of 5 or more
ranks since 1998
Country Ranking,
Arrows indicate a
change of 5 or more
ranks since 1998
Administrative Burden for Start-Ups
11
Availability of Scientists and Engineers
52
Air Transport Infrastructure Quality
14
Quality of Management Schools
48
Overall Infrastructure Quality
16
Judicial Independence
44
Port Infrastructure Quality
16
Ease of Access to Loans
43
Railroad Infrastructure Quality
17
Telephone/Fax Infrastructure Quality
39
Local Equity Market Access
23
Extent of Bureaucratic Red Tape
37
Adequacy of Public Sector Legal Recourse 23
Venture Capital Availability
37
Quality of Public Schools
Cell phones per 100 people (2001)
36
Quality of Math and Science Education
35
Intellectual Property Protection
33
Patents per Capita (2001)
33
Electricity Supply Quality
29
24
Note: Rank by countries; overall Malaysia ranks 26 out of 80 countries (26 on National Business Environment, 43 on GDP pc 2001)
Source: Global Competitiveness Report 2002
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Copyright 2003 © Professor Michael E. Porter
Public Spending on Education
Selected Asian Countries
Public expenditure on
education, Share of
GNP, 1995-97
6%
5%
Malaysia
Thailand
4%
S Korea
3%
Singapore
India
Vietnam*
Cambodia*
-2.0%
-1.5%
*No growth rate data available
Source: UN – Human Development Indicators
-1.0%
Philippines
Hong Kong
Laos
Indonesia
Myanmar
1%
CAON Malaysia 2003 05-06-03 CK.ppt
Sri Lanka
China
2%
0%
-2.5%
Japan*
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
Change of public education spending as % of GNP,
1995-97 to 1985-87
23
Copyright 2003 © Professor Michael E. Porter
Factor
Factor
(Input)
(Input)
Conditions
Conditions
U.S. Patenting by Malaysian Institutions
Organization
1
2
3
4
4
5
6
6
6
6
7
7
7
7
7
7
7
7
7
7
7
7
7
7
7
7
7
7
7
MOTOROLA, INC.
CERAM OPTEC INDUSTRIES, INC.
INTEL CORPORATION
SUNG LING GOLF & CASTING CO., LTD.
BRANDEIS UNIVERSITY
IRIS CORPORATION BERHAD
MOTOROLA MALAYSIA SDN BHD
OTIS ELEVATOR COMPANY
SHIN-ETSU HANDOTAI CO., LTD.
ADVANCED MICRO DEVICES, INC.
ALDES AERAULIQUE
ARTWRIGHT TECHNOLOGY SDN BHD
AUTOLIV DEVELOPMENT AB
CHARTERED SEMICONDUCTOR MANUF. PTE LTD
COLLINS INTERNATIONAL CO., LTD.
ELITE FURNITURE, INC.
GLOBAL PALM PRODUCTS SDN. BHD.
HALLIBURTON ENERGY SERVICES
IMPACT SURGE SDN. BHD.
INTEGRATED DEVICE TECHNOLOGY, INC.
INVETECH OPERATIONS PTY. LTD.
JOHNSON & JOHNSON MFG SN BHD
MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
MAXHILL TOY INDUSTRIES SDN. BHD.
NATIONAL SEMICONDUCTOR CORPORATION
NOVAL CONTROLS SDN BHD
NOVO NORDISK A/S
PALM OIL RESEARCH & DEVELOPMENT BOARD
PETRONAS RESEARCH & SCIENTIFIC SERVICES
U.S. Patents
Issued from 1996 to 2000
37
27
11
4
4
3
2
2
2
2
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
Note: Shading indicates universities, research institutions, and other government agencies
Source: US Patent and Trademark Office (www.uspto.gov). Author’s analysis.
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Copyright 2003 © Professor Michael E. Porter
Patents by Organization
Commonwealth of Massachusetts
Organization
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Patents Issued from 1997 to 2001
MASSACHUSETTS INSTITUTE OF TECHNOLOGY
GENERAL HOSPITAL CORPORATION
EMC CORPORATION
DIGITAL EQUIPMENT CORPORATION
POLAROID CORPORATION
ANALOG DEVICES, INC.
MILLENNIUM PHARMACEUTICALS, INC.
HARVARD UNIVERSITY
COMPAQ COMPUTER CORPORATION, INC.
SUN MICROSYSTEMS, INC.
BOSTON SCIENTIFIC CORPORATION
ACUSHNET COMPANY
GENETICS INSTITUTE, INC.
GILLETTE COMPANY
BRIGHAM AND WOMEN'S HOSPITAL
RAYTHEON COMPANY
GENERAL ELECTRIC COMPANY
HEWLETT-PACKARD COMPANY
CHILDREN'S MEDICAL CENTER CORPORATION
QUANTUM CORP. (CA)
COGNEX CORPORATION
DANA-FARBER CANCER INSTITUTE
JOHNSON & JOHNSON PROFESSIONAL INC.
BOSTON UNIVERSITY
SEPRACOR INC.
518
296
269
261
213
167
165
150
147
143
135
130
127
112
107
101
99
96
93
93
90
90
90
84
84
Note: Shading indicates universities, research institutions, and other government agencies
Source: US Patent and Trademark Office (www.uspto.gov). Author’s analysis.
CAON Malaysia 2003 05-06-03 CK.ppt
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Copyright 2003 © Professor Michael E. Porter
Context
Contextfor
for
Firm
Strategy
Firm Strategy
and
andRivalry
Rivalry
Context for Firm Strategy and Rivalry
Malaysia's Relative Position
Competitive Advantages
Relative to GDP per Capita
Competitive Disadvantages
Relative to GDP per Capita
Country Ranking,
Arrows indicate a
change of 5 or more
ranks since 1998
Country Ranking,
Arrows indicate a
change of 5 or more
ranks since 1998
Extent of Distortive Government
Subsidies
19
Efficacy of Corporate Boards
44
39
Cooperation in Labor-Employer
Relations
19
Costs of Other Firms' Illegal/
Unfair Activities
Hidden Trade Barrier Liberalization
39
Decentralization of Corporate Activity
19
38
Extent of Locally Based Competitors
24
Favoritism in Decisions of Government
Officials
Tariff Liberalization
34
Effectiveness of Anti-Trust Policy
33
Intensity of Local Competition
28
Note: Rank by countries; overall Malaysia ranks 26 out of 80 countries (26 on National Business Environment, 43 on GDP pc 2001)
Source: Global Competitiveness Report 2002
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Copyright 2003 © Professor Michael E. Porter
Corruption Ranking
Selected Asian Countries
Rank 2002
Change in Rank since 1998
Country
4.
Singapore
+3
14.
Hong Kong
+2
27.
Taiwan
+2
36.
Malaysia
-5
42.
South Korea
+4
57.
China
-1
61.
Thailand
+4
65.
Philippines
-4
75.
Vietnam
+7
88.
Indonesia
+1
• Malaysia scores better on corruption than many competing Asian countries, but has
lost some ground recently
Note: Rank out of 91 countries, change in rank calculated for constant sample of countries
Source: Transparency International, author’s calculations, Corruption in Thailand Report - Office of Civil Service Commission, 2001
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Copyright 2003 © Professor Michael E. Porter
Demand
Demand
Conditions
Conditions
Demand Conditions
Malaysia's Relative Position
Competitive Advantages
Relative to GDP per Capita
Competitive Disadvantages
Relative to GDP per Capita
Country Ranking,
Arrows indicate a
change of 5 or more
ranks since 1998
Country Ranking,
Arrows indicate a
change of 5 or more
ranks since 1998
Government Procurement of Advanced
Technology Products
7
Stringency of Environmental
Regulations
31
Laws Relating to Information Technology
16
Presence of Demanding Regulatory
Standards
30
Consumer Adoption of Latest Products
29
Note: Rank by countries; overall Malaysia ranks 26 out of 80 countries (26 on National Business Environment, 43 on GDP pc 2001)
Source: Global Competitiveness Report 2002
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Copyright 2003 © Professor Michael E. Porter
Related
Relatedand
and
Supporting
Supporting
Industries
Industries
Related and Supporting Industries
Malaysia's Relative Position
Competitive Advantages
Relative to GDP per Capita
Competitive Disadvantages
Relative to GDP per Capita
Country Ranking,
Arrows indicate a
change of 5 or more
ranks since 1998
Local Supplier Quantity
19
Local Availability of Components
and Parts
20
Local Availability of Process Machinery
25
Country Ranking,
Arrows indicate a
change of 5 or more
ranks since 1998
Local Availability of Specialized
Research and Training Services
34
Extent of Product and Process
Collaboration
31
Local Supplier Quality
31
State of Cluster Development
28
Note: Rank by countries; overall Malaysia ranks 26 out of 80 countries (26 on National Business Environment, 43 on GDP pc 2001)
Source: Global Competitiveness Report 2002
CAON Malaysia 2003 05-06-03 CK.ppt
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Copyright 2003 © Professor Michael E. Porter
Malaysia’s Export Performance By Broad Sector
1995-2000
Malaysia’s average change in
world goods export share:
- 0.01%
World Export Share,
2000
8.0%
Office
(7.7%, +3.4%)
6.0%
Entertainment
(4.4%, -1.8%)
Semiconductors/Computers
4.0%
Petroleum/Chemicals
2.0%
Telecommunications
Forest Products
Multiple Business
Power
Food/Beverages
0.0%
-1.0%
Materials/Metals
Transportation
-0.5%
Defense
Housing/Household
Personal
Textiles/Apparel
Health Care
0.0%
+ 0.5%
Malaysia’s average
goods export share:
1.73%
D
D
+ 1.0%
= $1.5 billion
export volume
in 2000
Change in Malaysia’s World Export Share, 1995 - 2000
• Malaysia is strengthening its position in key export industries
Source: UNCTAD Trade Data. Author’s analysis.
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Copyright 2003 © Professor Michael E. Porter
Company Operations and Strategy
Malaysia's Relative Position 2002
Competitive Advantages
Relative to GDP per Capita
Competitive Disadvantages
Relative to GDP per Capita
Country Ranking,
Arrows indicate a
change of 5 or more
ranks since 1998
Prevalence of Foreign Technology
Licensing
5
Willingness to Delegate Authority
22
Breadth of International Markets
23
Company Spending on R&D
23
Country Ranking,
Arrows indicate a
change of 5 or more
ranks since 1998
Nature of Competitive Advantage
41
Control of International Distribution
37
Capacity for Innovation
36
Extent of Marketing
36
Extent of Incentive Compensation
33
Reliance on Professional Management 33
Extent of Branding
32
Production Process Sophistication
30
Degree of Customer Orientation
29
Note: Rank by countries; overall Malaysia ranks 26 out of 80 countries (27 on Company Operations and Strategy, 43 on GDP pc 2001)
Source: Global Competitiveness Report 2002
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Copyright 2003 © Professor Michael E. Porter
Malaysia’s Competitiveness Agenda 2003
•
Prepare the business environment for the next stage of economic
development
•
Engage in cluster development
•
Strengthen regional and cross-border initiatives for competitiveness
•
Redefine the roles of government and the private sector in
economic development
CAON Malaysia 2003 05-06-03 CK.ppt
32
Copyright 2003 © Professor Michael E. Porter
Public / Private Cooperation in Cluster Upgrading
Minnesota’s Medical Device Cluster
Context
Context for
for
Firm
Firm
Strategy
Strategy
and
and Rivalry
Rivalry
Factor
Factor
(Input)
(Input)
Conditions
Conditions
• Joint development of vocationaltechnical college curricula with the
medical device industry
• Minnesota Project Outreach exposes
businesses to resources available at
university and state government
agencies
• Active medical technology licensing
through University of Minnesota
• State-formed Greater Minnesota Corp.
to finance applied research, invest in
new products, and assist in technology
transfer
CAON Malaysia 2003 05-06-03 CK.ppt
• Aggressive trade associations
(Medical Alley Association, High
Tech Council)
• Effective global marketing of the
cluster and of Minnesota as the
“The Great State of Health”
• Full-time “Health Care Industry
Specialist” in the department of
Trade and Economic Development
Demand
Demand
Conditions
Conditions
• State sanctioned
reimbursement policies
to enable easier adoption
and reimbursement for
innovative products
Related
Related and
and
Supporting
Supporting
Industries
Industries
33
Copyright 2003 © Professor Michael E. Porter
The Australian Wine Cluster
Trade Performance
Australian Wine
Exports in million US
Dollars
Australian Wine
World Export Market
Share
8%
$1,000
$900
7%
$800
6%
$700
5%
$600
$500
4%
$400
Value
Market Share
3%
$300
2%
$200
1%
$100
$0
0%
1995
1996
1997
1998
1999
2000
Source: UN Trade Statistics
CAON Malaysia 2003 05-06-03 CK.ppt
34
Copyright 2003 © Professor Michael E. Porter
The Australian Wine Cluster
History
1991 to 1998
1930
1965
1980
First oenology
course at
Roseworthy
Agricultural
College 1955
Australian Wine
Bureau
established
Australian Wine
and Brandy
Corporation
established 1990
1970
New organizations
created for education,
research, market
information, and
export promotions
Winemaker’s
Federation of
Australia
established
Winemaking
school at Charles
Sturt University
founded
Australian Wine
Research
Institute founded
1950s
1960s
1970s
1980s
1990s
Import of
European winery
technology
Recruiting of
experienced
foreign investors,
e.g. Wolf Bass
Continued inflow
of foreign capital
and
management
Creation of
large number
of new wineries
Surge in exports
and international
acquisitions
Source: Michael E. Porter and Örjan Sölvell, The Australian Wine Cluster – Supplement, Harvard Business School Case Study, 2002
CAON Malaysia 2003 05-06-03 CK.ppt
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Copyright 2003 © Professor Michael E. Porter
The Australian Wine Cluster
Recently founded Institutions for Collaboration
Winemakers’
Winemakers’ Federation
Federation of
of Australia
Australia
zz
zz
zz
Cooperative
Cooperative Centre
Centre for
for Viticulture
Viticulture
Established
Established in
in 1990
1990
zz
Focus:
Focus: Public
Public policy
policy representation
representation of
of companies
companies
in
in the
the wine
wine cluster
cluster
zz
Funding:
Funding: Member
Member companies
companies
zz
Australian
Australian Wine
Wine Export
Export Council
Council
zz
zz
zz
zz
zz
Focus:
Focus: Coordination
Coordination of
of research
research and
and education
education
policy
policy in
in viticulture
viticulture
Funding:
Funding: other
other cluster
cluster organizations
organizations
Grape
Grape and
and Wine
Wine R&D
R&D Corporation
Corporation
Established
Established in
in 1992
1992
zz
Focus:
Focus: Wine
Wine export
export promotion
promotion through
through
international
international offices
offices in
in London
London and
and San
San Francisco
Francisco
zz
Funding:
Funding: Government;
Government; cluster
cluster organizations
organizations
zz
Established
Established in
in 1991
1991 as
as statutory
statutory body
body
Focus:
Focus: Funding
Funding of
of research
research and
and development
development
activities
activities
Funding:
Funding: Government;
Government; statutory
statutory levy
levy
Wine
Wine Industry
Industry National
National
Education
Education and
and Training
Training Council
Council
Wine
Wine Industry
Industry Information
Information Service
Service
zz
Established
Established in
in 1991
1991
Established
Established in
in 1998
1998
zz
Focus:
Focus: Information
Information collection,
collection, organization,
organization, and
and
dissemination
dissemination
zz
Funding:
Funding: Cluster
Cluster organizations
organizations
zz
Established
Established in
in 1995
1995
Focus:
Focus: Coordination,
Coordination, integration,
integration, and
and standard
standard
maintenance
maintenance for
for vocational
vocational training
training and
and education
education
Funding:
Funding: Government;
Government; other
other cluster
cluster organizations
organizations
Source: Michael E. Porter and Örjan Sölvell, The Australian Wine Cluster – Supplement, Harvard Business School Case Study, 2002
CAON Malaysia 2003 05-06-03 CK.ppt
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Copyright 2003 © Professor Michael E. Porter
Appropriate Roles of Government
in Cluster Development
• A successful cluster policy builds on sound overall economic
policies
• Government should support the development of all clusters, not
choose among them
• Government policy should reinforce established and emerging
clusters rather than attempt to create entirely new ones
• Government’s role in cluster initiatives is as facilitator and
participant. The most successful cluster initiatives are a publicprivate partnership
CAON Malaysia 2003 05-06-03 CK.ppt
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Copyright 2003 © Professor Michael E. Porter
Cluster Policy versus Industrial Policy
Industrial
Industrial
Policy
Policy
Cluster
-based
Cluster-based
Policy
Policy
• Target desirable industries /
sectors
•
• Focus on domestic companies
• Domestic and foreign companies both
enhance productivity
• Intervene in competition (e.g.,
protection, industry promotion,
subsidies)
• Relax impediments and constraints to
productivity
• Centralizes decisions at the
national level
• Encourage initiative at the state and
local level
• Emphasize cross-industry linkages /
complementarities
Distort competition
CAON Malaysia 2003 05-06-03 CK.ppt
All clusters can contribute to prosperity
Enhance competition
38
Copyright 2003 © Professor Michael E. Porter
Malaysia’s Competitiveness Agenda 2003
•
Prepare the business environment for the next stage of economic
development
•
Engage in cluster development
•
Strengthen regional and cross-border initiatives for
competitiveness
•
Redefine the roles of government and the private sector in
economic development
CAON Malaysia 2003 05-06-03 CK.ppt
39
Copyright 2003 © Professor Michael E. Porter
Influences on Competitiveness
Multiple Geographic Levels
World Economy
Broad Economic Areas
Groups of Neighboring
Nations
Nations
States, Provinces
Cities, Metropolitan
Areas
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40
Copyright 2003 © Professor Michael E. Porter
Specialization of Regional Economies
Select 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
PowerGeneration
Generation
Education
Educationand
andKnowledge
Knowledge
Creation
Creation
Houston
Houston
Heavy
HeavyConstruction
ConstructionServices
Services
Oil
and
Oil andGas
Gas
Aerospace
AerospaceVehicles
Vehiclesand
andDefense
Defense
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
CAON Malaysia 2003 05-06-03 CK.ppt
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Copyright 2003 © Professor Michael E. Porter
Cross-National Regions and Economic Strategy
Traditional Views
• Regions as free trade zones; regions as economic unions (e.g., United States,
European Union)
New View
• A regional strategy as a powerful tool to enhance competitiveness in autonomous
countries
• Internal trade and investment
– Gains from internal trade and investment
AND
• Company operations and strategy
– Enhancing the competitive capability of firms
– Expanding trade in non-traditional export industries
• Business environment
– Mutual benefits to the productivity of the business environment through policy coordination
that captures external economies and the benefits of specialization in institutions and
infrastructure across borders
• Cluster development
– Cross-border cluster specialization and integration
• Foreign investment
– Enhancing interest and investment in the region by the international community
• Economic policy process
– Improving economic policy formulation and implementation at the national level
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Copyright 2003 © Professor Michael E. Porter
Cross-National Economic Coordination
Alternate Geographic Levels
World Economy
Broad Economic Areas
e.g. ASEAN
Groups of Neighboring
Nations
e.g. Malaysia, Singapore,
and Indonesia
Nations
States, Provinces
Cities, Metropolitan
Areas
CAON Malaysia 2003 05-06-03 CK.ppt
43
Copyright 2003 © Professor Michael E. Porter
Cross-National Economic Coordination
Illustrative Policy Areas
Factor
Factor
(Input)
(Input)
Conditions
Conditions
• Improve regional
transportation
infrastructure
• Create an efficient
energy network
• Upgrade/link regional
communications
• Upgrade/link
financial markets
• Upgrade higher
education through
facilitating
specialization and
student exchanges
• Expand cross-border
business and financial
information access
and sharing
• Coordinate activities to
ensure personal
safety
CAON Malaysia 2003 05-06-03 CK.ppt
Context
Contextfor
for
Strategy
Strategy
and
andRivalry
Rivalry
Demand
Demand
Conditions
Conditions
• Coordinate
• Set minimum
• Agree on foreign
macroecono- investment
environmental
mic policies
standards
promotion
guidelines to limit
• Eliminate
• Set minimum
forms of
trade and
safety
investment
investment
standards
promotion that do
barriers within
not enhance
• Establish
the region
productivity
reciprocal
• Simplify
consumer
• Coordinated
cross-border
protection laws
competition
regulations
policy
and paperwork
• Guarantee
minimum basic
investor
protections
Related
Relatedand
and
Supporting
Supporting
Industries
Industries
• Establish ongoing
upgrading process
in clusters that
cross national
borders, e.g.
– Tourism
– Agribusiness
– Textiles and
Apparel
– Information
Technology
Regional
Regional
Governance
Governance
• Share best
practices in
government
operations
• Improve regional
institutions
– Regional
development
bank
– Dispute
resolution
mechanisms
– Policy
coordination
body
• Develop a
regional
marketing
strategy
44
Copyright 2003 © Professor Michael E. Porter
Malaysia’s Competitiveness Agenda 2003
•
Prepare the business environment for the next stage of economic
development
•
Engage in cluster development
•
Strengthen regional and cross-border initiatives for competitiveness
•
Redefine the roles of government and the private sector in
economic development
CAON Malaysia 2003 05-06-03 CK.ppt
45
Copyright 2003 © Professor Michael E. Porter
Shifting Responsibilities for Economic Development
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
CAON Malaysia 2003 05-06-03 CK.ppt
•• Economic
Economic development
development is
is aa
collaborative
collaborative process
process involving
involving
government
government at
at multiple
multiple levels,
levels,
companies,
companies, teaching
teaching and
and
research
research institutions,
institutions, and
and
institutions
institutions for
for collaboration
collaboration
46
Copyright 2003 © Professor Michael E. Porter
Roles of Government in Economic Development
•
Macroeconomic, political, legal, and social context
– Establish a stable and predictable macroeconomic, legal, and political
environment
– Improve the social conditions of citizens
•
General microeconomic business environment
– Improve the availability, quality, and efficiency of cross-cutting or
general purpose inputs, infrastructure, and institutions
– Set overall rules and incentives governing competition that encourage
productivity growth
•
Clusters
– Facilitate cluster development and upgrading
•
Process of Economic Change
– Create institutions and processes for upgrading competitiveness that
inform citizens and mobilize the private sector, government at all levels,
educational and other institutions, and civil society to take action
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Copyright 2003 © Professor Michael E. Porter
Role of the Private Sector in Economic Development
•
•
•
•
•
•
•
•
•
A company’s competitive advantage is partly the result of the local
environment
Company membership in a cluster offers collective benefits
Private investment in “public goods” is justified
Take an active role in upgrading the local infrastructure
Nurture local suppliers and attract new supplier investments
Work closely with local educational and research institutions to
upgrade quality and create specialized programs addressing
cluster needs
Provide government with information and substantive input 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
– Cost sharing
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Copyright 2003 © Professor Michael E. Porter
Selected References
• The Competitive Advantage of Nations, New York: The Free Press, 1990
• “Clusters and the New Competitive Agenda for Companies and Governments” in On Competition,
Boston: Harvard Business School Press, 1998
• “The Microeconomic Foundations of Economic Development,” in The Global Competitiveness Report
1998-99, (World Economic Forum, 1998)
• “The Current Competitiveness Index: Measuring the Microeconomic Foundations of Prosperity” in The
Global Competitiveness Report 2000-01, New York: Oxford University Press, 2000
• “Enhancing the Microeconomic Foundations of Prosperity: The Current Competitiveness Index” in The
Global Competitiveness Report 2001-02, New York: Oxford University Press, 2001
• “Building the Microeconomic Foundations of Prosperity: Findings from the Microeconomic
Competitiveness Index” in The Global Competitiveness Report 2002-03, New York: Oxford University
Press, forthcoming 2002
• “Location, Competition, and Economic Development: Local Clusters in a Global Economy,” (Economic
Development Quarterly, February 2000, 15-34)
• “Locations, Clusters, and Company Strategy” in The Oxford Handbook of Economic Geography, (G. L.
Clark, M.P. Feldman, and M.S. Gertler, eds.), New York: Oxford University Press, 2000
• “Attitudes, Values, Beliefs and the Microeconomics of Prosperity,” in Culture Matters: How Values
Shape Human Progress, (L.E. Harrison, S.P. Huntington, eds.), New York: Basic Books, 2000
CAON Malaysia 2003 05-06-03 CK.ppt
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Copyright 2003 © Professor Michael E. Porter
Web resources
•
Institute for Strategy and Competitiveness
•
ISC Cluster Mapping Data (US)
data.isc.hbs.edu/isc/index.jsp
•
Cluster of Innovation Initiative
– Council on Competitiveness
– Monitor Company
www.compete.org
www.monitor.com
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www.isc.hbs.edu
Copyright 2003 © Professor Michael E. Porter