Competitiveness in the Post Crisis Era: The Strategggic ... Files/2010-0222_Global... · Lighting Equipment Export Share: 4.37% 2% U Motor Driven Products Oil & Gas IT Plastics Building

Competitiveness in the Post Crisis Era:The Strategic Agenda for the UKg g

Professor Michael E. PorterH d B i S h lHarvard Business School

Global Investment Conference 2010London, UK,

Dr. Christian Ketels helped prepare this presentation. It draws on ideas from Professor Porter’s articles and books, in particular, The Competitive Advantagef ( ) “ f C G C (

1 Copyright 2008 © Professor Michael E. Porter20081016 – CAON Korea.ppt

of Nations (The Free Press, 1990), “Building the Microeconomic Foundations of Competitiveness,” in The Global Competitiveness Report 2006 (WorldEconomic 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 inany 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

The Global Economic Context in 2010

• The global economy is slowly recovering from a deep recession, with significant risks remaining

• Countries are looking for ways to achieve sustainable economic growth and job creation

• Competitiveness has become more important than ever– Globalization will continue and strong international competitors areGlobalization will continue and strong international competitors are

emerging– Companies are reexamining everything in terms of how and where they

operate

• The UK has achieved a long-term competitive transformation, but the next stage of development will be slower and more challenging


$40,000

Prosperity Selected Countries, 1990 to 2000PPP-adjusted GDP per

Capita, 2000 ($USD)

OECD 4 15%

$35,000

$ ,

NorwayUnited States

Switzerland

OECD average: 4.15%

$25,000

$30,000Ireland

Hong Kong SingaporeCanada

Austria

Australia

Netherlands

Switzerland

IcelandSweden

Denmark

GermanyUnited KingdomJapan

FranceItaly OECD average: $24,590

Belgium

$20,000

Finland

Israel

South Korea

New ZealandSpain

PortugalGreece

TaiwanGermany

Slovenia

$10,000

$15,000 Czech Republic

Estonia

HungaryMexico

Turkey

PolandCroatia

$5,000

TurkeyBrazil

China (11.0%)India

Russia (-1.8%)


$00% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%

Source: EIU (2010), authors calculations

Growth of Real GDP per Capita (PPP-adjusted), CAGR, 1990 to 2000

$60,000

Prosperity Selected Countries, 2000 to 2009PPP-adjusted GDP per

Capita, 2009 ($USD)

OECD 3 26%

$50,000

$ ,

Norway

OECD average: 3.26%

$40,000

United States

Ireland Hong Kong

SingaporeCanadaAustriaAustraliaNetherlands

Switzerland

SwedenDenmark Belgium

$30,000

Finland

Czech RepublicIsrael South KoreaNew Zealand

Spain Greece

TaiwanIcelandDenmark

GermanyUnited KingdomJapan

France

Italy

OECD average: $32,810Belgium

Slovenia

$20,000

p

Portugal

EstoniaHungary

MexicoT k

LithuaniaPoland

Croatia

Latvia Russia

Slovakia

$10,000Turkey

Brazil

China (12.44%)

India


$00% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%

Source: EIU (2010), authors calculations


What is Competitiveness?

C titi i th d ti it ith hi h ti it h• Competitiveness is the productivity with which a nation uses its human, capital, and natural resources

– Productivity sets the standard of living

– Productivity growth drives sustainable economic growth

• Productivity and prosperity depends on how a nation competes, not what industries it competes inindustries it competes in

– Productivity in the modern global economy arises from a combination of domestic and foreign firms

R l tl i li ti f i ti i t h l d t• Relentless commercialization of innovation in technology, products, and organizational methods is necessary to drive productivity growth and enable the standard of living to rise

• Nations compete to offer the most productive environment for business

5 Copyright 2010 © Professor Michael E. PorterMOC Session 1 2010.ppt

• The public and private sectors play different but interrelated roles in creating a productive economy

$120 000

Labor ProductivitySelected Countries, 1990 to 2000Real GDP per employee

(PPP adjusted US$), 2000

$100,000

$120,000

Norway

OECD Average: 2.02%

$80,000New Zealand

Australia

Germany

USAIreland

France

Italy

United KingdomSingapore

Fi l d

Belgium

AustriaNetherlands

Canada

S it l d

$60,000

Germany

SloveniaK

Japan Denmark

SpainTaiwan

Israel

Greece

Hong Kong

Iceland

FinlandSweden

SwitzerlandOECD Average: $66,217

$40,000

Turkey

MexicoSlovakia

Poland

S o e a

R i ( 2 40%)

Korea

Czech RepublicCroatia

LatviaLithuania

Hungary

Estonia

Portugal

$20,000 Brazil

China (6.16%)

Russia (-2.40%)

India

Latvia


$0-2% -1% 0% 1% 2% 3% 4% 5% 6%

Growth of real GDP per employee (PPP-adjusted), 1990 to 2000Source: authors calculation Groningen Growth and Development Centre (2010)

$120 000

Labor ProductivitySelected Countries, 2000 to 2009Real GDP per employee

(PPP adjusted US$), 2009

$100,000

$120,000

USAIreland

Norway

OECD Average: 1.13%

$80,000Australia

Germany

Ireland

France

ItalyUnited Kingdom

T iIsrael GreeceSingapore

Hong Kong

FinlandSweden

Belgium

AustriaNetherlands

Canada

OECD Average: $72,370

$60,000

New Zealand

Slovakia

y

Poland

SloveniaKorea

Japan

Czech Republic

Denmark

Italy Spain

Croatia

Taiwan

Hungary

Iceland

P t l

Switzerland

g

$40,000 TurkeyMexico

Poland

RussiaLatvia

Lithuania

g yEstoniaPortugal

$20,000 Brazil

China (10.4%)

India


$0-2% -1% 0% 1% 2% 3% 4% 5% 6%

Growth of real GDP per employee (PPP-adjusted), 2000 to 2009Source: authors calculation Groningen Growth and Development Centre (2010)

Inbound Foreign InvestmentStocks and Flows, Selected Countries

Inward FDI Stocks as % of GDP

70%

80%

as % of GDP, Average 2000-2008

Netherlands

Estonia

Ireland (105.8%)OECD Average 17.9% Singapore (60.7%, 157.1%)

Hong Kong (92.9%, 320.2%)

60%Hungary

C h R bli

Estonia

Switzerland

40%

50%

Slovakia

Czech RepublicNew Zealand

SpainPortugalOECD Average: 37.3%

Sweden

United KingdomA stralia Denmark

20%

30%

RussiaSlovenia

PolandFinland

LithuaniaBrazil

Austria

Latvia

Mexico Israel

United Kingdom

France

CanadaAustralia

Norway

Germany

Iceland

Denmark

0%

10%

Japan

TurkeyChinaKorea

Greece

India

USA GermanyItaly

Taiwan


0%0% 5% 10% 15% 20% 25% 30% 35%

Source: UNCTAD, World Investment Report (2009). OECD Average does not include Luxembourg.

FDI Inflows as % of Gross Fixed Capital Formation, Average 2000 - 2008

Domestic Fixed Investment RatesSelected CountriesGross Fixed Investment

as % of GDP, 2008

37%China

India (12.7%)

OECD Average: - 0.3%

32%

AustraliaSlovenia

EstoniaSingapore

SpainLatvia

22%

27%

Czech Rep.

SlovakiaSlovenia

DenmarkPoland Russia

Iceland Japan Canada

New Zealand

Lithuania

MexicoAustria

17%

22%

TurkeyBrazil

France

GermanyHong Kong

NorwayFinland

Poland RussiaIreland

Sweden

Israel

Hungary

Portugal

Greece

United Kingdom

Austria

Italy

Netherlands

TaiwanSwissBelgium OECD Average:

21.9%

12%

17%

USA

United Kingdom


-8% -6% -4% -2% 0% 2% 4% 6% 8% 10%

Note: Includes inbound FDI Source: EIU, 2009

Change in Gross Fixed Investment (as % of GDP), 2000 to 2008

Average U.S. patents per 1 illi l ti 1998 2008

Innovative OutputSelected Countries, 1998 to 2008

250

300million population, 1998-2008

United States

Japan

200

250Taiwan

p

150IsraelSweden Finland

Switzerland

100

GermanyCanada

B l iNetherlands SingaporeDenmark

South Korea

Austria

50Hong Kong

NorwayBelgium

India

France

Spain ChinaItaly

AustraliaUK

Austria

S th Af i


0-10% -5% 0% 5% 10% 15% 20% 25% 30%

Source: USPTO (2008), EIU (2008)

CAGR of US-registered patents, 1998 to 2008

Spain China

10,000 patents =

South Africa

Microeconomic Competitiveness

Determinants of Competitiveness

p

Sophisticationof Company

Operations andStrategy

Quality of the NationalBusiness

Environment

State of Cluster Development

Macroeconomic Competitiveness

StrategyEnvironment

MacroeconomicPolicies

SocialInfrastructure and PoliticalInstitutions

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

Microeconomic Competitiveness: The Business Environment

Context forCompetition

FactorInputs

Demand Conditions

• Local rules and incentives that encourage investment and productivity

– e.g. incentives for capital investments, intellectual property protection, corporate governanceInputs Conditions

• Sophisticated and demanding local customers and needs

protection, corporate governance standards

Open and vigorous local competition– Openness to foreign competition– Competition laws• Access to high quality business

inputs and infrastructure

Related and Supporting Industries

– e.g., Strict quality, safety, and environmental standards

– Consumer protection laws

– e.g., human resources, capital, physical infrastructure, administrative rules, scientific and technological infrastructure

• 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

Cluster Organizations

Cluster DevelopmentMassachusetts, Life Sciences

Surgical Instruments and Suppliers

Health and Beauty Products Teaching and Specialized Hospitals

Cluster OrganizationsMassMedic, MassBio, others

Biological Biopharma-

Specialized BusinessServices

Banking, Accounting, Legal

and Suppliers

Medical Equipment

Biological Products

Specialized Risk CapitalVC Firms, Angel Networks

ceutical Products

Banking, Accounting, LegalDental Instruments

and Suppliers

Ophthalmic Goods

Research Organizations

Specialized ResearchService Providers

Laboratory, Clinical Testing

Diagnostic Substances

Specialized Suppliers of y, gSpecialized Suppliers of components, materials

and other inputs


Analytical InstrumentsEducational Institutions

Harvard University, MIT, Tufts University, Boston University, UMass

12%

UK Cluster Export Growth, 1997-2007

Fi i l S i (23 5%)( %)

10%

2007

Change In UK’s Overall Growth in Exports : + 6.28%

Business Services

Communication Services

Financial Services (23.5%)Aerospace Engines (18.2%)

8%

mar

ket s

hare

, 2

Biopharmaceuticals

Publishing and Printing

6%

s w

orld

exp

ort

Transportation and LogisticsChemicals Heavy Machinery

Hospitality and Tourism

Medical DevicesUK’s Average World

4%

nite

d K

ingd

om’s

AutomotiveProcessed Foods

Oil & GTextilesConstruction Services

Prefabricated Enclosures and StructuresProduction Technology

Analytical InstrumentsHeavy Machinery

Communications Equipment

Power Generation and Equipment

Lighting Equipment

gExport Share: 4.37%

2%

Un

Motor Driven Products

Oil & GasIT

Plastics

Textiles

Building Fixtures and Equipment

EntertainmentAgriculture

Metal Mining and ManufacturingApparel

Coal

Forest ProductsMarine Equipment


0%-10% -5% 0% 5% 10% 15% 20% 25%

Growth in United Kingdom’s cluster exports, 1997 – 2007Source: 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.

Coal

Exports of US$14 Billion =

12%

UK Cluster Export Share Performance, 1997-2007

10%

2007

Change In UK’s Overall World Export Share: - 1.46% Business Services

Communication Services

Financial Services (23.5%)Aerospace Engines (18.2%)

8%

mar

ket s

hare

, 2

Biopharmaceuticals

Publishing and Printing

6%

s w

orld

exp

ort

UK’s Average World Transportation and LogisticsHeavy Machinery

Hospitality and Tourism

Medical Devices

4%

nite

d K

ingd

om’s g

Export Share: 4.37%AutomotiveProcessed Foods

Transportation and LogisticsChemicals

Plastics Construction Services

Building Fixtures and EquipmentPrefabricated Enclosures and Structures

Production Technology

Analytical Instruments

Entertainment

Power Generation and Equipment

Forest ProductsLighting Equipment

2%

Un

Motor Driven ProductsOil & Gas

Fishing and Fishing Related ProductsIT

Textiles

S

Construction Materials

Entertainment

Communications Equipment

Agricultural Products

Metal Mining and ManufacturingApparel

Coal

Forest Productsg g q p

Marine Equipment


0%-6% -5% -4% -3% -2% -1% 0% 1% 2% 3%

Change in United Kingdom’s world export market share, 1997 – 2007Exports of US$14 Billion = 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.

Coal

Regions and Competitiveness

E i f i i ifi tl b ti l• Economic performance varies significantly among sub-national regions (e.g., provinces, states, metropolitan areas)


UK Regional Economic PerformanceGDP per Capita,

Euros, 2007

€45,000

€50,000UK Average: 3.02% Inner London (€96,000)

,

Berkshire, Bucks and OxfordshireNorth Eastern Scotland

€40,000

North Eastern Scotland

€30,000

€35,000UK Average: €33,500

Cheshire

Greater ManchesterWest Yorkshire

East Anglia

Eastern Scotland

Outer London

Surrey, East and West Sussex

€25,000

West Wales and The Valleys

Lancashire

Merseyside

South Yorkshire

Licolnshire

Cornwall and Isles of Scilly

KentEssex

Highlands and Islands

€15,000

€20,000West Wales and The Valleys Cornwall and Isles of Scilly


1% 2% 3% 4% 5% 6%

Note: Gross domestic product (GDP) at current market prices at NUTS level 2Source: EUROSTAT, 2010




• Many of the essential levers of competitiveness reside at the regional level

• Region’s specialize in different sets of clusters

Cl t t th d i i l f– Cluster strength drives regional performance


UK Cluster Specialization For Selected Regions, 2007North East ScotlandOil and GasFishing

Highlands and IslandsFishingTourism

Eastern ScotlandEducationAnalytical InstrumentsFinancial Services

FishingTourism

LancashireAerospace

G t M h t

Northern Lincolnshire LincolnshireGreater Manchester

Distribution ServicesBusiness Services

FishingLincolnshireFood ProcessingPower Generation

Bedfordshire, HertfordshireDerbyshire and NottinghamshireA

Inner LondonFinancial Services

CheshireChemicalsPlastics

,BiopharmaceuticalsBusiness Services

Aerospace

Financial ServicesBusiness ServicesEntertainment

Outer LondonTransportation

West MidlandsMetal ManufacturingAutomotive


Source: European Cluster Observatory, 2009

Berkshire, Bucks and OxfordshireITEducation

Transportation

CornwallTourism Dorset/Somerset

Aerospace



• Many of the essential levers of competitiveness reside at the regional level

• Region’s specialize in different sets of clusters

Cl t t th d i i l f– Cluster strength drives regional performance

• Decentralization of economic policy is especially important in larger countries to foster regional specialization, internal competition, and l l t bilitlocal accountability

• Each region needs a distinct competitiveness agenda

• Competitiveness improvements requires effective policy


• Competitiveness improvements requires effective policy collaboration between regions and the national government

The Process of Economic DevelopmentRoles and Responsibilitiesp

Old Model

Th t l t d i

New Model

E i d l t i• The central government drives economic development through policy decisions, spending and incentives

• Economic development is a collaborative process involving government at multiple levels, companies educational andincentives companies, educational and research institutions, and private sector organizations

• Competitiveness must move towards a bottom-up process in which


p p pmany individuals, companies, and institutions take responsibility and act

Competitiveness Agenda for the UK

• Much progress has been made in enhancing UK competitiveness

• The UK should continue the long-term investments that will be needed to drive future competitivenessneeded to drive future competitiveness

– Innovation infrastructure and incentives– Education and training– Physical infrastructurePhysical infrastructure– Administrative and regulatory simplification– SME development, including the supply of risk capital

T f th h i ti d d id li i h ld• To further enhance innovation, demand side policies should complement supply side policies

– e.g. regulatory quality, government procurement

• Polices to improve the business environment would benefit from more continuity and greater strategic focus

• It is essential that future fiscal policy is aligned with improving


• It is essential that future fiscal policy is aligned with improving competitiveness

Competitiveness Agenda for the UK(Continued)

• A broad-based, market driven cluster development strategy is a crucial tool to drive further productivity and innovation

• Greater decentralization of economic policy to the regional level is a fundamental step forward, but implementation needs continued improvementimprovement

• The private sector must become a much stronger partner inThe private sector must become a much stronger partner in competitiveness

• A deeper challenge will be to better align financial market competition with competitiveness in the real economy


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Competitiveness in the Post Crisis Era: The Strategggic ... Files/2010-0222_Global... · Lighting Equipment Export Share: 4.37% 2% U Motor Driven Products Oil & Gas IT Plastics Building