Indian Competitiveness: Where Does the Nation Stand? Files/CAON_India_2004.01.21_CK_1f354978-5321...Jan 21, 2004 · Factor (Input) Conditions Factor (Input) Conditions Demand Conditions

1 Copyright 2004 © Professor Michael E. PorterGCR India 2003 01-06-04

Indian Competitiveness:Where Does the Nation Stand?

Professor Michael E. PorterInstitute for Strategy and Competitiveness

Harvard Business School

21 January 2004Mumbai, India

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 2003, (World Economic Forum, 2003), “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


Perspectives on Firm Success

InternalInternalInternal ExternalExternalExternal

• Competitive advantage resides inside a company or in its industry

• Competitive success depends primarily on company choices

• Competitive advantage (or disadvantage) resides partly in the locations at which a company’s business units are based

• Cluster participation is an important contributor to competitiveness


Indian Economic Performance 2004

• Economic reforms in the post-1991 period have delivered economic growth rates of about 5% annually

• India’s ranking in the Global Competitiveness Report has improved significantly in the last few years

• The Indian IT cluster has emerged as a leading competitor in the world market, transforming the perception of India as a competitor

• However, there are signs that the 1991 reforms are reaching the limits of their effectiveness– The growth trend has fallen– Total factor productivity growth has slowed– The public sector’s fiscal position has again weakened– International market success is still dominated by a few sectors– The disproportionate success of the IT cluster is as much an indication

of weaknesses in India's business environment as a metaphor for India overall


0

5,000

10,000

15,000

20,000

25,000

30,000

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

Comparative Economic PerformanceReal GDP per Capita

China

Japan

Compound annual growth rate of real GDP per capita, 1991-2002

GDP per capita (PPP

adjusted) in US-$,

2002

Source: EIU (2003)

Hong Kong

SingaporeTaiwan

South Korea

Thailand Malaysia

Vietnam

MyanmarIndia

Philippines

Pakistan

Indonesia

Bangladesh

Sri Lanka


India’s Export PerformanceWorld Export Market Shares

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

GoodsServicesTotal

Source: WTO (2002)

World export share in %


$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

$20,000

1994 1995 1996 1997 1998 1999 2000

IT Service ExportsOther Service Exports

India’s Service ExportsEffect of IT Services Exports

CAGR:

+36.5%

CAGR:

+6.5%

Source: IMF (2002)

Service Exports in Million US-$


0%

1%

2%

3%

4%

5%

6%

-0.5% 0.0% 0.5% 1.0% 1.5%

India’s average change in world goods export share:

+ 0.06%

India’s average goods export share: 0.76%

Note: 90% of exports in the category “Personal” are accounted for by Jewelry and DiamondsSource: UNCTAD Trade Data. Author’s analysis.

Change in India’s World Export Share, 1997 – 2000

India’s Goods Export Performance By Broad Sector1997-2000

Power

Health Care

Food/Beverages

Personalproducts *

Textiles

Transportation Multiple Business

DD

= $10 billion export volume in 2000

++

World Export Share, 2000

Housing/HouseholdMaterials/MetalsPetroleum/Chemicals

+

8 Copyright 2004 © Professor Michael E. PorterGCR India 2003 01-06-04Source: US Patent and Trademark Office (www.uspto.gov). Author’s analysis.

Annual U.S. patents per 1 million

population, 2002

Compound annual growth rate of US-registered patents, 1990 - 2002

International Patenting Output

0

50

100

150

200

250

300

350

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

Australia

Canada

Germany

Japan

South Korea

New Zealand

Singapore

Sweden

Taiwan

UK

Israel = 10,000 patents granted in 2002

USA

Finland

Ireland IndiaChina

Netherlands Denmark

Italy

NorwayFrance


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 howfirms 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


Innovation and Competitiveness

ProductivityProductivity

Innovative CapacityInnovative CapacityInnovative Capacity

Competitiveness

• Innovation is more than just scientific discovery

• There are no low-tech industries, only low-tech firms

• To become an advanced economy, a nation’s firms must move from assimilating technology to creating new technology

ProsperityProsperityProsperity


Microeconomic Foundations of DevelopmentMicroeconomic Foundations of Development

Quality of the Microeconomic

BusinessEnvironment

Quality of the Quality of the MicroeconomicMicroeconomic

BusinessBusinessEnvironmentEnvironment

Sophisticationof Company

Operations andStrategy

SophisticationSophisticationof Companyof Company

Operations andOperations andStrategyStrategy

Determinants of Productivity and Productivity Growth

Macroeconomic, Political, Legal, and Social Context for Development

Macroeconomic, Political, Legal, and Social Macroeconomic, Political, Legal, and Social Context for DevelopmentContext for Development

• 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


0

10,000

20,000

30,000

40,000

50,000

60,000

-2% -1% 0% 1% 2% 3% 4% 5% 6% 7% 8%

Comparative Labor Productivity Performance

Compound annual growth rate of real GDP per employee, 1996-2002*

GDP per employee

(PPP adjusted) in US-$,

2002

*Hong Kong CAGR based on 1997-2002Source: EIU (2003)

China

Korea

Taiwan

Hong Kong

JapanSingapore

MalaysiaPhilippines

MyanmarVietnamIndia

Bangladesh

Sri LankaThailand

Indonesia Pakistan


Indian Productivity Growth Over TimeTotal Productivity Growth

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

1960-80 1981-1990 1991-97 98-01

Average Annual Growth Rate (Estimation Interval)

Note: Estimation interval reflects different assumptions about labor share in production Source: IMF (2003), (2002)


0%

10%

20%

30%

40%

50%

60%

70%

-10% 0% 10% 20% 30% 40% 50% 60% 70% 80%

Comparative Inward Foreign InvestmentSelected Economies

FDI Stocks as % of GDP, Average 1998-2001

FDI Inflows as % of Gross Fixed Capital Formation, Average 1998-2001

Note: Some researchers argue that Japanese statistics understate FDI inflows and stocks by a factor of three (Weinstein, 1997)Source: World Investment Report 2002

Singapore (122%, 40%)

China

Ireland (100%, 77%)

Netherlands

Sweden

Malaysia

New ZealandIndonesia

UK

Cambodia

Canada

Vietnam

Laos

Thailand

USBrazilPhilippines

S KoreaIndia

Chile

Japan*

Mexico


Context for Firm

Strategy and Rivalry

Context for Context for Firm Firm

Strategy Strategy and Rivalryand Rivalry

Related and Supporting Industries

Related and Supporting Industries

Factor(Input)

Conditions

FactorFactor(Input) (Input)

ConditionsConditionsDemand

ConditionsDemand Demand

ConditionsConditions

Productivity and the Business Environment

• 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

Sophisticated and demandinglocal customer(s)Local customer needs that anticipate those elsewhereUnusual local demand in specialized segments that can be served regionally and globally

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

Access to capable, locally based suppliersand firms in related fieldsPresence of clusters instead of isolated industries

A local context and rules that encourage investment and sustained upgrading

–e.g., Intellectual property protection

Meritocratic incentive systems across institutionsOpen and vigorous competition among locally based rivals


The California Wine Cluster

Educational, Research, & Trade Organizations (e.g. Wine Institute,

UC Davis, Culinary Institutes)

Educational, Research, & Trade Organizations (e.g. Wine Institute,

UC Davis, Culinary Institutes)

Growers/VineyardsGrowers/Vineyards

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.

Wineries/ProcessingFacilities

Wineries/ProcessingFacilities

GrapestockGrapestock

Fertilizer, Pesticides, Herbicides

Fertilizer, Pesticides, Herbicides

Grape Harvesting Equipment

Grape Harvesting Equipment

Irrigation TechnologyIrrigation Technology

Winemaking Equipment

Winemaking Equipment

BarrelsBarrels

LabelsLabels

BottlesBottles

Caps and CorksCaps and Corks

Public Relations and Advertising

Public Relations and Advertising

Specialized Publications (e.g., Wine Spectator,

Trade Journal)

Specialized Publications (e.g., Wine Spectator,

Trade Journal)

Food ClusterFood Cluster

Tourism ClusterTourism ClusterCalifornia Agricultural Cluster

California Agricultural Cluster

State Government Agencies(e.g., Select Committee on Wine

Production and Economy)


Leading Footwear Clusters

Vietnam/Indonesia• OEM Production • Focus on the low cost

segment mainly for the European market

China• OEM Production• Focus on low cost

segment mainly for the US market

Portugal• Production • Focus on short-

production runs in the medium price range

Romania• Production subsidiaries

of Italian companies• Focus on lower to

medium price range

United States• Design and marketing • Focus on specific market

segments like sport and recreational shoes and boots

• Manufacturing only in selected lines such as hand-sewn casual shoes and boots

Source: Research by HBS student teams in 2002

Italy• Design, marketing,

and production of premium shoes

• Export widely to the world market


Institutions for CollaborationSelected Massachusetts Organizations, Life Sciences

Economic Development InitiativesEconomic Development Initiatives

Massachusetts Technology CollaborativeMass Biomedical InitiativesMass DevelopmentMassachusetts Alliance for Economic Development

Massachusetts Technology CollaborativeMass Biomedical InitiativesMass DevelopmentMassachusetts Alliance for Economic Development

Life Sciences Industry AssociationsLife Sciences Industry Associations

Massachusetts Biotechnology CouncilMassachusetts Medical Device Industry CouncilMassachusetts Hospital Association

Massachusetts Biotechnology CouncilMassachusetts Medical Device Industry CouncilMassachusetts Hospital Association

General Industry AssociationsGeneral Industry Associations

Associated Industries of MassachusettsGreater Boston Chamber of CommerceHigh Tech Council of Massachusetts

Associated Industries of MassachusettsGreater Boston Chamber of CommerceHigh Tech Council of Massachusetts

University InitiativesUniversity Initiatives

Harvard Biomedical CommunityMIT Enterprise ForumBiotech Club at Harvard Medical SchoolTechnology Transfer offices

Harvard Biomedical CommunityMIT Enterprise ForumBiotech Club at Harvard Medical SchoolTechnology Transfer offices

Informal networksInformal networks

Company alumni groupsVenture capital communityUniversity alumni groups

Company alumni groupsVenture capital communityUniversity alumni groups

Joint Research InitiativesJoint Research Initiatives

New England Healthcare InstituteWhitehead Institute For Biomedical ResearchCenter for Integration of Medicine and Innovative Technology (CIMIT)

New England Healthcare InstituteWhitehead Institute For Biomedical ResearchCenter for Integration of Medicine and Innovative Technology (CIMIT)


Influences on CompetitivenessMultiple Geographic Levels

Broad Economic AreasBroad Economic Areas

Groups of Neighboring Groups of Neighboring NationsNations

States, ProvincesStates, Provinces

Metropolitan Areas, Metropolitan Areas, Rural AreasRural Areas

NationsNations

World EconomyWorld Economy


Shifting Responsibilities for Economic Development

Old ModelOld Model

• Government drives economic development through policy decisions and incentives


New ModelNew Model

• Economic development is a collaborative process involving government at multiple levels, companies, teaching and research institutions, and institutions for collaboration



Competitiveness Agenda for India

• Macroeconomic and Social Context– The need for public sector reform – Integration of social and economic policy– Enhancing agricultural competitiveness

• Microeconomic Business Environment– Barriers to competition– Weaknesses in physical infrastructure– Financial markets– Limited cluster development– Enhancing India’s innovative capacity

• Economic Policy-Making Process– Shifting roles in economic development– Economic strategies at the state level– Roles in economic development


Public Sector Reform

• The Indian public sector accounts for an important part of the country’s modern economy– 12m employees of 27m total in the modern economy are public sector

employees– Public sector activities have often been used as an instrument of social

policy

• Deteriorating public sector balances threaten macroeconomic stability– Current attempts to control public deficits by curbing public investment

will have detrimental effects on growth

• More efficient public sector services are essential to increase Indian prosperity and allow rising competitiveness of Indian companies

• Spending public resources more effectively is te first priority, rather than focusing primarily on new revenues


• The competitiveness of companies depends heavily on– Rising skill levels – Safe working conditions – A sense of equal opportunity– Low levels of pollution (pollution is a sign of unproductive use of physical resources)

• However, efforts to meet “social” objectives must be aligned with productivity and prepare and motivate individuals to succeed in the market system

• India has fallen into the trap of distorting markets to meet social objectives, which harms competitiveness

− E.g., price subsidies; quotas; reserved industries• Instead, India must address root causes

• The competitiveness of companies depends heavily on– Rising skill levels – Safe working conditions – A sense of equal opportunity– Low levels of pollution (pollution is a sign of unproductive use of physical resources)

• However, efforts to meet “social” objectives must be aligned with productivity and prepare and motivate individuals to succeed in the market system

• India has fallen into the trap of distorting markets to meet social objectives, which harms competitiveness

− E.g., price subsidies; quotas; reserved industries• Instead, India must address root causes

• In the new thinking on competition, there is not an inherent conflict between economic and social objectives, but a long term synergy

EconomicObjectives

SocialObjectives

Integrating Economic and Social Policy


Agricultural Reform

• Improving the productivity of agriculture is necessary to make significant headway in improving Indian prosperity– Two thirds of Indians are engaged in (mostly subsistence)

agriculture

• Making agriculture more efficient will raise purchasing power and, over time, allow large scale movement of workers into other parts of the economy– Higher prosperity on average will move larger numbers of

Indians into the market for Indian products and services– Sustainable economic success is for companies hard to

achieve, if their location is not succeeding as well







Barriers to Competition

• Barriers to foreign competition– India’s tariff levels have come down substantially to a 35%

average, but are still significantly higher than in peer countries– Non-tariff barriers have become more important; India is now

the second most proliferate user of anti-dumping measures– Barriers to foreign direct investment (FDI) remain substantial

and have significantly limited inflows of capital and know how

• Barriers to domestic competition– The level of bureaucratic red tape, corruption, and regulatory

distortions remains high despite recent improvements– Government ownership of companies remains widespread,

and privatization is moving at glacial speed– Corporate boards provide only limited governance

• Reforms in India need to become far deeper and more widespreadto keep pace with reforms in other countries


0%

10%

20%

30%

40%

50%

60%

70%

80%

Bangla

desh

India

Pakist

anViet

nam

Malays

iaPhil

ippine

sLa

o PDR

Sri Lan

ka

Korea,

Dem. R

ep.

Indon

esia

China

Mongo

liaJa

pan

Thaila

nd

Taiwan

, Chin

a

Hong K

ong,

China

Singap

ore

Costs of Business FormationAsian Countries

Cost of Business Formation relative to GDP per capita

Source: World Bank (2003)


-10 -5 0 5 10 15

CorruptionTransparency International Global Corruption Report

Bangladesh

India

Note: Asian countries in blue, constant country sampleSource: Global Corruption Report, 2003

Change in Rank, Global Corruption Report, 2003 versus 2001

Rank in Global

CorruptionIndex,2003

66

China

Indonesia

PakistanPhilippines

Singapore

Thailand

Vietnam

MalaysiaS Korea


Transportation Cost PositionSelected Asian Competitors

0%

5%

10%

15%

20%

25%

30%

35%

40%

China Thailand Indonesia

Size of India’s Transportation Cost Disadvantage

for Textiles shipped to the US

Source: Worldbank / CII (2002)


Other Physical Infrastructure

• India’s weaknesses in physical infrastructure are as much the result of distortive regulations as of low investment

– Power supply is scarce and unreliable, with rate regulation reducing the incentives to invest in better plants

– Railroad infrastructure is deteriorating, and price distortions to subsidize personal travel work against the efficiency of the railroad network for goods transportation

• Improvements in the regulatory environment would have a significant impact on removing bottlenecks in the physical infrastructure


Financial Markets

• India’s financial markets have improved over the last five years• However, barriers to efficient, market-driven capital allocation remain

– The majority of financial institutions remains under government control, with weak incentives for efficient credit decisions

– Targets for credit allocation distort the flow of capital– There is no efficient mechanisms for bankruptcy and recovering

non-performing loans– The spread between interest rates for loans and deposits remains

high • The rising government deficits crowd out private investments

• Levels of private investment in India remain below the levels in peer countries

• Private companies are reported to be credit-constrained• Conglomerate business groups remain a necessary institutional

response to financial market weaknesses


Indian Movie Cluster (“Bollywood”)

FILMFILM

MusicMusic

Special EffectsSpecial Effects

AnimationAnimation

Electronics EquipmentElectronics Equipment

Film Equipment Film Equipment

LightingLighting

Sound LabsSound Labs

Film ProcessingFilm Processing

Film EditingFilm Editing

IT CLU

STERIT C

LUSTER

ProducersProducers

On Set ServicesOn Set Services

Set ConstructionSet Construction

CostumingCostuming

CastingCastingAgentsAgents

ActorsActors

DirectorsDirectors

SingersSingers

WritersWriters

Food ServiceFood Service

HairdressingHairdressing

Makeup ArtistsMakeup Artists

Location ScoutsLocation Scouts

Sound StagesSound Stages

Set DesignSet Design

PropsProps

TEXTILE CLUSTERTEXTILE

CLUSTER

FINANCIAL SERVICES CLUSTER

FINANCIAL SERVICES CLUSTER

TelevisionTelevisionDistributionDistribution TRANSPORT

CLUSTERTRANSPORT

CLUSTER

TOURISM CLUSTERTOURISM CLUSTER Cinema

ManagementCinema

ManagementCable

OperationsCable

OperationsSatellite

BroadcastingSatellite

Broadcasting

PublishingPublishing

Retail OutletsRetail

Outlets

TransportationTransportation

Source: Research by Harvard student team (Vivake Bhalla, Prasad Bhamre, Vanessa Liu, Kellie McKnechie, Rahul Mehendale)


The Australian Wine ClusterHistory

1955

Australian Wine Research Institute founded

1970

Winemaking school at Charles SturtUniversity founded

1980

Australian Wine and Brandy Corporation established

1965

Australian Wine Bureau established

1930

First oenology course at RoseworthyAgricultural College

1950s

Import of European winery technology

1960s

Recruiting of experienced foreign investors, e.g. Wolf Bass

1990s

Surge in exports and international acquisitions

1980s

Creation of large number of new wineries

1970s

Continued inflow of foreign capital and management

1990

Winemaker’s Federation of Australia established

1991 to 1998

New organizations created for education, research, market information, and export promotions

Source: Michael E. Porter and Örjan Sölvell, The Australian Wine Cluster – Supplement, Harvard Business School Case Study, 2002


Cluster Policy versus Industrial Policy

Industrial Policy

Industrial Industrial PolicyPolicy

Cluster-basedPolicy

ClusterCluster--basedbasedPolicyPolicy

• Target desirable industries / sectors

• Focus on domestic companies

• Intervene in competition (e.g., protection, industry promotion, subsidies)

• Centralizes decisions at the national level

• All clusters can contribute to prosperity

• Domestic and foreign companies both enhance productivity

• Relax impediments and constraints to productivity

• Emphasize cross-industry linkages / complementarities

• Encourage initiative at the state and local level

Distort competition Enhance competition


Organization Patents Issued from 1997 to 2001

1 COUNCIL OF SCIENTIFIC AND IND. RESEARCH 172

2 TEXAS INSTRUMENTS, INCORPORATED 28

3 RANBAXY LABORATORIES LIMITED 23

4 DR. REDDY'S RESEARCH FOUNDATION 20

5 GENERAL ELECTRIC COMPANY 17

6 INDIAN OIL CORPORATION, LTD. 12

7 PANACEA BIOTEC LIMITED 11

8 LUPIN LABORATORIES LIMITED 9

8 DABUR RESEARCH FOUNDATION 9

8 NATIONAL INSTITUTE OF IMMUNOLOGY 9

11 INTERNATIONAL BUSINESS MACHINES CORP. 8

12 INDIAN PETROCHEMICALS CORPORATION LIMITED 7

13 HOECHST AKTIENGESELLSCHAFT 6

13 GEM ENERGY INDUSTRY LIMITED 6

15 NATREON INC. 5

15 IOWA INDIA INVESTMENTS COMPANY LIMITED 5

17 UNILEVER HOME & PERSONAL CARE USA 4

17 TORRENT PHARMACEUTICALS LTD. 4

17 NATIONAL RESEARCH DEVELOPMENT CORP. 4

17 DEP. OF SCIENCE AND TECHNOLOGY, GOV. OF INDIA 4 Note: Shading indicates universities, research institutions, and other government agencies

Source: US Patent and Trademark Office (www.uspto.gov). Author’s analysis.

Innovation in IndiaU.S. Patenting by Indian Organizations


Patents by OrganizationCommonwealth of Massachusetts

Organization Patents Issued from 1997 to 2001 1 MASSACHUSETTS INSTITUTE OF TECHNOLOGY 518 2 GENERAL HOSPITAL CORPORATION 296 3 EMC CORPORATION 269 4 DIGITAL EQUIPMENT CORPORATION 261 5 POLAROID CORPORATION 213 6 ANALOG DEVICES, INC. 167 7 MILLENNIUM PHARMACEUTICALS, INC. 165 8 HARVARD UNIVERSITY 150 9 COMPAQ COMPUTER CORPORATION, INC. 147 10 SUN MICROSYSTEMS, INC. 143 11 BOSTON SCIENTIFIC CORPORATION 135 12 ACUSHNET COMPANY 130 13 GENETICS INSTITUTE, INC. 127 14 GILLETTE COMPANY 112 15 BRIGHAM AND WOMEN'S HOSPITAL 107 16 RAYTHEON COMPANY 101 17 GENERAL ELECTRIC COMPANY 99 18 HEWLETT-PACKARD COMPANY 96 19 CHILDREN'S MEDICAL CENTER CORPORATION 93 20 QUANTUM CORP. (CA) 93 21 COGNEX CORPORATION 90 22 DANA-FARBER CANCER INSTITUTE 90 23 JOHNSON & JOHNSON PROFESSIONAL INC. 90 24 BOSTON UNIVERSITY 84 25 SEPRACOR INC. 84

Note: Shading indicates universities, research institutions, and other government agencies Source: US Patent and Trademark Office (www.uspto.gov). Author’s analysis.







Specialization of Regional EconomiesSelect U.S. Geographic Areas

BostonAnalytical InstrumentsEducation and Knowledge CreationCommunications Equipment

BostonAnalytical InstrumentsEducation and Knowledge CreationCommunications Equipment

Los Angeles AreaApparelBuilding Fixtures,

Equipment and Services

Entertainment

Los Angeles AreaApparelBuilding Fixtures,

Equipment and Services

Entertainment

ChicagoCommunications EquipmentProcessed FoodHeavy Machinery

ChicagoCommunications EquipmentProcessed FoodHeavy Machinery

Denver, COLeather and Sporting GoodsOil and GasAerospace Vehicles and Defense

Denver, COLeather and Sporting GoodsOil and GasAerospace Vehicles and Defense

San DiegoLeather and Sporting GoodsPower GenerationEducation and Knowledge Creation

San DiegoLeather and Sporting GoodsPower GenerationEducation and Knowledge Creation

San Francisco-Oakland-San Jose Bay AreaCommunications EquipmentAgricultural ProductsInformation Technology

San Francisco-Oakland-San Jose Bay AreaCommunications EquipmentAgricultural ProductsInformation Technology

Seattle-Bellevue-Everett, WAAerospace Vehicles and DefenseFishing and Fishing ProductsAnalytical Instruments

Seattle-Bellevue-Everett, WAAerospace Vehicles and DefenseFishing and Fishing ProductsAnalytical Instruments

HoustonHeavy Construction ServicesOil and GasAerospace Vehicles and Defense

HoustonHeavy Construction ServicesOil and GasAerospace Vehicles and Defense

Pittsburgh, PAConstruction MaterialsMetal ManufacturingEducation and Knowledge

Creation

Pittsburgh, PAConstruction MaterialsMetal ManufacturingEducation and Knowledge

Creation

Atlanta, GAConstruction MaterialsTransportation and LogisticsBusiness Services

Atlanta, GAConstruction MaterialsTransportation and LogisticsBusiness Services

Raleigh-Durham, NCCommunications EquipmentInformation TechnologyEducation andKnowledge Creation

Raleigh-Durham, NCCommunications EquipmentInformation TechnologyEducation andKnowledge Creation

Wichita, KSAerospace Vehicles and

DefenseHeavy MachineryOil and Gas

Wichita, KSAerospace Vehicles and

DefenseHeavy MachineryOil and Gas

Note: Clusters listed are the three highest ranking clusters in terms of share of national employmentSource: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School


Regional Business Environment and ProsperityIndia

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

-40% -30% -20% -10% 0% 10% 20% 30% 40% 50%

Source: World Bank/CII (2002)

Maharashtra

Gujarat

Tamil Nadu

KarnatakaAndrha Pradesh

Punjab

Kerala

Per Capita SDP, 1998/99

Uttar Pradesh

R2 = 0.6582

West Bengal

Measure of Business Environment Quality


Regional Economic Strategies in India

• India has devolved important economic policy responsibilities to the state level

• However,– McKinsey reports that 40% of all regulations and government

interventions holding back productivity growth are controlled atthe state level

– The recent deterioration of public sector fiscal balances was largely driven by a few states

– The last change of the public financing system has further deteriorated the incentives for states to run sustainable budgets

• India needs to create a policy environment where states have greater capacity and incentives to take charge of their own economic competitiveness


Shifting Responsibilities for Economic Development

Old ModelOld Model



New ModelNew Model




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


India’s Potential in 2004

• The current and announced reforms in India have the potential tomove the country far beyond of what has been achieved in the last decade

• To achieve success, the reforms need to be widespread and sustained– Everything matters for Competitiveness– Competitiveness is a marathon, not a sprint

• Progress on competitiveness will also require a new model of joint private-public efforts rather than a government-driven model

• India has the best opportunity to improve its economic competitiveness in decades; the country can’t afford to squanderthis opportunity


Selected References on Competitiveness and InnovationProfessor Michael E. Porter

• “The Economic Performance of Regions”, Regional Studies, Vol. 37, 2003

• “UK Competitiveness: Moving to the Next Stage”, with Christian Ketels, DTI Economics Papers, No.3, London: 2003

• “The Competitive Advantage of Corporate Philanthropy,” with Mark Kramer, Harvard Business Review, December 2002

• “Building the Microeconomic Foundations of Prosperity: Findings from the Microeconomic Competitiveness Index” in The Global Competitiveness Report 2002-03, New York: Oxford University Press, New York: Oxford University Press, 2002

• “Clusters of Innovation Initiative: Research Triangle Report,” (with the Council on Competitiveness, Monitor Group, and ontheFRONTIER), Washington, DC: Council on Competitiveness, 2002

• “Clusters of Innovation Initiative: Pittsburgh Report,” (with the Council on Competitiveness, Monitor Group, and ontheFRONTIER), Washington, DC: Council on Competitiveness, 2002

• “Clusters of Innovation Initiative: Atlanta Report,” (with the Council on Competitiveness, Monitor Group, and ontheFRONTIER), Washington, DC: Council on Competitiveness, 2002

• “Clusters of Innovation Initiative: Wichita Report,” (with the Council on Competitiveness, Monitor Group, and ontheFRONTIER), Washington, DC: Council on Competitiveness, 2002

• “Enhancing the Microeconomic Foundations of Prosperity: The Current Competitiveness Index” in The Global Competitiveness Report 2001-02, New York: Oxford University Press, 2001


• “U.S. Competitiveness 2001,” with Debra van Opstal, Washington, DC: Council on Competitiveness, 2001

• “Innovation Lecture,” published by the Dutch Ministry of Economics, 2001

• “National Report: Clusters of Innovation Initiative,” (with the Council on Competitiveness, Monitor Group, and ontheFRONTIER), Washington, DC: Council on Competitiveness, 2001

• “Clusters of Innovation Initiative: San Diego Report,” (with the Council on Competitiveness, Monitor Group, and ontheFRONTIER), Washington, DC: Council on Competitiveness, 2001

• “The Current Competitiveness Index: Measuring the Microeconomic Foundations of Prosperity” in The Global Competitiveness Report 2000-01, New York: Oxford University Press, 2000

• “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

• “Clusters and the New Competitive Agenda for Companies and Governments” in On Competition, Boston: Harvard Business School Press, 1998

• The Competitive Advantage of Nations, New York: The Free Press, 1990

Selected References on Competitiveness and Innovation (continued)

Professor Michael E. Porter

Documents

Indian Competitiveness: Where Does the Nation Stand? Files/CAON_India_2004.01.21_CK_1f354978-5321...Jan 21, 2004 · Factor (Input) Conditions Factor (Input) Conditions Demand Conditions