Michael Porter VN Dec 08

8/8/2019 Michael Porter VN Dec 08

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1 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt

Professor Michael E. PorterHarvard Business School

Ho Chi Minh, VietnamDecember 1, 2008This presentation draws on ideas from Professor Porters booksand articles, in particular, Competitive Strategy(The Free Press, 1980); CompetitiveAdvantage(The Free Press, 1985); What is Strategy? (Harvard Business Review, Nov/Dec 1996);Strategy and the Internet (Harvard BusinessReview, March 2001);and a forthcoming book.No partof this publication maybe reproduced,stored ina retrievalsystem,or transmittedin anyform orby anymeanselectronic,mechanical, photocopying,recording, or otherwisewithout thepermission of MichaelE. Porter. Additional informationmaybefoundat thewebsiteof theInstitute forStrategy andCompetitiveness,www.isc.hbs.edu .Version:November18, 2008,3pm

Vietnams Competitivenessand the Role of the Private Sector


The Need For An Economic Strategy

Vietnam has experienced an impressive growth over the last twodecades

However, reforms so far are insufficient to move Vietnam to a middleincome economy

The next several years will determine whether Vietnam will follow theexperience of Korea, or the Philippines

Vietnams reform have been piecemeal and reactive

Improving Vietnams standard of living will require a long termeconomic strategy

A set of interrelated policy changes, institutional structures,andrigorous implementation mechanisms


2/35


Agenda

Understanding Vietnams Economic Performance

Assessing Vietnamese Competitiveness

Identifying Action Priorities

Organizing for Competitiveness

Creating an Economic Strategy

Integrating Corporate Social Responsibility


$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

0% 2% 4% 6% 8% 10% 12%

Prosperity Performance

Selected CountriesPPP-adjusted GDPper Capita, 2007

Growth of Real GDP per Capita (PPP-adjusted), CAGR, 2003-2007Source: EIU (2008), authors calculations

Ireland

USA

Hungary

China

Taiwan

Greece

Pakistan

Portugal

Switzerland

Czech Republic

Slovakia

Germany Finland

Iceland

Sweden

Spain

UK

Netherlands

Austria

France

Russia

Saudi Arabia

TurkeyThailand

Chile

Singapore

Croatia

Philippines

Slovenia

Bahrain

Canada

Italy

Australia

Japan

Korea

Mexico

New Zealand

Brazil

IndiaIndonesia

Argentina

Hong Kong

Israel

Malaysia

South Africa

Poland

Romania

Lithuania Latvia

Estonia

Colombia Vietnam

Costa Rica

Egypt

Nigeria Bangladesh

Sri Lanka

Cambodia


3/35

5 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.pptSource: Economist Intelligence Unit (2008)

Labor Force UtilizationParticipation Rates, Selected Countries

30%

35%

40%

45%

50%

55%

60%

65%

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

Labor ForceParticipation Rate, 2007

Change in Labor Force Participation Rate, 2003-2007

France

UKFinland

Germany

Italy

Latvia

Sweden

Norway

Lithuania

Ireland

South Korea

Czech Rep.

Singapore (6.16%)

Poland

Colombia Mexico

Slovenia

USA

Pakistan

Austria

Morocco

New ZealandJapan

Hungary

Romania

Turkey

Slovakia

Australia

Bulgaria

Canada

Spain

Iceland

Bangladesh

Brazil

Portugal

Indonesia

China

Argentina

Philippines

Russia

Hong Kong

India

Sri Lanka

Nicaragua

Malaysia

Chile

Taiwan

Thailand Vietnam


Comparative Labor ProductivitySelected Countries

Compound annual growth rate (CAGR) of real GDP per employee(PPP-adjusted), 2003-2007

GDP per employee

(PPP adjusted US$),2007

Source: authors c alculation Groningen Growth and Development Centre (2008)

France

UK

Argentina

Finland

Germany

Italy

Poland

SwedenNorway

Lithuania

Ireland

South Korea

Czech Republic

Latvia

Hong Kong

Estonia

Mexico

Slovenia

Austria

Switzerland

New Zealand

Japan

HungaryBelarus

TurkeyMalaysia

Slovakia

Australia

China

Canada

Spain

Singapore

USA

IndiaPhilippinesIndonesia

Russia

BrazilSouth Africa

Saudi Arabia

Thailand

ChilePortugal

Iran

TaiwanDenmark

IcelandIsrael

Croatia

Greece

Venezuela

Sri Lanka

Ukraine

Syria

Yemen

Cote dIvoire

Dominican Republic

Ecuador

SenegalKenya Ghana

BangladeshCambodiaEthiopia

Nigeria

Pakistan

EgyptPeruTunisia

Costa Rica Bulgaria

Kazakhstan

Colombia

Vietnam


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Decomposition of Vietnamese Growth

Source: Ohno (2008)

Contribution toAnnual GDPgrowth (%)

-2%

0%

2%

4%

6%

8%

10%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Capi tal Labor TFP


14%

16%

18%

20%

22%

24%

26%

28%

30%

32%

34%

36%

-4% -2% 0% 2% 4% 6% 8% 10% 12%

Domestic Fixed Investment RatesSelected CountriesGross Fixed Investment

as % of GDP (2007)

Note: Includes inbound FDISource: EIU, 2008

Change in Gross Fixed Investment (as % of GDP), 2003 - 2007

Turkey

Spain

Czech Republic

Australia

Norway

Slovakia

PakistanAustria

Brazil

Malaysia

France

Germany

Colombia

Netherlands

Poland

Sweden

Latvia

Slovenia

Hungary

USA

ArgentinaDenmark

China (40.4%)

Estonia

UK

Lithuania

South Africa

Philippines

Russia

IndonesiaIreland

Singapore

Korea

India

Iceland

Thailand

Italy

JapanNew Zealand

CanadaMexico

Kenya

Egypt

Tunisia

Greece

Romania

Sri LankaKazakhstan

Dominican Republic

Finland

Portugal

Hong Kong Chile

Cambodia

Ukraine

Venezuela

Croatia

Saudi Arabia

Vietnam


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0%

10%

20%

30%

40%

50%

60%

70%

80%

-5% 0% 5% 10% 15% 20% 25% 30% 35% 40%

Inbound Foreign Investment PerformanceStocks and Flows, Selected Countries

Source: UNCTAD, World Investment Report (2007)

Inward FDI Stocks as % ofGDP, Average 2003 - 2007

FDI Inflows as % of Gross Fixed Capital Formation, Average 2003 - 2007

Japan

Russia

Saudi

Arabia

Turkey

Slovenia

UK

Hungary

SlovakiaCzech Republic

Australi

a

Denmark

Chile

Netherlands

Poland

USA

Colombia

Estonia

Malaysia

Thailan

dSouth Africa

New Zealand

Indonesia

Iceland (46.7%)

China

Sweden

CanadaLithuania

India

Brazil

France

Pakistan

South Korea

Austria

Latvia

Switzerland

Spain

Italy

Norway

Germany

Mexico

Portugal

Finland

Laos

Cambodia

Philippines

Singapore(160.1%, 64.7%)

Greece

Israel

Vietnam


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

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

Export PerformanceSelected CountriesExports as Share of

GDP (in %, 2007)

Change of Exports as Share of GDP, 2003 to 2007

Russia

Thailand Estonia

Hungary

LithuaniaSaudi Arabia

Italy

Latvia

China

TunisiaGermany

Switzerland

Philippines

UK

Canada

France

South Africa

Ireland

USA

India

Norway

Spain

Austria

Brazil

Cambodia

Chile

VenezuelaNew Zealand

Indonesia

Australia

Czech Republic

Slovenia

Slovakia

Turkey

Mexico

South Korea

Pakistan

Argentina

Netherlands

Malaysia (116.4%)

Finland

Ukraine

Sri Lanka

Croatia

Source: EIU (2008), authors analysis

Japan

Portugal

Egypt

Belgium

Kazakhstan

BangladeshColombi

a

Poland

Bulgaria

Dominican Republic

Slovenia

Imports as a share of GDP are equally high

Vietnam


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Vietnams Exports By Type of Industry

0.0%

0.1%

0.2%

0.3%

0.4%

0.5%

0.6%

0.7%

0.8%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Processed Goods

Semi-processed GoodsUnprocessed Goods

Services

TOTAL

Source: UNComTrade, WTO (2008)

World Export MarketShare (current USD)


0%

1%

2%

3%

4%

5%

-0.3% -0.1% 0.1% 0.3% 0.5% 0.7% 0.9% 1.1% 1.3% 1.5%

Vietnams Cluster Export Portfolio2000-2006

Change in Vietnams world export market share, 2000 2006Source: Prof. Michael E. Porter, International Cluster Competitiveness P roject, Institute for Strategy and Competitiveness, Harvard

Business School; Richard Bryden, Project Director. Underlying data drawn from the UN Commodity Trade Statistics Database and theIMF BOP statistics.

V

ietnams

worldexportmarketshare,

2006

Change In Vietnams OverallGrowth In World Export Share:

0.25%

Vietnams Average WorldExport Share: 0.31%

Exports of US$1.1 Billion=

Footwear (5.68%, 1.91%)

Plastics

Textiles

Apparel

Fishing and FishingProducts

Tobacco

Coal & Briquettes

Furniture

0%


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Agenda








What is Competitiveness?

Nations compete to offer the most productive environment for business

The public and private sectors play different but interrelated roles increating a productive economy

Competitiveness depends on the productivity with which a nation usesits human, capital, and natural resources.

Productivity sets the sustainable standard of living (wages, returns oncapital, returns on natural resources)

It is not what industries a nation competes in that matters for prosperity, buthow productively it competes in those industries

Productivity in a national economy arises from a combination of domesticand foreign firms

The productivity of local or domestic industries is fundamental tocompetitiveness, not just that of export industries


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Macroeconomic Competitiveness

Microeconomic Competitiveness

Sophisticationof Company

Operations andStrategy

Quality of theNationalBusiness

Environment

MacroeconomicPolicies

SocialInfrastructureand PoliticalInstitutions

State of ClusterDevelopment

Macroeconomic competitiveness creates the potential for high productivity, but isnot sufficient

Productivity ultimately depends on improving the microeconomic capability ofthe economy and the sophistication of local competition

Determinants of Competitiveness

Natural Endowments


Wage Level ComparisonSelected CountriesMonthly Minimum Wage

USD, log scale, 2008

Source: Global Competitiveness Report, 2008; EuroStat, 2008; Philippines Department of Labor and Employment,2008

Global Competitiveness Index Score, 2008

New ZealandAustralia

Taiwan

SingaporeKorea

Malaysia

Cambodia

Philippines Indonesia

ThailandChina

Italy

GreeceSlovenia

Portugal

Czech Republic

Estonia

Spain

Cyprus

Lithuania

Austria

Sweden

Netherlands

DenmarkIreland

United Kingdom

Japan / Belgium / France

Germany

Hungary Poland Slovakia

LatviaRomania

Bulgaria

$0

$1,000

$3,000

$500

$100

$50

Vietnam


9/35


BCI Value, 2007

Dynamism Score, 2002 - 2007

Below average Above averageAverage

Zambia Zimbabwe

Uganda

Tanzania Honduras

Indonesia

Sri Lanka

Bolivia

Mali

Pakistan

Nicaragua

India

Bangladesh

Rate of Competitiveness ImprovementLow Income Countries, 2002 - 2007

Paraguay

El Salvador

Chad

Mozambique

Madagascar

Nigeria Gambia

Ethiopia

Source: Global Competitiveness Report 2007

High

Low

Vietnam


Macroeconomic Competitiveness

Basic human capacity Basic education

Health system

Political institutions Political freedom

Voice and accountability

Political stability

Centralization of economic policymaking

Government effectiveness

Rule of law Judicial independence

Efficiency of legal framework

Civil r ights

Business costs of corruption

Reliability of police

Prevalence and costs of crime

Fiscal policy Government surplus/deficit

Government debt

Savings / Investment rates

Monetary policy Inflat ion

Interest rate spread

Social Infrastructure andPolitical Institutions

MacroeconomicPolicies


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Macroeconomic CompetitivenessVietnams Position

Social Infrastructure and

Political Institutions

Macroeconomic

Policies

Basic health and education

+ Solid provision of basic servicesIncreasing concerns about the quality of these

public services

Fiscal policy

+ Government budget and debt at acceptablelevels

Government budget still reliant on foreign aid

Monetary Policy

High levels of inflationPolitical institutions

+ High levels of political stability+ Increasing decentralization of economic

policy responsibilities

Little effective policy dialogueCorruption remains a significant challenge

Rule of law+ Quality of laws tends to be good

Effectiveness of implementation remainsweak


Sing

apore

Japa

n

SouthK

orea

Taiw

an

Mala

ysia

Brazil

India

Thailan

d

SriL

anka

Philip

pines

Indo

nesia

China

Vietna

m

Russia

Cambo

dia

Bangla

desh

Laos

Pakis

tan

Voice and AccountabilityPolitical StabilityGovernment Effectiveness

Regulatory QualityRule of LawControl of Corruption

Governance IndicatorsSelected Countries

Note: Sorted left to right by decreasing average value across all indicators. The zero horizontal line corresponds to the median countrys average value across allindicators.

Source: World Bank 2008

Worst

country inthe world

Index ofGovernance

Quality,2007

Bestcountry inthe world


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-20 -15 -10 -5 0 5 10 15 20

Corruption Perception Index, 2007

Note: Ranks only countries available in both years (91 countries total)Source:Global Corruption Report, 2007

Change in Rank, Global Corruption Report, 2007 versus 2001

Rank inGlobal

CorruptionIndex,2007

91

1

ImprovingDeteriorating

High

corruption

Lowcorruption

Finland

Canada

Bangladesh

Indonesia

Ireland

Portugal

Egypt

Iceland

Czech Republic

Slovakia

South Korea

Latvia

India

Slovenia

Thailand

Switzerland

France

Romania

Turkey

Estonia

Austria GermanyJapan

China

NorwayUK

Malaysia

Lithuania

Colombia

HungaryTaiwan

Spain

Hong Kong

ChileUnited States

South Africa

Mexico

Croatia

Italy

Poland

Brazil

Argentina

Israel

Venezuela

Russia

Uruguay

New ZealandSweden

Tunisia

Peru

Tanzania

Uganda

Senegal

Philippines

ZimbabweCote dIvoire

Nigeria

Pakistan

GreeceJordan

Ukraine

Panama

Vietnam


Access to high qualitybusiness inputs Human resources

Capital availability

Physical infrastructure

Administrative infrastructure

(e.g. registration, permitting) Information and transparency

Scientific and technologicalinfrastructure

Microeconomic Competitiveness: Quality of theBusiness Environment

Context forFirm

Strategyand Rivalry

Related andSupportingIndustries

Factor(Input)

Conditions

DemandConditions

Availability of suppliers andsupporting industries

Sophistication of localcustomers and needs

e.g., strict quality, safety,and environmentalstandards

Many things matter for competitiveness

Successful economic development is a process of successive upgrading, in which the businessenvironment improves to enable increasingly sophisticated ways of competing

Local rules and incentives thatencourage investment andproductivity

e.g. incentives for capitalinvestments, intellectual propertyprotection

Vigorous local competition Openness to foreign and local

competition


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Communications infrastructure(rank 72)

E.g., quality of the telephoneinfrastructure

Local competition (rank 75) E.g., intensity of local

competition

Government intervention (rank 119) E.g., SOE market dominance

Trade barriers (rank 113) E.g., level of import tariffs

Competitive DisadvantagesCompetitive Advantages

Vietnamese Business EnvironmentVietnams Relative Position 2008

Note: Rank versus 130 countries; overall, Vietnam ranks 102 nd in 2008 PPP adjusted GDP per capita and 76 th in New Global CompetitivenessSource: Institute for Strategy and Competitiveness, Harvard University (2008)


0

20

40

60

80

100

120

140

160

HongKong

Singapore

UnitedStates

Taiwan

Germany

New

Zealand

Japan

Philippines

Malaysia

Thailand

Indonesia

Brazil

China

SriLanka

SouthKorea

Pakistan

Vietnam

Laos

Cambodia

India

Russia

Openness to TradeSelected Countries, 2008Rank (157countries)

Source: Index of Economic Freed om (2008), Heritage Foundation

Vietnams lack of openness will retard further competitiveness upgrading

Vietnam


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Communications infrastructure(rank 72)

E.g., quality of the telephoneinfrastructure

Local competition (rank 75) E.g., intensity of local

competition

Government intervention (rank 119) E.g., SOE market dominance

Trade barriers (rank 113) E.g., level of import tariffs

Energy infrastructure (rank 109) E.g., quality of electricity supply

Access to finance (rank 109) E.g., financial market sophistication

Innovation infrastructure (rank 99) E.g., patents per capita

Logistical infrastructure (rank 96) E.g., quality of roads

Competitive DisadvantagesCompetitive Advantages

Vietnamese Business EnvironmentVietnams Relative Position 2008

Note: Rank versus 130 countries; overall, Vietnam ranks 102 nd in 2008 PPP adjusted GDP per capita and 76 th in New Global CompetitivenessSource: Institute for Strategy and Competitiveness, Harvard University (2008)


Cost of Doing BusinessVietnam, 2008Ranking, 2008

(of 181 countries)

Source: World Bank Report, Doing Business (2008)

Favorable Unfavorable

Vietnams per capita GDP rank: 70th

Median Ranking,East Asia and Pacific

Especially in land ownership in rural areas significant problems remain


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State-Owned Enterprises (SOEs) in Vietnam

SOEs continue to play a dominant role in the Vietnamese economy,

despite the commitment to privatization

Government oversight of these companies and their spending islimited and largely reactive

The costs of slow progress on privatization are high for Vietnamscompetitiveness

Retards entry of new private companies

Creates risks of corruption

Can exacerbate economic volatility through excessive investmentfinanced through soft credit

An effective privatization program strategy for Vietnam must shifteconomic structure, not just change ownership

Privatization must go hand-in-hand with market opening and policies tocurtail anti-competitive practices

Owners are needed that contribute new capital and skills

Minority stakes can distribute ownership more widely


Sources: HBS student team research (2003) - Peter Tynan, Chai McConnell, Alexandra West, Jean Hayden

Hotels

Attractions andActivities

e.g., theme parks,casinos, sports

Airlines,Cruise Ships

Travel agents Tour operators

Restaurants

PropertyServices

Maintenance

Services

Government agenciese.g. Australian Tourism Commission,

Great Barrier Reef Authority

Educational Institutionse.g. James Cook University,

Cairns College of TAFE

Industry Groupse.g. Queensland Tourism

Industry Council

FoodSuppliers

Public Relations &Market Research

Services

Local retail,health care, andother services

Souvenirs,Duty Free

Banks,Foreign

Exchange

LocalTransportation

State of Cluster DevelopmentTourism Cluster in Cairns, Australia


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0%

1%

2%

3%

4%

5%

-0.3% -0.1% 0.1% 0.3% 0.5% 0.7% 0.9% 1.1% 1.3% 1.5%

Vietnams Cluster Export Portfolio2000-2006



Vietnams


2006

Change In Vietnams OverallGrowth In World Export Share:

0.25%

Vietnams Average WorldExport Share: 0.31%


Footwear (5.68%, 1.91%)

Plastics

Textiles

Apparel

Fishing and FishingProducts

Tobacco

Coal & Briquettes

Furniture

0%


0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

-0.10% -0.05% 0.00% 0.05% 0.10% 0.15% 0.20% 0.25% 0.30%

Vietnams Cluster Export Portfolio contd2000-2006



V

ietnams


2006

AutomotiveProduction Technology

Motor DrivenProducts

InformationTechnology

Textiles

Prefabricated Enclosures and Structures

Leather and Related Products

Analytical InstrumentsJewelry, Precious Metals and

Collectibles

Communications Equipment

Oil & Gas

Agricultural Products

Biopharmaceuticals

Processed Foods

Chemical Products

Forest Products

TotalServices

Power and Power Generation Equipment

Construction Materials

Lighting and Electrical Equipment

Medical Devices

Publishing and Printing

Metal Mining and Manufacturing

Entertainment

Building Fixtures and Equipment

Sporting, Recreationaland Children's Goods


Change In Vietnams OverallGrowth in World Export Share:

0.25%

Vietnams AverageWorld ExportShare: 0.31%


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Geographic Levels and Competitiveness

Broad Economic Areas

Groups ofNeighboring Nations

States, Provinces

Metropolitan and Rural Areas

Nations

World Economy

Asia

Southeast Asia

Vietnam

Vietnamese provinces

Ho Chi Minh City

WTO

The business environment at a givenlocation is the cumulative outcome ofpolicy at all geographic levels

Many competitiveness drivers occurat the regional and local level

The allocation of competitivenessresponsibilities across geographiclevels is a crucial policy challenge


Specialization of Regional EconomiesSelected U.S. Geographic Areas

BostonAnalytical InstrumentsEducation and Knowledge Crea tionCommunications Equipment

Los Angeles AreaApparelBuilding Fixtures,

Equipment andServices

Entertainment

ChicagoCommunications EquipmentProcessed FoodHeavy Machinery

Denver, COLeather and Sporting GoodsOil and GasAerospace Vehicles and Defense

San DiegoLeather and Sporting GoodsPower GenerationEducation and KnowledgeCreation

San Francisco-Oakland-San JoseBay AreaCommunicationsEquipmentAgriculturalProductsInformationTechnology

Seattle-Bellevue-Everett, WAAerospace Vehicles andDefenseFishing and FishingProductsAnalytical Instruments

HoustonOil and Gas Products and ServicesChemical ProductsHeavy Construction Services

Pittsburgh, PAConstruction MaterialsMetal ManufacturingEducation and Knowledge

Creation

Atlanta, GAConstruction MaterialsTransportation and LogisticsBusiness Services

Raleigh-Durham, NCCommunications EquipmentInformation TechnologyEducation andKnowledge Creati on

Wichita, KSAerospace Vehicles and

DefenseHeavy MachineryOil and Gas

Note: Clusters listed are the three highest ranking clusters in terms of share of national employment.Source: Cluster Mapping Project, Insti tute for Strategy and Competitiveness, Harvard Business School, 11/2006.


18/35


Vietnam Provincial Competitiveness Index, 2006

ExcellentHigh PerformingMid-highAverageMid-lowLow Performing

Source: Vietnam Provincial Competitiveness Index 2006 (USAID)


The NeighborhoodSoutheast Asia

Vietnam has a central position between ASEAN and China


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Eliminatingtrade andinvestmentbarriers withinthe region

Simplifying andharmonizingcross-borderregulations andpaperwork

Coordinatinganti-monopoly andfaircompetitionpolicies

Harmonizingenvironmentalstandards

Harmonizingproduct safetystandards

Establishingreciprocalconsumerprotection laws

Openinggovernmentprocurementwithin the region

Improving regionaltransportationinfrastructure

Creating an efficientenergy network

Enhancing regionalcommunicationsand connectivity

Linkingfinancialmarkets

Opening themovement ofstudents for highereducation

Harmonizingadministrativerequirements forbusinesses

Facilitating cross-border clusterupgrading, e.g.

Tourism

Agribusiness

Transport &Logistics

Businessservices

Creating aregional marketingprogram

Sharing bestpractices ingovernmentoperations

Creating regionalinstitutions Dispute

resolutionmechanisms

Regionaldevelopmentbank

Developing a

regionalnegotiatingposition withinternationalorganizations

FactorFactor

(Input)(Input)ConditionsConditions

Regional

Strategy &Governance

Context forContext for

StrategyStrategyand Rivalryand Rivalry

Related and

SupportingIndustries

DemandDemandConditionsConditions

Economic Coordination Among NeighborsEnhancing Productivity

MacroeconomicCompetitiveness

Coordinatingprograms toimprove publicsafety

Coordinatingmacro-economicpolicies


Agenda








20/35


Stages of National Competitive DevelopmentShifting Policy Imperatives

FactorFactor--DrivenDrivenEconomyEconomy

InvestmentInvestment--Driven EconomyDriven Economy

InnovationInnovation--Driven EconomyDriven Economy

Source: Porter, Michael E., The Competitive Advantage of Nations, Macmillan Press, 1990

Low Cost Inputs Productivity Unique Value

Macro, political, and legalstability

Efficient basicinfrastructure

Lowering regulatory costsof doing business

Increasing local competition

Market openness

Advanced infrastructure

Incentives and rulesencouraging productivity

Cluster formation andactivation

Advanced skills

Scientific and technologicalinstitutions

Incentives and rulesencouraging innovation

Cluster upgrading


Competitiveness Action Agenda: Key Priorities

Reduce corruption

Improve infrastructure

Deepen financial marketreforms

Impose regulatoryattractiveness

Fundamental ReformContinue Existing Efforts

Human resourcedevelopment at all levels

Reform of SOEs

Cluster development


21/35


Reducing Corruption

The government has repeatedly committed itself towards reducing

corruption; and some action has been taken Evidence reveals little progress

Vietnam needs to target corruption as a crucial barrier for growth anddesign an integrated strategy to tackle its occurrence

Action priorities

Reduce the potential for corruption through simplified regulations, useof modern information technology, and improved SOE governance/privatization

Set clear guidelines and reporting requirements for management ofSOEs

Demonstrate a commitment for transparency, including support for astrong press


Improving Infrastructure

Significant infrastructure investments have been made in recentyears

Evidence on their impact is mixed as best. There is significantduplication of efforts and companies complain about seriousbottlenecks

Vietnam needs to better target infrastructure investments to meetthe needs of its growing economy

Action priorities

Establish a national fund for key infrastructure projects to beimplemented under the supervision of the Prime Ministers off ice

Utilize matching funds incentives to improve effectiveness ifinvestments by provincial governments

Create a public-private council to advise on spending priorities


22/35


Deepening Financial Markets

Vietnam has made clear progress on opening up financial markets,

more recently also to foreign companies as part of the WTO agreement But the weakness of Vietnams financial markets even before the

global crisis, and the financing constraints faced by privatecompanies, indicate that serious challenges remain

Vietnam needs to develop a modern regulatory and institutionalstructure to enable an effective financial system

Action priorities

Continue opening financial markets in line with WTO commitments

Create an effective, independent financial regulator, using outsidehelp as needed

Establish a development bank to develop financing tools for privateSMEs


Regulatory Reform

Regulatory reform has been on the Vietnamese policy agenda forsome time, especially over the last f ive years

Despite some progress, the overall regulatory burden on businessesand citizens remains high with no clear societal benefits

Vietnam needs a fundamentally new approach to regulatory reformand assessment of new regulations

Action priorities

Aggressively pursue the work on regulatory reform initiated withforeign donors

Improve institutional capacity to evaluate and administer regulations,not just the rules themselves

Include an obligatory assessment of the administrative burden onbusiness in the process of introducing new laws and regulations


23/35


Human Resource Development

Basiceducation

Vocationaltraining

Highereducation

Enrolment rates have increased significantly but quality is low andskills fail to meet company needs Vietnam needs to dramatically improve educational quality, through

setting standards, improving curricula, and involving the privatesector in governance

Vietnam lacks a skills training system Companies have launched own training efforts to address skill

bottlenecks Vietnam needs a clear program for cluster-based workforce

development

The number of universities has increased but quality is low and skillsdo not match company needs

Higher university education standards must be set and enforced,drawing on international experts

Vietnam needs to develop a plan and enabling institutions forassimilation of global technology


Restructuring of State Owned Enterprises

The government has an explicit policy to promote private enterprise but there isdeep-seated ambivalence towards privatization

Without a thorough reform of the SOE sector, there is little hope for Vietnam toreach the next level of economic development

The creation of SOE groups is not a solution and can exacerbate problems ifno other reforms are being implemented

SOEgovernance

Competition inmarkets with

SOEs

Privatization

Create independent boards of directors Implement transparent financial reporting Define clear financial objectives

Set corporate charters

Remove existing trade, investment, and artificial entry barriersprotecting SOEs

Establish strong, independent regulatory bodies Support start-ups and spin-offs from SOEs

Create clear legal conditions for privatization Define explicit objectives for privatization process Create a dedicated structure for implementing privatization


24/35


Cluster Development in Vietnam

Vietnams clusters currently tend to be narrowly focused on

individual products

There is limited collaboration among companies, suppliers and otherinstitutions

Some clusters, like coffee, have the potential to significantly increase theirperformance if they adopt a collaboration approach

Cluster-based development thinking is crucial in improving the deliveryof other economic policies

Workforce skill development around clusters

FDI attraction/industrial zones around clusters

Cluster-based regional development initiatives

Quality and technology transfer organization for each cluster

Policy should upgrade all existing and emerging clusters, not chooseamong them


Clusters and Economic Policy

Clusters

PhysicalInfrastructure

Natural ResourceProtection

EnvironmentalStewardship

Science and TechnologyInvestments

(e.g., centers, universitydepartments,

technology transfer)

Education andWorkforce Training

FDI/Business Attraction

Export Promotion

Clusters provide a framework for implementing public policy andorganizing public-private collaboration to enhance competitiveness

Standard setting andquality initiatives

Market Informationand Disclosure

Management Training

Industrial parks and

free trade zones


25/35


Turn Niche Products IntoClusters

Develop Related Clusters

Clusters and Economic Diversification

Deepen Existing ClustersBuild Clusters Around

MNCs

Upgrade Existing ExportProducts and Services


Upgrading Vietnamese Niche Positions, 2006

Source: Prof. Michael E. Porter, International Cluster Competitiveness P roject, Institute for Strategy and Competitiveness, Harvard BusinessSchool; Richard Bryden, Project Director. Underlying data drawn from the UN Commodity Trade Statistics Database.

Cluster Cluster WorldExport Share

Subcluster Industry

Industry

Share ofWorld

Exports

Change in

Share (19972006)

Export Value (in$thousands)

Rubber Natural rubber, balata and similar natural gums 7.82% 3.40% 1,137,205$

Plastic Waste Reclaimed unhardened rubber; waste 1.88% 1.87% 6,084$

Plastic Products Plastic sacks, bags 1.55% 0.65% 150,234$

Rubber Synthetic rubber 1.13% 1.13% 143,316$

Mot orc yc le s a nd B ic ycl es P art s o f o ther mo to rcy cle s 1.42% 1.22% 60,962$

M otorcyc le s and B icyc les B icyc le s and othe r cyc le s, non -m otor ized 1.27% -1.56% 49,628$

S pe cial ty Of fice M achine s P ar ts for calcu lating , accoun ting mach in es 23.04% 23.04% 444,384$

Electrical and Electronic Components Insulted wire, cable and conductors 1.07% 0.72% 705,725$

Specialty Foods and Ingredients Starches, inulin and gluten 7.93% 6.23% 148,445$

Foo d Pro duc ts Mac hi ne ry D is til li ng, rect ify ing pl an t 2.64% 2.64% 19,449$

Specialty Foods and Ingredients Vegetable saps, extracts 0.90% 0.50% 9,193$

Dairy an d R elated P rodu cts M ilk, concen tr ated or sw eetene d 0.84% -0.22% 89,315$

S pe cial ty F oods and Ing re dien ts Y easts 0.81% 0.27% 7,962$

Specialty Foods and Ingredients Homogenized food preparations 0.76% 0.59% 4,888$

Glass Drawn, float, cast glass, worked 6.39% 6.37% 78,185$

Electrical Parts Other inductors 3.20% 2.86% 137,477$

Electrical Parts Other electric transformers 1.17% 0.68% 63,386$

Motors and Generators Electric motors


26/35


Agenda








The Process of Economic Development

Shifting Roles and Responsibilities

Old Model

Government drives economic

development through policy

decisions and incentives

New Model

Economic development is a

collaborative process involving

government at multiple levels,

companies, teaching and

research institutions, and

institutions for collaboration

Competitiveness must become a bottoms-up process in which many individuals,companies, and institutions take responsibility

Every community and cluster can take steps to enhance competitiveness


27/35


Government and the Process of Economic Development

Competitiveness is affected by a myriad of government entities

Multiple agencies and departments (e.g. finance, trade, education, scienceand technology, commerce, regional policy, energy, agriculture)

Multiple levels of government (nations, states, cities, etc.)

Intergovernmental relations with neighboring countries affectcompetitiveness

Competitiveness is rarely the sole agenda of any government agency

Coordinating structures are needed that brings together the ministriesand departments necessary to formulate and implement an economic

strategy Explicit mechanisms are needed to engage the private sector in dialog

about policy priorities and implementation progress


Organizing for Competitiveness in VietnamRecommendations

Create effective, independent regulatory organizations

Improve economic policy at the provincial level

Improve mechanisms for public-private discussion and collaboration

Enhance strategic planning and program management capacity inthe central and provincial governments

Develop a national economic strategy process to guide priorities inimproving the business environment


28/35


Regional Development in Vietnam

Vietnams provinces are developing at different rates; prosperity levels

between the richest and poorest regions differs greatly

Political power and responsibility for economic development has beendecentralized to the provinces, who apply to the national government for funds

Provinces have adopted unfocused growth strategieswith much duplicationand li ttle specialization across provinces

Provinces have insufficient technical capacity for policy design andimplementation

Each province should be charged with developing an economic plan based onits unique strengths and potential

Each province should be expected to publicly report on implementation


Competitiveness Institutions

Economic strategy unit in the Prime Ministers office

Regularly updating on progress

Lead a formal planning and program management process involving allagencies

Public-private competitiveness council

Vietnam Competitiveness Institute

To conduct analyses, benchmark vs. other countries, and traingovernment leaders

Joint national and provincial

Enhanced role of business associations


29/35


Agenda








National Value Proposition

Defining an Economic Strategy

Developing Unique StrengthsAchieving and Maintaining Parity

with Peers

What elements of context and thebusiness environment are crucialpriorities?

What existing and emerging clustersshould be developed first?

What weaknesses must be addressed toachieve parity with peer countries?

What is the unique competitive position of the nation orregion given its location, legacy, and existing and potentialstrengths?

What roles with neighbors, the region, and the broader world?

What unique value as a business location?

For what types of activities and clusters?

Prioritiesand sequencing are a necessity in economic development


30/35


The Need for an Economic Strategy

The Vietnamese government follows largely an evolutionary and

reactive approach in response to crises and specific problems Foreign aid inflows are fragmented and driven by donor-priorities

This approach has been successful in achieving success in factor-based economic development, but will be insufficient to move to anew stage

Government needs leads in a broad-based discussion on a neweconomic strategy that sets priorities for improvements in thebusiness environment and institutions

Internally, the government needs to increase its technical capacity to

support such a strategic dialogue, for example through a strategy unit inthe Prime Ministers office


Agenda








31/35


Implications for Companies

A companys competitive advantage depends partly on the quality of the businessenvironment

A company gains advantages from being part of a cluster

Companies have a strong role to play in upgrading their business environment

Take an active role in upgrading the local infrastructure

Nurture local suppliers and attract foreign suppliers

Work closely with local educational and research institutions, to upgrade theirquality and create specialized programs addressing the clusters needs

Inform government on regulatory issues and constraints bearing on clusterdevelopment

Focus corporate philanthropy on enhancing the local business environment

An important role for trade associations Greater influence if many companies are united

Cost sharing between members


Corporate Social Responsibility

A Growing Agenda

External pressures for CSR continue to grow

Numerous organizations monitor, rank, and report socialperformance

The legal and business risks are great for companies engaging inpractices deemed unacceptable

CSR is increasingly important to business leaders, yet the conceptand its justifications remain unclear

Few companies have integrated society into strategy in a way thatreinforces competitive advantage for the business


32/35


There is an inevitable link between a business and society

The health of a society depends on having competitive companies that can createwealth and support high wages

The competitiveness of companies depends on the surrounding community

E.g., educated and skilled employees

Safe working conditions

A transparent, corruption-free business environment

A sense of equal opportunity

Low levels of environmental degradation (productive use of physical resources)

Companies can positively affect many social issues

There is a long-term synergy between economic and social objectives

To maximize this synergy, business decisions and social policies must follow theprinciple of shared value

Company competitiveness and social conditions must benefit simultaneously

Integrating Strategy and Society

EconomicObjectives

SocialObjectives


The Role of Business in Social Issues

Business cannot solve all of societys problems, nor bear the cost ofdoing so

There are many worthy causes

Business must approach its social agenda proactively andstrategically

Business must address society and social issues where it can add themost value

Where is a company able to have the greatest impact on social issuesversus other institutions?

Social Benefits

Resources ExpendedSocial Value =


33/35


Inside-Out Links with SocietyValue Chain Social Impacts

InboundLogistics(e.g. Incoming

MaterialStorage, Data

Collection,Service,

CustomerAccess)

Operations

(e.g. Assembly,Component

Fabrication,Branch

Operations)

OutboundLogistics

(e.g. Order

Processing,Warehousing,

ReportPreparation)

Marketing& Sales

(e.g. Sales Force,

Promotion,Advertising,

ProposalWriting, Web

site)

After-SalesService

(e.g. Installation,Customer

Support,ComplaintResolution,

Repair)

M

a

rg

i

n

Primary Activities

SupportActivities

Firm Infrastructure(e.g. Financing, Planning, Investor Relations)

Procurement(e.g. Components, Machinery, Advertising, Services)

Technology Development(e.g. Product Design, Testing, Process Design, Material Research, Market Research)

Human Resource Management(e.g. Recruiting, Training, Compensation System)

Value

What

buyers arewilling topay



Collection,Service,

CustomerAccess)

Operations


Fabrication,Branch

Operations)

OutboundLogistics

(e.g. Order


ReportPreparation)

Marketing& Sales

(e.g. Sales Force,



site)

After-SalesService



Repair)

M

a

rg

i

n

Primary Activities

SupportActivities







Collection,Service,

CustomerAccess)

Operations


Fabrication,Branch

Operations)

OutboundLogistics

(e.g. Order


ReportPreparation)

Marketing& Sales

(e.g. Sales Force,



site)

After-SalesService



Repair)

M

a

rg

i

n

Primary Activities

SupportActivitiesSupportActivities





Value

What

buyers arewilling topay

Financial reporting practices

Governance practices Transparency Use of lobbying

Relationships with universities Ethical research practices

(e.g. animal testing, GMOs) Product safety

Procurement practices(e.g. bribery, child labor,conflict diamonds, pricing tofarmers)

Use of particular inputs(e.g. animal fur)

Conservation of raw materials

Recycling

Transportation impacts(e.g. emissions, congestion,logging roads)

Emissions and waste Biodiversity and ecological

impacts Energy and water use Worker safety and labor

relations Hazardous materials

Packaging use anddisposal(e.g. McDonalds clamshell)

Transportation impacts

Employee education and jobtraining

Safe working conditions

Diversity and discrimination

Health care and other bene fits

Compensation policies

Layoff policies

Disposal of obsolete products Handling of consumables

(e.g. motor oil, printing ink Customer privacy

Marketing and advertising (e.g. truthfuladvertising, advertising to children)

Pricing practices (e.g. pricediscrimination among customers,anticompetitive pricing practices, pricingpolicy to the poor)

Consumer information

Every activity in the value chain touches on communities in the locations where acompany operates. These impacts can be positive or negative.


Identifying Shared ValueOutside-In Social Impact on the Company

Source: Michael Porter, The Competitive Advantage of Nations, 1990

Competitive context is often influenced by or inextricably linked with social conditions

Availability of qualified human resources(Marriotts job training)

Access tospecialized training programs Efficient physical infrastructure Efficient permitting and regulatory practices Availability of scientific and technological

institutions (Microsofts W orking Connections;Nestls knowledge transfer t o farmers)

Sustainable access to natural resources(GrupoNuevas water conserva tion)

Efficient access to capital

Fair and open local competition (e.g., theabsence of trade barriers, fair re gulations)

Intellectual property protection Transparency(e.g., financial reporting,

corruption: Extractive IndustriesTransparency Initiative)

Rule of law (e.g., security, protection ofproperty, legal system)

Meritocratic incentive systems (e.g.,antidiscrimination)

Nature of local demand (e.g. appeal ofsocial value propositions: Whole Foods

customers) Fair and demanding regulatory

standards (California auto emissions &mileage standards)

Local needs that can be servednationally and globally (Urbis housingfinancing, Unilevers bottom of thepyramid strategy)

Availability of local suppliers and supportservices (Syscos locally grown produce;Nestls milk collection dairies)

Access to partner firms in related fields Access to a cluster instead of isolated

firms andindustries

Context forFirm Strategyand Rivalry

Related andSupportingIndustries

Factor(Input)

Conditions

DemandConditions


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Creating a Corporate Social Agenda

GenericSocial Impacts

Value Chain SocialImpacts

Social Dimensionsof Competitive

Context

Good citizenship Mitigate harm fromvalue chain activities

Responsive CSR Strategic CSR

Transform value chainactivities to benefitsociety whilereinforcing strategy

Strategic philanthropythat improves salientareas of competitivecontext

The impact of CSR is greatest when responsive CSR, value chain socialimpacts, and investments in competitive context are integrated

Create a socialdimension of the valueproposition


Strategic CSR: ChoicePoint

ChoicePoints core business is providing personal identification,screening, and credit verification e.g., employment background screening, credit verification, DNA identification,

drug testing

The companys CSR program focuses on providing identification andverification services and advice to social organizations: e.g., background checks of volunteers working with children

Identity verification for disaster victims

Assisting NGOs to find missing children and prevent identity theft

ChoicePoints CSR is aligned with its founding principle: creating asafer and more secure society through responsible use of information

ChoicePoint leverages its skills, data, technological knowledge, andstaff to maximize social benefit

CSR activities are not just charity but improve the companyscapabilities around identity issues


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Strategic CSR: Nestl in India

Nestls entered the poor Moga region of India in 1962

Local milk supply was hampered by small parcels of land, poor soil, periodicdroughts, animal disease, and lack of a commercial market

Nestl established local milk purchasing organizations in each town

Nestl invested in improving competitive context

Collection infrastructure such as refrigerated dairies was accompanied byveterinarians, nutritionists, agronomists, and quality assurance experts to assistsmall farmers

Medicines and nutritional supplements were provided to improve animal health

Monthly training sessions were held for local farmers

Wells to secure water supply for animals were dug with financing and technicalassistance from Nestl

Nestl has built a productivemilk cluster in Moga, buying milk from more than75,000 farmers through 650 local dairies

Moga has dramatically improved social conditions

Nestl has developed a long-term competitive advantage in the milk cluster


The Moral Purpose of Business

The most important thing a corporation can do for society is to contribute to aprosperous economy

Only business can create wealth; other institutions in society are principallyinvolved in redistributing wealth or investing it to meet human needs

Business has the tools, capabilities, and resources to make a far greaterpositive impact on social issues than most other institutions

Corporations depend on a healthy society to sustain competitiveness

Business is more transparent and more accountable than most foundationsand NGOs

Corporations are not responsible for all the worlds problems, nor do theyhave the resources to solve them all

Business has no need to be defensive about its role in society

Each company can and should identify the particular set of societalproblemsthat it is best equipped to help resolve, and from which it can gainthe greatest competitive benefit

Addressing social issues through shared value strategieswill lead to self-sustaining solutions

Using these principles, businesses can have a greater impact on social goodthan any other institution or philanthropic organization

Documents

Michael Porter VN Dec 08