1 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
Competitiveness as an Engine for Economic Growth: Implications for Saudi Arabia
Professor Michael E. PorterHarvard Business School
The Global Competitiveness Forum 2008January 21, 2008
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 2006 (World Economic 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 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 Version: January 18, 2008, 4pm
2 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
Saudi Arabia’s Competitive Position in 2008
• The dramatic increase in oil prices has created significant resources and rapid growth for the Saudi economy
• There is a new level of determination to leverage this opportunity to build a truly competitive economy and diversify beyond natural resources
• Saudi Arabia can succeed on this path, but only if it is willing to take a strategic approach, make multiple improvements in its business environment, truly open up competition and entrepreneurship in the private sector, and embark on a sustained effort to equip Saudi citizens with new skills, attitudes and mindsets
• It will be easy to become impatient and distracted by near term economic growth and the ability to support uncompetitive practices and policies
3 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
Saudi Arabia’s Long-Term Prosperity
GDP per Capita CAGR: -6.1%
Source: Groningen Growth and Development Centre and The Conference Board (2007), Swivel (2007)
GDP per Capita CAGR: +0.00%
GDP per Capita CAGR: +1.4%
Index Values, 1980 = 1.00
4 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
$0
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Prosperity Performance Selected Countries
PPP-adjusted GDP per Capita, 2006
Growth of Real GDP per Capita (PPP-adjusted), CAGR, 2001-2006Source: EIU (2007), authors calculations
IrelandUSA
Hungary
China (9.49%)
Vietnam
Poland
Taiwan
Greece
Pakistan
Portugal
Switzerland
Norway
Czech RepublicSlovakia
Germany Finland
IcelandSweden
Spain
UK
NetherlandsDenmark
France
Russia
SAUDI ARABIA
TurkeyThailand
Chile
Singapore
Croatia
Philippines
Qatar
Slovenia
Belgium
Canada
Italy
Australia
Japan
Korea
Mexico
New Zealand
Brazil
India
Oman
Indonesia
Argentina
Hong Kong
Israel
MalaysiaSouth Africa
Austria
Iraq (-6.2%)
Egypt
Iran
Yemen
Libya
TunisiaAlgeria
Kuwait
Bahrain
LebanonJordan
United Arab Emirates
Syria
5 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
• Competitiveness is determined by the productivity with which a nation uses its human, capital, and natural resources.
– Productivity sets the standard of living (wages, returns on capital, returns on natural resources) that a country can sustain
– It is not what industries a nation competes in that matters for prosperity, but how it competes in those industries
– Productivity in a national economy arises from a combination of domestic and foreign firms
– The productivity of “local” or domestic industries is fundamental to competitiveness, not just that of export industries
What is Competitiveness?
• 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
6 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
Sources of Prosperity
Inherited ProsperityInherited Prosperity
• Prosperity is derived from selling or exploiting inherited natural resources
• Prosperity is constrained
• Government is the central actor in the economy as the owner and distributor of resource wealth – Resource revenues allow
unproductive policies and practices to persist
• Government’s role gravitates towards the distribution of wealth as interest groups seek a bigger share of the pie
• Prosperity is derived from selling or exploiting inherited natural resources
• Prosperity is constrained
• Government is the central actor in the economy as the owner and distributor of resource wealth– Resource revenues allow
unproductive policies and practices to persist
• Government’s role gravitates towards the distribution of wealth as interest groups seek a bigger share of the pie
Created ProsperityCreated Prosperity
• Prosperity is derived from creating valuable products and services
• Prosperity is unlimited
• Companies are the central actors in the economy
– Prosperity can only be created by firms
• Government’s role is to create the enabling conditions for productivity and foster private sector development
• Prosperity is derived from creating valuable products and services
• Prosperity is unlimited
• Companies are the central actors in the economy
– Prosperity can only be created by firms
• Government’s role is to create the enabling conditions for productivity and foster private sector development
7 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
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Comparative Labor Productivity Selected Countries
Compound annual growth rate (CAGR) of real GDP per employee (PPP- adjusted), 2001-2006
GDP per employee (PPP adjusted US$),
2006
Source: EIU (2007), Saudi Arabia employee data (number persons employed) from ILO LABORSTA (2007)
USA
Czech RepublicPortugal
Italy
Sweden
NetherlandsFrance
Slovakia
Germany
Greece
Spain
New Zealand
Ireland
Australia
Austria
Hungary
Finland
Canada Denmark
Norway
Japan
UK
Turkey (6.4%)
Poland
Mexico TunisiaIran
QatarIsrael
SAUDI ARABIA
BrazilAlgeria
Hong KongTaiwan Singapore
India (5.3%)
China (9.0%)
South Africa
Slovenia
Malaysia
Egypt
PakistanPhilippines
IndonesiaVietnam
Thailand
Chile
Croatia
Belgium
8 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
Labor Force Mobilization Selected Countries
Employees as % of Population, 2006)
Note: Use most recent year available, either 2005 or 2006
Source: The Conference Board and Groningen Growth and Development Centre, Total Economy Database, November 2007
OECD average: 0.47
Middle East average: 0.40
9 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
Fixed Investment Rates Selected CountriesGross Fixed Investment
as % of GDP (2006)
Source: EIU, 2007.
CAGR Gross Fixed Investment (as % of GDP), 1990 - 2006
Turkey
Indonesia
US
Morocco
Saudi Arabia Bahrain
Lebanon YemenKuwait OmanEgypt
Pakistan
Algeria TunisiaSyria
Jordan
IndiaIranSouth Korea
China
LibyaPhilippines
Qatar
Nigeria
Singapore
Brazil
UAE
10 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
Saudi Arabia’s Exports Types of Goods and Services
Source: Institute for Strategy and Competitiveness – International Cluster Competitiveness Project; UN Comtrade; IMF BOP statistics.
Exports ($ Thousands)
Export TypeValue of Exports, 2006 Growth Rate of
Exports, CAGR 1998-2006
Natural Resources Related $201.2 Billion 24.0%
Non-Natural Resource Related $19.0 Billion 11.3%
Semi-Processed Natural Resources $36.4 Billion 20.3% CAGR
Processed Goods $11.7 Billion 16.9% CAGR
Services $7.3 Billion 5.6% CAGR
11 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
Inward Foreign Direct Investment Stock
Source: WIR, 2007.
Saudi Arabia
Other countriesU.A.E.
Bahrain
Qatar
Share of Middle East Inward FDI stock
12 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
Microeconomic Competitiveness
Quality of the Microeconomic
BusinessEnvironment
Sophisticationof Company
Operations andStrategy
State of Cluster Development
Determinants of Competitiveness
• A sound macroeconomic, political, legal, and social context create the potential for competitiveness, but is not sufficient
• Competitiveness ultimately depends on improving the microeconomic capability of the economy and the sophistication of local competition
Macroeconomic, Political, Legal, and Social Context
13 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
Macroeconomic, Political, Legal, and Social Context
• Saudi Arabia has registered sound macroeconomic policies, but transparency remains limited and inflationary pressures are rising
• There are ongoing debates about direction and speed of political reforms, which limits predictability and policy stability. Government processes remain complex and have limited transparency
• The Saudi legal system is in the process of modernization, but concerns remain about uncertainty in judicial decision making
• Social policies have addressed poverty and basic social needs, but challenges arise in education, gender relations, and the large expatriate community
14 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
Corruption Perception Index, 2007
Note: Ranks only countries available in both years (124 countries total) Source: Global Corruption Report, 2007
Change in Rank, Global Corruption Report, 2007 versus 2003
Rank in Global
Corruption Index, 2007
124
1ImprovingDeteriorating
High corruption
Low corruption
United Arab Emirates
Indonesia
India
Qatar
Turkey
ChinaBrazil
OmanBahrain
SAUDI ARABIA
Russia
JordanTunisia
Syria
Iraq
Nigeria
Algeria
Iran YemenPakistan
Libya
VenezuelaEcuador Angola
Belize
Trinidad & Tobago
15 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
Improving the Business Environment: The Diamond
Context for Firm
Strategy and Rivalry
Context for Firm
Strategy and Rivalry
Related and Supporting Industries
Related and Supporting Industries
Factor(Input)
Conditions
Factor(Input)
ConditionsDemand
Conditions Demand
Conditions
Access to high quality business inputs
– Natural endowments– Human resources– Capital availability– Physical infrastructure– Administrative infrastructure
(e.g. registration, permitting)– Information infrastructure
(e.g., transparency)– Scientific and technological
infrastructure
Availability of suppliers and supporting industriesPresence of clusters instead of isolated firms
Sophistication of local customers and needs
–Strict quality, safety, and environmental standards
• Successful economic development is a process of successive upgrading, in which the business environment improves to enable increasingly sophisticated ways of competing
Local rules and incentivesthat encourage investment and productivity
– e.g. salaries, incentives for capital investments, intellectual property protection
Vigorous local competition– Openness to foreign and local
competition
16 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
Ease of Doing Business Saudi Arabia
Ranking, 2007 (of 178 countries)
Source: World Bank Doing Business (2008)
Favorable Unfavorable
Median Ranking, Middle East
Saudi Arabia per capita GDP rank: 48
Saudi Arabia 2010 goal: 10
Saudi Arabia Doing Business rank: 23
17 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
Quality of electricity supply 40
Quality of port infrastructure 42
Air transport infrastructure quality 43
Reliability of police services 45
Competitive Disadvantages Relative to GDP per Capita
Competitive Advantages Relative to GDP per Capita
Stringency of environmental regulations 101Business costs of corruption 89Buyer sophistication 81Quality of management schools 73Quality of private property rights 72Absence of trade barriers 69Decentralization of economic policymaking 69Local equity market access 65Quality of math and science education 65Local availability of specialized research 65 and training servicesQuality of primary education 64Financial market sophistication 63Availability of scientists and engineers 57Effectiveness of antitrust policy 57Intensity of local competition 53Quality of scientific research institutions 51
Saudi Arabian Business Environment Selected Advantages and Disadvantages, 2007
Note: Rank versus 127 countries; overall, Saudi Arabia ranks 48th in 2006 PPP adjusted GDP per capita and 51h in Business Competitiveness. Only 2007 data available. Source: Institute for Strategy and Competitiveness, Harvard University (2007)
18 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
SAUDI ARABIA
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000 United States
Switzerland
Italy
DenmarkIreland
India
Business Competitiveness Index
2006 GDP per Capita (PPP- adjusted)
Malaysia
Source: Global Competitiveness Report 2007
SwedenKuwait Finland
Germany
Qatar
Norway
HighLow
Greece
Argentina
SpainBahrain
Libya
IndonesiaKenya
Tunisia
Korea
Colombia
Variation in BCI score explains 82% of
variation in GDP per capita
Ranking Microeconomic Competitiveness Business Competitiveness Index, 2007
IcelandHong Kong
New Zealand
Estonia
Japan
Chile
ThailandCosta Rica
Jordan
Russia
Venezuela
Hungary
Cyprus
SloveniaPortugal
Israel
TaiwanFrance
Australia
LatviaPoland
Slovakia
Czech Republic
South Africa
China
Brazil
TanzaniaNigeriaPakistan Philippines
Peru
Ukraine
Canada
Saudi Arabia’s Ranking
Global Competitiveness
Index
Business Competitiveness
Index
35 51
Lithuania
19 Copyright 2007 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
Sources: HBS student team research (2003) - Peter Tynan, Chai McConnell, Alexandra West, Jean Hayden
HotelsHotels
Attractions andActivities
e.g., theme parks, casinos, sports
Attractions andActivities
e.g., theme parks, casinos, sports
Airlines, Cruise Ships
Airlines, Cruise Ships
Travel agentsTravel agents Tour operatorsTour operators
RestaurantsRestaurants
Property Services Property Services
Maintenance Services
Maintenance Services
Government agenciese.g. Australian Tourism Commission,
Great Barrier Reef Authority
Government agenciese.g. Australian Tourism Commission,
Great Barrier Reef Authority
Educational Institutionse.g. James Cook University,
Cairns College of TAFE
Educational Institutionse.g. James Cook University,
Cairns College of TAFE
Industry Groupse.g. Queensland Tourism
Industry Council
Industry Groupse.g. Queensland Tourism
Industry Council
Food Suppliers
Food Suppliers
Public Relations & Market Research
Services
Public Relations & Market Research
Services
Local retail, health care, and other services
Local retail, health care, and other services
Souvenirs, Duty Free
Souvenirs, Duty Free
Banks,Foreign
Exchange
Banks,Foreign
Exchange
Local Transportation
Local Transportation
Enhancing Cluster Development Tourism Cluster in Cairns, Australia
20 Copyright 2007 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
Equipment Suppliers
(e.g. Oil Field Chemicals,Drilling Rigs, Drill Tools)
SpecializedTechnology
Services
(e.g. Drilling Consultants,
Reservoir Services, Laboratory Analysis)
Subcontractors
(e.g. Surveying,Mud Logging,Maintenance
Services)
BusinessServices
(e.g. MIS Services,Technology Licenses,
Risk Management)
Specialized Institutions (e.g. Academic Institutions, Training Centers, Industry Associations)
The Houston Oil and Gas Cluster
Oil & Natural Gas Completion &
Production
Oil & Natural Gas Exploration & Development
Oil Trans-
portationOil
TradingOil
Refining
Oil Retail
Marketing
Oil WholesaleMarketing
Oil Distribution
Gas Gathering
Gas Processing
Gas Trading
Gas Transmis-
sion
Gas Distribution
Gas Marketing
Upstream Downstream
Oilfield Services/Engineering & Contracting Firms
21 Copyright 2007 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
National Cluster Export Portfolio Saudi Arabia, 1997-2005
Change in Saudi Arabia’s world export market share, 1997 – 2005Source: 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.
Saud
i Ara
bia’
s w
orld
exp
ort m
arke
t sha
re, 2
005
Change In Saudi Arabia’s Overall World Export Share: +1.09%
Saudi Arabia’s Average World Export Share: 1.92%
Exports of US$1.2 Billion =
Processed Foods
Business Services
Chemical ProductsOil and Gas
(5.49%, 14.99%)$162 billions
Plastics
Prefabricated Enclosures and Structures
2%
1.5%
1%
0.5% Construction Materials
0%
Agricultural ProductsMetal Mining and Manufacturing
Motor Driven Products Communications Equipment
Building Fixtures and Equipment
Jewelry, Precious Metals and CollectiblesTextiles
Leather and Related Products
Automotive / Medical Devices Biopharmaceuticals
22 Copyright 2007 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
Improving Company Sophistication Relative Position of Saudi Arabian Companies, 2007
Extent of staff training 77Reliance on professional management 71Degree of customer orientation 69Extent of marketing 68Prevalence of foreign technology 62 licensingExtent of regional sales 61Extent of incentive compensation 56Breadth of international markets 52Capacity for innovation 49Nature of competitive advantage 49Willingness to delegate authority 47
Competitive Disadvantages Relative to GDP per Capita
Competitive Advantages Relative to GDP per Capita
Note: Rank versus 127 countries; overall, Saudi Arabia ranks 48th in 2006 PPP adjusted GDP per capita and 51h in Business Competitiveness. Only 2007 data available. Source: Institute for Strategy and Competitiveness, Harvard University (2007)
Control of international distribution 19Production process sophistication 32Value chain breadth 34
23 Copyright 2007 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
Geographic Influences on Competitiveness
Broad Economic AreasBroad Economic Areas
Groups of Neighboring Nations
Groups of Neighboring Nations
States, ProvincesStates, Provinces
Metropolitan AreasMetropolitan Areas
NationNation
World EconomyWorld Economy
Rural AreasRural Areas
The Neighborhood
Regional Economies
24 Copyright 2007 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
Saudi Arabia’s Provinces
Source: Saudi Arabian Monetary Authority (SAMA) report, 2007
% Social Security recipients below/above national average% Labor force participation above/below national average
25 Copyright 2007 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
The Neighborhood Middle East
• Economic coordination among neighboring countries can significantly enhance competitiveness• Integration with neighbors offers greater opportunities than participation in broader economic forums
26 Copyright 2007 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
The Process of Economic Development Shifting Roles and Responsibilities
Old ModelOld Model
• Government drives economic development through policy decisions and incentives
• 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 private sector organizations
• Economic development is a collaborative process involving government at multiple levels, companies, teaching and research institutions, and private sector organizations
• 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
• The private sector must become more engaged in competitiveness to improve rapidly
27 Copyright 2007 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
Towards a Competitiveness Agenda for Saudi Arabia
• Create a culture of productivity in Saudi Arabia• Continue improving political and legal stability and transparency • Pursue a sustained program to upgrade the Saudi business
environment, sequencing priorities based on binding constraints• Upgrade company sophistication and foster entrepreneurship and
the development of SMEs• Pursue a comprehensive policy for cluster development• Expand information, openness, and transparency throughout the
economy• Develop and implement distinct strategies for each Saudi Arabian
province• Achieve regional economic coordination and integration with Arab
neighbors
• Achieving competitiveness will require a sustained effort over a decade or more
28 Copyright 2007 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
Address the Weaknesses and Binding Constraints in the Business Environment
• Business regulation
• Financial markets
• Stringency of quality, safety and environmental standards
• Openness of competition
• Market information
• Education and skills development
• Innovative capacity
29 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
Upgrade Company Sophistication and Foster Entrepreneurship
• Create a national campaign to foster entrepreneurship and support SME development
• Expand corporate disclosure
• Strengthen corporate governance
• Introduce best practices in terms of operational efficiency – Utilization of information technology– Quality improvement and certification– A culture of learning and innovation
• Upgrade human resources
• Create more focused Saudi business groups
• Improve private sector institutions and expand the role of the private sector in economic development
30 Copyright 2007 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
Create a Comprehensive Policy for Cluster Development
• The Industrial Development Strategy has an explicit focus on cluster development
• Current cluster development policy should extend to the entire economy, including domestic industries and all the provinces
• Realign government economic development policies around clusters
31 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
Clusters and Economic Policy
ClustersClusters
Specialized Physical Infrastructure
Natural Resource Protection
Environmental Stewardship
Science and Technology Investments (e.g., centers, university departments, technology transfer)
Education and Workforce TrainingBusiness Attraction
Export Promotion
• Clusters provide a framework for organizing the implementation of public policy and public investments towards economic development
Standard settingMarket Information and Disclosure
32 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
Create a Comprehensive Policy for Cluster Development
• The Industrial Development Strategy has an explicit focus on cluster development, a major strength
• Cluster development policy should extend to the entire economy, including domestic industries and all the provinces
• Realign government economic development policies around clusters
• The Economic Cities program should be directly tied to the cluster development program
• Science-based clusters will be slow to develop. The focus should be on making existing and emerging Saudi clusters more knowledge intensive
33 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
Grow exports inrelated clusters
Leverage unique Saudi Arabian strengths andniche positions
Diversifying the Saudi Arabian Economy
Leverage the largedomestic market
Widen participation in existing clusters
Upgrade existing export products
34 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
Source: International Cluster Competitiveness Project, Institute for Strategy and Competitiveness, Harvard Business School
Pesticide and Other Agricultural Chemicals
Organic Chemicals
Chemically Based Ingredients
Strong Export Share
Weak Export Share
Losing Market Share Gaining Market Share
Misc. Crude Materials
Dyeing, Tanning and Coloring MaterialsMiscellaneous Mineral Products
Growth Opportunities within Clusters Saudi Arabian Chemical Cluster
Inorganic Chemicals Packaged Chemicals
Synthetic Fibers
Explosives
35 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
Grow Current Niche Positions Leading Saudi Arabian Export Industries outside of Clusters, 2005
Industry (Processed Products) Cluster Market Share
Change in Market Share
Export Volume
Carpets and other textile floor coverings, woven Textiles 5.6% 3.7% 142,479
Sheep, lamb skin leather Leather and Related Products 3.9% 2.6% 42,787
Other forms of unvulcanized rubber Construction Materials 3.0% 2.9% 15,971
Drawn, blown glass in sheets Building Fixtures and Equipment 2.4% 1.6% 7,020
Asbestos-cement and fiber-cement materials Construction Materials 1.9% 0.2% 47,977
Cast, rolled glass in sheets Building Fixtures and Equipment 1.8% -6.3% 14,633 Portland cement, aluminous cement and similar products Construction Materials 1.7% -0.4% 129,918
Bridges and bridge-sections Prefabricated Enclosures and Structures 1.6% -4.0% 8,387
Towers and lattice masts Prefabricated Enclosures and Structures 1.6% -0.9% 19,143
Miscellaneous articles of pulp, paper and paperboard Forest Products 1.5% 0.4% 218,347
Other metal structures and parts Prefabricated Enclosures and Structures 1.4% 1.0% 266,167
Rubber, textile yarn, cord Textiles 1.3% 1.3% 3,841
Jute, other textile bast fibers Textiles 1.2% 1.2% 105
Preparations for hair Biopharmaceuticals 1.1% 0.3% 86,847
Goat or kid skin leather Leather and Related Products 1.1% 0.8% 6,561
Silk Textiles 1.1% 3,444
Sands, natural not metal bearing Construction Materials 1.0% 0.8% 10,976
Paper and paperboard, corrugated, creped, crinkled Forest Products 1.0% 0.7% 34,473
Gold, non-monetary, excluding ores Jewelry, Precious Metals and Collectibles 0.9% 0.9% 478,006
Prefabricated buildings Prefabricated Enclosures and Structures 0.9% -1.0% 53,163
36 Copyright 2007 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
FurnitureBuilding Fixtures,
Equipment & Services
Fishing & Fishing Products Hospitality
& TourismAgricultural
ProductsTransportation
& Logistics
Growth Through Related Clusters
Plastics
Oil & Gas
Chemicl Products
Biopharma-ceuticals
Power Generation
Aerospace Vehicles &
Defense
Lightning & ElectricalEquipment
Financial Services
Publishing & Printing
Entertainment
Information Tech.
Communi-cations
Equipment
Aerospace Engines
Business Services
Distribution Services
Forest Products
Heavy Construction
Services
Construction Materials
Prefabricated Enclosures
Heavy Machinery
Sporting & Recreation
Goods
Automotive
Production Technology
Motor Driven Products
Metal Manufacturing
Apparel
Leather & Related Products
Jewelry & Precious Metals
Textiles
Footwear
Processed Food
Tobacco
Medical Devices
Analytical InstrumentsEducation &
Knowledge Creation
Note: Clusters with overlapping borders or identical shading have at least 20% overlap(by number of industries) in both directions.
37 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
Develop Distinctive Strategies in each Saudi Arabia Province
• Regional development should follow a hub and spoke model to link rural areas to the nearest urban center
• Improving social service delivery and physical infrastructure across all provinces are important preconditions for regional economic development
• Each region needs a distinctive economic plan that reflects its location, assets, and existing economic activity
• Economic policy formulation and implementation should be gradually decentralized
• Government capability in each province needs to be upgrading over time
38 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
Enhancing the Economic Cities Concept
Makkah
Riyadh Eastern Province
Ha'il
Asir
Tabuk
Madinah
Najran
Al Jowf
Qassim
Northern Borders
Jizan
Al- Baha
Eastern Province Economic City
Jizan Economic City
King Abdullah Economic City
Knowledge Economic City
Prince Abdulaziz bin Musaid Economic City
Tabuk Economic City
Note: Exact physical location of Economic Cities still to be determined
• The economic cities can become an important tool for Saudi Arabian development
• However, they also symbolize the challenges that the country needs to address
• They have been planned centrally, not by the regions themselves
• They focus on infrastructure rather than skills and institutions
• Economic cities have an unclear relation to clusters and the surrounding regional economy
• They ask for private sector action but have been designed by the government
Proposed Locations for Economic Cities
39 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
Develop a Regional Competitiveness Strategy with Arab Neighbors
• The Gulf Cooperation Council can be an important complement to competitiveness efforts at the national level
• Many aspects of the business environment can be enhanced by coordination and integration with neighboring countries
• The region needs to shift from rhetoric to action
• Due to its size and resources, Saudi Arabia should take a leadership role
40 Copyright 2007 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
National Value Proposition
Defining an Economic Strategy for Saudi Arabia
• What is the unique competitive position of Saudi Arabia given its location, legacy, existing strengths, and potential strengths?
– What roles in the world, the broad economic area, and the neighborhood?
– What unique value as a business location?– For what range and types of businesses, activities
in the value chain, and clusters can Saudi Arabia be competitive?
41 Copyright 2007 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
Towards a Strategic Positioning for Saudi Arabia
Strengths to Build Upon
• Natural resource endowments• Largest and most populous economy in the Middle East• Location between Europe, Asia, and Africa• Distinct cultural traditions• Significant accumulated capital
• Saudi Arabia has outlined an ambitious action agenda to enhance competitiveness
• It will be important to set priorities and sequence steps to reflect the realities of Saudi Arabia’s economy
• Fundamental changes in the capabilities and attitudes of many Saudi citizens will be needed to achieve the desired transformation of the Saudi Arabian economy