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1 Copyright 2003 © Professor Michael E. PorterGCR Russia 2003 10-20-03.ppt
Russian Competitiveness:Where Do We Stand?
Professor Michael E. PorterInstitute for Strategy and Competitiveness
Harvard Business School
U.S.-Russian Investment SymposiumBoston, Massachusetts
13 November 2003
This presentation draws on ideas from Professor Porter’s articles and books, in particular, The Competitive Advantage of Nations (The Free Press, 1990), “Building the Microeconomic Foundations of Competitiveness,” in The Global Competitiveness Report 2003, (World Economic Forum, forthcoming 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
2 Copyright 2003 © Professor Michael E. PorterGCR Russia 2003 10-20-03.ppt
• Russia’s overall economic performance has improved since 1999 but is not exceptional relative to peer countries
• Recent progress has reflected clear improvements in macroeconomic policy and, to a lesser extent, the legal and corporate governance framework– However, much work still lies ahead
• Russia’s prosperity and prosperity growth still rely heavily on inherited wealth, not created wealth
• The critical challenge for Russia is now microeconomic: mobilizing its potential strengths and address its considerable weaknesses to dramatically raise the productivity of Russia as a place to do business
Russian Economic Performance 2003
3 Copyright 2003 © Professor Michael E. PorterGCR Russia 2003 10-20-03.ppt
Comparative Economic PerformanceReal GDP Growth Rates
-40%
-30%
-20%
-10%
0%
10%
20%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
AzerbaijanKazakhstanChinaS KoreaRussian FederationLatviaUkraineEstoniaUzbekistanBulgariaHungarySloveniaThailandLithuaniaFinlandRomaniaSlovakiaCroatiaPolandCzech RepublicBrazil
Source: EIU (2003)
Countries sorted by 1999-2002 annual real GDP growth rate (CAGR)Annual growth rate
of real GDP
4 Copyright 2003 © Professor Michael E. PorterGCR Russia 2003 10-20-03.ppt
0
20
40
60
80
100
120
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Russian GDP over time
Source: EIU (2003)
Real GDP, 1990 = 100
26% Gap
5 Copyright 2003 © Professor Michael E. PorterGCR Russia 2003 10-20-03.ppt
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
-2% 0% 2% 4% 6% 8% 10%
Comparative Prosperity PerformanceSelected Countries
Russian Federation
Slovenia
Compound annual growth rate of real GDP per capita, 1996-2002
GDP per capita (PPP
adjusted) in US-$,
2002
Source: EIU (2003)
Czech Republic
HungarySlovakia
EstoniaPoland
CroatiaLatvia
Lithuania
Kazakhstan
AzerbaijanUkraine
UzbekistanMoldova
Serbia &Montenegro
RomaniaMalaysia Bulgaria
Thailand
South Africa
India
China
Brazil
6 Copyright 2003 © Professor Michael E. PorterGCR Russia 2003 10-20-03.ppt
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
7 Copyright 2003 © Professor Michael E. PorterGCR Russia 2003 10-20-03.ppt
Sources of Prosperity
Inherited ProsperityInherited Prosperity
• Prosperity is derived from selling inherited natural resources or real estate
• Prosperity is limited by the amount of natural resources available, and is ultimately temporary
• Focus gravitates towards thedistribution of wealth as interest groups seek a bigger share of the pie
• Government is the central actor in the economy as the owner and distributor of wealth
• Prosperity is derived from selling inherited natural resources or real estate
• Prosperity is limited by the amount of natural resources available, and is ultimately temporary
• Focus gravitates towards thedistribution of wealth as interest groups seek a bigger share of the pie
• Government is the central actor in the economy as the owner and distributor of wealth
Created ProsperityCreated Prosperity
• Prosperity is derived from creating valuable products and services
• Prosperity is created by firms• Prosperity is unlimited, based only by
the innovativeness and productivity of companies in the economy
• Creating the conditions for productivity and innovation are the central policy question
• Companies are the central actors in the economy
• The government’s role is to create the enabling conditions
• Prosperity is derived from creating valuable products and services
• Prosperity is created by firms• Prosperity is unlimited, based only by
the innovativeness and productivity of companies in the economy
• Creating the conditions for productivity and innovation are the central policy question
• Companies are the central actors in the economy
• The government’s role is to create the enabling conditions
8 Copyright 2003 © Professor Michael E. PorterGCR Russia 2003 10-20-03.ppt
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
9 Copyright 2003 © Professor Michael E. PorterGCR Russia 2003 10-20-03.ppt
0.75
0.80
0.85
0.90
0.000 0.010 0.020 0.030 0.040 0.050 0.060
Russia
Argentina
Chile
Mexico
ThailandRomania
Slovenia
Poland
Colombia
Costa Rica
Change in Human Development Index, 2001 to 1995
Human Development Index, 2001
BelarusBulgaria
Latvia
Malaysia
Source: HDR (2003)
Croatia
Estonia
Brazil
Progress in Human DevelopmentSelected Countries
S Korea
Czech Rep.
HungaryLithuania
UkraineKazakhstan
Philippines Jamaica
10 Copyright 2003 © Professor Michael E. PorterGCR Russia 2003 10-20-03.ppt
Micro reform is needed
to raise the level of
sustainable prosperity
Macro reform alone can lead to short term capital inflows and growth spurts that ultimately are not sustainable
Integration of Macro- and Microeconomic Reforms
Macroeconomic reform
Microeconomic reform
Create opportunityfor productivity
Required to achieveproductivity
Productivity growth allows economic growth without inflation, making
macroeconomic stability easier to achieve
Stability and confidence support investment and upgrading
11 Copyright 2003 © Professor Michael E. PorterGCR Russia 2003 10-20-03.ppt
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
-1% 0% 1% 2% 3% 4% 5% 6% 7% 8%
Comparative Labor ProductivitySelected Countries
Compound annual growth rate of real GDP per employee, 1996-2002
GDP per employee
(PPP adjusted) in US-$,
2002
Source: EIU (2003)
Slovenia
Russian Federation
Hungary
Czech Rep. Croatia Slovakia
PolandEstonia Lithuania
LatviaBulgaria
Kazakhstan
Ukraine
AzerbaijanUzbekistan
RomaniaBrazil
Mexico Chile
Serbia
China
S Korea
IndiaVietnam
12 Copyright 2003 © Professor Michael E. PorterGCR Russia 2003 10-20-03.ppt
0%
1%
2%
3%
4%
5%
6%
7%
8%
-1.0% -0.5% 0.0% 0.5% 1.0%
Russia’s average change in world goods export share:
- 0.10%
Russia’s average goods export share: 1.54%
Source: UNCTAD Trade Data. Author’s analysis.
Change in Russia’s World Export Share, 1997 - 2001
Russia’s Export Performance By Broad Sector1997-2001
Power Food/Beverages
Textiles Transportation
Multiple Business
DD
= $45 billion export volume in 2001
Petroleum/Chemicals
World Export Share, 2001
Entertainment
Materials/Metals
Forest Products
13 Copyright 2003 © Professor Michael E. PorterGCR Russia 2003 10-20-03.ppt
0%
10%
20%
30%
40%
50%
0% 10% 20% 30% 40% 50% 60%
Comparative Inward Foreign InvestmentSelected Economies
FDI Stocks as % of GDP, Average 1998-2000
FDI Inflows as % of Gross Fixed Capital Formation, Average 1998-2000
Sweden (18%, 89%)
Note: FDI Stocks and Inflows for transition countries are the average of 1998-2001Germany’s FDI inflows in this period were exceptionally high due to the Vodafone-Mannesmann takeover in 2000Source: World Investment Report 2002
Germany*
UK
US
Japan
China
Australia
New ZealandNetherlands
Italy
Spain
Finland
Latvia
Slovenia
Ukraine
Estonia
Czech Rep.
Argentina
Moldova
Hungary
BulgariaCroatia
LithuaniaSlovakia
SerbiaBelarus
Russian Federation
Romania Poland
14 Copyright 2003 © Professor Michael E. PorterGCR Russia 2003 10-20-03.ppt
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 system across institutionsOpen and vigorous competition among locally based rivals
15 Copyright 2003 © Professor Michael E. PorterGCR Russia 2003 10-20-03.ppt
Clusters and CompetitivenessHouston Oil and Gas Products and Services Cluster
Equipment Suppliers
(e.g. Oil Field Chemicals,
Drilling Rigs, Drill Tools)
Specialized Institutions (e.g. Academic Institutions, Training Centers, Industry Associations)
GasProcessing
GasTrading
GasTransmis-
sion
GasDistribution
GasMarketing
Oil & Gas Completion &
Production
Oil & GasExploration & Development
Oilfield Services/Engineering & Contracting Firms
OilRefining
OilDistribution
OilWholesaleMarketing
Oil Retail
Marketing
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)
OilTrading
OilTrans-
portation
GasGathering
16 Copyright 2003 © Professor Michael E. PorterGCR Russia 2003 10-20-03.ppt
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
17 Copyright 2003 © Professor Michael E. PorterGCR Russia 2003 10-20-03.ppt
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)
18 Copyright 2003 © Professor Michael E. PorterGCR Russia 2003 10-20-03.ppt
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
Global Competitiveness Report 2003The Relationship Between Business Competitiveness and GDP Per Capita
USA
SwitzerlandGermanyUK
Denmark
Singapore
New Zealand
Taiwan
Norway
Iceland
Ireland
Greece Israel
Italy
S Korea
Hungary
India
Canada
SpainCzech Rep
Slovenia
Portugal
Business Competitiveness Index
2002 GDP per Capita
(Purchasing Power Adjusted)
BrazilMalaysia
China
Russian Federation
VietnamJordan
UruguayArgentina South Africa
Note: Other central European countries in blue Source: Global Competitiveness Report 2003
Estonia
Thailand
FinlandSweden
Malta
TanzaniaKenya
Austria
Paraguay
Croatia
Slovak Rep.
LatviaPoland Lithuania
BulgariaRomania Ukraine
Serbia
y = 2002.2x2 + 8427.7x + 9514.9
R2 = 0.8266
19 Copyright 2003 © Professor Michael E. PorterGCR Russia 2003 10-20-03.ppt
Russia’s Competitive Promise
Note: Rank by countries; overall Russia ranks 65 (63 on National Business Environment, 48 on GDP pc 2002)Source: Global Competitiveness Report 2003
Human ResourcesQuality of Math and Science Education 18Quality of Educational System 38Quality of Public Schools 41Cooperation in Labor-Employer Relations 41
Science and Technology BaseQuality of Scientific Research Institutions 25Availability of Scientists and Engineers 26
Competitive Advantages Relative to GDP per Capita
Country Ranking, Arrows indicate a change of 5 or more
ranks since 1998
20 Copyright 2003 © Professor Michael E. PorterGCR Russia 2003 10-20-03.pptSource: US Patent and Trademark Office (www.uspto.gov). Author’s analysis.
Annual U.S. patents per 1 million
population, 2001
Compound annual growth rate of US-registered patents, 1990 - 2001
International Patenting OutputSelected Countries
0
50
100
150
200
250
300
350
400
0% 10% 20% 30% 40%
Australia
Canada
Germany
Japan
South Korea
New Zealand
Singapore
Sweden
Taiwan
UK
Israel= 10,000 patents granted in 2001
USA
Finland
Ireland
Russia
21 Copyright 2003 © Professor Michael E. PorterGCR Russia 2003 10-20-03.ppt
Note: Other Latin American countries have negligible rates of US patenting Source: US Patent and Trademark Office (www.uspto.gov). Author’s analysis.
Annual U.S. patents per 1 million population, 2001
Compound annual growth rate of US-registered patents, 1996 - 2001
International Patenting OutputSelected Transition Countries
= 100 patents granted in 2001
Hungary
Russian Federation
Average Growth Rate of Countries shown: 11.1%
AveragePatents per Capita for Countries shown: 1.9
Slovenia
Serbia & Mont.
Czech Rep.
BulgariaRomaniaUkrainePoland
EstoniaSlovakia
0.0
2.0
4.0
6.0
8.0
10.0
12.0
-10% 0% 10% 20% 30%Uzbekistan
22 Copyright 2003 © Professor Michael E. PorterGCR Russia 2003 10-20-03.ppt
Barriers to Structural Change in the Russian Economy
• Competition– Russia scores low in the Global Competitiveness Report on
trade liberalization and non-tariff barriers– Russia scores low on the level of domestic competition– Competition is hampered and distorted by corruption and
administrative inefficiencies
• Entry and exit– Russia has low formal barriers to entry, but business leaders
report significant burdens for start-ups– Russia has high formal barriers for firing employees and
closing businesses, but business leaders report them as non-binding in practice
• Financial market– Russian financial markets get low scores for providing
sophisticated services and credit to companies
23 Copyright 2003 © Professor Michael E. PorterGCR Russia 2003 10-20-03.ppt
Human ResourcesQuality of Math and Science Education 18Quality of Educational System 38Quality of Public Schools 41Cooperation in Labor-Employer Relations 41
Science and Technology BaseQuality of Scientific Research Institutions 25Availability of Scientists and Engineers 26
Physical InfrastructureRailroad Infrastructure Quality 17Port Infrastructure Quality 42
Competitive Advantages Relative to GDP per Capita
Country Ranking, Arrows indicate a change of 5 or more
ranks since 1998
Russian CompetitivenessCompetitive Advantages and Disadvantages
Openness and Vitality of CompetitionForeign Ownership of Companies 93Intensity of Local Competition 83Hidden Trade Barrier Liberalization 79Adequacy of Public Sector Legal Recourse78Tariff Liberalization 76Effectiveness of Anti-Trust Policy 73Extent of Distortive Government Subsidies 70Efficacy of Corporate Boards 64
Administrative Efficiency and TransparencyExtent of Bureaucratic Red Tape 89Police Protection of Businesses 80Favoritism in Decisions of Government 74 Officials Judicial Independence 74Business Costs of Corruption 53
Competitive Disadvantages Relative to GDP per Capita
Country Ranking, Arrows indicate a change of 5 or more
ranks since 1998
Note: Rank by countries; overall Russia ranks 65 (63 on National Business Environment, 48 on GDP pc 2002)Source: Global Competitiveness Report 2003
24 Copyright 2003 © Professor Michael E. PorterGCR Russia 2003 10-20-03.ppt
-10 -5 0 5 10 15
CorruptionTransparency International Global Corruption Report
Ukraine
Hungary
KazakhstanAzerbaijan
Romania
BulgariaLatvia
Uzbekistan
Slovak Rep.Poland
Lithuania
Czech Rep.
SloveniaEstonia
Russia
Note: Eastern European and CIS 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
ChinaTurkey
25 Copyright 2003 © Professor Michael E. PorterGCR Russia 2003 10-20-03.ppt
Human ResourcesQuality of Math and Science Education 18Quality of Educational System 38Quality of Public Schools 41Cooperation in Labor-Employer Relations 41
Science and Technology BaseQuality of Scientific Research Institutions 25Availability of Scientists and Engineers 26
Physical InfrastructureRailroad Infrastructure Quality 17Port Infrastructure Quality 42
Competitive Advantages Relative to GDP per Capita
Country Ranking, Arrows indicate a change of 5 or more
ranks since 1998
Russian CompetitivenessCompetitive Advantages and Disadvantages (Continued)
Efficiency of Financial MarketsProtection of Minority Shareholders 94Regulation of Securities Exchanges 86Financial Market Sophistication 84Existence of Bankruptcy Law 82Ease of Access to Loans 72Local Equity Market Access 70Venture Capital Availability 60
Quality of the Regulatory EnvironmentIntellectual Property Protection 85Laws Relating to Information Technology 71Stringency of Environmental Regulations 70
Competitive Disadvantages Relative to GDP per Capita
Country Ranking, Arrows indicate a change of 5 or more
ranks since 1998
Note: Rank by countries; overall Russia ranks 65 (63 on National Business Environment, 48 on GDP pc 2002)Source: Global Competitiveness Report 2003
26 Copyright 2003 © Professor Michael E. PorterGCR Russia 2003 10-20-03.ppt
The Costa Rica Information Technology Cluster
Source: Niels Ketelhohn research for Professor Michael E. Porter
Electronic Assembly
Semiconductor Production
PassiveElectronic Components (e.g., inductors, transistors)
Other Electronic Components
(e.g., circuitboards)
Venture Capital FirmsVenture Capital Firms
Computer Software (e.g., ArtinSoft)
Computer Software (e.g., ArtinSoft)
Specialized Academic and Training Institutions
(e.g., Instituto Tecnológico de Costa Rica, Instituto Nacional de Aprendizaje)
Specialized Academic and Training Institutions
(e.g., Instituto Tecnológico de Costa Rica, Instituto Nacional de Aprendizaje)
State Government Agencies (e.g., export and investments promotion
agencies: Cinde and Procomer)
State Government Agencies (e.g., export and investments promotion
agencies: Cinde and Procomer)
Specialized ChemicalsSpecialized Chemicals
Specialized Packaging (e.g., plastics, corrugated
materials)
Specialized Packaging (e.g., plastics, corrugated
materials)
27 Copyright 2003 © Professor Michael E. PorterGCR Russia 2003 10-20-03.ppt
Legacies of a Planned-Economy
Legacies of a Planned-Economy
• Economic policy is centrallydirected
• Buyer/supplier linkages seen from a national perspective
• Relationships between suppliers and buyers are specified and focused on production of defined goods and services
• The geographic locations of related economic activities driven by political and security considerations
• Economic policy is centrallydirected
• Buyer/supplier linkages seen from a national perspective
• Relationships between suppliers and buyers are specified and focused on production of defined goods and services
• The geographic locations of related economic activities driven by political and security considerations
Cluster-based EconomyCluster-based Economy
• Economic policy involves significant autonomy and institutions at the regional and local level
• There is specialization of regions across the fields in which they compete
• Externalities across firms and institutions in clusters facilitate productivity and dynamism
• Geographic choices are based on the economic attractiveness of locations; firms co-locate with others to reap cluster benefits
• Economic policy involves significant autonomy and institutions at the regional and local level
• There is specialization of regions across the fields in which they compete
• Externalities across firms and institutions in clusters facilitate productivity and dynamism
• Geographic choices are based on the economic attractiveness of locations; firms co-locate with others to reap cluster benefits
Creating a Productive Economic Structure
28 Copyright 2003 © Professor Michael E. PorterGCR Russia 2003 10-20-03.ppt
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
1995 1996 1997 1998 1999 20000%
1%
2%
3%
4%
5%
6%
7%
8%
ValueMarket Share
The Australian Wine ClusterTrade Performance
Source: UN Trade Statistics
Australian Wine Exports in million US
Dollars
Australian Wine World Export Market
Share
29 Copyright 2003 © Professor Michael E. PorterGCR Russia 2003 10-20-03.ppt
The Australian Wine ClusterHistory
1955
Australian Wine Research Institute founded
1970
Winemaking school at Charles Sturt University founded
1980
Australian Wine and Brandy Corporation established
1965
Australian Wine Bureau established
1930
First oenology course at Roseworthy Agricultural 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
30 Copyright 2003 © Professor Michael E. PorterGCR Russia 2003 10-20-03.ppt
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
31 Copyright 2003 © Professor Michael E. PorterGCR Russia 2003 10-20-03.ppt
The Role of Clusters in Economic DevelopmentOverview
• Clusters are critical engines in the economic structure of national and regional economies– The health of their cluster determines the level of productivity companies
can reach– Regional prosperity depends on significant positions in a number of
competitive clusters
• Clusters can identify fundamental challenges in the national or regional business environment
– Clusters are more aligned with the nature of competition and themicroeconomic factors that influence competitive advantage
– At the economy-wide level, only generic topics like taxes and trade protection are of joint interests to all companies
• Clusters provide a new way of thinking about an economy and organizing economic development efforts
– Recast the role of the private sector, government, trade associations and educational or research institutions
– Brings together firms of all sizes to identify common opportunities, not just common problems
32 Copyright 2003 © Professor Michael E. PorterGCR Russia 2003 10-20-03.ppt
Influences on CompetitivenessMultiple Geographic Levels
Broad Economic AreasBroad Economic Areas
Groups of Neighboring Groups of Neighboring NationsNations
States, ProvincesStates, Provinces
Cities, Metropolitan Cities, Metropolitan AreasAreas
NationsNations
World EconomyWorld Economy
33 Copyright 2003 © Professor Michael E. PorterGCR Russia 2003 10-20-03.ppt
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
34 Copyright 2003 © Professor Michael E. PorterGCR Russia 2003 10-20-03.ppt
U.S. Patenting by Russian Institutions
Note: Shading indicates universities, research institutions, and other government agencies Source: US Patent and Trademark Office (www.uspto.gov). Author’s analysis.
0
1
2
0
0
3
0
3
0
1
0
3
1
1
4
3
1
0
1
8
1998
0
0
1
0
0
0
0
2
0
1
0
4
2
0
0
4
0
0
1
5
1997
0
0
0
0
0
0
0
0
0
2
0
3
2
0
0
4
0
0
0
1
1996
2
1
0
3
0
1
0
0
1
1
0
0
0
4
5
2
6
0
2
13
1999
3
3
1
1
1
2
1
0
3
4
8
0
3
0
2
2
4
2
10
2
2000
0
0
1
1
4
0
5
2
3
0
1
0
2
6
1
0
7
16
9
1
2001
5SAWTEK, INC.
5MCDONNELL DOUGLAS CORP.
5QUANTA VISION, INC.
5TCI INC.
5ALM DEVELOPMENT, INC.
6
6
7
7
9
9
10
10
11
12
15
18
18
23
30
Patents Issued1996-2001
CYTRAN, INC.
LSI LOGIC CORPORATION
ALARIS INC.
ADVANCED ION TECHNOLOGY, INC.
GENERAL ELECTRIC COMPANY
RENAL TECH INTERNATIONAL LLC
SOCIETE NATIONALE INDUSTRIELLE AEROSPATIALE
AJINOMOTO COMPANY INCORPORATED
ELBRUS INTERNATIONAL LTD.
UNIVERSITY OF CHICAGO
CERAM OPTEC INDUSTRIES, INC.
R-AMTECH INTERNATIONAL, INC.
NPO ENERGOMASH
SAMSUNG ELECTRONICS CO., LTD.
SUN MICROSYSTEMS, INC.
Organization
35 Copyright 2003 © Professor Michael E. PorterGCR Russia 2003 10-20-03.ppt
InnovativeCapacity Index
Scientists &Engineers
Index
Linkages Index ClusterEnvironment
Index
Operations &Strategy Index
InnovationPolicy Index
Innovative Capacity IndexRussia’s Relative Position
Source: Global Competitiveness Report 2003
Russia’s GDP per Capita Rank 48
Russia’s Competitiveness Rank 65
1
10
20
30
40
50
60
70
80
39
9
40
55
67 75
36 Copyright 2003 © Professor Michael E. PorterGCR Russia 2003 10-20-03.ppt
• Russia faces challenges in attracting traditional manufacturing investments given the inefficiencies in its business environment relative to other locations
• Near term opportunities should focus where Russia is most unique
• Improve the innovation policy environment– Intellectual property right protection
• Create Technology Parks and R&D Free Zones– Simplified administrative rules
• Support cluster-development efforts around universities– Technology transfer offices– Recruiting foreign companies– Incubators
Leveraging the Russian Technology BaseIllustrative Strategic Options
37 Copyright 2003 © Professor Michael E. PorterGCR Russia 2003 10-20-03.ppt
Shifting Responsibilities for Economic Development
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 institutions for collaboration
• Economic development is a collaborative process involving government at multiple levels, companies, teaching and research institutions, and institutions for collaboration
38 Copyright 2003 © Professor Michael E. PorterGCR Russia 2003 10-20-03.ppt
• Improve the macroeconomic, political, legal, and social context– Establish a stable and predictable macroeconomic, legal, and political
environment – Improve the social conditions of citizens
• Upgrade the general business environment– Improve the availability, quality, and efficiency of cross-cutting or general
purpose inputs, infrastructure, and institutions– Set overall rules and incentives governing competition that encourage
productivity growth
• Facilitate cluster formation and upgrading– Identify existing and emerging clusters– Convene and participate in the identification of cluster constraints and action
plans to address them
• Lead a collaborative process of economic change– Create institutions and processes for upgrading competitiveness that inform
citizens and mobilize the private sector, government at all levels, educational and other institutions, and civil society to take action
Roles of Government in Economic Development
39 Copyright 2003 © Professor Michael E. PorterGCR Russia 2003 10-20-03.ppt
Role of the Private Sector in Economic Development
• 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
40 Copyright 2003 © Professor Michael E. PorterGCR Russia 2003 10-20-03.ppt
Russia’s Competitiveness Agenda
• Raise the productivity of the Russian business environment
• Adopt a cluster-based approach to economic development
• Push economic strategy to the regional level
• Shift the roles of government, business, and other institutions in economic development
• Raise the productivity of the Russian business environment
• Adopt a cluster-based approach to economic development
• Push economic strategy to the regional level
• Shift the roles of government, business, and other institutions in economic development
• Creating the microeconomic foundations of sustainable prosperity in Russia
41 Copyright 2003 © Professor Michael E. PorterGCR Russia 2003 10-20-03.ppt
Selected References on Clusters, Competition, Innovation, and Regional Economies
Professor 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
42 Copyright 2003 © Professor Michael E. PorterGCR Russia 2003 10-20-03.ppt
• “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 Clusters, Competition, Innovation, and Regional Economies
Professor Michael E. Porter
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