competitiveness for the third millennium: implications for ... files... · 5/15/2009 · this...

1 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt

Professor Michael E. PorterHarvard Business School

CEO Agenda ForumZagreb, Croatia

May 15, 2009This presentation draws on ideas from Professor Porter’s books and articles, in particular, Competitive Strategy (The Free Press, 1980); Competitive Advantage (The Free Press, 1985); “What is Strategy?” (Harvard Business Review, Nov/Dec 1996); “Strategy and the Internet” (Harvard Business Review, March 2001); and a forthcoming book. 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. Additional information may be found at the website of the Institute for Strategy and Competitiveness, www.isc.hbs.edu. Version: May 13, 2pm

Competitiveness for the Third Millennium: Implications for Croatia


The Croatian Economy in 2009

• Croatia has experienced solid growth rates over the last few years, taking advantage of the transition to a market economy

• The global economic crisis is now starting to take its toll

• Despite the recent period of growth, however, Croatia is facing serious competitiveness challenges

• Croatia needs to address these issues aggressively instead of hoping for an automatic return to growth after the crisis or that EU ascension is sufficient

• Croatia lacks a clear strategy and an effective implementation mechanism for improving competitiveness


$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

$50,000

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

PPP-adjusted GDP per Capita, 2007 ($USD)

Growth of Real GDP per Capita (PPP-adjusted), CAGR, 2000 to 2007

Note: highlighted countries are part of the East African Community (EAC). Source: EIU (2009), authors calculations

Bahrain

China (13.0%)

Vietnam

South Africa

Latvia (12.6%)

TaiwanGermany

Oman

Croatia

Czech Republic

Libya

Saudi Arabia

Bulgaria

Estonia

Russia

Lebanon

Yemen

Qatar ($57,175, 0.92%)

UAE

France

Brazil

SyriaIndia

Turkey

Egypt

Lithuania

United States

SlovakiaHungary

Iran

Mexico

Slovenia

Jordan

Singapore

Norway ($54,604)

Chile

Prosperity PerformanceSelected Countries

Argentina

Greece

South Korea

Italy

AustraliaUK

SwedenKuwait

Japan

Spain

Hong Kong

PolandMalaysia

CambodiaLaosPakistan Philippines

Canada

Ireland

Israel New Zealand

FinlandAustria

BelarusMacedonia Bosnia & HerzegovinaThailand

Malta

Romania

Switzerland

Ukraine

Moldova

Other countriesEastern and Southern Europe

AlbaniaBelize

Cyprus

El SalvadorGuatemala

Kazakhstan (12.3%)

• Croatia has benefited from the end of conflict and market reforms


What is Competitiveness?

• Only competitive businesses can create wealth and jobs

• Nations compete to offer the most productive environment for business

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

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

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

– It is not what industries a nation competes in that matters for prosperity, but how productively 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


$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

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

Comparative Labor ProductivitySelected Countries

Growth of real GDP per employee (PPP-adjusted), 2004 to 2008

Real GDP per employee (PPP adjusted US$), 2008

Source: authors calculation, Groningen Growth and Development Centre (2009), EIU (2009)

Turkey

Mexico

New Zealand

Australia

Iran

Slovakia

Pakistan

Brazil

Hong Kong

Germany

Senegal

Poland

Slovenia

USA

Argentina

China (10.1%)

UgandaGhana

Philippines

Russia

Indonesia

Ireland

Vietnam

Korea

IndiaCameroon

Thailand

Japan

PeruAlgeria

France

EgyptTunisia

Zimbabwe (-8.9%)

Czech Republic

Morocco

Cote d’Ivoire

Romania

Mozambique

Saudi Arabia

BangladeshNigeriaKenya

South Africa

Italy

Syria

UK

Spain

Croatia

Chile

Oman

Cambodia

Kazakhstan

Angola (14.0%)

AustriaCanada

Bulgaria

GreeceFinland

Estonia

Hungary

LatviaMalaysia

Lithuania

Malta

Macedonia

Ukraine

Portugal

Switzerland


Albania

Belarus (8.6%)

Cyprus

• Croatia’s labor productivity is lagging, and overstated by low workforce participation


Source: Economist Intelligence Unit (2009)

Labor Force UtilizationParticipation Rates, Selected Countries

25%

30%

35%

40%

45%

50%

55%

60%

65%

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

Labor Force Participation Rate, 2008

Change in Labor Force Participation Rate, 2004 to 2008

Germany

South Korea

Mexico

Slovenia

USA

Pakistan

Japan

Turkey

Slovakia

AustraliaDenmark

BrazilIndonesia

China

ArgentinaPhilippines

RussiaVietnam

India

Malaysia

Chile

Thailand

Croatia

Lithuania

TunisiaAlbania

BulgariaSouth Africa

EgyptLibya

Saudi Arabia

Colombia

Ghana

Cote d’Ivoire

Romania

KuwaitSingapore

Iceland

Macedonia

IrelandSpain

Latvia

CyprusEstonia

Ukraine

UK

Moldova

Nigeria

Israel

Norway

HungaryAustria

GreeceNetherlands

Italy

CanadaSweden

New ZealandFinland


Czech Rep.

• Croatia is caught in a trap where low productivity retards job growth, but unemployment retards needed reforms

FrancePoland


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

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

Export PerformanceSelected CountriesExports of Goods and

Services (% of GDP), 2008

Change in Exports of Goods and Services (% of GDP), 2004 to 2008

Russia

Thailand

France

Jordan

Saudi Arabia

China

Denmark

GermanyChile

Philippines

UKItaly

South Africa

Ireland

USA

India

Burundi

Bolivia

Brazil

Cambodia

Indonesia

Australia

Czech Republic

Slovakia

Turkey

Mexico

Korea

Pakistan

Argentina

Vietnam

Malaysia (103.5%)

Finland

Ethiopia

Croatia

Source: EIU (2008), authors’ analysis

Japan

Egypt

Taiwan

Bangladesh

Netherlands

Poland

Iceland

Slovenia

Macedonia

Benin

Albania

Peru

Israel

AustriaBelarus

Belgium

Bulgaria

Canada

Cyprus

Romania Portugal

Sweden

Moldova

Greece

Estonia

Hungary

Lithuania

Latvia

New Zealand

Norway

Spain

Ukraine (-17.5%)


• Croatia's export growth is lagging


Export PerformanceSelected Countries

25%

35%

45%

55%

65%

75%

85%

95%

1994 1996 1998 2000 2002 2004 2006 2008

Slovakia

Hungary

Czech Republic

Slovenia

Croatia

Exports of Goods and Services (% of GDP) Rank, 2008


Croatia’s Exports By Type of Industry

0.00%

0.05%

0.10%

0.15%

0.20%

0.25%

0.30%

0.35%

0.40%

0.45%

0.50%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Processed GoodsSemi- and Unprocessed GoodsServicesTOTAL

Source: UNComTrade, WTO (2008)

World Export Market Share (current USD)


12%

16%

20%

24%

28%

32%

36%

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

Domestic Fixed Investment RatesSelected CountriesGross Fixed Investment

as % of GDP, 2008

Note: Includes inbound FDI Source: EIU, 2009

Change in Gross Fixed Investment (as % of GDP), 2004 to 2008

Turkey

Czech Rep.

Australia

Slovakia

PakistanBrazil

Malaysia

France

GermanyHong Kong

Norway

Slovenia

USA

ArgentinaDenmark

China (40.8%)

Finland

PolandRussia

Indonesia

Ireland

Vietnam (44.6%)

Korea

India

Iceland

Thailand

Japan

Cyprus

MaltaEgypt

Cambodia

Israel

Kazakhstan

Tunisia

Albania

Estonia

Sweden

Colombia

HungarySaudi Arabia

South AfricaPortugal

Greece

Philippines

Singapore

UK

Spain

Croatia

Canada

Latvia

Belarus

Romania (11.1%)

New Zealand

LithuaniaChileUkraine

MexicoAustria

SwitzerlandItaly Netherlands

Bulgaria (12.6%)

NicaraguaOther countriesEastern and Southern Europe

BelgiumMacedonia

• High investment is due to catch-up investments and FDI driven by privatization


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 (2009)

Inward FDI Stocks as % of GDP, Average 2003 - 2007

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

Japan

Russia

Saudi Arabia

Turkey

Slovenia

UK

HungaryVietnam

SlovakiaCzech Republic

Australia

Denmark

Chile

Netherlands

Poland

USA

Colombia

Estonia

Malaysia

Thailand

South Africa

New Zealand

Indonesia

Iceland (46.7%)

China

Sweden

CanadaLithuania

India

Brazil

France

Pakistan

Croatia

Austria

Latvia

Switzerland

Spain

Italy

Norway

Germany

Mexico

Portugal

Finland

Laos

Cambodia

Philippines

Singapore (160.1%, 64.7%)

Greece

Israel Romania Bosnia & Herzegovina

Macedonia

South KoreaBelarus

Moldova

Kazakhstan

Armenia


Cyprus

Bulgaria (69%)

Egypt

Ukraine

• Foreign direct investment inflows have been a key driver of economic growth, but most are due to privatization rather than greenfield investments


-250

250

750

1,250

1,750

2,250

2,750Fi

nanc

ial S

ervi

ces

Oil,

Gas

and

Coa

l

Che

mic

als

Tele

com

mun

icat

ions

Rea

l Est

ate

Oth

er A

ctiv

ities

Who

lesa

le T

rade

Ret

ail T

rade

Hos

pita

lity

Food

Pro

duct

s

Mft.

mac

hine

ry a

ndeq

uipm

ent

Aut

omot

ive

Wat

er p

urifi

catio

nan

d di

stru

btio

n

Con

stru

ctio

n

Rec

reat

ion

and

Spo

rts

2000

2006

2007

2008*

Foreign Investment in CroatiaSelected Activities

*2008 is estimated figure.

Source: Foreign Direct Investment in Croatia (by activity), Croatian National Bank, 2009

Average FDI by activity, millions of €


0

1

2

3

4

5

6

7

8

9

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

Source: USPTO (2008), EIU (2008)

Average U.S. patents per 1 million population, 2003-2007

CAGR of US-registered patents, 2003 – 2007

Innovative CapacityInnovation Output of Selected Countries

Malaysia

Russia

Colombia India

Saudi Arabia

PhilippinesChina

Brazil

50 patents =

EstoniaCroatia

PolandEgypt

Belarus

ArgentinaMexico

South Africa Greece

Portugal

Thailand

Czech Republic

Slovenia

Hungary

ChileRomania

Indonesia

• Croatia has technological strengths, but these have not been mobilized in business development


Macroeconomic Competitiveness

Microeconomic Competitiveness

Sophisticationof Company

Operations andStrategy

Quality of the NationalBusiness

Environment

MacroeconomicPolicies

SocialInfrastructure and PoliticalInstitutions

State of Cluster Development

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

Causes of Competitiveness

Natural Endowments



• Basic human capacity– Education– Health

• Safety and security

• Political institutions

• Rule of law

• Fiscal policy

• Monetary policy

Social Infrastructure and Political Institutions

Macroeconomic Policies


Croatia’s CompetitivenessProgress on the Competitiveness Index

2007 2008Estimated Ranking: New Global Competitiveness Index 63 63

Macroeconomic Competitiveness 67 68

Social Infrastructure and Political Institutions 58 59Macroeconomic Policy 91 84

Microeconomic Competitiveness 60 69

GDP Per Capita Rank (ppp-adjusted) 48 48

Note: Rank versus 130 countries; overall, Croatia ranks 48th in 2008 PPP adjusted GDP per capita and 63rd in Global CompetitivenessSource: Institute for Strategy and Competitiveness, Harvard University (2009)


DENMARK

NETHERLANDS

AUSTRIAIR

ELAND

UNITED KIN

GDOMGERMANY

UNITED STA

TESPORTU

GALCYPRUS

SPAINSLO

VENIA

CZECH R

EPUBLICSLO

VAKIALA

TVIA

LITHUANIAGREECEPOLA

NDCROATIABULG

ARIAROMANIA

BRAZILIN

DIACHIN

ARUSSIA

Voice and AccountabilityPolitical StabilityGovernment EffectivenessRegulatory 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 country’s average value across all indicators.Source: World Bank (2008)

Worstcountry in the world

Index of Governance

Quality,2006

Best country in the world


-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 in Global

CorruptionIndex,2007

91

1ImprovingDeteriorating

Highcorruption

Lowcorruption

Finland

Canada

Bangladesh

Indonesia

Ireland

Portugal

Egypt

Iceland

Czech Republic

SlovakiaSouth Korea

Latvia

India

Slovenia

Thailand

Switzerland

France

Romania

Turkey

Estonia

Austria GermanyJapan

Vietnam

China

NorwayUK

MalaysiaLithuania

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

Zimbabwe Cote d’Ivoire NigeriaPakistan

GreeceJordan

Ukraine

Panama



• Croatia has a solid position in terms of basic human development indicators, in line with many other former Communist countries

• Croatia has made some progress on macroeconomic policy indicators, but the current global crisis will test the sustainability of these improvements

– Croatia has been running high current account deficits for the last decade

• Croatia remains a regional laggard in terms of political and legal institutional quality and there are few signs of fundamental improvements

• Croatia’s government is much too big• Croatia has much work to do to improve its macroeconomic

competitiveness, especially its institutions


Croatia’s PositionMicroeconomic Competitiveness

2007 2008

Estimated Microeconomic Competitiveness Index 60 69

National Business Environment 63 69

Company Operations and Strategy 58 64



Microeconomic Competitiveness: Quality of the Business Environment

Context for Firm

Strategy and Rivalry

Context for Firm

Strategy and Rivalry

Related and Supporting Industries


Factor(Input)

Conditions

Factor(Input)

ConditionsDemand

ConditionsDemand

Conditions

Sophistication of local customers and needs

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

– Consumer protection laws

• Many things matter for competitiveness• Successful economic development is a process of successive upgrading, in which the

business environment improves to enable increasingly sophisticated ways of competing

Local rules and incentives that encourage investment and productivity

– e.g. salaries, incentives for capital investments, intellectual property protection, corporate governance standards

Vigorous local competition– Openness to foreign competition– Competition laws

Access to high quality business inputs

– Natural endowments– Human resources– Capital availability– Physical infrastructure– Administrative and information

infrastructure (e.g. registration, permitting, transparency)

– Scientific and technological infrastructure

Availability of suppliers and supporting industries


Mobile telephone subscribers per 100 26 populationTelephone lines per 100 population 30Quality of roads 30Quality of math and science education 35Internet users per 100 population 35Utility patents per million population 36Ease of starting a new business 42Personal computers per 100 population 43Quality of telephone infrastructure 44Quality of electricity supply 44Quality of railroad infrastructure 44Number of procedures required to start a 44 businessQuality of scientific research institutions 47

Competitive Disadvantages Relative to GDP per Capita

Competitive Advantages Relative to GDP per Capita

Protection of minority shareholders’ 101 interestsBurden of government regulation 97Time required to start a business 91Venture capital availability 87Quality of port infrastructure 84Quality of air transport infrastructure 83Ease of access to loans 81Brain drain 80Quality of management schools 76Regulation of securities exchanges 74Financial market sophistication 71Burden of customs procedures 63Quality of the educational system 62Demand conditions 61Soundness of banks 60University-industry research collaboration 51Tertiary enrollment 49

Factor (Input) ConditionsCroatia’s Relative Position 2008

Factor(Input)

Conditions

Factor(Input)

Conditions

Change up/down of more than 5 ranks since 2007



Context for Strategy and RivalryCroatia’s Relative Position 2008

Low Tariff rates 34



Business impact of rules on FDI 114Cooperation in labor-employer relations 110Low market disruption from state-owned 110 enterprisesImpact of taxation on incentives to work and 103 investRigidity of employment 102Effectiveness of antitrust policy 98Extent of market dominance by business 98 groupsEfficacy of corporate boards 98Strength of investor protection 95Pay and productivity 88Distortive effect of taxes and subsidies on 80 competitionRestrictions on capital flows 76Strength of auditing and reporting standards 76Prevalence of trade barriers 73Intensity of local competition 71Intellectual property protection 68Regulatory quality 54

Context for Firm Strategy

and Rivalry

Context for Firm Strategy

and Rivalry



• On some indicators, Croatia is ranked at the level of some African countries


0

20

40

60

80

100

120

140

160

180

Ease ofDoing

Business

PayingTaxes

EnforcingContracts

GettingCredit

Closing aBusiness

TradingAcrossBorders

RegisteringProperty

Starting aBusiness

ProtectingInvestors

EmployingWorkers

Dealingwith

Licenses

Doing Business IndicatorsRanking, 2009

(of 181 countries)

* Central European EU countries include: Austria, Bulgaria, the Czech Republic, Estonia, Greece, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, Slovenia Source: World Bank Report, Doing Business (2009)

Favorable Unfavorable

Median Ranking, Central EU countries*

Croatia’s per capita GDP rank: 46


Demand ConditionsCroatia’s Relative Position 2008



Demand ConditionsDemand

Conditions

Buyer sophistication 92

Government success in ICT promotion 76

Government procurement of advanced 68 technology products

Presence of demanding regulatory 67 standards

Stringency of environmental regulations 54




Croatia’s Business Environment QualityOverview

• Basic factor conditions are relatively strong but weaknesses exist in more advanced dimensions

– Relative strength in road transportation and communications infrastructure as well as fundamental innovative capacity

– Relative strength in primary and secondary education– Relative weakness in financial market sophistication– Relative weakness in port and airport infrastructure

• Business rules and regulations remain cumbersome and distortive– Problematic labor relations– Local market still dominated by entrenched domestic business groups– Rules and regulations for foreign direct investors are cumbersome


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

PropertyServicesPropertyServices

MaintenanceServices

MaintenanceServices

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

FoodSuppliers

FoodSuppliers

Public Relations & Market Research

Services

Public Relations & Market Research

Services

Local retail, health care, andother services

Local retail, health care, andother services

Souvenirs, Duty Free

Souvenirs, Duty Free

Banks,Foreign

Exchange

Banks,Foreign

Exchange

Local Transportation

Local Transportation

Competitiveness and Cluster DevelopmentTourism Cluster in Cairns, Australia


$0

$300,000

$600,000

$900,000

$1,200,000

$1,500,000

$1,800,000

$2,100,000

$2,400,000

$2,700,000

1988 1990 1992 1994 1996 1998 2000 2002 2004 20060.0%

2.0%

4.0%

6.0%

8.0%

10.0%ValueMarket Share

The Australian Wine ClusterTrade Performance

Australian Wine Exports in thousand US $

Australian Wine World Export Market

Share

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


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 RoseworthyAgricultural College

1950s

Import of European winery technology

1960s

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

1990s

Surge in exports and international acquisitions

1980s

Creation of large number of new wineries

1970s

Continued inflow of foreign capital and management

1990

Winemaker’s Federation of Australia established

1991 to 1998

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

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


The Evolution of Regional EconomiesSan Diego

U.S. Military

U.S. Military

CommunicationsEquipment

Sporting andLeather Goods

Analytical Instruments

Power GenerationAerospace Vehicles

and Defense

Transportationand Logistics

Information Technology

19101910 19301930 19501950 1990199019701970

Bioscience Research Centers

Bioscience Bioscience Research Research CentersCenters

Climate and

Geography

Climate and

Geography

Hospitality and Tourism

Medical Devices

Biotech / Pharmaceuticals

Education andKnowledge Creation


Related and Supporting IndustriesCroatia’s Relative Position 2008





State of cluster development 105

Extent of collaboration in clusters 98

Local supplier quantity 88

Supporting and related industries and 77 clusters

Local supplier quality 72

Local availability of process machinery 61




0.0%

0.1%

0.2%

0.3%

0.4%

0.5%

-0.2% -0.1% 0.0% 0.1% 0.2% 0.3% 0.4% 0.5% 0.6%

National Cluster Export PortfolioCroatia, 1997 to 2007

Change in Croatia’s world export market share, 1997 to 2007Source: Prof. Michael E. Porter, International Cluster Competitiveness Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. Underlying data drawn from the UN Commodity Trade Statistics Database and the IMF BOP statistics.

Cro

atia

’s w

orld

exp

ort m

arke

t sha

re, 2

007

Change In Croatia’s Overall World Export Share: 0.029%

Croatia’s Average World Export Share: 0.16%

Exports of US$1.5 Billion =

Hospitality and Tourism (1.11%)

Automotive

Processed Foods

Business Services

Transportation and Logistics

Biopharmaceuticals Production Technology

Chemical Products

Oil and Gas

Marine Equipment (0.85% ,1.26%)

Fishing and Fishing Related Products

Information Technology

Plastics

Prefabricated Enclosures and Structures

Construction Services

Power and Power Generation Equipment

Agriculture Products

Communication Services

Construction Materials

Financial Services

Light and Elec. Equipment

Heavy Machinery

Analytical Instruments

Publishing and Printing

Entertainment

Jewelry, Precious Metals and CollectiblesCommunications EquipmentMetal, Mining and Manufacturing

Apparel

Furniture

Footwear (-0.34%)

Leather and Related Products

Forest Products

Building Fixtures and Equipment

Tobacco


Croatian Maritime Cluster

Sources: Harvard Microeconomics of Competitiveness student team research (2009) - Jetemir Balaj, Neil McCullagh, Mirela Mrvelj, Peder Plaz, Malgorzata Steiner

Related Clusters:Automotive / Metal

Processing

ShipbuildingShipbuilding

6 companies~ 20 ships p.a.

11’000 employeesValue added: USD

750 million p.a.

BoatbuildingBoatbuilding

~ 70 companies(commercial, yachts,

“nutshell”)Value added: USD 80

million p.a.

Specialized Suppliers6’500 employees

Supporting Industries1’800 companies / 26’000

employees

Worldwide Shipping and Logistics

Industry

Industry Associations

• Brodarski Institut• Boatbuilding Association at Croatian

Chamber of Commerce• Association of Boat Equipment

Producers at Croatian Chamber of Commerce

• Shipbuilding Cluster at Croatian Employers Association.

UniversitiesUniversities

• University of Engineering and Boatbuilding, Zagreb

• University of Boatbuilding, Split

Government Agencies

• Ministry of Economy, Labor and Entrepreneurship

• Ministry of Sea, Tourism and Transport

• Croatian Privatization Fund

Related Cluster:Adriatic Tourism

Yacht Retail (Europe)

Local Transport Industry (Ferries)

Engines

Technical Equipment

PlasticsPlastics

Design / Archit.

Fittings

MetalMetal

Coatings R&D

Trade Unions

•• Association of Metal Association of Metal WorkersWorkers

•• Association of Association of Workers Trade Workers Trade Unions of CroatiaUnions of Croatia

•• Croatian Trade Union Croatian Trade Union AssociationAssociation

•• ......


Shipbuilding Cluster ProductivitySelect European Countries


Croatian Clusters

• Croatia’s clusters have developed naturally and reflect the strengths of legacy and location but also the challenges of the current business environment conditions

• Clusters provide an important perspective to understand the issues facing the Croatian economy

• Cluster-level competitiveness efforts are less politicized and enable action on more tractable issues related to productivity

• Cluster efforts are an opportunity to engage in a new model of public-private dialogue and cooperation

• Clusters are so far an unexploited dimension of economic policy that Croatia can ill-afford to neglect


ClustersClusters

Physical Infrastructure

Natural Resource Protection

Environmental Stewardship

Science and TechnologyInvestments (e.g., centers, university departments, technology transfer)

Education and Workforce Training

Business Attraction

Export Promotion

• Clusters provide a framework for implementing public policy and organizing public-private collaboration to enhance competitiveness

Standard setting and quality initiatives

Market Information and Disclosure

Management Training

Cluster-Based Policy Implementation


Geographic Levels and Competitiveness

Broad Economic Areas

Groups of Neighboring Nations

States, Provinces

Metropolitan and Rural Areas

Nations

World Economy

Europe

Southeast Europe

Croatia

Regions

Zagreb

WTO


Specialization by Traded ClustersSelected U.S. Economic Areas, 2006

Boston, MA-NHAnalytical Instruments Education and Knowledge CreationMedical DevicesFinancial Services

Boston, MA-NHAnalytical Instruments Education and Knowledge CreationMedical DevicesFinancial Services

Los Angeles, CAEntertainmentApparelDistribution ServicesHospitality and Tourism

Los Angeles, CAEntertainmentApparelDistribution ServicesHospitality and Tourism

San Jose-San Francisco, CABusiness ServicesAgricultural ProductsCommunications EquipmentBiopharmaceuticals

San Jose-San Francisco, CABusiness ServicesAgricultural ProductsCommunications EquipmentBiopharmaceuticals

New York, NY-NJ-CT-PAFinancial ServicesBiopharmaceuticalsApparelPublishing and Printing

New York, NY-NJ-CT-PAFinancial ServicesBiopharmaceuticalsApparelPublishing and Printing

Seattle, WAAerspoace Vehicles and DefenseInformation TechnologyEntertainmentFinancial Services

Seattle, WAAerspoace Vehicles and DefenseInformation TechnologyEntertainmentFinancial Services

San Diego, CAAnalytical InstrumentsHospitality and TourismMedical DevicesEducation and Knowledge Creation

San Diego, CAAnalytical InstrumentsHospitality and TourismMedical DevicesEducation and Knowledge Creation

Chicago, IL-IN-WIMetal ManufacturingBiopharmaceuticalsChemical ProductsLighting and Electrical Equipment

Chicago, IL-IN-WIMetal ManufacturingBiopharmaceuticalsChemical ProductsLighting and Electrical Equipment

Pittsburgh, PAEducation and Knowledge CreationMetal ManufacturingChemical ProductsLighting and Electrical Equipment

Pittsburgh, PAEducation and Knowledge CreationMetal ManufacturingChemical ProductsLighting and Electrical Equipment

Denver, COEntertainmentMedical DevicesOil and Gas Products and ServicesHospitality and Tourism

Denver, COEntertainmentMedical DevicesOil and Gas Products and ServicesHospitality and Tourism

Raleigh-Durham, NCEducation and Knowledge CreationBiopharmaceuticalsCommunications EquipmentMotor Driven Products

Raleigh-Durham, NCEducation and Knowledge CreationBiopharmaceuticalsCommunications EquipmentMotor Driven Products

Atlanta, GATransportation and LogisticsTextilesConstruction MaterialsPlastics

Atlanta, GATransportation and LogisticsTextilesConstruction MaterialsPlastics

DallasAerospace Vehicles and DefenseOil and Gas Products and ServicesInformation TechnologyTransportation and Logistics

DallasAerospace Vehicles and DefenseOil and Gas Products and ServicesInformation TechnologyTransportation and Logistics

Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director.

Houston, TXOil and Gas Products and ServicesChemical ProductsHeavy Construction ServicesTransportation and Logistics

Houston, TXOil and Gas Products and ServicesChemical ProductsHeavy Construction ServicesTransportation and Logistics


Croatian Counties


$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

8% 9% 10% 11% 12% 13% 14% 15%

Prosperity PerformanceCroatian Counties

GDP per Capita, 2008 (€)

Growth of GDP per Capita (€), CAGR, 2005 to 2008

Croatia Average: 10.13%

Source: Croatia Central Bank, Croatia Statistical Institute

Croatia Average: $9,400

Sibenik-Knin

Zagreb (city)

Vukovar-Srijem

Split-Dalmatia

Istria

Osijek-Baranja

Sisak-MoslavinaKarlovac

Primorje-Gorski Kotar

Bjelovar-Bilogora

Zagreb (county)

Koprivnica-KrizevciVarazdin

MedjimurjeKrapina-Zagorje

Dubrovnik-NeretvaZadar

Brod-Posavina

Pozega-SlavoniaVirovitica-Podravina

Lika-Senj


The NeighborhoodSoutheastern Europe

• Economic coordination among neighboring countries can significantly enhance competitiveness


Croatia’s Competitiveness Challenge

• Croatia’s recent economic growth has been driven by natural catch-upfollowing integration into the European and global economy

• Process can only be sustained if Croatia is able to continuously upgrade its competitiveness

• EU accession is an important opportunity, but the benefits will depend on reforms by Croatia to address its own competitiveness challenges

Key Challenges• There are numerous weaknesses in the Croatian business environment• The vitality of competition remains weak as a consequence of policy choices

and a relatively isolated domestic market• Clusters are present in the Croatian economy (e.g. tourism), but they have not

been used as an effective policy tool• The institutional weaknesses of the country have been a key barrier to

achieve sustain improvements• Croatian regions have not been challenged and enabled to contribute to

competitiveness improvements


Croatia’s Competitiveness AgendaSome Action Priorities

• Address corruption and weaknesses in political and legal institutions

• Ensure the sustainability of public finances

• Reform the rules and regulations for business

• Open up local markets to competition

• Create attractive conditions for foreign investors

• Strengthen the higher education system, financial markets, and airport/port infrastructure

• Use clusters as an organizing principle for upgrading workforce skills, infrastructure, and FDI attraction

• Support Croatian regions in their competitiveness efforts

• Strengthen economic cooperation in South-East Europe


The Process of Economic DevelopmentShifting 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 the private sector, government at multiple levels, universities, labor, and civil society

• Economic development is a collaborative process involving the private sector, government at multiple levels, universities, labor, and civil society

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

• Every community and cluster can take steps to enhance competitiveness• The private sector must become more engaged in competitiveness to

improve rapidly


National Economic StrategyNational Economic Strategy

Defining a Croatian Economic Strategy

Developing Unique StrengthsDeveloping Unique Strengths Achieving and Maintaining Parity with Peers

Achieving and Maintaining Parity with Peers

• What are the key potential strengths that Croatia must preserve or build?

• What weaknesses must be neutralized to achieve parity with peer countries?

• What can be the unique competitive position of Croatia given its location, legacy, endowments, and potential strengths?

– What is its unique value as a business location?– What role can it play with neighbors?– In what range of clusters does the nation excel?

• The private sector must lead the process of competitiveness improvement and provide continuity and accountability


The Croatian Competitiveness Paradox

• Croatia has institutions like the National Competitiveness Councildesigned to guide competitiveness upgrading

• Croatia has sensible plans that identify the weaknesses the country needs to address

BUT

• Croatia has made limited if any progress on upgrading its competitiveness in recent years

• Government is preoccupied with short-term crises and EU acsencion


The Moment For Action

• The struggle for independence, the war with Serbia, and the path to political normality after the war have shifted political focus away from competitiveness

• Economic growth due to a natural catch-up has been sufficiently good so that there has not been pressure for real reform

• EU membership has been seen as the automatic path to competitiveness, requiring no further action within the country

• Entrenched interest groups in the political and economic sphere have paid lip service to competitiveness but have been unwilling to engage in real reforms that threaten the status quo

• Leaders in business and government must launch a new chapter in Croatia’s economy if the country is to hold its gains, much less see further standard of living improvements

competitiveness for the third millennium: implications for ... files... · 5/15/2009 · this...

Documents