Competitiveness: Creating a Mongolian Economic Strategy

1GCR South Africa 062007.ppt

Copyright © 2007 Professor Michael E. Porter

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.eduVersion: July 21, 2008, 4pm

Competitiveness: Creating a Mongolian Economic Strategy

Professor Michael E. PorterInstitute for Strategy and Competitiveness

Harvard Business School

July, 2008

http://www.isc.hbs.edu/

2 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master - 2008-05-22.ppt

$0

$4,000

$8,000

$12,000

$16,000

$20,000

$24,000

$28,000

-3.0% -1.5% 0.0% 1.5% 3.0% 4.5% 6.0% 7.5% 9.0%

Prosperity PerformanceSelected Middle- and Lower-Income Countries

PPP-adjusted GDP per Capita, 2007

Growth of Real GDP per Capita (PPP-adjusted), CAGR, 1998-2007Source: EIU (2008), authors calculations. Mongolia data for 1998-2006, from World Development Indicators

United Arab Emirates

China

Vietnam

Poland

Russia

Saudi Arabia

TurkeyThailand

ChileCroatia

Philippines

Mexico

Brazil

India

Iran

Indonesia

Argentina Malaysia

South AfricaRomania

Lithuania

Ukraine

Cambodia

Sri Lanka

Togo

Venezuela

Bangladesh

Egypt

Cote d’Ivoire

Dominican Republic

Tunisia

Libya

Costa Rica

Colombia

El Salvador

Portugal

Czech RepublicCyprus

Estonia

Latvia

HungarySlovakia

Kenya

Slovenia

South Korea

Senegal

Botswana

Laos

Ghana

Jordan

Belize

Uruguay

NigeriaPakistan

SyriaPapua New Guinea

Madagascar

Georgia

Oman

Rwanda

Ecuador Algeria

Mongolia

Azerbaijan (14.9%)

Turkmenistan

UzbekistanKyrgyz Rep.

Kazakhstan


Mongolia’s Competitive Position in 2008

• Mongolia has experienced fast GDP growth since 2000, reaping the benefits of earlier reforms and benevolent external conditions

However

• Growth is narrowly based on few sectors of the economy and driven by external factors, i.e. world prices of natural resource

• The macroeconomic challenges of fast growth are not under control with inflation at high and rising levels

• Political pressure to move focus from economic reforms towards the distribution of windfall gains from exports

• Mongolia needs a new focus on upgrading competitiveness


What is Competitiveness?

• 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) that a country can sustain

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


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 more and more valuable products and services with rising efficiency

• Prosperity is unlimited

• Companies are the central actors in the economy

– Prosperity can only be created byfirms

• Government’s role is to create the enabling conditions for productivityand foster private sector development

• Prosperity is derived from creating more and more valuable products and services with rising efficiency

• Prosperity is unlimited

• Companies are the central actors in the economy

– Prosperity can only be created byfirms

• Government’s role is to create the enabling conditions for productivityand foster private sector development


Mongolia’s Export Share Trends

0.00%

0.01%

0.02%

0.03%

0.04%

0.05%

0.06%

0.07%

0.08%

1996 1998 2000 2002 2004 2006

Processed GoodsSemi-processed GoodsUnprocessed GoodsServicesTOTAL

Source: WTO (2008)

World Export Market Share (current USD)

7GCR South Africa 062007.ppt

Copyright © 2007 Professor Michael E. Porter

Inward Foreign Investment FlowsMongolia, 1991 - 2006

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

$200

1991 1994 1997 2000 2003 2006Note: Data not available for 1994.Source: UNCTAD (2007)

Inward FDI (USD, millions)


Foreign Direct InvestmentBy Industry Destination, 2006

Source: Annual Report, 2006), Mongolia Central Bank (2008)


Macroeconomic Competitiveness

Microeconomic Competitiveness

Sophisticationof Company

Operations andStrategy

Quality of the NationalBusiness

Environment

MacroeconomicPolicies

SocialInfrastructure and PoliticalInstitutions

State of Cluster Development

• Macroeconomic competitiveness creates the potential for high productivity, but is not sufficient

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

Determinants of Competitiveness

Endowments



• Basic human capacity– Education– Health

• Safety and security

• Political institutions

• Rule of law

• Fiscal policy

• Monetary policy

• Economic openness

Social Infrastructure and Political Institutions

Macroeconomic Policies

11 Copyright 2008 © , M. Porter

Corruption Perception IndexCentral Asian Countries

0

20

40

60

80

100

120

140

160

180

China

Georgi

a

Mongo

lia

Russia

Kazak

hstan

Kyrgyz

stan

Azerba

ijan

Tajikis

tanTurk

menist

anUzb

ekist

an

2005 CPI Rank2006 CPI Rank2007 CPI Rank

Ranking (constant sample, 158 countries)

Note: Ranks only available starting in 2005 for all 5 countries Source: Global Corruption Report, 2007

12 Copyright 2008 © , M. Porter

0

20

40

60

80

100

120

140

160

Kazakh

stan

Bulgari

aRomaniaArm

enia

Ukraine

Mongoli

a

Kyrgyz

Rep

ublic

Turkmen

istan

Azerba

ijan

Tajikis

tanTha

iland

Indon

esia

Burma

ChinaSri L

anka

Uzbek

istan

Korea,

South

Pakist

an Viet

nam Iran

Laos

Cambodia

India

Russia

Bangla

desh

Openness to Trade

Selected Countries, 2008Rank (157 countries)

Source: Index of Economic Freedom (2008), Heritage Foundation


Business ComptitivenessIndex

Company Operations &Strategy

National BusinessEnvironment

20062007

Microeconomic CompetitivenessMongolia’s Position over Time

Rank

101

95

97

99

96

98

100

Note: Rank versus 111 countries; overall, Mongolia ranks 90th in 2007 PPP adjusted GDP per capita and 99th in Business Competitiveness.Source: Institute for Strategy and Competitiveness, Harvard University (2007), Mongolia GDP from the World Bank


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

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

Availability of suppliers and supporting industries

Sophistication of local customers and needs

–Strict quality, safety, and environmental standards

• 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

Vigorous local competition– Openness to foreign and local

competition


0

25

50

75

100

125

150

175

Ease ofDoing

BusinessRank

RegisteringProperty

ProtectingInvestors

EnforcingContracts

Dealingwith

Licenses

Starting aBusiness

EmployingWorkers

GettingCredit

PayingTaxes

Closing aBusiness

TradingAcrossBorders

Ease of Doing BusinessMongolia, 2007

Ranking, 2007 (of 178 countries) Favorable

Source: World Bank Report, Doing Business (2008)

Unfavorable

Mongolia’s per capita GDP rank: 127

Median Ranking, East Asia and Pacific


Availability of scientists and engineers 46

Quality of math and science education 58

Railroad infrastructure development 64

Business costs of corruption 67

Cooperation in labor-employer relations 68

Freedom from corruption 72

University/industry research collaboration 74

Local equity market access 79

Quality of scientific research institutions 81

Quality of public schools 88

Competitive Advantages Relative to GDP per Capita

Competitive Disadvantages Relative to GDP per Capita

Port infrastructure quality 110Ease of access to loans 110Venture capital availability 110Overall infrastructure quality 109Air transport infrastructure quality 107Quality of management schools 107Efficiency of legal framework 99Quality of electricity supply 97Telephone/fax infrastructure quality 96Reliability of police services 96Judicial independence 96Laws relating to ICT 95Financial market sophistication 94

Factor (Input) ConditionsMongolia’s Relative Position 2007

Factor(Input)

Conditions

Factor(Input)

Conditions

Change up/down of more than 5/10 ranks since 2006



Context for Strategy and RivalryMongolia's Relative Position 2007


Property rights 108

Prevalence of trade barriers 108

Decentralization of corporate activity 107

Intellectual property protection 103

Favoritism in decisions of government 101 officials


Context for Firm Strategy and Rivalry

Context for Firm Strategy and Rivalry




Demand ConditionsMongolia's Relative Position 2007



Demand ConditionsDemand

Conditions


Stringency of environmental regulations 111

Presence of demanding regulatory 101 standards

Government procurement of advanced 90 technology products



Related and Supporting IndustriesMongolia's Relative Position 2007





Local availability of specialized research 78 and training services


Local supplier quantity 110

Local supplier quality 109

Local availability of process machinery 100



BCI Value, 2007

High

Low

Below average Above averageAverage

Dynamism Score, 2006 - 2007

Rate of Competitiveness ImprovementLow Income Countries, 2006 - 2007

Note, dynamism score uses moving average, using data from 2005 –2007. Source: Global Competitiveness Report 2007

Benin

Zimbabwe

UgandaTanzania

Honduras

Indonesia

Sri Lanka

Bolivia

Mali

Kenya

Pakistan

Nicaragua

India

Bangladesh

Paraguay

El Salvador

Chad

Mozambique

Madagascar

Nigeria Vietnam Gambia

Ethiopia

Cameroon

MoldovaMongolia

Tajikistan

Kyrgyz Rep.

Georgia

Cambodia


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

Microeconomic Competitiveness: State of Cluster DevelopmentTourism Cluster in Cairns, Australia


$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

1990 1992 1994 1996 1998 2000 2002 2004 20060.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

ValueMarket Share

The Kenyan Cut Flower ClusterTrade Performance

Kenyan Cut FlowerExports in thousand US $

Kenyan Cut FlowerWorld Export Market Share

Source: 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.


Kenya’s Cut Flower Cluster

Sources: Student team research by Kusi Hornberger, Nick Ndiritu, Lalo Ponce-Brito, Melesse Tashu, and Tijan Watt, Microeconomics of Competitiveness Course, 2007


Process of Cluster DevelopmentThe Australian Wine Cluster

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

1960s

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

1950s

Import of European winery technology

1990s 2005

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 Present

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


0.00%

0.02%

0.04%

0.06%

0.08%

0.10%

-0.03% -0.02% -0.01% 0.00% 0.01% 0.02% 0.03% 0.04% 0.05% 0.06% 0.07% 0.08% 0.09% 0.10%

National Cluster Export PortfolioMongolia, 1997-2006

Change in Mongolia’s world export market share, 1997 – 2006Source: 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.

Mon

golia

’s w

orld

exp

ort m

arke

t sha

re, 2

006

Change In Mongolia’s Overall

World Export Share: 0.00748%

Mongolia’s Average World Export Share: 0.0158%

Exports of US$160 Million =

Hospitality and Tourism

Agricultural Products

Transportation and Logistics

Chemical Products

TextilesLeather and Related Products

Furniture

Metal Mining and Manufacturing

Apparel

Jewelry, Precious Metals and Collectibles (+0.118%, +0.118%)

Communication Services

Coal and Briquettes


0.0000%

0.0005%

0.0010%

0.0015%

0.0020%

0.0025%

0.0030%

0.0035%

0.0040%

-0.004% -0.003% -0.002% -0.001% 0.000% 0.001% 0.002% 0.003% 0.004%

National Cluster Export PortfolioMongolia, 1997-2006

Change in Mongolia’s world export market share, 1997 – 2006Source: 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.

Mon

golia

’s w

orld

exp

ort m

arke

t sha

re, 2

006

Exports of US$6.6 Million =

Automotive

Motor Driven Products

Oil and Gas

PlasticsAnalytical Instruments

Prefabricated Enclosures and Structures

Information Technology

Financial Services

Production Technology

Heavy Machinery

Footwear

Forest Products

Sporting, Recreational and Children's Goods

Communications Equipment

Aerospace Vehicles and Defense

Lighting and Electrical Equipment

Business Services

Tobacco Publishing and Printing

Entertainment

Communication Services


0.000%

0.005%

0.010%

0.015%

0.020%

0.025%

0.030%

-0.008% -0.006% -0.004% -0.002% 0.000% 0.002% 0.004% 0.006% 0.008%

Change in Subcluster’s share of World Exports, 1997 – 2006

Subc

lust

er’s

sha

re o

f Wor

ld e

xpor

ts, 2

006

Mongolia Exports by SubclusterAgriculture, 1997 - 2006

Plants and Flowers

Vegetables and Fruits

Specialty Agricultural Products

Agriculture Subcluster Overall Export Share: +0.008%

Overall change in the Agriculture Subcluster World

Export Share : -0.005%

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

Meat and Related Products

Oils and Fats

Exports of US$6.5 million =

Sugars and Molasses

Spirits and Misc. Fermented Beverages

Feeding Materials


FurnitureBuilding Fixtures,

Equipment & Services

Fishing & Fishing Products Hospitality

& TourismAgricultural

ProductsTransportation

& Logistics

Creating CompetitivenessLinkages Across Clusters

Plastics

Oil & Gas

Chemical Products

Biopharma-ceuticals

Power Generation

Aerospace Vehicles &

Defense

Lightning & ElectricalEquipment

Financial Services

Publishing & Printing

Entertainment

Information Tech.

Communi-cations

Equipment

Aerospace Engines

Business Services

DistributionServices

Forest Products

Heavy Construction

Services

ConstructionMaterials

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.


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


• Competitiveness requires that local companies upgrade the quality of the value chain

Microeconomic Competitiveness: Company Sophistication

SupportActivities

Marketing& Sales

(e.g. Sales Force,

Promotion, Advertising,

Proposal Writing, Web

site)

InboundLogistics

(e.g. Incoming Material

Storage, Data Collection,

Service, Customer Access)

Operations

(e.g. Assembly, Component Fabrication,

Branch Operations)

OutboundLogistics

(e.g. Order Processing,

Warehousing, Report

Preparation)

After-Sales Service

(e.g. Installation, Customer Support,

Complaint Resolution,

Repair)

Ma

rg

in

Primary Activities

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

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

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

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

Value

What buyers are willing to pay


Company SophisticationRelative Position of Mongolian Companies, 2007

Value chain presence 111Breadth of international markets 108Reliance on professional management 106Control of international distribution 105Extent of marketing 101Degree of customer orientation 100Extent of incentive compensation 97Willingness to delegate authority 96Extent of regional sales 94Prevalence of foreign technology 94 licensing





Nature of competitive advantage 75Production process sophistication 80Company spending on research and 83 developmentExtent of staff training 84


Geographic Influences on Competitiveness

Broad Economic AreasBroad Economic Areas

Groups of Neighboring Nations


States, ProvincesStates, Provinces

Metropolitan AreasMetropolitan Areas

NationNation

World EconomyWorld Economy

Rural AreasRural Areas

Sub-National Economies


Specialization of Regional EconomiesSelected 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

HoustonOil and Gas Products and ServicesChemical ProductsHeavy Construction Services

HoustonOil and Gas Products and ServicesChemical ProductsHeavy Construction Services

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 employment.Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School, 11/2006.


Mongolia’s Provinces (Aimags)


Geographic Influences on Competitiveness

Broad Economic AreasBroad Economic Areas



States, ProvincesStates, Provinces

Metropolitan AreasMetropolitan Areas

NationNation

World EconomyWorld Economy

Rural AreasRural Areas

The Neighborhood


The NeighborhoodNortheast Asia

• Economic coordination among neighboring countries can significantly enhance competitiveness• Integration offers greater opportunities than participation in broader economic forums (e.g., APEC)

37 Copyright 2008 © , M. PorterEast African Business Summit – final.ppt

Regional Economic Strategy• Defining a strategic role for the region in the continent and the world

economy• Opening internal trade and investment• Achieving synergies in enhancing the business environment• Facilitating cross-border cluster development• Enhancing company capabilities and non-traditional exports

• Raising productivity• Increasing the attractiveness of the region as a whole for foreign investment• Winning greater support from the international community• Accelerating economic policy at the national level

But

• Cross-national collaboration is not a substitute for national microeconomic reforms


• Eliminating trade and investment barriers within the region

• Simplifying and harmonizing cross-borderregulations and paperwork

• Coordinatinganti-monopoly and fair competition policies

• Harmonizing environmental standards

• Harmonizing product safetystandards

• Establishing reciprocal consumerprotection laws

• Opening governmentprocurementwithin the region

• Improving regional transportationinfrastructure

• Creating an efficient energynetwork

• Enhancing regional communicationsand connectivity

• Linking financialmarkets

• Opening the movement of students for higher education

• Harmonizing administrative requirements for businesses

• Facilitating cross-bordercluster upgrading, e.g.

– Tourism

– Agribusiness

– Transport & Logistics

– Business services

• Creating a regional strategy and marketing program

• Sharing bestpractices in government operations

• Creating regional institutions

– Dispute resolution mechanisms

– Regional development bank

• Developing a regional position with international organizations

Factor (Input)

Conditions

Factor Factor (Input)(Input)

ConditionsConditions

Regional Strategy & Governance

Regional Strategy & Governance

Context for Strategy

and Rivalry

Context for Context for Strategy Strategy

and Rivalryand Rivalry



Demand ConditionsDemand Demand

ConditionsConditions

Economic Coordination Among NeighborsCapturing Synergies



• Coordinating programs to improve publicsafety

• Coordinating macro-economicpolicies


Roads

AirportsPorts

Logistic Corridor

Strategy for Cross-National RegionsCentral American Logistical Corridor

Mexico

Belize

Honduras

El SalvadorNicaragua

Costa Rica Panama

Guatemala

Country Boundary


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 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 bottom-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


Role of the Private Sector in Economic Development

• A company’s competitive advantage depends partly on the quality of the business environment

• A company gains advantages from being part of a cluster• Companies have a strong role to play in upgrading their business environment

• Take an active role in upgrading the local infrastructure• Nurture local suppliers and attract foreign suppliers • Work closely with local educational and research institutions, to upgrade

their quality and create specialized programs addressing the cluster’s needs

• Inform government 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 if many companies are united– Cost sharing between members


National Value PropositionNational Value Proposition

Defining an Economic Strategy

Developing Unique StrengthsDeveloping Unique Strengths Achieving and Maintaining Parity with Peers

Achieving and Maintaining Parity with Peers

• What elements of macroeconomic competitiveness and the business environment are crucial priorities?

• What existing and emerging clustersshould be developed first?

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

• What is the unique competitive position of the nation or region given its location, legacy, and existing and potential strengths?

– What roles with neighbors, the region, and the broader world?– What unique value as a business location?– For what types of activities and clusters?

• Priorities and sequencing are necessity in economic development


Some ImplicationsWhat is Unique about Rwanda?

• Low corruption• Stable• Secure and safe• Clean• Responsive• Integrated economic and social

development• Unique climate and growing conditions• Central location on the African

continent• Established positions in tea, coffee,

tourism• Opportunity to lead the region in ICT

and services• Social innovator in health, education,

reconciliation, gender equality, and other areas

• Disproportionate external interest in the country

• Rwanda must maintain stability, safety, orderliness, and lack of corruption at all costs

• Rwanda must accelerate improvement of skills and business infrastructure, managerial skills, ease of doing business

• Kigali must become a vibrant capital city• Rwanda should seize the opportunity to

transform agriculture• Rwanda is unlikely to be competitive in

exporting bulky goods with low value-to-weight

• Rwanda should develop air freightable goods and services exports to nullify its logistical disadvantages– eg, silk, flowers

• Rwanda in inextricably linked with its neighbors

Toward A Rwandan Economic Strategy

• A new model of African development


Rwanda’s Competitiveness Agenda

Business EnvironmentBusiness Environment

• Land use• Physical infrastructure

– Airport / air service– Connectivity– Economic zones

• Energy– Renewable

• Skills development• Build towns and increase urbanization

outside of Kigali• Institutional capacity building• Improve government efficiency and cross

agency coordination

Cluster DevelopmentCluster Development

• Activate a formal cluster development program led by the private sector

• Established clusters– Tea– Coffee– Tourism– Mining

• Emerging clusters– Logistics and transport– Construction and real estate– ICT services– Specialty agriculture (e.g., silk, flowers)– Health and other social services– Arts and culture (Hillywood)

Private SectorPrivate Sector

• Upgrade private sector capabilities• Engage the private sector in economic

development• Support cooperative private investment funds

to jumpstart the private equity market

NeighborhoodNeighborhood

• Lead economic integration with neighboring countries

– e.g., Road transportation efficiency– Railway development– Energy grid


Economic Diversification

Upgrade the Quality and Efficiency of Existing Export

Products and Services

Upgrade the Quality and Efficiency of Existing Export

Products and Services

Broaden Existing Clusters, Including Resources ClustersBroaden Existing Clusters,

Including Resources ClustersBuild Clusters Around Strong

MNCsBuild Clusters Around Strong

MNCs

Develop Related ClustersDevelop Related Clusters

Build Positions in Clusters that are Strong in Neighboring

Regions

Build Positions in Clusters that are Strong in Neighboring

Regions

Invest in Enabling Conditions for Areas with Some cluster

Specific Advantages

Invest in Enabling Conditions for Areas with Some cluster

Specific Advantages

Upgrade local industries/clusters

Upgrade local industries/clusters


Clusters and Economic Policy

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


“Mongolia is at a critical juncture. Having completed its transition to a market-oriented economy, the challenge now is to attain global competitiveness. This requires a concerted and coordinated effort among all stakeholders, private and public, domestic and foreign.”

David Dollar, Country Director for Mongolia, World Bank, 29. January 2008


Industry ClusterWorld Export Share

Change in Share (1997-

2006)

Export Value (in $thousands)

1 Copper ores and concentrates Metal Mining and Manufacturing 2.16% -1.62% 635,426$ 2 Gold, non-monetary, excluding ores Jewelry, Precious Metals and Collectibles 0.53% 0.53% 270,105$ 3 Wool, other animal hair Textiles 3.11% 2.15% 157,305$ 4 Zinc ores and concentrates Metal Mining and Manufacturing 1.08% 1.08% 91,140$ 5 Ores and concentrates of molybdenum, etc. Metal Mining and Manufacturing 0.51% -0.48% 47,793$ 6 Coal, not agglomerated Coal and Briquettes 0.09% 0.09% 45,076$ 7 Quartz, mica, felspar, fluorspar, etc. Chemical Products 3.85% -0.09% 35,067$ 8 Sheep, lamb skin leather Leather and Related Products 2.26% 2.26% 24,578$ 9 Crude petroleum oils Oil and Gas Products 0.00% 0.00% 19,841$ 10 Women’s trousers, breeches and shorts Apparel 0.09% 0.07% 18,183$ 11 Jerseys, pullovers, cardigans, knitted Apparel 0.06% 0.02% 17,617$ 12 Copper, copper anodes and alloys Metal Mining and Manufacturing 0.03% -0.01% 16,202$ 13 T-shirts, other vests, knitted Apparel 0.05% 0.05% 13,241$ 14 Other meat, meat offal Agricultural Products 0.03% 0.03% 11,488$ 15 Iron Ore and Concentrates Metal Mining and Manufacturing 0.04% 0.04% 11,478$ 16 Men’s or boys’ shirts Apparel 0.11% 0.05% 10,390$ 17 Goat or kid skin leather Leather and Related Products 1.34% 1.34% 7,985$ 18 Women’s suits, dresses, skirts, knitted Apparel 0.06% 0.06% 6,908$ 19 Fruit, nuts excluding oil nuts Agricultural Products 0.01% 0.01% 6,428$ 20 Other bovine, equine leather Leather and Related Products 0.04% 0.04% 6,285$ 21 Petroleum Oils Oil and Gas Products 0.00% 0.00% 5,317$ 22 Hides, skins (excluding furs), raw Agricultural Products 0.09% -0.33% 5,219$ 23 Other animal materials Agricultural Products 0.10% -0.02% 4,830$ 24 Men’s trousers, breeches and shorts Apparel 0.02% 0.02% 4,748$ 25 Bovine meat Agricultural Products 0.02% -0.05% 4,734$

Established Mongolian Export ProductsLeading Exports by Value, 2006

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.

Top 25 Industries (by value) as % of Mongolia’s total goods exports: 95.79% ProcessedSemi-ProcessedUnprocessed


Industry ClusterWorld Export Share


2006)


1 Quartz, mica, felspar, fluorspar, etc. Chemical Products 3.85% -0.09% 35,067$ 2 Wool, other animal hair Textiles 3.11% 2.15% 157,305$ 3 Sheep, lamb skin leather Leather and Related Products 2.26% 2.26% 24,578$ 4 Copper ores and concentrates Metal Mining and Manufacturing 2.16% -1.62% 635,426$ 5 Goat or kid skin leather Leather and Related Products 1.34% 1.34% 7,985$ 6 Zinc ores and concentrates Metal Mining and Manufacturing 1.08% 1.08% 91,140$ 7 Gold, non-monetary, excluding ores Jewelry, Precious Metals and Collectibles 0.53% 0.53% 270,105$ 8 Ores of molybdenum, titanium, zirconium Metal Mining and Manufacturing 0.51% -0.48% 47,793$ 9 Balloons, and other non-powered aircraft Aerospace Vehicles and Defense 0.24% 0.24% 63$ 10 Bones, horns, ivory, coral and like products Agricultural Products 0.12% -0.65% 379$ 11 Men’s or boys’ shirts Apparel 0.11% 0.05% 10,390$ 12 Other animal materials Agricultural Products 0.10% -0.02% 4,830$ 13 Other non-ferrous ores and concentrates Metal Mining and Manufacturing 0.10% 0.03% 1,249$ 14 Carpets and other floor coverings, knotted Textiles 0.10% 0.10% 1,467$ 15 Coal, not agglomerated Coal and Briquettes 0.09% 0.09% 45,076$ 16 Hides, skins (excluding furs), raw Agricultural Products 0.09% -0.33% 5,219$ 17 Women’s trousers, breeches and shorts Apparel 0.09% 0.07% 18,183$ 18 Lignite Coal and Briquettes 0.08% 0.08% 124$ 19 Women’s blouses, and shirts, knitted Apparel 0.08% 0.08% 4,548$ 20 Other plastic waste and scrap Plastics 0.07% 0.07% 1,448$ 21 Men’s or boys’ shirts, knitted Apparel 0.06% 0.05% 3,109$ 22 Women’s suits, dresses, skirts, knitted Apparel 0.06% 0.06% 6,908$ 23 Jerseys, pullovers, cardigans, knitted Apparel 0.06% 0.02% 17,617$ 24 Men’s or boys’ jackets and blazers Apparel 0.06% 0.05% 2,309$ 25 Women’s or girls’ suits and ensembles Apparel 0.05% 0.05% 1,557$

Established Mongolian Export ProductsLeading Exports by Share, 2006


Top 25 Industries (by share) as % of Mongolia’s total goods exports: 90.38% ProcessedSemi-ProcessedUnprocessed


Cluster Cluster World Export Share Subcluster Industry

Industry Share of World

Exports


2006)


Meat and Related Products Bones, horns, ivory, coral, etc. 0.12% -0.65% 379$ Meat and Related Products Other animal materials 0.10% -0.02% 4,830$ Meat and Related Products Hides, skins (excluding furs), raw 0.09% -0.33% 5,219$ Meat and Related Products Other meat, meat offal 0.03% 0.03% 11,488$ Meat and Related Products Bovine meat 0.02% -0.05% 4,734$

Chemical Products 0.008% Misc. Crude Materials Quartz, mica, felspar, fluorspar, etc. 3.85% -0.09% 35,067$

Oil and Gas Machinery Other boring machinery, not self-propelled 0.03% 0.03% 641$

Oil and Gas Machinery Rock drills, earth borers 0.02% 0.02% 404$

Prefabricated Enclosures and

Structures0.002% Prefabricated Buildings Prefabricated buildings 0.02% 0.01% 1,101$

Heavy Machinery 0.002% Mining Machinery Rock/tunneling machinery, not self-propelled 0.02% 0.02% 85$ Furniture 0.001% Wood Furnishings Wood for domestic use, not furniture 0.05% 0.05% 1,483$

Aerospace Vehicles and Defense

0.001% Aircraft Balloons, and other non-powered aircraft 0.24% 0.24% 63$

Motor Driven 0.001% Appliances Sewing machines and parts 0.03% 0.03% 1,230$ Automotive 0.001% Motor Vehicles Assembly Other special purpose vehicles 0.03% 0.03% 1,195$

Plastics 0.000% Plastic Waste Other plastic waste and scrap 0.07% 0.07% 1,448$

0.008%

0.002%Oil and Gas Products

Agricultural Products

Upgrading Mongolian Export PortfolioNiche Positions Outside of Leading Clusters


ProcessedSemi-ProcessedUnprocessed


0

10

20

30

40

50

60

70

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Mongo

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Size of the Informal EconomySelected Countries

Source: World Bank Doing Business and Friedrich Schneider

% of GDP in the Informal Economy, 2003


0

10

20

30

40

50

60

South

Africa

Brazil

Papua

New

Guin

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ysia

China

Philipp

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Hong K

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Russia

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Iran,

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Azerba

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Korea,

Rep.

Pakist

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ublic

Japa

nIncome InequalitySelected Countries

Gini Index

Note: Most recent Gini index data available for each country (1999 – 2003).Source: World Bank, World Development Indicators, 2007.


Tests of a National Economic Strategy

• Has the country articulated a distinctive position?– That will create a positive identity for the country?– That will inspire citizens?

• Does the strategy build on strengths?– Are the strengths realistic versus neighbors and other peer countries?

• Does the strategy fit with trends in the region and the world economy?• Is the strategy realistic given the country’s weaknesses. Can those

weaknesses inconsistent with the strategy be neutralized?• Are social and political reforms integrated with economic reforms

pursued simultaneously?• Is there the political will and the political consensus to implement

the strategy?


Tests of a National Economic Strategy – cont’d

• Do the policy priorities fit the strategy?– The choice of policies to address– The sequence in which policies are implemented?

• Has the strategy been communicated clearly to the stakeholders?• Is the private sector engaged?• Is government organized around the strategy?• Is there an overall coordinating structure for economic

development?• Is the quality of governmental agencies and other institutions sufficient

for effective implementation?• Are there mechanisms to measure progress and review / modify the

strategy as prosperity improves or conditions change?

Competitiveness: Creating a Mongolian Economic Strategy

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