Regional Competitiveness in a Global Economy Files... · 18.05.2009 · • The U.S. economy...
Transcript of Regional Competitiveness in a Global Economy Files... · 18.05.2009 · • The U.S. economy...
1 Copyright 2009 © Professor Michael E. Porter20090518 – SBA presentation.ppt
Regional Competitiveness in a Global Economy:A Small Business Led Economic Strategy for America
Professor Michael E. PorterHarvard Business School
Small Business AdministrationWashington, D.C
May 18, 2009This 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 2007/08 (World Economic Forum, 2007), “Clusters and the New Competitive Agenda for Companies and Governments” in On Competition (Harvard Business School Press, 1998), and ongoing research on clusters and competitiveness. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means - electronic, mechanical, photocopying, recording, or otherwise - without the permission of Michael E. Porter. Further information on Professor Porter’s work and the Institute for Strategy and Competitiveness is available at www.isc.hbs.edu. Version: May 17, 2009 - 3pm
2 Copyright 2009 © Professor Michael E. Porter20090518 – SBA presentation.ppt
What is Competitiveness?
• Only business can create wealth
• 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 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 it competes in those industries
3 Copyright 2009 © Professor Michael E. Porter20090518 – SBA presentation.ppt
Competitiveness and the Business EnvironmentContext for
Firm Strategy
and Rivalry
Context for Firm
Strategy and Rivalry
Related and Supporting Industries
Related and Supporting Industries
Factor(Input)
Conditions
Factor(Input)
ConditionsDemand
ConditionsDemand
Conditions
• Sophisticated and demanding local customers and needs
– e.g., 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., Investment incentives, intellectual property protection, corporate governance standards
• Open and vigorous local competition
– e.g., Competition laws• Access to high quality business inputs
– Human resources– Physical infrastructure– Capital access– Administrative and information
infrastructure (e.g. registration, permitting)
– Scientific and technological infrastructure
• Availability of suppliers and supporting industries
4 Copyright 2009 © Professor Michael E. Porter20090518 – SBA presentation.ppt
Sources: HBS student team research (2003) - Peter Tynan, Chai McConnell, Alexandra West, Jean Hayden
HotelsHotels
Attractions andActivities
e.g., theme parks, casinos, sports
Attractions andActivities
e.g., theme parks, casinos, sports
Airlines, Cruise Ships
Airlines, Cruise Ships
Travel agentsTravel agents Tour operatorsTour operators
RestaurantsRestaurants
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
5 Copyright 2009 © Professor Michael E. Porter20090518 – SBA presentation.ppt
Enhancing Cluster DevelopmentCalifornia Wine Cluster
Educational, Research, & Trade Organizations (e.g. Wine Institute,
UC Davis, Culinary Institutes)
Educational, Research, & Trade Organizations (e.g. Wine Institute,
UC Davis, Culinary Institutes)
Growers/VineyardsGrowers/Vineyards
Sources: California Wine Institute, Internet search, California State Legislature. Based on research by MBA 1997 students R. Alexander, R. Arney, N. Black, E. Frost, and A. Shivananda.
Wineries/ProcessingFacilities
Wineries/ProcessingFacilities
GrapestockGrapestock
Fertilizer, Pesticides, Herbicides
Fertilizer, Pesticides, Herbicides
Grape Harvesting Equipment
Grape Harvesting Equipment
Irrigation TechnologyIrrigation Technology
Winemaking EquipmentWinemaking Equipment
BarrelsBarrels
LabelsLabels
BottlesBottles
Caps and CorksCaps and Corks
Public Relations and Advertising
Public Relations and Advertising
Specialized Publications (e.g., Wine Spectator, Trade
Journal)
Specialized Publications (e.g., Wine Spectator, Trade
Journal)
Food ClusterFood Cluster
Tourism ClusterTourism ClusterCalifornia Agricultural Cluster
California Agricultural Cluster
State Government Agencies(e.g., Select Committee on Wine
Production and Economy)
6 Copyright 2009 © Professor Michael E. Porter20090518 – SBA presentation.ppt
• The U.S. economy performed well over the last two decades• Productivity growth was remarkably high for such a wealthy economy• The U.S. accounted for one-third of all global economic growth
BUT
• U.S. growth since 2000 was based heavily on consumption and borrowing that was unsustainable, and the economy faces a period of painful readjustment
Globalization and U.S. Economic Performance
7 Copyright 2009 © Professor Michael E. Porter20090518 – SBA presentation.ppt
63%
64%
65%
66%
67%
68%
69%
70%
71%
72%
73%
1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009
Rising Personal Consumption in the United States1970 to Present
Source: Bureau of Economic Analysis (2009), analysis by Morgan Stanley
US Personal Consumption Expenditure as % of GDP
Average 1970–1997 = 66.6%
Average 2001–Present = 70.9%
8 Copyright 2009 © Professor Michael E. Porter20090518 – SBA presentation.ppt
• The U.S. economy performed well over the last two decades• Productivity growth was remarkably high for such a wealthy economy• The U.S. accounted for one-third of all global economic growth
BUT
• U.S. growth since 2000 was based heavily on consumption and borrowing that was unsustainable, and the economy faces a period of painful readjustment
• The value of education and skills have risen dramatically• Less skilled Americans face more competition for work and restraint
on wages– Exacerbated by low skilled immigration
• There is a high rate of job churn– High job creation but high job loss
• Future U.S. economic performance is at risk
Globalization and U.S. Economic Performance
9 Copyright 2009 © Professor Michael E. Porter20090518 – SBA presentation.ppt
Strategic Position of the United StatesCore Strengths
• Entrepreneurship
• Innovation
10 Copyright 2009 © Professor Michael E. Porter20090518 – SBA presentation.ppt
0
50
100
150
200
250
300
-5% 0% 5% 10% 15% 20% 25% 30% 35%
Source: USPTO (2009), EIU (2009)
Average U.S. patents per 1 million population, 2003-2007
CAGR of US-registered patents per 1 million population, 1997 to 2007
Innovative CapacityInnovation Output of Top 25 Patent Producing Countries
Hong Kong
Germany
Canada
Russia
Belgium
Netherlands
Taiwan
India
France
Israel
Spain
Sweden
Ireland
Finland
China
United States
Singapore
Norway
Denmark
Italy
Australia
Switzerland
UK
Korea
10,000 patents =
Austria
Japan
Brazil
New Zealand
11 Copyright 2009 © Professor Michael E. Porter20090518 – SBA presentation.ppt
Strategic Position of the United StatesCore Strengths
• Entrepreneurship
• Innovation
• Institutions for higher learning
• Deep and efficient capital markets
• Free and open competition
• Economic decentralization
12 Copyright 2009 © Professor Michael E. Porter20090518 – SBA presentation.ppt
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
13 Copyright 2009 © Professor Michael E. Porter20090518 – SBA presentation.ppt
Cluster Strength in the United States versus Europe
0%
5%
10%
15%
20%
25%
30%
Median Region
Median Share of Regional Employment in
Strong Clusters
Source: European Cluster Observatory
Europe United States
14 Copyright 2009 © Professor Michael E. Porter20090518 – SBA presentation.ppt
Strategic Position of the United StatesCore Strengths
• Entrepreneurship
• Innovation
• Institutions for higher learning
• Deep and efficient capital markets
• Free and open competition
• Economic decentralization
• The U.S. needs to preserve, renewand reinvest in these strengths
15 Copyright 2009 © Professor Michael E. Porter20090518 – SBA presentation.ppt
Strategic Position of the United StatesCore Strengths
• Entrepreneurship
• Innovation
• Institutions for higher learning
• Deep and efficient capital markets
• Free and open competition
• Economic decentralization
Weaknesses
• Distortions in the international trading system– Weak IP protection– Restricted access to markets for services in
other countries– Subsidies and non-tariff barriers
• Unnecessary costs of doing business– Regulation, litigation, and tax complexity– Infrastructure bottlenecks– Energy and environmental inefficiency
• Weak transitional security blanket– Ineffective retraining system– Health insurance access and mobility– Pension security
• Human resource challenges– K-12 weaknesses– Access to higher education
16 Copyright 2009 © Professor Michael E. Porter20090518 – SBA presentation.ppt
Agenda for the United States
• Create an economic strategy for U.S. in collaboration with business, including small- and medium-sized businesses
• Renew America’s innovation infrastructure
• Tackle America’s human resource weaknesses
• Restructure the safety net
• Drive down other costs of doing business
• Realign federal economic programs around regions and cluster development
17 Copyright 2009 © Professor Michael E. Porter20090518 – SBA presentation.ppt
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
-1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5%
Phoenix Economic AreaSpecialization by Traded Cluster, 1998 to 2006
Change in Share of US Cluster Employment, 1998 to 2006
Shar
e of
US
Clu
ster
Em
ploy
men
t, 20
06
Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director.
8,300 Employees =
Region’s Share of US Employment: 1.47%
Change in Region’s Share of US Employment: +0.20%
Power Generation and Transmission Leather and Related Products
Biopharmaceuticals
Business Services
Education and Knowledge Creation
Analytical Instruments
Apparel
Publishing and Printing
Entertainment
Agricultural Products
Furniture
Metal ManufacturingMedical Devices
Building Fixtures, Equipment and Services
Hospitality and Tourism
Automotive
Forest Products
Heavy Construction Services
Processed Food
Communications Equipment
Sporting, Recreational and Children's Goods
Information Technology
Financial Services
TextilesMotor Driven Products
Oil and Gas
Transportation and Logistics
Distribution ServicesConstruction Materials
Chemical Products
Prefabricated Enclosures
Jewelry and Precious Metals
Aerospace Engines (-2.84%, 5.28%)
Fishing and Fishing Products
Aerospace Vehicles and Defense
Plastics
18 Copyright 2009 © Professor Michael E. Porter20090518 – SBA presentation.ppt
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
• Private sector engagement is necessary for rapid competitiveness improvement
• Every community and cluster can take steps to enhance competitiveness
19 Copyright 2009 © Professor Michael E. Porter20090518 – SBA presentation.ppt
Cluster Initiatives
• Cluster initiatives are collaborative programs involving companies, public sector entities, and other related institutions to improve competitiveness
• Upgrade company operations and strategies– e.g., environmental practices, quality management
• Enhance the cluster-specific business environment conditions– e.g., supplier attraction, regulatory environment
• Strengthen collaboration to improve collective advantages in the business environment
– e.g., joint procurement, training programs
20 Copyright 2009 © Professor Michael E. Porter20090518 – SBA presentation.ppt
Private Sector Collaboration: MassMEDIC
• MassMEDIC facilitates collaboration among companies, universities, medical centers, and government
• Created to address common challenges facing companies in the cluster
• Activities include:– Fund cluster analyses to facilitate continual upgrading and improvement
– Engage state and federal public policy makers on behalf of the cluster (e.g. FDAMA, negotiating lower FDA fees for smaller businesses)
– Work with Massachusetts Office of Business Development to attract new firms and investment
– Manage a job bank linking employers with qualified applicants
– Bring cluster actors together in monthly seminars to facilitate supplier agreements, business alliances, joint ventures, and employment searches
– Foster specialized education programs
– Support for medical technology entrepreneurs– Maintain a directory and other tools to link cluster members to each other and to
opportunities
21 Copyright 2009 © Professor Michael E. Porter20090518 – SBA presentation.ppt
Strategy in Economic Downturns
• Create a positive agenda
• Refocus on strategy
• Return to economic fundamentals
• Downsize to a strategy, not across the board
• Do not overreact to distressed industry conditions
• Use the downturn to get things done that would be more difficult in normal times
• Position for long term economic performance, not near term stock price
• Seize opportunities for discontinuities which are more likely to emerge
• Strategy is more important in downturns, not less