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


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


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


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


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)


• 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


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%


• 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


Strategic Position of the United StatesCore Strengths

• Entrepreneurship

• Innovation


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




• Innovation

• Institutions for higher learning

• Deep and efficient capital markets

• Free and open competition

• Economic decentralization


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


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




• Innovation





• The U.S. needs to preserve, renewand reinvest in these strengths




• Innovation





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


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


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


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


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


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


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

Regional Competitiveness in a Global Economy Files... · 18.05.2009 · • The U.S. economy...

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