Regional Competitiveness in a Global Economy

Regional Competitiveness
in a Global Economy
Professor Michael E. Porter
Harvard Business School
The Summit for American Prosperity
The Brookings Institution
Washington, D.C
June 11, 2008
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 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: June 20, 2008 - 3pm
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The Changing Nature of Domestic and International
Competition
• Falling barriers to trade and investment
• Globalization of markets
• Globalization of company value chains
• Increasing knowledge and skill intensity of competition
• Value is increasingly concentrated in service functions, not
manufacturing activities themselves
• Shift from vertical integration to relying on outside suppliers,
partners, and institutions
• Rising logistical costs due to costs of energy and emissions
• Costs in China and India are rising rapidly
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What Determines Competitiveness?
• Competitiveness depends on the productivity with which a location
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 it competes in those industries
• Nations and regions compete to offer the most productive environment
for business
• The public and private sectors play different but interrelated roles in
creating a productive economy
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Innovation and Regional Performance
U.S. States
Average Wage, 2005
R2 = 0.5207
Patents per 10,000 Employees, 2005
Note: Excludes three states (AK,ID,VT) where a single patentor accounts for more than 50% of patents and the top 5 patentors account for more than 80%.
Source: U.S. Patent and Trademark Office; CHI Research; County Business Patterns; Michael E. Porter
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Productivity and the Business Environment
Context for
Firm
Strategy
and Rivalry
 Local rules and incentives
that encourage investment and
productivity
Factor
– e.g. intellectual property
Demand
(Input)
protection
Conditions
Conditions
 Vigorous local competition
 Access to high quality
 Sophistication of local
business inputs
customers and needs
– Human resources
– E.g. strict quality, safety,
– Capital access
Related and
and environmental
– Physical infrastructure
Supporting
standards
Industries
– Information access
– Scientific and technological
infrastructure
 Availability of suppliers and
– Administrative infrastructure
supporting industries
(e.g. registration, permitting)
• 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
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Clusters and Competitiveness
Tourism Cluster in Cairns, Australia
Public Relations &
Local retail,
Market Research
Travel agents
Tour operators
health care, and
Services
other services
Food
Local
Suppliers
Attractions and
Transportation
Activities
Restaurants
e.g., theme parks,
casinos, sports
Property
Souvenirs,
Services
Duty Free
Airlines,
Hotels
Banks,
Maintenance
Cruise Ships
Foreign
Services
Exchange
Government agencies
Educational Institutions
Industry Groups
e.g. Australian Tourism Commission,
e.g. James Cook University,
e.g. Queensland Tourism
Great Barrier Reef Authority
Cairns College of TAFE
Industry Council
Sources: HBS student team research (2003) - Peter Tynan, Chai McConnell, Alexandra West, Jean Hayden
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Clusters and Competitiveness
Winemaking Equipment
California Wine Cluster
Grapestock
Barrels
State Government Agencies
(e.g., Select Committee on Wine
Production and Economy)
Fertilizer, Pesticides,
Bottles
Herbicides
Grape Harvesting
Caps and Corks
Equipment
Labels
Irrigation Technology
Wineries/Processing
Growers/Vineyards
Facilities
Public Relations and
Advertising
Specialized Publications
(e.g., Wine Spectator, Trade
Journal)
California
Educational, Research, & Trade
Tourism Cluster
Agricultural Cluster
Organizations (e.g. Wine Institute,
UC Davis, Culinary Institutes)
Food Cluster
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.
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Process of Cluster Development
The Australian Wine Cluster
1930
1965
1980
1991 to Present
First oenology
Australian Wine
Australian Wine
New organizations
course at
Bureau
and Brandy
created for education,
Roseworthy
established
Corporation
research, market
Agricultural
established
information, and
1990
College 1955
1970
export promotions
Winemaker’s
Australian Wine
Winemaking
Federation of
Research
school at Charles
Australia
Institute founded
Sturt University
established
founded
1950s
1960s
1970s
1980s
1990s 2005
Import of
Recruiting of
Continued inflow
Creation of
Surge in exports and
European winery
experienced
of foreign capital
large number of
international
technology
foreign investors, and
new wineries
acquisitions
e.g. Wolf Bass
management
Source: Michael E. Porter and Örjan Sölvell, The Australian Wine Cluster – Supplement, Harvard Business School Case Study, 2002
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The Process of Economic Development
Shifting Roles and Responsibilities
Old Model
New Model
• Government drives economic
• Economic development is a
development through top down
collaborative process involving
policy decisions and incentives
government at multiple levels,
companies, teaching and
research institutions, and private
sector organizations
• Competitiveness is fundamentally a bottoms-up process in which many
individuals, companies, and institutions participate
• Every community and cluster can take steps to enhance competitiveness
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Specialization of Regional Economies
Selected U.S. Geographic Areas
Denver, CO
Chicago
Leather and Sporting Goods
Communications Equipment
Boston
Oil and Gas
Processed Food
Analytical Instruments
Aerospace Vehicles and Defense
Seattle-Bellevue-
Heavy Machinery
Education and Knowledge Creation
Everett, WA
Communications Equipment
Aerospace Vehicles and
Wichita, KS
Pittsburgh, PA
Defense
Aerospace Vehicles and
Construction Materials
Fishing and Fishing
Defense
Metal Manufacturing
Products
Heavy Machinery
Education and Knowledge
Analytical Instruments
Oil and Gas
Creation
San Francisco-
Oakland-San Jose
Bay Area
Communications
Equipment
Agricultural
Raleigh-Durham, NC
Products
Communications Equipment
Information
Information Technology
Technology
Education and
Knowledge Creation
Los Angeles Area
Apparel
Atlanta, GA
Building Fixtures,
San Diego
Construction Materials
Equipment and
Leather and Sporting Goods
Transportation and Logistics
Services
Power Generation
Houston
Business Services
Entertainment
Education and Knowledge
Oil and Gas Products and Services
Creation
Chemical Products
Heavy Construction Services
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.
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