ecuadorian competitiveness: ready for the next stage? files/2011-1024...comparative labor...
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1 Copyright 2011 © Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
Professor Michael E. PorterHarvard Business School
Quito, Ecuador October 24, 2011
This presentation draws on ideas from Professor Porter’s books and articles, in particular, Competitive Strategy (The Free Press, 1980); CompetitiveAdvantage (The Free Press, 1985); “What is Strategy?” (Harvard Business Review, Nov/Dec 1996); “Strategy and the Internet” (Harvard BusinessReview, March 2001); and a forthcoming book. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form orby any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Michael E. Porter. Additional information maybe found at the website of the Institute for Strategy and Competitiveness, www.isc.hbs.edu.
Ecuadorian Competitiveness: Ready for the Next Stage?
2 Copyright 2011 © Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.pptSource: EIU (2011), author’s calculations
PPP-adjusted GDP per Capita, 2010 ($USD)
Growth of Real GDP per Capita (PPP-adjusted), CAGR, 2000 - 2010
Prosperity PerformanceSelected Lower and Middle Income Countries
AlbaniaAlgeria
Argentina
Bahrain
Belarus
Belize
Bolivia
Brazil Bulgaria
Chile
China
ColombiaCosta Rica
Croatia
Cyprus
Czech Republic
Dominican Republic
EcuadorEgypt
El Salvador
Estonia
Georgia
Greece
GuatemalaGuyana
Honduras
Hungary
India
Israel
Jordan
Kazakhstan
Latvia
Lebanon
Lithuania
Malaysia
Mexico
New Zealand
Nicaragua
Oman
Pakistan
Panama
Paraguay
Peru
Philippines
Poland
Portugal
Romania
Russia
Saudi ArabiaSlovakia
Slovenia
South Africa
South Korea
Sri Lanka
Thailand
Trinidad & Tobago
Tunisia
Turkey
Ukraine
Uruguay
Venezuela
Vietnam
$0
$4,000
$8,000
$12,000
$16,000
$20,000
$24,000
$28,000
$32,000
0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0%
Average: $13,910
Average: 5.4%
Latin American countriesOther countries
3 Copyright 2011 © Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
Export PerformanceSelected Countries
Exports of Goods and Services (% of GDP), 2010
Change in Exports of Goods and Services (% of GDP), 2000 - 2010Source: EIU (2011), authors’ analysis
Albania
Algeria
Argentina
Bahrain
Belize
Bolivia
Brazil
Bulgaria
Chile
China
Colombia
Costa RicaCroatia
Czech Republic
Dominican Republic
Ecuador Egypt
El Salvador
Estonia
Georgia
Greece
Guatemala
Honduras
Hungary
India
Israel
JordanKazakhstan
Latvia
Lebanon
Lithuania
Mexico
New Zealand
Nicaragua
Oman
Pakistan
Panama
Paraguay
Peru
Poland
PortugalRomania
Russia
Saudi Arabia
Slovakia
Slovenia
South Africa
South Korea
ThailandTrinidad & Tobago
Tunisia
Turkey
Ukraine
United Arab Emirates
Uruguay
Venezuela
Vietnam
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
-15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%
Average: 2.9%
Average: 45.1%
Latin American countriesOther countries
4 Copyright 2011 © Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
Inbound Foreign Investment PerformanceStocks and Flows, Selected Countries
Source: UNCTAD, World Investment Report (2010)
Inward FDI Stocks as % of GDP, Average 1999 - 2009
FDI Inflows as % of Gross Fixed Capital Formation, Average 1999 - 2009
Albania
Algeria
Argentina
Bahrain
Belarus
BelizeBolivia
Brazil
Bulgaria
Chile
China
ColombiaCosta Rica
Croatia
Cyprus
Czech Republic
Dominican Republic
EcuadorEgypt
El Salvador
Estonia
Georgia
Greece
Guatemala
Guyana
Honduras
Hungary
India
Israel
Jordan
Kazakhstan
Latvia
Lebanon
Malaysia
Mexico
New Zealand
Nicaragua
Pakistan
Panama
Paraguay
Peru
Philippines
PolandPortugal
Romania
Russia
Saudi Arabia
Slovakia
Slovenia
South Africa
South Korea
Sri Lanka
Thailand
Trinidad & Tobago
Tunisia
Turkey
Ukraine Uruguay
Venezuela
Vietnam
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00%
Latin American countriesOther countries
Average: 19.7%
Average: 35.0%
5 Copyright 2011 © Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
The Ecuadorian Economy in 2011
• Ecuador has had a long history of economic and political instability • Since 2001, Ecuador has enjoyed relative macroeconomic stability as a result of
dollarization• High oil prices have allowed the country to increase government spending• Ecuador export growth has been driven by commodities prices
• In 2010, the Ecuadorian economic growth was slower than other Latin-American countries
• Prosperity remains low• High poverty levels and inequality persist and large segments of the population lack
access to basic needs• Ecuador is overly dependent on oil exports
• Higher economic growth rates and poverty reduction are possible only if Ecuador can substantially improve competitiveness
BUT
6 Copyright 2011 © Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
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 is 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 it competes in those industries
– Productivity in a national economy arises from a combination of domestic and foreign firms
7 Copyright 2011 © Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
Comparative Labor ProductivitySelected Countries
Growth of real GDP per employee (PPP-adjusted), 2000 - 2010
Real GDP per employee (PPP adjusted US$), 2010
Source: Authors calculation Groningen Growth and Development Centre (2011), EIU (2011)
Algeria
Argentina
BahrainBolivia
Brazil
Bulgaria
Chile
ChinaColombia
Costa Rica
Croatia
CyprusCzech Republic
Dominican Republic
EcuadorEgypt
Estonia
Greece
Guatemala
Hungary
India
Israel
JordanKazakhstanLatvia Lithuania
Malaysia
Mexico
New Zealand
Pakistan
Peru
Philippines
Poland
Portugal
Romania
Russian Federation
Saudi Arabia
Slovak Republic
Slovenia
South Africa
South Korea
Sri LankaThailand
Trinidad & Tobago
Tunisia
Turkey
Ukraine
UruguayVenezuela
Vietnam
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
$50,000
-2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0%
Average: $20,882
Average: 1.25%
Latin American countriesOther countries
8 Copyright 2011 © Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
• Endowments create a foundation for prosperity, but true prosperity is created by productivity in the use of endowments
What Determines Competitiveness?
Endowments
9 Copyright 2011 © Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
• Macroeconomic competitiveness sets the potential for high productivity, but is not sufficient• Endowments create a foundation for prosperity, but true prosperity is created by productivity in the use
of endowments
What Determines Competitiveness?
Macroeconomic Competitiveness
Human Development and Political Institutions
Macroeconomic Policies
Endowments
10 Copyright 2011 © Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
Components of Macroeconomic Competitiveness
•
• Fiscal policy– Government surplus/deficit– Government debt
• Monetary policy– Inflation– Business cycle management– Savings
Macroeconomic Policies
•
• Human development– Basic education– Health
• Political institutions– Political freedom– Voice and accountability– Political stability– Government effectiveness– Decentralization of economic policymaking
• Rule of law– Security – Civil rights– Judicial independence– Efficiency of legal framework– Freedom from corruption
Social Infrastructure and Political Institutions
11 Copyright 2011 © Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
• Productivity ultimately depends on improving the microeconomic capability of the economy and the sophistication of local competition
• Macroeconomic competitiveness sets the potential for high productivity, but is not sufficient• Endowments create a foundation for prosperity, but true prosperity is created by productivity in the use
of endowments
What Determines Competitiveness?
Macroeconomic Competitiveness
Microeconomic Competitiveness
Sophisticationof Company
Operations andStrategy
Quality of the NationalBusiness
Environment
Human Development and Political Institutions
Macroeconomic Policies
State of Cluster Development
Endowments
12 Copyright 2011 © Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
Macroeconomic Competitiveness
Microeconomic Competitiveness
Sophisticationof Company
Operations andStrategy
Quality of the NationalBusiness
Environment
SocialInfrastructure and PoliticalInstitutions
MacroeconomicPolicies
State of Cluster Development
Endowments
The external business environment conditions
that enable company productivity and
innovation
What Determines Competitiveness?
13 Copyright 2011 © Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
Macroeconomic Competitiveness
Microeconomic Competitiveness
Sophisticationof Company
Operations andStrategy
Quality of the NationalBusiness
Environment
MacroeconomicPolicies
SocialInfrastructure and PoliticalInstitutions
State of Cluster Development
Endowments
A critical mass of firms and institutions in each
field to harness efficiencies and externalities across
related entities
SocialInfrastructure and PoliticalInstitutions
MacroeconomicPolicies
What Determines Competitiveness?
14 Copyright 2011 © Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
Competitiveness and Poverty Reduction
Social Development
• There is a strong connection between economic and socialdevelopment
• Improving competitiveness and decreasing poverty requires improving the economic and social context simultaneously
Economic Development
15 Copyright 2011 © Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
Macroeconomic Competitiveness
Microeconomic Competitiveness
Sophisticationof Company
Operations andStrategy
Quality of the NationalBusiness
Environment
MacroeconomicPolicies
SocialInfrastructure and PoliticalInstitutions
State of Cluster Development
Endowments
Internal skills, capabilities, and sophistication of
management practices of companies
SocialInfrastructure and PoliticalInstitutions
MacroeconomicPolicies
What Determines Competitiveness?
16 Copyright 2011 © Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
Geographic Influences on Competitiveness
Neighboring Countries
Regions and Cities
Nation
17 Copyright © 2011 Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
Prosperity PerformanceU.S. States, 1999 to 2009
Gross Domestic Product per Capita Real Growth Rate, 1999 to 2009
$30,000
$35,000
$40,000
$45,000
$50,000
$55,000
$60,000
$65,000
$70,000
-1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0%
U.S. GDP per Capita: $46,093
High and rising prosperity versus U.S.
Notes: Real GDP figures in 2005 chained US dollars from the Bureau of Economic Analysis. Growth rate is calculated as compound annual growth rate. D.C. excluded
U.S. GDP per CapitaReal Growth Rate: 0.86%
Gross Domestic Product per Capita Real Growth Rate, 1999 to 2009
Gro
ss D
omes
tic P
rodu
ct p
er C
apita
, 200
9
High but declining versus U.S.
Low and declining versus U.S. Low but rising versus U.S.
Illinois
Wyoming
North Dakota
South Dakota
Delaware
AlaskaConnecticut
Wisconsin
Nevada
Arizona
New York
New JerseyMassachusetts
California
West Virginia
Mississippi
VermontOklahoma
IowaNebraska
North Carolina
Georgia Florida
Michigan
IdahoSouth Carolina
Texas
Oregon
Rhode Island
Louisiana
PennsylvaniaKansas
New Hampshire
Arkansas
Maine
ColoradoWashington
Virginia
Minnesota
HawaiiMaryland
Alabama Montana
KentuckyNew Mexico
MissouriOhio
IndianaUtah
Tennessee
18 Copyright © 2011 Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
Regions and Competitiveness
• Economic performance varies significantly across sub-national regions (e.g., provinces, states, metropolitan areas)
• Many essential levers of competitiveness reside at the regional level
• Regions specialize in different sets of clusters
• Cluster strength directly impacts regional performance
• Each region needs its own distinctive competitiveness strategy and action agenda
• Improving competitiveness requires effective policy collaborationbetween regions and the national government
• Decentralization is important to foster regional specialization, internal competition, and greater government accountability
• Effective decentralization requires clarity on roles and responsibilities, and sufficient administrative capacity at local and regional level
19 Copyright 2011 © Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
Economic Coordination with Neighboring Countries
20 Copyright © 2011 Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
Competitiveness and the Neighborhood
• Opening trade and investment among neighbors
– Expands the available market
– A nation’s neighbors are its most natural trading and investment partners
– The natural path of internationalization for local firms is the neighborhood
– Open trade and investment make each country a more attractive location for investment
• Economic coordination to drive improvements in the business environment– Capture synergies in policy and infrastructure
– Gain greater clout in international negotiations
• External agreements to help overcome domestic political and economic barriers to reform
21 Copyright 2011 © Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
• Eliminating trade and investment barriers within the region
• Simplifying and harmonizing cross-borderregulations and paperwork
• Coordinatinganti-monopoly and fair competition policies
• Opening governmentprocurementwithin the region Harmonizing environmental standards
• Harmonizing product safetystandards
• Establishing reciprocal consumerprotection laws
• Improving the efficiency of the regional transportationnetwork
• Creating an efficient energy network
• Enhancing regional communicationsand connectivity
• Harmonizing administrativerequirements for businesses
• Linking financialmarkets
• Facilitating the movement of students for higher education
• Facilitating cross-border cluster development
– e.g., Supplier networks
– Transport & Logistics
– Quality standards
Factor Conditions
Context for Strategy
and Rivalry
Related and Supporting Industries
Demand Conditions
Economic Integration Among NeighborsCapturing Synergies
Macroeconomic Competitiveness
• Coordinating macroeconomicpolicies
• Coordinating programs to improve securityand public safety
22 Copyright 2011 © Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
Ecuador’s Competitiveness Profile, 2010Harvard Country Competitiveness Model
Macroeconomic Competitiveness (107)
MicroeconomicCompetitiveness (125)
Social Infra-structure and Pol. Institutions (117)
Macroeconomic Policy (55)
Business Environment Quality (127)
Company Sophistication
(114)
Source: Country Competitiveness Model (CCM), Institute for Strategy and Competitiveness, Harvard University (2010)
Overall Ranking (113)
Ecuador GDP per Capita Rank 77
Note: Rank versus 139 countries
23 Copyright 2011 © Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
Ecuador’s Macroeconomic Competitiveness Macroeconomic Policy
• Dollarization stabilized the economy
– Inflation relatively low since dollarization in 2001
• Expansionary fiscal policy funded by borrowing and oil resources
However
• Budget deficit threatens the dollarization model
• Central Bank is no longer an autonomous institution
• No stabilization fund
Social Infrastructure and Political Institutions
• Lack of high-quality public education system
• Weak social security system, despite some improvements
• Persistent problems with corruption
• Weak legal system and effectiveness of property rights
• Need for modernization of political and government institutions
w since dollarization in 2001
24 Copyright © 2011 Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
Corruption Perception Index, 2010
Note: Ranks only countries available in both years (160 countries total) Source:Global Corruption Report, 2010
High corruption
Low corruption
Worsening ImprovingChange in Rank, Global Corruption Report, 2010 versus 2006
Rank in Global Corruption Index,
2010
Albania
Algeria
Argentina
Armenia
AustraliaAustria
Azerbaijan
Bahrain
Bangladesh
Belarus
BeninBolivia
BrazilBulgaria
Burundi
Cambodia
Cameroon
Canada
Chad
Chile
ChinaColombia
Costa Rica
Côte d´Ivoire
Croatia
Cyprus
Czech Republic
Denmark
Dominica
Dominican Republic
Ecuador
Egypt
El Salvador
Estonia
Ethiopia
Finland
France
Gambia
Georgia
Germany
Greece
Guatemala
Guinea
Guyana
Haiti
Honduras
Hong Kong
Hungary
Iceland
India
Indonesia
Israel
Italy
Jamaica
Jordan
Kazakhstan
KenyaKyrgyzstan
Laos
LithuaniaMacau
Malaysia
Mexico
Morocco
Nepal
New Zealand
Nicaragua
Niger
Nigeria
Oman
Pakistan
Panama
Paraguay
Peru
Philippines
PolandPortugal
Qatar
Romania
Russia
Saudi Arabia
Senegal
Serbia
Slovakia
Slovenia
South Africa
South Korea
Spain
Sudan
Swaziland
SwedenSwitzerland
Syria
Taiwan
ThailandTrinidad and
Tobago
Turkey
UgandaUkraine
United KingdomUruguay
U.S.
Venezuela
Viet Nam
Zambia
Zimbabwe
25 Copyright 2011 © Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
Quality of the National Business EnvironmentContext for
Firm Strategy
and Rivalry
Related and Supporting Industries
Factor(Input)
ConditionsDemand
Conditions
• Sophisticated and demanding 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
• Open and vigorous local competition– Openness to foreign competition– Competition laws• Access to high quality business
inputs– Human resources– Capital availability– Physical infrastructure– Administrative and information
infrastructure (e.g., registration, permitting, transparency)
– Scientific and technological infrastructure
– Efficient access to natural endowments
• Availability of suppliers and supporting industries
26 Copyright © 2011 Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
Infrastructure• Significant improvements in transportation infrastructure• High mobile phone penetration
Competitive Context• High levels of entrepreneurship
Other• A new national agenda for innovation and entrepreneurship• Improving sophistication of local buyers
Ecuador’s Business Environment Strengths
27 Copyright © 2011 Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
Financial Markets
• Weak financial markets
Workforce Development and Training
• Low skill level of the labor force
• Poor quality higher education system
Competitive Context
• Import substitution strategy reducing competitiveness
• High level of government subsidies distortcompetition
• Low intensity of local competition• Limited internationalization of firms
• Burdensome government regulations– Labor regulations give rigidity to the market
– Customs and Trade regulations
– Difficult new business formation
• Weak investor protection and protection of intellectual property
• High informality in the economy
Ecuador’s Business Environment Weaknesses
Trade and Investment Liberalization
• FDI limited to oil and mining sectors• New restrictions on capital flows
• High trade barriers• Complex custom procedures• Few trade agreements with other countries
Innovation Infrastructure• Weak university-industry research collaboration
• Low patenting rates
Other
• Low level of quality certification
28 Copyright 2011 © Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
0
20
40
60
80
100
120
140
160
180
Ease of Doing BusinessEcuador, 2010
Source: World Bank Report, Doing Business (2010); GPD per capita ranking based on 2009 GCI data.
Ranking, 2010 (of 183 countries)
Favorable Unfavorable
Ecuador’s GDP per capita rank: 77
29 Copyright © 2011 Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
Sources: HBS student team research (2003) - Peter Tynan, Chai McConnell, Alexandra West, Jean Hayden
Hotels
Attractions andActivities
e.g., theme parks, casinos, sports
Airlines, Cruise Ships
Travel Agents Tour Operators
Restaurants
PropertyServices
MaintenanceServices
Government Agenciese.g. Australian Tourism
Commission, Great Barrier Reef Authority
Educational Institutionse.g. James Cook University,
Cairns College of TAFE
Industry Groupse.g. Queensland Tourism
Industry Council
FoodSuppliers
Public Relations & Market Research
Services
Local Retail, Health Care, andOther Services
Souvenirs, Duty Free
Banks,Foreign
Exchange
Local Transportation
State of Cluster DevelopmentTourism Cluster in Cairns, Australia
30 Copyright © 2011 Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
State of Cluster DevelopmentKenya’s Cut Flower Cluster
Plantstock
Greenhouse; Shading Structures
Irrigation Technology
Pre-CoolingTechnology
Fertilizers, Pesticides, Herbicides
Agricultural Cluster
Horticultural Cluster
Post-Harvest Cooling
Technology
Grading / Packaging Sheds
Packaging & Labeling Materials
Refrigerated Trucks
Freight Forwarders
Clearing and Forwarding Agents
Air Carriers (Commercial /
Charters)
Tourism Cluster
Flower FarmingPost-Harvest
Handling; Transport to Market
Horticultural Agencies, NGOs & Industry Associations
Horticultural Crops Development Authority (HCDA) Government Export Policies Targeting Horticulture
Non-Government Organizations(e.g., The Rural Enterprise Agri-Business Promotion Project)
Trade & Industry Associations(e.g., Kenya Flower Council)
Education, Research & Quality Standards Organizations
Research Institutions(e.g., Kenya Agricultural Research Institute)
Public Universities with Post Graduate Degrees in Horticulture(e.g., University of Nairobi)
Quality & Standards(e.g., EUREGAP Standard, Kenya Plant Health Inspectorate Services)
Sources: MOC student team research by Kusi Hornberger, Nick Ndiritu, Lalo Ponce-Brito, Melesse Tashu, Tijan Watt, Harvard Business School, 2007
31 Copyright 2011 © Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
Clusters Development Over TimeThe 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
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
32 Copyright 2011 © Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
FurnitureBuilding Fixtures,
Equipment & Services
Fishing & Fishing Products
Hospitality & TourismAgricultural
Products
Transportation & Logistics
Clusters and Economic DiversificationLinkages 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
Mining & 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.
33 Copyright © 2011 Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
Clusters as a Tool For Economic Policy
• A forum for collaboration between the private sector, trade associations, government, educational, and research institutions
• Brings together firms of all sizes, including SME’s
• Creates a mechanism for constructive business-government dialog
• A tool to identify problems and action recommendations
• A vehicle for investments that strengthen multiple firms/institutionssimultaneously
• Fosters greater competition rather than distorting the market
34 Copyright 2011 © Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
0.00%
0.05%
0.10%
0.15%
0.20%
0.25%
0.30%
0.35%
0.40%
0.45%
0.50%
0.55%
-0.05% 0.00% 0.05% 0.10%
Ecuador’s Cluster Export Portfolio1997 to 2009
Change in Ecuador’s world export market share, 1997 to 2009Source: 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.
Ecua
dor’s
wor
ld e
xpor
t mar
ket s
hare
, 200
9
Change In Ecuador’s Overall World Export Share: +0.02%
Ecuador’s Average World Export Share: 0.11%
Exports of US$670 Million =
Fishing and Fishing Products(-0.63%, 1.74%)
CommunicationServices(-0.20%, 0.02%)
Agricultural Products
Oil and Gas Products
Tobacco
Textiles
Footwear
Transportationand Logistics
Hospitality and Tourism
Jewelry, Precious Metalsand Collectibles
Motor Driven Products
Automotive
Processed Food
Building, Fixtures, Equipment and
Services Furniture
35 Copyright 2011 © Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
FurnitureBuilding Fixtures,
Equipment & Services
Fishing & Fishing Products Hospitality
& TourismAgricultural
ProductsTransportation
& Logistics
Ecuador’s Share of World Exports by Cluster, 2009
Plastics
Oil & Gas
Chemical Products
Biopharma-ceuticals
Power Generation
Aerospace Vehicles &
Defense
Lightning & ElectricalEquipment
Financial Services
Publishing & Printing
Information Tech.
Communi-cations
Services
Business Services
DistributionServices
Forest Products
Heavy Construction
Services
ConstructionMaterials
Prefabricated Enclosures
Apparel
Leather & Related Products
Jewelry & Precious Metals
Textiles
Footwear
Processed Food
Tobacco
Medical Devices
Analytical InstrumentsEducation &
Knowledge Creation
Note: Clusters with overlapping borders have at least 20% overlap (by number of industries) in both directions.
Marine Equipment
Aerospace Engines
Heavy Machinery
Sporting & Recreation
Goods
Automotive
Production Technology
Motor Driven Products
Mining & Metal Manufacturing
0.05% - 0.1%
0.11% - 1.0%
> 1.0%
Enter-tainment
World Market Share
36 Copyright 2011 © Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
FurnitureBuilding Fixtures,
Equipment & Services
Fishing & Fishing Products Hospitality
& TourismAgricultural
ProductsTransportation
& Logistics
Peru’s Share of World Exports by Cluster, 2009
Plastics
Oil & Gas
Chemical Products
Biopharma-ceuticals
Power Generation
Aerospace Vehicles &
Defense
Lightning & ElectricalEquipment
Financial Services
Publishing & Printing
Information Tech.
Communi-cations
Services
Business Services
DistributionServices
Forest Products
Heavy Construction
Services
ConstructionMaterials
Prefabricated Enclosures
Apparel
Leather & Related Products
Jewelry & Precious
Metals
Textiles
Footwear
Processed Food
Tobacco
Medical Devices
Analytical InstrumentsEducation &
Knowledge Creation
Note: Clusters with overlapping borders have at least 20% overlap (by number of industries) in both directions.
Marine Equipment
Aerospace Engines
Heavy Machinery
Sporting & Recreation
Goods
Automotive
Production Technology
Motor Driven Products
Mining & Metal Manufacturing
Enter-tainment
World Market Share
0.1% - 0.21%
0.22% - 1.0%
> 1.0%
37 Copyright 2011 © Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
State of Cluster Development in Ecuador
• Ecuador has strengths in resource-related clusters, including cut-flowers, bananas, coffee, cacao, fishing, and tourism
• Clusters that serve mainly the domestic market include textiles, apparel, automotive, and metalworking
• Most of the clusters are shallow, with a weak supplier base
• There are weak supporting institutions with poor coordination between the private and public sectors
• Ecuador’s clusters have been subject to traditional industrial policy characterized by subsidies and protectionism
• Clusters could become an important tool for economic development
38 Copyright 2011 © Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
Competitiveness of Ecuador’s Regions
• 75% of business activity is concentrated in two provinces, Guayas and Pichincha
• Ecuadorian regions vary greatly in the quality of business environment
• Decentralization of economic policy remains incomplete, with weak capacity at local level
• Free Trade Zones have been created in some rural areas
39 Copyright 2011 © Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
Action Agenda for Ecuador
Macroeconomic Policy
• Maintain macroeconomic stability• Reduce the budget deficit • Create a stabilization fund• Broaden the tax base and improve collection
Social Infrastructure and Political Institutions
• Modernize the social security system• Fight corruption at every level of government and private sector• Improve the effectiveness of the legal system• Improve system of "checks and balances“ in government• Improve human development
– Rapid improvements in education, health, and nutrition are needed• Create equal opportunity for all groups
40 Copyright 2011 © Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
Action Agenda for Ecuador
Improving the Business Environment
• Open up greater internal competition• Further open the economy to trade and investment
– Reduce tariffs– Simplify trade procedures– Negotiate trade agreements with strategic countries rather than limit them– Welcome foreign investment
• Upgrade workforce training and higher education• Reduce informality by limiting the cost and complexity of registering
companies– Simplify new business formation– Reduce the tax burden and labor market rigidities facing smaller firms
41 Copyright 2011 © Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
Action Agenda for Ecuador
Cluster Development
• Adopt cluster development as a central tool to engage the private sector and implement economic policies
• All clusters are important to enhancing prosperity• Apply a cluster-based approach to economic diversification• Leverage clusters to attract FDI
Regional Development
• Continue decentralization of responsibilities and resources to sub-national governments
• Improve the capacity of local governments to plan, design, and implement development polices
• Improve national-regional collaboration to implement regional programs• Address the underlying causes of inequality between the coastal, Andean and
Amazon regions
42 Copyright 2011 © Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
Action Agenda for Ecuador
Neighborhood Development
• Improve land connectivity with neighbors
• Upgrade political and trade relations with Colombia and Peru
• Restructure the Andean Community of Nations to make it an effective instrument for integration
43 Copyright 2011 © Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
• A prioritized agenda to create a uniquecompetitive position for a country or region
• Implementing best practices in each policy area
• There are a huge number of policy areas that matter
• No country can or should try to make progress in all areas simultaneously
PolicyImprovement
EconomicStrategy
The Need for an Economic Strategy
44 Copyright 2011 © Professor Michael E. Porter20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt
National Value Proposition
Creating a National Economic Strategy
• What is the distinctive competitive position of Ecuador given its location, legacy, existing strengths, and potential strengths?
– What unique advantage as a business location?– For what types of activities and clusters?– And what roles with neighbors, the region, and the broader
world?
Developing Unique Strengths Achieving and Maintaining Parity with Peers
• What elements of the business environment can be unique strengths relative to peers/neighbors?
• What existing and emerging clustersrepresent local strengths?
• What weaknesses must be addressed to remove key constraints and achieve parity with peer countries?
• Priorities and sequencing are necessity in economic development