new zealand competitiveness: the next agenda
TRANSCRIPT
1CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
New Zealand Competitiveness:The Next Agenda
Professor Michael E. PorterHarvard Business School
Catching the Knowledge WaveAuckland, New Zealand
August 3th, 2001
This presentation draws on ideas from Professor Porter’s articles and books, in particular, The Competitive Advantage of Nations (The Free Press,1990), “The Microeconomic Foundations of Economic Development,” in The Global Competitiveness Report 1998, (World Economic Forum,1998), “Clusters and the New Competitive Agenda for Companies and Governments” in On Competition (Harvard Business School Press, 1998)and ongoing statistical study of clusters, Competing for Prosperity: The Microeconomic Foundations of Development, forthcoming, and “What isStrategy?” (Harvard Business Review, Nov/Dec 1996). No part of this publication may be reproduced, stored in a retrieval system, or transmittedin any form or by any means - electronic, mechanical, photocopying, recording, or otherwise - without the permission of Michael E. Porter.
2CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
-3
-2
-1
0
1
2
3
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1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
New Zealand’s Macroeconomic PerformanceReal GDP Growth, year-by-year
Source: EIU
Real GDPgrowth rate in
%
Visit Visit
3CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
New Zealand 2001
• There is a strong sense in New Zealand today that the nation isnot advancing
• Some believe that the country is moving backwards
4CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
-3%
-2%
-1%
0%
1%
2%
3%
Labor ProductivityCapital ProductivityTotal Factor Productivity
New Zealand Productivity Growth(Index 1972 = 100)
Source: IMF (quoted from Diewert-Lawrance, 1999)
Pre-reformPeriod
1973 - 1984
Post Macro-reform Period1985 - 1991
Post “CompetitiveAdvantage of NZ”
1991 - 1998
5CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
-1%
0%
1%
2%
3%
4%
5%
6%
1995 1996 1997 1998 1999 2000 (March)
Source: IMF
Change inReal GDP /
Hours worked
New Zealand Labor Productivity Growth, 1995 -2000
6CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
-15%
-10%
-5%
0%
5%
10%
15%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
MalaysiaTaiwanSingaporeIndonesiaHong KongS KoreaThailandAustraliaNEW ZEALAND
Source: EIU
Real GDPgrowth rate
Comparative Real Growth RatesSelected Asian Countries
7CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
Auckland• Health SoftwareAuckland• Health Software
Active New Zealand Cluster Development Initiatives
Wellington• Film and TV• Software• Creative Content• Seismic Engineering• Natural Hazards
Wellington• Film and TV• Software• Creative Content• Seismic Engineering• Natural Hazards
Waitakere• Marine• Wine• Tourism• Film
Waitakere• Marine• Wine• Tourism• Film
Manukau• Distribution• Tourism• Arts and Culture
Manukau• Distribution• Tourism• Arts and Culture
Taranaki• Engineering• Horticulture
Taranaki• Engineering• Horticulture
Rotorua• Wellness, Spa, Health• Forestry Engineering
Rotorua• Wellness, Spa, Health• Forestry Engineering
Nelson• Arts/Crafts• Seafood
Nelson• Arts/Crafts• Seafood
Dunedin• Engineering• Marine• Multi-media• Biotech• Education• Film
Dunedin• Engineering• Marine• Multi-media• Biotech• Education• Film
Hawkes Bay• Forestry, wood
processing and furniture• Hi Tech• Engineering• Food Processing• Wine• Retirement
Hawkes Bay• Forestry, wood
processing and furniture• Hi Tech• Engineering• Food Processing• Wine• Retirement
Northland• Oysters• Tourism• Forestry
Northland• Oysters• Tourism• Forestry
Invercargill• Apparel• Classic Cars• Crops
Invercargill• Apparel• Classic Cars• Crops
Christchurch• Electronics• Software• Furniture
Christchurch• Electronics• Software• Furniture
North Shore• ITNorth Shore• IT
Horowhenua• Apparel• Organics• Retirement
Horowhenua• Apparel• Organics• Retirement
Manawatu• Defence• Call Centre• Food• IT• Sports
Manawatu• Defence• Call Centre• Food• IT• Sports
Source: Industry New Zealand
8CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
New Zealand’s average
0%
10%
20%
30%
40%
50%
60%
70%
80%
-15% -10% -5% 0% 5% 10%
New Zealand’s Export StructureManufacturing Export Specialization: 1994 to 1998
Share oftotal New
Zealand exports,1998
Export growth,1994 - 1998Note: Size of bubble is US-$ volume of exports in 1998
Source: ITC 2001
Technology intensivemanufacturing
Human capital intensivemanufacturing
Natural-resourceintensive manufacturing Labor intensive
manufacturing
Primary products
9CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
Embracing CompetitionNew Zealand’s Relative Position
Competitive DisadvantagesRelative to GDP per Capita
Competitive AdvantagesRelative to GDP per Capita
Country Ranking Country Ranking
Note: Rank by countries; overall NZ ranks 19 (17 on Business Environment)Source: Global Competitiveness Report 2000
Absence of Distortive 4Government Subsidies
Hidden Trade Barrier Liberalization 5
Tariff Liberalization 7
Effectiveness of Antitrust Policy 10
Extent of Locally Based Competitors 31
Intensity of Local Competition 18
10CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
• Improvements in New Zealand’s business environment havebeen more than matched by its international competitors
• The country’s dependency on natural-resource exports createschallenges
• The economy is dominated by small and medium sizedcompanies with limited global presence
• Clusters are discussed and a significant number of clusterinitiatives has been initiated but there have been limitedcommitment and results
• New Zealand faces stiff competition from other Asian countriesin manufacturing
Strategic Issues
11CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
• Government policies are in some cases working at crosspurposes
• Important elements of an action plan for New Zealand havebeen developed but there is no overarching strategy to integratethem– e.g. attract foreign direct investment– Improve human resources– Science parks
• A lack of clear vision for the country is mentioned by many NewZealanders
Strategic Issues
12CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
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12345678910111213141516171819202122232425
New Zealand’s Relative PositionGCR Ranking Over Time
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Rank Current CompetitivenessIndex
Company Strategy &Operations Index
National BusinessEnvironment IndexNational BusinessEnvironment Index
New Zealand (2000)
New Zealand (1998)
New Zealand (2000)
New Zealand (1998)
New Zealand (2000)New Zealand (1998)
13CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
Note: *Germany (west) : 1990 - 1998Source: US Bureau of Labor Statistics, EIU
Comparative Labor Productivity GrowthManufacturing Sector, 1990 to 1999
0%
1%
2%
3%
4%
5%
Sweden
Singap
oreUnite
d States
France
Japa
nBelg
iumGerm
any*
Netherlan
ds
Italy UK
Canada
NEW ZEALANDNorw
ayOutput per Hour,
CAGR, 1990 to 1999
14CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
Share ofNew
ZealandExports
(Percent)
New Zealand Trade, 1988-1997Percent of Total Country Exports By Natural Resource Intensity
Natural Resource Intensive
Non-Natural Resource Intensive
Source: UN Trade Statistics (Rev. 2), Institute for Strategy and Competitiveness, Harvard Business School.
15CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
0%
10%
20%
30%
40%
50%
60%
70%
80%
Irelan
dSwed
enSwitz
erlan
d
USFinl
and
German
yFran
ceNorw
ayCan
ada
Austra
lia UKNeth
erlan
ds Italy
NEW ZEALAND
Private Sector R&D SpendingOECD Countries
Private companies’Share of R&D
spending, 1999
Source: OECD, 2001
16CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
EXAMPLES
Conflicting Government Policies
• New Zealand is pursuing policies that work in different directions
• Inconsistent policies suggest the lack of consensus on an economicstrategy for New Zealand
• Efforts to reduce compliancecosts for business
• Significant investments ineducation
• Tightening of antitrust lawsand enforcement
• Efforts to improve risk capitalavailability
• Plans to create R&D grants
• Policies to encourage Maoribusiness development
• Policies that increase labormarket rigidity
• Weakening of nationaleducation standards
• Creation of a government-owned bank
• Elimination of privatepension system
• Lack of competitive R&Dtax credits
17CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
Sources of Rising Prosperity• A nation’s standard of living (wealth) is determined by the productivity with which
it uses its human, capital, and natural resources. The appropriate definition ofcompetitiveness is productivity.
– Productivity depends both on the value of products and services (e.g.uniqueness, quality) as well as the efficiency with which they are produced.
– It is not what industries a nation competes in that matters for prosperity, buthow firms compete in those industries
– Productivity in a nation is a reflection of what both domestic and foreign firmschoose to do in that location. The location of ownership is secondary fornational prosperity.
– The productivity of “local” industries is of fundamental importance tocompetitiveness, not just that of traded industries
– Devaluation does not make a country more “competitive”, rather it reveals alack of fundamental competitiveness
• Nations compete in offering the most productive environment for business
• The public and private sectors play different but interrelated roles in creating aproductive economy
18CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
Innovation and Prosperity
Competitiveness(Productivity)
Innovative Capacity
Prosperity
• For advanced economies innovation is critical tosupport high levels of prosperity
19CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
Microeconomic Foundations of DevelopmentMicroeconomic Foundations of Development
Quality of the Microeconomic
BusinessEnvironment
Quality of the Microeconomic
BusinessEnvironment
Sophisticationof Company
Operations andStrategy
Sophisticationof Company
Operations andStrategy
Determinants of Productivity and Productivity Growth
Macroeconomic, Political, and Legal Context for DevelopmentMacroeconomic, Political, and Legal Context for Development
• Sound macroeconomic policies and a stable political / legal context arenecessary to ensure a prosperous economy, but not sufficient
• Competitiveness ultimately depends on improving the microeconomicfoundations of competition
20CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
Context forFirm
Strategyand Rivalry
Context forFirm
Strategyand Rivalry
Related andSupportingIndustries
Related andSupportingIndustries
Factor(Input)
Conditions
Factor(Input)
Conditions
• Sophisticated anddemanding local customer(s)
• Unusual local demand inspecialized segments that canbe served globally
• Customer needs thatanticipate those elsewhere
• A local context thatencourages efficiency,investment, andsustained upgrading
• Open and vigorouscompetition among locallybased rivals
DemandConditionsDemand
Conditions
• High quality, specializedinputs available to firms:
- human resources- capital resources- physical infrastructure- administrative infrastructure- information infrastructure- scientific and technological
infrastructure- natural resources
Productivity and the Microeconomic Business Environment
• Presence of capable, locally-based suppliers and firms inrelated fields
• Presence of clusters insteadof isolated industries
21CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
The California 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 HarvestingEquipment
Grape HarvestingEquipment
Irrigation TechnologyIrrigation Technology
Winemaking EquipmentWinemaking Equipment
BarrelsBarrels
LabelsLabels
BottlesBottles
Caps and CorksCaps and Corks
Public Relations andAdvertising
Public Relations andAdvertising
Specialized Publications(e.g., Wine Spectator, Trade
Journal)
Specialized Publications(e.g., Wine Spectator, Trade
Journal)
Food ClusterFood Cluster
Tourism ClusterTourism ClusterCaliforniaAgricultural Cluster
CaliforniaAgricultural Cluster
State Government Agencies(e.g., Select Committee on Wine
Production and Economy)
22CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
Finland
United States
GermanyNetherlands
SwitzerlandDenmark
SwedenUnited Kingdom
Singapore
AustraliaCanada
BelgiumAustria
Japan
FranceHong Kong
Iceland
Israel
New Zealand
Norway
Taiwan
Ireland
Spain
Italy
South Africa
ChileKorea
Portugal
Turkey
Malaysia
Brazil
Hungary
Greece
Czech Republic
Jordan
Slovakia
India
Mauritius
EgyptThailand
PolandMexico
Costa Rica
China
Argentina
PhilippinesIndonesia
Colombia
Peru
ZimbabweEl Salvador
Russia
Vietnam
Venezuela
BulgariaUkraine
Ecuador
Bolivia
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
Global Competitiveness Report 2000The Relationship Between Microeconomic Competitiveness
and GDP Per Capita, 1999 Data
Microeconomic Competitiveness Index
Source: Porter, Michael E. “The Current Competitiveness Index: Measuring the Microeconomic Foundations of Prosperity.” The GlobalCompetitiveness Report 2000, New York: Oxford University Press, 2000
1999 GDP perCapita*
* Adjusted for Purchasing Power Parity
NEW ZEALAND
23CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
Stages Of Competitive Development
Innovation-Driven Economy
Innovation-Driven Economy
Factor-Driven Economy
Factor-Driven Economy
Investment-Driven Economy
Investment-Driven Economy
Source: Porter, Michael E.,The Competitive Advantage of Nations,Macmillan Press, 1990
InputCosts Efficiency Higher
Value
24CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
Geographic Levels and Competitiveness
Broad Economic AreasBroad Economic Areas
Groups of NeighboringNations
Groups of NeighboringNations
States, Counties,Departments
States, Counties,Departments
Metropolitan AreasMetropolitan Areas
NationsNations
World EconomyWorld Economy
25CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
I. Address some chronic weaknesses
II. Make the transition to an Innovation-Driven economy basedon New Zealand’s unique assets
III. Better integrate economic and social policies
IV.Articulate an overall national strategy
New Zealand’s Economic Agenda in 2001
26CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
I. Address some chronic weaknesses– Upgrade domestic financial markets
New Zealand’s Economic Agenda in 2001
27CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
Financial MarketsNew Zealand’s Relative Position
Factor(Input)
Conditions
Factor(Input)
Conditions
Financial Disclosure Requirements 9 Venture Capital Availability 28
Access to Local Equity Markets 28
Ease of Access to Loans 25
Competitive DisadvantagesRelative to GDP per Capita
Competitive AdvantagesRelative to GDP per Capita
Country Ranking Country Ranking
Note: Rank by countries; overall NZ ranks 19 (17 on Business Environment)Source: Global Competitiveness Report 2000
28CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
I. Address some chronic weaknesses– Upgrade domestic financial markets– Improve the human resource development system
New Zealand’s Economic Agenda in 2001
29CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
Making the Transition To An Innovation-DrivenEconomy
• New Zealand’s faces unusual challenges in moving to an Innovation-driven economy
• It cannot follow the path of countries like Taiwan or Singapore whocan pass through the Investment-Driven stage
– The level of wages exceeds that which can be supported throughOEM manufacturing
– New Zealand’s resource intensive industries have not equippedthe nation to compete in advanced manufacturing and services
Factor-DrivenEconomy
Factor-DrivenEconomy
Investment-DrivenEconomy
Investment-DrivenEconomy
Innovation-DrivenEconomy
Innovation-DrivenEconomy
30CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
I. Address some chronic weaknesses– Upgrade domestic financial markets– Improve the human resource development system
II. Making the transition to an Innovation-Driven economy– Upgrade New Zealand’s scientific and technological capacity
in fields where it can be world class
New Zealand’s Economic Agenda in 2001
31CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
Science and Technology SystemNew Zealand’s Relative Position
Factor(Input)
Conditions
Factor(Input)
Conditions
University / Industry Research 42Collaboration
Company Spending on R&D 31
Patents per capita (1998) 21
Competitive DisadvantagesRelative to GDP per Capita
Competitive AdvantagesRelative to GDP per Capita
Country Ranking Country Ranking
Note: Rank by countries; overall NZ ranks 19 (17 on Business Environment)Source: Global Competitiveness Report 2000
32CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. PorterSource: US Patent and Trademark Office (www.uspto.gov). Author’s analysis.
Annual U.S.patents per
1 millionpopulation,
2000
Compound annual growth rate of US-registered patents, 1990 - 2000
International Patenting Performance
0
50
100
150
200
250
300
350
400
450
0% 5% 10% 15% 20% 25% 30% 35% 40%
Australia
Canada
Germany
Japan
South Korea
Sweden
Taiwan
UK
Israel
= 10,000 patentsgranted in 2000
USA
NEW ZEALAND
Singapore
33CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
0% 5% 10% 15% 20% 25%
Change in R&D InvestmentsCompound Annual Growth Rate in R&D Expenditures, 1985-1998
Source: US Competitiveness 2001: Strengths, Vulnerabilities, and Innovation Priorities Report; Global Competitiveness Report 2000
USA
Germany
UK
Sweden
Canada
SingaporeAustralia
Japan
Ireland
ItalyNEW ZEALAND
South Korea
FranceIsrael
R&D Spending as Shareof GDP, 1998
R&D Expenditures, CAGR, 1985 - 1998
34CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
Norway
Sweden
Switzerl
and
Finlan
d UKJa
pan
Irelan
d
USKore
aFran
ceNeth
erlan
dsAus
tralia
Canad
aSpa
inTax Treatment of R&D in OECD Countries
Tax incentives for R&D Spending, Large Companies, 1999
Source: OECD estimates
NEW
ZEA
LAND
Germ
any
Tax credit as share ofR&D spending
35CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
• Top 5 NZ-based companies by U.S. patents filed in 1999– FISHER + PAYKEL LIMITED (6 patents)
– TRIMBLE NAVIGATION, LTD. (6)
– AUCKLAND UNISERVICES LIMITED (5)
– GENESIS RESEARCH & DEVELOPMENT CORPORATION, LTD. (5)
– INTERLOCK GROUP LIMITED (4)
• U.S. patents field in 1999 by New Zealand inventors are almostexclusively by domestic companies
Source: US Patent and Trademark Office (www.uspto.gov). Author’s analysis.
Composition of New Zealand Patenting in the USTop Patenting Industries and Companies, 1999
36CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
• Increase specialization of universities and research institutions aroundareas of existing and potential New Zealand excellence
• Promote cooperation between universities and the private sector viaclusters
• Raise the proportion of R&D spending by the non-government sector
• Increase incentives for private sector R&D
• Focus on attracting foreign investment in areas of potential R&Dstrengths
Science and Technology SystemNew Zealand’s Action Agenda
37CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
I. Address some chronic weaknesses– Upgrade domestic financial markets– Improve the human resource development system
II. Making the transition to an Innovation-Driven economy– Upgrade New Zealand’s scientific and technological capacity in
fields where it can be world class– Create advanced demand conditions
New Zealand’s Economic Agenda in 2001
38CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
Demand Conditions New Zealand’s Relative Position
DemandConditionsDemand
Conditions
Openness of Public Sector 3Contracts
Consumer Adoption of Latest 11Products
Buyer Sophistication 23
Competitive DisadvantagesRelative to GDP per Capita
Competitive AdvantagesRelative to GDP per Capita
Country Ranking Country Ranking
Note: Rank by countries; overall NZ ranks 19 (17 on Business Environment)Source: Global Competitiveness Report 2000
39CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
Global Competitiveness Report 2000Environmental Regulation and Microeconomic Competitiveness
New Zealand
Current CompetitivenessIndex (CCI)
Environmental RegulatoryRegime Index
y = 0.9807x - 0.0346R2 = 0.891
Source: Global Competitiveness Report 2000
40CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
Environmental Regulation and Competitiveness
• Competing based on weak environmental standards perpetuates lowincomes
• Corporate pollution is a sign of inefficient and unproductive use ofresources
Firm• Inefficient extraction of resources• Incomplete material utilization• Unnecessary waste products• Unnecessary energy use• Unproductive land use
Customer• Usable materials in products that
are discarded• Products that use energy
inefficiently• Discarded or unnecessary
packaging• The need to control or treat pollution causes companies to perform activities
that add cost but create no customer value- e.g., handling, storage, processing, disposal
• Pollution is a reflection of unsophisticated technology and weakmanagement
• Strict environmental regulation stimulates the upgrading necessary toachieve advanced economic development
41CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
I. Address some chronic weaknesses– Upgrade domestic financial markets– Improve the human resource development system
II. Making the transition to an Innovation-Driven economy– Upgrade New Zealand’s scientific and technological capacity in
fields where it can be world class– Create advanced demand conditions– Move from networking to true cluster development– Widen the base of meaningful clusters in the economy
New Zealand’s Economic Agenda in 2001
42CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
Related and Supporting Industries New Zealand’s Relative Position
Related andSupportingIndustries
Related andSupportingIndustries
Cluster Presence 35
Extent of Locally Based Competitors 31
Domestic Supplier Quantity 29
Domestic Supplier Quality 20
Intensity of Local Competition 18
Competitive DisadvantagesRelative to GDP per Capita
Competitive AdvantagesRelative to GDP per Capita
Country Ranking Country Ranking
Note: Rank by countries; overall NZ ranks 19 (17 on Business Environment)Source: Global Competitiveness Report 2000
43CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
EquipmentSuppliers
(e.g. Oil FieldChemicals,
Drilling Rigs,Drill Tools)
Specialized Institutions(e.g. Academic Institutions, Training Centers, Industry Associations)
SpecializedTechnology
Services
(e.g. DrillingConsultants,
Reservoir Services,Laboratory Analysis)
Subcontractors
(e.g. Surveying,Mud Logging,Maintenance
Services)
BusinessServices
(e.g. MIS Services,TechnologyLicenses,
Risk Management)
Houston Oil and Gas Cluster
OilTrans-
portation
OilTrading
OilRefining
OilRetail
Marketing
OilWholesaleMarketing
OilDistribution
GasGathering
GasProcessing
GasTrading
GasTransmis-
sion
GasDistribution
GasMarketing
Oil & Natural GasExploration &Development
Oil & Natural GasCompletion &
Production
Upstream Downstream
Oilfield Services/Engineering & Contracting Firms
44CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
Public / Private Cooperation in Cluster UpgradingMinnesota’s Medical Device Cluster
Context forFirm
Strategyand Rivalry
Context forFirm
Strategyand Rivalry
Related andSupportingIndustries
Related andSupportingIndustries
Factor(Input)
Conditions
Factor(Input)
ConditionsDemand
ConditionsDemand
Conditions
• Joint development of vocational-technical college curricula with themedical device industry
• Minnesota Project Outreach exposesbusinesses to resources available atuniversity and state governmentagencies
• Active medical technology licensingthrough University of Minnesota
• State-formed Greater Minnesota Corp.to finance applied research, invest innew products, and assist in technologytransfer
• State sanctionedreimbursement policiesto enable easier adoptionand reimbursement forinnovative products
• Aggressive trade associations(Medical Alley Association, HighTech Council)
• Effective global marketing of thecluster and of Minnesota as the“The Great State of Health”
• Full-time “Health Care IndustrySpecialist” in the department ofTrade and Economic Development
45CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
KnowledgeCreation
KnowledgeCreation
HealthcareHealthcare FinancialServices
FinancialServices
InformationTechnologyInformationTechnology
ApparelTextiles and
Footwear
ApparelTextiles and
Footwear
MarineMarineTourism andLeisure
Tourism andLeisure
PolymersPolymers
MetalworkingMetalworking
Specialty Paper
Specialty Paper
EnvironmentalProducts and
Services
EnvironmentalProducts and
Services
Massachusetts ClustersWidening the Cluster Base
46CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
Organizing for CompetitivenessCommonwealth of Massachusetts
• Cost of Doing Business
• Financing of EmergingCompanies
• Health CareRestructuring
• Revitalizing WesternMassachusetts
• International Trade
• Marketing Massachusetts
• Tax Policy and CapitalFormation
• Technology Policy andDefense Conversion
• Advanced Materials• Biotechnology and
Pharmaceuticals• Defense• Marine Science and
Technology• Medical Devices• Software• Telecommunications• Textiles
Issue GroupsIssue Groups Industry ClusterWorking Groups
Industry ClusterWorking Groups
Governor’s Council on Economic Growthand Technology
Governor’s Council on Economic Growthand Technology
FunctionalTask ForcesFunctional
Task Forces
47CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
I. Address some chronic weaknesses– Upgrade domestic financial markets– Improve the human resource development system
II. Making the transition to an Innovation-Driven economy– Upgrade New Zealand’s scientific and technological capacity in
fields where it can be world class– Create advanced demand conditions– Move from networking to true cluster development– Widen the base of meaningful clusters in the economy– Pursue focused approach to attract FDI
New Zealand’s Economic Agenda in 2001
48CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
I. Address some chronic weaknesses– Upgrade domestic financial markets– Improve the human resource development system
II. Making the transition to an Innovation-Driven economy– Upgrade New Zealand’s scientific and technological capacity in
fields where it can be world class– Create advanced demand conditions– Move from networking to true cluster development– Widen the base of meaningful clusters in the economy– Pursue focused approach to attract FDI– Shift the role of government
New Zealand’s Economic Agenda in 2001
49CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
EXAMPLES
Transition To An Innovation-Driven EconomyConflicting Government Policies
Consistent with anInnovation-driven
Economy
Consistent with anInnovation-driven
Economy
Inconsistent with anInnovation-driven
Economy
Inconsistent with anInnovation-driven
Economy
• Efforts to reduce compliancecosts for business
• Significant investments ineducation
• Tightening of antitrust lawsand enforcement
• Efforts to improve risk capitalavailability
• Plans to create R&D grants
• Policies to encourage Maoribusiness development
• Policies that increase labormarket rigidity
• Weakening of nationaleducation standards
• Creation of a government-owned bank
• Elimination of privatepension system
• Lack of competitive R&Dtax credits
50CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
1. Establish a stable and predictable macroeconomic, political, andlegal environment
2. Improve the availability, quality, and efficiency of general purposeinputs, infrastructure, and institutions
3. Set overall rules and incentives governing competition thatencourage productivity growth
4. Facilitate cluster development and upgrading
5. Create an explicit, ongoing process of economic change andcompetitive upgrading which informs citizens and mobilizes theprivate sector, government at all levels, educational and otherinstitutions, and civil society.
Appropriate Roles of Government in Economic Development
51CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
I. Address some chronic weaknesses– Upgrade domestic financial markets– Improve the human resource development system
II. Making the transition to an Innovation-Driven economy– Upgrade New Zealand’s scientific and technological capacity in
fields where it can be world class– Create advanced demand conditions– Move from networking to true cluster development– Widen the base of meaningful clusters in the economy– Pursue focused approach to attract FDI– Shift the role of government– Develop competitiveness strategy at the regional level
New Zealand’s Economic Agenda in 2001
52CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
Geographic Levels and Competitiveness
Broad Economic AreasBroad Economic Areas
Groups of NeighboringNations
Groups of NeighboringNations
States, Counties,Departments
States, Counties,Departments
Metropolitan AreasMetropolitan Areas
NationsNations
World EconomyWorld Economy
53CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
I. Address some chronic weaknesses– Upgrade domestic financial markets– Improve the human resource development system
II. Making the transition to an Innovation-Driven economy– Upgrade New Zealand’s scientific and technological capacity in
fields where it can be world class– Create advanced demand conditions– Move from networking to true cluster development– Widen the base of meaningful clusters in the economy– Pursue focused approach to attract FDI– Shift the role of government– Develop competitiveness strategy at the regional level– Transform company strategies
New Zealand’s Economic Agenda in 2001
54CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
Senior Management Recruitment 11
Note: Rank by countries; overall NZ ranks 19 (22 on Company Operations and Strategy)Source: Global Competitiveness Report 2000
Company Spending on R&D 31
Licensing of Foreign Technology 26
Nature of Competitive Advantage 25
Value Chain Presence 24
Extent of Regional Sales 23
Control of International Distribution 23
Competitive DisadvantagesRelative to GDP per Capita
Competitive AdvantagesRelative to GDP per Capita
Company Operations and StrategyNew Zealand’s Relative Position
Country Ranking Country Ranking
55CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
Determinants of Relative PerformanceTypes of Competitive Advantage
Differentiation(Non-Price Value)
Lower Cost
CompetitiveAdvantage
CompetitiveAdvantage
56CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
Sources of Competitive Advantage
• Creating a unique andsustainable competitiveposition
• Assimilating, attaining, andextending best practice
OperationalEffectiveness
Do the same thing better Compete in a different way
StrategicPositioning
57CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
I. Address some chronic weaknesses
II. Make the transition to an Innovation-Driven economy basedon New Zealand’s unique assets
III. Better integrate economic and social policies
IV.Articulate an overall national strategy
New Zealand’s Economic Agenda in 2001
58CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
• Inadequate education and skill development
• Monopolies and restraints to competition
• Discrimination
• Faulty incentives for disadvantaged groups
• Command and control regulation
• Managerial ignorance
Causes of Economic Inequality
59CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
• A productive and growing economy requires:– Rising skill levels– Safe working conditions– Healthy workers who live in decent housing in safe neighborhoods– A sense of equal opportunity– Assimilation of underemployed citizens into the productive workforce– Low levels of pollution (pollution is a sign of unproductive use of physical
resources)• “Social” policies must be aligned with productivity in the economy and
prepare and motivate citizens to succeed in the market system• “Economic” policies must include explicit programs to raise human capability
and improve the lives and the sense of opportunity for citizens
• A productive and growing economy requires:– Rising skill levels– Safe working conditions– Healthy workers who live in decent housing in safe neighborhoods– A sense of equal opportunity– Assimilation of underemployed citizens into the productive workforce– Low levels of pollution (pollution is a sign of unproductive use of physical
resources)• “Social” policies must be aligned with productivity in the economy and
prepare and motivate citizens to succeed in the market system• “Economic” policies must include explicit programs to raise human capability
and improve the lives and the sense of opportunity for citizens
Integrating Economic and Social Policy
• In the new thinking on competitiveness, there is no inherent conflictbetween economic and social policy
EconomicPolicy
SocialPolicy
60CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
Integrating Economic and Social PolicyExamples
Training• Organize training investments around clusters
Housing• Create mechanisms to encourage home ownership; provide incentives for new
company formation in the construction cluster; reduce unnecessary costs of housingconstruction due to regulatory and approval requirement; secure property rights toresidents
Health Care• Create incentives for private health insurance; open health care delivery to competition
Social Security• Create incentives for saving; encourage a private pension system that agglomerates
investment capital
Environmental Quality• Institute a regulatory regime that encourages movement to more environmental friendly
methods; invest in technical assistance in eco-efficient processes and practices
61CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
-30,000
-20,000
-10,000
0
10,000
20,000
30,000
40,000
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
New Zealand’s Migration BalanceNet Migration Flows to/from New Zealand, 1986 - 2001
Net Migration (Arrivals -Departures)
Source: NZIER
62CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
I. Address some chronic weaknesses
II. Make the transition to an Innovation-Driven economy basedon New Zealand’s unique assets
III. Better integrate economic and social policies
IV.Articulate an overall national strategy
New Zealand’s Economic Agenda in 2001
63CAON New Zealand Presentation 08-04-01 CK Copyright © 2001 Professor Michael E. Porter
New Zealand StrategyElements
• What New Zealand aspires to achieve in the world economy– The New Zealand Scorecard is a good first step
• What field New Zealand aims to be world class in
• What New Zealand stands for the brand– E.g. Clean and healthy; in tourism, agriculture, manufacturing products and
processes, ethical investment, …– Adventure; in tourism, in sports, …– World class technology
• Where New Zealand needs to improve
• How New Zealand will go about upgrading– A New Zealand Strategic Plan