18 de frebrero diamond model developing economies
TRANSCRIPT
Copyright © 2006 Professor Michael E. Porter1MOC Session 1 - 2007
Microeconomics of Competitiveness
Session 4: The Diamond Model in Developing / Transition Economies
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 2007-08, (World Economic Forum, 2008), “Clusters and the New Competitive Agenda for Companies and Governments” in On Competition (Harvard Business School Press, 1998), and the Clusters of Innovation Initiative (www.compete.org), a joint effort of the Council on Competitiveness, Monitor Group, and Professor Porter and ongoing research at the Institute for Strategy and Competitiveness. Additional information may be found at the website of the Institute for Strategy and Competitiveness, www.isc.hbs.edu 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. Version: February 5, 2008
Microeconomics of CompetitivenessFebruary 5, 2008
Professor Michael E. Porter
Copyright © 2006 Professor Michael E. Porter2MOC Session 1 - 2007
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Prosperity PerformanceSelected Middle- and Lower-Income Countries
PPP-adjusted GDP per Capita, 2006
Growth of Real GDP per Capita (PPP-adjusted), CAGR, 1996-2006Source: EIU (2007), authors calculations
China
Vietnam
Poland
Russia
Saudi Arabia
TurkeyThailand
Chile Croatia
Philippines
Mexico
Brazil
India
Oman
Indonesia
Argentina
MalaysiaSouth Africa
Romania
Panama
Lithuania
Ukraine
CambodiaSri LankaEcuador
PeruVenezuela
MoroccoEgypt
BelizeDominican Republic
Tunisia
Syria
Libya
Costa Rica
Colombia
Guatemala
El Salvador
8.5%5.5% 6.5%
Portugal Czech Republic
Cyprus
Estonia
Latvia
HungarySlovakia
United Arab Emirates
SloveniaSouth Korea
Copyright © 2006 Professor Michael E. Porter3MOC Session 1 - 2007
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ColombiaBraz
ilChil
eCos
ta RicaChin
aTurk
eyUnit
ed Stat
es
Russia
n Fed
eratio
nGha
naLa
tvia
Vietna
mLit
huan
ia
United
Kingdo
mEsto
niaSpa
inPola
ndIre
land
Rwanda
German
yFinl
and
Norway
Czech
Rep
ublic
Sweden
Income InequalitySelected CountriesGini Index
Note: Most recent Gini index data available for each country (1999 – 2003). Czech Republic data is from 1996. Source: World Bank, World Development Indicators, 2007.
4 Copyright © 2006 Professor Michael E. PorterMOC Session 1 - 2007
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0.1
0.2
0.3
0.4
0.5
0.6
CHINA
THAILAND
NORWAYVIETNAM
JAPAN
IRELA
ND
CZECH R
EPUBLIC
UNITED S
TATES
SWEDEN
ESTONIAKOREA
GERMANYLA
TVIA
RUSSIA
UNITED KIN
GDOMFIN
LAND
GHANACOSTA
RIC
AMALA
YSIALIT
HUANIACHILEBRAZIL
INDIA
POLAND
TURKEYLabor Force Mobilization
Selected CountriesEmployees as % of Population, 2006
Note: Use most recent year available, either 2005 or 2006
Source: The Conference Board and Groningen Growth and Development Centre, Total Economy Database, November 2007
5 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
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20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
-1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%
Comparative Labor ProductivitySelected Countries
Compound annual growth rate (CAGR) of real GDP per employee (PPP-adjusted), 2001-2006
GDP per employee (PPP adjusted US$),
2006
Source: EIU (2007), Saudi Arabia employee data (number persons employed) from ILO LABORSTA (2007)
USA
Czech RepublicPortugal
Italy
Sweden
NetherlandsFrance
Slovakia
Germany
Greece
Spain
New Zealand
Ireland
Australia
Austria
Hungary
Finland
Canada Denmark
Norway
Japan
UK
Turkey
Estonia
Mexico TunisiaIran
Israel
Saudi Arabia
Brazil
Bangladesh
Hong KongTaiwan Singapore
IndiaChina (9.0%)
South Africa
Slovenia
Malaysia
Egypt
PakistanPhilippines
IndonesiaVietnam
Thailand
Chile
Croatia
Belgium
ColombiaCosta Rica
Poland
Latvia (8.2%)
Sri Lanka
Lithuania
6 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
-0.06% -0.03% 0.00% 0.03% 0.06% 0.09% 0.12% 0.15% 0.18%
National Cluster Export PortfolioEstonia, 1997-2006
Change in Estonia’s world export market share, 1997 – 2006Source: 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.
Esto
nia’
s w
orld
exp
ort m
arke
t sha
re, 2
006
Change In Estonia’s Overall World Export Share: 0.30%
Estonia’s AverageWorld Export Share: 0.10%
Exports of US$300 Million =
Hospitality and Tourism
Automotive
Processed Foods
Business Services
Transportation and Logistics
Biopharmaceuticals
Motor Driven Products
Chemical Products
Oil & Gas
Fishing and Fishing Related Products
Information Technology
PlasticsTextiles
Forest Products
Construction Services
Building Fixtures and Equipment
Prefabricated Enclosures and Structures
Communication Services
Production Technology
0.40%
0.30%
0.20%
0.10%
Construction Materials
0%
Financial Services
Lighting and Electrical EquipmentHeavy Machinery
Medical Devices
Publishing and Printing
Entertainment
Communications Equipment
Agricultural Products
Metal Mining and Manufacturing
ApparelFootwear
Furniture(0.32%, 0.57%)
7 Copyright 2008 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
-0.25% -0.20% -0.15% -0.10% -0.05% 0.00% 0.05% 0.10% 0.15% 0.20% 0.25% 0.30%Change in Chile’s world export market share, 1997 – 2006
Source: 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.
Chi
le’s
wor
ld e
xpor
t mar
ket s
hare
, 200
6
Change In Chile’s Overall World Export Share: 0.15%
Chile’s Average World Export Share: 0.49%
Exports of US$1.2 Billion =
Hospitality and Tourism
Furniture
Processed Foods Business Services
Transportation and Logistics
Biopharmaceuticals
Motor Driven Products
Chemical Products
Oil and Gas
Fishing and Fishing Related Products (1.51%, 4.22%)
Agricultural Products
Plastics
Textiles
Forest Products
Prefabricated Enclosures and Structures
Communication Services (-0.41%)
Tobacco
0.13%
0.11%
Construction Materials
0%
Financial Services
Heavy Machinery
Publishing and Printing
Jewelry, Precious Metals and Collectibles
Communications Equipment
Metal Mining and Manufacturing (1.73%, 3.99%, $36 billion)
Automotive
National Cluster Export PortfolioChile, 1997-2006
Building Fixtures and Equipment
0.09%
0.07%
0.05%
0.04%
0.03%
0.02%
0.10%
8 Copyright 2007 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
-20% -10% 0% 10% 20% 30% 40% 50%
Source: USPTO (2008), EIU
Average U.S. patents per 1 million population, 2002-2006
CAGR of US-registered patents, 2002 – 2006
Belgium
Innovative CapacityInnovation Output of Selected Countries
Poland
Russia
Saudi Arabia
Turkey
Thailand
Chile
Croatia
Philippines
Mexico
BrazilIndia
Greece
Indonesia
Argentina
Malaysia
South Africa
Romania
Estonia
Slovenia (8.8)
Latvia LithuaniaCosta Rica
Colombia
Portugal
Czech Republic
Hungary (5.2)
Slovakia
United Arab Emirates
45 patents =
920080204 MOC Session 3 Copyright © 2006 Professor Michael E. Porter
Determinants of Competitiveness
Microeconomic CompetitivenessMicroeconomic CompetitivenessSophisticationSophisticationof Companyof Company
Operations andOperations andStrategyStrategy
State of Cluster State of Cluster DevelopmentDevelopment
Macroeconomic, Political, Legal, and Social ContextMacroeconomic, Political, Legal, and Social ContextMacroeconomic, Political, Legal, and Social Context
• A sound macroeconomic, political, legal, and social context creates the potential for competitiveness, but is not sufficient
• Competitiveness ultimately depends on improving the microeconomic capability of the economy and the sophistication of local competition
Quality of the Quality of the BusinessBusiness
EnvironmentEnvironment
1020080204 MOC Session 3 Copyright © 2006 Professor Michael E. Porter
Geography, Demographics, History, CultureGeography, Demographics, History, Culture
Conditions for Competitiveness
The DiamondContext 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
Macroeconomic, Political, Legal, and Social Context
1120080204 MOC Session 3 Copyright © 2006 Professor Michael E. Porter
Governance IndicatorsSelected Countries
FINLA
NDSIN
GAPORE
UNITED STA
TESCHILE
ESTONIASLO
VENIA
CZECH R
EPUBLICLIT
HUANIALA
TVIA
COSTA R
ICA
POLAND
SOUTH AFRIC
AGHANABRAZIL
COLOMBIACHIN
ARUSSIA
INDONESIA
Voice and AccountabilityPolitical Stability/No ViolenceGovernment EffectivenessRegulatory QualityRule of LawControl of Corruption
Note: Sorted left to right by decreasing average value across all indicators. The ‘zero’ horizontal line corresponds to the median country’s average value across all indicators.Source: World Bank (2007)
Worstcountry in the world
Index of Governance
Quality,2006
Best country in the world
Copyright © 2006 Professor Michael E. Porter12MOC Session 1 - 2007
Improving the Business Environment: The Diamond
Context 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
Access to high quality business inputs
– Natural endowments– Human resources– Capital availability– Physical infrastructure– Administrative infrastructure
(e.g. registration, permitting)– Information infrastructure
(e.g., transparency)– Scientific and technological
infrastructure
Availability of suppliers and supporting industriesPresence of clusters instead of isolated firms
Sophistication of local customers and needs
–Strict quality, safety, and environmental standards
• 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 incentivesthat encourage investment and productivity
– e.g. salaries, incentives for capital investments, intellectual property protection
Vigorous local competition– Openness to foreign and local
competition
Copyright © 2006 Professor Michael E. Porter13MOC Session 1 - 2007
Context 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
The Process of Economic DevelopmentUpgrading the Diamond in Developing Countries
1 14
3
2
Copyright © 2006 Professor Michael E. Porter14MOC Session 1 - 2007
Legacies of a Planned-Economy
Legacies of a Planned-Economy
• Economic policy is centrally directed
• Buyer/supplier linkages were planned from a national and Soviet Union perspective, versus an efficiency perspective
• The relationships between suppliers and buyers are specified in the production of defined goods and services
• The geographic locations of related economic activities driven by political and security considerations
• Companies are focused on narrow parts of the value chain, lacking marketing and other capabilities
• Economic policy is centrally directed
• Buyer/supplier linkages were planned from a national and Soviet Union perspective, versus an efficiency perspective
• The relationships between suppliers and buyers are specified in the production of defined goods and services
• The geographic locations of related economic activities driven by political and security considerations
• Companies are focused on narrow parts of the value chain, lacking marketing and other capabilities
Cluster-based EconomyCluster-based Economy
• Economic policy involves significant autonomy and well developed institutions at the regional and local level
• Regions specialize in terms of the fields in which they compete
• Clusters leverage externalities across firms, universities, and other local organizations that drive productivity and dynamism
• Geographic choices are based on the economic attractiveness of locations; firms co-locate with others to reap cluster benefits
• Company scale and scope is driven by economic efficiency, including the ability to access specialized skills available in the surrounding cluster
• Small and medium sized companiesare an essential part of clusters
• Economic policy involves significant autonomy and well developed institutions at the regional and local level
• Regions specialize in terms of the fields in which they compete
• Clusters leverage externalities across firms, universities, and other local organizations that drive productivity and dynamism
• Geographic choices are based on the economic attractiveness of locations; firms co-locate with others to reap cluster benefits
• Company scale and scope is driven by economic efficiency, including the ability to access specialized skills available in the surrounding cluster
• Small and medium sized companiesare an essential part of clusters
The Geographic Distribution of Economic ActivityLegacies of a Planned Economy
Copyright © 2006 Professor Michael E. Porter15MOC Session 1 - 2007
Stages Of Competitive DevelopmentEvolving Nature of International Competitive Position
Factor-Driven Economy
Factor-Driven Economy
Investment-Driven Economy
Investment-Driven Economy
Innovation-Driven Economy
Innovation-Driven Economy
Competitive Advantage
• Low-cost basic factor conditions (low-skilled labor, natural resources, geographic location)
• Companies compete on price in commodity markets or in producing goods and services for others
• Companies have limited roles in the value chain, focusing on assembly, labor intensive manufacturing, and resource extraction
• Technology is assimilatedthrough imports, FDI, and imitation
• The economy is highly sensitive to world economic cycles, commodity prices, and exchange rates
Competitive Advantage
• The ability to produce standard products and services of high quality using efficient methods but at lower wages than advanced economies
• The economy is concentrated on manufacturing and outsourced service exports, though many firmscontinue to serve OEM customers
• There is heavy investment in efficient infrastructure and modern production processes
• Companies extend capabilitiesmore widely in the value chain
• Technology is accessed through licensing, joint ventures, FDI, and imitation, but local capacity to improve and develop technology is developed
Competitive Advantage
• Companies produceinnovative products and services at the global technology frontier
• Companies compete with distinctive strategies that are often global in scope
• The national diamond is characterized by strengths in all areas together with the presence of deep clusters
• The economy has a high service share, and is resilient to external shocks
Source: Porter, Michael E., The Competitive Advantage of Nations, The Free Press, 1990
Copyright © 2006 Professor Michael E. Porter16MOC Session 1 - 2007
Stages Of Competitive DevelopmentShifting Policy Imperatives
Factor-Driven Economy
FactorFactor--Driven Driven EconomyEconomy
Investment-Driven Economy
InvestmentInvestment--Driven EconomyDriven Economy
Innovation-Driven Economy
InnovationInnovation--Driven EconomyDriven Economy
Source: Porter, Michael E., The Competitive Advantage of Nations, Macmillan Press, 1990
Cost of Inputs Productivity Unique Value
• Macro, political, and legal stability
• Efficient basic infrastructure
• Lowering the regulatory costs of doing business
• Local competition• Market openness• Advanced infrastructure• Incentives and rules
encouraging productivity• Cluster formation and
activation
• Advanced skills
• Scientific and technological institutions
• Incentives and rulesencouraging innovation
• Cluster upgrading
Copyright © 2006 Professor Michael E. Porter17MOC Session 1 - 2007
Building the DiamondFactor Conditions
Typical Starting Point for Developing Countries
• High reliance on the availability of low wage, unskilled labor and natural resources
• Lack of capital–Low savings–Capital flight
• Inefficient public administration and regulatory processes which are subject to corruption
• Underdeveloped infrastructure, capital markets, and educational system
• Most technology is externally supplied and controlled
• Low productivity
Factor(Input)
Conditions
Factor(Input)
Conditions
Successful Economic Development
• Erect the basic foundations for business activity– Ensuring public safety and rule of law– Functioning administrative infrastructure,
including efficient regulatory processes and secure property rights
– Business-related information• Improve the quality and increase the efficiency
of utilizing existing factor inputs– Natural resource pricing and conservation– Physical infrastructure efficiency– Quality and reach of public education – Efficiency of labor markets– Rate of national savings
• Widen the array of factor inputs available locally• Upgrade the factor quality of factors to higher
levels• Enhance factor specialization around clusters
to move to more advanced states of development
Copyright © 2006 Professor Michael E. Porter18MOC Session 1 - 2007
Successful Economic Development
• Achieve political and (macro)economic stability• Create a multifaceted approach to reducing
corruption-- Transparency, civil service reform, enforcement
• Eliminate internal governmental impediments to competition
– End monopoly government licenses and concessions
– Phase out government price controls, entry controls, and locational restrictions
– Open state monopolies to competition– Privatize state-owned companies
• Begin an irreversible process of opening the economy to foreign competition, including FDI
• Create and implement an effective competition policy
• Develop an effective legal structure and enforcement mechanisms for intellectual property
• Reduce investment hurdle rates and lengthentime horizons
• Move beyond price cutting and product imitation to encompass availability and differentiation
Context for Firm Strategy and Rivalry
Context for Firm Strategy and Rivalry
Typical Starting Point for Developing Countries
• High levels of political and economic instability
• High capital costs and short time horizons• Opportunistic practices by firms• Competition blunted by
monopoly concessions, state-owned companies, corruption, and heavy government intervention
• Companies protected from foreign competitors• Monopolistic companies are dominant or cartels
divide the market• Any local rivalry occurs largely on price
Building the DiamondContext for Firm Strategy and Rivalry
Copyright © 2006 Professor Michael E. Porter19MOC Session 1 - 2007
Demand ConditionsDemand
Conditions
Successful Economic Development
• Improve local demand quality:– Expand buyer information and increase
consumer protection against poor-quality products
– Open the market to foreign products– Phase out restrictions and tax biases against
sophisticated products
• Raise product, safety, health, and environmental standards towards international levels
• Use government procurement to stimulate the supply of higher quality products
• Facilitate exports to neighboring countries or other countries where needs are similar
• Support cluster formation in areas where local demand is relatively advanced due to history, customs, culture, or geography
• Set policies that foster early demand for more advanced products and services
Typical Starting Point forDeveloping Countries
• Undifferentiated products/commodities are the principle exports
• Unsophisticated local demand- Low average income levels- Little information- Limited selection- Overwhelming focus on price
• Product and service designs areimitated or licensed from abroad
• Lax product, health, safety and environmental standards
• Large home demand, where it is present, distracts attention from developing internationally competitive products
Building the DiamondDemand Conditions
Copyright © 2006 Professor Michael E. Porter20MOC Session 1 - 2007
Typical Starting Point for Developing Countries
• Isolated exporting firms and industries• Local suppliers are scarce and
uncompetitive • Most sophisticated machinery,
components, and more advanced equipment and services must be imported
• Clusters are shallow or non-existent– Unproductive local suppliers create
disadvantages for downstream industries
• Inefficient vertical integration reflects the lack of local suppliers and barriers to imported inputs
• Early export successes often occur in industries with weak inter-industry linkages
Related and Supporting Industries
Related and Supporting Industries
Successful Economic Development
• Open market access to foreignsuppliers of sophisticated components, machinery, and services
• Seek FDI that attracts world class suppliers to support and deepen emerging local clusters
• Establish programs to support improvements in the local supplier base
• Well-developed clusters are important to move beyond lower-middle income levels
Building the DiamondRelated and Supporting Industries
21 Copyright 2007 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
Improving Company SophisticationRelative Position of Estonian Companies, 2007
Value chain breadth 46Breadth of international markets 45Control of international distribution 45Nature of competitive advantage 45Prevalence of foreign technology 40 licensingExtent of regional sales 39Capacity for innovation 35Extent of marketing 35Company spending on research and 33 developmentExtent of incentive compensation 31Production process sophistication 30Extent of staff training 29Willingness to delegate authority 29
Competitive Disadvantages Relative to GDP per Capita
Competitive Advantages Relative to GDP per Capita
Change up/down of more than 5/10 ranks since 2002
Note: Rank versus 74 countries; overall, Estonia ranks 30th in 2006 PPP adjusted GDP per capita and 25h in Business Competitiveness.Source: Institute for Strategy and Competitiveness, Harvard University (2007)
Degree of customer orientation 25Reliance on professional management 26
22 Copyright 2007 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
Laws relating to ICT 3Decentralization of economic policymaking 7Ease of access to loans 16Quality of primary education 18Quality of math and science education 18Cooperation in labor-employer relations 21Venture capital availability 21Quality of port infrastructure 22Efficiency of legal framework 22Quality of telephone/fax infrastructure 24Judicial independence 24Low business costs of corruption 24Local equity market access 26Quality of scientific research institutions 27Financial market sophistication 27Overall infrastructure quality 28
Competitive Disadvantages Relative to GDP per Capita
Competitive Advantages Relative to GDP per Capita
Availability of scientists and engineers 49Air transport infrastructure quality 40Reliability of police services 33Railroad infrastructure 32Quality of electricity supply 31Quality of management schools 31University/industry research collaboration 29
Factor (Input) ConditionsEstonia’s Relative Position 2007
Factor(Input)
Conditions
Factor(Input)
Conditions
Change up/down of more than 5/10 ranks since 2002
Note: Rank versus 74 countries; overall, Estonia ranks 30th in 2006 PPP adjusted GDP per capita and 25h in Business Competitiveness.Source: Institute for Strategy and Competitiveness, Harvard University (2007)
23 Copyright 2007 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
Demand ConditionsEstonia’s Relative Position 2007
Competitive Disadvantages Relative to GDP per Capita
Competitive Advantages Relative to GDP per Capita
Demand ConditionsDemand
Conditions
Government procurement of advanced 18 technology products
Stringency of environmental regulations 27
Change up/down of more than 5/10 ranks since 2002
Note: Rank versus 74 countries; overall, Estonia ranks 30th in 2006 PPP adjusted GDP per capita and 25h in Business Competitiveness.Source: Institute for Strategy and Competitiveness, Harvard University (2007)
Buyer sophistication 38
Presence of demanding regulatory 31 standards
24 Copyright 2007 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
Related and Supporting IndustriesEstonia’s Relative Position 2007
Competitive Disadvantages Relative to GDP per Capita
Competitive Advantages Relative to GDP per Capita
Related and Supporting Industries
Related and Supporting Industries
Change up/down of more than 5/10 ranks since 2002
Note: Rank versus 74 countries; overall, Estonia ranks 30th in 2006 PPP adjusted GDP per capita and 25h in Business Competitiveness.Source: Institute for Strategy and Competitiveness, Harvard University (2007)
Local availability of specialized research 26 and training services
Local supplier quantity 43
Local availability of process machinery 43
Local supplier quality 33
25 Copyright 2007 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
Context for Strategy and RivalryEstonia’s Relative Position 2007
Absence of trade barriers 14
Intensity of local competition 24
Intellectual property protection 28
Competitive Disadvantages Relative to GDP per Capita
Competitive Advantages Relative to GDP per Capita
Extent of market dominance 34
Lack of favoritism in decisions of 32 government officials
Property rights 32
Efficacy of corporate boards 31
Effectiveness of antitrust policy 29
Context for Firm Strategy
and Rivalry
Context for Firm Strategy
and Rivalry
Change up/down of more than 5/10 ranks since 2002
Note: Rank versus 74 countries; overall, Estonia ranks 30th in 2006 PPP adjusted GDP per capita and 25h in Business Competitiveness.Source: Institute for Strategy and Competitiveness, Harvard University (2007)
26 Copyright 2007 © Professor Michael E. PorterCompetitiveness Master = 2007-11-14.ppt
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DoingBusiness
TradingAcrossBorders
Dealingwith
Licenses
Starting aBusiness
RegisteringProperty
EnforcingContracts
PayingTaxes
ProtectingInvestors
GettingCredit
Closing aBusiness
EmployingWorkers
Ease of Doing BusinessEstonia, 2007
Ranking, 2007 (of 178 countries)
Source: World Bank Report, Doing Business (2008)
Favorable Unfavorable
Median Ranking, Eastern and Central Europe
Estonia’s per capita GDP rank: 25
27 Copyright 2006 © Professor Michael E. PorterMOC Session 1 - 2007
• The diamond framework applies to economies at all stages of economic development
• The specific conditions and action recommendations generated from applying the framework, however, differs dramatically across countries and stages of development
• Developing countries must raise the macro / political / legal / social context to a minimum level to have a chance for sustained development
• Developing countries have weaknesses across many diamond dimensions
• Strategies that address only one element of the diamond are of limited effectiveness in producing growth– A focus on macroeconomic elements or trade liberalization alone is ultimately
unsustainable if not supported by broader upgrading of the microeconomic fundamentals
– Reliance on microeconomic upgrading alone will often be severely compromisedby significant challenges in macroeconomic, political, or legal context
• Diamond improvements should be sequenced to address the binding constraints to productivity at each income level
The Diamond in Developing CountriesSummary