competitiveness for the third millennium: implications for ... files... · 5/15/2009 · this...
TRANSCRIPT
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1 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
Professor Michael E. PorterHarvard Business School
CEO Agenda ForumZagreb, Croatia
May 15, 2009This presentation draws on ideas from Professor Porter’s books and articles, in particular, Competitive Strategy (The Free Press, 1980); Competitive Advantage (The Free Press, 1985); “What is Strategy?” (Harvard Business Review, Nov/Dec 1996); “Strategy and the Internet” (Harvard Business Review, March 2001); and a forthcoming book. 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. Additional information may be found at the website of the Institute for Strategy and Competitiveness, www.isc.hbs.edu. Version: May 13, 2pm
Competitiveness for the Third Millennium: Implications for Croatia
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2 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
The Croatian Economy in 2009
• Croatia has experienced solid growth rates over the last few years, taking advantage of the transition to a market economy
• The global economic crisis is now starting to take its toll
• Despite the recent period of growth, however, Croatia is facing serious competitiveness challenges
• Croatia needs to address these issues aggressively instead of hoping for an automatic return to growth after the crisis or that EU ascension is sufficient
• Croatia lacks a clear strategy and an effective implementation mechanism for improving competitiveness
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3 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
$50,000
2% 4% 6% 8% 10% 12%
PPP-adjusted GDP per Capita, 2007 ($USD)
Growth of Real GDP per Capita (PPP-adjusted), CAGR, 2000 to 2007
Note: highlighted countries are part of the East African Community (EAC). Source: EIU (2009), authors calculations
Bahrain
China (13.0%)
Vietnam
South Africa
Latvia (12.6%)
TaiwanGermany
Oman
Croatia
Czech Republic
Libya
Saudi Arabia
Bulgaria
Estonia
Russia
Lebanon
Yemen
Qatar ($57,175, 0.92%)
UAE
France
Brazil
SyriaIndia
Turkey
Egypt
Lithuania
United States
SlovakiaHungary
Iran
Mexico
Slovenia
Jordan
Singapore
Norway ($54,604)
Chile
Prosperity PerformanceSelected Countries
Argentina
Greece
South Korea
Italy
AustraliaUK
SwedenKuwait
Japan
Spain
Hong Kong
PolandMalaysia
CambodiaLaosPakistan Philippines
Canada
Ireland
Israel New Zealand
FinlandAustria
BelarusMacedonia Bosnia & HerzegovinaThailand
Malta
Romania
Switzerland
Ukraine
Moldova
Other countriesEastern and Southern Europe
AlbaniaBelize
Cyprus
El SalvadorGuatemala
Kazakhstan (12.3%)
• Croatia has benefited from the end of conflict and market reforms
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4 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.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 depends on 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 productively it competes in those industries
– Productivity in a national economy arises from a combination of domestic and foreign firms
– The productivity of “local” or domestic industries is fundamental to competitiveness, not just that of export industries
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5 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
$90,000
-2% -1% 0% 1% 2% 3% 4% 5% 6% 7% 8%
Comparative Labor ProductivitySelected Countries
Growth of real GDP per employee (PPP-adjusted), 2004 to 2008
Real GDP per employee (PPP adjusted US$), 2008
Source: authors calculation, Groningen Growth and Development Centre (2009), EIU (2009)
Turkey
Mexico
New Zealand
Australia
Iran
Slovakia
Pakistan
Brazil
Hong Kong
Germany
Senegal
Poland
Slovenia
USA
Argentina
China (10.1%)
UgandaGhana
Philippines
Russia
Indonesia
Ireland
Vietnam
Korea
IndiaCameroon
Thailand
Japan
PeruAlgeria
France
EgyptTunisia
Zimbabwe (-8.9%)
Czech Republic
Morocco
Cote d’Ivoire
Romania
Mozambique
Saudi Arabia
BangladeshNigeriaKenya
South Africa
Italy
Syria
UK
Spain
Croatia
Chile
Oman
Cambodia
Kazakhstan
Angola (14.0%)
AustriaCanada
Bulgaria
GreeceFinland
Estonia
Hungary
LatviaMalaysia
Lithuania
Malta
Macedonia
Ukraine
Portugal
Switzerland
Other countriesEastern and Southern Europe
Albania
Belarus (8.6%)
Cyprus
• Croatia’s labor productivity is lagging, and overstated by low workforce participation
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6 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
Source: Economist Intelligence Unit (2009)
Labor Force UtilizationParticipation Rates, Selected Countries
25%
30%
35%
40%
45%
50%
55%
60%
65%
-3% -2% -1% 0% 1% 2% 3% 4% 5%
Labor Force Participation Rate, 2008
Change in Labor Force Participation Rate, 2004 to 2008
Germany
South Korea
Mexico
Slovenia
USA
Pakistan
Japan
Turkey
Slovakia
AustraliaDenmark
BrazilIndonesia
China
ArgentinaPhilippines
RussiaVietnam
India
Malaysia
Chile
Thailand
Croatia
Lithuania
TunisiaAlbania
BulgariaSouth Africa
EgyptLibya
Saudi Arabia
Colombia
Ghana
Cote d’Ivoire
Romania
KuwaitSingapore
Iceland
Macedonia
IrelandSpain
Latvia
CyprusEstonia
Ukraine
UK
Moldova
Nigeria
Israel
Norway
HungaryAustria
GreeceNetherlands
Italy
CanadaSweden
New ZealandFinland
Other countriesEastern and Southern Europe
Czech Rep.
• Croatia is caught in a trap where low productivity retards job growth, but unemployment retards needed reforms
FrancePoland
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7 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
-15% -10% -5% 0% 5% 10% 15% 20%
Export PerformanceSelected CountriesExports of Goods and
Services (% of GDP), 2008
Change in Exports of Goods and Services (% of GDP), 2004 to 2008
Russia
Thailand
France
Jordan
Saudi Arabia
China
Denmark
GermanyChile
Philippines
UKItaly
South Africa
Ireland
USA
India
Burundi
Bolivia
Brazil
Cambodia
Indonesia
Australia
Czech Republic
Slovakia
Turkey
Mexico
Korea
Pakistan
Argentina
Vietnam
Malaysia (103.5%)
Finland
Ethiopia
Croatia
Source: EIU (2008), authors’ analysis
Japan
Egypt
Taiwan
Bangladesh
Netherlands
Poland
Iceland
Slovenia
Macedonia
Benin
Albania
Peru
Israel
AustriaBelarus
Belgium
Bulgaria
Canada
Cyprus
Romania Portugal
Sweden
Moldova
Greece
Estonia
Hungary
Lithuania
Latvia
New Zealand
Norway
Spain
Ukraine (-17.5%)
Other countriesEastern and Southern Europe
• Croatia's export growth is lagging
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8 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
Export PerformanceSelected Countries
25%
35%
45%
55%
65%
75%
85%
95%
1994 1996 1998 2000 2002 2004 2006 2008
Slovakia
Hungary
Czech Republic
Slovenia
Croatia
Exports of Goods and Services (% of GDP) Rank, 2008
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9 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
Croatia’s Exports By Type of Industry
0.00%
0.05%
0.10%
0.15%
0.20%
0.25%
0.30%
0.35%
0.40%
0.45%
0.50%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Processed GoodsSemi- and Unprocessed GoodsServicesTOTAL
Source: UNComTrade, WTO (2008)
World Export Market Share (current USD)
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10 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
12%
16%
20%
24%
28%
32%
36%
-4% -2% 0% 2% 4% 6% 8%
Domestic Fixed Investment RatesSelected CountriesGross Fixed Investment
as % of GDP, 2008
Note: Includes inbound FDI Source: EIU, 2009
Change in Gross Fixed Investment (as % of GDP), 2004 to 2008
Turkey
Czech Rep.
Australia
Slovakia
PakistanBrazil
Malaysia
France
GermanyHong Kong
Norway
Slovenia
USA
ArgentinaDenmark
China (40.8%)
Finland
PolandRussia
Indonesia
Ireland
Vietnam (44.6%)
Korea
India
Iceland
Thailand
Japan
Cyprus
MaltaEgypt
Cambodia
Israel
Kazakhstan
Tunisia
Albania
Estonia
Sweden
Colombia
HungarySaudi Arabia
South AfricaPortugal
Greece
Philippines
Singapore
UK
Spain
Croatia
Canada
Latvia
Belarus
Romania (11.1%)
New Zealand
LithuaniaChileUkraine
MexicoAustria
SwitzerlandItaly Netherlands
Bulgaria (12.6%)
NicaraguaOther countriesEastern and Southern Europe
BelgiumMacedonia
• High investment is due to catch-up investments and FDI driven by privatization
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11 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
0%
10%
20%
30%
40%
50%
60%
70%
80%
-5% 0% 5% 10% 15% 20% 25% 30% 35% 40%
Inbound Foreign Investment PerformanceStocks and Flows, Selected Countries
Source: UNCTAD, World Investment Report (2009)
Inward FDI Stocks as % of GDP, Average 2003 - 2007
FDI Inflows as % of Gross Fixed Capital Formation, Average 2003 - 2007
Japan
Russia
Saudi Arabia
Turkey
Slovenia
UK
HungaryVietnam
SlovakiaCzech Republic
Australia
Denmark
Chile
Netherlands
Poland
USA
Colombia
Estonia
Malaysia
Thailand
South Africa
New Zealand
Indonesia
Iceland (46.7%)
China
Sweden
CanadaLithuania
India
Brazil
France
Pakistan
Croatia
Austria
Latvia
Switzerland
Spain
Italy
Norway
Germany
Mexico
Portugal
Finland
Laos
Cambodia
Philippines
Singapore (160.1%, 64.7%)
Greece
Israel Romania Bosnia & Herzegovina
Macedonia
South KoreaBelarus
Moldova
Kazakhstan
Armenia
Other countriesEastern and Southern Europe
Cyprus
Bulgaria (69%)
Egypt
Ukraine
• Foreign direct investment inflows have been a key driver of economic growth, but most are due to privatization rather than greenfield investments
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12 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
-250
250
750
1,250
1,750
2,250
2,750Fi
nanc
ial S
ervi
ces
Oil,
Gas
and
Coa
l
Che
mic
als
Tele
com
mun
icat
ions
Rea
l Est
ate
Oth
er A
ctiv
ities
Who
lesa
le T
rade
Ret
ail T
rade
Hos
pita
lity
Food
Pro
duct
s
Mft.
mac
hine
ry a
ndeq
uipm
ent
Aut
omot
ive
Wat
er p
urifi
catio
nan
d di
stru
btio
n
Con
stru
ctio
n
Rec
reat
ion
and
Spo
rts
2000
2006
2007
2008*
Foreign Investment in CroatiaSelected Activities
*2008 is estimated figure.
Source: Foreign Direct Investment in Croatia (by activity), Croatian National Bank, 2009
Average FDI by activity, millions of €
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13 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
0
1
2
3
4
5
6
7
8
9
-30% -20% -10% 0% 10% 20% 30% 40%
Source: USPTO (2008), EIU (2008)
Average U.S. patents per 1 million population, 2003-2007
CAGR of US-registered patents, 2003 – 2007
Innovative CapacityInnovation Output of Selected Countries
Malaysia
Russia
Colombia India
Saudi Arabia
PhilippinesChina
Brazil
50 patents =
EstoniaCroatia
PolandEgypt
Belarus
ArgentinaMexico
South Africa Greece
Portugal
Thailand
Czech Republic
Slovenia
Hungary
ChileRomania
Indonesia
• Croatia has technological strengths, but these have not been mobilized in business development
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14 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
Macroeconomic Competitiveness
Microeconomic Competitiveness
Sophisticationof Company
Operations andStrategy
Quality of the NationalBusiness
Environment
MacroeconomicPolicies
SocialInfrastructure and PoliticalInstitutions
State of Cluster Development
• Productivity ultimately depends on improving the microeconomic capability of the economy and the sophistication of local competition
Causes of Competitiveness
Natural Endowments
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15 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
Macroeconomic Competitiveness
• Basic human capacity– Education– Health
• Safety and security
• Political institutions
• Rule of law
• Fiscal policy
• Monetary policy
Social Infrastructure and Political Institutions
Macroeconomic Policies
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16 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
Croatia’s CompetitivenessProgress on the Competitiveness Index
2007 2008Estimated Ranking: New Global Competitiveness Index 63 63
Macroeconomic Competitiveness 67 68
Social Infrastructure and Political Institutions 58 59Macroeconomic Policy 91 84
Microeconomic Competitiveness 60 69
GDP Per Capita Rank (ppp-adjusted) 48 48
Note: Rank versus 130 countries; overall, Croatia ranks 48th in 2008 PPP adjusted GDP per capita and 63rd in Global CompetitivenessSource: Institute for Strategy and Competitiveness, Harvard University (2009)
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17 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
DENMARK
NETHERLANDS
AUSTRIAIR
ELAND
UNITED KIN
GDOMGERMANY
UNITED STA
TESPORTU
GALCYPRUS
SPAINSLO
VENIA
CZECH R
EPUBLICSLO
VAKIALA
TVIA
LITHUANIAGREECEPOLA
NDCROATIABULG
ARIAROMANIA
BRAZILIN
DIACHIN
ARUSSIA
Voice and AccountabilityPolitical StabilityGovernment EffectivenessRegulatory QualityRule of LawControl of Corruption
Governance IndicatorsSelected Countries
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 (2008)
Worstcountry in the world
Index of Governance
Quality,2006
Best country in the world
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18 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
-20 -15 -10 -5 0 5 10 15 20
Corruption Perception Index, 2007
Note: Ranks only countries available in both years (91 countries total)Source: Global Corruption Report, 2007
Change in Rank, Global Corruption Report, 2007 versus 2001
Rank in Global
CorruptionIndex,2007
91
1ImprovingDeteriorating
Highcorruption
Lowcorruption
Finland
Canada
Bangladesh
Indonesia
Ireland
Portugal
Egypt
Iceland
Czech Republic
SlovakiaSouth Korea
Latvia
India
Slovenia
Thailand
Switzerland
France
Romania
Turkey
Estonia
Austria GermanyJapan
Vietnam
China
NorwayUK
MalaysiaLithuania
Colombia
HungaryTaiwan
Spain
Hong Kong
ChileUnited States
South Africa
Mexico
Croatia
Italy
Poland
Brazil
Argentina
Israel
Venezuela
Russia
Uruguay
New ZealandSweden
Tunisia
Peru
Tanzania
Uganda
Senegal
Philippines
Zimbabwe Cote d’Ivoire NigeriaPakistan
GreeceJordan
Ukraine
Panama
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19 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
Macroeconomic Competitiveness
• Croatia has a solid position in terms of basic human development indicators, in line with many other former Communist countries
• Croatia has made some progress on macroeconomic policy indicators, but the current global crisis will test the sustainability of these improvements
– Croatia has been running high current account deficits for the last decade
• Croatia remains a regional laggard in terms of political and legal institutional quality and there are few signs of fundamental improvements
• Croatia’s government is much too big• Croatia has much work to do to improve its macroeconomic
competitiveness, especially its institutions
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20 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
Croatia’s PositionMicroeconomic Competitiveness
2007 2008
Estimated Microeconomic Competitiveness Index 60 69
National Business Environment 63 69
Company Operations and Strategy 58 64
Note: Rank versus 130 countries; overall, Croatia ranks 48th in 2008 PPP adjusted GDP per capita and 63rd in Global CompetitivenessSource: Institute for Strategy and Competitiveness, Harvard University (2009)
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21 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
Microeconomic Competitiveness: Quality of the Business Environment
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
Sophistication of 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
Vigorous local competition– Openness to foreign competition– Competition laws
Access to high quality business inputs
– Natural endowments– Human resources– Capital availability– Physical infrastructure– Administrative and information
infrastructure (e.g. registration, permitting, transparency)
– Scientific and technological infrastructure
Availability of suppliers and supporting industries
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22 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
Mobile telephone subscribers per 100 26 populationTelephone lines per 100 population 30Quality of roads 30Quality of math and science education 35Internet users per 100 population 35Utility patents per million population 36Ease of starting a new business 42Personal computers per 100 population 43Quality of telephone infrastructure 44Quality of electricity supply 44Quality of railroad infrastructure 44Number of procedures required to start a 44 businessQuality of scientific research institutions 47
Competitive Disadvantages Relative to GDP per Capita
Competitive Advantages Relative to GDP per Capita
Protection of minority shareholders’ 101 interestsBurden of government regulation 97Time required to start a business 91Venture capital availability 87Quality of port infrastructure 84Quality of air transport infrastructure 83Ease of access to loans 81Brain drain 80Quality of management schools 76Regulation of securities exchanges 74Financial market sophistication 71Burden of customs procedures 63Quality of the educational system 62Demand conditions 61Soundness of banks 60University-industry research collaboration 51Tertiary enrollment 49
Factor (Input) ConditionsCroatia’s Relative Position 2008
Factor(Input)
Conditions
Factor(Input)
Conditions
Change up/down of more than 5 ranks since 2007
Note: Rank versus 130 countries; overall, Croatia ranks 48th in 2008 PPP adjusted GDP per capita and 63rd in Global CompetitivenessSource: Institute for Strategy and Competitiveness, Harvard University (2009)
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23 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
Context for Strategy and RivalryCroatia’s Relative Position 2008
Low Tariff rates 34
Competitive Disadvantages Relative to GDP per Capita
Competitive Advantages Relative to GDP per Capita
Business impact of rules on FDI 114Cooperation in labor-employer relations 110Low market disruption from state-owned 110 enterprisesImpact of taxation on incentives to work and 103 investRigidity of employment 102Effectiveness of antitrust policy 98Extent of market dominance by business 98 groupsEfficacy of corporate boards 98Strength of investor protection 95Pay and productivity 88Distortive effect of taxes and subsidies on 80 competitionRestrictions on capital flows 76Strength of auditing and reporting standards 76Prevalence of trade barriers 73Intensity of local competition 71Intellectual property protection 68Regulatory quality 54
Context for Firm Strategy
and Rivalry
Context for Firm Strategy
and Rivalry
Note: Rank versus 130 countries; overall, Croatia ranks 48th in 2008 PPP adjusted GDP per capita and 63rd in Global CompetitivenessSource: Institute for Strategy and Competitiveness, Harvard University (2009)
Change up/down of more than 5 ranks since 2007
• On some indicators, Croatia is ranked at the level of some African countries
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24 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
0
20
40
60
80
100
120
140
160
180
Ease ofDoing
Business
PayingTaxes
EnforcingContracts
GettingCredit
Closing aBusiness
TradingAcrossBorders
RegisteringProperty
Starting aBusiness
ProtectingInvestors
EmployingWorkers
Dealingwith
Licenses
Doing Business IndicatorsRanking, 2009
(of 181 countries)
* Central European EU countries include: Austria, Bulgaria, the Czech Republic, Estonia, Greece, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, Slovenia Source: World Bank Report, Doing Business (2009)
Favorable Unfavorable
Median Ranking, Central EU countries*
Croatia’s per capita GDP rank: 46
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25 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
Demand ConditionsCroatia’s Relative Position 2008
Competitive Disadvantages Relative to GDP per Capita
Competitive Advantages Relative to GDP per Capita
Demand ConditionsDemand
Conditions
Buyer sophistication 92
Government success in ICT promotion 76
Government procurement of advanced 68 technology products
Presence of demanding regulatory 67 standards
Stringency of environmental regulations 54
Note: Rank versus 130 countries; overall, Croatia ranks 48th in 2008 PPP adjusted GDP per capita and 63rd in Global CompetitivenessSource: Institute for Strategy and Competitiveness, Harvard University (2009)
Change up/down of more than 5 ranks since 2007
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26 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
Croatia’s Business Environment QualityOverview
• Basic factor conditions are relatively strong but weaknesses exist in more advanced dimensions
– Relative strength in road transportation and communications infrastructure as well as fundamental innovative capacity
– Relative strength in primary and secondary education– Relative weakness in financial market sophistication– Relative weakness in port and airport infrastructure
• Business rules and regulations remain cumbersome and distortive– Problematic labor relations– Local market still dominated by entrenched domestic business groups– Rules and regulations for foreign direct investors are cumbersome
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27 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
Sources: HBS student team research (2003) - Peter Tynan, Chai McConnell, Alexandra West, Jean Hayden
HotelsHotels
Attractions andActivities
e.g., theme parks, casinos, sports
Attractions andActivities
e.g., theme parks, casinos, sports
Airlines, Cruise Ships
Airlines, Cruise Ships
Travel agentsTravel agents Tour operatorsTour operators
RestaurantsRestaurants
PropertyServicesPropertyServices
MaintenanceServices
MaintenanceServices
Government agenciese.g. Australian Tourism Commission,
Great Barrier Reef Authority
Government agenciese.g. Australian Tourism Commission,
Great Barrier Reef Authority
Educational Institutionse.g. James Cook University,
Cairns College of TAFE
Educational Institutionse.g. James Cook University,
Cairns College of TAFE
Industry Groupse.g. Queensland Tourism
Industry Council
Industry Groupse.g. Queensland Tourism
Industry Council
FoodSuppliers
FoodSuppliers
Public Relations & Market Research
Services
Public Relations & Market Research
Services
Local retail, health care, andother services
Local retail, health care, andother services
Souvenirs, Duty Free
Souvenirs, Duty Free
Banks,Foreign
Exchange
Banks,Foreign
Exchange
Local Transportation
Local Transportation
Competitiveness and Cluster DevelopmentTourism Cluster in Cairns, Australia
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28 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
$0
$300,000
$600,000
$900,000
$1,200,000
$1,500,000
$1,800,000
$2,100,000
$2,400,000
$2,700,000
1988 1990 1992 1994 1996 1998 2000 2002 2004 20060.0%
2.0%
4.0%
6.0%
8.0%
10.0%ValueMarket Share
The Australian Wine ClusterTrade Performance
Australian Wine Exports in thousand US $
Australian Wine World Export Market
Share
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.
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29 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
The Australian Wine ClusterHistory
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 RoseworthyAgricultural 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
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30 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
The Evolution of Regional EconomiesSan Diego
U.S. Military
U.S. Military
CommunicationsEquipment
Sporting andLeather Goods
Analytical Instruments
Power GenerationAerospace Vehicles
and Defense
Transportationand Logistics
Information Technology
19101910 19301930 19501950 1990199019701970
Bioscience Research Centers
Bioscience Bioscience Research Research CentersCenters
Climate and
Geography
Climate and
Geography
Hospitality and Tourism
Medical Devices
Biotech / Pharmaceuticals
Education andKnowledge Creation
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31 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
Related and Supporting IndustriesCroatia’s Relative Position 2008
Competitive Disadvantages Relative to GDP per Capita
Competitive Advantages Relative to GDP per Capita
Related and Supporting Industries
Related and Supporting Industries
State of cluster development 105
Extent of collaboration in clusters 98
Local supplier quantity 88
Supporting and related industries and 77 clusters
Local supplier quality 72
Local availability of process machinery 61
Note: Rank versus 130 countries; overall, Croatia ranks 48th in 2008 PPP adjusted GDP per capita and 63rd in Global CompetitivenessSource: Institute for Strategy and Competitiveness, Harvard University (2009)
Change up/down of more than 5 ranks since 2007
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32 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
0.0%
0.1%
0.2%
0.3%
0.4%
0.5%
-0.2% -0.1% 0.0% 0.1% 0.2% 0.3% 0.4% 0.5% 0.6%
National Cluster Export PortfolioCroatia, 1997 to 2007
Change in Croatia’s world export market share, 1997 to 2007Source: 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.
Cro
atia
’s w
orld
exp
ort m
arke
t sha
re, 2
007
Change In Croatia’s Overall World Export Share: 0.029%
Croatia’s Average World Export Share: 0.16%
Exports of US$1.5 Billion =
Hospitality and Tourism (1.11%)
Automotive
Processed Foods
Business Services
Transportation and Logistics
Biopharmaceuticals Production Technology
Chemical Products
Oil and Gas
Marine Equipment (0.85% ,1.26%)
Fishing and Fishing Related Products
Information Technology
Plastics
Prefabricated Enclosures and Structures
Construction Services
Power and Power Generation Equipment
Agriculture Products
Communication Services
Construction Materials
Financial Services
Light and Elec. Equipment
Heavy Machinery
Analytical Instruments
Publishing and Printing
Entertainment
Jewelry, Precious Metals and CollectiblesCommunications EquipmentMetal, Mining and Manufacturing
Apparel
Furniture
Footwear (-0.34%)
Leather and Related Products
Forest Products
Building Fixtures and Equipment
Tobacco
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33 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
Croatian Maritime Cluster
Sources: Harvard Microeconomics of Competitiveness student team research (2009) - Jetemir Balaj, Neil McCullagh, Mirela Mrvelj, Peder Plaz, Malgorzata Steiner
Related Clusters:Automotive / Metal
Processing
ShipbuildingShipbuilding
6 companies~ 20 ships p.a.
11’000 employeesValue added: USD
750 million p.a.
BoatbuildingBoatbuilding
~ 70 companies(commercial, yachts,
“nutshell”)Value added: USD 80
million p.a.
Specialized Suppliers6’500 employees
Supporting Industries1’800 companies / 26’000
employees
Worldwide Shipping and Logistics
Industry
Industry Associations
• Brodarski Institut• Boatbuilding Association at Croatian
Chamber of Commerce• Association of Boat Equipment
Producers at Croatian Chamber of Commerce
• Shipbuilding Cluster at Croatian Employers Association.
UniversitiesUniversities
• University of Engineering and Boatbuilding, Zagreb
• University of Boatbuilding, Split
Government Agencies
• Ministry of Economy, Labor and Entrepreneurship
• Ministry of Sea, Tourism and Transport
• Croatian Privatization Fund
Related Cluster:Adriatic Tourism
Yacht Retail (Europe)
Local Transport Industry (Ferries)
Engines
Technical Equipment
PlasticsPlastics
Design / Archit.
Fittings
MetalMetal
Coatings R&D
Trade Unions
•• Association of Metal Association of Metal WorkersWorkers
•• Association of Association of Workers Trade Workers Trade Unions of CroatiaUnions of Croatia
•• Croatian Trade Union Croatian Trade Union AssociationAssociation
•• ......
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34 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
Shipbuilding Cluster ProductivitySelect European Countries
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35 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
Croatian Clusters
• Croatia’s clusters have developed naturally and reflect the strengths of legacy and location but also the challenges of the current business environment conditions
• Clusters provide an important perspective to understand the issues facing the Croatian economy
• Cluster-level competitiveness efforts are less politicized and enable action on more tractable issues related to productivity
• Cluster efforts are an opportunity to engage in a new model of public-private dialogue and cooperation
• Clusters are so far an unexploited dimension of economic policy that Croatia can ill-afford to neglect
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36 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
ClustersClusters
Physical Infrastructure
Natural Resource Protection
Environmental Stewardship
Science and TechnologyInvestments (e.g., centers, university departments, technology transfer)
Education and Workforce Training
Business Attraction
Export Promotion
• Clusters provide a framework for implementing public policy and organizing public-private collaboration to enhance competitiveness
Standard setting and quality initiatives
Market Information and Disclosure
Management Training
Cluster-Based Policy Implementation
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37 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
Geographic Levels and Competitiveness
Broad Economic Areas
Groups of Neighboring Nations
States, Provinces
Metropolitan and Rural Areas
Nations
World Economy
Europe
Southeast Europe
Croatia
Regions
Zagreb
WTO
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38 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
Specialization by Traded ClustersSelected U.S. Economic Areas, 2006
Boston, MA-NHAnalytical Instruments Education and Knowledge CreationMedical DevicesFinancial Services
Boston, MA-NHAnalytical Instruments Education and Knowledge CreationMedical DevicesFinancial Services
Los Angeles, CAEntertainmentApparelDistribution ServicesHospitality and Tourism
Los Angeles, CAEntertainmentApparelDistribution ServicesHospitality and Tourism
San Jose-San Francisco, CABusiness ServicesAgricultural ProductsCommunications EquipmentBiopharmaceuticals
San Jose-San Francisco, CABusiness ServicesAgricultural ProductsCommunications EquipmentBiopharmaceuticals
New York, NY-NJ-CT-PAFinancial ServicesBiopharmaceuticalsApparelPublishing and Printing
New York, NY-NJ-CT-PAFinancial ServicesBiopharmaceuticalsApparelPublishing and Printing
Seattle, WAAerspoace Vehicles and DefenseInformation TechnologyEntertainmentFinancial Services
Seattle, WAAerspoace Vehicles and DefenseInformation TechnologyEntertainmentFinancial Services
San Diego, CAAnalytical InstrumentsHospitality and TourismMedical DevicesEducation and Knowledge Creation
San Diego, CAAnalytical InstrumentsHospitality and TourismMedical DevicesEducation and Knowledge Creation
Chicago, IL-IN-WIMetal ManufacturingBiopharmaceuticalsChemical ProductsLighting and Electrical Equipment
Chicago, IL-IN-WIMetal ManufacturingBiopharmaceuticalsChemical ProductsLighting and Electrical Equipment
Pittsburgh, PAEducation and Knowledge CreationMetal ManufacturingChemical ProductsLighting and Electrical Equipment
Pittsburgh, PAEducation and Knowledge CreationMetal ManufacturingChemical ProductsLighting and Electrical Equipment
Denver, COEntertainmentMedical DevicesOil and Gas Products and ServicesHospitality and Tourism
Denver, COEntertainmentMedical DevicesOil and Gas Products and ServicesHospitality and Tourism
Raleigh-Durham, NCEducation and Knowledge CreationBiopharmaceuticalsCommunications EquipmentMotor Driven Products
Raleigh-Durham, NCEducation and Knowledge CreationBiopharmaceuticalsCommunications EquipmentMotor Driven Products
Atlanta, GATransportation and LogisticsTextilesConstruction MaterialsPlastics
Atlanta, GATransportation and LogisticsTextilesConstruction MaterialsPlastics
DallasAerospace Vehicles and DefenseOil and Gas Products and ServicesInformation TechnologyTransportation and Logistics
DallasAerospace Vehicles and DefenseOil and Gas Products and ServicesInformation TechnologyTransportation and Logistics
Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director.
Houston, TXOil and Gas Products and ServicesChemical ProductsHeavy Construction ServicesTransportation and Logistics
Houston, TXOil and Gas Products and ServicesChemical ProductsHeavy Construction ServicesTransportation and Logistics
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39 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
Croatian Counties
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40 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
8% 9% 10% 11% 12% 13% 14% 15%
Prosperity PerformanceCroatian Counties
GDP per Capita, 2008 (€)
Growth of GDP per Capita (€), CAGR, 2005 to 2008
Croatia Average: 10.13%
Source: Croatia Central Bank, Croatia Statistical Institute
Croatia Average: $9,400
Sibenik-Knin
Zagreb (city)
Vukovar-Srijem
Split-Dalmatia
Istria
Osijek-Baranja
Sisak-MoslavinaKarlovac
Primorje-Gorski Kotar
Bjelovar-Bilogora
Zagreb (county)
Koprivnica-KrizevciVarazdin
MedjimurjeKrapina-Zagorje
Dubrovnik-NeretvaZadar
Brod-Posavina
Pozega-SlavoniaVirovitica-Podravina
Lika-Senj
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41 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
The NeighborhoodSoutheastern Europe
• Economic coordination among neighboring countries can significantly enhance competitiveness
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42 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
Croatia’s Competitiveness Challenge
• Croatia’s recent economic growth has been driven by natural catch-upfollowing integration into the European and global economy
• Process can only be sustained if Croatia is able to continuously upgrade its competitiveness
• EU accession is an important opportunity, but the benefits will depend on reforms by Croatia to address its own competitiveness challenges
Key Challenges• There are numerous weaknesses in the Croatian business environment• The vitality of competition remains weak as a consequence of policy choices
and a relatively isolated domestic market• Clusters are present in the Croatian economy (e.g. tourism), but they have not
been used as an effective policy tool• The institutional weaknesses of the country have been a key barrier to
achieve sustain improvements• Croatian regions have not been challenged and enabled to contribute to
competitiveness improvements
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43 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
Croatia’s Competitiveness AgendaSome Action Priorities
• Address corruption and weaknesses in political and legal institutions
• Ensure the sustainability of public finances
• Reform the rules and regulations for business
• Open up local markets to competition
• Create attractive conditions for foreign investors
• Strengthen the higher education system, financial markets, and airport/port infrastructure
• Use clusters as an organizing principle for upgrading workforce skills, infrastructure, and FDI attraction
• Support Croatian regions in their competitiveness efforts
• Strengthen economic cooperation in South-East Europe
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44 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
The Process of Economic DevelopmentShifting Roles and Responsibilities
Old ModelOld Model
• Government drives economic development through policy decisions and incentives
• Government drives economic development through policy decisions and incentives
New ModelNew Model
• Economic development is a collaborative process involving the private sector, government at multiple levels, universities, labor, and civil society
• Economic development is a collaborative process involving the private sector, government at multiple levels, universities, labor, and civil society
• Competitiveness must become a bottoms-up process in which many individuals, companies, and institutions take responsibilities
• Every community and cluster can take steps to enhance competitiveness• The private sector must become more engaged in competitiveness to
improve rapidly
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45 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
National Economic StrategyNational Economic Strategy
Defining a Croatian Economic Strategy
Developing Unique StrengthsDeveloping Unique Strengths Achieving and Maintaining Parity with Peers
Achieving and Maintaining Parity with Peers
• What are the key potential strengths that Croatia must preserve or build?
• What weaknesses must be neutralized to achieve parity with peer countries?
• What can be the unique competitive position of Croatia given its location, legacy, endowments, and potential strengths?
– What is its unique value as a business location?– What role can it play with neighbors?– In what range of clusters does the nation excel?
• The private sector must lead the process of competitiveness improvement and provide continuity and accountability
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46 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
The Croatian Competitiveness Paradox
• Croatia has institutions like the National Competitiveness Councildesigned to guide competitiveness upgrading
• Croatia has sensible plans that identify the weaknesses the country needs to address
BUT
• Croatia has made limited if any progress on upgrading its competitiveness in recent years
• Government is preoccupied with short-term crises and EU acsencion
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47 Copyright 2009 © Professor Michael E. Porter20090515 – CAON Crotia.ppt
The Moment For Action
• The struggle for independence, the war with Serbia, and the path to political normality after the war have shifted political focus away from competitiveness
• Economic growth due to a natural catch-up has been sufficiently good so that there has not been pressure for real reform
• EU membership has been seen as the automatic path to competitiveness, requiring no further action within the country
• Entrenched interest groups in the political and economic sphere have paid lip service to competitiveness but have been unwilling to engage in real reforms that threaten the status quo
• Leaders in business and government must launch a new chapter in Croatia’s economy if the country is to hold its gains, much less see further standard of living improvements