vietnamvietnam s’s competitiveness competitiveness 2008. 12. 1. · • vietnam has experienced an...

Vietnam’s CompetitivenessVietnam s Competitiveness

Professor Michael E. PorterHarvard Business School

Ho Chi Minh, VietnamDecember 1, 2008

This presentation draws on ideas from Professor Porter’s books and articles, in particular, Competitive Strategy (The Free Press, 1980); Competitive

1 Copyright 2008 © Professor Michael E. Porter20081201 – Vietnam CAON.ppt

p , p , p gy ( , ); pAdvantage (The Free Press, 1985); “What is Strategy?” (Harvard Business Review, Nov/Dec 1996); “Strategy and the Internet” (Harvard BusinessReview, March 2001); and a forthcoming book. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form orby any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Michael E. Porter. Additional information maybe found at the website of the Institute for Strategy and Competitiveness, www.isc.hbs.edu. Version: November 18, 2008, 3pm

The Need For An Economic Strategy

• Vietnam has experienced an impressive growth over the last two decades

• However, reforms so far are insufficient to move Vietnam to a middle income economy

• The next several years will determine whether Vietnam will follow the experience of Korea, or the Philippines

Vi t ’ f h b i l d ti• Vietnam’s reform have been piecemeal and reactive

• Improving Vietnam’s standard of living will require a long term economic strategyeconomic strategy

– A set of interrelated policy changes, institutional structures, andrigorous implementation mechanisms


Agenda

• Understanding Vietnam’s Economic Performance

• Assessing Vietnamese Competitiveness

Id tif i A ti P i iti• Identifying Action Priorities

• Organizing for Competitiveness• Organizing for Competitiveness

• Creating an Economic StrategyCreating an Economic Strategy


Prosperity PerformanceSelected Countries

PPP-adjusted GDP

$40,000

$45,000per Capita, 2007

IrelandUSA

Singapore Hong Kong

$30,000

$35,000Taiwan

Switzerland

Germany Finland

Iceland

SwedenUK

NetherlandsAustria

France

Singapore

Bahrain

Canada

Ital

Australia

Japan

g g

$20 000

$25,000

$ ,Greece

Portugal

Czech Republic

Spain

Saudi Arabia

Slovenia

Italy

KoreaNew Zealand Israel

Estonia

$10 000

$15,000

$20,000Hungary Slovakia

Russia

Chile

Croatia

Mexico ArgentinaMalaysia

Poland

Romania

Lithuania Latvia

Estonia

Costa Rica

$0

$5,000

$10,000

ChinaPakistan

TurkeyThailand

Philippines

Brazil

IndiaIndonesia

South Africa

Colombia Vietnam

Costa Rica

Egypt

Nigeria Bangladesh

Sri Lanka

Cambodia


$00% 2% 4% 6% 8% 10% 12%

Growth of Real GDP per Capita (PPP-adjusted), CAGR, 2003-2007Source: EIU (2008), authors calculations

Labor Force UtilizationParticipation Rates, Selected Countries

Labor Force

60%

65%Participation Rate, 2007

Singapore (6.16%)China

55%

60%

Sweden

Norway

JAustraliaCanada

Iceland

PortugalRussia

Hong KongThailand Vietnam

50%

F

UKFinland

Germany LatviaSweden

Lithuania

Ireland

South Korea

Czech Rep.

Slovenia

USANew Zealand

Japan

Slovakia SpainBrazil

Indonesia

Russia

India

Taiwan

40%

45% France

Italy

Poland

Colombia Mexico

Slovenia

AustriaHungary

RomaniaBangladesh

ArgentinaPhilippines

India

Sri LankaMalaysia

Chile

35%Morocco

TurkeyBulgaria

Nicaragua

5 Copyright 2008 © Professor Michael E. Porter20081201 – Vietnam CAON.pptSource: Economist Intelligence Unit (2008)

30%-3% -2% -1% 0% 1% 2% 3% 4% 5% 6%

Change in Labor Force Participation Rate, 2003-2007

Pakistan

Comparative Labor ProductivitySelected CountriesGDP per employee

(PPP adjusted US$), 2007

Ireland Hong Kong

USA

FranceUK Finland

Germany

Italy

SwedenNorway

Ireland

EstoniaAustria Japan

AustraliaCanada Singapore

TaiwanDenmark

IcelandIsraelGermany

Lith i

South Korea

Latvia

Slovenia

Switzerland

New Zealand

MalaysiaSlovakia

Spain

Saudi ArabiaChile

Portugal

Israel

Greece

Venezuela

Argentina Poland LithuaniaCzech Republic

MexicoHungary

BelarusTurkeyMalaysia

China

Russia

South AfricaThailandIran

Croatia

Sri LankaSyria

Ecuador EgyptPeruTunisia

Costa Rica Bulgaria

KazakhstanColombia

China

IndiaPhilippinesIndonesiaBrazil

South AfricaUkraineYemen

Cote d’Ivoire

Dominican Republic

Ecuador

SenegalKenya Ghana Bangladesh Cambodia

Ethiopia

NigeriaPakistan

Egypt

Vietnam


Compound annual growth rate (CAGR) of real GDP per employee (PPP-adjusted), 2003-2007

Source: authors calculation Groningen Growth and Development Centre (2008)

Decomposition of Vietnamese GrowthContribution to

Annual GDP growth (%)

10%

8%

10%Capital Labor TFP

6%

4%

2%

0%


Source: Ohno (2008)

-2%1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Domestic Fixed Investment RatesSelected CountriesGross Fixed Investment

as % of GDP (2007)

32%

34%

36%LatviaChina (40.4%)

Estonia

IndiaVietnam

28%

30%

32%Spain

Australia Slovakia

Slovenia

Estonia

Korea Iceland

R i

Sri LankaKazakhstan

Croatia

24%

26%

Czech Republic

Australia

Colombia

ArgentinaDenmark

Lithuania

IndonesiaIreland Singapore

Thailand

JapanNew Zealand

Tunisia

Greece

Romania

Ukraine

Venezuela

18%

20%

22%Turkey

Norway

PakistanAustria

Brazil

MalaysiaFrance

Germany

Netherlands

Poland

Sweden

Hungary

UK

South AfricaRussi

a

Italy

New Zealand CanadaMexico

Kenya

Egypt

Finland

Portugal

Hong Kong Chile

Cambodia

Saudi Arabia

14%

16%

18% BrazilGermany

USA

UK

Philippines

Dominican Republic


-4% -2% 0% 2% 4% 6% 8% 10% 12%

Note: Includes inbound FDI Source: EIU, 2008

Change in Gross Fixed Investment (as % of GDP), 2003 - 2007

Inbound Foreign Investment PerformanceStocks and Flows, Selected Countries

Inward FDI Stocks as % of GDP Average 2003 - 2007

70%

80%

GDP, Average 2003 2007

Netherlands EstoniaSingapore

(160.1%, 64.7%)

60%Hungary

SlovakiaCzech Republic

Chile

New Zealand SwedenSwitzerland

Vietnam

40%

50%

UK

Czech Republic

Australi

Denmark

ThailandCanad Latvia

Spain

Portugal Cambodia

Philippines

20%

30%

Russia

Turkey

Slovenia

a PolandColombia

dSouth Africa Iceland (46.7%)Canad

aLithuania

Brazil

France

Austria

Latvia

Norway

Germany

MexicoFinland

LaosIsrael

0%

10%

Japan

Saudi Arabia

TurkeyUSA Malaysia

Indonesia China

India

Pakistan

South KoreaItaly

yGreece


0%-5% 0% 5% 10% 15% 20% 25% 30% 35% 40%

Source: UNCTAD, World Investment Report (2007)

FDI Inflows as % of Gross Fixed Capital Formation, Average 2003 - 2007

100%

Export PerformanceSelected CountriesExports as Share of

GDP (in %, 2007)

80%

90%

Thailand Estonia

HungaryIreland Czech Republic

Slovakia

Malaysia (116.4%)

Belgium

60%

70%

Thailand Estonia

LithuaniaS di A biAustria

CambodiaSloveniaNetherlands

Bulgaria

SloveniaVietnam

40%

50%

Russia

LithuaniaSaudi Arabia

LatviaChina

TunisiaGermany

SwitzerlandPhilippines

CanadaSouth Africa

Norway Chile

Indonesia

South KoreaFinlandUkraine

Croatia

Egypt

Kazakhstan

Poland

20%

30%

Russia

ItalyUK

CanadaFrance

IndiaSpainBrazil

VenezuelaNew Zealand

Indonesia

AustraliaTurkey

Mexico

Pakistan

Argentina

Sri Lanka

Japan

Portugal

BangladeshColombia

Dominican Republic

0%

10%

-15% -10% -5% 0% 5% 10% 15% 20% 25% 30%Ch f E t Sh f GDP 2003 t 2007

USABrazil


Change of Exports as Share of GDP, 2003 to 2007

Source: EIU (2008), authors’ analysis• Imports as a share of GDP are equally high

Vietnam’s Exports By Type of IndustryWorld Export Market Share (current USD)

0 7%

0.8%Processed GoodsSemi-processed GoodsUnprocessed GoodsServices

( )

0.6%

0.7% ServicesTOTAL

0.4%

0.5%

0 2%

0.3%

0.1%

0.2%


0.0%1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: UNComTrade, WTO (2008)

5%

Vietnam’s Cluster Export Portfolio2000-2006

Change In Vietnam’s Overall Footwear (5.68%, 1.91%)

4%

06

Growth In World Export Share: 0.25%

( , )

Fishing and Fishing Products

3%arke

t sha

re, 2

00

2%wor

ld e

xpor

t ma

Appare

1%

2%

Viet

nam

’s w

T til

Apparel

Coal & Briquettes

Furniture1%

Vietnam’s Average World Export Share: 0.31%

Plastics

Textiles

Tobacco

e


0%-0.3% -0.1% 0.1% 0.3% 0.5% 0.7% 0.9% 1.1% 1.3% 1.5%

Change in Vietnam’s world export market share, 2000 – 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 theIMF BOP statistics.

Exports of US$1.1 Billion =

0%

Agenda







What is Competitiveness?

• Competitiveness depends on the productivity with which a nation uses its human, capital, and natural resources.

P d ti it t th t i bl t d d f li i ( t– 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 industrieshow productively it competes in those industries

– Productivity in a national economy arises from a combination of domestic and foreign firms

Th d ti it f “l l” d ti i d t i i f d t l t– The productivity of “local” or domestic industries is fundamental to competitiveness, not just that of export industries

• Nations compete to offer the most productive environment for business

• The public and private sectors play different but interrelated roles in


p p p ycreating a productive economy

Microeconomic Competitiveness

Determinants of Competitiveness

p

Sophisticationof Company

Operations andStrategy

Quality of the NationalBusiness

Environment

State of Cluster Development

Macroeconomic Competitiveness

StrategyEnvironment

MacroeconomicPolicies

SocialInfrastructure and PoliticalInstitutions

Natural Endowments

• Macroeconomic competitiveness creates the potential for high productivity, but is not sufficient


• Productivity ultimately depends on improving the microeconomic capability of the economy and the sophistication of local competition

Wage Level ComparisonSelected CountriesMonthly Minimum Wage

USD, log scale, 2008

N Z l dItaly

Austria

Sweden

Netherlands

DenmarkIrelandUnited Kingdom

Japan / Belgium / FranceGermany

$3,000

New ZealandAustralia

Taiwan

SingaporeKorea

GreeceSlovenia

Portugal

Czech Republic

Spain

Cyprus

Hungary Poland Slovakia

$1,000

$500

Malaysia

Th il d

p

EstoniaLithuania

Hungary Slovakia

LatviaRomania

$500

$100

Cambodia

Philippines Indonesia

ThailandChinaBulgaria$100

$50

Vietnam

$0

Vietnam


Source: Global Competitiveness Report, 2008; EuroStat, 2008; Philippines Department of Labor and Employment, 2008

Global Competitiveness Index Score, 2008

$0

Rate of Competitiveness ImprovementLow Income Countries, 2002 - 2007

BCI Value, 2007

High

Indonesia

Sri Lanka

India

UgandaTanzania Honduras

Sri Lanka

Mali

PakistanEl Salvador

M d

Nigeria Gambia

Vietnam

Zambia ZimbabweUganda

Bolivia

NicaraguaBangladesh

Paraguay

Chad

Mozambique

MadagascarEthiopia

Low


Dynamism Score, 2002 - 2007

Below average Above averageAverage

Source: Global Competitiveness Report 2007


Social Infrastructure and Political Institutions

Macroeconomic Policies

• Basic human capacity– Basic education– Health system

• Fiscal policy– Government surplus/deficit– Government debt– Savings / Investment rates

• Political institutions– Political freedom– Voice and accountability

Political stability

• Monetary policy– Inflation– Interest rate spread

– Political stability– Centralization of economic policymaking– Government effectiveness

• Rule of law– Judicial independence– Efficiency of legal framework– Civil rights– Business costs of corruption– Reliability of police


Reliability of police– Prevalence and costs of crime

Macroeconomic CompetitivenessVietnam’s Position

Social Infrastructure and Political Institutions

Macroeconomic Policies

Basic health and education+ Solid provision of basic services– Increasing concerns about the quality of these

public services

Fiscal policy+ Government budget and debt at acceptable

levels– Government budget still reliant on foreign aid

Monetary Policy– High levels of inflation

Political institutions+ High levels of political stability+ Increasing decentralization of economic

policy responsibilities– Little effective policy dialogue– Corruption remains a significant challengeCorruption remains a significant challenge

Rule of law+ Quality of laws tends to be good – Effectiveness of implementation remains


pweak

Governance IndicatorsSelected Countries

Best country in

Voice and AccountabilityPolitical StabilityGovernment EffectivenessRegulatory QualityRule of LawControl of Corruption

country in the world

Index of Governance

Q litQuality,2007

Worstcountry in the world

Singap

oreJa

pan

uth Kore

aTaiw

anMala

ysia

Brazil

India

Thaila

ndSri L

anka

hilipp

ines

Indon

esia

China

Vietna

mRus

siaCam

bodia

angla

desh

Laos

Pakist

an

the world


Sin

Sout M T S Phi In V

Ca

Bang P

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)

Corruption Perception Index, 20071 Finland New Zealand1

ImprovingDeterioratingLow

corruption

Finland

Canada

Ireland

Iceland Switzerland

France

Austria GermanyJapan

NorwayUKHong Kong

CUnited States

New ZealandSweden

Rank in

PortugalCzech Republic

SlovakiaSouth Korea

Latvia

SloveniaEstonia

MalaysiaLithuania

HungaryTaiwan

SpainChile

South AfricaItaly

Israel

Uruguay

JordanGlobal

CorruptionIndex,2007 India

Thailand

Romania

Turkey

ChinaColombia

Mexico

CroatiaPoland

Brazil

Tunisia

Peru

T i

Senegal

GreeceJordan

P

High Indonesia

EgyptThailand

Argentina

Russia

Tanzania

Uganda

Philippines

Cote d’IvoirePakistan

Ukraine

Panama

Vietnam

-20 -15 -10 -5 0 5 10 15 20Change in Rank Global Corruption Report 2007 versus 2001

91

Highcorruption

Bangladesh

Indonesia

Venezuela

RussiaZimbabwe Cote d Ivoire Nigeria


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

Microeconomic Competitiveness: Quality of the Business Environment

Context for Firm

Strategy and Rivalry

Local rules and incentives that

Factor(Input) Demand

Conditions

Local rules and incentives that encourage investment and productivity

– e.g. incentives for capital investments, intellectual property protection

Access to high quality business inputs

– Human resources

Conditions Conditions

Sophistication of local customers and needs

e g strict quality safety

protectionVigorous local competition

– Openness to foreign and local competition

Human resources– Capital availability– Physical infrastructure– Administrative infrastructure

(e.g. registration, permitting)

Related and Supporting Industries

–e.g., strict quality, safety, and environmental standards

– Information and transparency– Scientific and technological

infrastructure

Availability of suppliers and supporting industries


• 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

Vietnamese Business EnvironmentVietnam’s Relative Position 2008

• Communications infrastructure (rank 72)

– E.g., quality of the telephone

• Government intervention (rank 119) – E.g., SOE market dominance

Competitive Disadvantages Competitive Advantages

E.g., quality of the telephone infrastructure

• Local competition (rank 75)– E.g., intensity of local

competition

• Trade barriers (rank 113)– E.g., level of import tariffs

competition


Note: Rank versus 130 countries; overall, Vietnam ranks 102nd in 2008 PPP adjusted GDP per capita and 76th in New Global CompetitivenessSource: Institute for Strategy and Competitiveness, Harvard University (2008)

160

Openness to TradeSelected Countries, 2008Rank (157

countries)

120

140Vietnam

100

120

60

80

20

40

0

Hon

g K

ong

Sin

gapo

re

nite

d S

tate

s

Taiw

an

Ger

man

y

New

Zea

land

Japa

n

Phi

lippi

nes

Mal

aysi

a

Thai

land

Indo

nesi

a

Braz

il

Chi

na

Sri

Lank

a

Sou

th K

orea

Pak

ista

n

Vie

tnam

Laos

Cam

bodi

a

Indi

a

Rus

sia


Un N S

Source: Index of Economic Freedom (2008), Heritage Foundation

• Vietnam’s lack of openness will retard further competitiveness upgrading

Vietnamese Business EnvironmentVietnam’s Relative Position 2008

• Communications infrastructure (rank 72)

– E.g., quality of the telephone

• Government intervention (rank 119) – E.g., SOE market dominance

Competitive Disadvantages Competitive Advantages

E.g., quality of the telephone infrastructure

• Local competition (rank 75)– E.g., intensity of local

competition

• Trade barriers (rank 113)– E.g., level of import tariffs

competition• Energy infrastructure (rank 109)

– E.g., quality of electricity supply

• Access to finance (rank 109)Access to finance (rank 109)– E.g., financial market sophistication

• Innovation infrastructure (rank 99)– E.g., patents per capitag , pa e s pe cap a

• Logistical infrastructure (rank 96)– E.g., quality of roads


Note: Rank versus 130 countries; overall, Vietnam ranks 102nd in 2008 PPP adjusted GDP per capita and 76th in New Global CompetitivenessSource: Institute for Strategy and Competitiveness, Harvard University (2008)

Cost of Doing BusinessVietnam, 2008Ranking, 2008

(of 181 countries) Favorable Unfavorable

Median Ranking, East Asia and Pacific

Vietnam’s per capita GDP rank: 70th


Source: World Bank Report, Doing Business (2008)

• Especially in land ownership in rural areas significant problems remain

State-Owned Enterprises (SOEs) in Vietnam

• SOEs continue to play a dominant role in the Vietnamese economy, despite the commitment to privatization

• Government oversight of these companies and their spending isGovernment oversight of these companies and their spending is limited and largely reactive

• The costs of slow progress on privatization are high for Vietnam’s competitivenesscompetitiveness

– Retards entry of new private companies– Creates risks of corruption

Can exacerbate economic volatility through excessive investment– Can exacerbate economic volatility through excessive investment financed through soft credit

• An effective privatization program strategy for Vietnam must shifti t t t j t h hieconomic structure, not just change ownership

– Privatization must go hand-in-hand with market opening and policies to curtail anti-competitive practicesOwners are needed that contribute new capital and skills


– Owners are needed that contribute new capital and skills – Minority stakes can distribute ownership more widely

P bli R l i & L l t il

State of Cluster DevelopmentTourism Cluster in Cairns, Australia

Travel agents Tour operatorsPublic Relations & Market Research

Services

Local retail, health care, andother services

Attractions andActivities

e g theme parksRestaurants

FoodSuppliers

Local Transportation

e.g., theme parks, casinos, sports

PropertyServices

Souvenirs, Duty Free

Hotels Airlines, Cruise ShipsMaintenance

Services

Banks,Foreign

Exchange

Government agenciesA t li T i C i i

Educational InstitutionsJ C k U i it

Industry GroupsQ l d T i


Sources: HBS student team research (2003) - Peter Tynan, Chai McConnell, Alexandra West, Jean Hayden

e.g. Australian Tourism Commission, Great Barrier Reef Authority

e.g. James Cook University,Cairns College of TAFE

e.g. Queensland Tourism Industry Council

5%

Vietnam’s Cluster Export Portfolio2000-2006

Change In Vietnam’s Overall Footwear (5.68%, 1.91%)

4%

06

Growth In World Export Share: 0.25%

( , )

Fishing and Fishing Products

3%arke

t sha

re, 2

00

2%wor

ld e

xpor

t ma

Appare

1%

2%

Viet

nam

’s w

T til

Apparel

Coal & Briquettes

Furniture1%

Vietnam’s Average World Export Share: 0.31%

Plastics

Textiles

Tobacco

e


0%-0.3% -0.1% 0.1% 0.3% 0.5% 0.7% 0.9% 1.1% 1.3% 1.5%




0%

1.0%

Vietnam’s Cluster Export Portfolio cont’d2000-2006

Change In Vietnam’s Overall

0.8%

06 Agricultural Products

gGrowth in World Export Share:

0.25%

0.6%arke

t sha

re, 2

00

Leather and Related Products

Oil & Gas

Agricultural Products

0 4%wor

ld e

xpor

t ma

Textiles

Building Fixtures and Equipment

0 2%

0.4%

Viet

nam

’s w

Communications Equipment

Processed FoodsTotal

Services

Construction Materials

Lighting and Electrical EquipmentPublishing and Printing

Sporting, Recreational and Children's Goods Vietnam’s Average

World Export Share: 0.31%

0.2%

AutomotiveProduction Technology

Motor Driven Products

Information Technology Prefabricated Enclosures and Structures

Analytical InstrumentsJewelry, Precious Metals and

CollectiblesBiopharmaceuticals

Chemical ProductsForest Products

Power and Power Generation EquipmentMedical Devices

g g

Metal Mining and ManufacturingEntertainment


0.0%-0.10% -0.05% 0.00% 0.05% 0.10% 0.15% 0.20% 0.25% 0.30%



AutomotiveBiopharmaceuticals


Share of World Exports by ClusterVietnam, 2000< 0.07%

0.07 – 0.15%

Not reported

Fishing &

Fishing

ProductsHospitality

& TourismAgricultural Products

Transportation

Entertainment Prefabricated Enclosures

Textiles0.16 – 0.31%

0.31 – 0.62%

0.62- 1.24%FurnitureBuilding

Fixtures,

Equipment &

Services

Transportation & Logistics

Aerospace Vehicles &

DefenseLightning &

Information

Tech.

DistributionServices

Heavy

ConstructionMaterials

Jewelry &Processed

> 1.24%

Power Generation

Electrical

Equipment

Financial Services

Communi-

cations

Business Services

Forest

Products

yConstruction

Services

Jewelry &

Precious

Metals

Food

Medical

Devices

Analytical InstrumentsEducation &

Knowledge

Creation

Chemical

Products

Biopharma-

ceuticals

Services Publishing & Printing

cations

Equipment

ApparelTobacco

Heavy Machinery

Production Technology


Plastics

Oil &

Gas

ProductsLeather &

Related

Products

Tobacco

Aerospace Engines

AutomotiveMetal

Manufacturing


Footwear

Note: Clusters with overlapping borders have at least 20% overlap (by number of industries) in both directions.

Marine

EquipmentSporting

& Recreation Goods

Share of World Exports by ClusterVietnam, 2006< 0.07%

0.07 – 0.15%

Not reported

Fishing &

Fishing

ProductsHospitality

& TourismAgricultural Products

Transportation

Entertainment Prefabricated Enclosures

Textiles0.16 – 0.31%

0.31 – 0.62%

0.62- 1.24%FurnitureBuilding

Fixtures,

Equipment &

Services

Transportation & Logistics

Aerospace Vehicles &

DefenseLightning &

Information

Tech.

DistributionServices

Heavy

ConstructionMaterials

Jewelry &Processed

> 1.24%

Power Generation

Electrical

Equipment

Financial Services

Communi-

cations

Business Services

Forest

Products

yConstruction

Services

Jewelry &

Precious

Metals

Food

Medical

Devices

Analytical InstrumentsEducation &

Knowledge

Creation

Chemical

Products

Biopharma-

ceuticals

Services Publishing & Printing

cations

Equipment

ApparelTobacco

Heavy Machinery



Plastics

Oil &

Gas

ProductsLeather &

Related

Products

Tobacco

Aerospace Engines

AutomotiveMetal

Manufacturing


Footwear

Note: Clusters with overlapping borders have at least 20% overlap (by number of industries) in both directions.

Marine

EquipmentSporting

& Recreation Goods

Geographic Levels and Competitiveness

World Economy WTO

Broad Economic Areas

G f

Asia

• The business environment at a given location is the cumulative outcome ofGroups of

Neighboring NationsSoutheast Asia

location is the cumulative outcome of policy at all geographic levels

• Many competitiveness drivers occur at the regional and local level

Nations Vietnam • The allocation of competitiveness responsibilities across geographic levels is a crucial policy challenge

States, Provinces Vietnamese provinces


Metropolitan and Rural Areas Ho Chi Minh City

Specialization of Regional EconomiesSelected U.S. Geographic Areas

ChicagoDenver CO

BostonAnalytical InstrumentsEducation and Knowledge CreationCommunications Equipment

ChicagoCommunications EquipmentProcessed FoodHeavy Machinery

Denver, COLeather and Sporting GoodsOil and GasAerospace Vehicles and DefenseSeattle-Bellevue-

Everett, WAAerospace Vehicles and Defense

Pittsburgh, PAConstruction Materials

Wichita, KSAerospace Vehicles and

Fishing and Fishing ProductsAnalytical Instruments

Construction MaterialsMetal ManufacturingEducation and Knowledge

Creation

Aerospace Vehicles and Defense

Heavy MachineryOil and Gas

San Francisco-Oakland-San Jose Bay AreaCommunications EquipmentAgricultural R l i h D h NC

Los Angeles Area

Agricultural ProductsInformation Technology

Raleigh-Durham, NCCommunications EquipmentInformation TechnologyEducation andKnowledge Creation

Los Angeles AreaApparelBuilding Fixtures,

Equipment and Services

Entertainment

San DiegoLeather and Sporting GoodsPower GenerationEducation and Knowledge Creation

HoustonOil and Gas Products and ServicesChemical Products

Atlanta, GAConstruction MaterialsTransportation and LogisticsBusiness Services


Heavy Construction Services

Note: Clusters listed are the three highest ranking clusters in terms of share of national employment.Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School, 11/2006.

Vietnam Provincial Competitiveness Index, 2006

ExcellentHigh PerformingMid-highAverageAverageMid-lowLow Performing

35 Copyright 2008 © Professor Michael E. Porter20081201 – Vietnam CAON.pptSource: Vietnam Provincial Competitiveness Index 2006 (USAID)

The NeighborhoodSoutheast Asia


• Vietnam has a central position between ASEAN and China

Economic Coordination Among NeighborsEnhancing Productivity

Factor Factor (Input)(Input)

ConditionsConditions

Regional Strategy & Governance

Context for Context for Strategy Strategy

and Rivalryand Rivalry

Related and Supporting Industries

Demand Demand ConditionsConditions


• Eliminating trade and investment barriers within the region

• Harmonizing environmental standards

• Harmonizing

• Improving regional transportationinfrastructure

• Creating an efficient

• Facilitating cross-border cluster upgrading, e.g.

– Tourism

• Creating a regional marketing program

• Sharing best

• Coordinating programs to improve publicsafety

the region

• Simplifying and harmonizing cross-borderregulations and

k

gproduct safetystandards

• Establishing reciprocal consumer

genergy network

• Enhancing regional communicationsand connectivity

Li ki fi i l

– Agribusiness

– Transport & Logistics

– Business

gpractices in government operations

• Creating regional institutions

• Coordinating macro-economicpolicies

paperwork

• Coordinatinganti-monopoly andfair

protection laws

• Opening governmentprocurementwithin the region

• Linking financialmarkets

• Opening the movement of students for higher

services – Dispute resolution mechanisms

– Regional development bankcompetition

policies

within the regioneducation

• Harmonizing administrative requirements for businesses

bank

• Developing a regional negotiating position with i t ti l


international organizations

Agenda







Stages of National Competitive DevelopmentShifting Policy Imperatives

FactorFactor--DrivenDriven InvestmentInvestment-- InnovationInnovation--FactorFactor--Driven Driven EconomyEconomy

InvestmentInvestment--Driven EconomyDriven Economy

InnovationInnovation--Driven EconomyDriven Economy

Low Cost Inputs Productivity Unique Value

• Macro, political, and legal stability

• Increasing local competition• Market openness

• Advanced skills• Scientific and technological

• Efficient basic infrastructure

• Lowering regulatory costs of doing business

p• Advanced infrastructure• Incentives and rules

encouraging productivityCl t f ti d

ginstitutions

• Incentives and rulesencouraging innovation

• Cluster upgradingof doing business • Cluster formation and activation

• Cluster upgrading


Source: Porter, Michael E., The Competitive Advantage of Nations, Macmillan Press, 1990

Competitiveness Action Agenda: Key Priorities

Fundamental ReformContinue Existing Efforts

• Reduce corruption • Human resource development at all levels

• Improve infrastructure

• Deepen financial market

• Reform of SOEs

• Cluster developmentpreforms

• Impose regulatory

p

attractiveness


Reducing Corruption

• The government has repeatedly committed itself towards reducing corruption; and some action has been taken

• Evidence reveals little progressp g

• Vietnam needs to target corruption as a crucial barrier for growth and• Vietnam needs to target corruption as a crucial barrier for growth and design an integrated strategy to tackle its occurrence

A ti i itiAction priorities• Reduce the potential for corruption through simplified regulations, use

of modern information technology, and improved SOE governance/ i ti tiprivatization

• Set clear guidelines and reporting requirements for management of SOEs


• Demonstrate a commitment for transparency, including support for a strong press

Improving Infrastructure

• Significant infrastructure investments have been made in recent years

• Evidence on their impact is mixed as best. There is significant p gduplication of efforts and companies complain about serious bottlenecks

• Vietnam needs to better target infrastructure investments to meet the needs of its growing economy

Action priorities• Establish a national fund for key infrastructure projects to be

implemented under the supervision of the Prime Minister’s officeimplemented under the supervision of the Prime Minister s office• Utilize matching funds incentives to improve effectiveness if

investments by provincial governments C t bli i t il t d i di i iti


• Create a public-private council to advise on spending priorities

Deepening Financial Markets

• Vietnam has made clear progress on opening up financial markets, more recently also to foreign companies as part of the WTO agreement

• But the weakness of Vietnam’s financial markets even before the global crisis, and the financing constraints faced by private companies, indicate that serious challenges remain

• Vietnam needs to develop a modern regulatory and institutional structure to enable an effective financial systemy

Action priorities• Continue opening financial markets in line with WTO commitments• Continue opening financial markets in line with WTO commitments• Create an effective, independent financial regulator, using outside

help as neededE t bli h d l t b k t d l fi i t l f i t


• Establish a development bank to develop financing tools for private SMEs

Regulatory Reform

• Regulatory reform has been on the Vietnamese policy agenda for some time, especially over the last five years

• Despite some progress, the overall regulatory burden on businessesDespite some progress, the overall regulatory burden on businesses and citizens remains high with no clear societal benefits

• Vietnam needs a fundamentally new approach to regulatory reform and assessment of new regulations

Action priorities• Aggressively pursue the work on regulatory reform initiated with

f i dforeign donors• Improve institutional capacity to evaluate and administer regulations,

not just the rules themselves


• Include an obligatory assessment of the administrative burden on business in the process of introducing new laws and regulations

Human Resource Development

Basic education

• Enrolment rates have increased significantly but quality is low and skills fail to meet company needs

• Vietnam needs to dramatically improve educational quality, through setting standards improving curricula and involving the privateeducation setting standards, improving curricula, and involving the private sector in governance

Vocational training

• Vietnam lacks a skills training system• Companies have launched own training efforts to address skill

bottlenecks• Vietnam needs a clear program for cluster-based workforce

development

• The number of universities has increased but quality is low and skills

Higher education

The number of universities has increased but quality is low and skills do not match company needs

• Higher university education standards must be set and enforced, drawing on international experts

• Vietnam needs to develop a plan and enabling institutions for i il ti f l b l t h l


assimilation of global technology

Restructuring of State Owned Enterprises

• The government has an explicit policy to promote private enterprise but there isThe government has an explicit policy to promote private enterprise but there is deep-seated ambivalence towards privatization

• Without a thorough reform of the SOE sector, there is little hope for Vietnam to reach the next level of economic development

SOE governance

• Create independent boards of directors• Implement transparent financial reporting• Define clear financial objectives

– Set corporate charters

Competition in markets with

– Set corporate charters

• Remove existing trade, investment, and artificial entry barriers protecting SOEsmarkets with

SOEs• Establish strong, independent regulatory bodies• Support start-ups and spin-offs from SOEs

Privatization• Create clear legal conditions for privatization• Define explicit objectives for privatization process• Create a dedicated structure for implementing privatization


• The creation of SOE groups is not a solution and can exacerbate problems if no other reforms are being implemented

Cluster Development in Vietnam

Vietnam’s cl sters c rrentl tend to be narro l foc sed on• Vietnam’s clusters currently tend to be narrowly focused on individual products

• There is limited collaboration among companies, suppliers and otherinstitutions

– Some clusters, like coffee, have the potential to significantly increase their f if th d t ll b ti hperformance if they adopt a collaboration approach

• Cluster-based development thinking is crucial in improving the delivery f th i li iof other economic policies– Workforce skill development around clusters– FDI attraction/industrial zones around clusters– Cluster-based regional development initiatives– Quality and technology transfer organization for each cluster


• Policy should upgrade all existing and emerging clusters, not choose among them

Clusters and Economic PolicyScience and Technology

I t tEducation and Investments (e.g., centers, university

departments, technology transfer)

Education and Workforce Training

Management Training

ClustersFDI/Business Attraction

Standard setting and quality initiatives

ClustersExport Promotion Market Information

and Disclosure

Ph i l Natural Resource

Environmental StewardshipIndustrial parks and

free trade zonesPhysical

InfrastructureNatural Resource

Protection


• Clusters provide a framework for implementing public policy and organizing public-private collaboration to enhance competitiveness

Clusters and Economic Diversification

Develop Related Clusters

Turn Niche Products Into ClustersDeepen Existing Clusters Build Clusters Around

MNCs

Upgrade Existing Export Products and Services


Upgrading Vietnamese Niche Positions, 2006Cluster Cluster World

Export Share Subcluster Industry

Industry Share of

World

Change in Share (1997-

2006)

Export Value (in $thousands) p

Exports 2006) $ )

Rubber Natural rubber, balata and similar natural gums 7.82% 3.40% 1,137,205$ Plastic Waste Reclaimed unhardened rubber; waste 1.88% 1.87% 6,084$ Plastic Products Plastic sacks, bags 1.55% 0.65% 150,234$ Rubber Synthetic rubber 1.13% 1.13% 143,316$

Motorcycles and Bicycles Parts of other motorcycles 1.42% 1.22% 60,962$

Plastics

Sporting,

0.490%

y y y ,$

Motorcycles and Bicycles Bicycles and other cycles, non‐motorized 1.27% -1.56% 49,628$

Specialty Office Machines Parts for calculating, accounting machines 23.04% 23.04% 444,384$ Electrical and Electronic Components Insulted wire, cable and conductors 1.07% 0.72% 705,725$ Specialty Foods and Ingredients Starches, inulin and gluten 7.93% 6.23% 148,445$ Food Products Machinery Distilling, rectifying plant 2.64% 2.64% 19,449$

Recreational and Children's Goods

0.284%Communications

Equipment

0.361%

y g y g pSpecialty Foods and Ingredients Vegetable saps, extracts 0.90% 0.50% 9,193$ Dairy and Related Products Milk, concentrated or sweetened 0.84% -0.22% 89,315$ Specialty Foods and Ingredients Yeasts 0.81% 0.27% 7,962$ Specialty Foods and Ingredients Homogenized food preparations 0.76% 0.59% 4,888$ Glass Drawn, float, cast glass, worked 6.39% 6.37% 78,185$ Electrical Parts Other inductors 3.20% 2.86% 137,477$

0.260%

0.256%

Processed Food

Lighting and Electrical Equipment

Electrical Parts Other electric transformers 1.17% 0.68% 63,386$ Motors and Generators Electric motors<=37.5w 1.88% 1.15% 150,425$ Appliances Sewing machines and parts 1.21% 0.26% 45,749$

Audio Equipment Loudspeakers, unmounted 1.41% 1.40% 39,964$

Audio Equipment Electric sound amplifiers 1.07% 1.07% 8,745$


Entertainment and Reproduction Equipment

0.156%

0.125%

Electrical Equipment

Peripherals Input or output units 1.01% 1.01% 653,740$ Electronic Components and Assemblies Printed circuits 0.36% -0.43% 85,738$ Electronic Components TV picture tubes, CRTs 1.26% 1.23% 53,690$ Electronic Components Other electronic valves, tubes 0.35% -0.50% 12,186$ Process Instruments Gas meters 0.34% 0.34% 1,415$ Fabricated Plate Work Steam generating boilers, super‐heated water boilers; a 1.35% 1.35% 53,010$

P d i

Information Technology

0.121%

Analytical Instruments

0.047%


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.

Fabricated Plate Work Steam generating boilers, super heated water boilers; a 35% 35% 53,0 0$Process Equipment Components Articulated link chain and parts 0.45% 0.31% 7,292$ Machine Tools and Accessories Cutting blades for machines 0.42% 0.38% 7,501$


0.046%

Agenda







The Process of Economic DevelopmentShifting Roles and Responsibilitiesg p

Old Model New Model

• Government drives economic • Economic development is a development through policy

decisions and incentivescollaborative process involving

government at multiple levels, companies, teaching and research institutions andresearch institutions, and

institutions for collaboration

• Competitiveness must become a bottoms-up process in which many individuals, companies, and institutions take responsibility


• Every community and cluster can take steps to enhance competitiveness

Government and the Process of Economic Development

• Competitiveness is affected by a myriad of government entities– Multiple agencies and departments (e.g. finance, trade, education, science

and technology, commerce, regional policy, energy, agriculture)gy, , g p y, gy, g )– Multiple levels of government (nations, states, cities, etc.) – Intergovernmental relations with neighboring countries affect

competitiveness

• Competitiveness is rarely the sole agenda of any government agency

• Coordinating structures are needed that brings together the ministries and departments necessary to formulate and implement an economicand departments necessary to formulate and implement an economic strategy

• Explicit mechanisms are needed to engage the private sector in dialog


about policy priorities and implementation progress

Organizing for Competitiveness in VietnamRecommendations

• Create effective, independent regulatory organizations

• Improve economic policy at the provincial level

• Improve mechanisms for public-private discussion and collaboration• Improve mechanisms for public-private discussion and collaboration

• Enhance strategic planning and program management capacity in the central and provincial governmentsthe central and provincial governments

• Develop a national economic strategy process to guide priorities in i i th b i i timproving the business environment


Regional Development in Vietnam

• Vietnam’s provinces are developing at different rates; prosperity levels between the richest and poorest regions differs greatly

• Political power and responsibility for economic development has been p p y pdecentralized to the provinces, who apply to the national government for funds

• Provinces have adopted unfocused growth strategies with much duplication and little specialization across provincesp p

• Provinces have insufficient technical capacity for policy design and implementation

• Each province should be charged with developing an economic plan based on ac p o ce s ou d be c a ged t de e op g a eco o c p a based oits unique strengths and potential

• Each province should be expected to publicly report on implementation


Competitiveness Institutions

• Economic strategy unit in the Prime Minister’s office – Regularly updating on progress– Lead a formal planning and program management process involving all

agencies

• Public-private competitiveness council

• Vietnam Competitiveness InstituteVietnam Competitiveness Institute – To conduct analyses, benchmark vs. other countries, and train

government leaders– Joint national and provincialJoint national and provincial

• Enhanced role of business associations


Agenda






• Integrating Corporate Social Responsibility


g g p p y

Defining an Economic Strategy

National Value Proposition

• What is the unique competitive position of the nation or region given its location, legacy, and existing and potential strengths?

– What roles with neighbors, the region, and the broader world?– What unique value as a business location?q– For what types of activities and clusters?

Developing Unique Strengths Achieving and Maintaining Parity with Peers

• What elements of context and the • What weaknesses must be addressed to• What elements of context and thebusiness environment are crucial priorities?

• What existing and emerging clustersshould be developed first?

• What weaknesses must be addressed to achieve parity with peer countries?


should be developed first?

• Priorities and sequencing are a necessity in economic development

The Need for an Economic Strategy

Th Vi t t f ll l l l ti d• The Vietnamese government follows largely an evolutionary and reactive approach in response to crises and specific problems

• Foreign aid inflows are fragmented and driven by donor-priorities

• This approach has been successful in achieving success in factor-based economic development, but will be insufficient to move to a new stage

• Government needs leads in a broad-based discussion on a new economic strategy that sets priorities for improvements in the business environment and institutions

– Internally, the government needs to increase its technical capacity to support such a strategic dialogue, for example through a strategy unit in the Prime Minister’s office


vietnamvietnam s’s competitiveness competitiveness 2008. 12. 1. · • vietnam has experienced an...

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