The Competitive Advantage of Greece: Moving to the Next Level
Professor Michael E. Porter Institute for Strategy and Competitiveness Harvard Business School Athens, Greece 8 May, 2003 This presentation draws on ideas from Professor Porter’s articles and books, in particular, The Competitive Advantage of Nations (The Free Press, 1990), “Building the Microeconomic Foundations of Competitiveness,” in The Global Competitiveness Report 2002, (World Economic Forum, 2002), “Clusters and the New Competitive Agenda for Companies and Governments” in On Competition (Harvard Business School Press, 1998), and ongoing research on clusters and competitiveness. 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. Further information on Professor Porter’s work and the Institute for Strategy and Competitiveness is available at www.isc.hbs.edu CAON Greece 2003 05-08-03 CK.ppt
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Copyright 2003 © Professor Michael E. Porter
Perspectives on Firm Success
External
Internal
• Competitive advantage resides solely inside a company or in its industry
• Competitive advantage (or disadvantage) resides partly in the locations at which a company’s business units are based
• Competitive success depends primarily on company choices
• Cluster participation is an important contributor to competitiveness
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Copyright 2003 © Professor Michael E. Porter
What is Competitiveness? •
Competitiveness is determined by the productivity with which a nation uses its human, capital, and natural resources. Productivity sets a nation’s or region’s standard of living (wages, returns to capital, returns to natural resource endowments) – Productivity depends both on the value of products and services (e.g. uniqueness, quality) as well as the efficiency with which they are produced. – It is not what industries a nation competes in that matters for prosperity, but how firms compete in those industries – Productivity in a nation is a reflection of what both domestic and foreign firms choose to do in that location. The location of ownership is secondary for national prosperity. – The productivity of “local” industries is of fundamental importance to competitiveness, not just that of traded industries – Devaluation does not make a country more competitive
•
Nations compete in offering the most productive environment for business
•
The public and private sectors play different but interrelated roles in creating a productive economy
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Copyright 2003 © Professor Michael E. Porter
Innovation and Competitiveness
Prosperity Prosperity
Productivity Productivity
Competitiveness
Innovative Innovative Capacity Capacity
• Innovation is more than just scientific discovery • There are no low-tech industries, only low-tech firms CAON Greece 2003 05-08-03 CK.ppt
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Copyright 2003 © Professor Michael E. Porter
Patenting Growth and Prosperity Growth Selected OECD Countries Compound annual growth rate of USregistered patents, 1990 - 2001 40%
Singapore
35% 30%
South Korea
25% R2 = 0.53
20%
Taiwan
15%
Spain
Israel 10%
Ireland
Sweden Japan
5%
Switzerland 0% 0%
UK
Norway
Netherlands
France 1%
US
2%
3%
4%
5%
6%
7%
Compound annual growth rate of real GDP, 1990-2000 Source: IMF (2001), US Patent and Trademark Office (2002) CAON Greece 2003 05-08-03 CK.ppt
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Copyright 2003 © Professor Michael E. Porter
The Greek Economic Situation in 2003 •
Greece has been among the leading European Union member countries in terms of GDP growth in the last five years
•
Macroeconomic progress has been considerable, and Greece successfully entered the European Monetary Union in the first wave
However •
Much of the recent growth has been fueled by low interest rates after entry into the EMU and access to EU structural funds
•
Despite some recent progress, Greece is still lagging behind the reforms other countries started much earlier
•
Greece will receive reduced EU funding after 2006 and faces increasingly intense competition from EU accession countries in Eastern Europe
•
Greece has significant competitiveness challenges that must be addressed if prosperity growth is to be sustainable
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Copyright 2003 © Professor Michael E. Porter
Comparative Economic Performance Growth Rate of Real GDP, Selected Economies Annual Growth Rate of Real GDP
6% 5% 4% 3%
Greece Spain Austria Italy Portugal
2% 1% 0% -1% -2% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Source: EIU (2002) CAON Greece 2003 05-08-03 CK.ppt
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Copyright 2003 © Professor Michael E. Porter
Comparative Economic Performance Prosperity, Selected Economies GDP per Capita, 2001, US=100 100%
United States
90%
Norway
Switzerland
80%
Japan Hong Kong
70%
Denmark Austria Germany France Sweden Italy Singapore
60%
Canada Belgium Australia Netherlands UK
Taiwan
New Zealand
Spain
Israel
50%
Korea Slovenia
Portugal
Greece
Czech Republic
40%
Hungary
Argentina
30% -2.0%
Finland
-1.5%
Slovak Republic
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
CAGR of GDP per Capita Relative to the US, 1995-2001
Source: World Development Indicators 2002 CAON Greece 2003 05-08-03 CK.ppt
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Copyright 2003 © Professor Michael E. Porter
Greek Microeconomic Performance •
Greece has registered solid labor productivity growth in the last few years
However •
The overall level of labor productivity is still low
•
Greece has a been one of the few middle to high-income countries with increasing unemployment since 1995 – The effects of corporate restructuring, labor force inflows from agriculture, higher participation of women, and immigrants have outweighed positive job creation
•
Greece has a weak position in exports. Performance is better in service exports such as tourism and shipping
•
Greece innovation performance lags all other EU member countries with the exception of Portugal
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Copyright 2003 © Professor Michael E. Porter
Labor Productivity Performance Selected OECD Countries, GDP per Hour worked Labor Productivity Level, 1999, US = 100
110
Netherlands Italy
100 Switzerland
90
France Denmark
Canada
80
US Germany UK
Australia Finland
Sweden
Spain
Japan
70 60 50 0.0%
Ireland (96%, +4.6%)
Greece Portugal
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
Labor Productivity Growth, 1995-99 Note: Total economy Source: OECD (2001) CAON Greece 2003 05-08-03 CK.ppt
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Copyright 2003 © Professor Michael E. Porter
Unemployment Rate Southern European Countries and Regions Unemployment Rate
20% 18% 16% 14% 12%
1988 1998
10% 8% 6% 4% 2% 0% Portugal
EU-15
France (SouthWest)
Greece
Italy
Spain
Source: European Commission CAON Greece 2003 05-08-03 CK.ppt
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Copyright 2003 © Professor Michael E. Porter
Comparative Goods Export Performance European Countries
Exports of Goods per Capita, 1998
€ 16,000 € 14,000 € 12,000 € 10,000 € 8,000 € 6,000 € 4,000 € 2,000
Sp ai n G re ec e
Ita ly
K Fr an ce Po rtu ga l
U
Be lg iu N m et he rla nd s Ire la nd D en m ar k Au st ria Sw ed en Fi nl an d G er m an y
€0
Source: Eurostat CAON Greece 2003 05-08-03 CK.ppt
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Copyright 2003 © Professor Michael E. Porter
International Patenting Output Annual U.S. patents per 1 million population, 2001
400 350
USA
300 Taiwan
250 Japan
200 150
Germany
Sweden Finland Israel Canada
100
Netherlands UK
50
Singapore
South Korea
= 10,000 patents granted in 2001
New Zealand
Australia
Greece
0 0%
10%
20%
30%
40%
Compound annual growth rate of US-registered patents, 1990 - 2001 Source: US Patent and Trademark Office (www.uspto.gov). Author’s analysis. CAON Greece 2003 05-08-03 CK.ppt
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Copyright 2003 © Professor Michael E. Porter
Innovation Performance Southern European Countries and Regions EU Patents per million population, 1997-99 average
119.4
120 100 80 60 40
59.7
60.8
Italy
France (SouthWest)
30.5 18.5
20 2.7
6.2
Portugal
Greece
0 Spain
Basque Country
EU-15
Source: European Commission CAON Greece 2003 05-08-03 CK.ppt
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Copyright 2003 © Professor Michael E. Porter
Determinants of Productivity and Productivity Growth Macroeconomic, Macroeconomic, Political, Political, Legal, Legal, and and Social Social Context Context for for Development Development
Microeconomic Microeconomic Foundations Foundations of of Development Development Sophistication Sophistication of ofCompany Company Operations Operationsand and Strategy Strategy
Quality Qualityof ofthe the Microeconomic Microeconomic Business Business Environment Environment
• 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 companies and local competition CAON Greece 2003 05-08-03 CK.ppt
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Copyright 2003 © Professor Michael E. Porter
Global Competitiveness Report 2002 The Relationship Between Microeconomic Competitiveness and GDP Per Capita 35,000
USA Norway
Iceland
30,000
Canada Ireland
Switzerland Denmark
Germany Netherlands Finland France Sweden UK Italy Singapore Taiwan New Zealand
25,000
2001 GDP per Capita 20,000 (Purchasing Power Adjusted)
Greece
15,000
Slovenia
Spain
Israel S Korea
Portugal Czech Rep Hungary
10,000
5,000
Argentina Uruguay
Ukraine
Brazil Jordan
China
Vietnam
0
Malaysia
India
Nigeria
Microeconomic Competitiveness Index
Source:Global Competitiveness Report 2002 CAON Greece 2003 05-08-03 CK.ppt
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Copyright 2003 © Professor Michael E. Porter
Productivity, Innovation, and the Business Environment Context Context for for Firm Firm Strategy Strategy and and Rivalry Rivalry z
Factor Factor (Input) (Input) Conditions Conditions z
Presence of high quality, specialized inputs available to firms –Human resources –Capital resources –Physical infrastructure –Administrative infrastructure –Information infrastructure –Scientific and technological infrastructure –Natural resources
z z
z z
A local context and rules that encourage investment and sustained upgrading –e.g., Intellectual property Demand protection Demand Conditions Meritocratic incentive system Conditions across institutions Open and vigorous competition among locally based rivals z Sophisticated and demanding local customer(s) z Local customer needs that anticipate those elsewhere Related and Related and z Unusual local demand in Supporting Supporting specialized segments that can be Industries served nationally and globally Industries Access to capable, locally based suppliers and firms in related fields Presence of clusters instead of isolated industries
• Successful economic development is a process of successive economic upgrading, in which the business environment in a nation evolves to support and encourage increasingly sophisticated ways of competing CAON Greece 2003 05-08-03 CK.ppt
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Copyright 2003 © Professor Michael E. Porter
The California Wine Cluster Grapestock Grapestock Fertilizer, Fertilizer, Pesticides, Pesticides, Herbicides Herbicides
State Government Agencies (e.g., Select Committee on Wine Production and Economy)
Barrels Barrels
Bottles Bottles
Caps Caps and and Corks Corks
Grape Grape Harvesting Harvesting Equipment Equipment
Irrigation Irrigation Technology Technology
Winemaking Winemaking Equipment Equipment
Growers/Vineyards Growers/Vineyards
Wineries/Processing Wineries/Processing Facilities Facilities
Labels Labels Public Public Relations Relations and and Advertising Advertising Specialized SpecializedPublications Publications (e.g., (e.g.,Wine WineSpectator, Spectator, Trade TradeJournal) Journal)
California California Agricultural Agricultural Cluster Cluster
Educational, Educational, Research, Research, && Trade Trade Organizations Organizations (e.g. (e.g. Wine Wine Institute, Institute, UC UC Davis, Davis, Culinary Culinary Institutes) Institutes)
Tourism Tourism Cluster Cluster
Food Food Cluster Cluster Sources: California Wine Institute, Internet search, California State Legislature. Based on research by MBA 1997 students R. Alexander, R. Arney, N. Black, E. Frost, and A. Shivananda. CAON Greece 2003 05-08-03 CK.ppt
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Copyright 2003 © Professor Michael E. Porter
The Norwegian Maritime Cluster Fisheries Fisheries and and Fishing Fishing Equipment Equipment
Ship Ship owners owners
Shipyards Shipyards
Ship Ship brokers brokers and and agents agents Banking Banking and and Finance Finance
Boat Boat builders builders
Maritime Maritime Services Services
Shipping Shipping
Maritime Maritime Equipment Equipment Suppliers Suppliers
Maritime Maritime lawyers lawyers Underwriters Underwritersand and maritime maritimeinsurance insurance
Maritime Maritime authorities authorities
Offshore Offshore Exploration Exploration and and Oil Oil Production Production
Maritime Maritime R&D R&D
Classification Classification societies societies
Maritime Maritime consultants consultants Fixed Fixed platforms platforms
Pipelines Pipelines
Ship Ship equipment equipment
Processing Processing equipment equipment
Maritime Maritime education education
Norway has 0.1% of the world’s population, represents 1.0% of the world’s economy, yet accounts for 10% of world seaborne transportation Source: Sven Ullring, presented to M.I.T. CAON Greece 2003 05-08-03 CK.ppt
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Copyright 2003 © Professor Michael E. Porter
Clusters and Competitiveness Clusters increase productivity and efficiency • • • •
Efficient access to specialized inputs, services, employees, information, institutions, and “public goods” (e.g. training programs) Ease of coordination and transactions across firms Rapid diffusion of best practices Ongoing, visible performance comparisons and strong incentives to improve vs. local rivals
Clusters stimulate and enable innovation • • •
Enhanced ability to perceive innovation opportunities Presence of multiple suppliers and institutions to assist in knowledge creation Ease of experimentation given locally available resources
Clusters facilitate commercialization • •
Opportunities for new companies and new lines of established business are more apparent Commercializing new products and starting new companies is easier because of available skills, suppliers, etc.
Clusters reflect the fundamental influence of externalities / linkages across firms and associated institutions in competition
Levels of Clusters • There is often an array of clusters in a given field in different locations, each with different levels of specialization and sophistication • Global innovation centers, such as Silicon Valley in semiconductors, are few in number. If there are multiple innovation centers, they normally specialize in different market segments • Other clusters focus on manufacturing, outsourced service functions, or play the role of regional assembly or service centers • Firms based in the most advanced clusters often seed or enhance clusters in other locations in order to reduce the risk of a single site, access lower cost inputs, or better serve particular regional markets • The challenge for an economy is to move from isolated firms to an array of clusters, and then to upgrade the breadth and sophistication of clusters to more advanced activities CAON Greece 2003 05-08-03 CK.ppt
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Copyright 2003 © Professor Michael E. Porter
Leading Footwear Clusters Romania • Production subsidiaries of Italian companies • Focus on lower to medium price range
Portugal • Production • Focus on shortproduction runs in the medium price range
Italy • Design, marketing, and production of premium shoes • Export widely to the world market United States • Design and marketing • Focus on specific market segments like sport and recreational shoes and boots • Manufacturing only in selected lines such as handsewn casual shoes and boots Source: Research by HBS student teams in 2002 CAON Greece 2003 05-08-03 CK.ppt
China • OEM Production • Focus on low cost segment mainly for the US market
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Vietnam/Indonesia • OEM Production • Focus on the low cost segment mainly for the European market
Copyright 2003 © Professor Michael E. Porter
Institutions for Collaboration General General •• •• •• •• •• ••
Chambers Chambers of of Commerce Commerce Professional Professional associations associations School School networks networks University University partner partner groups groups Religious Religious networks networks Joint Joint private/public private/public advisory advisory councils councils •• Competitiveness Competitiveness councils councils
• Institutions for collaboration (IFC) are formal and informal organizations that - facilitate the exchange of information and technology - conduct joint activities - foster coordination among firms • IFCs can improve the business environment by - creating relationships and level of trust that make them more effective - defining of common standards
Cluster -specific Cluster-specific
- conducting or facilitating the organization of collective action in areas such as procurement, information gathering, or international marketing
•• ••
Industry Industry associations associations Specialized Specialized professional professional associations associations and and societies societies •• Alumni Alumni groups groups of of core core cluster cluster companies companies •• Incubators Incubators CAON Greece 2003 05-08-03 CK.ppt
- defining and communicating common beliefs and attitudes - providing mechanisms to develop a common economic or cluster agenda 23
Copyright 2003 © Professor Michael E. Porter
Institutions for Collaboration Selected Institutions for Collaboration, San Diego
General General
Cluster-Specific Cluster-Specific
zz
San San Diego Diego Chamber Chamber of of Commerce Commerce
Telecommunication Telecommunication
zz
San San Diego Diego MIT MIT Enterprise Enterprise Forum Forum
zz
zz
Corporate Corporate Director’s Director’s Forum Forum
zz
San San Diego Diego Dialogue Dialogue
Biotech Biotech
zz
Service Service Corps Corps of of Retired Retired Executives, Executives, San San Diego Diego
zz
Hybritech Hybritech Alumni Alumni
zz
Scripps Scripps Research Research Institute Institute Alumni Alumni
zz
BIOCOMM BIOCOMM
zz
UCSD UCSD Connect Connect
zz
San San Diego Diego Regional Regional Economic Economic Development Development Corporation Corporation
zz
Center Center for for Applied Applied Competitive Competitive Technologies Technologies
zz
San San Diego Diego World World Trade Trade Center Center
zz
UCSD UCSD Alumni Alumni
zz
San San Diego Diego Regional Regional Technology Technology Alliance Alliance
zz
San San Diego Diego Science Science and and Technology Technology Council Council
zz
Office Office of of Trade Trade and and Business Business Development Development
Source: Clusters of Innovation project (www.compete.org)
Linkabit Linkabit Alumni Alumni
Stages Of Competitive Development
Factor -Driven Factor-Driven Economy Economy
Investment Investment-Driven Driven Economy Economy
Innovation Innovation-Driven Driven Economy Economy
Low Input Cost
Efficiency Through Heavy Investment
Unique Value
Source: Porter, Michael E., The Competitive Advantage of Nations, The Free Press: New York (1990) CAON Greece 2003 05-08-03 CK.ppt
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Copyright 2003 © Professor Michael E. Porter
Greece’s Competitiveness Agenda 2003
•
Continue the macroeconomic progress
•
Upgrade the business environment
•
Foster cluster development
•
Create a regional strategy for Southeast Europe
•
Shift the roles of government and business in economic development
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Copyright 2003 © Professor Michael E. Porter
Macroeconomic Consolidation Public Debt, Selected Countries
Public Debt as % of GDP, 2000
120 Italy
100
Greece
Belgium Canada
80 Spain
France
60 Germany
UK
40
US Portugal
Sweden Netherlands Denmark Finland
Ireland
20 0 -10
0
-10
- 20
- 30
- 40
- 50
Reduction in Public Debt as % of GDP, 1995- 2000 Source: EIU CAON Greece 2003 05-08-03 CK.ppt
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Copyright 2003 © Professor Michael E. Porter
Integration of Macro- and Microeconomic Reforms Stability and confidence support investment and upgrading
Macro reform alone leads Micro reform Required to achieve to short term Create the opportunity is impeded for productivity productivity capital by macro inflows economic Macroeconomic Microeconomic and volatility growth reform reform that spurts reduces that company ultimately investment are not Productivity growth allows economic sustainable growth and rising incomes without inflation, making macroeconomic stability easier to achieve
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Copyright 2003 © Professor Michael E. Porter
Greece’s Competitiveness Agenda 2003
•
Continue the macroeconomic progress
•
Upgrade the business environment
•
Foster cluster development
•
Create a regional strategy for Southeast Europe
•
Shift the roles of government and business in economic development
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Copyright 2003 © Professor Michael E. Porter
Factor Factor (Input) (Input) Conditions Conditions
Factor (Input) Conditions Greece’s Relative Position
Competitive Advantages Relative to GDP per Capita
Competitive Disadvantages Relative to GDP per Capita
Country Ranking, Arrows indicate a change of 5 or more ranks since 1998
Country Ranking, Arrows indicate a change of 5 or more ranks since 1998
Availability of Scientists and Engineers
21
Quality of Management Schools
62
Ease of Access to Loans
31
Administrative Burden for Start-Ups
61
University/Industry Research Collaboration 34
Quality of Public Schools
52
Judicial Independence
36
Quality of Scientific Research Institutions
51
Local Equity Market Access
36
Electricity Supply Quality
49
Telephone/Fax Infrastructure Quality
38
Overall Infrastructure Quality
48
Venture Capital Availability
38
Port Infrastructure Quality
48
Financial Market Sophistication
40
Railroad Infrastructure Quality
48
Extent of Bureaucratic Red Tape
41
Police Protection of Businesses
47
Intellectual Property Protection
41
Adequacy of Public Sector Legal Recourse 43 Air Transport Infrastructure Quality
43
Quality of Math and Science Education
42
Note: Rank by countries; overall Greece ranks 43 out of 80 countries (41 on National Business Environment, 28 on GDP pc 2001) Source: Global Competitiveness Report 2002 CAON Greece 2003 05-08-03 CK.ppt
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Copyright 2003 © Professor Michael E. Porter
Factor Factor (Input) (Input) Conditions Conditions
Educational Attainment Southern European Countries and Regions
Share of 25-59 year old by level of educational attainment 100% 90%
22%
21%
36%
70%
50%
33% 46%
43%
10% 22%
30%
80%
60%
10%
18%
16%
18%
40%
78%
30% 20%
12%
32%
36%
France (SouthWest)
EU-15
49%
52%
54%
Greece
Basque
Italy
High Medium Low
62%
10% 0%
Spain
Portugal
Source: European Commission CAON Greece 2003 05-08-03 CK.ppt
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Copyright 2003 © Professor Michael E. Porter
Factor Factor (Input) (Input) Conditions Conditions
U.S. Patenting by Greek Institutions
U.S. Patents Issued from 1996 to 2001 6
Organization 1 2
INNOVAL MANAGEMENT LIMITED INSTITUTE FOR MOLECULAR BIOLOGY & BIOTECHNOLOGY/FORTH
5
Note: Shading indicates universities, research institutions, and other government agencies Source: US Patent and Trademark Office (www.uspto.gov). Author’s analysis. CAON Greece 2003 05-08-03 CK.ppt
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Copyright 2003 © Professor Michael E. Porter
Patents by Organization Commonwealth of Massachusetts Organization 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Patents Issued from 1997 to 2001
MASSACHUSETTS INSTITUTE OF TECHNOLOGY GENERAL HOSPITAL CORPORATION EMC CORPORATION DIGITAL EQUIPMENT CORPORATION POLAROID CORPORATION ANALOG DEVICES, INC. MILLENNIUM PHARMACEUTICALS, INC. HARVARD UNIVERSITY COMPAQ COMPUTER CORPORATION, INC. SUN MICROSYSTEMS, INC. BOSTON SCIENTIFIC CORPORATION ACUSHNET COMPANY GENETICS INSTITUTE, INC. GILLETTE COMPANY BRIGHAM AND WOMEN'S HOSPITAL RAYTHEON COMPANY GENERAL ELECTRIC COMPANY HEWLETT-PACKARD COMPANY CHILDREN'S MEDICAL CENTER CORPORATION QUANTUM CORP. (CA) COGNEX CORPORATION DANA-FARBER CANCER INSTITUTE JOHNSON & JOHNSON PROFESSIONAL INC. BOSTON UNIVERSITY SEPRACOR INC.
518 296 269 261 213 167 165 150 147 143 135 130 127 112 107 101 99 96 93 93 90 90 90 84 84
Note: Shading indicates universities, research institutions, and other government agencies Source: US Patent and Trademark Office (www.uspto.gov). Author’s analysis. CAON Greece 2003 05-08-03 CK.ppt
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Copyright 2003 © Professor Michael E. Porter
Factor Factor (Input) (Input) Conditions Conditions
Government R&D Spending Selected European Countries
Public R&D Spending as % of GDP, 2001 (or last available)
1.0%
Finland Sweden
0.9%
Netherlands
0.8%
France Germany
0.7%
Denmark
Slovenia
0.6%
Estonia
0.5%
UK Belgium Italy Spain Poland
0.4%
Portugal Lithuania Czech Rep.
Greece
Hungary Bulgaria
Ireland Latvia
0.3%
Slovakia
0.2% -10%
-5%
0%
5%
10%
15%
Change of Public R&D Spending as % of GDP, last three years Source: EU Scoreboard CAON Greece 2003 05-08-03 CK.ppt
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Copyright 2003 © Professor Michael E. Porter
Context Contextfor for Firm Strategy Firm Strategy and andRivalry Rivalry
Context for Firm Strategy and Rivalry Greece’s Relative Position
Competitive Advantages Relative to GDP per Capita
Competitive Disadvantages Relative to GDP per Capita
Country Ranking, Arrows indicate a change of 5 or more ranks since 1998
Tariff Liberalization
Country Ranking, Arrows indicate a change of 5 or more ranks since 1998
8
Costs of Other Firms' Illegal/ Unfair Activities
31
Hidden Trade Barrier Liberalization
31
Effectiveness of Anti-Trust Policy Intensity of Local Competition
Efficacy of Corporate Boards
76
Cooperation in Labor-Employer Relations 56 Extent of Distortive Government Subsidies 50 50
40
Favoritism in Decisions of Government Officials
41
Decentralization of Corporate Activity
43
Extent of Locally Based Competitors
42
Note: Rank by countries; overall Greece ranks 43 out of 80 countries (41 on National Business Environment, 28 on GDP pc 2001) Source: Global Competitiveness Report 2002 CAON Greece 2003 05-08-03 CK.ppt
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Copyright 2003 © Professor Michael E. Porter
Context Contextfor for Firm Strategy Firm Strategy and andRivalry Rivalry
Regulation of Product and Labor Markets Selected OECD Countries
High
Portugal Spain Germany
Greece Italy France
Japan
Norway
Sweden
Intensity of Regulation in the Labor Market
Finland
Netherlands
Belgium Denmark Ireland
Australia
Switzerland
New Zealand UK
Low Low
Source: Nicoletti/Scarpetta (2001), McKinsey (2001) CAON Greece 2003 05-08-03 CK.ppt
Canada US Intensity of Regulation in the Product Market
36
High
Copyright 2003 © Professor Michael E. Porter
Context Contextfor for Firm Strategy Firm Strategy and andRivalry Rivalry
Ease of Business Formation Selected OECD Countries
Cost of Business Formation relative to GDP per capita
50% 40% 30% 20% 10%
al an d
Ze
U
K
S U
N
ew
G
re ec e Au st Po ria rt N et uga he l rla nd s Ita l Fr y Sw an itz ce er la nd Sp ai Ire n la nd Ja pa G er n m a Sw n y ed Au en st ra l Fi ia nl an d C an ad a
0%
Source: Freeman (2001), OECD (2002) CAON Greece 2003 05-08-03 CK.ppt
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Copyright 2003 © Professor Michael E. Porter
Demand Demand Conditions Conditions
Demand Conditions Greece’s Relative Position
Competitive Advantages Relative to GDP per Capita
Competitive Disadvantages Relative to GDP per Capita
Country Ranking, Arrows indicate a change of 5 or more ranks since 1998
Buyer Sophistication
Country Ranking, Arrows indicate a change of 5 or more ranks since 1998
37
Laws Relating to Information Technology
67
Government Procurement of Advanced Technology Products
56
Consumer Adoption of Latest Products
52
Stringency of Environmental Regulations
50
Note: Rank by countries; overall Greece ranks 43 out of 80 countries (41 on National Business Environment, 28 on GDP pc 2001) Source: Global Competitiveness Report 2002 CAON Greece 2003 05-08-03 CK.ppt
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Copyright 2003 © Professor Michael E. Porter
Related Relatedand and Supporting Supporting Industries Industries
Related and Supporting Industries Greece’s Relative Position
Competitive Advantages Relative to GDP per Capita
Competitive Disadvantages Relative to GDP per Capita
Country Ranking, Arrows indicate a change of 5 or more ranks since 1998
Country Ranking, Arrows indicate a change of 5 or more ranks since 1998
State of Cluster Development
67
Extent of Product and Process Collaboration
65
Local Availability of Components and Parts
60
Local Availability of Specialized Research and Training Services
57
Local Availability of Process Machinery
54
Local Supplier Quality
49
Local Supplier Quantity
47
Note: Rank by countries; overall Greece ranks 43 out of 80 countries (41 on National Business Environment, 28 on GDP pc 2001) Source: Global Competitiveness Report 2002 CAON Greece 2003 05-08-03 CK.ppt
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Copyright 2003 © Professor Michael E. Porter
Company Operations and Strategy Greece’s Relative Position 2002
Competitive Advantages Relative to GDP per Capita
Competitive Disadvantages Relative to GDP per Capita
Country Ranking, Arrows indicate a change of 5 or more ranks since 1998
Country Ranking, Arrows indicate a change of 5 or more ranks since 1998
Extent of Marketing
30
Reliance on Professional Management 67
Control of International Distribution
38
Willingness to Delegate Authority
63
Value Chain Presence
40
Capacity for Innovation
57
Production Process Sophistication
42
Extent of Staff Training
57
Company Spending on R&D
56
Breadth of International Markets
47
Extent of Branding
47
Extent of Incentive Compensation
47
Degree of Customer Orientation
44
Note: Rank by countries; overall the Greece ranks 43 out of 80 countries (47 on Company Operations and Strategy, 28 on GDP pc 2001) Source: Global Competitiveness Report 2002 CAON Greece 2003 05-08-03 CK.ppt
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Copyright 2003 © Professor Michael E. Porter
Private R&D Spending Selected European Countries Public R&D Spending as % of GDP, 2001 (or last available)
3.0%
Sweden Finland 2.5%
2.0%
Germany 1.5%
1.0%
Belgium Denmark Netherlands
France UK Ireland
Czech Rep.
Italy
0.5%
0.0% -10%
Slovenia
Spain
Hungary
Estonia 0%
10%
20%
Greece Portugal
30%
40%
50%
Change of Public R&D Spending as % of GDP, last three years Source: EU Scoreboard 2002 CAON Greece 2003 05-08-03 CK.ppt
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Copyright 2003 © Professor Michael E. Porter
Greece’s Competitiveness Agenda 2003
•
Continue the macroeconomic progress
•
Upgrade the business environment
•
Foster cluster development
•
Create a regional strategy for Southeast Europe
•
Shift the roles of government and business in economic development
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Greek Export Performance By Broad Sector 1995-2000 Greece’s average change in world goods export share: - 0.03%
World Export Share, 2000
0.7%
Textiles/Apparel
0.6% 0.5% Personal
0.4%
Food/Beverages
Materials/Metals Petroleum/Chemicals
0.3%
Housing/Household Telecommunications Greece’s average goods export share: 0.19% Health Care Entertainment
0.2% Multiple Business Power
0.1%
Transportation
0.0% -0.3%
-0.2%
-0.1%
D D
Office Information Technology
0.0%
+ 0.1%
+ 0.2%
= $500 million export volume in 2000
Change in Greece’s World Export Share, 1995 - 2000
• Greece is loosing position in some of its largest export clusters Source: UNCTAD Trade Data. Author’s analysis. CAON Greece 2003 05-08-03 CK.ppt
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Tourism Cluster Performance Tourism Receipts per Capita, 2000
$2,000 $1,800
Australia
United States
$1,600 $1,400
= 2.5% World Market Share
$1,200 Germany
$1,000
Spain
$800
Italy
UK
Turkey
$600 $400
Greece
China Hong Kong
$200 $0 -15%
Canada
Austria Switzerland
Mexico France
-10%
-5%
0%
+ 5%
+10%
+ 15%
Change in %CAGR of Tourism Receipts per Capita, 1997-2000
• Greece has a strong tourism cluster that increased revenues per tourists in the last few years Source: World Tourism Organization CAON Greece 2003 05-08-03 CK.ppt
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Public / Private Cooperation in Cluster Upgrading Minnesota’s Medical Device Cluster Context Context for for Firm Firm Strategy Strategy and and Rivalry Rivalry
Factor Factor (Input) (Input) Conditions Conditions • Joint development of vocationaltechnical college curricula with the medical device industry • Minnesota Project Outreach exposes businesses to resources available at university and state government agencies • Active medical technology licensing through University of Minnesota • State-formed Greater Minnesota Corp. to finance applied research, invest in new products, and assist in technology transfer CAON Greece 2003 05-08-03 CK.ppt
• Aggressive trade associations (Medical Alley Association, High Tech Council) • Effective global marketing of the cluster and of Minnesota as the “The Great State of Health” • Full-time “Health Care Industry Specialist” in the department of Trade and Economic Development
Demand Demand Conditions Conditions • State sanctioned reimbursement policies to enable easier adoption and reimbursement for innovative products
Related Related and and Supporting Supporting Industries Industries
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The Australian Wine Cluster Trade Performance
Australian Wine Exports in million US Dollars
Australian Wine World Export Market Share 8%
$1,000 $900
7%
$800 6% $700 5%
$600 $500
4%
$400
Value Market Share
3%
$300 2% $200 1%
$100 $0
0% 1995
1996
1997
1998
1999
2000
Source: UN Trade Statistics CAON Greece 2003 05-08-03 CK.ppt
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Copyright 2003 © Professor Michael E. Porter
The Australian Wine Cluster History 1991 to 1998
1930
1965
1980
First oenology course at Roseworthy Agricultural College 1955
Australian Wine Bureau established
Australian Wine and Brandy Corporation established 1990
1970
New organizations created for education, research, market information, and export promotions Winemaker’s Federation of Australia established
Winemaking school at Charles Sturt University founded
Australian Wine Research Institute founded
1950s
1960s
1970s
1980s
1990s
Import of European winery technology
Recruiting of experienced foreign investors, e.g. Wolf Bass
Continued inflow of foreign capital and management
Creation of large number of new wineries
Surge in exports and international acquisitions
Source: Michael E. Porter and Örjan Sölvell, The Australian Wine Cluster – Supplement, Harvard Business School Case Study, 2002 CAON Greece 2003 05-08-03 CK.ppt
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The Australian Wine Cluster Recently founded Institutions for Collaboration Winemakers’ Winemakers’ Federation Federation of of Australia Australia zz zz
zz
Cooperative Cooperative Centre Centre for for Viticulture Viticulture
Established Established in in 1990 1990
zz
Focus: Focus: Public Public policy policy representation representation of of companies companies in in the the wine wine cluster cluster
zz
Funding: Funding: Member Member companies companies
zz
Australian Australian Wine Wine Export Export Council Council zz zz
zz
zz
zz
Focus: Focus: Coordination Coordination of of research research and and education education policy policy in in viticulture viticulture Funding: Funding: other other cluster cluster organizations organizations
Grape Grape and and Wine Wine R&D R&D Corporation Corporation
Established Established in in 1992 1992
zz
Focus: Focus: Wine Wine export export promotion promotion through through international international offices offices in in London London and and San San Francisco Francisco
zz
Funding: Funding: Government; Government; cluster cluster organizations organizations
zz
Established Established in in 1991 1991 as as statutory statutory body body Focus: Focus: Funding Funding of of research research and and development development activities activities Funding: Funding: Government; Government; statutory statutory levy levy
Wine Wine Industry Industry National National Education Education and and Training Training Council Council
Wine Wine Industry Industry Information Information Service Service zz
Established Established in in 1991 1991
Established Established in in 1998 1998
zz
Focus: Focus: Information Information collection, collection, organization, organization, and and dissemination dissemination
zz
Funding: Funding: Cluster Cluster organizations organizations
zz
Established Established in in 1995 1995 Focus: Focus: Coordination, Coordination, integration, integration, and and standard standard maintenance maintenance for for vocational vocational training training and and education education Funding: Funding: Government; Government; other other cluster cluster organizations organizations
Source: Michael E. Porter and Örjan Sölvell, The Australian Wine Cluster – Supplement, Harvard Business School Case Study, 2002 CAON Greece 2003 05-08-03 CK.ppt
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Appropriate Roles of Government in Cluster Development
• A successful cluster policy builds on sound overall economic policies • Government should support the development of all clusters, not choose among them • Government policy should reinforce established and emerging clusters rather than attempt to create entirely new ones • Government’s role in cluster initiatives is as facilitator and participant. The most successful cluster initiatives are a publicprivate partnership
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Cluster Policy versus Industrial Policy
Industrial Industrial Policy Policy
Cluster -based Cluster-based Policy Policy
• Target desirable industries / sectors
•
• Focus on domestic companies
• Domestic and foreign companies both enhance productivity
• Intervene in competition (e.g., protection, industry promotion, subsidies)
• Relax impediments and constraints to productivity
• Centralizes decisions at the national level
• Encourage initiative at the state and local level
• Emphasize cross-industry linkages / complementarities
Distort competition CAON Greece 2003 05-08-03 CK.ppt
All clusters can contribute to prosperity
Enhance competition 50
Copyright 2003 © Professor Michael E. Porter
Greece’s Competitiveness Agenda 2003
•
Continue the macroeconomic progress
•
Upgrade the business environment
•
Foster cluster development
•
Create a regional strategy for Southeast Europe
•
Shift the roles of government and business in economic development
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Copyright 2003 © Professor Michael E. Porter
Influences on Competitiveness Multiple Geographic Levels World Economy
Broad Economic Areas
Groups of Neighboring Nations
Nations
States, Provinces
Cities, Metropolitan Areas CAON Greece 2003 05-08-03 CK.ppt
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Cross-National Regions and Economic Strategy Traditional Views • Regions as free trade zones; regions as economic unions (e.g., United States, European Union) New View • A regional strategy as a powerful tool to enhance competitiveness in autonomous countries • Internal trade and investment – Gains from internal trade and investment
AND • Company operations and strategy – Enhancing the competitive capability of firms – Expanding trade in non-traditional export industries
• Business environment – Mutual benefits to the productivity of the business environment through policy coordination that captures external economies and the benefits of specialization in institutions and infrastructure across borders
• Cluster development – Cross-border cluster specialization and integration
• Foreign investment – Enhancing interest and investment in the region by the international community
• Economic policy process – Improving economic policy formulation and implementation at the national level CAON Greece 2003 05-08-03 CK.ppt
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Copyright 2003 © Professor Michael E. Porter
Cross-National Economic Coordination Alternate Geographic Levels World Economy
Broad Economic Areas
e.g. European Union
Groups of Neighboring Nations
e.g. South-Eastern Europe
Nations
e.g. Greece
States, Provinces
Cities, Metropolitan Areas CAON Greece 2003 05-08-03 CK.ppt
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Copyright 2003 © Professor Michael E. Porter
Cross-National Economic Coordination Illustrative Policy Areas Factor Factor (Input) (Input) Conditions Conditions • Improve regional transportation infrastructure • Create an efficient energy network • Upgrade/link regional communications • Upgrade/link financial markets • Upgrade higher education through facilitating specialization and student exchanges • Expand cross-border business and financial information access and sharing • Coordinate activities to ensure personal safety CAON Greece 2003 05-08-03 CK.ppt
Context Contextfor for Strategy Strategy and andRivalry Rivalry
Demand Demand Conditions Conditions
• Coordinate • Set minimum • Agree on foreign macroecono- investment environmental mic policies standards promotion guidelines to limit • Eliminate • Set minimum forms of trade and safety investment investment standards promotion that do barriers within not enhance • Establish the region productivity reciprocal • Simplify consumer • Coordinated cross-border protection laws competition regulations policy and paperwork • Guarantee minimum basic investor protections
Related Relatedand and Supporting Supporting Industries Industries • Establish ongoing upgrading process in clusters that cross national borders, e.g. – Tourism – Agribusiness – Textiles and Apparel – Information Technology
Regional Regional Governance Governance • Share best practices in government operations • Improve regional institutions – Regional development bank – Dispute resolution mechanisms – Policy coordination body • Develop a regional marketing strategy
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Copyright 2003 © Professor Michael E. Porter
Greece’s Competitiveness Agenda 2003
•
Continue the macroeconomic progress
•
Upgrade the business environment
•
Foster cluster development
•
Create a regional strategy for Southeast Europe
•
Shift the roles of government and business in economic development
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Copyright 2003 © Professor Michael E. Porter
Shifting Responsibilities for Economic Development
Old Old Model Model
New New Model Model
•• Government Government drives drives economic economic development development through through policy policy decisions decisions and and incentives incentives
CAON Greece 2003 05-08-03 CK.ppt
•• Economic Economic development development is is aa collaborative collaborative process process involving involving government government at at multiple multiple levels, levels, companies, companies, teaching teaching and and research research institutions, institutions, and and institutions institutions for for collaboration collaboration
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Roles of Government in Economic Development •
Macroeconomic, political, legal, and social context – Establish a stable and predictable macroeconomic, legal, and political environment – Improve the social conditions of citizens
•
General microeconomic business environment – Improve the availability, quality, and efficiency of cross-cutting or general purpose inputs, infrastructure, and institutions – Set overall rules and incentives governing competition that encourage productivity growth
•
Clusters – Facilitate cluster development and upgrading
•
Process of Economic Change – Create institutions and processes for upgrading competitiveness that inform citizens and mobilize the private sector, government at all levels, educational and other institutions, and civil society to take action
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Role of the Private Sector in Economic Development • • •
• • •
• •
•
A company’s competitive advantage is partly the result of the local environment Company membership in a cluster offers collective benefits Private investment in “public goods” is justified
Take an active role in upgrading the local infrastructure Nurture local suppliers and attract new supplier investments Work closely with local educational and research institutions to upgrade quality and create specialized programs addressing cluster needs Provide government with information and substantive input on regulatory issues and constraints bearing on cluster development Focus corporate philanthropy on enhancing the local business environment An important role for trade associations – Greater influence – Cost sharing
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Selected References • The Competitive Advantage of Nations, New York: The Free Press, 1990 • “Clusters and the New Competitive Agenda for Companies and Governments” in On Competition, Boston: Harvard Business School Press, 1998 • “The Microeconomic Foundations of Economic Development,” in The Global Competitiveness Report 1998-99, (World Economic Forum, 1998) • “The Current Competitiveness Index: Measuring the Microeconomic Foundations of Prosperity” in The Global Competitiveness Report 2000-01, New York: Oxford University Press, 2000 • “Enhancing the Microeconomic Foundations of Prosperity: The Current Competitiveness Index” in The Global Competitiveness Report 2001-02, New York: Oxford University Press, 2001 • “Building the Microeconomic Foundations of Prosperity: Findings from the Microeconomic Competitiveness Index” in The Global Competitiveness Report 2002-03, New York: Oxford University Press, forthcoming 2002 • “Location, Competition, and Economic Development: Local Clusters in a Global Economy,” (Economic Development Quarterly, February 2000, 15-34) • “Locations, Clusters, and Company Strategy” in The Oxford Handbook of Economic Geography, (G. L. Clark, M.P. Feldman, and M.S. Gertler, eds.), New York: Oxford University Press, 2000 • “Attitudes, Values, Beliefs and the Microeconomics of Prosperity,” in Culture Matters: How Values Shape Human Progress, (L.E. Harrison, S.P. Huntington, eds.), New York: Basic Books, 2000
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Web resources •
Institute for Strategy and Competitiveness
•
ISC Cluster Mapping Data (US)
data.isc.hbs.edu/isc/index.jsp
•
Cluster of Innovation Initiative – Council on Competitiveness – Monitor Company
www.compete.org www.monitor.com
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www.isc.hbs.edu
Copyright 2003 © Professor Michael E. Porter
