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Improving Indonesia competitiveness

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Indonesia President, Harvard, Porter, Presiden SBY

Indonesia President, Harvard, Porter, Presiden SBY

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    Improving Indonesia competitiveness Improving Indonesia competitiveness Presentation Transcript

    • Improving Indonesia’s Competitiveness Presentation to President Susilo Bambang Yudhoyono Professor Michael E. Porter Harvard Business School Boston, Massachusetts September 28, 2009 This presentation draws on ideas from Professor Porter’s articles and books, including, The Competitive Advantage of Nations (The Free Press, 1990), “The Microeconomic Foundations of Economic Development,” in The Global Competitiveness Report, (World Economic Forum), “Clusters and the New Competitive Agenda for Companies and Governments” in On Competition (Harvard Business School Press, 2008) and ongoing research at the Institute for Strategy 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, Version: September 28, 2009, 2pm 20090928 – Indonesia President visit (handouts).ppt 1 Copyright 2009 © Professor Michael E. Porter
    • Agenda for the Second Term • Improving macroeconomic foundations – Intensify the fight against corruption • Upgrading the business environment • Clusters development • Provincial economic development • Economic coordination with neighboring countries • National economic strategy • Organizing for competitiveness 20090928 – Indonesia President visit (handouts).ppt 2 Copyright 2009 © Professor Michael E. Porter
    • Prosperity Performance Lower and Middle Income Countries PPP-adjusted GDP per Capita, 2008 ($USD) $20,000 Hungary Lithuania $18,000 Poland Latvia Asian countries Croatia Other countries Russia $16,000 Chile Argentina $14,000 Mexico Malaysia Venezuela Turkey Uruguay Bulgaria Romania $12,000 Iran Ecuador Kazakhstan South Africa Dominican Republic $10,000 Brazil Colombia Peru Thailand $8,000 Costa Rica Tunisia Ukraine Albania $6,000 Guatemala Egypt China Jordan Syria Georgia Sri Lanka Morocco Indonesia $4,000 Philippines Pakistan India Vietnam Papua New Guinea (-2.6%) Laos $2,000 Kenya Nigeria Cambodia Bangladesh Tanzania $0 3% 5% 7% 9% 11% 13% Growth of Real GDP per Capita (PPP-adjusted), CAGR, 2001 to 2008 Source: EIU (2009), authors calculations 20090928 – Indonesia President visit (handouts).ppt 3 Copyright 2009 © Professor Michael E. Porter
    • Unemployment Performance Unemployment Rate, 2008 Middle and Lower Income Countries Dominican South Africa (22.9%) Republic (15.5%) 14% Improving Tunisia Deteriorating Croatia Asian countries Albania Jordan Iran Other countries 12% Spain Colombia 10% Poland Morocco China Syria Egypt Indonesia 8% Brazil Peru Argentina (-14.6%) Chile Hungary Uruguay Bolivia Ecuador Venezuela Philippines Pakistan Kazakhstan India Bulgaria Russia El Salvador 6% Lithuania Estonia Nicaragua Panama Paraguay Latvia Sri Lanka Costa Rica Vietnam Romania 4% Mexico Honduras Malaysia Ukraine Bangladesh 2% Thailand 0% -10% -8% -6% -4% -2% 0% 2% 4% Change of Unemployment Rate in Percentage Points, 1999-2008 Note: In some cases, 1999 data was unavailable, so latest data used. Source: EIU (2009) 20090928 – Indonesia President visit (handouts).ppt 4 Copyright 2009 © Professor Michael E. Porter
    • Export Performance Middle and Lower Income Countries Exports of Goods and Services (% of GDP), 2008 90% Malaysia (103.5%) Hungary 80% Asian countries Vietnam Other countries Thailand 70% Papua New Guinea Bulgaria 60% Lithuania Cambodia Nigeria Tunisia Jordan Kazakhstan 50% Croatia Chile Costa Rica Ukraine (-17.5%) Egypt Latvia 40% Poland Philippines China South Africa Venezuela Uruguay Morocco Syria Russia Georgia Romania Mexico 30% Sri Lanka Indonesia Guatemala Peru Iran Kenya Ecuador India Argentina Turkey Australia Bangladesh 20% Albania Tanzania Colombia Brazil Pakistan 10% -15% -10% -5% 0% 5% 10% 15% 20% Change in Exports of Goods and Services (% of GDP), 2004 to 2008 Source: EIU (2008), authors’ analysis 20090928 – Indonesia President visit (handouts).ppt 5 Copyright 2009 © Professor Michael E. Porter
    • Indonesia Exports By Type of Industry World Export Market Excluding Oil and Gas Industry Share (current USD) 3.5% Processed Goods Semi-processed Goods Unprocessed Goods 3.0% Services TOTAL 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Note: Excluding Oil and Gas cluster Source: – Indonesia President visit (handouts).ppt 20090928 UNComTrade, WTO (2008) 6 Copyright 2009 © Professor Michael E. Porter
    • Inbound Foreign Investment Performance Stocks and Flows, Selected Middle and Lower Income Countries Jordan Inward FDI Stocks as % of GDP, Average 2003 - 2007 (46.5%, 81.8%) 70% Tunisia Asian countries Chile Hungary Other countries 60% Vietnam Bulgaria (69%) 50% Croatia Kazakhstan Papua New Guinea Cambodia Georgia 40% Morocco Tanzania Nigeria Malaysia Thailand Latvia (49.5%) Venezuela Egypt South Africa Argentina Lithuania Poland 30% Colombia Romania Laos Mexico Costa Rica Ecuador Brazil Russia Guatemala Peru 20% Ukraine Uruguay Dominican Republic Albania Turkey Philippines Indonesia China 10% Sri Lanka Pakistan Bangladesh Kenya India Iran 0% -5% 0% 5% 10% 15% 20% 25% 30% 35% 40% FDI Inflows as % of Gross Fixed Capital Formation, Average 2003 - 2007 Source: UNCTAD, World Investment Report (2009) 20090928 – Indonesia President visit (handouts).ppt 7 Copyright 2009 © Professor Michael E. Porter
    • Inbound Foreign Investment Performance Flows, Selected Countries Inward FDI Flows, Ranked by Inward % of GDP FDI Flows (% of 6% GDP), 2007 5% Russia 4% Brazil 3% China 2% India 1% Indonesia 0% -1% -2% -3% 2000 2001 2002 2003 2004 2005 2006 2007 20090928 – Indonesia President visit (handouts).ppt 8 Copyright 2009 © Professor Michael E. Porter
    • Innovative Output, Selected Countries Average U.S. patents per 1 million population, 2004-2008 Malaysia (4.4) 3.5 Czech Republic 3.0 Croatia 2.5 Kuwait 2.0 South Africa Greece 1.5 Portugal Russia 1.0 Argentina Chile Saudi Arabia UAE Poland Bulgaria Mexico 0.5 Brazil Lebanon China Ukraine Romania India Philippines Thailand Colombia Turkey Egypt Indonesia 0.0 -20% -10% 0% 10% 20% 30% 40% 50% 60% CAGR of US-registered patents, 2004 – 2008 Source: USPTO (2008), EIU (2008) 20090928 – Indonesia President visit (handouts).ppt 9 Copyright 2009 © Professor Michael E. Porter
    • Indonesian Competitiveness in 2009 • Solid growth rates over the medium term • The impact of the global crisis has been comparably modest • Political stability has improved significantly • The achievements of the first term have laid a good foundation for rapid progress HOWEVER • Indonesia’s prosperity remains low, and prosperity growth rates have only been average relative to regional peers • Indonesia’s limited integration into the global economy has provided shelter but greatly limits Indonesia’s long-term growth prospects • Indonesia continues to face significant competitive weaknesses • The second term is the time to move to a more ambitious economic strategy which will place Indonesia on a higher growth path 20090928 – Indonesia President visit (handouts).ppt 10 Copyright 2009 © Professor Michael E. Porter
    • What is Competitiveness? • Competitiveness is 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 • Only competitive businesses can create sustainable jobs and attractive wages • 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 20090928 – Indonesia President visit (handouts).ppt 11 Copyright 2009 © Professor Michael E. Porter
    • Determinants of Competitiveness Microeconomic Competitiveness Quality of the Sophistication National State of Cluster of Company Business Development Operations and Environment Strategy Macroeconomic Competitiveness Social Infrastructure Macroeconomic and Political Policies Institutions Natural Endowments • Natural endowments alone are not enough to support a high standard of living • Macroeconomic competitiveness creates the potential for productivity • Productivity ultimately depends on improving the microeconomic capability of the economy and the sophistication of local competition 20090928 – Indonesia President visit (handouts).ppt 12 Copyright 2009 © Professor Michael E. Porter
    • Indonesia’s Macroeconomic Competitiveness • Indonesia has made significant progress solidifying and improving political institutions • Macroeconomic policy is solid, but stable fiscal balances are partly due to the inability to execute planned spending, especially at the provincial level • Decentralization of authority to the provinces is an important step in a large, spread out country such as Indonesia, but better policy coordination and implementation is needed • There has been some progress in reducing corruption, but this remains a central obstacle to further improvements in competitiveness • Indonesia performs relatively well in some aspects of basic human development, but has not improved its position significantly over time 20090928 – Indonesia President visit (handouts).ppt 13 Copyright 2009 © Professor Michael E. Porter
    • Corruption Perception Index, 2007 1 Finland New Zealand Iceland Sweden Low Deteriorating Norway Switzerland Improving Canada corruption UK Hong Kong Austria Germany Ireland Japan United States France Chile Spain Uruguay Portugal Estonia Slovenia Israel Botswana Taiwan Hungary South Africa Czech Republic Italy Malaysia South Korea Lithuania Costa Rica Slovakia Rank in Latvia Jordan Global Greece Tunisia Poland Corruption Croatia Turkey Index, El Salvador Colombia Ghana Romania 2007 Peru Brazil Mexico China India Senegal Panama Thailand Tanzania Argentina Egypt Moldova Guatemala Uganda Nicaragua Ukraine Vietnam Philippines Honduras Pakistan Cameroon High Cote d’Ivoire Russia Indonesia Zimbabwe Kenya Nigeria corruption Kazakhstan Venezuela Bangladesh 91 -20 -15 -10 -5 0 5 10 15 20 Change in Rank, Global Corruption Report, 2007 versus 2001 Note: Ranks only countries available in both years (91 countries total) Source: Global Corruption Report, 2008 20090928 – Indonesia President visit (handouts).ppt 14 Copyright 2009 © Professor Michael E. Porter
    • Indonesia’s Macroeconomic Competitiveness Action Priorities • Sustain progress in improving the stability of the political system and the battle against terrorism • Intensify the fight against corruption • Sustain the focus on stable government finances, while enabling more effective execution of public sector investments • Create and implement a clear strategy for improving education and health care, especially the quality of delivery • Improve the effectiveness of policies to ameliorate poverty, for example, through a social safety net instead of broad consumption subsidies • Continue strengthening the legal system 20090928 – Indonesia President visit (handouts).ppt 15 Copyright 2009 © Professor Michael E. Porter
    • Microeconomic Competitiveness: Improving the Business Environment Context for Context for Firm Firm Strategy Strategy and Rivalry and Rivalry  Vigorous local competition – Openness to foreign competition – Competition laws Factor Factor  Local rules and incentives Demand Demand (Input) (Input) encouraging productivity and investment Conditions Conditions Conditions Conditions – e.g. incentives for investment, intellectual property protection,  Access to high quality business corporate governance standards Demanding and sophisticated local inputs customers and needs – Human resources – e.g., Strict quality, safety, and – Capital availability environmental standards Related and Related and – Consumer protection laws – Physical infrastructure Supporting Supporting – Administrative infrastructure (e.g. registration, permitting, Industries Industries transparency) – Scientific and technological  Availability of suppliers and supporting infrastructure 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 20090928 – Indonesia President visit (handouts).ppt 16 Copyright 2009 © Professor Michael E. Porter
    • Ease of Doing Business Indonesia, 2009 Ranking, 2009 (of 183 countries) Favorable Unfavorable 180 Median Ranking, Asia and 160 Pacific Region 140 120 Indonesia’s per capita GDP rank: 101 100 80 60 40 20 0 Ease of Protecting Trading Dealing Registering Getting Paying Closing a Enforcing Employing Starting a Doing Investors Across with Property Credit Taxes Business Contracts Workers Business Business Borders Licenses Source: World Bank Report, Doing Business (2009) 20090928 – Indonesia President visit (handouts).ppt 17 Copyright 2009 © Professor Michael E. Porter
    • Indonesia’s Business Environment Critical Strengths and Weaknesses STRENGTHS WEAKNESSES • Solid basic skills and a large available • Weak logistical and communication workforce infrastructure • Promising reforms of rules and • Unreliable electricity supply regulations affecting business • Labor market rigidity – Top Asian reformer in 2010 World Bank Doing Business ranking • Regulations and customs procedures remain complex • Solid financial system • Limited depth in the financial system • Greater formal opening of the economy to trade and investment • Weak educational quality – New Investment Law passed in 2007 • Legal system uncertainty for investors, • Wide array of potential clusters, especially at the provincial level especially in natural resources-related • Dominance of large business groups fields and state-owned enterprises • Weak cluster collaboration and development • Lack of advanced skills • Weak science and technology system 20090928 – Indonesia President visit (handouts).ppt 18 Copyright 2009 © Professor Michael E. Porter
    • Indonesian Business Environment Action Priorities • Continue progress on regulatory reforms • Improve logistical infrastructure • Improve communications infrastructure • Improve the quality of electricity supply • Reduce rigidities in the labor market • Reform customs procedures and continue the process of opening to international trade and investment • Increase domestic competition, including limits on dominant domestic market positions • Create stronger institutions to disseminate management best practices and support the adoption of new technologies 20090928 – Indonesia President visit (handouts).ppt 19 Copyright 2009 © Professor Michael E. Porter
    • Microeconomic Competitiveness: Cluster Development Tourism Cluster in Cairns, Australia Public Relations & Public Relations & Local retail, Local retail, Market Research Market Research Travel agents Tour operators health care, and health care, and Travel agents Tour operators Services Services other services other services Food Food Local Local Suppliers Suppliers Attractions and Attractions and Transportation Transportation Restaurants Activities Activities Restaurants e.g., theme parks, e.g., theme parks, casinos, sports casinos, sports Property Property Souvenirs, Souvenirs, Services Services Duty Free Duty Free Airlines, Airlines, Hotels Hotels Banks, Banks, Maintenance Maintenance Cruise Ships Cruise Ships Foreign Foreign Services Services Exchange Exchange Government agencies Government agencies Educational Institutions Educational Institutions Industry Groups Industry Groups e.g. Australian Tourism Commission, e.g. Australian Tourism Commission, e.g. James Cook University, e.g. James Cook University, e.g. Queensland Tourism e.g. Queensland Tourism Great Barrier Reef Authority Great Barrier Reef Authority Cairns College of TAFE Cairns College of TAFE Industry Council Industry Council Sources: HBS student team research (2003) - Peter Tynan, Chai McConnell, Alexandra West, Jean Hayden 20090928 – Indonesia President visit (handouts).ppt 20 Copyright 2009 © Professor Michael E. Porter
    • Chilean Wine Cluster Related and Related and = Strong domestic capacity Specialized Specialized Supported Supported = Moderate domestic capacity financing financing Industries Industries = Weak domestic capacity Barrels Barrels Government Government (trade promotion offices, (trade promotion offices, Irrigation Irrigation Bottles implementation of standards, implementation of standards, Bottles technology technology export/import/FDI policies) export/import/FDI policies) Plastics / / Plastics Grapestock Grapestock Tetrapacks Tetrapacks Fertilizer, Fertilizer, Growers / / Growers Wineries / /processing Wineries processing Corks vineyards facilities Corks pesticides, pesticides, vineyards facilities herbicides herbicides Labels Labels Grape Grape harvesting harvesting Educational, research, and trade Educational, research, and trade Public relations equipment equipment organization organization Public relations and advertising and advertising Agriculture Cluster Tourism Cluster Specialized Specialized Agriculture Cluster Tourism Cluster publications publications Food Cluster Food Cluster Export Export Pisco Cluster Pisco Cluster promotion promotion Source:Sources: Based on diagram by Alexander, Alea, Judd Belstock, Don Lambert, Jacqueline O’Neill, Noah Sawyer), 2005 Research by HBS student team (Asier Arney, Black, Frost, Shivananda, taken from ‘On Competition’, Michael Porter, 2003 20090928 – Indonesia President visit (handouts).ppt 21 Copyright 2009 © Professor Michael E. Porter
    • Clusters as a Tool For Economic Policy • A forum for collaboration between the private sector, trade associations, government, educational, and research institutions • Brings together firms of all sizes, including SME’s • Creates a mechanism for constructive business-government dialog • A tool to identify problems and action recommendations • A vehicle for investments that strengthen multiple firms/institutions simultaneously • Fosters greater competition rather than distorting the market 20090928 – Indonesia President visit (handouts).ppt 22 Copyright 2009 © Professor Michael E. Porter
    • Clusters and Policy Implementation Science and Technology Education and Investments Workforce Training (e.g., centers, university departments, technology Management Training transfer) Standard setting and Business Attraction quality initiatives Clusters Export Promotion Environmental Stewardship Market Information Natural Resource and Disclosure Protection Physical Infrastructure • Clusters provide a framework for implementing public policy and organizing public-private collaboration to enhance competitiveness 20090928 – Indonesia President visit (handouts).ppt 23 Copyright 2009 © Professor Michael E. Porter
    • Indonesian Clusters • Indonesia has potential strengths in a wide array of clusters, including agriculture, tourism, forest products, coal, oil and gas, and forms of mining 20090928 – Indonesia President visit (handouts).ppt 24 Copyright 2009 © Professor Michael E. Porter
    • Indonesia’s National Cluster Export Portfolio 1997 to 2007 2.5% Change In Overall World Fishing and Fishing Products Coal and Briquettes Export Share: +0.034% (5.35%, 12.36%) Footwear Agriculture Products 2.0% Indonesia’s world export market share, 2007 Forest Products Furniture Apparel Building Fixtures and Equipment (-3.76%) Textiles Plastics 1.5% Tobacco Oil and Gas Metal, Mining and Manufacturing 1.0% Entertainment Chemical Products Construction Materials Motor Driven Products Leather and Related Products Communication Services Average World Export Publishing and Printing Share: 0.79% Construction Services Lighting and Electrical Equipment Sporting, Recreational and Children's Goods Marine Equipment 0.5% Communications Equipment Processed Foods Prefabricated Enclosures and Structures Transportation and Logistics Jewelry, Precious Metals and Collectibles Heavy Machinery Business Services IT Production Technology Analytical Instruments Automotive Biopharmaceuticals Aerospace Vehicles and Defense Financial Services 0.0% -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% Change in Indonesia’s world export market share, 1997 to 2007 Exports of US$4.2 Billion = Source: Prof. Michael E. Porter, International Cluster Competitiveness Project, Institute for Strategy and Competitiveness, Harvard Business 20090928 – Indonesia President visit (handouts).ppt 25 School; Richard Bryden, Project Director. Underlying data drawn from the UN Commodity Trade Statistics Database and the IMF BOP statistics. Copyright 2009 © Professor Michael E. Porter
    • Indonesian Clusters • Indonesia has potential strengths in a wide array of clusters, including agriculture, tourism, forest products, coal, oil and gas, and forms of mining • Indonesia’s emerging clusters are heavily based on the country’s abundant natural endowments, with few activities in related and supporting industries • The National Industrial Policy approved in 2008 identifies priority sectors, but there is no effective cluster development effort • Existing cluster related efforts suffer from weak coordination across ministries and agencies 20090928 – Indonesia President visit (handouts).ppt 26 Copyright 2009 © Professor Michael E. Porter
    • Share of World Exports by Cluster Indonesia, 2007 Strong Stronger Fishing & Textiles Fishing Entertainment Prefabricated Strongest Products Hospitality Enclosures & Tourism Agricultural Products Transportation Furniture & Logistics Building Distribution Aerospace Fixtures, Construction Services Vehicles & Equipment & Materials Information Defense Services Tech. Processed Lightning & Heavy Jewelry & Business Construction Food Services Analytical Electrical Precious Services Education & Instruments Equipment Metals Forest Knowledge Medical Power Creation Generation Products Financial Devices Communi- Services cations Publishing & Printing Equipment Biopharma- Heavy ceuticals Machinery Motor Driven Production Chemical Products Technology Apparel Products Tobacco Leather & Oil & Automotive Related Gas Aerospace Mining & Metal Products Plastics Engines Manufacturing Footwear Sporting Marine & Recreation Equipment Goods Note: Clusters with overlapping borders have at least 20% overlap (by number of industries) in both directions. 20090928 – Indonesia President visit (handouts).ppt 27 Copyright 2009 © Professor Michael E. Porter
    • Indonesian Clusters Action Priorities • Adopt cluster development as a central approach for organizing the government’s business development efforts • Utilize cluster initiatives as a tool to engage the private sector in more effective collaboration with government at the national and regional level • Use clusters to organize export promotion and FDI attraction 20090928 – Indonesia President visit (handouts).ppt 28 Copyright 2009 © Professor Michael E. Porter
    • Geographic Influences on Competitiveness Neighboring Countries Neighboring Countries Nation Nation Regions and Cities Regions and Cities 20090928 – Indonesia President visit (handouts).ppt 29 Copyright 2009 © Professor Michael E. Porter
    • Specialization by Traded Clusters U.S. States, 2006 Oregon Oregon Agricultural Products South Dakota South Dakota Agricultural Products Prefabricated Enclosures Heavy Machinery Heavy Machinery Maine Prefabricated Enclosures Maine Forest Products Sporting, Recreational Sporting, Recreational Illinois Forest Products Forest Products Illinois Forest Products Analytical Instruments and Children's Goods and Children's Goods Biopharmaceuticals Aerospace Engines Analytical Instruments Biopharmaceuticals Aerospace Engines Financial Services Financial Services Lighting and Electrical Equipment Communications Equipment Lighting and Electrical Equipment Communications Equipment Processed Food Processed Food Heavy Machinery Hospitality and Tourism Heavy Machinery Hospitality and Tourism Metal Manufacturing Metal Manufacturing Idaho Idaho Agricultural Products Agricultural Products Information Technology Information Technology Prefabricated Enclosures Prefabricated Enclosures Furniture Kentucky Kentucky Furniture Forest Products Automotive Automotive Forest Products Plastics Plastics Construction Materials Construction Materials Nevada Transportation and Logistics Transportation and Logistics Nevada Leather and Related Products Leather and Related Products Heavy Construction Services Heavy Construction Services Hospitality and Tourism Hospitality and Tourism Transportation and Logistics Transportation and Logistics South Carolina South Carolina Textiles Textiles Forest Products Forest Products Automotive Automotive Production Technology Production Technology Alaska Alaska Colorado Colorado Mississippi Fishing and Fishing Products Fishing and Fishing Products Mississippi Oil and Gas Products and Services Oil and Gas Products and Services Furniture Power Generation and Transmission Power Generation and Transmission Furniture Medical Devices Medical Devices Fishing and Fishing Products Heavy Construction Services Heavy Construction Services Fishing and Fishing Products Aerospace Vehicles and Defense Aerospace Vehicles and Defense Power Generation and Transmission Hospitality and Tourism Hospitality and Tourism Power Generation and Transmission Entertainment Entertainment Motor Driven Products Motor Driven Products Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. 20090928 – Indonesia President visit (handouts).ppt 30 Copyright 2009 © Professor Michael E. Porter
    • Indonesia’s Provinces Source: Wikipedia, Provinces of Indonesia • Indonesia’s provinces are geographically dispersed and culturally diverse • Indonesia’s population is becoming increasingly urban • Weak infrastructure has limited internal trade and specialization and made it difficult to access Indonesia’s large national market • Decentralization in government has led initially to inefficiency and corruption 20090928 – Indonesia President visit (handouts).ppt 31 Copyright 2009 © Professor Michael E. Porter
    • Indonesia’s Provinces GDP per Capita, 2007 Divergent Performance (Constant Market Prices, 2000, Million Rupiah) Rp20 Kalimantan Timur (2.25%, Rp39.84) DKI Jakarta Rp39.69) Kepulauan Riau (Rp28.96) Riau Rp15 Kalimantan Tengah Weighted Indonesian Kepulauan Bangka Belitung Rp10 Banten Jawa Timur Average: Rp9.41 Naggroe Aceh Darussalam (-5.23%) Papau (-2.27%) Kalimantan Selatan Sumatera Utara Sumatera Selatan Jawa Barat Bali Papua Barat Kalimantan Barat Sumatera Barat Dl. Yogyakarta Sulawesi Tengah Sulawesi Utara Jambai Rp5 Sulawesi Selatan Jawa Tengah Sulawesi Tenggara Lampung Sulawesi Barat Bengkulu Nusa Tenggara Barat Maluku Maluku Utara Nusa Tenggara Timur Gorontalo Weighted Indonesian Average: 4.82% Rp0 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 8.0% Growth of GDP per Capita (Constant Market Prices, 2000), CAGR 2003 to 2007 Note: Since population only available for 2000, population held constant when calculating per capita levels. 20090928 – Indonesia President visit (handouts).ppt 32 Copyright 2009 © Professor Michael E. Porter
    • Indonesian Provinces Action Priorities • Strengthen logistical and communications infrastructure linking the provinces to expand trade, encourage economic specialization, and open internal competition • Reduce internal administrative and policy barriers to inter-provincial trade and investment • Improve the capabilities of provincial governments to improve policy formulation and implementation, and to reduce corruption • Support provinces in creating distinctive economic strategies • Create rules that limit destructive competition among provinces for investments, such as large subsidies • Create a structure and incentives to align and harmonize national and provincial policies 20090928 – Indonesia President visit (handouts).ppt 33 Copyright 2009 © Professor Michael E. Porter
    • Geographic Influences on Competitiveness Neighboring Countries Neighboring Countries Nation Nation Regions and Cities Regions and Cities 20090928 – Indonesia President visit (handouts).ppt 34 Copyright 2009 © Professor Michael E. Porter
    • Economic Integration with Neighboring Countries South East Asia • Economic coordination among neighboring countries can significantly enhance competitiveness 20090928 – Indonesia President visit (handouts).ppt 35 Copyright 2009 © Professor Michael E. Porter
    • Economic Strategy For Cross-National Regions Traditional View • Regions as free trade zones Emerging View • Regional strategy as a powerful tool to enhance competitiveness across countries – Expand trade and investment within the region – Attract more foreign investment to the region – Capture synergies in improving the business environment – Accelerate the rate of domestic policy improvement – Enhance interest and investment in the region by the international community 20090928 – Indonesia President visit (handouts).ppt 36 Copyright 2009 © Professor Michael E. Porter
    • Economic Coordination Among Neighbors Capturing Synergies Factor Factor Context for Context for Related and Related and Regional Regional Demand Demand Macroeconomic Macroeconomic (Input) Strategy Supporting Strategy & Strategy & (Input) Strategy Conditions Supporting Competitiveness Conditions and Rivalry Conditions Industries Competitiveness Governance Conditions and Rivalry Industries Governance • Improving regional • Eliminating • Harmonizing • Facilitating cross- • Coordinating • Creating a transportation trade and environmental border cluster programs to regional strategy infrastructure investment standards upgrading, e.g. improve public and marketing barriers within safety program • Enhancing regional • Harmonizing – Tourism the region communications product safety • Coordinating • Sharing best – Agribusiness and connectivity • Simplifying and standards macro-economic practices in harmonizing – Transport & policies government • Creating an efficient • Establishing cross-border Logistics operations energy network reciprocal regulations and consumer – Business • Creating regional • Linking financial paperwork protection laws services institutions markets • Coordinating – Dispute anti-monopoly • Opening resolution • Harmonizing and fair government mechanisms administrative competition procurement – Regional requirements for policies within the region development businesses bank • Opening the movement of • Developing a students for higher regional position education with international organizations 20090928 – Indonesia President visit (handouts).ppt 37 Copyright 2009 © Professor Michael E. Porter
    • Indonesia and ASEAN • ASEAN has set ambitious policy goals but there is limited implementation • ASEAN’s agenda is focused on a reciprocal trade liberalization, rather than upgrading regional competitiveness • ASEAN is moving too slowly towards greater economic integration • Indonesia has played a largely passive role in ASEAN • Indonesian firms have been slow to penetrate regional markets • Indonesia can be a leading force in driving ASEAN forward 20090928 – Indonesia President visit (handouts).ppt 38 Copyright 2009 © Professor Michael E. Porter
    • Developing an Indonesian Economic Strategy National Value Proposition National Value Proposition • What is the unique competitive position of Indonesia given its location, legacy, endowments, and potential strengths? • What is Indonesia’s value proposition for business? • In what clusters can Indonesia excel? • What role can Indonesia play in its region? Developing Unique Strengths Developing Unique Strengths Addressing Crucial Constraints Addressing Crucial Constraints • What are the key strengths that • What weaknesses must be addressed to Indonesia must build upon? achieve parity with peer countries? • An economic strategy requires rigorous prioritization and sequencing 20090928 – Indonesia President visit (handouts).ppt 39 Copyright 2009 © Professor Michael E. Porter
    • Toward an Indonesian Economic Strategy Unique Strengths Implications • Significant natural resources Political and Legal Stability • Pluralistic, diverse society increasingly embracing democratic principles Human Development • Creative and energetic workforce • Large domestic market with a growing number of urban consumers Infrastructure • Complex geography with thousands of islands and long distances Regulatory Reforms • A central location in Asia, with proximity to numerous foreign markets Trade, investment and Regional integration Cluster Development Government Effectiveness and Organization 20090928 – Indonesia President visit (handouts).ppt 40 Copyright 2009 © Professor Michael E. Porter
    • Organizing for Competitiveness • Sustained improvements in competitiveness require coordination among many parts of government – Across different ministries to align all the policies that affect clusters or aspects of competitiveness – Across geographic levels of government • Improving competitiveness requires collaboration with the private sector – Public-private dialogue to identify competitiveness priorities and implement solutions • While Indonesia has made progress on advancing competitiveness policies at the national level, policy coordination within government with the private sector remains a challenge 20090928 – Indonesia President visit (handouts).ppt 41 Copyright 2009 © Professor Michael E. Porter
    • Organizing for Competitiveness Action priorities for Indonesia • Create a strategy unit in the Office of the President • Strengthen the coordinating structure within the national government • Create a public-private National Council on Competitiveness to build consensus on an overall economic strategy and track implementation • Foster Provincial Competitiveness Councils to drive consensus on provincial plans, involving representatives from both public and private sector and participation by the national government 20090928 – Indonesia President visit (handouts).ppt 42 Copyright 2009 © Professor Michael E. Porter
    • Agenda for the Second Term • Improving macroeconomic foundations – Intensify the fight against corruption • Upgrading the business environment • Clusters development • Provincial economic development • Economic coordination with neighboring countries • National economic strategy • Organizing for competitiveness 20090928 – Indonesia President visit (handouts).ppt 43 Copyright 2009 © Professor Michael E. Porter