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    Competition: KSA Competition: KSA Presentation Transcript

    • Competitiveness as an Engine for Economic Growth: Implications for Saudi Arabia Professor Michael E. Porter Harvard Business School The Global Competitiveness Forum 2008 January 21, 2008 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 2006 (World Economic Forum, 2006), “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 Version: January 18, 2008, 4pm Competitiveness Master = 2007-11-14.ppt 1 Copyright 2008 © Professor Michael E. Porter
    • Saudi Arabia’s Competitive Position in 2008 • The dramatic increase in oil prices has created significant resources and rapid growth for the Saudi economy • There is a new level of determination to leverage this opportunity to build a truly competitive economy and diversify beyond natural resources • Saudi Arabia can succeed on this path, but only if it is willing to take a strategic approach, make multiple improvements in its business environment, truly open up competition and entrepreneurship in the private sector, and embark on a sustained effort to equip Saudi citizens with new skills, attitudes and mindsets • It will be easy to become impatient and distracted by near term economic growth and the ability to support uncompetitive practices and policies Competitiveness Master = 2007-11-14.ppt 2 Copyright 2008 © Professor Michael E. Porter
    • Saudi Arabia’s Long-Term Prosperity Index Values, 1980 = 1.00 GDP per Capita GDP per Capita GDP per Capita CAGR: -6.1% CAGR: +0.00% CAGR: +1.4% Source: Groningen Growth and Development Centre and The Conference Board (2007), Swivel (2007) Competitiveness Master = 2007-11-14.ppt 3 Copyright 2008 © Professor Michael E. Porter
    • Prosperity Performance Selected Countries PPP-adjusted GDP per Capita, 2006 $50,000 Norway $45,000 USA Qatar Ireland $40,000 Switzerland Denmark Canada Netherlands Australia Iceland Singapore Hong Kong $35,000 Austria UK Sweden Belgium Kuwait Germany Japan Finland France Taiwan $30,000 Italy Spain Israel New Zealand Bahrain Greece $25,000 Slovenia Korea $20,000 Portugal United Arab Emirates Czech Republic Hungary Slovakia SAUDI ARABIA Argentina $15,000 Libya Oman Poland Chile South Africa Croatia Russia $10,000 Mexico Malaysia Iran Lebanon Brazil Tunisia Turkey Algeria Thailand China (9.49%) $5,000 Egypt Jordan Iraq Syria Indonesia India Pakistan Vietnam (-6.2%) Philippines Yemen $0 0% 1% 2% 3% 4% 5% 6% 7% Growth of Real GDP per Capita (PPP-adjusted), CAGR, 2001-2006 Source: EIU (2007), authors calculations Competitiveness Master = 2007-11-14.ppt 4 Copyright 2008 © 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 the standard of living (wages, returns on capital, returns on natural resources) that a country can sustain – It is not what industries a nation competes in that matters for prosperity, but how 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 • 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 Competitiveness Master = 2007-11-14.ppt 5 Copyright 2008 © Professor Michael E. Porter
    • Sources of Prosperity Inherited Prosperity Inherited Prosperity Created Prosperity Created Prosperity •• Prosperity is derived from selling or Prosperity is derived from selling or •• Prosperity is derived from creating Prosperity is derived from creating exploiting inherited natural resources exploiting inherited natural resources valuable products and services valuable products and services •• Prosperity is constrained Prosperity is constrained •• Prosperity is unlimited Prosperity is unlimited •• Government is the central actor in the Government is the central actor in the •• Companies are the central actors in the Companies are the central actors in the economy as the owner and distributor of economy as the owner and distributor of economy economy resource wealth resource wealth – Prosperity can only be created by – Prosperity can only be created by – Resource revenues allow – Resource revenues allow firms firms unproductive policies and practices unproductive policies and practices to persist to persist •• Government’s role gravitates towards the Government’s role gravitates towards the •• Government’s role is to create the Government’s role is to create the distribution of wealth as interest groups distribution of wealth as interest groups enabling conditions for productivity enabling conditions for productivity seek a bigger share of the pie seek a bigger share of the pie and foster private sector development and foster private sector development Competitiveness Master = 2007-11-14.ppt 6 Copyright 2008 © Professor Michael E. Porter
    • Comparative Labor Productivity Selected Countries GDP per employee (PPP adjusted US$), 2006 100,000 Norway USA 90,000 Austria Ireland 80,000 France Netherlands Italy Israel Greece Belgium Hong Kong Qatar UK Finland 70,000 Australia Taiwan Singapore Denmark Sweden Canada Spain Germany Japan 60,000 Slovenia 50,000 New Zealand Portugal South Africa Hungary Czech Republic Croatia 40,000 SAUDI ARABIA Slovakia Poland Iran Chile 30,000 Turkey Tunisia Malaysia (6.4%) Mexico Algeria 20,000 Brazil Egypt Thailand Philippines China (9.0%) 10,000 Pakistan Indonesia Vietnam India (5.3%) 0 -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% Compound annual growth rate (CAGR) of real GDP per employee (PPP- adjusted), 2001-2006 Source: EIU (2007), Saudi Arabia employee data (number persons employed) from ILO LABORSTA (2007) Competitiveness Master = 2007-11-14.ppt 7 Copyright 2008 © Professor Michael E. Porter
    • Labor Force Mobilization Selected Countries Employees as % of Population, 2006) OECD average: 0.47 Middle East average: 0.40 Note: Use most recent year available, either 2005 or 2006 Source: The Conference Board and Groningen Growth and Development Centre, Total Economy Database, November 2007 Competitiveness Master = 2007-11-14.ppt 8 Copyright 2008 © Professor Michael E. Porter
    • Fixed Investment Rates Gross Fixed Investment Selected Countries as % of GDP (2006) China Qatar South Korea Iran India Jordan Nigeria Indonesia Morocco Singapore Syria Tunisia Algeria Turkey Pakistan UAE Lebanon Oman Egypt Kuwait Yemen Saudi Arabia Bahrain Brazil US Libya Philippines CAGR Gross Fixed Investment (as % of GDP), 1990 - 2006 Source: EIU, 2007. Competitiveness Master = 2007-11-14.ppt 9 Copyright 2008 © Professor Michael E. Porter
    • Saudi Arabia’s Exports Types of Goods and Services Exports ($ Thousands) Semi-Processed Natural Resources $36.4 Billion Value of Exports, 2006 Growth Rate of 20.3% CAGR Export Type Exports, CAGR 1998-2006 Natural Resources Related $201.2 Billion 24.0% Non-Natural Resource Related $19.0 Billion 11.3% Processed Goods $11.7 Billion 16.9% CAGR Services $7.3 Billion 5.6% CAGR Source: Institute for Strategy and Competitiveness – International Cluster Competitiveness Project; UN Comtrade; IMF BOP statistics. Competitiveness Master = 2007-11-14.ppt 10 Copyright 2008 © Professor Michael E. Porter
    • Inward Foreign Direct Investment Stock Share of Middle East Inward FDI stock Saudi Arabia Other countries U.A.E. Bahrain Qatar Source: WIR, 2007. Competitiveness Master = 2007-11-14.ppt 11 Copyright 2008 © Professor Michael E. Porter
    • Determinants of Competitiveness Macroeconomic, Political, Legal, and Social Context Microeconomic Competitiveness Sophistication Quality of the of Company Microeconomic Operations and Business Strategy Environment State of Cluster Development • A sound macroeconomic, political, legal, and social context create the potential for competitiveness, but is not sufficient • Competitiveness ultimately depends on improving the microeconomic capability of the economy and the sophistication of local competition Competitiveness Master = 2007-11-14.ppt 12 Copyright 2008 © Professor Michael E. Porter
    • Macroeconomic, Political, Legal, and Social Context • Saudi Arabia has registered sound macroeconomic policies, but transparency remains limited and inflationary pressures are rising • There are ongoing debates about direction and speed of political reforms, which limits predictability and policy stability. Government processes remain complex and have limited transparency • The Saudi legal system is in the process of modernization, but concerns remain about uncertainty in judicial decision making • Social policies have addressed poverty and basic social needs, but challenges arise in education, gender relations, and the large expatriate community Competitiveness Master = 2007-11-14.ppt 13 Copyright 2008 © Professor Michael E. Porter
    • Corruption Perception Index, 2007 1 Deteriorating Improving Low corruption Qatar United Arab Emirates Bahrain Oman Jordan Tunisia Turkey Rank in Brazil Global Corruption SAUDI ARABIA China India Index, Trinidad & Tobago 2007 Algeria Belize Iran Yemen Libya Syria Pakistan Russia Indonesia Nigeria High Angola Ecuador corruption Venezuela 124 Iraq Change in Rank, Global Corruption Report, 2007 versus 2003 Note: Ranks only countries available in both years (124 countries total) Source: Global Corruption Report, 2007 Competitiveness Master = 2007-11-14.ppt 14 Copyright 2008 © Professor Michael E. Porter
    • Improving the Business Environment: The Diamond Context for Context for Firm Firm Strategy Strategy and Rivalry and Rivalry Local rules and incentives that encourage investment and productivity Factor – e.g. salaries, incentives for Factor capital investments, Demand (Input) Demand (Input) intellectual property protection Conditions Conditions Conditions Conditions Vigorous local competition Access to high quality – Openness to foreign and local Sophistication of local business inputs competition customers and needs – Natural endowments – Strict quality, safety, and – Human resources Related and Related and environmental standards – Capital availability Supporting Supporting – Physical infrastructure Industries Industries – Administrative infrastructure (e.g. registration, permitting) Availability of suppliers and – Information infrastructure supporting industries (e.g., transparency) Presence of clusters instead of – Scientific and technological isolated firms infrastructure • Successful economic development is a process of successive upgrading, in which the business environment improves to enable increasingly sophisticated ways of competing Competitiveness Master = 2007-11-14.ppt 15 Copyright 2008 © Professor Michael E. Porter
    • Ease of Doing Business Saudi Arabia Ranking, 2007 (of 178 countries) Favorable Unfavorable Saudi Arabia per capita GDP rank: 48 Saudi Arabia Doing Business rank: 23 Saudi Arabia 2010 goal: 10 Median Ranking, Middle East Source: World Bank Doing Business (2008) Competitiveness Master = 2007-11-14.ppt 16 Copyright 2008 © Professor Michael E. Porter
    • Saudi Arabian Business Environment Selected Advantages and Disadvantages, 2007 Competitive Advantages Competitive Disadvantages Relative to GDP per Capita Relative to GDP per Capita Quality of electricity supply 40 Stringency of environmental regulations 101 Quality of port infrastructure 42 Business costs of corruption 89 Air transport infrastructure quality 43 Buyer sophistication 81 Quality of management schools 73 Reliability of police services 45 Quality of private property rights 72 Absence of trade barriers 69 Decentralization of economic policymaking 69 Local equity market access 65 Quality of math and science education 65 Local availability of specialized research 65 and training services Quality of primary education 64 Financial market sophistication 63 Availability of scientists and engineers 57 Effectiveness of antitrust policy 57 Intensity of local competition 53 Quality of scientific research institutions 51 Note: Rank versus 127 countries; overall, Saudi Arabia ranks 48th in 2006 PPP adjusted GDP per capita and 51h in Business Competitiveness. Only 2007 data available. Source: Institute for Strategy and Competitiveness, Harvard University (2007) Competitiveness Master = 2007-11-14.ppt 17 Copyright 2008 © Professor Michael E. Porter
    • Ranking Microeconomic Competitiveness Business Competitiveness Index, 2007 2006 GDP per Capita (PPP- adjusted) Norway Variation in BCI score United States 45,000 explains 82% of variation in GDP per Qatar 40,000 capita Hong Kong Iceland Switzerland Australia Denmark Ireland 35,000 Canada Finland Kuwait France Sweden Taiwan Japan Greece Italy Germany 30,000 Spain Israel Bahrain New Zealand 25,000 Slovenia Portugal Cyprus Korea Czech Republic 20,000 Estonia Hungary Slovakia Libya Argentina Lithuania Latvia 15,000 Poland SAUDI ARABIA Chile Saudi Arabia’s Ranking Russia South Africa 10,000 Ukraine Costa Rica Brazil Malaysia Global Business Venezuela Colombia Thailand Competitiveness Competitiveness Peru China Tunisia Index Index 5,000 Jordan India 35 51 Pakistan Philippines Indonesia Kenya 0 Nigeria Tanzania Low Business Competitiveness Index High Source: Global Competitiveness Report 2007 Competitiveness Master = 2007-11-14.ppt 18 Copyright 2008 © Professor Michael E. Porter
    • Enhancing 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 Competitiveness Master = 2007-11-14.ppt 19 Copyright 2007 © Professor Michael E. Porter
    • The Houston Oil and Gas Cluster Upstream Downstream Oil Oil Oil Oil Oil Oil Trans- Wholesale Retail Trading Refining Distribution Oil & Natural Gas Oil & Natural Gas portation Marketing Marketing Exploration & Completion & Development Production Gas Gas Gas Gas Gas Gas Transmis- Gathering Processing Trading Distribution Marketing sion Oilfield Services/Engineering & Contracting Firms Equipment Specialized Subcontractors Business Suppliers Technology Services Services (e.g. Surveying, (e.g. Oil Field Mud Logging, (e.g. MIS Services, Chemicals, (e.g. Drilling Maintenance Technology Drilling Rigs, Consultants, Services) Licenses, Drill Tools) Reservoir Services, Risk Management) Laboratory Analysis) Specialized Institutions (e.g. Academic Institutions, Training Centers, Industry Associations) Competitiveness Master = 2007-11-14.ppt 20 Copyright 2007 © Professor Michael E. Porter
    • National Cluster Export Portfolio Saudi Arabia, 1997-2005 2% Plastics Saudi Arabia’s Average World Export Share: 1.92% Saudi Arabia’s world export market share, 2005 1.5% Chemical Products Oil and Gas Business Services (5.49%, 14.99%) $162 billions 1% Prefabricated Enclosures and Structures Processed Foods 0.5% Construction Materials Building Fixtures and Equipment Agricultural Products Metal Mining and Manufacturing Textiles Change In Saudi Jewelry, Precious Metals and Collectibles Arabia’s Overall World Motor Driven Products Leather and Related Products Export Share: +1.09% Communications Equipment 0% Automotive / Medical Devices Biopharmaceuticals Change in Saudi Arabia’s world export market share, 1997 – 2005 Exports of US$1.2 Billion = Source: Prof. Michael E. Porter, International Cluster Competitiveness Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. Underlying data drawn from the UN Commodity Trade Statistics Database and the IMF BOP statistics. Competitiveness Master = 2007-11-14.ppt 21 Copyright 2007 © Professor Michael E. Porter
    • Improving Company Sophistication Relative Position of Saudi Arabian Companies, 2007 Competitive Advantages Competitive Disadvantages Relative to GDP per Capita Relative to GDP per Capita Control of international distribution 19 Extent of staff training 77 Production process sophistication 32 Reliance on professional management 71 Value chain breadth 34 Degree of customer orientation 69 Extent of marketing 68 Prevalence of foreign technology 62 licensing Extent of regional sales 61 Extent of incentive compensation 56 Breadth of international markets 52 Capacity for innovation 49 Nature of competitive advantage 49 Willingness to delegate authority 47 Note: Rank versus 127 countries; overall, Saudi Arabia ranks 48th in 2006 PPP adjusted GDP per capita and 51h in Business Competitiveness. Only 2007 data available. Source: Institute for Strategy and Competitiveness, Harvard University (2007) Competitiveness Master = 2007-11-14.ppt 22 Copyright 2007 © Professor Michael E. Porter
    • Geographic Influences on Competitiveness World Economy World Economy Broad Economic Areas Broad Economic Areas Groups of Neighboring Groups of Neighboring Nations The Neighborhood Nations Nation Nation States, Provinces States, Provinces Metropolitan Areas Regional Economies Metropolitan Areas Rural Areas Rural Areas Competitiveness Master = 2007-11-14.ppt 23 Copyright 2007 © Professor Michael E. Porter
    • Saudi Arabia’s Provinces % Social Security recipients below/above national average % Labor force participation above/below national average Source: Saudi Arabian Monetary Authority (SAMA) report, 2007 Competitiveness Master = 2007-11-14.ppt 24 Copyright 2007 © Professor Michael E. Porter
    • The Neighborhood Middle East • Economic coordination among neighboring countries can significantly enhance competitiveness • Integration with neighbors offers greater opportunities than participation in broader economic forums Competitiveness Master = 2007-11-14.ppt 25 Copyright 2007 © Professor Michael E. Porter
    • The Process of Economic Development Shifting Roles and Responsibilities Old Model Old Model New Model New Model •• Government drives economic Government drives economic •• Economic development is a Economic development is a development through policy development through policy collaborative process involving collaborative process involving decisions and incentives decisions and incentives government at multiple levels, government at multiple levels, companies, teaching and companies, teaching and research institutions, and private research institutions, and private sector organizations sector organizations • 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 • The private sector must become more engaged in competitiveness to improve rapidly Competitiveness Master = 2007-11-14.ppt 26 Copyright 2007 © Professor Michael E. Porter
    • Towards a Competitiveness Agenda for Saudi Arabia • Create a culture of productivity in Saudi Arabia • Continue improving political and legal stability and transparency • Pursue a sustained program to upgrade the Saudi business environment, sequencing priorities based on binding constraints • Upgrade company sophistication and foster entrepreneurship and the development of SMEs • Pursue a comprehensive policy for cluster development • Expand information, openness, and transparency throughout the economy • Develop and implement distinct strategies for each Saudi Arabian province • Achieve regional economic coordination and integration with Arab neighbors • Achieving competitiveness will require a sustained effort over a decade or more Competitiveness Master = 2007-11-14.ppt 27 Copyright 2007 © Professor Michael E. Porter
    • Address the Weaknesses and Binding Constraints in the Business Environment • Business regulation • Financial markets • Stringency of quality, safety and environmental standards • Openness of competition • Market information • Education and skills development • Innovative capacity Competitiveness Master = 2007-11-14.ppt 28 Copyright 2007 © Professor Michael E. Porter
    • Upgrade Company Sophistication and Foster Entrepreneurship • Create a national campaign to foster entrepreneurship and support SME development • Expand corporate disclosure • Strengthen corporate governance • Introduce best practices in terms of operational efficiency – Utilization of information technology – Quality improvement and certification – A culture of learning and innovation • Upgrade human resources • Create more focused Saudi business groups • Improve private sector institutions and expand the role of the private sector in economic development Competitiveness Master = 2007-11-14.ppt 29 Copyright 2008 © Professor Michael E. Porter
    • Create a Comprehensive Policy for Cluster Development • The Industrial Development Strategy has an explicit focus on cluster development • Current cluster development policy should extend to the entire economy, including domestic industries and all the provinces • Realign government economic development policies around clusters Competitiveness Master = 2007-11-14.ppt 30 Copyright 2007 © Professor Michael E. Porter
    • Clusters and Economic Policy Business Attraction Education and Workforce Training Science and Technology Investments Export Promotion (e.g., centers, university departments, technology transfer) Clusters Market Information Standard setting and Disclosure Specialized Physical Environmental Stewardship Infrastructure Natural Resource Protection • Clusters provide a framework for organizing the implementation of public policy and public investments towards economic development Competitiveness Master = 2007-11-14.ppt 31 Copyright 2008 © Professor Michael E. Porter
    • Create a Comprehensive Policy for Cluster Development • The Industrial Development Strategy has an explicit focus on cluster development, a major strength • Cluster development policy should extend to the entire economy, including domestic industries and all the provinces • Realign government economic development policies around clusters • The Economic Cities program should be directly tied to the cluster development program • Science-based clusters will be slow to develop. The focus should be on making existing and emerging Saudi clusters more knowledge intensive Competitiveness Master = 2007-11-14.ppt 32 Copyright 2008 © Professor Michael E. Porter
    • Diversifying the Saudi Arabian Economy Grow exports in related clusters Leverage unique Saudi Arabian strengths and niche positions Leverage the large domestic market Widen participation in existing clusters Upgrade existing export products Competitiveness Master = 2007-11-14.ppt 33 Copyright 2008 © Professor Michael E. Porter
    • Growth Opportunities within Clusters Saudi Arabian Chemical Cluster Strong Export Share Organic Chemicals Chemically Based Ingredients Packaged Chemicals Inorganic Chemicals Synthetic Fibers Misc. Crude Materials Explosives Pesticide and Other Agricultural Chemicals Dyeing, Tanning and Coloring Materials Miscellaneous Mineral Products Weak Export Share Losing Market Share Gaining Market Share Source: International Cluster Competitiveness Project, Institute for Strategy and Competitiveness, Harvard Business School Competitiveness Master = 2007-11-14.ppt 34 Copyright 2008 © Professor Michael E. Porter
    • Grow Current Niche Positions Leading Saudi Arabian Export Industries outside of Clusters, 2005 Industry (Processed Products) Cluster Market Change in Export Share Market Volume Share Carpets and other textile floor coverings, woven Textiles 5.6% 3.7% 142,479 Sheep, lamb skin leather Leather and Related Products 3.9% 2.6% 42,787 Other forms of unvulcanized rubber Construction Materials 3.0% 2.9% 15,971 Drawn, blown glass in sheets Building Fixtures and Equipment 2.4% 1.6% 7,020 Asbestos-cement and fiber-cement materials Construction Materials 1.9% 0.2% 47,977 Cast, rolled glass in sheets Building Fixtures and Equipment 1.8% -6.3% 14,633 Portland cement, aluminous cement and similar products Construction Materials 1.7% -0.4% 129,918 Bridges and bridge-sections Prefabricated Enclosures and Structures 1.6% -4.0% 8,387 Towers and lattice masts Prefabricated Enclosures and Structures 1.6% -0.9% 19,143 Miscellaneous articles of pulp, paper and paperboard Forest Products 1.5% 0.4% 218,347 Other metal structures and parts Prefabricated Enclosures and Structures 1.4% 1.0% 266,167 Rubber, textile yarn, cord Textiles 1.3% 1.3% 3,841 Jute, other textile bast fibers Textiles 1.2% 1.2% 105 Preparations for hair Biopharmaceuticals 1.1% 0.3% 86,847 Goat or kid skin leather Leather and Related Products 1.1% 0.8% 6,561 Silk Textiles 1.1% 3,444 Sands, natural not metal bearing Construction Materials 1.0% 0.8% 10,976 Paper and paperboard, corrugated, creped, crinkled Forest Products 1.0% 0.7% 34,473 Gold, non-monetary, excluding ores Jewelry, Precious Metals and Collectibles 0.9% 0.9% 478,006 Prefabricated buildings Prefabricated Enclosures and Structures 0.9% -1.0% 53,163 Competitiveness Master = 2007-11-14.ppt 35 Copyright 2008 © Professor Michael E. Porter
    • Growth Through Related Clusters Fishing & Textiles Fishing Entertainment Prefabricated Products Hospitality Enclosures & Tourism Agricultural Products Transportation Furniture Distribution & Logistics Building Services Aerospace Fixtures, Construction Vehicles & Equipment & Materials Jewelry & Information Defense Services Precious Tech. Heavy Processed Metals Lightning & Business Construction Food Services Analytical Electrical Equipment Services Education & Instruments Knowledge Power Forest Financial Medical Products Creation Generation Services Devices Communi- Publishing cations & Printing Equipment Biopharma- Heavy ceuticals Machinery Motor Driven Production Apparel Chemicl Products Technology Products Tobacco Leather & Oil & Related Gas Metal Automotive Products Plastics Aerospace Manufacturing Engines Footwear Sporting & Recreation Goods Note: Clusters with overlapping borders or identical shading have at least 20% overlap (by number of industries) in both directions. Competitiveness Master = 2007-11-14.ppt 36 Copyright 2007 © Professor Michael E. Porter
    • Develop Distinctive Strategies in each Saudi Arabia Province • Regional development should follow a hub and spoke model to link rural areas to the nearest urban center • Improving social service delivery and physical infrastructure across all provinces are important preconditions for regional economic development • Each region needs a distinctive economic plan that reflects its location, assets, and existing economic activity • Economic policy formulation and implementation should be gradually decentralized • Government capability in each province needs to be upgrading over time Competitiveness Master = 2007-11-14.ppt 37 Copyright 2008 © Professor Michael E. Porter
    • Enhancing the Economic Cities Concept • The economic cities can become an Proposed Locations for Economic Cities important tool for Saudi Arabian development • However, they also symbolize Al Jowf Northern the challenges that the Tabuk Borders Tabuk country needs to address Economic City Prince Abdulaziz bin Musaid Ha'il Economic City Qassim Knowledge Economic City Eastern Province Madinah Economic City • They have been planned centrally, Eastern Province Riyadh not by the regions themselves King Abdullah Makkah • They focus on infrastructure Economic City Al- rather than skills and institutions Baha Asir Najran • Economic cities have an unclear relation to clusters and the Jizan Economic City Jizan surrounding regional economy • They ask for private sector action but have been designed by the government Note: Exact physical location of Economic Cities still to be determined Competitiveness Master = 2007-11-14.ppt 38 Copyright 2008 © Professor Michael E. Porter
    • Develop a Regional Competitiveness Strategy with Arab Neighbors • The Gulf Cooperation Council can be an important complement to competitiveness efforts at the national level • Many aspects of the business environment can be enhanced by coordination and integration with neighboring countries • The region needs to shift from rhetoric to action • Due to its size and resources, Saudi Arabia should take a leadership role Competitiveness Master = 2007-11-14.ppt 39 Copyright 2008 © Professor Michael E. Porter
    • Defining an Economic Strategy for Saudi Arabia National Value Proposition • What is the unique competitive position of Saudi Arabia given its location, legacy, existing strengths, and potential strengths? – What roles in the world, the broad economic area, and the neighborhood? – What unique value as a business location? – For what range and types of businesses, activities in the value chain, and clusters can Saudi Arabia be competitive? Competitiveness Master = 2007-11-14.ppt 40 Copyright 2007 © Professor Michael E. Porter
    • Towards a Strategic Positioning for Saudi Arabia Strengths to Build Upon • Natural resource endowments • Largest and most populous economy in the Middle East • Location between Europe, Asia, and Africa • Distinct cultural traditions • Significant accumulated capital • Saudi Arabia has outlined an ambitious action agenda to enhance competitiveness • It will be important to set priorities and sequence steps to reflect the realities of Saudi Arabia’s economy • Fundamental changes in the capabilities and attitudes of many Saudi citizens will be needed to achieve the desired transformation of the Saudi Arabian economy Competitiveness Master = 2007-11-14.ppt 41 Copyright 2007 © Professor Michael E. Porter