Chile’s Competitiveness:
                                   Facing the Demands of a New Era

                             ...
Prosperity Performance
                                                                      Selected Countries
PPP-adjust...
Comparative Economic Performance
                                           Real GDP Growth Rates Over Time
Compounded ann...
Chile’s Economy in 2008


        •! Chile remains the Latin American success story in
           competitiveness, though ...
Comparative Labor Productivity
  GDP per employee (PPP
    adjusted US$), 2007
                                           ...
Labor Force Mobilization over Time
                                                             Selected Countries
    Emp...
Inbound Foreign Investment Performance
                                     Stocks and Flows, Latin American Countries
Inw...
Chile Export Share Trends
 World Export Market
 Share (current USD)




Source: WTO (2008)
20080529 – Chile CAON – ver5.pp...
Innovative Capacity
                                   Innovation Output of Latin American Countries
 Average U.S. patents...
What is Competitiveness?

   •! Competitiveness is determined by the productivity with which a nation
      uses its human...
Determinants of Productivity

                                                    Microeconomic Competitiveness

         ...
Integration of Macro- and Microeconomic Reforms

                                    Stability and confidence support
    ...
Improving the Business Environment: The Diamond
                                                                Context fo...
Factor
     (Input)
                                                  Factor (Input) Conditions
    Conditions            ...
Context for Firm
    Strategy                             Context for Strategy and Rivalry
   and Rivalry                 ...
Ease of Doing Business
                                                           Chile, 2007
Ranking, 2007
(of 178 countr...
Context for Firm
    Strategy                                           Labor Market Regulation
   and Rivalry
           ...
National Business Environment Overview
Rank                                 Chile’s Relative Strengths and Weaknesses
 20
...
Improving Company Sophistication
                                          Relative Position of Chile Companies, 2007

   ...
Chile Manufacturing Lagging Behind
                                            Share of Manufacturing Firms
% of Manufactu...
Clusters and Competitiveness
                                          Cairns (Australia) Tourism                         ...
The Houston Oil and Gas Cluster

                                                                            Oil          ...
Clusters and Competitiveness
•! Clusters Increase Productivity / Operational Efficiency
      –! Efficient access to speci...
Institutions for Collaboration
                              Selected Massachusetts Organizations, Life Sciences

        ...
National Cluster Export Portfolio
                                                                                        ...
Key Issues for Chile

       •! Maintain macroeconomic stability

       •! Address weaknesses in the business environment...
Key Challenges in the Business Environment


       •! Education system

       •! Labor market reform

       •! Energy s...
Labor Market and Wages


       •! Remains a central issue for the country and the number one complaint
          of busin...
Clusters as a Tool For Economic Policy
                                                  Overview

       •! A new way of ...
The Chilean Wine Cluster
                                                               Trade Performance
  Chilean Wine  ...
Chilean Wine Cluster




Source: Research by HBS student team (Asier Alea, Judd Belstock, Don Lambert, Jacqueline O’Neill,...
Cluster-Driven Diversification
                                               of the Chilean Economy



                  ...
Upgrading Established Export Products
                                            Leading Chilean Export Industries, 2006
...
Growth Opportunities within Clusters
                                                   Chilean Agricultural Products
Stro...
Growth Opportunities within Clusters
                                   Chilean Metal Mining and Manufacturing Products
St...
Growth Opportunities within Clusters
                                                     Chilean Chemical Products
Strong...
Growth Opportunities within Clusters
                                                         Chilean Forest Products
Stro...
Growth Opportunities within Clusters
                                                         Chilean Furniture Products
S...
Upgrading Chile’s Export Portfolio
                                                  Niche Positions Outside of Clusters

...
Linkages Across Clusters

                                    Fishing &                                                   ...
Growth Opportunities in Related Clusters
                                                     Chile’s leading Export Clust...
Specialization of Regional Economies
                                                 Selected U.S. Geographic Areas
     ...
Defining an Economic Strategy


                                                          Value Proposition

             ...
The Process of Economic Development
                                        Shifting Roles and Responsibilities


        ...
Role of the Private Sector in Economic Development

            •! A company’s competitive advantage depends partly on the...
Back-Up




20080529 – Chile CAON – ver5.ppt     46      Copyright 2008 © Professor Michael E. Porter
Upgrading Established Export Products
                                            Leading Chilean Export Industries, 2006
...
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Presentacion Chiles Competitiveness

  1. 1. Chile’s Competitiveness: Facing the Demands of a New Era Professor Michael E. Porter Institute for Strategy and Competitiveness Harvard Business School Santiago, Chile May 29, 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: May 27, 2008, 6pm 20080529 – Chile CAON – ver5.ppt 1 Copyright 2008 © Professor Michael E. Porter
  2. 2. Prosperity Performance Selected Countries PPP-adjusted GDP per Capita, 2007 Norway USA Hong Kong Ireland Canada Switzerland Iceland Singapore Netherlands Australia Austria Sweden UK Germany Finland Taiwan Japan France Bahrain Italy Spain Greece Israel Slovenia New Zealand Korea Saudi Arabia Czech Republic Estonia Portugal Slovakia Hungary Lithuania Latvia Poland Argentina Chile Croatia Russia Panama Malaysia Venezuela Mexico Costa Rica Uruguay Romania Cuba Brazil Turkey South Africa Dominican Republic Colombia Ecuador Belize Thailand Guatemala Peru Guyana Egypt China Jamaica Sri Lanka Bolivia El Salvador Honduras Indonesia Pakistan India Vietnam Paraguay Nicaragua Cambodia Nigeria Bangladesh Growth of Real GDP per Capita (PPP-adjusted), CAGR, 1998-2007 Source: EIU (2008), authors calculations 20080529 – Chile CAON – ver5.ppt 2 Copyright 2008 © Professor Michael E. Porter
  3. 3. Comparative Economic Performance Real GDP Growth Rates Over Time Compounded annual growth rate (CAGR) of real GDP Source: EIU (2008), authors calculations 20080529 – Chile CAON – ver5.ppt 3 Copyright 2008 © Professor Michael E. Porter
  4. 4. Chile’s Economy in 2008 •! Chile remains the Latin American success story in competitiveness, though its relative progress has slipped However •! Chile has many global peers that perform better •! Chile has benefited from a beneficial global context, especially the rise of copper demand. However, the tailwind is now receding •! Chile is strong on macroeconomic policy but fundamental business environment remain •! Political pressure is rising to shift from wealth creation to wealth distribution 20080529 – Chile CAON – ver5.ppt 4 Copyright 2008 © Professor Michael E. Porter
  5. 5. Comparative Labor Productivity GDP per employee (PPP adjusted US$), 2007 Latin American Countries Venezuela* Trinidad & Tobago* Argentina Chile Mexico Uruguay Dominican Republic Costa Rica Peru Brazil Colombia Ecuador Guatemala Jamaica Bolivia Compound annual growth rate (CAGR) of real GDP per employee (PPP-adjusted), 1998-2007 Note: Venezuela and Trinidad &Tobago’s data is biased by the rise in oil and gas export prices Source: authors calculation, EIU (2008), Groningen Growth and Development Centre (2008) 5 20080529 – Chile CAON – ver5.ppt Copyright 2008 © Professor Michael E. Porter
  6. 6. Labor Force Mobilization over Time Selected Countries Employees as % of Total Population, Mexico Chile Brazil Argentina Colombia Source: The CAON – ver5.ppt Board and Groningen Growth and Development Centre, Total6Economy Database, May 2008 20080529 – Chile Conference Copyright 2008 © Professor Michael E. Porter
  7. 7. Inbound Foreign Investment Performance Stocks and Flows, Latin American Countries Inward FDI Stocks as % of GDP, Average 2002 - 2006 80% Estonia Netherlands 70% Bahrain Panama Vietnam Chile Hungary 60% Bolivia New Zealand Sweden Czech Republic Cyprus 50% Switzerland Nicaragua Belize Denmark Slovakia 40% Ecuador Venezuela Malaysia UK Spain Thailand Australia Argentina Latvia Canada Lithuania 30% France Poland Mexico Honduras Colombia Costa Rica Austria El Salvador Brazil Russia Slovenia Iceland 20% Norway Peru Paraguay Germany Uruguay Guatemala China Turkey United Arab Emirates Greece 10% USA Italy Saudi Arabia Korea Pakistan Indonesia India Japan 0% FDI Inflows as % of Gross Fixed Capital Formation, Average 2002 - 2006 Source: UNCTAD, World Investment Report (2007) 20080529 – Chile CAON – ver5.ppt 7 Copyright 2008 © Professor Michael E. Porter
  8. 8. Chile Export Share Trends World Export Market Share (current USD) Source: WTO (2008) 20080529 – Chile CAON – ver5.ppt 8 Copyright 2008 © Professor Michael E. Porter
  9. 9. Innovative Capacity Innovation Output of Latin American Countries Average U.S. patents per 1 million population, 2003-2007 Slovenia Spain Hungary Malaysia Czech Republic South Africa Uruguay Chile Mexico Argentina Russia Panama El Salvador Costa Rica Guatemala Venezuela Brazil China Nicaragua Colombia Peru Ecuador CAGR of US-registered patents, 2003 – 2007 75 patents = Source: USPTO (2008), EIU (2008) 20080529 – Chile CAON – ver5.ppt 9 Copyright 2008 © Professor Michael E. Porter
  10. 10. 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 20080529 – Chile CAON – ver5.ppt 10 Copyright 2008 © Professor Michael E. Porter
  11. 11. Determinants of Productivity Microeconomic Competitiveness Sophistication Quality of the of Company State of Cluster National Operations and Development Business Strategy Environment Macroeconomic Competitiveness Social Infrastructure Macroeconomic and Political Context Institutions •! Macroeconomic competitiveness creates the potential for high productivity, but is not sufficient •! Productivity ultimately depends on improving the microeconomic capability of the economy and the sophistication of local competition 20080529 – Chile CAON – ver5.ppt 11 Copyright 2008 © Professor Michael E. Porter
  12. 12. Integration of Macro- and Microeconomic Reforms Stability and confidence support investment and upgrading Macro reform alone can lead to short Create opportunity Required to achieve term capital for productivity productivity Micro reform inflows ! is needed! and ! Macroeconomic Microeconomic to raise! growth reform reform the level of spurts ! sustainable that prosperity quot; ultimately are not sustainablequot; Productivity growth allows economic growth without inflation, making macroeconomic stability easier to achieve 20080529 – Chile CAON – ver5.ppt 12 Copyright 2008 © Professor Michael E. Porter
  13. 13. Improving the Business Environment: The Diamond Context for Firm Strategy and Rivalry !!Localrules and incentives that encourage investment and productivity –!e.g. salaries, incentives for Factor capital investments, Demand (Input) intellectual property protection 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 environmental standards –!Capital availability Supporting –!Physical infrastructure Industries –!Administrative infrastructure (e.g. registration, permitting) !!Availabilityof 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 20080529 – Chile CAON – ver5.ppt 13 Copyright 2008 © Professor Michael E. Porter
  14. 14. Factor (Input) Factor (Input) Conditions Conditions Chile’s Relative Position 2007 Competitive Advantages Competitive Disadvantages Relative to GDP per Capita Relative to GDP per Capita Local equity market access 13 Quality of public schools 63 Quality of management schools 19 Quality of math and science education 59 Telephone/fax infrastructure quality 20 Railroad infrastructure development 49 Reliability of police services 20 Centralization of economic policymaking 46 Laws relating to ICT 22 Quality of scientific research institutions 42 Ease of access to loans 24 Judicial independence 38 Air transport infrastructure quality 25 University/industry research collaboration 37 Business costs of corruption 25 Quality of electricity supply 33 Financial market sophistication 25 Venture capital availability 30 Overall infrastructure quality 26 Efficiency of legal framework 26 Cooperation in labor-employer relations 26 Availability of scientists and engineers 27 Change up/down of more Port infrastructure quality 29 than 5/10 ranks since 2002 Note:quot; Rank versus 74 countries; overall, Chile ranks 39th in 2007 PPP adjusted GDP per capita and 27th in Business Competitiveness.# Source:quot; Institute for Strategy and Competitiveness, Harvard University (2007) 20080529 – Chile CAON – ver5.ppt 14 Copyright 2008 © Professor Michael E. Porter
  15. 15. Context for Firm Strategy Context for Strategy and Rivalry and Rivalry Chile’s Relative Position 2007 Competitive Advantages Competitive Disadvantages Relative to GDP per Capita Relative to GDP per Capita Prevalence of trade barriers 12 Decentralization of corporate activity 49 Efficacy of corporate boards 17 Intellectual property protection 38 Intensity of local competition 18 Property rights 19 Effectiveness of antitrust policy 23 Favoritism in decisions of government 27 officials Change up/down of more than 5/10 ranks since 2002 Note:quot; Rank versus 74 countries; overall, Chile ranks 39th in 2007 PPP adjusted GDP per capita and 27th in Business Competitiveness.# Source:quot; Institute for Strategy and Competitiveness, Harvard University (2007) 20080529 – Chile CAON – ver5.ppt 15 Copyright 2008 © Professor Michael E. Porter
  16. 16. Ease of Doing Business Chile, 2007 Ranking, 2007 (of 178 countries) Favorable Unfavorable Chile’s per capita GDP rank: 51 Median Ranking, Latin America Source: World Bank Report, Doing Business (2008) 20080529 – Chile CAON – ver5.ppt 16 Copyright 2008 © Professor Michael E. Porter
  17. 17. Context for Firm Strategy Labor Market Regulation and Rivalry Selected Countries Hiring and Firing Practices Liberal Restrictive Note: Determined by whether hiring / firing decisions are impeded by regulations or determined by the employer Source: Global Competitiveness Report (2008) 20080529 – Chile CAON – ver5.ppt 17 Copyright 2008 © Professor Michael E. Porter
  18. 18. National Business Environment Overview Rank Chile’s Relative Strengths and Weaknesses 20 BETTER WORSE 25 Overall NBE rank: 28 30 35 40 45 50 Note:quot; Rank versus 74 countries; overall, Chile ranks 39th in 2007 PPP adjusted GDP per capita and 27th in Business Competitiveness.# Source:quot; Institute for Strategy and Competitiveness, Harvard University (2007) 20080529 – Chile CAON – ver5.ppt 18 Copyright 2008 © Professor Michael E. Porter
  19. 19. Improving Company Sophistication Relative Position of Chile Companies, 2007 Competitive Advantages Competitive Disadvantages Relative to GDP per Capita Relative to GDP per Capita Breadth of international markets 16 Company spending on research 46 and development Extent of marketing 20 Capacity for innovation 45 Extent of incentive compensation 21 Nature of competitive advantage 41 Control of international distribution 24 Degree of customer orientation 39 Reliance on professional management 24 Value chain presence 38 Production process sophistication 27 Extent of regional sales 36 Extent of staff training 36 Prevalence of foreign technology 34 licensing Willingness to delegate authority 34 Change up/down of more than 5/10 ranks since 2002 Note:quot; Rank versus 74 countries; overall, Chile ranks 39th in 2007 PPP adjusted GDP per capita and 27th in Business Competitiveness.# Source:quot; Institute for Strategy and Competitiveness, Harvard University (2007) 20080529 – Chile CAON – ver5.ppt 19 Copyright 2008 © Professor Michael E. Porter
  20. 20. Chile Manufacturing Lagging Behind Share of Manufacturing Firms % of Manufacturing Firms engaged in… Source: Chile Investment Climate Assessment, 2007, World Bank 20080529 – Chile CAON – ver5.ppt 20 Copyright 2008 © Professor Michael E. Porter
  21. 21. Clusters and Competitiveness Cairns (Australia) Tourism Local retail, health care, and Public Relations & other services Market Research Travel agents Tour operators Services Food Local Suppliers Attractions and Transportation Restaurants Activities e.g., theme parks, casinos, sports Property Souvenirs, Services Duty Free Airlines, Hotels Banks, Maintenance Cruise Ships Foreign Services Exchange Government agencies Educational Institutions Industry Groups e.g. Australian Tourism Commission, e.g. James Cook University, e.g. Queensland Tourism Great Barrier Reef Authority Cairns College of TAFE Industry Council Sources: HBS student team research (2003) - Peter Tynan, Chai McConnell, Alexandra West, Jean Hayden 20080529 – Chile CAON – ver5.ppt 21 Copyright 2008 © Professor Michael E. Porter
  22. 22. The Houston Oil and Gas Cluster Oil Oil Oil Oil Oil Oil Trans- Wholesale Retail Oil & Gas Oil & Gas portation Trading Refining Distribution Marketing Marketing Exploration & Completion & Development Production Gas Gas Gas Gas Gas Gas Transmis- Gathering Processing Trading Distribution Marketing sion Oilfield Services/Engineering & Contracting Firms Specialized Equipment Business Technology Services Subcontractors Suppliers Services (e.g. Drilling (e.g. Surveying, (e.g. Oil Field Chemicals, (e.g. MIS Services, Consultants, Mud Logging, Drilling Rigs, Technology Licenses, Reservoir Services, Maintenance Services) Drill Tools) Risk Management) Laboratory Analysis) Specialized Institutions (e.g. Academic Institutions, Training Centers, Industry Associations) •! Houston exports technology, knowledge, and management, not just resources 20080529 – Chile CAON – ver5.ppt 22 Copyright 2008 © Professor Michael E. Porter
  23. 23. Clusters and Competitiveness •! Clusters Increase Productivity / Operational Efficiency –! Efficient access to specialized inputs, services, employees, information, institutions, training programs, and other “public goods” (local outsourcing) –! Ease of coordination and transactions across firms –! Rapid diffusion of best practices –! Ongoing, visible performance comparisons and strong incentives to improve vs. local rivals –! Proximity of rivals encourages strategic differentiation •! Clusters Stimulate and Enable Innovations –! Density enables recognition of innovation opportunities (e.g., unmet needs, sophisticated customers, new combinations of services, or better technologies) –! Presence of multiple suppliers and institutions to assist in knowledge creation –! Ease of experimentation given locally available resources •! Clusters Facilitate Commercialization and New Business Formation –! Opportunities for new companies and new lines of established business are apparent –! Spinoffs and startups are encouraged by the presence of other companies, commercial relationships, and concentrated demand –! Commercializing new products and starting new companies is easier because of available skills, suppliers, etc. •! Clusters reflect the fundamental influence of linkages and spill-overs across firms and associated institutions in competition 20080529 – Chile CAON – ver5.ppt 23 Copyright 2008 © Professor Michael E. Porter
  24. 24. Institutions for Collaboration Selected Massachusetts Organizations, Life Sciences Life Sciences Industry Associations University Initiatives !!Massachusetts Biotechnology Council !!Harvard Biomedical Community !!Massachusetts Medical Device Industry !!MIT Enterprise Forum Council !!Biotech Club at Harvard Medical School !!Massachusetts Hospital Association !!Technology Transfer offices General Industry Associations Informal networks !!Associated Industries of Massachusetts !!Company alumni groups !!Greater Boston Chamber of Commerce !!Venture capital community !!High Tech Council of Massachusetts !!University alumni groups Economic Development Initiatives Joint Research Initiatives !!Massachusetts Technology Collaborative !!New England Healthcare Institute !!Mass Biomedical Initiatives !!Whitehead Institute For Biomedical !!Mass Development Research !!Massachusetts Alliance for Economic !!Center for Integration of Medicine and Development Innovative Technology (CIMIT) 20080529 – Chile CAON – ver5.ppt 24 Copyright 2008 © Professor Michael E. Porter
  25. 25. National Cluster Export Portfolio Chile, 1997-2006 Fishing and Fishing Related Products (1.51%, 4.22%) Forest Products Metal, Mining and Manufacturing (1.73%, 3.99%) Agriculture Products Chile’s world export market share, 2006 Furniture Transportation and Logistics Change In Chile's’ Overall World Export Share: 0.149% Chile’s Average World Export Share: 0.485% Chemical Products Jewelry, Precious Metals and Collectibles Building Fixtures and Equipment Production Technology Hospitality and Tourism Business Services Communication Heavy Machinery Services Publishing and Printing Motor Driven Products Plastics Financial Services Oil and Gas Textiles Biopharmaceuticals Communications Equipment Change in Chile’s world export market share, 1997 – 2006 Exports of US$5.4 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.quot; 20080529 – Chile CAON – ver5.ppt 25 Copyright 2008 © Professor Michael E. Porter
  26. 26. Key Issues for Chile •! Maintain macroeconomic stability •! Address weaknesses in the business environment •! Pursue cluster-driven diversification of the Chilean economy •! Leverage the role of sub-national regions •! Create a new phase of Chile’s economic strategy •! These goals are well within reach, if Chile manages to move towards a more effective collaboration between the public and the private sector 20080529 – Chile CAON – ver5.ppt 26 Copyright 2008 © Professor Michael E. Porter
  27. 27. Key Challenges in the Business Environment •! Education system •! Labor market reform •! Energy supply 20080529 – Chile CAON – ver5.ppt 27 Copyright 2008 © Professor Michael E. Porter
  28. 28. Labor Market and Wages •! Remains a central issue for the country and the number one complaint of business •! Labor market flexibility gets mixed up with discussions about wage levels •! Flexibility is critical for productivity •! Wage levels that are low relative to competitiveness support fast growth but might not push companies to pursue productivity growth •! Aim should be to decouple these to issues politically 20080529 – Chile CAON – ver5.ppt 28 Copyright 2008 © Professor Michael E. Porter
  29. 29. Clusters as a Tool For Economic Policy Overview •! A new way of thinking about an economy and organizing economic development efforts •! Better aligned with the nature of competition and sources of competitive advantage. Clusters capture important linkages in terms of technology, skills, information, marketing and customer needs that cut across firms and industries. Such linkages are fundamental to competition and, especially, to the direction and pace of innovation •! Recast the role of the private sector, government, trade associations and educational or research institutions •! Brings together firms of all sizes •! Creates a forum for constructive business-government dialog •! A means to identify common opportunities, not just common problems •! Provides guidance for both economic and social policies 20080529 – Chile CAON – ver5.ppt 29 Copyright 2008 © Professor Michael E. Porter
  30. 30. The Chilean Wine Cluster Trade Performance Chilean Wine Chilean Wine Exports in World Export thousand US $ Market Share Source: Prof. Michael E. Porter, International Cluster Competitiveness Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. Underlying data drawn from the UN Commodity Trade Statistics Database. 20080529 – Chile CAON – ver5.ppt 30 Copyright 2008 © Professor Michael E. Porter
  31. 31. Chilean Wine Cluster Source: Research by HBS student team (Asier Alea, Judd Belstock, Don Lambert, Jacqueline O’Neill, Noah Sawyer), 2005 20080529 – Chile CAON – ver5.ppt 31 Copyright 2008 © Professor Michael E. Porter
  32. 32. Cluster-Driven Diversification of the Chilean Economy Grow exports in related clusters Build clusters around existing niche positions Expand into new industries within existing clusters Upgrade quality and sophistication of existing export products 20080529 – Chile CAON – ver5.ppt 32 Copyright 2008 © Professor Michael E. Porter
  33. 33. Upgrading Established Export Products Leading Chilean Export Industries, 2006 Processed Top 25 Industries (Processed & Semi-Processed) as % of Chile’s total goods exports: 57.6% Semi-Processed 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.quot; 20080529 – Chile CAON – ver5.ppt 33 Copyright 2008 © Professor Michael E. Porter
  34. 34. Growth Opportunities within Clusters Chilean Agricultural Products Strong Export Share Plants and Flowers Sugars, Molasses and Honey Vegetables and Fruits Crude Specialty Agricultural Fertilizers Products Meat and Related Products Fertilizers Grains Plants and Flowers Cork Weak Export Coffee, Tea, Cocoa and Spices Oils and Fats Share Feeding Materials Sugars, Molasses and Honey Losing Market Share Gaining Market Share Source: International Cluster Competitiveness Project, Institute for Strategy and Competitiveness, Harvard Business School 20080529 – Chile CAON – ver5.ppt 34 Copyright 2008 © Professor Michael E. Porter
  35. 35. Growth Opportunities within Clusters Chilean Metal Mining and Manufacturing Products Strong Export Share Copper Wire and Springs Other Metals Non-Ferrous Metal Processing Iron and Steel Precision Metal Products Wire and Springs Primary Metal Products Fabricated Metal Products Iron and Steel Mill and Foundry Products Pumps Fasteners Weak Export Share Losing Market Share Gaining Market Share Source: International Cluster Competitiveness Project, Institute for Strategy and Competitiveness, Harvard Business School 20080529 – Chile CAON – ver5.ppt 35 Copyright 2008 © Professor Michael E. Porter
  36. 36. Growth Opportunities within Clusters Chilean Chemical Products Strong Export Share Plastic Tubes, Hoses, Plates, and Sheets Asbestos and Friction Materials Plastic Products Plastic Materials and Resins Paints and Allied Products Plastic Waste Weak Export Share Rubber Losing Market Share Gaining Market Share Source: International Cluster Competitiveness Project, Institute for Strategy and Competitiveness, Harvard Business School 20080529 – Chile CAON – ver5.ppt 36 Copyright 2008 © Professor Michael E. Porter
  37. 37. Growth Opportunities within Clusters Chilean Forest Products Strong Export Share Pulp and Paper Waste Rough and Chipped Wood Paper Mills Weak Export Share Paper Products Losing Market Share Gaining Market Share Source: International Cluster Competitiveness Project, Institute for Strategy and Competitiveness, Harvard Business School 20080529 – Chile CAON – ver5.ppt 37 Copyright 2008 © Professor Michael E. Porter
  38. 38. Growth Opportunities within Clusters Chilean Furniture Products Strong Export Share Sawn and Shaped Wood Mattresses and Bedsprings Furniture Weak Export Wood Furnishing Share Kitchenware and Household Articles Losing Market Share Gaining Market Share Source: International Cluster Competitiveness Project, Institute for Strategy and Competitiveness, Harvard Business School 20080529 – Chile CAON – ver5.ppt 38 Copyright 2008 © Professor Michael E. Porter
  39. 39. Upgrading Chile’s Export Portfolio Niche Positions Outside of Clusters Processed Source: Prof. Michael E. Porter, International Cluster Competitiveness Project, Institute for Strategy and Competitiveness, Harvard Business School; Semi-Processed Richard Bryden, Project Director. Underlying data drawn from the UN Commodity Trade Statistics Database.quot; 20080529 – Chile CAON – ver5.ppt 39 Unprocessed Michael E. Porter Copyright 2008 © Professor
  40. 40. Linkages Across Clusters Fishing & Textiles Fishing Entertainment Prefabricated Products Hospitality Enclosures & Tourism Agricultural Products Furniture Transportation Distribution Building & Logistics Services Aerospace Fixtures, Vehicles & Equipment & Construction Materials Jewelry & Information Defense Services Precious Tech. Heavy Processed Metals Business Lightning & Food Electrical Construction Services Analytical Services Education & Instruments Equipment Knowledge Power Forest Financial Medical Products Creation Generation Services Devices Communi- Publishing cations & Printing Biopharma- Equipment Heavy ceuticals Machinery Motor Driven Production Apparel Products Technology Chemical 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 position in the clusters highlighted Source: Chile has a strong export directions. 20080529 – Chile CAON – ver5.ppt 40 Copyright 2008 © Professor Michael E. Porter
  41. 41. Growth Opportunities in Related Clusters Chile’s leading Export Clusters Transportation Chemical Metal Mining and Furniture and Logistics Products Manufacturing Hospitality Plastics and Tourism Building Fixtures Oil & Gas Production Technology Information Biopharma- Technology ceuticals Source: Institute for Strategy and Competitiveness, authors’ calculations (2007) 20080529 – Chile CAON – ver5.ppt 41 Copyright 2008 © Professor Michael E. Porter
  42. 42. Specialization of Regional Economies Selected U.S. Geographic Areas Denver, CO Chicago Leather and Sporting Goods Communications Equipment Oil and Gas Processed Food Boston Aerospace Vehicles and Defense Heavy Machinery Analytical Instruments Seattle-Bellevue- Education and Knowledge Creation Everett, WA Communications Equipment Aerospace Vehicles and Wichita, KS Pittsburgh, PA Defense Aerospace Vehicles and Construction Materials Fishing and Fishing Defense Metal Manufacturing Products Heavy Machinery Education and Knowledge Analytical Instruments Oil and Gas Creation San Francisco- Oakland-San Jose Bay Area Communications Equipment Agricultural Raleigh-Durham, NC Products Communications Equipment Information Information Technology Technology Education and Knowledge Creation Los Angeles Area Apparel Atlanta, GA Building Fixtures, San Diego Construction Materials Equipment and Leather and Sporting Goods Transportation and Logistics Services Power Generation Houston Business Services Entertainment Education and Knowledge Oil and Gas Products and Services Creation Chemical Products Heavy Construction Services Note: Clusters listed are the three highest ranking clusters in terms of share of national employment. Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School, 11/2006. 20080529 – Chile CAON – ver5.ppt 42 Copyright 2008 © Professor Michael E. Porter
  43. 43. Defining an Economic Strategy Value Proposition •! hat is the unique competitive position of the nation or region W given its location, legacy, and existing and potential strengths? –! What roles in the world, the region, 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 the nation or region be competitive? Achieving and Maintaining Parity Developing Unique Strengths with Peers •! What elements of the business environment •! What areas of the general business are essential strengths in the national or regional environment must improve to maintain parity value proposition? with peer countries or regions? •! What areas of macroeconomic / political / •! What macro / political / legal / social context legal / social context can be strengths versus improvements are necessary to maintain parity neighbors or peers? with peer countries or regions? •! What existing and emerging clusters must be activated? 20080529 – Chile CAON – ver5.ppt 43 Copyright 2008 © Professor Michael E. Porter
  44. 44. The Process of Economic Development Shifting Roles and Responsibilities Old Model New Model •! Government drives economic •! Economic development is a development through policy collaborative process involving decisions and incentives government at multiple levels, companies, teaching and research institutions, and private sector organizations •! Competitiveness must become a bottoms-up process in which many individuals, companies, and institutions take responsibility quot; •! Every community and cluster can take steps to enhance competitivenessquot; •! The private sector must become more engaged in competitiveness to improve rapidlyquot; 20080529 – Chile CAON – ver5.ppt 44 Copyright 2008 © Professor Michael E. Porter
  45. 45. Role of the Private Sector in Economic Development •! A company’s competitive advantage depends partly on the quality of the business environment •! A company gains advantages from being part of a cluster •! Companies have a strong role to play in upgrading their business environment •! Take an active role in upgrading the local infrastructure •! Nurture local suppliers and attract foreign suppliers •! Work closely with local educational and research institutions, to upgrade their quality and create specialized programs addressing the cluster’s needs •! Inform government 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 if many companies are united –! Cost sharing between members 20080529 – Chile CAON – ver5.ppt 45 Copyright 2008 © Professor Michael E. Porter
  46. 46. Back-Up 20080529 – Chile CAON – ver5.ppt 46 Copyright 2008 © Professor Michael E. Porter
  47. 47. Upgrading Established Export Products Leading Chilean Export Industries, 2006 Processed Top 25 Industries as % of Chile’s total goods exports: 87.9% Semi-Processed Source: Prof. Michael E. Porter, International Cluster Competitiveness Project, Institute for Strategy and Competitiveness, Harvard Business School; Unprocessed Richard Bryden, Project Director. Underlying data drawn from the UN Commodity Trade Statistics Database.quot; 20080529 – Chile CAON – ver5.ppt 47 Copyright 2008 © Professor Michael E. Porter

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