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Michael E Porter Presentation

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Professor Michael E Porter delivering a keynote on 'Competitiveness and Clusters' during Porter Prize 2016.

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Michael E Porter Presentation

  1. 1. Copyright 2016 © Professor Michael E. Porter120160930 – Porter Prize India – V3 Competitiveness and Clusters: Implications for Government and Companies Professor Michael E. Porter Porter Prize India 2016 Harvard Business School 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 (World Economic Forum), “Clusters and the New Competitive Agenda for Companies and Governments” in On Competition (Harvard Business School Press, 2008), 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
  2. 2. Copyright 2016 © Professor Michael E. Porter220160930 – Porter Prize India – V3 Perspectives on the Sources of Company Success • Competitive advantage resides inside a company • Competitive success depends primarily on company choices Internal • Competitive advantage resides partly in the locations at which a company’s business units are based • Cluster participation is a major contributor to company success External
  3. 3. Copyright 2016 © Professor Michael E. Porter320160930 – Porter Prize India – V3 Prosperity Performance Selected Countries High and ImprovingAverage: +1.74% Average: $25,473 Low but Improving [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE][CE… [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRA NGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE][CELLRANGE] [CELLRANGE] [CELLRANGE][CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 $45,000 $50,000 $55,000 $60,000 $65,000 $70,000 $75,000 -2.5% -1.5% -0.5% 0.5% 1.5% 2.5% 3.5% 4.5% 5.5% 6.5% 7.5% 8.5% 9.5% PPP-Adjusted Real GDP per Capita, 2015 ($USD at 2005 prices) Growth in Real GDP per Capita (PPP $US at 2005 prices), CAGR, 2005-2015 United States High but Lagging Low and Lagging
  4. 4. Copyright 2016 © Professor Michael E. Porter420160930 – Porter Prize India – V3 • Competitiveness depends on the long-run productivity of a location as a place to do business - Productivity of existing firms and workers - Enabling high participation of citizens in the workforce • Competitiveness is not: - Low wages - A weak currency - Jobs per se • Successful economic development requires improving competitiveness A nation or region is competitive to the extent that firms operating there are able to compete successfully in the national and global economy while maintaining or improving wages and living standards for the average citizen What is Competitiveness?
  5. 5. Copyright 2016 © Professor Michael E. Porter520160930 – Porter Prize India – V3 Macroeconomic Competitiveness Microeconomic Competitiveness Sophistication of Company Operations and Strategy Quality of the Business Environment State of Cluster Development Endowments Human Development and Effective Public Institutions Sound Monetary and Fiscal Policies What Determines Competitiveness? • Productivity ultimately depends on improving the microeconomic capability of the economy and the sophistication of local competition, revealed at the level of firms, clusters, and regions • Macroeconomic competitiveness sets the economy-wide context for productivity to emerge, but is not sufficient to ensure productivity • Endowments, including natural resources, geographical location, population, and land area, create a foundation for prosperity, but true prosperity arises from productivity in the use of endowments
  6. 6. Copyright 2016 © Professor Michael E. Porter620160930 – Porter Prize India – V3 Assessing the Quality of the Business Environment The Diamond Model Context for Firm Strategy and Rivalry Related and Supporting Industries Factor (Input) Conditions Demand Conditions • Sophisticated and demanding local needs – e.g., Strict quality, safety, and environmental standards – Sophisticated demand in the private sector or government • Many things in the business environment 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 • Local rules and incentives that encourage investment and productivity – e.g. incentives for capital investment, IP protection – Sound corporate governance and accountability • Open and vigorous local competition − Openness to competition − Strict competition laws • Improving access to high quality business inputs – Qualified human resources – Capital availability – Physical infrastructure – Scientific and technological infrastructure – Administrative and regulatory infrastructure • Availability and quality of suppliers and supporting industries
  7. 7. Copyright 2016 © Professor Michael E. Porter720160930 – Porter Prize India – V3 0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160 170 180 190 Business Environment Indicators Ease of Doing Business Rankings, IndiaRanking, 2016 (vs. 189 countries) Favorable India’s GDP per capita Rank: 125 Unfavorable Source: World Bank Report, Doing Business (2016)
  8. 8. Copyright 2016 © Professor Michael E. Porter820160930 – Porter Prize India – V3 • A group of interconnected companies and associated institutions in a particular field, in a particular region, that are mutually reinforcing Sources: HBS student team research (2003) - Peter Tynan, Chai McConnell, Alexandra West, Jean Hayden What is a Cluster? Tourism in Cairns, Australia
  9. 9. Copyright 2016 © Professor Michael E. Porter920160930 – Porter Prize India – V3 Pharmaceuticals in Andhra Pradesh Source: MOC Student Project 2013 Pharmaceutical Companies (MNCs, Domestic Companies, SOEs) Chemical Suppliers Printing & Packaging Material Suppliers Testing Laboratories Energy Suppliers International Institutions (US FDA, EDQUM in Europe, ISO, ICH, GLP, GCP, etc.) Marketers, BDS & Agents CFA and Stockists Hospitals Pharma Resellers Pharmacies Distributors / Customers Multi-lateral Agencies (e.g. WHO) Pharma Machinery Manufacturers Law Firms Transportation & Logistics Supporting Industry Financial Inst. IT / ITES Related Industries Medical Tourism Medical Devices Agribusiness Health Insurance Bulk Mfg. Contract R&D Formulation Mfg. Institutions for Collaboration Industry Associations (BDMA, OPPI, NDMA, PASS etc) Education & Research (Pharma Colleges; Research Inst. - NIPER, CCMB, IICT etc) Government (Central, State, Patent Office) Government, Regulatory, Quality
  10. 10. Copyright 2016 © Professor Michael E. Porter1020160930 – Porter Prize India – V3 Institutions of Collaboration (IFCs) The Australian Wine Cluster Wine Industry National Education and Training Council  Established 1995  Focus: Coordination, integration, and standard maintenance for vocational training and education  Funding: Government; cluster organizations Cooperative Centre for Viticulture  Established 1991  Focus: Coordination of research and education policy in viticulture  Funding: Cluster organizations Australian Wine Export Council  Established 1992  Focus: Wine export promotion through international offices in London and San Francisco  Funding: Government; cluster organizations Winemakers’ Federation of Australia  Established 1990  Focus: Public policy representation of companies in the wine cluster  Funding: Member companies Grape and Wine R&D Corporation  Established 1991 as statutory body  Focus: Funding of research and development activities  Funding: Government; statutory levy Wine Industry Information Service  Established 1998  Focus: Information collection, organization, and dissemination  Funding: Cluster organizations Source: Porter/Solvell, The Australian Wine Cluster – Supplement, HBS 2002
  11. 11. Copyright 2016 © Professor Michael E. Porter1120160930 – Porter Prize India – V3 Why Clusters Matter? • Clusters increase productivity, operational efficiency, and regional economic performance • Clusters stimulate and enable innovations • Clusters facilitate resilience, commercialization, and new business formation • Clusters reflect the fundamental importance to productivity and innovation of linkages and spill-overs across firms and associated institutions that occur within geographic areas • Clusters have a powerful impact on the range of strategic options that are available to firms in a given location
  12. 12. Copyright 2016 © Professor Michael E. Porter1220160930 – Porter Prize India – V3 Geographic Influences on Competitiveness • States and regions are the most important economic unit for competitiveness in larger countries, especially countries beyond subsistence development Regions States Nation
  13. 13. Copyright 2016 © Professor Michael E. Porter1320160930 – Porter Prize India – V3 • Economic performance varies significantly across sub- national regions (e.g., provinces, states, metropolitan areas) The Role of Regions in Economic Development
  14. 14. Copyright 2016 © Professor Michael E. Porter1420160930 – Porter Prize India – V3 Prosperity Performance Indian States, 2005-2014 Gross Domestic Product per Capita Real Growth Rate, 1999 to 2009 Note: Growth rate is calculated as compound annual growth rate. Source: CEIC. Gross Domestic Product per Capita Real Growth Rate, 2005 to 2014 Gross Domestic Product per Capita, 2014 (2005 Indian Rupees) High and Improving Low and Lagging India Overall: ₹45,750 India Overall: 6.6% High but Lagging Low but Improving [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLR… [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELL… [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] [CELLRANGE] ₹ 0 ₹ 20,000 ₹ 40,000 ₹ 60,000 ₹ 80,000 ₹ 100,000 ₹ 120,000 ₹ 140,000 ₹ 160,000 1% 3% 5% 7% 9% 11% 13%
  15. 15. Copyright 2016 © Professor Michael E. Porter1520160930 – Porter Prize India – V3 • Economic performance varies significantly across sub- national regions (e.g., provinces, states, metropolitan areas) • Many essential levers of competitiveness reside at the regional level • Regional economies include both local and traded clusters • Regions specialize in different traded clusters The Role of Regions in Economic Development
  16. 16. Copyright 2016 © Professor Michael E. Porter1620160930 – Porter Prize India – V3 Boston, MA-NH Education and Knowledge Creation Financial Services IT and Analytical Instruments Biopharmaceuticals Los Angeles, CA Video Production & Distribution Apparel Music & Sound Recording Medical Devices San Jose-San Francisco, CA IT and Analytical Instruments Biopharmaceuticals Video Production & Distribution Marketing, Design & Publishing New York, NY-NJ-CT-PA Financial Services Marketing, Design and Publishing Performing Arts Music and Sound Recording Seattle, WA Aerospace Vehicles and Defense IT and Analytical Instruments Water Transportation Fishing and Fishing Products Chicago, IL-IN-WI Distribution & E-Commerce Transportation and Logistics Financial Services Upstream Metal Manufacturing Denver, CO Business Services Medical Devices Hospitality and Tourism Oil and Gas Production Raleigh-Durham, NC Livestock Processing Vulcanized and Fired Materials Textile Manufacturing Education and Knowledge Creation Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. Pittsburgh, PA Upstream Metal Manufacturing Coal Mining Electric Power Generation Vulcanized and Fired Materials San Diego, CA Recreational & Small Electric Goods Biopharmaceuticals Water Transportation Marketing, Design & Publishing Atlanta, GA Textile Manufacturing Apparel Communications Equipment Business Services Dallas Aerospace Vehicles and Defense Oil and Gas Production Communications Equipment Transportation and Logistics Houston, TX Oil and Gas Production Construction Products & Services Upstream Chemical Products Environmental Services 16 Cluster Specialization in U.S. Regions
  17. 17. Copyright 2016 © Professor Michael E. Porter1720160930 – Porter Prize India – V3 • Economic performance varies significantly across sub- national regions (e.g., provinces, states, metropolitan areas) • Many essential levers of competitiveness reside at the regional level • Regional economies include both local and traded clusters • Regions specialize in different traded clusters • The cluster portfolio and strength directly impacts not only regional performance but the path of development The Role of Regions in Economic Development
  18. 18. Copyright 2016 © Professor Michael E. Porter1820160930 – Porter Prize India – V3 The Evolution of Regional Economies San Diego U.S. Military Communications Equipment Sporting Goods Analytical Instruments Power Generation Aerospace Vehicles and Defense Transportation and Logistics Information Technology 1910 1930 1950 19901970 Bioscience Research Centers Climate and Geography Hospitality and Tourism Medical Devices Biotech / Pharmaceuticals Education and Knowledge Creation
  19. 19. Copyright 2016 © Professor Michael E. Porter1920160930 – Porter Prize India – V3 Towards a New Economic Development Model • Focuses on competitiveness, not on jobs per se • Cluster-based, reflecting the core drivers of jobs and wages in today’s global economy • Bottom-up and regionally based, not only top-down • Driven by an overall strategy rather than a list of actions • Data driven and fact based, not political or based on wishful thinking • Builds on existing and potential regional and local strengths, not just focus on reducing weakness • Prioritized and sequenced, not treating all weaknesses equally • Harnesses collaboration across a wide range of actors and institutions, including firms, educational institutions, and new types of economic development organizations, not driven by government
  20. 20. Copyright 2016 © Professor Michael E. Porter2020160930 – Porter Prize India – V3cc Clusters Specialized Physical Infrastructure Natural Resource Protection Science and Technology Infrastructure (e.g., centers, university departments, technology transfer) Education and Workforce Training Business Attraction Export Promotion • Clusters provide a framework for organizing the implementation of many public policies and public investments directed at economic development Quality and Environmental standards Market Information and Disclosure Organize Public Policy Around Clusters
  21. 21. Copyright 2016 © Professor Michael E. Porter2120160930 – Porter Prize India – V3 Cluster-Based Economic Development in India • The Indian government through the Ministry for SMEs has a history of supporting cluster initiatives • The focus of these programs is the upgrading of SMEs in traditional sectors, using moderate funds to enable networking and key support activities • Recently the Indian government has started to collaborate with IIMA and HBS in the systematic mapping of clusters across the country • Cluster-based approaches are a powerful instrument to design and implement key elements of the Indian government’s agenda for competitiveness upgrading, including the ‘Make in India’ initiative • Cluster-based development is significantly enhanced by connecting SMEs to larger companies and foreign investors, and engaging the science system
  22. 22. 22 Copyright 2011 © Professor Michael E. Porter Implications for Indian Business Leaders • Indian firms have a significant stake in improving India’s and state competitiveness • Business needs to be an active partner with government at multiple levels – Cluster initiatives – Skill development – Supplier development – Collaboration with research institutions • Engaging with public and private sector partners to create a better environment for productivity and innovation is a crucial strategic priority for Indian business leaders

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