Presentation done by Michael Enright

Global Competitiveness:
Challenges and the Role of Clusters
© Copyright Michael J. Enright, 2010 2
Professor Michael J. Enright
Enright, Scott & Associates, Ltd.
University of Hong Kong
TCI Annual Conference
Delhi 2010
December 1, 2010

Or Competitiveness and Clusters
in the New World Disorder
© Copyright Michael J. Enright, 2010 3December 1, 2010

Challenges
• Global macro crisis
• Rise of emerging markets
• Global rebalancing
• Disruption of traditional clusters
• Lack of relevance of some competitiveness• Lack of relevance of some competitiveness
measures and approaches
• Have cluster initiatives lost relevance in the present
situation? And if so why?

The New Normal, GDP
60.000
80.000
100.000
120.000
US$Billion
From 2009-2015, we will
lose US$115 trillion in GDP
from prior trend
0
20.000
40.000
60.000
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
US$Billion
Old GDP
New GDP
5
Sources: IMF and Enright, Scott & Associates
© Copyright Michael J. Enright, 2010December 1, 2010

The New Normal, Exports
25.000
30.000
35.000
40.000
45.000
50.000
US$Billion
From 2009-2015, we will
lose US$76 trillion in Exports
from prior trend
0
5.000
10.000
15.000
20.000
25.000
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
US$Billion
Old Exports
New Exports
6
Sources: IMF and Enright, Scott & Associates

US$ Versus Major Currencies
1,0
1,1
1,2
1,3
EUR
0,6
0,7
0,8
0,9
ene-00
jul-00
ene-01
jul-01
ene-02
jul-02
ene-03
jul-03
ene-04
jul-04
ene-05
jul-05
ene-06
jul-06
ene-07
jul-07
ene-08
jul-08
ene-09
jul-09
ene-10
jul-10
EUR
GBP
JPY
7
Sources: OANDA and Enright, Scott & Associates

Global GDP Distribution Projections
50%
60%
70%
80%
90%
100%
NAMER
WEUR
AFME
CEEUR
CSAMER
0%
10%
20%
30%
40%
50%
2008 2010 2015 2020 2025
CSAMER
CASIA
ANZOC
SOASIA
SEASIA
NEASIA
8
Sources: IMF, Enright, Scott & Associates

Global GDP Growth Distribution Projections
50%
60%
70%
80%
90%
100%
NAMER
WEUR
AFME
CEEUR
CSAMER
0%
10%
20%
30%
40%
50%
2000-2010 2010-2025
CSAMER
CASIA
ANZOC
SOASIA
SEASIA
NEASIA
9
Sources: IMF, Enright, Scott & Associates

Projected Consumption
40%
60%
80%
100%
Other
Eur 5
NAmer
ASEAN4
NIE4
0%
20%
2008 2009 2010 2013 2015 2018 2020 2023 2025
Japan
India
China
10
Notes: ASEAN4= Indonesia, Malaysia, Philippines, Thailand
NIE4= Hong Kong, Korea, Singapore, Taiwan
EUR5= Germany, UK, France, Italy, Spain
NAmer= US, Canada
Sources: IMF, CEIC, Credit Suisse

China Projected Consumption
(billion 2000 RMB)
12000
14000
16000
18000
20000
Household Products
Apparel
Housing and Utilities
Education and Recreation
0
2000
4000
6000
8000
10000
2005 2025
Personal Products and Services
Healthcare
Food
Trans and Comm
Source: MGI
11© Copyright Michael J. Enright, 2010December 1, 2010

India Projected Consumption
(billion 2000 rupees)
50000
60000
70000
80000
Household Products
Apparel
Communication
0
10000
20000
30000
40000
2005 2025
Housing and Utilities
Personal Products and Services
Healthcare
Food
Transportation
Source: MGI

China and India were the world’s leading
economies until the 19th century
Percent of Global GDP: 0-2008 A.D.
ROW
Japan
Germany
USA
100
80
60
Source: Angus Maddison; Smith Barney; Enright, Scott & Associates
0
1000
1500
1600
1700
1820
1870
1913
1950
1973
1998
2008
India
China
40
20
0

Asia at Night

Isn’t competitiveness supposed to be about
standards of living and productivity?
Country WEF WB PC GDP ESA LPr ESA CPr
Singapore 3 31 26 94
Malaysia 26 74 64 91
Brunei 28 38 28 -
Thailand 38 105 102 115
Indonesia 44 129 110 105Indonesia 44 129 110 105
Vietnam 59 151 136 109
Philippines 85 134 113 57
Cambodia 109 167 143 -
Sample 139 192 167 131
Sources: WEF, WB, Enright, Scott & Associates
Traditional competitiveness indices are
problematic and tend to be misused.
December 1, 2010

So how are competitiveness
and clusters relevant?
• With macro forces dominating the headlines and policy-maker
concerns…
• With the “macro” rise of emerging markets and the “flat world”
rebalancing the global economy…
• With many traditionally admired clusters dying or being
whipsawed by macro and competitive forces…
• With traditional competitiveness measures less persuasive…
• Even though clusters are ubiquitous and cluster initiatives are
becoming ubiquitous, the cluster community is often not
represented in critical debates…

Clusters and a Focus on Competitiveness Dominate
Major Emerging Economies, i.e. China
• Firms: 173,000+ firms with sales > RMB 5 million
• Industries: 4 digit national classification ~ ISIC
• Municipalities : 286, median size 13,000 sq km
• Agglomeration: PSij≥ X
• Cluster: PSij≥ X plus one or more vertically or horizontally related
industry with PSij≥ X
PSij≥0.10 PSij≥0.06 PSij≥0.03
AGGLOMERATION
-% of national sales
- % of firms
23.0%
9.5%
37.0%
18.1%
56.1%
31.9%
CLUSTER
-% of national sales
- % of firms
14.8%
6.8%
28.6%
15.2%
47.5%
28.4%
industry with PSij≥ X

Cities with Industrial Agglomerations in China

Industrial Agglomerations in China
The number of agglomerated industries in each city at AGG10

Cities with Clusters in China

Clusters in China
The number of clustered industries in each city at AGG10
23
Shanghai

Clusters in China
24
Shanghai

Clusters in China

The Motor Vehicle Sector
Chinese cities with clustered MV industries at AGG10

The Electronics Sector
Chinese cities with clustered Electronics industries at AGG10

What do we know? (1)
• Clusters are everywhere
– Virtually every economy
– Virtually every type of industry
• There are different types of clusters and different policy mixes
– Clusters differ along several dimensions
– Locations differ in terms of what they can achieve– Locations differ in terms of what they can achieve
• Particular forces cause the start and later development of clusters
– Resources, marketplaces, spillovers, discoveries, entrepreneurs, g
overnment impetus
– Capabilities, labor/ supplier/ buyer
pools, competition, cooperation, examples, spinoffs, external
economies
• Clusters enhance innovative investment and performance
– Incentive, direction, focus of innovative investment
– Information, unplanned communication, feedback
loops, capabilities, focal points for investments

What do we know? (2)
• Cluster initiatives go beyond “traditional” policies in some areas
– Cluster specific information provision, skills building, business
services, linkage programs, social capital building
– Clusters can articulate demand that improves policies
• Successful cluster programs target market failures
– Impacted information, managerial myopia– Impacted information, managerial myopia
– Lack of sufficient public goods, coordination failure
• Clustering is crucial to economic development
– Economies develop through clusters
– Clusters can leverage location-based advantages, reduce location-
based disadvantages
– This is why clustering has become an integral part of economic
policymaking around the world

What to do?
• Understand macro forces and how their interaction with clusters
and competitiveness. Otherwise, we cannot participate in
important discussions.
• Don’t be satisfied with superficial competitiveness analyses and
inappropriate benchmarks.
• If you can’t beat them, join them. If the world is becoming flat, be
the flattener not the flattenee.the flattener not the flattenee.
• Remember that emerging markets are markets too.
• Realize that clusters are still the most effective means of fostering
development in local economies.
• Understand that initiatives will need to couple deeper and broader
analysis with collaboration and joint action.
• Remember collaboration is a means not an end, competitiveness
is the end.

Roles of Clusters
• Engines of economic development
• Developers and repositories of skills
• Locus of cooperation and competition
• Promoters of regional / national economic interests
• Projectors of regional / national capabilities• Projectors of regional / national capabilities
• Focal points for policy and development initiatives
• Articulators of demand for policy
• Focal points for business-business, business-
government, business-academic, etc. interaction

Requirements for Competitiveness
• Must create value for customers
• Must be different than the competition
• Must be better than the competition
• Must be better than the competition in ways that
create value for customers
create value for customers
• Must bring something unique to the table that is
valuable, difficult to replace, difficult to imitate
• Must develop the activities, resources, knowledge to
pull this off in a cost-effective manner
• Must get the cluster to pull together to carry this out
December 1, 2010

Avenues of Innovation in Clusters
• New technologies
• New applications of technologies
• New geographic, product, service markets
• New business models
• New management tools and techniques
• New management tools and techniques
• New ways of carrying out activities
• New organizational forms
• New forms of collaboration
• New generation of public goods
• New ways of communicating inside and outside the cluster
• New linkages with other clusters
December 1, 2010

What are we working on today?
• Indentifying critical macro, cluster, industry, firm linkages
and their implications for governments, firms, clusters
• Comprehensive, multidimensional competitiveness analysis,
reverse-engineering true sources of competitiveness
• Introducing more sophisticated benchmarking tools
• Cost-effective, replicable industry and cluster-level
competitiveness assessments / recommendations
• SME strategy toolkit, cluster intelligence systems
• Linking firms and clusters in the developed world with those
in the developing world
• Identifying opportunities to be the “flattener” not the
“flattenee” for firms, industries, clusters

The TCI Conference
• Think in terms of examples and ideas, not recipes
• Triangulate “solutions” with your own context
• Remember one size does not fit all
• Seek out people with similar situations and issues, or
interesting insights and perspectivesinteresting insights and perspectives
• Use the “downtime” as “uptime”
• Ask questions, share experiences
• Learn, learn, learn
• Afterwards: Follow up, follow up, follow up / Use the TCI
network

Contact information:
Thank you
Professor Michael Enright
Enright, Scott & Associates, Ltd.
Suite 1001, Wellington Place
2-8 Wellington Street
Central, Hong Kong
Phone: +852-3101-8650
Fax: +852-3101-9635
Email: mail@enrightscott.com
Professor Michael Enright
Enright, Scott & Associates (Singapore), Pte., Ltd.
23/F Chevron House
30 Raffles Place
Singapore 048622
Phone: +65-6233-6885
Fax: +65-6314-5102
Email: mail@enrightscott.com
December 1, 2010

Presentation done by Michael Enright

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