Michael Porter, Entrepreneurship and Competitiveness, GCF2012 Presentation

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Prof. Michael E. Porter presentation at the GCF2012, Entrepreneurship and Competitiveness: Implications for Saudi Arabia

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Michael Porter, Entrepreneurship and Competitiveness, GCF2012 Presentation

  1. 1. Entrepreneurship and Competitiveness: Implications for Saudi Arabia Professor Michael E. Porter Harvard Business School Global Competitiveness Forum Riyadh, Saudi Arabia January 24, 2012 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.edu20120124 – Saudi Arabia GCF 2012 – FINAL – Prepared by C. Ketels and J. Hudson 1 Copyright 2012 © Professor Michael E. Porter
  2. 2. The World Economy in Early 2012 • A weak macroeconomic environment is constraining growth in the global economy (e.g., Europe, US, China) – Failures of political leadership • However, sustainable fiscal policies are necessary but not sufficient to restore healthy growth • The only way to ensure long term job and prosperity growth is through fundamental improvement in competitiveness, especially for higher income economies20120124 – Saudi Arabia GCF 2012 – FINAL – Prepared by C. Ketels and J. Hudson 2 Copyright 2012 © Professor Michael E. Porter
  3. 3. What is Competitiveness? • Competitiveness is manifested in the ability of companies operating in a country or region to compete successfully in international markets while simultaneously improving the living standards of citizens • Competitiveness depends on the long term productivity with which a nation uses its human, capital, and natural resources – Competitiveness is not achieved through low wages or low currency – Productivity sets sustainable wages and standard of living – It is not what industries a nation competes in that matters for prosperity, but how productively it competes in those industries – Productivity in a national economy benefits from a combination of domestic and foreign firms • Competitive businesses create rising incomes and good jobs • Nations compete to offer the most productive environment for business • Competitiveness is not a zero sum game20120124 – Saudi Arabia GCF 2012 – FINAL – Prepared by C. Ketels and J. Hudson 3 Copyright 2012 © Professor Michael E. Porter
  4. 4. What Determines Competitiveness? Microeconomic Competitiveness Quality of the Sophistication National State of Cluster of Company Business Development Operations and Environment Strategy Macroeconomic Competitiveness Social Macroeconomic Development Policies and Political Institutions Endowments • Productivity ultimately depends on improving the microeconomic capability of the economy and the sophistication of local competition • Macroeconomic competitiveness sets the potential for high productivity, but is not sufficient • Endowments create a foundation for prosperity, but true prosperity is created by productivity in the use of endowments20120124 – Saudi Arabia GCF 2012 – FINAL – Prepared by C. Ketels and J. Hudson 4 Copyright 2012 © Professor Michael E. Porter
  5. 5. Saudi Arabia’s Progress on Competitiveness • Competitiveness has become central to Saudi Arabia’s economic policy agenda • Substantial reforms have been implemented in areas like infrastructure, market opening, legal reform, business regulation, education, and financial markets20120124 – Saudi Arabia GCF 2012 – FINAL – Prepared by C. Ketels and J. Hudson 5 Copyright 2012 © Professor Michael E. Porter
  6. 6. World Bank Doing Business Indicators Saudi Arabian Doing Business Ranking, 2005 - 2012 13 10 12 15 23 38 38 118 2005 2006 2007 2008 2009 2010 2011 2012Note: Rankings include total of 183 countries.Source: World Bank, SAGIA20120124 – Saudi Arabia GCF 2012 – FINAL – Prepared by C. Ketels and J. Hudson 6 Copyright 2012 © Professor Michael E. Porter
  7. 7. Saudi Arabia’s Progress on Competitiveness • Competitiveness has become central to Saudi Arabia’s economic policy agenda • Substantial reforms have been implemented in areas like infrastructure, market opening, legal reform, business regulation, education, and financial markets • Saudi Arabia has established a base of home-grown private sector businesses, together with state-controlled companies and multinationals that are operating in the country20120124 – Saudi Arabia GCF 2012 – FINAL – Prepared by C. Ketels and J. Hudson 7 Copyright 2012 © Professor Michael E. Porter
  8. 8. Saudi Arabia’s Progress on Competitiveness • Competitiveness has become central to Saudi Arabia’s economic policy agenda • Substantial reforms have been implemented in areas like infrastructure, market opening, legal reform, business regulation, education, and financial markets • Saudi Arabia has established a base of home-grown private sector businesses, together with state-controlled companies and multinationals that are operating in the country • However, boosting prosperity growth and job creation remain critical priorities20120124 – Saudi Arabia GCF 2012 – FINAL – Prepared by C. Ketels and J. Hudson 8 Copyright 2012 © Professor Michael E. Porter
  9. 9. Prosperity Performance Selected Middle Income CountriesPPP-adjusted GDP per Capita, 2010 ($USD) $30,000 UAE (-0.9%, 56,500) Average: 5.4% South Korea $28,000 Cyprus New Zealand Slovenia Greece $26,000 Czech Republic Portugal $24,000 Bahrain Oman $22,000 Saudi Arabia Slovakia $20,000 Poland Hungary Estonia Average: $18,163 $18,000 Croatia Lithuania Panama $16,000 Mexico Argentina Chile Russia Malaysia Latvia $14,000 Trinidad & Tobago Uruguay Belarus Lebanon Turkey Venezuela Bulgaria $12,000 Romania Kazakhstan Brazil Dominican Republic Costa Rica South Africa $10,000 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%Source: EIU (2011), author’s calculations Growth of Real GDP per Capita (PPP-adjusted), CAGR, 2000 - 201020120124 – Saudi Arabia GCF 2012 – FINAL – Prepared by C. Ketels and J. Hudson 9 Copyright 2012 © Professor Michael E. Porter
  10. 10. Saudi Arabia’s Share of World Exports by Cluster, 2009World Market Share > 5.0% 1.27% - 5.0% Fishing & Enter- Textiles Fishing tainment Prefabricated Products Hospitality 0.2% - 1.26% Enclosures & Tourism Agricultural Products Transportation Furniture Processed & Logistics Building Food Aerospace Fixtures, Construction Vehicles & Equipment & Materials Distribution Information Defense Services Jewelry & Services Tech. Precious Lightning & Heavy Metals Electrical Construction Business Analytical Services Education & Instruments Equipment Services Power Forest Knowledge Medical Products Creation Generation Devices Communi- Publishing cations & Printing Biopharma- Services Financial Heavy ceuticals Machinery Services Motor Driven Production Chemical Products Technology Products Tobacco Oil & Automotive Gas Aerospace Mining & Metal Plastics Engines Manufacturing Apparel Leather & Footwear Related Sporting Marine Products & Recreation Equipment GoodsNote: Saudi Arabia’s overall share of world exports is 1.268%.20120124 – Saudi Arabia GCF 2012 – FINAL – Prepared by C. Ketels and J. Hudson 10 Copyright 2011 © Professor Michael E. Porter
  11. 11. Saudi Arabia’s Progress on Competitiveness • Competitiveness has become central to Saudi Arabia’s economic policy agenda • Substantial reforms have been implemented in areas like infrastructure, market opening, legal reform, business regulation, education, and financial markets • Saudi Arabia has established a base of home-grown private sector businesses, together with state-controlled companies and multinationals that are operating in the country • However, boosting prosperity growth and job creation remain critical priorities • Stimulating entrepreneurship is central to reap the full benefits of these competitiveness reforms20120124 – Saudi Arabia GCF 2012 – FINAL – Prepared by C. Ketels and J. Hudson 11 Copyright 2012 © Professor Michael E. Porter
  12. 12. Competitiveness and Entrepreneurship • Creates the necessary context for entrepreneurship to emerge and prosper Competitiveness Entrepreneurship • Drives competitiveness upgrading • Builds out clusters • Enables economic diversification • Fundamental to large scale job growth20120124 – Saudi Arabia GCF 2012 – FINAL – Prepared by C. Ketels and J. Hudson 12 Copyright 2012 © Professor Michael E. Porter
  13. 13. What Drives Entrepreneurship? Measures to Upgrade the Business Environment for Entrepreneurs Context for Firm Strategy and Rivalry • Availability of funding − Access to lending − Angel funding − Organized risk capital Factor • Strong incentives Demand (Input) − Low taxes on capital gains Conditions Conditions − Strong IP protection • Public recognition of entrepreneurial success • Entrepreneurship education • Government and private • Mentorship programs sector procurement • Entrepreneur networks policies open to SMEs • Policies to ease new business formation Related and − Ease of incorporation Supporting − Ease of doing business Industries − Corporate and bankruptcy laws • Availability of support services such as legal and business services • A cluster-based development model20120124 – Saudi Arabia GCF 2012 – FINAL – Prepared by C. Ketels and J. Hudson 13 Copyright 2012 © Professor Michael E. Porter
  14. 14. Entrepreneurship in Saudi Arabia The Opportunity • Stable economy with a prudent financial structure • Large, youthful and growing population • Growing markets with many unserved niches • No income taxes • Emerging venture capital industry • Large and sustained government investments in the economy • Increasing foreign interest in investing in the Middle East • Opportunity to serve the entire region from a base in the largest economy20120124 – Saudi Arabia GCF 2012 – FINAL – Prepared by C. Ketels and J. Hudson 14 Copyright 2012 © Professor Michael E. Porter
  15. 15. Entrepreneurship in Saudi Arabia Current Situation • Competitiveness upgrading in the Saudi economy has enabled entrepreneurship to take root20120124 – Saudi Arabia GCF 2012 – FINAL – Prepared by C. Ketels and J. Hudson 15 Copyright 2012 © Professor Michael E. Porter
  16. 16. Entrepreneurship Profile in the GCC Region Findings from the Saudi Fast Growth 100 and the Arabia 500 • Academic background often in engineering or business • Worked 3-5 years for a global firm before launching their enterprise at 30, often in a related industry • Creatively configured products and services that are tailored to local market conditions • World class operating practices akin to those of multinationals • Persistence and agility in order to compete with large incumbents • International networks of business partners and associatesSource: Arabia 50020120124 – Saudi Arabia GCF 2012 – FINAL – Prepared by C. Ketels and J. Hudson 16 Copyright 2012 © Professor Michael E. Porter
  17. 17. Entrepreneurship in Saudi Arabia Current Situation • Competitiveness upgrading in the Saudi economy has enabled entrepreneurship to take root • Entrepreneurs are making an important contribution to diversifying the economy (services, non-resource industries) • Entrepreneurs are creating a mechanism for Saudi Nationals to enter the private sector • However, further efforts to improve the context for entrepreneurs are critical in order for entrepreneurship to reach its full impact on the Saudi economy20120124 – Saudi Arabia GCF 2012 – FINAL – Prepared by C. Ketels and J. Hudson 17 Copyright 2012 © Professor Michael E. Porter
  18. 18. Current Efforts to Support Entrepreneurship in Saudi Arabia Financing Awareness Incubation • Saudi Industrial • Saudi Fast Growth 100 • Riyadh Technology Development Fund – • Prince Salman bin Incubation Center Kafalah Program Abdulaziz - Young • Riyadh Techno Valley • Centennial Fund Entrepreneur Awards • Dhahran Techno Valley • Bab Rizq Jameel • Injaz-Saudi Program • National • MIT Arab Business Plan Entrepreneurship Competition Institute • Many of these efforts are relatively new, and bringing them to scale will be critical for entrepreneurship in Saudi ArabiaSource: “SME and Entrepreneurship Support Services in Saudi Arabia Stakeholder Mapping” report by SAGIA.20120124 – Saudi Arabia GCF 2012 – FINAL – Prepared by C. Ketels and J. Hudson 18 Copyright 2012 © Professor Michael E. Porter
  19. 19. Challenges to Entrepreneurship in Saudi Arabia and Other Emerging Economies • Limited, but growing entrepreneurial culture • Lack of public visibility and media coverage of emerging companies • Risk aversion and fear of failure • Limited skills in the Saudi workforce • Still cumbersome government regulation and red tape • Limited progress on cluster development, and few cluster collaboration organizations supporting SMEs • Lack of supplier development programs at large companies • Risk of “crowding out” by government-linked companies and large MNCsSource: Arabia 50020120124 – Saudi Arabia GCF 2012 – FINAL – Prepared by C. Ketels and J. Hudson 19 Copyright 2012 © Professor Michael E. Porter
  20. 20. Entrepreneurship and Saudi Competitiveness Conclusions • Entrepreneurs are crucial in order to translate Saudi Arabian progress on competitiveness into broad-based economic growth and employment • Saudi entrepreneurs have begun to establish themselves as an integral part of the Saudi economy • The future success of Saudi entrepreneurs will depend on sustained efforts to upgrade the Saudi business environment to meet entrepreneurs’ specific needs20120124 – Saudi Arabia GCF 2012 – FINAL – Prepared by C. Ketels and J. Hudson 20 Copyright 2012 © Professor Michael E. Porter

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