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The Competitive Advantage of Nations: Implications for Rwanda Implications for Rwanda P f Mi h lEP t Professor Michael E. Porter Harvard Business School Kigali Rwanda Kigali, Rwanda July 22, 2010 Thi t ti d id f P f P t ti l d b k i ti l Th C titi Ad t f N ti (Th F P 1990) This presentation draws on ideas from Professor Porters 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

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The Competitive Advantage of Nations: Implications for RwandaImplications for Rwanda

P f Mi h l E P tProfessor Michael E. PorterHarvard Business School

Kigali RwandaKigali, RwandaJuly 22, 2010

Thi t ti d id f P f P t ’ ti l d b k i ti l Th C titi Ad t f N ti (Th F P 1990)

1 Copyright © 2010 Professor Michael E. Porter20100722 – RDB Rwanda.ppt

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 NewCompetitive Agenda for Companies and Governments” in On Competition (Harvard Business School Press, 2008), and ongoing research on clusters andcompetitiveness. 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 theInstitute for Strategy and Competitiveness is available at www.isc.hbs.edu

PPP-adjusted GDP per Capita,

2009 ($USD)

Prosperity PerformanceEast African versus Other Developing Countries

$12 000

$15,000

Gabon

BotswanaMalaysia

$9 000

$12,000

South Africa

Other African countriesAsian countries

East African Community

$6,000

$9,000

China

AngolaThailand

Namibia

Mauritius

$3,000

Swaziland

VietnamPapua New Guinea

Philippines India

Indonesia

Sri Lanka

K NigeriaPakistan

Congo (Brazzaville)

Chad

Cape VerdeMyanmar

$01% 1% 3% 5% 7% 9% 11%

Rwanda

TanzaniaLesotho

Eritrea

Togo

Zimbabwe

Mozambique

Cote d’Ivoire

Burundi

Guinea EthiopiaSenegal

KenyaCambodiaLaos

Nigeria

Malawi Uganda

Cameroon Ghana

Madagascar

Gambia

Zambia

2 Copyright © 2010 Professor Michael E. Porter20100722 – RDB Rwanda.ppt

-1% 1% 3% 5% 7% 9% 11%Growth of Real GDP per Capita (PPP-adjusted), CAGR, 1999-2009

Source: EIU (2010), authors calculations

(-4.05%, $154)

In 2009, Rwanda’s real GDP per capita grew 6.4%

Export PerformanceSelected CountriesExports of Goods and

Services (% of GDP), 2009

Malaysia

80%

90%

100%

AngolaGabon

Papua New GuineaThailand Vietnam

60%

70%

80%Other African countriesAsian countries

East African Community

ChadCote d'Ivoire Ghana

Lesotho

Mauritius Namibia

Zambia

Cambodia

South Korea

40%

50%

60%

Botswana

CameroonCape Verde

Guinea

Lesotho

MadagascarMozambique

NigeriaSenegal

South AfricaThe Gambia

TogoZambia

KenyaTanzania

Uganda

China

IndiaIndonesia

Philippines

Sri Lanka20%

30%

Eritrea

EthiopiaMalawi

Burundi

RwandaPakistan

0%

10%

-20% -15% -10% -5% 0% 5% 10% 15% 20%

3 Copyright © 2010 Professor Michael E. Porter20100722 – RDB Rwanda.pptSource: EIU (2010), authors’ analysis

Change in Exports of Goods and Services (% of GDP), 2003 to 2009

Rwandan Export Share TrendsWorld Export Market Share (current USD)

0.009%

0.010%Processed GoodsSemi-processed GoodsUnprocessed Goods

Share (current USD)

0.007%

0.008%

Unprocessed GoodsServicesTOTAL

0.005%

0.006%

0.003%

0.004%

0 000%

0.001%

0.002%

4 Copyright © 2010 Professor Michael E. Porter20100722 – RDB Rwanda.ppt

0.000%1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Source: UNComtrade (2010)

Inward Foreign Investment FlowsRwanda, 1970 - 2008

Inward FDI (USD

$100.0

Inward FDI (USD, millions)

$80.0

$60.0

$40.0

$20.0

5 Copyright © 2010 Professor Michael E. Porter20100722 – RDB Rwanda.ppt

$0.01970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Note: Data not available for 1994.Source: UNCTAD (2009)

Inbound Foreign Investment PerformanceStocks and Flows, Selected Countries

Inward FDI Stocks as % of GDP, Average 2003 - 2008

90%

100%

Other African countriesEast African Community

Gambia

Chad

Zambia

70%

80%Asian countries

Cape Verde

Mauritania

C ad

LesothoNamibia

ZimbabweVietnam

50%

60%

Uganda

Tanzania

Cote d' IvoireGhana Guinea

Guinea-Bissau

Nigeria

Togo

Cameroon E hi i

Lesotho

Malawi

Mozambique

South Africa

South Korea

Mongolia

Cambodia

Laos

MalaysiaMyanmarThailand

%

30%

40%

Kenya

Burundi

Benin

Burkina Faso

Guinea-BissauMali

Niger Senegal

Sierra LeoneCameroon

Central African Republic

Gabon

Ethiopia

MadagascarMauritius

Botswana

China

Korea

India Pakistan

0%

10%

20%

6 Copyright © 2010 Professor Michael E. Porter20100722 – RDB Rwanda.ppt

Note: Data unavailable for GDP for Gabon in 2003, GFCF for Burundi (2003), Chad (2005)Source: UNCTAD, World Investment Report (2009)

FDI Inflows as % of Gross Fixed Capital Formation, Average 2003 - 2008

Rwanda0%

0% 10% 20% 30% 40% 50% 60% 70%

Domestic Fixed Investment RatesSelected CountriesGross Fixed Investment

as % of GDP 2009as % of GDP, 2009

China45%

50%

Other African countriesAsian countries

East African Community

Cape Verde

Gabon

India

Si

Thailand

30%

35%

40%Asian countries

Botswana

Ethiopia

Gabon

LesothoMauritius

M bi

NamibiaSouth Africa

The Gambia

Togo

Zambia Zimbabwe

Burundi

Kenya

Rwanda

UgandaCambodiaLaos

PhilippinesSingapore

South KoreaSri Lanka

20%

25%

30%

AngolaCameroon

Cote d'Ivoire

GuineaMozambique

NigeriaSwaziland

Togo BurundiTanzania

Malaysia

MyanmarPakistan

Papua New Guinea

10%

15%

0%

5%

-10% -8% -6% -4% -2% 0% 2% 4% 6% 8% 10%

7 Copyright © 2010 Professor Michael E. Porter20100722 – RDB Rwanda.ppt

Note: Includes inbound FDI Source: EIU, 2010

Change in Gross Fixed Investment (as % of GDP), 2003 to 2009

International Aid and Assistance FlowsEast African Community, 2004 - 2008

Aid as % Gross Capital

400%

450%20042005

Capital Formation

300%

350%

400% 2005200620072008

200%

250%

300%

100%

150%

200%

0%

50%

100%

8 Copyright © 2010 Professor Michael E. Porter20100722 – RDB Rwanda.ppt

0%

Burundi Rwanda Tanzania Uganda Kenya

Source:World Development Indicators (2010)

What is Competitiveness?C titi i th d ti it ith hi h ti it h it l• Competitiveness is the productivity with which a nation uses its human, capital, and natural resources

– Productivity sets the standard of living

P d ti it th d t i t i bl i th– Productivity growth determines sustainable economic growth

• Productivity and prosperity depends on how a nation competes, not what industries it competes in

– Productivity in the modern global economy arises from a combination of domestic and foreign firms

• Relentless upgrading and innovation is necessary to drive productivity growth and enable the standard of living to risegrowth and enable the standard of living to rise

– Technology, skills, products, and organizational methods

• Nations compete to offer the most productive environment for business

9 Copyright © 2010 Professor Michael E. Porter20100722 – RDB Rwanda.ppt

• The public and private sectors play different but interrelated roles in creating a productive economy

Decomposing Prosperity

St d d f li iProsperityProsperity • Standard of living• Inequality

DomesticPer Capita IncomePer Capita Income

Domestic Purchasing

Power• Local prices

Efficiency of local– Efficiency of local industries

– Level of local market competition

• Consumption taxes

Labor Productivity

Labor Utilization

• Skills • Workforce participation rate

10 Copyright © 2010 Professor Michael E. Porter20100722 – RDB Rwanda.ppt

• Skills• Capital stock• Total factor productivity

• Workforce participation rate– Population age profile

• Unemployment rate• Working hours

Determinants of Competitiveness

Inherited Endowments

11 Copyright © 2010 Professor Michael E. Porter20100722 – RDB Rwanda.ppt

Determinants of Competitiveness

Macroeconomic CompetitivenessSocial

MacroeconomicPolicy

SocialInfrastructure and PoliticalInstitutions

MacroeconomicPolicies • Fiscal policy: public

spending aligned with revenues over time

Inherited Endowments • Monetary policy: low levels of inflation

• Macroeconomic management: avoidingmanagement: avoiding structural imbalances and cyclical overheating

12 Copyright © 2010 Professor Michael E. Porter20100722 – RDB Rwanda.ppt

Determinants of Competitiveness

Social

Macroeconomic CompetitivenessSocial

Infrastructure and PoliticalInstitutions

Infrastructure and PoliticalInstitutions

• Human Development: basic education and health care

• Rule of Law: property

MacroeconomicPolicies

Inherited Endowments• Rule of Law: property rights and due process

• Political Institutions: stable and effective political and governmental processes and organizations

13 Copyright © 2010 Professor Michael E. Porter20100722 – RDB Rwanda.ppt

organizations

Corruption Perception Index, 2009

CanadaFinland

IcelandNetherlands New Zealand

Rank in Global Corruption Index,

2009

Bahrain

Canada

Chile

Costa RicaDominica

Hong Kong

Hungary

Iceland

Israel

Malta

Norway

P l d

Portugal

QatarSpain

United Kingdom United States

BotswanaMauritius

Low corruption

Bhutan

BrazilBulgaria

ChinaColombia

CroatiaCuba

El Salvador

FYR MacedoniaGeorgia

Greece

Guatemala

Hungary

India

ItalyKuwait

MalaysiaMalta Poland

RomaniaSaudi Arabia

Serbia

SurinameThailand

Turkey

Burkina FasoGhana

M l i

Namibia SeychellesSouth Africa

Swaziland

Tunisia

Albania

Argentina Dominican Republic

El Salvador

Guyana

India

JamaicaMexico

Mongolia

PanamaSerbia

Sri Lanka

VietnamAlgeriaEgypt

EritreaEthiopia

GabonGambia

Lesotho

Madagascar

Malawi

MaliNiger

Senegal

Togo

Zambia Rwanda

TanzaniaUganda

BangladeshBelarus

Cambodia

GuyanaHonduras

Laos

Lebanong

Nepal

Nicaragua Pakistan

Papua New GuineaParaguay

Philippines

RussiaTimor-Leste

Ukraine

Venezuela

Cameroon

CARCongo Brazz

Côte d´Ivoire

DRC

LibyaMauritaniaMozambique

Nigeria

ZimbabweKenya

Uganda

High corruption

HaitiIran

IraqMyanmar

Turkmenistan

Uzbekistan

Venezuela

Chad

Congo Brazz. DRC

Equatorial Guinea

Guinea

Sudan

Burundi

Worsening Improving

14 Copyright © 2010 Professor Michael E. Porter20100722 – RDB Rwanda.ppt

Note: Ranks only countries available in both years (161 countries total) Source: Global Corruption Report, 2010

g p g

Change in Rank, Global Corruption Report, 2009 versus 2006 Other African countriesOther continents

East African Community

Determinants of Competitiveness

Microeconomic CompetitivenessSophistication

of CompanyOperations and

Quality of the NationalBusiness

State of Cluster DevelopmentQuality of the

National Business Environment Macroeconomic Competitiveness

Operations andStrategy

BusinessEnvironment

Social

Development

The external business environment

conditions supporting company productivity

SocialInfrastructure and PoliticalInstitutions

MacroeconomicPolicies

company productivity and innovation Inherited Endowments

15 Copyright © 2010 Professor Michael E. Porter20100722 – RDB Rwanda.ppt

Quality of the Business Environment

Context forCompetition

FactorInputs

Demand Conditions

• Local rules and incentives that encourage investment and productivity

– e.g. incentives for capital investments, intellectual property protection, corporate governance standards

Open and igoro s local competitionInputs Conditions

• Sophisticated and demanding local customers and needs

Open and vigorous local competition– Openness to foreign competition– Competition laws

• Access to high quality business inputs and infrastructure

Related and Supporting Industries

– e.g., Strict quality, safety, and environmental standards

– Consumer protection laws

and infrastructure– e.g., human resources, capital, physical

infrastructure, administrative rules, scientific and technological infrastructure

• Availability of suppliers and supporting industries

16 Copyright © 2010 Professor Michael E. Porter20100722 – RDB Rwanda.ppt

• Many things 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

Ease of Doing BusinessRwanda, 2010

Ranking, 2010 (of 183 i )

160

180

200183 countries) Favorable Unfavorable

Rwanda per capita GDP rank: 157

100

120

140

160 Rwanda per capita GDP rank: 157

40

60

80

100

0

20

40

ness

ness

perty

acts

stors

axes kers

Credit mits

ders ness

Ease o

f Doin

g Busin

eStartin

g a Busin

eReg

isterin

g Prope

Enforci

ng C

ontrac

Protec

ting I

nves

to

Paying

TaxEmplo

ying W

orke

Getting

Cre

g with

Con

struc

tion Perm

Trading Acro

ss Bord

eClos

ing a B

usine

17 Copyright © 2010 Professor Michael E. Porter20100722 – RDB Rwanda.ppt

Dealin

g

Note: GDP per capita only available for 170 countries in sampleSource: World Bank Report, Doing Business (2010)

Median Ranking, EAC

Determinants of Competitiveness

Microeconomic CompetitivenessSophistication

of CompanyOperations and

Quality of the NationalBusiness

State of Cluster Development

Macroeconomic Competitiveness

Operations andStrategy

BusinessEnvironment

Social

Development

f

State of Cluster Development

SocialInfrastructure and PoliticalInstitutions

MacroeconomicPolicies

The presence of a concentration of firms in particular fields, together

with specialized skills,

Inherited Endowments

with specialized skills, infrastructure, and

supporting institutions, enabling productivity through

t liti l t d

18 Copyright © 2010 Professor Michael E. Porter20100722 – RDB Rwanda.ppt

externalities across related entities

Public Relations & L l t il

State of Cluster DevelopmentTourism Cluster in Cairns, Australia

Travel agents Tour operators

Public Relations & Market Research

Services

Local retail, health care, andother services

Attractions and

ActivitiesRestaurants

FoodSuppliers

Local Transportation

e.g., theme parks, casinos, sportsProperty

ServicesSouvenirs, Duty Free

HotelsAirlines,

Cruise ShipsMaintenanceServices

Banks,

ForeignExchange

Government agencies Educational Institutions Industry Groups

Exchange

19 Copyright © 2010 Professor Michael E. Porter20100722 – RDB Rwanda.pptSources: HBS student team research (2003) - Peter Tynan, Chai McConnell, Alexandra West, Jean Hayden

e.g. Australian Tourism Commission, Great Barrier Reef Authority

e.g. James Cook University,Cairns College of TAFE

e.g. Queensland Tourism Industry Council

Kenya’s Cut Flower Cluster

20 Copyright © 2010 Professor Michael E. Porter20100722 – RDB Rwanda.pptSources: MOC student team research by Kusi Hornberger, Nick Ndiritu, Lalo Ponce-Brito, Melesse Tashu, Tijan Watt, Harvard Business School, 2007

The Kenyan Cut Flower ClusterTrade Performance

$600 7.0%V l

Kenyan Cut FlowerExports in millions US $

Kenyan Cut FlowerWorld Export Market Share

$400

$500

5.0%

6.0%ValueMarket Share

$300

$400

3.0%

4.0%

$100

$2002.0%

3.0%

$0

$100

1990 1992 1994 1996 1998 2000 2002 2004 2006 20080.0%

1.0%

21 Copyright © 2010 Professor Michael E. Porter20100722 – RDB Rwanda.ppt

Source: 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.

Development of the Australian Wine Cluster198019651930 1991 to 19981980

Australian Wine and Brandy Corporation established

1965

Australian Wine Bureau established

1930

First oenology course at Roseworthy Agricultural

1991 to 1998

New collective organizations created for education, research, market

1955

Australian Wine Research Institute founded

1970

Winemaking school at Charles Sturt University

establishedAgricultural College 1990

Winemaker’s Federation of Australia

,information, and export promotions

Institute founded yfounded established

1950s

Import of European winery

1960s

Recruiting of experienced

1990s

Surge in exports and international

1980s

Creation of large number of

1970s

Continued inflow of foreign capitalEuropean winery

technologyexperienced foreign investors, e.g. Wolf Bass

and international acquisitions

large number of new wineries

of foreign capital and management

22 Copyright © 2010 Professor Michael E. Porter20100722 – RDB Rwanda.ppt

Source: Michael E. Porter and Örjan Sölvell, The Australian Wine Cluster – Supplement, Harvard Business School Case Study, 2002

• Cluster development is a long-term process in which a location accumulates skills, technology, and a critical mass of firms and supporting institutions

National Cluster Export PortfolioRwanda, 2003-2008

2008

Change in Rwanda’s average world export share: +0.0022%

Agricultural Products0.025%

0.030%

mar

ket s

hare

,

H it lit d T i

0.020%

wor

ld e

xpor

t m Hospitality and Tourism

Transportation and Logistics

0.015%

Rw

anda

’s w

R d ’ ld

Metal Mining and Manufacturing

Processed Food

Jewelry, Precious Metals and Collectibles Footwear0 005%

0.010%

Rwanda’s average world export share: +0.0034%

Financial Services

Textiles

Construction Materials

Plastics

Footwear

FurnitureMotor Driven Products

Leather and Related Products

0.000%

0.005%

0 005% 0 000% 0 005% 0 010% 0 015% 0 020%

23 Copyright © 2010 Professor Michael E. Porter20100722 – RDB Rwanda.ppt

Change in Rwanda’s world export market share, 2003–2008Source: 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.

Exports of US $11 million =

Biopharmaceuticals-0.005% 0.000% 0.005% 0.010% 0.015% 0.020%

Clusters as a Tool For Economic Policy

• A forum for collaboration between the private sector, trade associations, government, educational, and research institutions

• Brings together firms of all sizes including SME’s• Brings together firms of all sizes, including SME s

• Creates a mechanism for constructive business-government dialog

• A tool to identify problems and action recommendations

• A vehicle for investments that strengthen multiple firms/institutions simultaneouslyfirms/institutions simultaneously

• Fosters greater competition rather than distorting the market

24 Copyright © 2010 Professor Michael E. Porter20100722 – RDB Rwanda.ppt

Determinants of Competitiveness

Microeconomic CompetitivenessSophistication

of CompanyOperations and

Quality of the NationalBusiness

State of Cluster Development Sophistication

Macroeconomic Competitiveness

Operations andStrategy

BusinessEnvironment

Social

Development pof Company

Operations andStrategy

SocialInfrastructure and PoliticalInstitutions

MacroeconomicPolicies

The internal company skills, capabilities, and

managementInherited Endowments

managementpractices required

to attain a given level of productivity

and innovation

25 Copyright © 2010 Professor Michael E. Porter20100722 – RDB Rwanda.ppt

Turkey’s Competitiveness Profile, 2009

Country Competitiveness (64)

Macroeconomic MicroeconomicC i i ( 3)

Country Competitiveness (64)

Competitiveness (71)

P liti l I tit ti

Competitiveness (53)

M i Business CompanyPolitical Institutions (92)

Macroeconomic Policy (68)

Business Environment Quality

(56)

Company Sophistication

(41)

Rule of Law (75)

Human DevelopmentHuman Development (73)

26 Copyright © 2010 Professor Michael E. Porter20100722 – RDB Rwanda.ppt

Note: Rank versus 128 countries; overall, Turkey ranks 57th in 2008 PPP adjusted GDP per capita and 64th in Global CompetitivenessSource: World Economic Forum and nstitute for Strategy and Competitiveness, Harvard University (2009)

Geographic Influences on Competitiveness

W ld E

Broad Economic Areas

World Economy

Groups of Neighboring Nations

Nation

States, Provinces

Cities and Metropolitan Areas

27 Copyright © 2010 Professor Michael E. Porter20100722 – RDB Rwanda.ppt

Rural Regions

Sub-National Regions and Competitiveness

• Economic performance varies significantly across sub national• Economic performance varies significantly across sub-national regions (e.g., provinces, states, metropolitan areas)

• Many essential levers of competitiveness reside at the regional level• Region’s specialize in different sets of clusters / activities• Cluster strength directly impacts regional performance• Each region needs its own distinctive competitiveness agendag p g• Competitiveness requires effective policy collaboration between

regions and the national government

• Decentralization of economic policy is especially important in large t i t f t i l i li ti i t l titi dcountries to foster regional specialization, internal competition, and

accountability

28 Copyright © 2010 Professor Michael E. Porter20100722 – RDB Rwanda.ppt

$60,000

State ProsperityU.S. States, 1998 to 2008

$55,000

Highly productive and productivity rising versus U.S.

AverageDelaware

C

$45,000

$50,000

pita

, 200

8

Connecticut

MassachusettsNew York

AlaskaNew Jersey

$40,000 U.S. average GSP per capita: $37,899

oduc

t per

Cap

California

Oregon

South Dakota North Dakota

Rhode IslandIowa

Alaska

Nevada

Minnesota

IllinoisColorado

Washington

HawaiiMaryland

Wyoming

Virginia

NebraskaTexas

New Hampshire

North Carolina Pennsylvania

$30,000

$35,000

Gro

ss S

tate

Pro

VermontRhode Island

IdahoNew Mexico

Alabama OklahomaMaine

South Carolina

Michigan Missouri

Kentucky

Indiana

OhioGeorgiaFlorida

Arizona

North CarolinaWisconsinTennessee

Utah

yKansas

Louisiana

$25,000

U.S. average GSP per capita growth: 1 5%

G MontanaArkansas

West VirginiaMississippi

South Carolina

29 Copyright © 2010 Professor Michael E. Porter20100722 – RDB Rwanda.ppt

$20,000-0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0%

Source: Bureau of Economic Analysis. Growth calculated using compound annual growth rates. Gross state product figures in 2000 chained US dollars.Notes: District of Columbia: $126,407, 2.63%. Growth rate calculated as compound annual growth rate (CAGR).

capita growth: 1.5%

Gross State Product per Capita Growth Rate, 1998 to 2008

Specialization of Regional EconomiesLeading Clusters by U.S. Economic Area, 2007

Boston, MA-NHAnalytical Instruments Education and Knowledge CreationMedical DevicesFinancial Services

Chicago, IL-IN-WIMetal ManufacturingLighting and Electrical EquipmentProduction TechnologyPlastics

Pittsburgh, PAEducation and Knowledge CreationMetal ManufacturingChemical ProductsPower Generation and Transmission

Denver, COBusiness ServicesMedical DevicesEntertainmentOil and Gas Products and Services

Financial Services

New York, NY-NJ-CT-PA

Seattle, WAAerospace Vehicles and DefenseInformation TechnologyEntertainmentFishing and Fishing Products

San Jose-San Francisco, CABusiness ServicesInformation TechnologyAgricultural ProductsCommunications EquipmentBiopharmaceuticals

e o , J CFinancial ServicesBiopharmaceuticalsJewelry and Precious MetalsPublishing and Printing

Los Angeles, CAEntertainmentApparelDistribution ServicesHospitality and Tourism

Raleigh-Durham, NCEducation and Knowledge CreationBiopharmaceuticalsCommunications EquipmentTextiles

San Diego, CAMedical DevicesAnalytical InstrumentsH i li d T i

Atlanta, GATransportation and LogisticsTextilesM D i P d

DallasAerospace Vehicles and DefenseOil and Gas Products and ServicesI f i T h l

Houston, TXOil and Gas Products and ServicesChemical ProductsH C i S i

30 Copyright © 2010 Professor Michael E. Porter20100722 – RDB Rwanda.ppt

Hospitality and TourismEducation and Knowledge Creation

Motor Driven ProductsConstruction Materials

Information TechnologyTransportation and Logistics

Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director.

Heavy Construction ServicesTransportation and Logistics

The Evolution of Regional EconomiesSan Diego

Sporting GoodsClimate

and

Hospitality and Tourism

Power Generation

Transportationand Logistics

GeographyGeography

U.S. Military

CommunicationsEquipment

Analytical Instruments

Aerospace Vehiclesand Defense

Information Technology

Medical Devices

Education andKnowledge Creation

Bioscience Bioscience Bioscience Bioscience Research Research CentersCenters

Biotech / Pharmaceuticals

31 Copyright © 2010 Professor Michael E. Porter20100722 – RDB Rwanda.ppt

19101910 19301930 19501950 1990199019701970

Economic Integration Among Neighboring CountriesTurkey’s Neighborhood

32 Copyright © 2010 Professor Michael E. Porter20100722 – RDB Rwanda.ppt

• Turkey sits at the crossroad between Europe and the Middle East• Economic coordination among neighboring countries can significantly enhance competitiveness• Integration offers greater opportunities than participation in broader economic forums (e.g., EU)

Competitiveness and the Neighborhood

• Opening trade and investment among neighbors

– A nation’s neighbors are its most natural trading and investment partners

– The natural path of internationalization for local firms is the neighborhood

– Open trade and investment make each a more attractive location for investment

• Economic coordination to drive improvements in the business environmentenvironment– Capturing synergies in policy and infrastructure

– Gaining greater clout in international negotiations

• External agreements to help overcome domestic political and economic barriers to reform

33 Copyright © 2010 Professor Michael E. Porter20100722 – RDB Rwanda.ppt

economic barriers to reform

Competitiveness Upgrading Among NeighborsCapturing Synergies

P liti l

Factor (Input) Conditions • Sharing best• Coordinating

Business Environment Macroeconomic Policy

Political Institutions and

GovernanceFactor (Input) Conditions• Improving efficiency and interconnectivity of

transportation infrastructure• Enhancing regional communications• Creating an efficient energy network

• Sharing bestpractices in government operations

• Creating regional i tit ti

• Coordinating macroeconomicpolicies

• Regional development bank

• Linking financial markets• Opening the movement of students for training or higher

education Context for Strategy and Rivalry• Eliminating trade and investment barriers within the

institutions– Dispute

resolution mechanisms

– Harmonizing economic

• Coordinated capital requirements

• Eliminating trade and investment barriers within the region

• Simplifying and harmonizing cross-border regulations, paperwork and visas

• Coordinating antitrust and competition policiesD d C diti

statistics

• Developing a regional position with international organizationsDemand Conditions

• Harmonizing environmental and energy standards• Harmonizing product safety standards• Establishing reciprocal consumer protection laws

Opening government procurement within the region

g

34 Copyright © 2010 Professor Michael E. Porter20100722 – RDB Rwanda.ppt

• Opening government procurement within the regionRelated and Supporting Industries• Facilitating cross-border cluster upgrading

Strategy for Cross-National RegionsCentral American Logistical Corridor

MexicoBelize

HondurasGuatemala

El SalvadorNicaragua

Roads

AiPortsAirportsLogistic Corridor

Costa Rica PanamaCountry Boundary

35 Copyright © 2010 Professor Michael E. Porter20100722 – RDB Rwanda.ppt

The Process of Economic DevelopmentShifting Roles and Responsibilitiesg p

Old Model

Th t l t d i

New Model

E i d l t i• The central government drives economic development through policy decisions, spending and incentives

• Economic development is a collaborative process involving government at multiple levels, companies educational andincentives companies, educational and research institutions, and private sector organizations

• Competitiveness must be a bottom-up process in which many

36 Copyright © 2010 Professor Michael E. Porter20100722 – RDB Rwanda.ppt

p p p yindividuals, companies, and institutions take responsibility and act

Role of the Private Sector in Economic Development

• The competitive advantage of companies depends partly on the quality of• The competitive advantage of companies depends partly on the quality of the business environment at the national and regional level

• A company gains advantages from being part of a strong cluster

Corporate role in competitiveness

• Inform government on business needs and constraints bearing on g gcompany and cluster development

• Nurture local suppliers and attract foreign suppliers

• Work closely with local educational and research institutions to improve• Work closely with local educational and research institutions to improve their quality and create specialized programs addressing the cluster’s needs

• Collaborate with other companies to enhance competitiveness through p p gtrade associations and other mechanisms

• Participate actively in national and regional competitiveness initiatives

• Focus corporate social responsibility initiatives on enhancing the

37 Copyright © 2010 Professor Michael E. Porter20100722 – RDB Rwanda.ppt

Focus corporate social responsibility initiatives on enhancing the business environment

Defining a National Economic Strategy

National Value Proposition

• What are the distinctive competitive assets of the nation’s economy given its location legacy existingnation s economy given its location, legacy, existing strengths, rate of progress, and potential strengths?

– What unique value as a business location?– In what areas of the economy / clusters?– Playing what roles with neighbors, the region, and the broader

Developing Unique Strengths Addressing Crucial Constraints

y g g , g ,world?

Developing Unique Strengths Addressing Crucial Constraints

• What elements of institutional context and the business environment can be unique

• What are the crucial weaknesses and constraints that must be addressed to q

strengths relative to peers/neighbors?• What existing and emerging clusters

can be built upon?

achieve parity with peer countries and allow the country to move to the next

level?

38 Copyright © 2010 Professor Michael E. Porter20100722 – RDB Rwanda.ppt

• Priorities and sequencing are a necessity in economic development

Rwanda’s Challenges

• Relatively small home market

• Landlocked with high logistical costs

• Skill and capacity shortages

• Limited private sector and agricultural development

39 Copyright © 2010 Professor Michael E. Porter20100722 – RDB Rwanda.ppt

What is Unique About Rwanda?

• Established positions in tea, coffee, and tourism• Unique climate and growing conditions for a range of products• Central location on the African continent and a stable oasis amongCentral location on the African continent and a stable oasis among

a neighborhood of 290 million people• Low corruption• Stable secure and safe• Stable, secure, and safe• Tidy and orderly• Responsive government• Streamlined business processes• Opportunity to lead the region in many services• Social innovator in health, education, reconciliation, gender g

equality, and other areas• Disproportionate external interest in the country

40 Copyright © 2010 Professor Michael E. Porter20100722 – RDB Rwanda.ppt

Towards a Rwandan Strategic Positioning

• A safe, stable, transparent, and efficient hub for the region• Among the easiest places to do business in Africa• Kigali as a vibrant capital city with a high quality of lifeKigali as a vibrant capital city with a high quality of life• High-value positions in specialty agricultural products and

processing• An increasingly diversified services economy• An increasingly diversified services economy• A leader in social services and social entrepreneurship• Growing self-sufficiency in the manufacture of logistically

iti d tsensitive products• A catalyst for driving advancement in the East African Community

41 Copyright © 2010 Professor Michael E. Porter20100722 – RDB Rwanda.ppt

Rwanda’s Competitiveness Agenda, 2010

B i E i t Cl t D l tBusiness Environment

Address critical constraints in the business environment

– Logistical infrastructure

Cluster Development

Activate an aggressive public/private cluster development program to accelerate the growth and upgrading of Rwandan business

– Energy cost and access

– Training and skills development

– Land property rights

Management capacity

Rwandan business

Established clusters

– Specialty Agriculture

– Tourism

Emerging clusters

– Food processing

– Logistics and Transport– Management capacity

– Access to risk capital

– Effectiveness in attracting foreign investment

– Urban centers outside of Kigali

Transport

– Construction

– ICT services

– Business services

P i t S t N i hb h d

– Health and other social services

– Arts and Culture

Private Sector

Upgrade private sector capabilities in planning, operations, finance, and technology

Neighborhood

Lead economic coordination and integration with neighboring countries to address crucial weaknesses while maintaining R d titi

42 Copyright © 2010 Professor Michael E. Porter20100722 – RDB Rwanda.ppt

Rwandan competitiveness