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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