Professional Documents
Culture Documents
Lima, Peru
November 30, 2009
This presentation draws on ideas from Professor Porter’s books and articles, in particular, Competitive Strategy (The Free Press, 1980); Competitive
Advantage (The Free Press, 1985); “What is Strategy?” (Harvard Business Review, Nov/Dec 1996); “Strategy and the Internet” (Harvard Business
Review, March 2001); and a forthcoming book. 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. Additional information may
be found at the website of the Institute for Strategy and Competitiveness, www.isc.hbs.edu. Version: November 27, 2009
$0
0% 2% 4% 6% 8% 10% 12% 14%
Source: Growth of Real GDP per Capita (PPP-adjusted),
EIU (2009), authors calculations
20091130 – Peru.ppt 2 CAGR, 2004 to 2008 Copyright 2009 © Professor Michael E. Porter
Unemployment Performance
Unemployment
Rate, 2008
Selected Countries
Dominican Republic (15.5%) South Africa (22.9%)
14% Improving Tunisia Deteriorating
Croatia
2%
Latin American countries
Thailand
Other countries
0%
-6% -5% -4% -3% -2% -1% 0% 1% 2%
Change of Unemployment Rate in Percentage Points, 2004 to 2008
50%
40%
30%
20%
10%
0%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: Informacion Socio Demografica, from El Instituto Nacional de Estadistica e Informatica (INEI), 2009
20091130 – Peru.ppt 4 Copyright 2009 © Professor Michael E. Porter
Export Performance
Exports of Goods and
Selected Countries
Services (% of GDP), 2008
100%
Malaysia (103.5%)
90% Slovakia
Libya
Latin American Countries
Other countries Ireland Malta Czech Republic Panama Hungary
80% Vietnam
Thailand
Estonia Slovenia Saudi Arabia
70%
Trinidad & Tobago
Belarus Paraguay
60% Bulgaria Belize Lithuania
Cambodia Tunisia
Jordan
Honduras Kazakhstan Algeria
50% Cyprus Macedonia
Croatia Chile
Ukraine (-17.5%) Costa Rica Egypt
Latvia
40% Israel Poland Bolivia
Philippines China Morocco South Africa
Uruguay Ecuador Portugal Nicaragua
Syria Venezuela Russia
Romania Georgia Mexico
30% Indonesia Peru Lebanon
Sri Lanka
Iran El Salvador
India
Argentina Greece
20% Albania Colombia Guatemala
Turkey
Brazil
Pakistan
10% Ethiopia
0%
-15% -10% -5% 0% 5% 10% 15% 20%
Change in Exports of Goods and Services (% of GDP), 2004 to 2008
0.80%
Processed Goods
Semi-processed Goods
0.70% Unprocessed Goods
Services
TOTAL
0.60%
0.50%
0.40%
0.30%
0.20%
0.10%
0.00%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source:
20091130 UNCTAD,
– Peru.ppt World Investment Report (2009) 7 Copyright 2009 © Professor Michael E. Porter
Innovative Capacity
Innovation Output of Selected Countries
Average U.S. patents per 1
million population, 2004-2008
3.5
Czech Republic
3.0
Croatia
2.5
Greece
1.5
Portugal
Russia
1.0 Chile Saudi Arabia
Argentina
Poland
Venezuela Romania Bulgaria
Brazil Thailand
Mexico
0.5 China
India
Philippines Ukraine
Peru Ecuador Colombia Turkey
0.0
-30% -20% -10% 0% 10% 20% 30% 40% 50% 60%
CAGR of US-registered patents, 2004 – 2008 120 patents =
Source: USPTO (2009), EIU (2009)
20091130 – Peru.ppt 8 Copyright 2009 © Professor Michael E. Porter
The Peruvian Economy in 2009
• Peru has had a long history of instability
• Since 2001, Peru has experienced high rates of economic growth
– Recent surge in FDI and exports has been driven by commodities
• Implementation of sound macroeconomic policies has allowed Peru to weather the
current global crisis
– Peru’s economy has been one of the most resilient in Latin America
BUT
• Prosperity remains low and large segments of the population lack access to basic
needs
• High unemployment and inequality persist
• Peru is overly dependent on commodity exports with limited potential to drive job growth
and economic diversification
Macroeconomic Competitiveness
Social
Infrastructure Macroeconomic
and Political Policies
Institutions
Natural Endowments
• Macroeconomic competitiveness creates the potential for high productivity, but is not
sufficient
• Productivity ultimately depends on improving the microeconomic capability of the
economy and the sophistication of local competition
Microeconomic Competitiveness
Quality of the Sophistication
National State of Cluster of Company
Business Development Operations and
Environment Strategy
Macroeconomic
Policy
Macroeconomic Competitiveness
Social
Infrastructure Macroeconomic
and Political Policies • Fiscal policy: public
Institutions
spending aligned with
revenues over time
Natural Endowments • Monetary policy: low
levels of inflation
• Macroeconomic
management: avoiding
structural imbalances
and cyclical
overheating
Microeconomic Competitiveness
Quality of the Sophistication
National State of Cluster of Company
Social Business Development Operations and
Environment Strategy
Infrastructure
and Political
Institutions Macroeconomic Competitiveness
Social
• Human Development: Infrastructure
and Political
Macroeconomic
Policies
basic education and Institutions
health care
• Rule of Law: property Natural Endowments
rights and due process
• Political Institutions:
stable and effective
political and
governmental
processes and
organizations
Microeconomic Competitiveness
Quality of the Sophistication
National State of Cluster of Company
Business Development Operations and
Sophistication
Environment Strategy of Company
Operations and
Macroeconomic Competitiveness Strategy
Social
Infrastructure
and Political
Macroeconomic
Policies
• The internal company
Institutions skills, capabilities,
and management
practices needed to
Natural Endowments
attain the highest level
of productivity and
innovation possible
Microeconomic Competitiveness
Quality of the Sophistication
National State of Cluster of Company
Business Development Operations and
Quality of the Environment Strategy
National Business
Environment Macroeconomic Competitiveness
Social
• The external business Infrastructure
and Political
Macroeconomic
Policies
environment Institutions
Microeconomic Competitiveness
Quality of the Sophistication
National State of Cluster of Company
Business Development Operations and
Environment Strategy
Macroeconomic Competitiveness
Social
Infrastructure Macroeconomic
State of Cluster and Political Policies
Development Institutions
Economic Social
Development Development
Macroeconomic Microeconomic
Competitiveness (82) Competitiveness (73)
Note: Rank versus 133 countries; overall, Peru ranks 71st in 2008 PPP adjusted GDP per capita and 75th in 2009 Global Competitiveness
Source: Country Competitiveness Model (CCM), Institute for Strategy and Competitiveness, Harvard University (2009)
20091130 – Peru.ppt 19 Copyright 2009 © Professor Michael E. Porter
Peru’s Macroeconomic Competitiveness
Macroeconomic Policy
2%
0%
-2%
-4%
-6%
-8%
-10%
1996 1998 2000 2002 2004 2006 2008
Macroeconomic Policy
However
However
Venezuela Bangladesh
91 Uzbekistan
-20 -15 -10 -5 0 5 10 15 20
Change in Rank, Global Corruption Report, 2007 versus 2001
Note: Ranks only countries available in both years (91 countries total)
Source: Global Corruption Report, 2008
20091130 – Peru.ppt 24 Copyright 2009 © Professor Michael E. Porter
Peru’s Macroeconomic Competitiveness
100
80
Peru’s per capita GDP rank: 72
60
40
20
0
Ease of Getting Protecting Registering Paying Trading Closing a Employing Starting a Enforcing Dealing
Doing Credit Investors Property Taxes Across Business Workers Business Contracts with
Business Borders Licenses
Food
Food Local
Local
Suppliers
Suppliers Attractions
Attractions and
and Transportation
Transportation
Restaurants Activities
Activities
Restaurants e.g.,
e.g., theme
theme parks,
parks,
casinos, sports
casinos, sports
Property
Property Souvenirs,
Souvenirs,
Services
Services Duty
Duty Free
Free
Airlines,
Airlines,
Hotels
Hotels Banks,
Banks,
Maintenance
Maintenance Cruise
Cruise Ships
Ships
Foreign
Foreign
Services
Services Exchange
Exchange
Government
Government agencies
agencies Educational
Educational Institutions
Institutions Industry
Industry Groups
Groups
e.g.
e.g. Australian
Australian Tourism
Tourism Commission,
Commission, e.g.
e.g. James
James Cook
Cook University,
University, e.g.
e.g. Queensland
Queensland Tourism
Tourism
Great
Great Barrier
Barrier Reef
Reef Authority
Authority Cairns
Cairns College
College of
of TAFE
TAFE Industry
Industry Council
Council
Sources: HBS student team research (2003) - Peter Tynan, Chai McConnell, Alexandra West, Jean Hayden
20091130 – Peru.ppt 31 Copyright 2009 © Professor Michael E. Porter
Cluster in Developing Countries
Kenya’s Cut Flower Cluster
Sources: Student team research by Kusi Hornberger, Nick Ndiritu, Lalo Ponce-Brito, Melesse Tashu, and Tijan Watt,
Microeconomics of Competitiveness Course, 2007
20091130 – Peru.ppt 32 Copyright 2009 © Professor Michael E. Porter
The Australian Wine Cluster
History
1930 1965 1980 1991 to 1998
First oenology Australian Wine Australian Wine New organizations
course at Bureau and Brandy created for education,
Roseworthy established Corporation research, market
Agricultural established 1990 information, and
College 1955 1970 export promotions
Winemaker’s
Australian Wine Winemaking Federation of
Research school at Charles Australia
Institute founded Sturt University established
founded
Source: Michael E. Porter and Örjan Sölvell, The Australian Wine Cluster – Supplement, Harvard Business School Case Study, 2002
20091130 – Peru.ppt 33 Copyright 2009 © Professor Michael E. Porter
Clusters and Economic Diversification
Linkages Across Clusters
Fishing &
Fishing
Products Textiles
Entertainment
Prefabricated
Hospitality
Agricultural Enclosures
& Tourism
Products
Processed
Food Transportation Furniture
& Logistics Building
Aerospace Fixtures, Construction
Vehicles & Equipment & Materials
Distribution Information Defense Services
Jewelry & Tech.
Precious Services Heavy
Lightning &
Metals Electrical Construction
Business Analytical
Equipment Services
Services Education & Instruments
Knowledge Power Forest
Medical Products
Creation Generation
Devices Communi-
Publishing cations
Financial & Printing Equipment
Biopharma- Heavy
Services ceuticals Machinery
Motor Driven Production
Chemical Products Technology
Products Tobacco
Oil &
Apparel Gas Mining & Metal
Automotive
Plastics Aerospace Manufacturing
Engines
Footwear Leather &
Related Sporting
Products & Recreation
Goods
Note: Clusters with overlapping borders or identical shading have at least 20% overlap
20091130 – Peru.ppt
(by number of industries) in both directions. 34 Copyright 2009 © Professor Michael E. Porter
Clusters as a Tool For Economic Policy
1.2%
Metal, Mining and Manufacturing
Peru’s world export market share, 2007
1.0%
0.8%
0.6%
Fishing
Agriculture
0.4% Apparel
0.15%
Textiles
0.10%
Transportation and Logistics
Financial Services
Chemical Products
Processed Foods
Furniture
Malaysia’s world export market share, 2007
2.0% Agriculture
Plastics
Lighting and Electrical Equipment
1.5% Construction Materials
Analytical Instruments Oil & Gas
Malaysia’s Average World
Export Share: 1.24%
Motor Driven Products Processed Foods
Transportation and Logistics Publishing and Printing
1.0%
Apparel
Chemical Products
Power and Power Generation Equipment Fishing & Fish Products
Jewelry, Precious Metals and Collectibles Prefabricated Enclosures and Structures
Metal, Mining and Manufacturing Communication Services
Forest Products Textiles Production Technology
Business Services (-2.36%)
0.5%
Aerospace Vehicles and Defense Sport Medical Devices
Leather &
Footwear Related Sporting Marine
Products & Recreation Equipment
Goods
Note: Clusters with overlapping borders have at least 20% overlap (by number of industries) in both directions.
20091130 – Peru.ppt 39 Copyright 2009 © Professor Michael E. Porter
Share of World Exports by Cluster
World Market Share Malaysia, 2007
1.24% - 1.75%
Leather &
Footwear Related Sporting Marine
Products & Recreation Equipment
Goods
Note: Clusters with overlapping borders have at least 20% overlap (by number of industries) in both directions.
20091130 – Peru.ppt 40 Copyright 2009 © Professor Michael E. Porter
State of Cluster Development in Peru
• Peru’s clusters are shallow, with weak supplier bases and supporting
institutions
Upgrade
UpgradeExisting
ExistingExport
Export
Products and Services
Products and Services
• Local firms
Turn
TurnProducts
ProductsInto
IntoClusters
Clusters • MNCs
Deepen
DeepenExisting
ExistingClusters
Clusters
Develop
DevelopRelated
RelatedClusters
Clusters
• Leverage clusters to attract FDI and facilitate integration with the global
economy
Nation
Nation
Regions
Regions and
and Cities
Cities
Istanbul
Istanbul
Textiles
Textiles
Leather Bati
BatiMarmara Bati
BatiKaradeniz Orta
OrtaAnadolu Dogu
DoguKaradeniz
Leatherand
andApparel
Apparel Marmara Karadeniz Anadolu Karadeniz
Distribution Apparel Tobacco Furniture Food
FoodProcessing
DistributionServices
Services Apparel Tobacco Furniture Processing
Jewelry Textiles
Textiles Apparel
Apparel Textiles
Textiles Distribution
DistributionServices
Services
Jewelry
Chemicals
Chemicals Metal
MetalMining
Miningand
andManufacturing
Manufacturing Agricultural
AgriculturalProducts
Products Furniture
Furniture
Construction
ConstructionMaterials
Materials Forest Products
Forest Products Metal
MetalMining
Miningand
andManufacturing
Manufacturing Forest
ForestProducts
Products
Dogu
DoguMarmara
Marmara
Textiles Kuzeydogu
KuzeydoguAnadolu
Anadolu
Textiles Agricultural
Automotive
Automotive AgriculturalProducts
Products
Apparel Footwear
Footwear
Apparel Distribution
Furniture
Furniture DistributionServices
Services
Hospitality
Hospitalityand
andTourism
Tourism
Guneydogu
GuneydoguAnadolu
Anadolu
Ege
Ege Textiles
Textiles
Tobacco
Tobacco Tobacco
Tobacco
Textiles Oil
Textiles Oiland
andGas
Gas
Construction
ConstructionMaterials Food
Materials FoodProcessing
Processing
Apparel
Apparel Bati
BatiAnadolu
Anadolu
Furniture
Furniture Ortadogu
Akdenziz
Akdenziz OrtadoguAnadolu
Anadolu
Construction
ConstructionMaterials
Materials Textiles
Textiles
Textiles Textiles
Distribution
DistributionServices
Services Agricultural
Hospitality
Hospitalityand
andTourism
Tourism AgriculturalProducts
Products
Aerospace
Aerospace Apparel
Apparel
Apparel Apparel
Distribution
DistributionServices
Services Distribution
DistributionServices
Services
12,000
Lima
10,000
Areguipa
8,000 Tacna
Peru’s Weighted Ica
Average: 6,513 Pasco
6,000 Madre de Dios Ancash
La Libertad
Junin Lambayeque
Ucayali Piura
4,000 Loreto Tumbes Cusco
Cajamarca Amazonas
Huancavelica Puno San Martin Ayachucho
Huanuco
2,000 Apurimac
0
0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
Growth in GDP per Capital (CAGR), 2001 to 2008
Source: Fuente: Instituto Nacional de Estadistica e Informatica - Dirección Nacional de Cuentas Nacionales
20091130 – Peru.ppt 50 Copyright 2009 © Professor Michael E. Porter
Competitiveness of Peru’s Regions
• Strong disparities exist
across Peruvian regions in
business environment,
innovative capacity, and
economic performance
• Decentralization remains
incomplete and has
produced some social
tension and unrest
• Sub-national governments
are highly dependent on
transfers from the central
government
20091130 – Peru.ppt 51 Copyright 2009 © Professor Michael E. Porter
Peru’s Regions
Action Priorities
Neighboring
Neighboring Countries
Countries
Nation
Nation
Regions
Regions and
and Cities
Cities
Context
Contextfor
for Related
Relatedand
and
Factor
Factor Demand
Demand Macroeconomic
Macroeconomic
Strategy
Strategy Supporting
Supporting
Conditions
Conditions Conditions
Conditions Competitiveness
Competitiveness
and
andRivalry
Rivalry Industries
Industries
Action Agenda
• Economic coordination with neighboring countries is an important
tool in economic development
• Peru can take a proactive leadership role in promoting trade
liberalization efforts with particular neighbors and the region
• Peru can be a platform for South American firms seeking to access
the U.S. and Asian markets
• Leverage inbound and outbound FDI with neighbors to upgrade
local competitiveness
20091130 – Peru.ppt 57 Copyright 2009 © Professor Michael E. Porter
The Need for an Economic Strategy
Policy Economic
Improvement Strategy
National
NationalValue
ValueProposition
Proposition
Refining
RefiningUnique
UniqueStrengths
Strengths Addressing
AddressingCrucial
CrucialConstraints
Constraints
• What elements of the business • What are the crucial weaknesses and
environment and institutional context constraints that must be addressed to
can be unique strengths relative to achieve parity with peer countries and
peers/neighbors? allow the country to move to the next
• What existing and emerging clusters level?
can be developed?
Increase
Reduce Poverty
Competitiveness
Old
Old Model
Model New
New Model
Model
•• The
The central
central government
government drives
drives •• Economic
Economic development
development is is aa
economic
economic development
development through
through collaborative
collaborative process
process involving
involving
policy
policy decisions,
decisions, spending
spending and
and government
government atat multiple
multiple levels,
levels,
incentives
incentives companies,
companies, educational
educational and and
research
research institutions,
institutions, and
and private
private
sector
sector organizations
organizations
Economic Social
Objectives Objectives
Worker
Education and
Poverty in Skills
the Company’s Worker Safety
Communities
Employee
Energy Use
Health
Water Use
• Find the points of convergence between economic and social objectives, not
assumed tradeoffs or the need for redistribution
– These points of convergence are growing
• Achieving shared value requires new thinking, new technologies, and new
approaches to management