Ecuadorian Competitiveness: Ready For The Next Stage?: Professor Michael E. Porter Harvard Business School

Ecuadorian Competitiveness:
Ready for the Next Stage?
Professor Michael E. Porter

Harvard Business School
Quito, Ecuador
October 24, 2011
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.
20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt 1 Copyright 2011 © Professor Michael E. Porter
Prosperity Performance
Selected Lower and Middle Income Countries
PPP-adjusted GDP per
Capita, 2010 ($USD)
$32,000
Average: 5.4%
Israel South Korea
New Zealand Cyprus
$28,000
Slovenia
Greece
Portugal Czech Republic
$24,000 Bahrain
Oman
Saudi Arabia
Slovakia
$20,000 Hungary Poland

Estonia
Croatia
Argentina Lithuania
Mexico Panama
$16,000 Chile Russia
Malaysia Uruguay Latvia
Belarus Average: $13,910
Turkey Lebanon
Trinidad
$12,000 Venezuela Brazil Bulgaria
& Tobago Kazakhstan
Romania
Costa Rica Dominican Republic
South Africa
Colombia Tunisia Peru
Belize Thailand
$8,000 Algeria Albania China
Guatemala
Guyana
Ecuador Ukraine
El Salvador Jordan
Paraguay Egypt Sri Lanka Georgia
Bolivia
$4,000 Honduras India
Nicaragua Philippines Vietnam
Pakistan Latin American countries
Other countries
$0
0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0%
Source: EIU (2011), author’s calculations
Growth of Real GDP per Capita (PPP-adjusted), CAGR, 2000 - 2010
Export Performance
Exports of Goods and
Selected Countries
Services (% of GDP), 2010
100.0%
Average: 2.9%
90.0% Hungary
Panama
Slovakia
80.0% Estonia Czech Republic
Bahrain Vietnam
Trinidad & Tobago
Thailand United Arab Emirates
70.0% Lithuania
Belize
Slovenia
60.0% Oman Saudi Arabia
Bulgaria
Latvia Paraguay
Tunisia South Korea
50.0% Ukraine
Kazakhstan Jordan Average: 45.1%
Honduras
Croatia Poland Bolivia
40.0% Costa Rica Algeria
Chile
Nicaragua
Israel Romania Uruguay
Egypt
Ecuador Portugal
Mexico
Georgia
30.0% Russia China
Albania
New Zealand Venezuela South Africa
Peru
El Salvador Guatemala
Dominican Republic
Greece Argentina
20.0% Turkey Lebanon India
Colombia
Pakistan
10.0% Brazil Latin American countries
Other countries
0.0%
-15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%
Change in Exports of Goods and Services (% of GDP), 2000 - 2010

Source: EIU (2011), authors’ analysis
Inbound Foreign Investment Performance
Stocks and Flows, Selected Countries
Inward FDI Stocks as % of
GDP, Average 1999 - 2009
90.0%
Average: 19.7%
80.0% Trinidad & Tobago
Guyana Bahrain
70.0%
Tunisia Estonia
Panama
Vietnam Chile Jordan Lebanon
60.0% Hungary Cyprus
Belize
Nicaragua Bolivia
Kazakhstan
50.0% New Zealand Czech Republic Bulgaria
Honduras
Slovakia
40.0% Malaysia Georgia
South Africa Portugal Croatia Average: 35.0%
Venezuela Thailand Latvia Poland
30.0% Argentina Egypt Romania
Mexico El Salvador Costa Rica
Ecuador Israel
Russia Colombia
Peru
20.0% Slovenia Guatemala Brazil Uruguay
Paraguay Philippines Ukraine
Greece Belarus China Albania Saudi Dominican Republic
10.0%
South Sri Lanka Pakistan Arabia
Algeria Turkey Latin American countries
Korea India
Other countries
0.0%
0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00%
FDI Inflows as % of Gross Fixed Capital Formation, Average 1999 - 2009
Source: UNCTAD, World Investment Report (2010)

The Ecuadorian Economy in 2011
• Ecuador has had a long history of economic and political instability

• Since 2001, Ecuador has enjoyed relative macroeconomic stability as a result of
dollarization
• High oil prices have allowed the country to increase government spending
• Ecuador export growth has been driven by commodities prices
BUT
• In 2010, the Ecuadorian economic growth was slower than other Latin-American
countries
• Prosperity remains low
• High poverty levels and inequality persist and large segments of the population lack
access to basic needs
• Ecuador is overly dependent on oil exports
• Higher economic growth rates and poverty reduction are possible only if Ecuador can
substantially improve competitiveness
What is Competitiveness?
• Competitiveness is the productivity with which a nation uses its human,
capital, and natural resources
– Productivity sets the sustainable standard of living (wages, returns on

capital, returns on natural resources)
– It is not what industries a nation competes in that matters for prosperity, but
how it competes in those industries
– Productivity in a national economy arises from a combination of domestic

and foreign firms
• Only competitive businesses can create wealth and jobs
• Nations compete to offer the most productive environment for business
• The public and private sectors play different but interrelated roles in
creating a productive economy
Comparative Labor Productivity
Real GDP per employee Selected Countries
(PPP adjusted US$), 2010
$50,000
Average: 1.25% Trinidad & Tobago
$45,000 Israel
South Korea
$40,000
Slovenia
Saudi Arabia Estonia

$35,000
New Zealand
Greece
$30,000 Chile
Argentina
Portugal Bulgaria
Cyprus Slovak Republic
$25,000 Turkey
Czech Republic
Uruguay Malaysia
Venezuela Croatia Poland Lithuania Average: $20,882
Latvia Kazakhstan
$20,000 Jordan
Costa Rica Hungary Tunisia
Mexico
Peru Russian Federation
$15,000
Ecuador Thailand
Sri Lanka
Guatemala South Africa
Egypt Colombia
Brazil China
Algeria Romania
$10,000 Dominican
Bahrain Ukraine
Pakistan Republic
India
Bolivia Philippines Vietnam
$5,000
Latin American countries
Other countries
$0
-2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0%
Growth of real GDP per employee (PPP-adjusted), 2000 - 2010

Source: Authors calculation Groningen Growth and Development Centre (2011), EIU (2011)
What Determines Competitiveness?
Endowments
• Endowments create a foundation for prosperity, but true prosperity is created by productivity in the use
of endowments
Macroeconomic Competitiveness
Human
Macroeconomic Development
Policies and Political
Institutions
Endowments
• Macroeconomic competitiveness sets the potential for high productivity, but is not sufficient
of endowments
Components of Macroeconomic Competitiveness
Macroeconomic Social Infrastructure and

Policies Political Institutions
• •
• Fiscal policy • Human development

– Government surplus/deficit – Basic education
– Government debt – Health
• Monetary policy • Political institutions

– Inflation – Political freedom
– Business cycle management – Voice and accountability
– Savings – Political stability
– Government effectiveness
– Decentralization of economic policymaking
• Rule of law
– Security
– Civil rights
– Judicial independence
– Efficiency of legal framework
– Freedom from corruption
Microeconomic Competitiveness
Quality of the Sophistication

National State of Cluster of Company
Business Development Operations and
Environment Strategy
Human
Macroeconomic Development
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
of endowments
The external business Microeconomic Competitiveness

environment conditions
that enable company
productivity and National State of Cluster of Company
innovation Business Development Operations and
Social
Macroeconomic Infrastructure
Institutions
Endowments
A critical mass of firms

and institutions in each
field to harness efficiencies
Microeconomic Competitiveness and externalities across
related entities
National State of Cluster of Company
Social Social
Infrastructure
Macroeconomic Macroeconomic
Infrastructure
and Political
Policies andPolicies
Political
Institutions Institutions
Endowments
Competitiveness and Poverty Reduction
Economic Social
Development Development
• There is a strong connection between economic and social

development
• Improving competitiveness and decreasing poverty requires
improving the economic and social context simultaneously
Microeconomic Competitiveness
Internal skills, capabilities,
Quality of the Sophistication and sophistication of
National State of Cluster of Company management practices of
companies
Social Social
Infrastructure
Macroeconomic Macroeconomic
Infrastructure
and Political
Policies andPolicies
Political
Institutions Institutions
Endowments
Geographic Influences on Competitiveness
Neighboring Countries
Nation
Regions and Cities
Prosperity Performance
U.S. States, 1999 to 2009
$70,000
U.S. GDP per Capita Wyoming
Delaware
Real Growth Rate: 0.86%
High but declining Alaska High and rising
$65,000 versus U.S. Connecticut prosperity versus U.S.
$60,000
Gross Domestic Product per Capita, 2009
New York
Massachusetts
$55,000 New Jersey
Virginia
Colorado California Hawaii
Washington
Maryland North Dakota
$50,000
Nevada Illinois Minnesota
U.S. GDP per Nebraska Iowa
Louisiana South Dakota
Capita: $46,093
Texas New Hampshire Rhode Island
$45,000 Kansas
North Carolina Pennsylvania Oregon
Wisconsin
Indiana Oklahoma
Ohio Utah Vermont
$40,000 Georgia Missouri Florida
Arizona Maine
Tennessee
Michigan Montana
New Mexico Alabama
$35,000 Kentucky Arkansas Idaho
South Carolina West Virginia
Low and declining Mississippi
Low but rising versus U.S.
versus U.S.
$30,000
-1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0%
Gross Domestic Product per Capita Real Growth Rate, 1999 to 2009
Notes: Real GDP figures in 2005 chained US dollars from the Bureau of Economic Analysis. Growth rate is calculated as compound annual growth rate. D.C. excluded
20111024 – Ecuador Competitiveness Presentation – FINAL – Prepared by RA Jem Hudson.ppt 17 Copyright © 2011 Professor Michael E. Porter
Regions and Competitiveness
• Economic performance varies significantly across sub-national

regions (e.g., provinces, states, metropolitan areas)
• Many essential levers of competitiveness reside at the regional level
• Regions specialize in different sets of clusters
• Cluster strength directly impacts regional performance
• Each region needs its own distinctive competitiveness strategy and
action agenda
• Improving competitiveness requires effective policy collaboration
between regions and the national government
• Decentralization is important to foster regional specialization, internal

competition, and greater government accountability
• Effective decentralization requires clarity on roles and responsibilities,
and sufficient administrative capacity at local and regional level
Economic Coordination with Neighboring Countries
Competitiveness and the Neighborhood
• Opening trade and investment among neighbors

– Expands the available market
– 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 country a more attractive location for
investment
• Economic coordination to drive improvements in the business

environment
– Capture synergies in policy and infrastructure
– Gain greater clout in international negotiations
• External agreements to help overcome domestic political and

economic barriers to reform
Economic Integration Among Neighbors
Capturing Synergies
Context for Related and

Factor Demand Macroeconomic
Strategy Supporting
Conditions Conditions Competitiveness
and Rivalry Industries
• Improving the • Eliminating • Opening • Facilitating cross- • Coordinating

efficiency of the trade and government border cluster macroeconomic
regional investment procurement development policies
transportation barriers within within the region
– e.g., Supplier • Coordinating
network the region Harmonizing
networks programs to
environmental
• Creating an efficient • Simplifying and improve security
standards – Transport &
energy network harmonizing and public safety
Logistics
cross-border • Harmonizing
• Enhancing regional
regulations and product safety – Quality
communications
paperwork standards standards
and connectivity
• Coordinating • Establishing
• Harmonizing anti-monopoly reciprocal
administrative and fair consumer
requirements for competition protection laws
businesses policies
• Linking financial
markets
• Facilitating the
movement of
students for higher
education
Ecuador’s Competitiveness Profile, 2010
Harvard Country Competitiveness Model
Overall Ranking (113)
Macroeconomic Microeconomic
Competitiveness (107) Competitiveness (125)
Social Infra- Business Company

Macroeconomic
structure and Pol. Environment Sophistication
Policy (55)
Institutions (117) Quality (127) (114)
Ecuador GDP per Capita

Rank 77
Note: Rank versus 139 countries
Source: Country Competitiveness Model (CCM), Institute for Strategy and Competitiveness, Harvard University (2010)
Ecuador’s Macroeconomic Competitiveness
Macroeconomic Policy Social Infrastructure and
Political Institutions
• Dollarization stabilized the • Lack of high-quality public education
economy system
– Inflation relatively low since • Weak social security system,
dollarization in 2001
despite some improvements
• Expansionary fiscal policy funded
• Persistent problems with corruption
by borrowing and oil resources
• Weak legal system and effectiveness
However of property rights
• Need for modernization of political
• Budget deficit threatens the
and government institutions
dollarization model
w since dollarization in 2001
• Central Bank is no longer an
autonomous institution
• No stabilization fund
Rank in Global
Corruption Index, Corruption Perception Index, 2010
2010
New Zealand Finland Denmark
Low Switzerland
Sweden
Australia Canada
corruption Iceland
Austria Hong Kong
United Kingdom U.S. Germany Qatar
Chile Uruguay
France Slovenia
Spain Estonia Israel Cyprus
Taiwan Costa Rica
Portugal Oman South Korea Poland
Macau Jordan Lithuania Dominica
Bahrain Hungary Saudi Arabia
Czech Republic
Turkey
Malaysia South Africa
Slovakia Croatia
Italy Bulgaria Brazil Romania Georgia
El Salvador Panama
Greece China Trinidad and Serbia
Colombia Thailand Peru Tobago
Jamaica India Morocco Albania Swaziland
Guatemala Gambia
Mexico Egypt Argentina Dominican Republic
Senegal Zambia
Algeria Bolivia Kazakhstan Benin Indonesia
Viet Nam Guyana Ethiopia
Niger
Armenia
Syria Uganda
Nicaragua Zimbabwe Ecuador Belarus
Ukraine Honduras Azerbaijan Nigeria Bangladesh
Nepal Philippines
Paraguay Cameroon Pakistan Côte d´Ivoire Haiti
Laos Russia Kenya Cambodia
Kyrgyzstan
High Venezuela Sudan Guinea
corruption Burundi Chad
Worsening Improving
Change in Rank, Global Corruption Report, 2010 versus 2006
Note: Ranks only countries available in both years (160 countries total)
Source:Global Corruption Report, 2010
Quality of the National Business Environment
Context for
Firm
Strategy
and Rivalry
• Local rules and incentives that

encourage investment and productivity
– e.g. salaries, incentives for capital
Factor investments, intellectual property
protection, corporate governance Demand
(Input)
standards Conditions
Conditions
• Open and vigorous local competition
– Openness to foreign competition
– Competition laws
• Access to high quality business • Sophisticated and demanding local
inputs customers and needs
– Human resources – e.g., Strict quality, safety, and
– Capital availability environmental standards
– Physical infrastructure Related and – Consumer protection laws
– Administrative and information Supporting
infrastructure (e.g., registration, Industries
permitting, transparency)
– Scientific and technological
infrastructure • Availability of suppliers and supporting
– Efficient access to natural industries
endowments
• 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
Ecuador’s Business Environment
Strengths
Infrastructure
• Significant improvements in transportation infrastructure
• High mobile phone penetration
Competitive Context
• High levels of entrepreneurship
Other
• A new national agenda for innovation and entrepreneurship
• Improving sophistication of local buyers
Ecuador’s Business Environment
Weaknesses
Financial Markets Trade and Investment Liberalization

• Weak financial markets • FDI limited to oil and mining sectors
• New restrictions on capital flows
Workforce Development and Training
• High trade barriers
• Low skill level of the labor force
• Complex custom procedures
• Poor quality higher education system
• Few trade agreements with other countries
Competitive Context
Innovation Infrastructure
• Import substitution strategy reducing
competitiveness • Weak university-industry research collaboration
• High level of government subsidies distort • Low patenting rates
competition
Other
• Low intensity of local competition
• Low level of quality certification
• Limited internationalization of firms
• Burdensome government regulations
– Labor regulations give rigidity to the market
– Customs and Trade regulations
– Difficult new business formation
• Weak investor protection and protection of
intellectual property
• High informality in the economy
Ease of Doing Business
Ecuador, 2010
Ranking, 2010
(of 183 countries)
180 Favorable Unfavorable
160
140
120
100
80
Ecuador’s
GDP per capita
rank: 77 60
40
20
Source: World Bank Report, Doing Business (2010); GPD per capita ranking based on 2009 GCI data.
State of Cluster Development
Tourism Cluster in Cairns, Australia
Public Relations & Local Retail,

Market Research Travel Agents Tour Operators Health Care, and
Services Other Services
Food Local
Suppliers Transportation
Attractions and
Restaurants Activities
e.g., theme parks,
casinos, sports
Property Souvenirs,
Services Duty Free
Airlines,
Hotels
Cruise Ships Banks,
Maintenance
Foreign
Services
Exchange
Government Agencies
Educational Institutions Industry Groups
e.g. Australian Tourism
e.g. James Cook University, e.g. Queensland Tourism
Commission,
Cairns College of TAFE Industry Council
Great Barrier Reef Authority
Sources: HBS student team research (2003) - Peter Tynan, Chai McConnell, Alexandra West, Jean Hayden
State of Cluster Development
Kenya’s Cut Flower Cluster
Horticultural Agencies, NGOs & Industry Associations
Horticultural Crops Development Authority (HCDA)

Government Export Policies Targeting Horticulture
Post-Harvest
Plantstock Cooling
Non-Government Organizations Technology
(e.g., The Rural Enterprise Agri-Business Promotion Project)
Greenhouse; Grading / Packaging

Shading Structures Trade & Industry Associations Sheds
(e.g., Kenya Flower Council)
Irrigation Packaging &

Technology Labeling Materials
Pre-Cooling
Post-Harvest
Technology Flower Farming Handling; Refrigerated Trucks
Transport to Market
Fertilizers,
Pesticides, Freight Forwarders
Herbicides
Education, Research & Quality Standards Organizations
Clearing and
Research Institutions
Agricultural Cluster (e.g., Kenya Agricultural Research Institute) Forwarding Agents
Public Universities with Post Graduate Degrees in Horticulture Air Carriers

Horticultural (e.g., University of Nairobi) (Commercial /
Cluster Charters)
Quality & Standards

(e.g., EUREGAP Standard, Kenya Plant Health Inspectorate Services)
Tourism Cluster
Sources: MOC student team research by Kusi Hornberger, Nick Ndiritu, Lalo Ponce-Brito, Melesse Tashu, Tijan Watt, Harvard Business School, 2007
Clusters Development Over Time
The Australian Wine Cluster
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
1950s 1960s 1970s 1980s 1990s

Import of Recruiting of Continued inflow Creation of Surge in exports
European winery experienced of foreign capital large number of and international
technology foreign investors, and new wineries acquisitions
e.g. Wolf Bass management
Source: Michael E. Porter and Örjan Sölvell, The Australian Wine Cluster – Supplement, Harvard Business School Case Study, 2002
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 Biopharma- Equipment
Services Heavy
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 (by number of industries) in both directions.
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
• 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

simultaneously
• Fosters greater competition rather than distorting the market
Ecuador’s Cluster Export Portfolio
1997 to 2009
0.55%
Change In Ecuador’s Overall
World Export Share: +0.02%
0.50% Agricultural Products
0.45% Fishing and Fishing Products

(-0.63%, 1.74%)
Ecuador’s world export market share, 2009
0.40%
Oil and Gas Products
0.35%
0.30%
0.25%
0.20%
0.15%
Ecuador’s Average World
Tobacco
Export Share: 0.11%
0.10% Transportation Building, Fixtures, Hospitality and Tourism
and Logistics Equipment and Textiles
Communication Services Furniture Motor Driven Products
Services
0.05% Processed Food Footwear
(-0.20%, 0.02%)
Jewelry, Precious Metals
and Collectibles Automotive
0.00%
-0.05% 0.00% 0.05% 0.10%
Change in Ecuador’s world export market share, 1997 to 2009 Exports of US$670 Million =
Source: Prof. Michael E. Porter, International Cluster Competitiveness Project, Institute for Strategy and Competitiveness, Harvard Business
School;
20111024Richard
– Ecuador Bryden, Project
Competitiveness Director.
Presentation Underlying
– FINAL data
– Prepared drawn
by RA from the UN Commodity Trade Statistics
Jem Hudson.ppt 34 Database and the IMF BOP statistics. Copyright 2011 © Professor Michael E. Porter
Ecuador’s Share of World Exports by Cluster, 2009
World Market Share
0.05% - 0.1%
0.11% - 1.0% Fishing & Enter- Textiles

Fishing tainment Prefabricated
> 1.0% Products Hospitality
Enclosures
& Tourism
Agricultural
Products
Transportation Furniture
Processed & Logistics Building
Food Aerospace Fixtures, Construction
Jewelry &
Services Tech.
Precious Lightning & Heavy
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
Products Tobacco
Oil & Automotive
Gas Aerospace Mining & Metal
Plastics Engines Manufacturing
Apparel
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.
Peru’s Share of World Exports by Cluster, 2009
World Market Share
0.1% - 0.21%
0.22% - 1.0% Fishing & Enter- Textiles

Fishing tainment Prefabricated
> 1.0% Products Hospitality
Enclosures
& Tourism
Agricultural
Products
Transportation Furniture
Processed & Logistics Building
Food Aerospace Fixtures, Construction
Jewelry &
Services Tech.
Precious Lightning & Heavy
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
Products Tobacco
Oil & Automotive
Gas Aerospace Mining & Metal
Plastics Engines Manufacturing
Apparel
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.
State of Cluster Development in Ecuador
• Ecuador has strengths in resource-related clusters, including

cut-flowers, bananas, coffee, cacao, fishing, and tourism
• Clusters that serve mainly the domestic market include textiles, apparel,
automotive, and metalworking
• Most of the clusters are shallow, with a weak supplier base
• There are weak supporting institutions with poor coordination between the
private and public sectors
• Ecuador’s clusters have been subject to traditional industrial policy
characterized by subsidies and protectionism
• Clusters could become an important tool for economic development
Competitiveness of Ecuador’s Regions
• 75% of business activity is

concentrated in two provinces,
Guayas and Pichincha
• Ecuadorian regions vary greatly

in the quality of business
environment
• Decentralization of economic
policy remains incomplete, with
weak capacity at local level
• Free Trade Zones have been

created in some rural areas
Action Agenda for Ecuador
Macroeconomic Policy
• Maintain macroeconomic stability
• Reduce the budget deficit
• Create a stabilization fund
• Broaden the tax base and improve collection
Social Infrastructure and Political Institutions

• Modernize the social security system
• Fight corruption at every level of government and private sector
• Improve the effectiveness of the legal system
• Improve system of "checks and balances“ in government
• Improve human development
– Rapid improvements in education, health, and nutrition are needed
• Create equal opportunity for all groups
Improving the Business Environment

• Open up greater internal competition
• Further open the economy to trade and investment
– Reduce tariffs
– Simplify trade procedures
– Negotiate trade agreements with strategic countries rather than limit them
– Welcome foreign investment
• Upgrade workforce training and higher education
• Reduce informality by limiting the cost and complexity of registering
companies
– Simplify new business formation
– Reduce the tax burden and labor market rigidities facing smaller firms
Cluster Development
• Adopt cluster development as a central tool to engage the private sector and
implement economic policies
• All clusters are important to enhancing prosperity
• Apply a cluster-based approach to economic diversification
• Leverage clusters to attract FDI
Regional Development
• Continue decentralization of responsibilities and resources to sub-national
governments
• Improve the capacity of local governments to plan, design, and implement
development polices
• Improve national-regional collaboration to implement regional programs
• Address the underlying causes of inequality between the coastal, Andean and
Amazon regions
Neighborhood Development
• Improve land connectivity with neighbors

• Upgrade political and trade relations with Colombia and Peru
• Restructure the Andean Community of Nations to make it an effective
instrument for integration
The Need for an Economic Strategy
Policy Economic
Improvement Strategy
• Implementing best • A prioritized agenda to

practices in each policy create a unique
area competitive position for a
country or region
• There are a huge number

of policy areas that matter
• No country can or should try
to make progress in all
areas simultaneously
Creating a National Economic Strategy
National Value Proposition
• What is the distinctive competitive position of Ecuador

given its location, legacy, existing strengths, and potential
strengths?
– What unique advantage as a business location?
– For what types of activities and clusters?
– And what roles with neighbors, the region, and the broader
world?
Achieving and Maintaining Parity

Developing Unique Strengths
with Peers
• What elements of the business • What weaknesses must be addressed to

environment can be unique strengths remove key constraints and achieve parity
relative to peers/neighbors? with peer countries?
• What existing and emerging clusters
represent local strengths?
• Priorities and sequencing are necessity in economic development


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Ecuadorian Competitiveness:

Ready for the Next Stage?

Professor Michael E. Porter

$20,000 Hungary Poland

Change in Exports of Goods and Services (% of GDP), 2000 - 2010

80.0% Trinidad & Tobago

Source: UNCTAD, World Investment Report (2010)

• Ecuador has had a long history of economic and political instability

– Productivity sets the sustainable standard of living (wages, returns on

– Productivity in a national economy arises from a combination of domestic

• Only competitive businesses can create wealth and jobs

• Nations compete to offer the most productive environment for business

Saudi Arabia Estonia

Growth of real GDP per employee (PPP-adjusted), 2000 - 2010

Macroeconomic Social Infrastructure and

• Fiscal policy • Human development

• Monetary policy • Political institutions

Quality of the Sophistication

The external business Microeconomic Competitiveness

A critical mass of firms

• There is a strong connection between economic and social

Regions and Cities

• Economic performance varies significantly across sub-national

• Decentralization is important to foster regional specialization, internal

• Opening trade and investment among neighbors

• Economic coordination to drive improvements in the business

• External agreements to help overcome domestic political and

Context for Related and

• Improving the • Eliminating • Opening • Facilitating cross- • Coordinating

Overall Ranking (113)

Social Infra- Business Company

Ecuador GDP per Capita

Note: Rank versus 139 countries

• Local rules and incentives that

• Many things matter for competitiveness

Financial Markets Trade and Investment Liberalization

Public Relations & Local Retail,

Horticultural Crops Development Authority (HCDA)

Greenhouse; Grading / Packaging

Irrigation Packaging &

Public Universities with Post Graduate Degrees in Horticulture Air Carriers

Quality & Standards

1930 1965 1980 1991 to 1998

1950s 1960s 1970s 1980s 1990s

• A forum for collaboration between the private sector, trade

• 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

• Fosters greater competition rather than distorting the market

0.45% Fishing and Fishing Products

0.11% - 1.0% Fishing & Enter- Textiles

0.22% - 1.0% Fishing & Enter- Textiles

• Ecuador has strengths in resource-related clusters, including

• Clusters could become an important tool for economic development

• 75% of business activity is

• Ecuadorian regions vary greatly

• Free Trade Zones have been

Social Infrastructure and Political Institutions

Improving the Business Environment

• Improve land connectivity with neighbors

• Implementing best • A prioritized agenda to

• There are a huge number