Competitiveness as an Engine for Economic Growth: Implications for Saudi Arabia

Professor Michael E. Porter Harvard Business School The Global Competitiveness Forum 2008 January 21, 2008
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 2006 (World Economic Forum, 2006), “Clusters and the New Competitive Agenda for Companies and Governments” in On Competition (Harvard Business School Press, 1998), 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 Version: January 18, 2008, 4pm
Competitiveness Master = 2007-11-14.ppt

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Copyright 2008 © Professor Michael E. Porter

Saudi Arabia’s Competitive Position in 2008
• The dramatic increase in oil prices has created significant resources and rapid growth for the Saudi economy • There is a new level of determination to leverage this opportunity to build a truly competitive economy and diversify beyond natural resources • Saudi Arabia can succeed on this path, but only if it is willing to take a strategic approach, make multiple improvements in its business environment, truly open up competition and entrepreneurship in the private sector, and embark on a sustained effort to equip Saudi citizens with new skills, attitudes and mindsets

• It will be easy to become impatient and distracted by near term economic growth and the ability to support uncompetitive practices and policies
Competitiveness Master = 2007-11-14.ppt

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Copyright 2008 © Professor Michael E. Porter

Saudi Arabia’s Long-Term Prosperity
Index Values, 1980 = 1.00

GDP per Capita CAGR: -6.1%

GDP per Capita CAGR: +0.00%

GDP per Capita CAGR: +1.4%

Source: Groningen Growth and Development Centre and The Conference Board (2007), Swivel (2007)
Competitiveness Master = 2007-11-14.ppt

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Copyright 2008 © Professor Michael E. Porter

Prosperity Performance
PPP-adjusted GDP per Capita, 2006

Selected Countries
Norway

$50,000 $45,000 $40,000 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000

USA Switzerland Denmark Netherlands Austria Belgium Germany France Italy Spain Israel

Qatar
Canada UK Japan Australia Iceland Sweden Finland New Zealand

Ireland Singapore Hong Kong Taiwan

Kuwait Bahrain
Slovenia Greece Korea Czech Republic Hungary Slovakia Russia China (9.49%)
India

Portugal

United Arab Emirates Libya Oman

SAUDI ARABIA
Mexico

Lebanon
$5,000 $0 0%
Competitiveness Master = 2007-11-14.ppt

Brazil

Iraq

(-6.2%)

Syria Yemen
1%

Egypt

Jordan

Argentina Poland Croatia South Africa Chile Malaysia Iran Turkey Tunisia Thailand Algeria Indonesia Pakistan

Philippines

Vietnam

2%

3%
4

4%

5%

6%

7%

Growth of Real GDP per Capita (PPP-adjusted), CAGR, 2001-2006
Source: EIU (2007), authors calculations
Copyright 2008 © Professor Michael E. Porter

What is Competitiveness? • Competitiveness is determined by the productivity with which a nation uses its human.ppt 5 Copyright 2008 © Professor Michael E. returns on natural resources) that a country can sustain – It is not what industries a nation competes in that matters for prosperity. returns on capital. capital. not just that of export industries • Nations compete in offering the most productive environment for business • The public and private sectors play different but interrelated roles in creating a productive economy Competitiveness Master = 2007-11-14. but how it competes in those industries – Productivity in a national economy arises from a combination of domestic and foreign firms – The productivity of “local” or domestic industries is fundamental to competitiveness. – Productivity sets the standard of living (wages. Porter . and natural resources.

Porter .Sources of Prosperity Inherited Prosperity Inherited Prosperity •• Prosperity is derived from selling or Prosperity is derived from selling or exploiting inherited natural resources exploiting inherited natural resources •• Prosperity is constrained Prosperity is constrained Created Prosperity Created Prosperity •• Prosperity is derived from creating Prosperity is derived from creating valuable products and services valuable products and services •• Prosperity is unlimited Prosperity is unlimited •• Government is the central actor in the Government is the central actor in the economy as the owner and distributor of economy as the owner and distributor of resource wealth resource wealth – Resource revenues allow – Resource revenues allow unproductive policies and practices unproductive policies and practices to persist to persist •• Government’s role gravitates towards the Government’s role gravitates towards the distribution of wealth as interest groups distribution of wealth as interest groups seek a bigger share of the pie seek a bigger share of the pie •• Companies are the central actors in the Companies are the central actors in the economy economy – Prosperity can only be created by – Prosperity can only be created by firms firms •• Government’s role is to create the Government’s role is to create the enabling conditions for productivity enabling conditions for productivity and foster private sector development and foster private sector development Competitiveness Master = 2007-11-14.ppt 6 Copyright 2008 © Professor Michael E.

0% 5. 2006 100.000 50.0% 3.000 40.0% 1.000 Italy Israel Norway Austria France USA Ireland Greece Hong Kong Finland Taiwan Singapore Sweden Slovenia Hungary Croatia Poland Netherlands Belgium UK Denmark 70.000 10.000 20.0% 4. Saudi Arabia employee data (number persons employed) from ILO LABORSTA (2007) Competitiveness Master = 2007-11-14.4%) Philippines Pakistan China (9.000 Spain Qatar 60.000 90.0% 2. Porter .0% Brazil Australia Canada Germany Japan New Zealand Portugal SAUDI ARABIA Iran Mexico South Africa Czech Republic Slovakia Chile Algeria Egypt Tunisia Malaysia Thailand Indonesia Turkey (6.000 0 -1.3%) 0.0%) Vietnam India (5. 2001-2006 Source: EIU (2007).Comparative Labor Productivity Selected Countries GDP per employee (PPP adjusted US$).000 80.0% Compound annual growth rate (CAGR) of real GDP per employee (PPPadjusted).ppt 7 Copyright 2008 © Professor Michael E.000 30.

either 2005 or 2006 Source: The Conference Board and Groningen Growth and Development Centre.47 Middle East average: 0.Labor Force Mobilization Selected Countries Employees as % of Population.ppt 8 Copyright 2008 © Professor Michael E. 2006) OECD average: 0.40 Note: Use most recent year available. Porter . November 2007 Competitiveness Master = 2007-11-14. Total Economy Database.

2007. 1990 . Porter .ppt 9 Copyright 2008 © Professor Michael E.Fixed Investment Rates Gross Fixed Investment as % of GDP (2006) Selected Countries China Qatar South Korea Iran Jordan Indonesia Morocco Tunisia UAE Lebanon Bahrain US India Nigeria Syria Singapore Algeria Turkey Pakistan Egypt Saudi Arabia Brazil Kuwait Oman Yemen Libya Philippines CAGR Gross Fixed Investment (as % of GDP). Competitiveness Master = 2007-11-14.2006 Source: EIU.

3% Natural Resources Related Non-Natural Resource Related $201.3 Billion 5.3% CAGR Value of Exports.0 Billion Processed Goods $11. CAGR 1998-2006 24.Saudi Arabia’s Exports Types of Goods and Services Exports ($ Thousands) Semi-Processed Natural Resources $36.6% CAGR Source: Institute for Strategy and Competitiveness – International Cluster Competitiveness Project.4 Billion 20.0% 11. 2006 Export Type Growth Rate of Exports.ppt 10 Copyright 2008 © Professor Michael E. Porter .9% CAGR Services $7.7 Billion 16. UN Comtrade. Competitiveness Master = 2007-11-14.2 Billion $19. IMF BOP statistics.

ppt 11 Copyright 2008 © Professor Michael E.Inward Foreign Direct Investment Stock Share of Middle East Inward FDI stock Saudi Arabia Other countries Bahrain U.A.E. Competitiveness Master = 2007-11-14. Qatar Source: WIR. 2007. Porter .

Determinants of Competitiveness Macroeconomic. political. Political.ppt 12 Copyright 2008 © Professor Michael E. legal. Legal. and Social Context Microeconomic Competitiveness Sophistication of Company Operations and Strategy Quality of the Microeconomic Business Environment State of Cluster Development • A sound macroeconomic. Porter . but is not sufficient • Competitiveness ultimately depends on improving the microeconomic capability of the economy and the sophistication of local competition Competitiveness Master = 2007-11-14. and social context create the potential for competitiveness.

and the large expatriate community Competitiveness Master = 2007-11-14. but concerns remain about uncertainty in judicial decision making • Social policies have addressed poverty and basic social needs.ppt 13 Copyright 2008 © Professor Michael E. but transparency remains limited and inflationary pressures are rising • There are ongoing debates about direction and speed of political reforms. Legal. Porter .Macroeconomic. but challenges arise in education. gender relations. Political. which limits predictability and policy stability. and Social Context • Saudi Arabia has registered sound macroeconomic policies. Government processes remain complex and have limited transparency • The Saudi legal system is in the process of modernization.

Global Corruption Report.Corruption Perception Index.ppt Ranks only countries available in both years (124 countries total) Source: Global Corruption Report. 2007 14 Copyright 2008 © Professor Michael E. 2007 1 Deteriorating Low corruption Improving Qatar United Arab Emirates Bahrain Oman Jordan Tunisia Rank in Global Corruption Index. Porter . 2007 versus 2003 Note: Competitiveness Master = 2007-11-14. 2007 Turkey China Algeria India SAUDI ARABIA Trinidad & Tobago Belize Iran Syria Russia Brazil Yemen Pakistan Ecuador Libya Indonesia Nigeria Angola High corruption Venezuela Iraq 124 Change in Rank.

Improving the Business Environment: The Diamond Context for Context for Firm Firm Strategy Strategy and Rivalry and Rivalry Local rules and incentives that encourage investment and productivity Factor Factor (Input) (Input) Conditions Conditions – e.g.g.. salaries. intellectual property protection Demand Demand Conditions Conditions Vigorous local competition – Openness to foreign and local competition Access to high quality business inputs – – – – – Natural endowments Human resources Capital availability Physical infrastructure Administrative infrastructure (e. Porter . registration.g. safety. and environmental standards Availability of suppliers and supporting industries Presence of clusters instead of isolated firms • Successful economic development is a process of successive upgrading. transparency) – Scientific and technological infrastructure Related and Related and Supporting Supporting Industries Industries Sophistication of local customers and needs – Strict quality. permitting) – Information infrastructure (e. incentives for capital investments.ppt 15 Copyright 2008 © Professor Michael E. in which the business environment improves to enable increasingly sophisticated ways of competing Competitiveness Master = 2007-11-14.

Ease of Doing Business Saudi Arabia Ranking. Middle East Source: World Bank Doing Business (2008) Competitiveness Master = 2007-11-14. Porter . 2007 (of 178 countries) Favorable Unfavorable Saudi Arabia per capita GDP rank: 48 Saudi Arabia Doing Business rank: 23 Saudi Arabia 2010 goal: 10 Median Ranking.ppt 16 Copyright 2008 © Professor Michael E.

2007 Competitive Advantages Relative to GDP per Capita Quality of electricity supply Quality of port infrastructure Air transport infrastructure quality Reliability of police services 40 42 43 45 Competitive Disadvantages Relative to GDP per Capita Stringency of environmental regulations Business costs of corruption Buyer sophistication Quality of management schools Quality of private property rights Absence of trade barriers Local equity market access Quality of math and science education Local availability of specialized research and training services Quality of primary education Financial market sophistication Availability of scientists and engineers Effectiveness of antitrust policy Intensity of local competition Quality of scientific research institutions 101 89 81 73 72 69 65 65 65 64 63 57 57 53 51 Decentralization of economic policymaking 69 Note: Rank versus 127 countries. Porter .Saudi Arabian Business Environment Selected Advantages and Disadvantages. Source: Institute for Strategy and Competitiveness. overall. Harvard University (2007) Competitiveness Master = 2007-11-14. Only 2007 data available.ppt 17 Copyright 2008 © Professor Michael E. Saudi Arabia ranks 48th in 2006 PPP adjusted GDP per capita and 51h in Business Competitiveness.

adjusted) Norway 45.000 Greece Variation in BCI score explains 82% of variation in GDP per capita United States Qatar Hong Kong Iceland Switzerland Australia Denmark Ireland Canada Finland France Sweden Taiwan Japan Germany Israel New Zealand Korea Kuwait Italy Spain 30.Ranking Microeconomic Competitiveness Business Competitiveness Index.000 Bahrain 25.ppt Business Competitiveness Index 18 High Copyright 2008 © Professor Michael E.000 Hungary Slovenia Portugal Cyprus Czech Republic Estonia Slovakia Lithuania 15.000 20.000 10.000 35.000 0 Libya Argentina Poland Latvia SAUDI ARABIA Malaysia Chile South Africa Ukraine Costa Rica Brazil Thailand Venezuela Colombia China Peru Tunisia Jordan India Pakistan Philippines Indonesia Kenya Tanzania Nigeria Russia Saudi Arabia’s Ranking Global Competitiveness Index 35 Business Competitiveness Index 51 Low Source: Global Competitiveness Report 2007 Competitiveness Master = 2007-11-14.000 40.000 5. 2007 2006 GDP per Capita (PPP. Porter .

and other services other services Local Local Transportation Transportation Food Food Suppliers Suppliers Restaurants Restaurants Property Property Services Services Hotels Hotels Attractions and Attractions and Activities Activities e.. Foreign Foreign Exchange Exchange Maintenance Maintenance Services Services Airlines.g. e. Alexandra West. theme parks. and health care.Peter Tynan. Cruise Ships Cruise Ships Government agencies Government agencies e. Souvenirs. Great Barrier Reef Authority Great Barrier Reef Authority Educational Institutions Educational Institutions e. Queensland Tourism e. Chai McConnell.ppt 19 Copyright 2007 © Professor Michael E. Australian Tourism Commission. e.. Cairns College of TAFE Cairns College of TAFE Industry Groups Industry Groups e. Porter .g.g.Enhancing Cluster Development Tourism Cluster in Cairns. Local retail. Jean Hayden Competitiveness Master = 2007-11-14.g. Australian Tourism Commission. James Cook University. Airlines. Australia Public Relations & Public Relations & Market Research Market Research Services Services Travel agents Travel agents Tour operators Tour operators Local retail. sports casinos. health care. sports Souvenirs.g.g. Duty Free Duty Free Banks. James Cook University. theme parks. Queensland Tourism Industry Council Industry Council Sources: HBS student team research (2003) . e. casinos.g.g. Banks.

The Houston Oil and Gas Cluster Upstream Oil Transportation Gas Gathering Oil Trading Downstream Oil Refining Oil Distribution Gas Transmission Oil Wholesale Marketing Oil & Natural Gas Exploration & Development Oil & Natural Gas Completion & Production Oil Retail Marketing Gas Marketing Gas Processing Gas Trading Gas Distribution Oilfield Services/Engineering & Contracting Firms Equipment Suppliers (e. Surveying. Laboratory Analysis) Subcontractors (e. Industry Associations) Competitiveness Master = 2007-11-14.ppt 20 Copyright 2007 © Professor Michael E. Drill Tools) Specialized Technology Services (e. MIS Services.g. Training Centers. Mud Logging.g. Drilling Rigs. Drilling Consultants.g.g. Academic Institutions. Oil Field Chemicals. Technology Licenses. Reservoir Services.g. Risk Management) Specialized Institutions (e. Porter . Maintenance Services) Business Services (e.

National Cluster Export Portfolio Saudi Arabia.92% Plastics Saudi Arabia’s world export market share.99%) $162 billions 1% Prefabricated Enclosures and Structures Processed Foods 0.5% Construction Materials Building Fixtures and Equipment Metal Mining and Manufacturing Motor Driven Products 0% Automotive / Medical Devices Agricultural Products Textiles Jewelry. Michael E. 21 Competitiveness Master = 2007-11-14. Harvard Business School. 1997 – 2005 Source: Prof.49%. Institute for Strategy and Competitiveness.5% Chemical Products Business Services Oil and Gas (5. 2005 1. Underlying data drawn from the UN Commodity Trade Statistics Database and the IMF BOP statistics. Porter . 1997-2005 2% Saudi Arabia’s Average World Export Share: 1. Precious Metals and Collectibles Leather and Related Products Communications Equipment Biopharmaceuticals Change In Saudi Arabia’s Overall World Export Share: +1. 14. Project Director.09% Change in Saudi Arabia’s world export market share.2 Billion = Copyright 2007 © Professor Michael E. International Cluster Competitiveness Project. Porter.ppt Exports of US$1. Richard Bryden.

Porter . 2007 Competitive Advantages Relative to GDP per Capita Control of international distribution Production process sophistication Value chain breadth 19 32 34 Competitive Disadvantages Relative to GDP per Capita Extent of staff training Reliance on professional management Degree of customer orientation Extent of marketing Prevalence of foreign technology licensing Extent of regional sales Extent of incentive compensation Breadth of international markets Capacity for innovation Nature of competitive advantage Willingness to delegate authority 77 71 69 68 62 61 56 52 49 49 47 Note: Rank versus 127 countries.ppt 22 Copyright 2007 © Professor Michael E. Source: Institute for Strategy and Competitiveness. Harvard University (2007) Competitiveness Master = 2007-11-14. overall. Only 2007 data available. Saudi Arabia ranks 48th in 2006 PPP adjusted GDP per capita and 51h in Business Competitiveness.Improving Company Sophistication Relative Position of Saudi Arabian Companies.

Geographic Influences on Competitiveness World Economy World Economy Broad Economic Areas Broad Economic Areas Groups of Neighboring Groups of Neighboring Nations Nations The Neighborhood Nation Nation States.ppt 23 Copyright 2007 © Professor Michael E. Provinces Metropolitan Areas Metropolitan Areas Regional Economies Rural Areas Rural Areas Competitiveness Master = 2007-11-14. Provinces States. Porter .

ppt 24 Copyright 2007 © Professor Michael E. 2007 Competitiveness Master = 2007-11-14.Saudi Arabia’s Provinces % Social Security recipients below/above national average % Labor force participation above/below national average Source: Saudi Arabian Monetary Authority (SAMA) report. Porter .

Porter .ppt 25 Copyright 2007 © Professor Michael E.The Neighborhood Middle East • Economic coordination among neighboring countries can significantly enhance competitiveness • Integration with neighbors offers greater opportunities than participation in broader economic forums Competitiveness Master = 2007-11-14.

teaching and companies. Porter . teaching and research institutions. and private research institutions.ppt 26 Copyright 2007 © Professor Michael E. companies. and private sector organizations sector organizations • Competitiveness must become a bottoms-up process in which many individuals. companies.The Process of Economic Development Shifting Roles and Responsibilities Old Model Old Model New Model New Model •• Government drives economic Government drives economic development through policy development through policy decisions and incentives decisions and incentives •• Economic development is a Economic development is a collaborative process involving collaborative process involving government at multiple levels. government at multiple levels. and institutions take responsibility • Every community and cluster can take steps to enhance competitiveness • The private sector must become more engaged in competitiveness to improve rapidly Competitiveness Master = 2007-11-14.

Porter . and transparency throughout the economy • Develop and implement distinct strategies for each Saudi Arabian province • Achieve regional economic coordination and integration with Arab neighbors • Achieving competitiveness will require a sustained effort over a decade or more Competitiveness Master = 2007-11-14.Towards a Competitiveness Agenda for Saudi Arabia • Create a culture of productivity in Saudi Arabia • Continue improving political and legal stability and transparency • Pursue a sustained program to upgrade the Saudi business environment. openness.ppt 27 Copyright 2007 © Professor Michael E. sequencing priorities based on binding constraints • Upgrade company sophistication and foster entrepreneurship and the development of SMEs • Pursue a comprehensive policy for cluster development • Expand information.

Porter .Address the Weaknesses and Binding Constraints in the Business Environment • Business regulation • Financial markets • Stringency of quality.ppt 28 Copyright 2007 © Professor Michael E. safety and environmental standards • Openness of competition • Market information • Education and skills development • Innovative capacity Competitiveness Master = 2007-11-14.

ppt 29 Copyright 2008 © Professor Michael E.Upgrade Company Sophistication and Foster Entrepreneurship • Create a national campaign to foster entrepreneurship and support SME development • Expand corporate disclosure • Strengthen corporate governance • Introduce best practices in terms of operational efficiency – Utilization of information technology – Quality improvement and certification – A culture of learning and innovation • Upgrade human resources • Create more focused Saudi business groups • Improve private sector institutions and expand the role of the private sector in economic development Competitiveness Master = 2007-11-14. Porter .

ppt 30 Copyright 2007 © Professor Michael E.Create a Comprehensive Policy for Cluster Development • The Industrial Development Strategy has an explicit focus on cluster development • Current cluster development policy should extend to the entire economy. Porter . including domestic industries and all the provinces • Realign government economic development policies around clusters Competitiveness Master = 2007-11-14.

centers. Porter . university departments.Clusters and Economic Policy Business Attraction Education and Workforce Training Science and Technology Investments (e. technology transfer) Standard setting Export Promotion Clusters Market Information and Disclosure Specialized Physical Environmental Stewardship Infrastructure Natural Resource Protection • Clusters provide a framework for organizing the implementation of public policy and public investments towards economic development Competitiveness Master = 2007-11-14.ppt 31 Copyright 2008 © Professor Michael E..g.

Porter .Create a Comprehensive Policy for Cluster Development • The Industrial Development Strategy has an explicit focus on cluster development. a major strength • Cluster development policy should extend to the entire economy.ppt 32 Copyright 2008 © Professor Michael E. including domestic industries and all the provinces • Realign government economic development policies around clusters • The Economic Cities program should be directly tied to the cluster development program • Science-based clusters will be slow to develop. The focus should be on making existing and emerging Saudi clusters more knowledge intensive Competitiveness Master = 2007-11-14.

Diversifying the Saudi Arabian Economy Grow exports in related clusters Leverage unique Saudi Arabian strengths and niche positions Leverage the large domestic market Widen participation in existing clusters Upgrade existing export products Competitiveness Master = 2007-11-14.ppt 33 Copyright 2008 © Professor Michael E. Porter .

ppt 34 Copyright 2008 © Professor Michael E. Tanning and Coloring Materials Weak Export Share Losing Market Share Gaining Market Share Source: International Cluster Competitiveness Project. Porter . Institute for Strategy and Competitiveness. Crude Materials Explosives Pesticide and Other Agricultural Chemicals Miscellaneous Mineral Products Dyeing. Harvard Business School Competitiveness Master = 2007-11-14.Growth Opportunities within Clusters Saudi Arabian Chemical Cluster Strong Export Share Organic Chemicals Inorganic Chemicals Packaged Chemicals Chemically Based Ingredients Synthetic Fibers Misc.

rolled glass in sheets Portland cement.020 47. blown glass in sheets Asbestos-cement and fiber-cement materials Cast.479 42.0% -0.3% 1.4% -4.9% 1.971 7.7% 0.4% 1.9% 3. paper and paperboard Other metal structures and parts Rubber.473 478. lamb skin leather Other forms of unvulcanized rubber Drawn.6% 1.2% 0.847 6.918 8.0% 2.347 266.841 105 86. other textile bast fibers Preparations for hair Goat or kid skin leather Silk Sands.3% 1.ppt Textiles Leather and Related Products Construction Materials Building Fixtures and Equipment Construction Materials Building Fixtures and Equipment Construction Materials Prefabricated Enclosures and Structures Prefabricated Enclosures and Structures Forest Products Prefabricated Enclosures and Structures Textiles Textiles Biopharmaceuticals Leather and Related Products Textiles Construction Materials Forest Products Jewelry.6% 0. natural not metal bearing Paper and paperboard.2% 1. woven Sheep.9% 0.167 3.2% -6. Porter .8% Export Volume 142. corrugated.5% 1.143 218.387 19.9% -1.1% 1. creped.006 53.3% -0. cord Jute. Precious Metals and Collectibles Prefabricated Enclosures and Structures 35 Copyright 2008 © Professor Michael E.1% 1.8% 1.6% 1.977 14.0% Change in Market Share 3.9% 0. 2005 Industry (Processed Products) Cluster Market Share 5.163 Carpets and other textile floor coverings.0% 1.9% 1. aluminous cement and similar products Bridges and bridge-sections Towers and lattice masts Miscellaneous articles of pulp.0% 0.976 34.4% 1.6% 3.0% 1.Grow Current Niche Positions Leading Saudi Arabian Export Industries outside of Clusters.7% 1. excluding ores Prefabricated buildings Competitiveness Master = 2007-11-14.561 3. non-monetary. crinkled Gold.7% 2.787 15.8% 0.6% 2.4% 1. textile yarn.633 129.9% 0.3% 0.444 10.1% 1.

ppt 36 . Equipment & Services Lightning & Electrical Equipment Power Generation Heavy Construction Services Forest Products Construction Materials Processed Food Aerospace Vehicles & Information Defense Tech. Analytical Instruments Medical Devices Business Services Financial Services Publishing & Printing Education & Knowledge Creation Biopharmaceuticals Chemicl Products Communications Equipment Heavy Machinery Motor Driven Products Production Technology Apparel Leather & Related Products Oil & Gas Tobacco Metal Automotive Manufacturing Aerospace Engines Sporting & Recreation Goods Copyright 2007 © Professor Michael E. Porter Plastics Footwear Note: Clusters with overlapping borders or identical shading have at least 20% overlap (by number of industries) in both directions.Growth Through Related Clusters Fishing & Fishing Products Agricultural Products Distribution Services Jewelry & Precious Metals Transportation & Logistics Entertainment Hospitality & Tourism Textiles Prefabricated Enclosures Furniture Building Fixtures. Competitiveness Master = 2007-11-14.

and existing economic activity • Economic policy formulation and implementation should be gradually decentralized • Government capability in each province needs to be upgrading over time Competitiveness Master = 2007-11-14.Develop Distinctive Strategies in each Saudi Arabia Province • Regional development should follow a hub and spoke model to link rural areas to the nearest urban center • Improving social service delivery and physical infrastructure across all provinces are important preconditions for regional economic development • Each region needs a distinctive economic plan that reflects its location. assets.ppt 37 Copyright 2008 © Professor Michael E. Porter .

Porter . not by the regions themselves • They focus on infrastructure rather than skills and institutions • Economic cities have an unclear relation to clusters and the surrounding regional economy • They ask for private sector action but have been designed by the government Note: Exact physical location of Economic Cities still to be determined Competitiveness Master = 2007-11-14.ppt Eastern Province Economic City Riyadh Eastern Province King Abdullah Economic City Makkah AlBaha Asir Najran Jizan Jizan Economic City 38 Copyright 2008 © Professor Michael E. they also symbolize the challenges that the Tabuk Economic City country needs to address Proposed Locations for Economic Cities Al Jowf Tabuk Northern Borders Ha'il Prince Abdulaziz bin Musaid Economic City Qassim Knowledge Economic City Madinah • They have been planned centrally.Enhancing the Economic Cities Concept • The economic cities can become an important tool for Saudi Arabian development • However.

Saudi Arabia should take a leadership role Competitiveness Master = 2007-11-14.Develop a Regional Competitiveness Strategy with Arab Neighbors • The Gulf Cooperation Council can be an important complement to competitiveness efforts at the national level • Many aspects of the business environment can be enhanced by coordination and integration with neighboring countries • The region needs to shift from rhetoric to action • Due to its size and resources. Porter .ppt 39 Copyright 2008 © Professor Michael E.

and clusters can Saudi Arabia be competitive? Competitiveness Master = 2007-11-14. and the neighborhood? – What unique value as a business location? – For what range and types of businesses. existing strengths. the broad economic area. legacy. Porter . activities in the value chain.ppt 40 Copyright 2007 © Professor Michael E.Defining an Economic Strategy for Saudi Arabia National Value Proposition • What is the unique competitive position of Saudi Arabia given its location. and potential strengths? – What roles in the world.

Asia.ppt 41 Copyright 2007 © Professor Michael E.Towards a Strategic Positioning for Saudi Arabia Strengths to Build Upon • Natural resource endowments • Largest and most populous economy in the Middle East • Location between Europe. Porter . and Africa • Distinct cultural traditions • Significant accumulated capital • Saudi Arabia has outlined an ambitious action agenda to enhance competitiveness • It will be important to set priorities and sequence steps to reflect the realities of Saudi Arabia’s economy • Fundamental changes in the capabilities and attitudes of many Saudi citizens will be needed to achieve the desired transformation of the Saudi Arabian economy Competitiveness Master = 2007-11-14.