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Professor Michael E. Porter Harvard Business School Ho Chi Minh, Vietnam December 1, 2008
This presentation draws on ideas from Professor Porter’s books and articles, in particular, Competitive Strategy (The Free Press, 1980); Competitive p , p , p gy ( , ); p 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 18, 2008, 3pm
20081201 – Vietnam CAON.ppt
Copyright 2008 © Professor Michael E. Porter
The Need For An Economic Strategy
• Vietnam has experienced an impressive growth over the last two decades • However, reforms so far are insufficient to move Vietnam to a middle income economy • The next several years will determine whether Vietnam will follow the experience of Korea, or the Philippines • Vi t Vietnam’s reform h ’ f have b been piecemeal and reactive i l d ti • Improving Vietnam’s standard of living will require a long term economic strategy
– A set of interrelated policy changes, institutional structures, and rigorous implementation mechanisms
20081201 – Vietnam CAON.ppt
Copyright 2008 © Professor Michael E. Porter
• Understanding Vietnam’s Economic Performance
• Assessing Vietnamese Competitiveness
• Id tif i Action Priorities Identifying A ti P i iti
• Organizing for Competitiveness
• Creating an Economic Strategy
20081201 – Vietnam CAON.ppt
Copyright 2008 © Professor Michael E. Porter
PPP-adjusted GDP per Capita, 2007
$45,000 $40,000 $35,000 $ , $30,000 $25,000 $20,000 $20 000 $15,000
Mexico Malaysia Ireland Singapore Switzerland Iceland Netherlands Canada Australia Austria Sweden Finland UK Germany Taiwan Japan France Bahrain Italy Ital Spain Greece New Zealand Portugal Hungary Croatia Chile Costa Rica South Africa Turkey Poland Romania Slovakia Lithuania Russia Argentina Israel Saudi Arabia Slovenia Korea Czech Republic Estonia Latvia Hong Kong g g
$10,000 $10 000 $5,000 $0 0% 2%
Thailand Colombia Egypt Indonesia Philippines Pakistan Nigeria Bangladesh
Sri Lanka India Cambodia
Growth of Real GDP per Capita (PPP-adjusted), CAGR, 2003-2007
Source: EIU (2008), authors calculations
20081201 – Vietnam CAON.ppt Copyright 2008 © Professor Michael E. Porter
Labor Force Utilization
Labor Force Participation Rate, 2007 65%
Participation Rates, Selected Countries
China Iceland Norway
Thailand Hong Kong Canada Portugal Sweden Japan J Czech Rep. New Zealand Germany Finland USA UK South Korea Slovakia Lithuania Indonesia India France F Bangladesh Poland Romania Austria Hungary Italy Mexico Argentina Malaysia
Australia Russia Latvia Spain Taiwan Slovenia Chile Ireland
Philippines Nicaragua Morocco Bulgaria
-1% 0% 1% 2% 3% Change in Labor Force Participation Rate, 2003-2007
Source: Economist Intelligence Unit (2008)
20081201 – Vietnam CAON.ppt
Copyright 2008 © Professor Michael E. Porter
ppt 6 Copyright 2008 © Professor Michael E.Comparative Labor Productivity GDP per employee (PPP adjusted US$). 2003-2007 Source: authors calculation Groningen Growth and Development Centre (2008) 20081201 – Vietnam CAON. 2007 Selected Countries USA Ireland Norway Australia Canada Italy Austria Hong Kong France Finland UK Sweden Denmark Singapore Taiwan Japan Iceland Germany Israel Switzerland South Korea Spain Greece Slovenia New Zealand Portugal Argentina Poland Saudi Arabia Malaysia Estonia Slovakia Latvia Belarus Lithuania Lith i Turkey Czech Republic Croatia Hungary Kazakhstan Mexico Colombia Costa Rica Russia Syria Bulgaria Tunisia Thailand Sri Lanka Iran Peru Egypt South Africa Ecuador Ukraine Brazil Indonesia Yemen Pakistan Philippines Dominican Republic India Nigeria Cambodia Cote d’Ivoire Senegal Bangladesh Kenya Ethiopia Ghana Chile Venezuela China Vietnam Compound annual growth rate (CAGR) of real GDP per employee (PPP-adjusted). Porter .
Porter .Contribution to Annual GDP growth (%) Decomposition of Vietnamese Growth Capital Labor TFP 10% 8% 6% 4% 2% 0% -2% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Source: Ohno (2008) 20081201 – Vietnam CAON.ppt 7 Copyright 2008 © Professor Michael E.
Domestic Fixed Investment Rates Gross Fixed Investment as % of GDP (2007) 36% 34% 32% 30% Korea Slovenia Australia Slovakia Thailand Sri Lanka Romania R i Lithuania Indonesia Selected Countries China (40. Porter .ppt 8 Copyright 2008 © Professor Michael E. 2003 .2007 Note: Includes inbound FDI Source: EIU.4%) Latvia India Vietnam Estonia Croatia Spain Kazakhstan Iceland 28% 26% 24% 22% 20% 18% 16% 14% -4% Philippines Colombia Venezuela Argentina Denmark Poland Malaysia Italy Mexico Portugal Cambodia Egypt Pakistan France Turkey Hungary Austria Russi Finland a Chile Hong Kong Kenya South Africa Netherlands Norway Saudi Arabia Sweden Germany UK Brazil Dominican Republic Canada Greece Singapore Ireland Czech Republic Tunisia Japan Ukraine New Zealand USA -2% 0% 2% 4% 6% 8% 10% 12% Change in Gross Fixed Investment (as % of GDP). 2008 20081201 – Vietnam CAON.
7%) 80% 70% Vietnam 60% 50% Denmark Hungary Chile Switzerland New Zealand Sweden Slovakia Czech Republic 40% 30% 20% 10% 0% -5% Australi a South Africa Spain Portugal Cambodia UK Iceland (46. Porter .2007 Stocks and Flows. Average 2003 .ppt 9 Copyright 2008 © Professor Michael E.1%. Selected Countries Netherlands Estonia Singapore (160.2007 Source: UNCTAD. World Investment Report (2007) 20081201 – Vietnam CAON. GDP Average 2003 .7%) Norway Slovenia y Germany Greece USA South Korea Indonesia Japan Indi a Thailan Philippines Canad d Latvia Poland a Finland Lithuania France Colombia Mexico Laos Austria Russia Brazil Israel Turkey Italy Malaysia China Pakista n Saudi Arabia 0% 5% 10% 15% 20% 25% 30% 35% 40% FDI Inflows as % of Gross Fixed Capital Formation. 64.Inbound Foreign Investment Performance Inward FDI Stocks as % of GDP.
2003 t 2007 Ch fE t Sh f GDP to • Imports as a share of GDP are equally high Source: EIU (2008). Porter .ppt 10 Copyright 2008 © Professor Michael E. 2007) 100% 90% Belgium Selected Countries Malaysia (116. authors’ analysis 20081201 – Vietnam CAON.Export Performance Exports as Share of GDP (in %.4%) Slovakia Czech Republic Thailand Estonia Netherlands Slovenia Bulgaria Lithuania Slovenia Cambodia Hungary 80% 70% 60% Ireland Vietnam Austria Switzerland Saudi A bi S di Arabia 50% Philippines Croatia South Korea Finland Germany Latvia Norway Chile Ukraine China Poland 40% South Africa Egypt Canada Indonesia Russia France Portugal Sri Lanka Venezuela 30% Mexico Italy New Zealand Dominican Republic UK Argentina Colombi Turkey India Bangladesh 20% Spain a Australia Japan Pakistan Brazil USA 10% Tunisia Kazakhstan 0% -15% -10% -5% 0% 5% 10% 15% 20% 25% 30% Change of Exports as Share of GDP.
7% 0 7% 0.2% 0 2% 0.ppt 1998 1999 2000 2001 11 2002 2003 2004 2005 2006 Source: UNComTrade.3% 0.Vietnam’s Exports By Type of Industry World Export Market ( ) Share (current USD) 0.8% 0. WTO (2008) Copyright 2008 © Professor Michael E.6% 0.1% 0.4% 0.5% 0. Porter .0% Processed Goods Semi-processed Goods Unprocessed Goods Services TOTAL 1997 20081201 – Vietnam CAON.
7% 0.1% 0% 0. Institute for Strategy and Competitiveness. International Cluster Competitiveness Project.3% 0. Porter.91%) ( . 2000 – 2006 1.68%.1 Billion = Copyright 2008 © Professor Michael E.3% 1. Project Director.1% 0. Underlying data drawn from the UN Commodity Trade Statistics Database and the 12 20081201 – Vietnam CAON.5% 0.ppt IMF BOP statistics. Michael E.25% Footwear (5.31% 0% -0. Richard Bryden.Vietnam’s Cluster Export Portfolio 2000-2006 5% Change In Vietnam’s Overall Growth In World Export Share: 0. 1. ) Fishing and Fishing Products Vietnam’s world export ma w arket share.1% Change in Vietnam’s world export market share.3% -0. Porter .9% 1. Exports of US$1.5% Source: Prof. 200 06 4% 3% 2% Appare l Coal & Briquettes Furnitur e 1% Textiles T til Plastics Tobacco Vietnam’s Average World Export Share: 0. Harvard Business School.
Porter .Agenda • Understanding Vietnam’s Economic Performance • Assessing Vietnamese Competitiveness • Id tif i Action Priorities Identifying A ti P i iti • Organizing for Competitiveness • Creating an Economic Strategy 20081201 – Vietnam CAON.ppt 13 Copyright 2008 © Professor Michael E.
ppt 14 Copyright 2008 © Professor Michael E. capital. returns on t capital. and natural resources. not just that of export industries • Nations compete to offer the most productive environment for business • The public and p p private sectors p y different but interrelated roles in play creating a productive economy 20081201 – Vietnam CAON. – P d ti it sets the sustainable standard of living ( Productivity t th t i bl t d d f li i (wages.What is Competitiveness? • Competitiveness depends on the productivity with which a nation uses its human. but how productively it competes in those industries – Productivity in a national economy arises from a combination of domestic and foreign firms – Th productivity of “l The d ti it f “local” or domestic industries i f d l” d ti i d t i is fundamental t t l to competitiveness. returns on natural resources) – It is not what industries a nation competes in that matters for prosperity. Porter .
but is not sufficient • Productivity ultimately depends on improving the microeconomic capability of the economy and the sophistication of local competition 20081201 – Vietnam CAON.ppt 15 Copyright 2008 © Professor Michael E. Porter .Determinants of Competitiveness Microeconomic Competitiveness p Quality of the National Business Environment State of Cluster Development Sophistication of Company Operations and Strategy Macroeconomic Competitiveness Social Infrastructure and Political Institutions Macroeconomic Policies Natural Endowments • Macroeconomic competitiveness creates the potential for high productivity.
2008 Source: Global Competitiveness Report. EuroStat.000 Greece Germany Selected Countries Denmark Sweden Japan / Belgium / France New Z l d Zealand Spain N Slovenia Portugal Korea Czech Republic p Taiwan Cyprus Netherlands Austria Australia Singapore $500 Hungary Poland Slovakia Lithuania Estonia Malaysia Romania $100 Bulgaria Philippines Indonesia $50 Cambodia Latvia Thailand Th il d China Vietnam $0 Global Competitiveness Index Score.000 Ireland United Kingdom Italy $1. log scale. Philippines Department of Labor and Employment. 16 20081201 – Vietnam CAON.Wage Level Comparison Monthly Minimum Wage USD. 2008. Porter . 2008. 2008 $3.ppt 2008 Copyright 2008 © Professor Michael E.
2002 .ppt 17 Copyright 2008 © Professor Michael E. 2007 High India Indonesia Sri Lanka El Salvador Tanzania Uganda Zambia Zimbabwe Nigeria Vietnam Pakistan Gambia Mali Honduras Low Below average Madagascar M d Nicaragua Ethiopia Mozambique Bangladesh Paraguay Bolivia Average Chad Above average Dynamism Score.2007 BCI Value. Porter .Rate of Competitiveness Improvement Low Income Countries.2007 Source: Global Competitiveness Report 2007 20081201 – Vietnam CAON. 2002 .
Porter .ppt 18 Copyright 2008 © Professor Michael E.Macroeconomic Competitiveness Social Infrastructure and Political Institutions • Basic human capacity – – Basic education Health system Macroeconomic Policies • Fiscal policy – – – Government surplus/deficit Government debt Savings / Investment rates • Political institutions – – – – – Political freedom Voice and accountability Political stability Centralization of economic policymaking Government effectiveness • Monetary policy – – Inflation Interest rate spread • Rule of law – – – – – – Judicial independence Efficiency of legal framework Civil rights Business costs of corruption Reliability of police Prevalence and costs of crime 20081201 – Vietnam CAON.
ppt 19 Copyright 2008 © Professor Michael E. Porter .Macroeconomic Competitiveness Vietnam’s Position Social Infrastructure and Political Institutions Basic health and education + Solid provision of basic services Macroeconomic Policies Fiscal policy + Government budget and debt at acceptable levels – Government budget still reliant on foreign aid – Increasing concerns about the quality of these public services Political institutions + High levels of political stability Monetary Policy – High levels of inflation + Increasing decentralization of economic policy responsibilities – Little effective policy dialogue – Corruption remains a significant challenge Rule of law + Quality of laws tends to be good – Effectiveness of implementation remains p weak 20081201 – Vietnam CAON.
Governance Indicators Selected Countries Best country in the world Voice and Accountability Political Stability Government Effectiveness Regulatory Quality Rule of Law Control of Corruption Index of Governance Quality. Porter Source: World Bank (2008) So Ba ng l Pa kis pi ta n il di a os . Q lit 2007 Worst country in the world an ia re a nd ia a sia na m ka ia n h or e Br az ne s In d hi n pa es ai la us s iw an es ay Ko bo La ap Ja on Sr iL Vi et Ta M al ilip R am Th ad C Si ng ut h Ph In d C Note: Sorted left to right by decreasing average value across all indicators. The ‘zero’ horizontal line corresponds to the median country’s average value across all indicators. 20 20081201 – Vietnam CAON.ppt Copyright 2008 © Professor Michael E.
2007 1 Deteriorating Low corruption Israel Rank in Global Corruption Index. 2007 versus 2001 Rank. 2007 Tunisia Peru Panama P Egypt New Zealand Sweden Improving Iceland Switzerland Norway Canada UK Hong Kong Austria Germany Ireland Japan United States France Chile Spain C Uruguay Portugal Estonia Slovenia Taiwan Czech Republic Hungary South Korea Malaysia Italy South Africa Lithuania Slovakia Latvia Jordan Greece Poland Turkey Croatia Brazil Argentina Mexico Colombia China Thailand Romania India Tanzania T i Uganda Ukraine Pakistan Indonesia Nigeria Finland Senegal Philippines High corruption Zimbabwe Venezuela Cote d’Ivoire d Ivoire Vietnam Russia 91 Bangladesh -20 -15 -10 -5 0 5 10 15 20 Change in Rank Global Corruption Report. Porter .Corruption Perception Index. 2007 21 Copyright 2008 © Professor Michael E.ppt Ranks only countries available in both years (91 countries total) Source: Global Corruption Report. Report Note: 20081201 – Vietnam CAON.
g. Porter .Microeconomic Competitiveness: Quality of the Business Environment Context for Firm Strategy and Rivalry Local rules and incentives that encourage investment and productivity Factor (Input) Conditions – e. intellectual property protection Demand Conditions Vigorous local competition – Openness to foreign and local competition Access to high quality business inputs Human resources Capital availability Physical infrastructure Administrative infrastructure (e.ppt 22 Copyright 2008 © Professor Michael E.g. and environmental standards Availability of suppliers and supporting industries • Many things matter for competitiveness • Successful economic development is a process of successive upgrading. registration. incentives for capital investments. permitting) – Information and transparency – Scientific and technological infrastructure – – – – Related and Supporting Industries Sophistication of local customers and needs – e g strict quality safety e. safety. in which the business environment improves to enable increasingly sophisticated ways of competing 20081201 – Vietnam CAON.g.. quality.
.. level of import tariffs Note: Rank versus 130 countries.g. Porter ... SOE market dominance • Trade barriers (rank 113) – E. Vietnam ranks 102nd in 2008 PPP adjusted GDP per capita and 76th in New Global Competitiveness Source: Institute for Strategy and Competitiveness.ppt 23 Copyright 2008 © Professor Michael E.g. intensity of local competition Competitive Disadvantages • Government intervention (rank 119) – E.g.Vietnamese Business Environment Vietnam’s Relative Position 2008 Competitive Advantages • Communications infrastructure (rank 72) – E. Harvard University (2008) 20081201 – Vietnam CAON.g. overall. quality of the telephone infrastructure • Local competition (rank 75) – E.
Openness to Trade Rank (157 countries) 160 Selected Countries. Heritage Foundation 20081201 – Vietnam CAON.ppt 24 Copyright 2008 © Professor Michael E. 2008 140 Vietnam 120 100 80 60 40 20 N New Zealand Germany Hong Kong Sri Lanka Japan Un nited States Indonesia S South Korea Vietnam Taiwan China India Singapore Philippines • Vietnam’s lack of openness will retard further competitiveness upgrading Source: Index of Economic Freedom (2008). Porter Cambodia Malaysia Pakistan Thailand Russia Brazil 0 Laos .
ppt 25 Copyright 2008 © Professor Michael E.... patents per capita g . financial market sophistication • Innovation infrastructure (rank 99) – E. pa e s pe cap a • Logistical infrastructure (rank 96) – E.g.g... Harvard University (2008) 20081201 – Vietnam CAON.g.Vietnamese Business Environment Vietnam’s Relative Position 2008 Competitive Advantages • Communications infrastructure (rank 72) – E.g.g.g. SOE market dominance • Trade barriers (rank 113) – E... quality of electricity supply • Access to finance (rank 109) – E. Vietnam ranks 102nd in 2008 PPP adjusted GDP per capita and 76th in New Global Competitiveness Source: Institute for Strategy and Competitiveness. overall. Porter . intensity of local competition Competitive Disadvantages • Government intervention (rank 119) – E.g. quality of roads Note: Rank versus 130 countries.. quality of the telephone infrastructure • Local competition (rank 75) – E.g. level of import tariffs • Energy infrastructure (rank 109) – E.
Porter .ppt 26 Copyright 2008 © Professor Michael E. 2008 Unfavorable Median Ranking.Cost of Doing Business Ranking. 2008 (of 181 countries) Favorable Vietnam. Doing Business (2008) 20081201 – Vietnam CAON. East Asia and Pacific Vietnam’s per capita GDP rank: 70th • Especially in land ownership in rural areas significant problems remain Source: World Bank Report.
Porter .State-Owned Enterprises (SOEs) in Vietnam • SOEs continue to play a dominant role in the Vietnamese economy. despite the commitment to privatization • Government oversight of these companies and their spending is limited and largely reactive • The costs of slow progress on privatization are high for Vietnam’s competitiveness – Retards entry of new private companies – Creates risks of corruption – Can exacerbate economic volatility through excessive investment financed through soft credit • An effective privatization program strategy for Vietnam must shift economic structure. not just change ownership i t t tj t h hi – Privatization must go hand-in-hand with market opening and policies to curtail anti-competitive practices – Owners are needed that contribute new capital and skills – Minority stakes can distribute ownership more widely 20081201 – Vietnam CAON.ppt 27 Copyright 2008 © Professor Michael E.
e g theme parks. Cruise Ships Banks. Q Queensland T i l d Tourism Industry Council Sources: HBS student team research (2003) . L l t il health care. Chai McConnell. Alexandra West.State of Cluster Development Tourism Cluster in Cairns.Peter Tynan. J James C k U i Cook University. parks casinos. A t li T i Australian Tourism C Commission.ppt 28 Copyright 2008 © Professor Michael E. and other services Local Transportation Food Suppliers Restaurants Property Services Hotels Attractions and Activities e.g. Jean Hayden 20081201 – Vietnam CAON.. Foreign Exchange Maintenance Services Government agencies e. Duty Free Airlines.g. it Cairns College of TAFE Industry Groups e.g. sports Souvenirs.g. i i Great Barrier Reef Authority Educational Institutions e. Porter . Australia Public Relations & P bli R l i Market Research Services Travel agents Tour operators Local retail.
5% 0. Michael E.3% -0.3% 0. 2000 – 2006 1.ppt IMF BOP statistics. Porter . Institute for Strategy and Competitiveness.1% 0. 1.1 Billion = Copyright 2008 © Professor Michael E.31% 0% -0. Harvard Business School.1% Change in Vietnam’s world export market share. Project Director.1% 0% 0.Vietnam’s Cluster Export Portfolio 2000-2006 5% Change In Vietnam’s Overall Growth In World Export Share: 0. Exports of US$1.91%) ( .5% Source: Prof.25% Footwear (5.3% 1. Underlying data drawn from the UN Commodity Trade Statistics Database and the 29 20081201 – Vietnam CAON.9% 1. Richard Bryden. 200 06 4% 3% 2% Appare l Coal & Briquettes Furnitur e 1% Textiles T til Plastics Tobacco Vietnam’s Average World Export Share: 0. ) Fishing and Fishing Products Vietnam’s world export ma w arket share. Porter.68%.7% 0. International Cluster Competitiveness Project.
10% -0.05% 0.ppt IMF BOP statistics.Vietnam’s Cluster Export Portfolio cont’d 2000-2006 1. 200 06 0.20% 0. 2000 – 2006 Source: Prof.4% 0 4% Sporting. Recreational and Children's Goods Total Services Construction Materials Communications Equipment Vietnam’s Average World Export Share: 0.25% Vietnam’s world export ma w arket share. Richard Bryden. Precious Metals and Analytical Instruments Collectibles Biopharmaceuticals 0.00% 0.0% Change In Vietnam’s Overall g Growth in World Export Share: 0.2% 0 2% Chemical Products Medical Devices Information Technology Jewelry.30% Change in Vietnam’s world export market share.6% Building Fixtures and Equipment Textiles 0.8% Agricultural Products Leather and Related Products Oil & Gas 0.15% 0. Exports of US$1.31% Processed Foods 0.10% 0. Porter.0% Lighting and Electrical Equipment Publishing and Printing g g Motor Driven Forest Products Products Power and Power Generation Equipment Entertainment Prefabricated Enclosures and Structures Metal Mining and Manufacturing Production Technology Automotive -0. Project Director. Harvard Business School. Michael E. Porter . Underlying data drawn from the UN Commodity Trade Statistics Database and the 30 20081201 – Vietnam CAON.1 Billion = Copyright 2008 © Professor Michael E. International Cluster Competitiveness Project.25% 0.05% 0. Institute for Strategy and Competitiveness.
07 – 0.07% 0. Equipment & Services Lightning & Electrical Furniture Construction Materials Heavy y Construction Services Forest Products Processed Food Jewelry & Precious Metals Financial Services Business Services Education & Knowledge Creation Equipment Power Generation Communications Publishing & Printing Biopharmaceuticals Chemical Products Equipment Motor Driven Products Tobacco Heavy Machinery Apparel Leather & Related Products Footwear Oil & Gas Production Technology Plastics Automotive Aerospace Metal Engines Manufacturing Note: Clusters with overlapping borders have at least 20% overlap (by number of industries) in both directions.24% Distribution Services Share of World Exports by Cluster Vietnam. 20081201 – Vietnam CAON.62.1. 2000 Fishing & Fishing Products Hospitality Entertainment Prefabricated Enclosures Textiles & Tourism Agricultural Products Transportation & Logistics Aerospace Information Vehicles & Defense Tech. Analytical Instruments Medical Devices Building Fixtures.Not reported < 0.31 – 0.24% > 1.31% 0.15% 0.16 – 0.ppt Sporting & Recreation Goods Marine Equipment 31 Copyright 2008 © Professor Michael E. Porter .62% 0.
Equipment & Services Lightning & Electrical Furniture Construction Materials Heavy y Construction Services Forest Products Processed Food Jewelry & Precious Metals Financial Services Business Services Education & Knowledge Creation Equipment Power Generation Communications Publishing & Printing Biopharmaceuticals Chemical Products Equipment Motor Driven Products Tobacco Heavy Machinery Apparel Leather & Related Products Footwear Oil & Gas Production Technology Plastics Automotive Aerospace Metal Engines Manufacturing Note: Clusters with overlapping borders have at least 20% overlap (by number of industries) in both directions.62% 0.15% 0.31 – 0.24% Distribution Services Share of World Exports by Cluster Vietnam. Porter .07 – 0.62.1.Not reported < 0. 2006 Fishing & Fishing Products Hospitality Entertainment Prefabricated Enclosures Textiles & Tourism Agricultural Products Transportation & Logistics Aerospace Information Vehicles & Defense Tech.07% 0.16 – 0. Analytical Instruments Medical Devices Building Fixtures.24% > 1.31% 0.ppt Sporting & Recreation Goods Marine Equipment 32 Copyright 2008 © Professor Michael E. 20081201 – Vietnam CAON.
Geographic Levels and Competitiveness World Economy WTO Broad Economic Areas Asia Groups of G f Neighboring Nations Southeast Asia • The business environment at a given location is the cumulative outcome of policy at all geographic levels • Many competitiveness drivers occur at the regional and local level Nations Vietnam • The allocation of competitiveness responsibilities across geographic levels is a crucial policy challenge States. Porter . Provinces Vietnamese provinces Metropolitan and Rural Areas Ho Chi Minh City 20081201 – Vietnam CAON.ppt 33 Copyright 2008 © Professor Michael E.
Denver CO Leather and Sporting Goods Oil and Gas Aerospace Vehicles and Defense Wichita. NC R l i hD h Communications Equipment Information Technology Education and Knowledge Creation Los Angeles Area Apparel Building Fixtures. Source: Cluster Mapping Project. Geographic Areas Denver.S. Harvard Business School.Specialization of Regional Economies Selected U. Institute for Strategy and Competitiveness. PA Construction Materials Metal Manufacturing Education and Knowledge Creation Boston Analytical Instruments Education and Knowledge Creation Communications Equipment Seattle-BellevueEverett. KS Aerospace Vehicles and Defense Heavy Machinery Oil and Gas Chicago Communications Equipment Processed Food Heavy Machinery Pittsburgh. 20081201 – Vietnam CAON. WA Aerospace Vehicles and Defense Fishing and Fishing Products Analytical Instruments San FranciscoOakland-San Jose Bay Area Communications Equipment Agricultural Products Information Technology Raleigh-Durham. Equipment and Services Entertainment San Diego Leather and Sporting Goods Power Generation Education and Knowledge Creation Houston Oil and Gas Products and Services Chemical Products Heavy Construction Services Atlanta. Porter . GA Construction Materials Transportation and Logistics Business Services Note: Clusters listed are the three highest ranking clusters in terms of share of national employment. 11/2006.ppt 34 Copyright 2008 © Professor Michael E.
2006 Excellent High Performing Mid-high Average Mid-low Low Performing Source: Vietnam Provincial Competitiveness Index 2006 (USAID) 20081201 – Vietnam CAON. Porter .ppt 35 Copyright 2008 © Professor Michael E.Vietnam Provincial Competitiveness Index.
ppt 36 Copyright 2008 © Professor Michael E.The Neighborhood Southeast Asia • Vietnam has a central position between ASEAN and China 20081201 – Vietnam CAON. Porter .
e. – Tourism – Agribusiness – Transport & Logistics – Business services Macroeconomic Competitiveness Regional Strategy & Governance • Creating a regional marketing program • Sharing best g practices in government operations • Creating regional institutions – Dispute resolution mechanisms – Regional development bank • Developing a regional negotiating position with international i t ti l organizations • Harmonizing environmental standards g • Harmonizing product safety standards • Establishing reciprocal consumer protection laws • Opening government procurement within the region • Coordinating programs to improve public safety • Coordinating macro-economic policies 20081201 – Vietnam CAON.ppt 37 Copyright 2008 © Professor Michael E.Economic Coordination Among Neighbors Enhancing Productivity Factor (Input) Conditions • Improving regional transportation infrastructure • Creating an efficient g energy network • Enhancing regional communications and connectivity • Li ki fi Linking financial i l markets • Opening the movement of students for higher education • Harmonizing administrative requirements for businesses Context for Strategy and Rivalry • Eliminating trade and investment barriers within the region • Simplifying and harmonizing cross-border regulations and paperwork k • Coordinating antimonopoly and fair competition policies Demand Conditions Related and Supporting Industries • Facilitating crossborder cluster upgrading.g. Porter .
Porter .ppt 38 Copyright 2008 © Professor Michael E.Agenda • Understanding Vietnam’s Economic Performance • Assessing Vietnamese Competitiveness • Id tif i Action Priorities Identifying A ti P i iti • Organizing for Competitiveness • Creating an Economic Strategy 20081201 – Vietnam CAON.
Stages of National Competitive Development Shifting Policy Imperatives FactorFactor-Driven Economy InvestmentInvestmentDriven Economy InnovationInnovationDriven Economy Low Cost Inputs • Macro.. political. The Competitive Advantage of Nations. 1990 20081201 – Vietnam CAON. Porter . and legal stability • Efficient basic infrastructure • Lowering regulatory costs of doing business • • • • Productivity Increasing local competition Market openness p Advanced infrastructure Incentives and rules encouraging productivity • Cl t f Cluster formation and ti d activation Unique Value • Advanced skills • Scientific and technological g institutions • Incentives and rules encouraging innovation • Cluster upgrading Source: Porter.ppt 39 Copyright 2008 © Professor Michael E. Michael E. Macmillan Press.
ppt 40 Copyright 2008 © Professor Michael E.Competitiveness Action Agenda: Key Priorities Continue Existing Efforts • Reduce corruption Fundamental Reform • Human resource development at all levels • Reform of SOEs • Cluster development p • Improve infrastructure • Deepen financial market p reforms • Impose regulatory attractiveness 20081201 – Vietnam CAON. Porter .
Reducing Corruption • The government has repeatedly committed itself towards reducing corruption. and improved SOE governance/ privatization i ti ti • Set clear guidelines and reporting requirements for management of SOEs • Demonstrate a commitment for transparency. including support for a strong press 20081201 – Vietnam CAON. use of modern information technology. and some action has been taken • Evidence reveals little progress p g • Vietnam needs to target corruption as a crucial barrier for growth and design an integrated strategy to tackle its occurrence Action priorities A ti i iti • Reduce the potential for corruption through simplified regulations. Porter .ppt 41 Copyright 2008 © Professor Michael E.
There is significant p g duplication of efforts and companies complain about serious bottlenecks • Vietnam needs to better target infrastructure investments to meet the needs of its growing economy Action priorities • Establish a national fund for key infrastructure projects to be implemented under the supervision of the Prime Minister’s office Minister s • Utilize matching funds incentives to improve effectiveness if investments by provincial governments • C t a public-private council t advise on spending priorities Create bli i t il to d i di i iti 42 20081201 – Vietnam CAON. Porter .ppt Copyright 2008 © Professor Michael E.Improving Infrastructure • Significant infrastructure investments have been made in recent years • Evidence on their impact is mixed as best.
and the financing constraints faced by private companies. more recently also to foreign companies as part of the WTO agreement • But the weakness of Vietnam’s financial markets even before the global crisis.Deepening Financial Markets • Vietnam has made clear progress on opening up financial markets. Porter .ppt 43 Copyright 2008 © Professor Michael E. using outside help as needed • E t bli h a d Establish development bank t develop fi l t b k to d l financing t l f private i tools for i t SMEs 20081201 – Vietnam CAON. independent financial regulator. indicate that serious challenges remain • Vietnam needs to develop a modern regulatory and institutional structure to enable an effective financial system y Action priorities • Continue opening financial markets in line with WTO commitments • Create an effective.
the overall regulatory burden on businesses and citizens remains high with no clear societal benefits • Vietnam needs a fundamentally new approach to regulatory reform and assessment of new regulations Action priorities • Aggressively pursue the work on regulatory reform initiated with foreign donors f i d • Improve institutional capacity to evaluate and administer regulations. Porter . especially over the last five years • Despite some progress.Regulatory Reform • Regulatory reform has been on the Vietnamese policy agenda for some time.ppt 44 Copyright 2008 © Professor Michael E. not just the rules themselves • Include an obligatory assessment of the administrative burden on business in the process of introducing new laws and regulations 20081201 – Vietnam CAON.
drawing on international experts • Vietnam needs to develop a plan and enabling institutions for assimilation of global technology i il ti f l b lt h l 20081201 – Vietnam CAON.Human Resource Development Basic education • Enrolment rates have increased significantly but quality is low and skills fail to meet company needs • Vietnam needs to dramatically improve educational quality.ppt 45 Copyright 2008 © Professor Michael E. and involving the private standards. through setting standards improving curricula. Porter . curricula sector in governance Vocational training • Vietnam lacks a skills training system • Companies have launched own training efforts to address skill bottlenecks • Vietnam needs a clear program for cluster-based workforce development Higher education • The number of universities has increased but quality is low and skills do not match company needs • Higher university education standards must be set and enforced.
independent regulatory bodies • Support start-ups and spin-offs from SOEs Privatization • Create clear legal conditions for privatization • Define explicit objectives for privatization process • Create a dedicated structure for implementing privatization • The creation of SOE groups is not a solution and can exacerbate problems if no other reforms are being implemented 20081201 – Vietnam CAON.ppt 46 Copyright 2008 © Professor Michael E. and artificial entry barriers protecting SOEs • Establish strong.Restructuring of State Owned Enterprises • The government has an explicit policy to promote private enterprise but there is deep-seated ambivalence towards privatization • Without a thorough reform of the SOE sector. Porter . there is little hope for Vietnam to reach the next level of economic development SOE governance • Create independent boards of directors • Implement transparent financial reporting • Define clear financial objectives – Set corporate charters Competition in markets with SOEs • Remove existing trade. investment.
not choose among them 20081201 – Vietnam CAON.Cluster Development in Vietnam • Vietnam’s clusters c rrentl tend to be narro l foc sed on cl sters currently narrowly focused individual products • There is limited collaboration among companies.ppt 47 Copyright 2008 © Professor Michael E. Porter . suppliers and other institutions – Some clusters. have the potential to significantly increase their performance if they adopt a collaboration approach f th d t ll b ti h • Cluster-based development thinking is crucial in improving the delivery of other economic policies f th i li i – – – – Workforce skill development around clusters FDI attraction/industrial zones around clusters Cluster-based regional development initiatives Quality and technology transfer organization for each cluster • Policy should upgrade all existing and emerging clusters. like coffee.
Clusters and Economic Policy Education and Workforce Training Management Training Science and Technology Investments I t t (e. Porter . technology transfer) Standard setting and quality initiatives FDI/Business Attraction Clusters Export Promotion Market Information and Disclosure Environmental Stewardship Natural Resource Protection Industrial parks and free trade zones Physical Ph i l Infrastructure • Clusters provide a framework for implementing public policy and organizing public-private collaboration to enhance competitiveness 20081201 – Vietnam CAON..g. university departments. centers.ppt 48 Copyright 2008 © Professor Michael E.
Porter .ppt 49 Copyright 2008 © Professor Michael E.Clusters and Economic Diversification Develop Related Clusters Deepen Existing Clusters Turn Niche Products Into Clusters Build Clusters Around MNCs Upgrade Existing Export Products and Services 20081201 – Vietnam CAON.
04% 1.88% 1.962 .90% 0.39% 3.156% 0.07% 1.234 143. non‐motorized Parts for calculating.76% 6.27% 23.628 444.316 60.59% 6.40% 1.22% 0. Porter.125% Audio Equipment 0.81% 0.962 4.046% Source: Prof.047% Peripherals Electronic Components and Assemblies Electronic Components Electronic Components Process Instruments Fabricated Plate Work Fabricated Plate Work Process Equipment Components Machine Tools and Accessories Processed Food 0. Underlying data drawn from the UN Commodity Trade Statistics Database.23% -0. Harvard Business School. Recreational and Children's Goods Communications Equipment 0.256% 0. 2006 Cluster Cluster World Export Share p Subcluster Industry Plastics 0.45% 0.38% $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 1.35% 0.55% 1.15% 0.ppt Copyright 2008 © Professor Michael E.88% 1. worked Other inductors Other electric transformers Electric motors<=37.26% 1.64% 0.87% 0. 49.121% 0.07% 7. CRTs Other electronic valves.56% 23.27% 0.415 53.315 7.07% 1. Michael E. 50 20081201 – Vietnam CAON. International Cluster Competitiveness Project.50% -0.65% 1.284% Specialty Office Machines Electrical and Electronic Components Specialty Foods and Ingredients Food Products Machinery y Specialty Foods and Ingredients Dairy and Related Products Specialty Foods and Ingredients Specialty Foods and Ingredients Glass Electrical Parts Electrical Parts Motors and Generators Appliances Audio Equipment 0.738 53. super heated water boilers. concentrated or sweetened Yeasts Homogenized food preparations Drawn.386 150.445 19. Project Director.04% 0.42% 1.01% -0.01% 0.292 7.84% 0. Porter . float.740 85. cable and conductors Starches.888 78.13% 1.82% 1.186 1.50% 0.72% 6.26% 0.449 9.477 63.205 6. super‐heated water boilers.193 89.725 148.13% 1. Institute for Strategy and Competitiveness.137.745 653. extracts Milk.Upgrading Vietnamese Niche Positions. tubes Gas meters Steam generating boilers.35% 35% 0.41% 1. balata and similar natural gums Reclaimed unhardened rubber. cast glass.010 7. waste Plastic sacks.690 12.084 150. unmounted Electric sound amplifiers Input or output units Printed circuits TV picture tubes.93% 2.964 8.20% 1.0 0 53.5w Sewing machines and parts Loudspeakers.22% -1.260% Lighting and Electrical Equipment Electrical Equipment Motor Driven Products Entertainment and Reproduction Equipment Information Technology Analytical Instruments Production P d i Technology 0.36% 1.501 Sporting.31% 0.40% 1.86% 0. rectifying plant g y gp Vegetable saps.64% 0.425 45. inulin and gluten Distilling. a Articulated link chain and parts Cutting blades for machines Industry Share of World Exports 7.37% 2. a Steam generating boilers.34% 1. Richard Bryden.490% Rubber Plastic Waste Plastic Products Rubber Motorcycles and Bicycles y y Natural rubber.43% 1.35% 35% 0.42% Change in Export Value (in Share (1997$ $thousands) ) 2006) 3.361% Motorcycles and Bicycles 0.34% 1.17% 1. bags Synthetic rubber Parts of other motorcycles y Bicycles and other cycles.21% 1.384 705.68% 1.185 137.23% 2. accounting machines Insulted wire.749 39.
Agenda • Understanding Vietnam’s Economic Performance • Assessing Vietnamese Competitiveness • Id tif i Action Priorities Identifying A ti P i iti • Organizing for Competitiveness • Creating an Economic Strategy 20081201 – Vietnam CAON.ppt 51 Copyright 2008 © Professor Michael E. Porter .
institutions for collaboration • Competitiveness must become a bottoms-up process in which many individuals. Porter . teaching and research institutions and institutions.The Process of Economic Development Shifting Roles and Responsibilities g p Old Model New Model • Government drives economic development through policy decisions and incentives • Economic development is a collaborative process involving government at multiple levels. companies. and institutions take responsibility • Every community and cluster can take steps to enhance competitiveness 20081201 – Vietnam CAON. companies.ppt 52 Copyright 2008 © Professor Michael E.
Government and the Process of Economic Development • Competitiveness is affected by a myriad of government entities – Multiple agencies and departments (e. finance. energy. commerce. regional p gy. states. g ) – Multiple levels of government (nations. etc.ppt . science and technology. agriculture) y. trade. education. cities.) – Intergovernmental relations with neighboring countries affect competitiveness • Competitiveness is rarely the sole agenda of any government agency • Coordinating structures are needed that brings together the ministries and departments necessary to formulate and implement an economic strategy Explicit mechanisms are needed to engage the private sector in dialog about policy priorities and implementation progress 53 Copyright 2008 © Professor Michael E. gy. . g policy. Porter • 20081201 – Vietnam CAON.g.
Organizing for Competitiveness in Vietnam Recommendations • Create effective.ppt 54 Copyright 2008 © Professor Michael E. Porter . independent regulatory organizations • Improve economic policy at the provincial level • Improve mechanisms for public-private discussion and collaboration • Enhance strategic planning and program management capacity in the central and provincial governments • Develop a national economic strategy process to guide priorities in improving th b i i i the business environment i t 20081201 – Vietnam CAON.
ppt 55 Copyright 2008 © Professor Michael E.Regional Development in Vietnam • Vietnam’s provinces are developing at different rates. Porter . who apply to the national government for funds • Provinces have adopted unfocused growth strategies with much duplication p provinces and little specialization across p • Provinces have insufficient technical capacity for policy design and implementation • Each province s ou d be c a ged with de e op g a eco o c p a based o ac p o ce should charged t developing an economic plan on its unique strengths and potential • Each province should be expected to publicly report on implementation 20081201 – Vietnam CAON. prosperity levels between the richest and poorest regions differs greatly p p y p • Political power and responsibility for economic development has been decentralized to the provinces.
Porter . and train government leaders – Joint national and provincial • Enhanced role of business associations 20081201 – Vietnam CAON.ppt 56 Copyright 2008 © Professor Michael E.Competitiveness Institutions • Economic strategy unit in the Prime Minister’s office – Regularly updating on progress – Lead a formal planning and program management process involving all agencies • Public-private competitiveness council • Vietnam Competitiveness Institute – To conduct analyses. benchmark vs. other countries.
ppt 57 Copyright 2008 © Professor Michael E.Agenda • Understanding Vietnam’s Economic Performance • Assessing Vietnamese Competitiveness • Id tif i Action Priorities Identifying A ti P i iti • Organizing for Competitiveness • Creating an Economic Strategy • Integrating Corporate Social Responsibility g g p p y 20081201 – Vietnam CAON. Porter .
and existing and potential strengths? – What roles with neighbors. and the broader world? – What unique value as a business location? q – For what types of activities and clusters? Developing Unique Strengths • What elements of context and the business environment are crucial priorities? • What existing and emerging clusters should be developed first? Achieving and Maintaining Parity with Peers • What weaknesses must be addressed to achieve parity with peer countries? • Priorities and sequencing are a necessity in economic development 20081201 – Vietnam CAON.Defining an Economic Strategy National Value Proposition • What is the unique competitive position of the nation or region given its location.ppt 58 Copyright 2008 © Professor Michael E. the region. legacy. Porter .
for example through a strategy unit in the Prime Minister’s office 20081201 – Vietnam CAON.ppt 59 Copyright 2008 © Professor Michael E. the government needs to increase its technical capacity to support such a strategic dialogue. Porter .The Need for an Economic Strategy • Th Vietnamese government follows l The Vi t t f ll largely an evolutionary and l l ti d reactive approach in response to crises and specific problems • Foreign aid inflows are fragmented and driven by donor-priorities • This approach has been successful in achieving success in factorbased economic development. but will be insufficient to move to a new stage • Government needs leads in a broad-based discussion on a new economic strategy that sets priorities for improvements in the business environment and institutions – Internally.