Launch of the Asia Competitiveness Institute

Singapore Competitiveness:
A Nation in Transition

Prof. Michael E. Porter

Harvard Business School

Singapore
28 November 2006

This presentation draws on ideas from Professor Porter’s books and articles, in particular, “Building the Microeconomic Foundations of Prosperity,”
in The Global Competitiveness Report 2006-07 (World Economic Forum, 2006); “Clusters and the New Competitive Agenda for Companies and
Governments,” in On Competition (Harvard Business School Press, 1998); Clusters of Innovation Initiative (www.compete.org), a joint effort of the
Council on Competitiveness, Monitor Group, and ongoing research. 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 the author

Additional information may be found at the website of the Institute for Strategy and Competitiveness, www.isc.hbs.edu
 Trends in the Global Economy

• Globalization ofmarkets
• Globalization ofvalue chains
• Globalization ofknowledge
• Innovation and skill an increasing share of value added
• Services an increasing share of value added

• Competitiveness depends onproductivity

• The bar for competitiveness isrising
• Competitiveness in the global economy is apositive-sum game

2 Copyright © 2006 Professor Michael E. Porter

GCR Singapore 092006.ppt
 Singapore Competitiveness in Transition

• Singapore is one of the mostimpressive success stories of economic

growth in the 20th century

• The country has successfullyweathered a series of external shocks

from the Asian crisis (1997-98) to the bursting of the IT bubble (2001) to
SARS (2003)

• It is now on achallenging path to move from an economy based on

efficiency to one based on differentiation and innovation

• The track record so far isencouraging, but much work lies ahead

• An enduring strength of Singapore is itswillingness to question

whether the current sources of its economic success are sustainable
3 Copyright © 2006 Professor Michael E. Porter
GCR Singapore 092006.ppt
 Prosperity Performance
Selected Countries
Real PPP-adjusted GDP per
Capita, 2005
$45,000
U.S.
Norway U.K., Sweden,
$40,000
Belgium, Australia, Ireland
Switzerland Austria Finland Singapore
$35,000
Denmark Iceland Hong Kong
NL France
$30,000 Japan Canada
Italy Germany
$25,000 Spain
New Zealand S Korea
Greece
$20,000 Czech Rep.
Hungary
$15,000 Slovakia
Mexico Poland
$10,000 Malaysia China (8.8%,
Turkey Thailand $6,290)
$5,000 Philippines Sri Lanka India
Indonesia
Myanmar Laos Vietnam
$0
0% 1% 2% 3% 4% 5% 6%
Growth of Real GDP per Capita (PPP-adjusted), CAGR, 2000-2005
Source: EIU (2006), authors’ calculations
4 Copyright © 2006 Professor Michael E. Porter
GCR Singapore 092006.ppt
 Innovation and Competitiveness

Prosperity
Prosperity

Productivity
Productivity Competitiveness

Innovative
Innovative Capacity
Capacity

• Innovation ismore than just scientific discovery

• There areno low-tech industries, only low-tech firms

5 Copyright © 2006 Professor Michael E. Porter

GCR Singapore 092006.ppt
 Labor Productivity Level and Growth
Selected Countries
GDP per Employee, US-$, 2005
90000
Norway U.S.
Netherlands Austria Ireland
80000 Italy Belgium
Switzerland France
Sweden Hong Kong Singapore
70000
Canada UK Finland Taiwan
Spain Iceland
Germany Japan
60000 Australia, Greece
Denmark
50000
New Zealand South Korea
Portugal Hungary
40000
Slovakia Czech Rep.
Mexico Poland
30000 Malaysia
Turkey

20000
Philippines Thailand
10000 Indonesia Vietnam
Myanmar Sri Lanka
India
Bangladesh
0
-1% 0% 1% 2% 3% 4% 5%
Growth of Real GDP Employee, CAGR, 2000 - 2005
Source: Groningen Growth and Development Centre and The Conference Board, 2006.
6 Copyright © 2006 Professor Michael E. Porter
GCR Singapore 092006.ppt
 International Patenting Output
Selected Countries

Annual U.S. patents per 1

million population, 2005
300
U.S.

250 Japan

Taiwan

200

150 Switzerland Finland

Germany Israel
Sweden Canada
100
South Korea
Denmark Singapore
Netherlands
Austria
50 France Australia
U.K. Norway
Italy
0
-8% -3% 2% 7%

Compound annual growth rate of US-registered patents, 2000 – 2005

Source: USPTO, 2005

7 Copyright © 2006 Professor Michael E. Porter
GCR Singapore 092006.ppt
 Determinants of Competitiveness

Macroeconomic,
Macroeconomic, Political,
Political, Legal,
Legal, and
and Social
Social Context
Context

Microeconomic
Microeconomic Foundations
Foundations

The
TheSophistication
Sophistication The
TheQuality
Qualityof
ofthe
the
of
ofCompany
Company Microeconomic
Microeconomic
Operations
Operationsand
and Business
Business
Strategy
Strategy Environment
Environment

• A sound macroeconomic, political, legal, and social context creates the potential
for competitiveness, but is not sufficient
• Onlyfirms can create wealth, not government

8 Copyright © 2006 Professor Michael E. Porter

GCR Singapore 092006.ppt
 Determinants of Competitiveness
Enhancing the Business Environment
Context
Contextfor
for
Firm
Firm
Strategy
Strategy
and
andRivalry
Rivalry

z A local context and rules that

encourage productivity
– e.g., incentives for capital
investments, intellectual
Factor property protection
z
Factor Incentive systems based on Demand
(Input) Demand
(Input) merit Conditions
Conditions Conditions
z
Conditions Open and vigorous local
competition, especially
z Availability of high quality, among locally based rivals z More sophisticated and
specialized inputs available demanding local customer(s)
to firms z Local customer needs that
– Human resources anticipate those elsewhere
Related
Relatedand z Unusual local demand in
– Capital resources and
– Physical infrastructure Supporting
Supporting
Industries specialized segments that can
– Administrative infrastructure Industries
(e.g. registration, permits) be served nationally and globally
– Information infrastructure (e.g.
economic data, corporate z Access to capable, locally based suppliers
disclosure) and firms in related fields
– Scientific and technological z Presence of clusters instead of isolated
infrastructure
industries
– Natural resources

• Successful economic development is a process ofsuccessive economic upgrading, in which the

business environment evolves to support and encourage increasingly sophisticated ways of competing
9 Copyright © 2006 Professor Michael E. Porter
GCR Singapore 092006.ppt
 Traditional Strengths of
the Singaporean Business Environment
Context
Contextfor
for
Firm
Firm
Strategy
Strategy
and
andRivalry
Rivalry

z High openness to global

competition
z Aggressive attraction of
Factor
Factor foreign companies
Demand
Demand
(Input)
(Input) z Attractive tax regime Conditions
Conditions Conditions
z
Conditions Professional management and
governance of government-
linked companies
z World-class infrastructure
z Efficient government
services and regulations Related
Relatedand
and
Supporting
z Well-trained and flexible Supporting
Industries
Industries
workforce
z Solid financial market
z Focus on selected clusters (electronics,
chemicals, logistics, financial services) to
overcome small economy-disadvantages

10 Copyright © 2006 Professor Michael E. Porter

GCR Singapore 092006.ppt
 Cluster Development
Oil and Gas, Houston
Upstream Downstream

Oil Oil Oil

Oil Oil Oil
Trans- Wholesale Retail
Oil & Natural Gas Oil & Natural Gas Trading Refining Distribution Marketing
portation Marketing
Exploration & Completion &
Development Production Gas Gas Gas Gas
Gas Gas
Transmis-
Gathering Processing Trading Distribution Marketing
sion

Oilfield Services/Engineering & Contracting

Firms

Equipment Specialized Subcontractors Business

Suppliers Technology Services
(e.g. Surveying,
Services
(e.g. Oil Field Mud Logging, (e.g. MIS Services,
Chemicals, Maintenance Technology
(e.g. Drilling Services)
Drilling Rigs, Consultants, Licenses,
Drill Tools) Reservoir Services, Risk Management)
Laboratory Analysis)

Specialized Institutions
(e.g. Academic Institutions, Training Centers, Industry Associations)

11 Copyright © 2006 Professor Michael E. Porter

GCR Singapore 092006.ppt
 Singapore
Export Portfolio by Cluster, 1997-2005
14.00%

Information Technology
12.00%
Singapore’s world export market share, 2005

Change In Singapore’s Overall

10.00% World Export Share: -0.07%

8.00%

6.00% Power and Power

Generation Equipment
Communications
Equipment
Entertainment and Oil and Gas Products
Chemical Products
4.00% Reproduction Publishing
Equipment Business and Printing
Services

2.00% Heavy Singapore’s Average World

Tobacco Motor Driven Products
(1.9%, -3.6%) Machinery Export Share: 2.34%
Aerospace Engines
Hospitality and Tourism

0.00%
-2.00% -1.50% -1.00% -0.50% 0.00% 0.50% 1.00% 1.50% 2.00%
Change in Singapore’s world export market share, 1997 – 2005
Source: Prof. Michael E. Porter, International Cluster Competitiveness Project, Institute for Strategy and Competitiveness, Harvard Business School; Exports of US$10 Billion =
Richard Bryden, Project Director. Underlying data drawn from the UN Commodity Trade Statistics Database and the IMF BOP statistics.
12 Copyright © 2006 Professor Michael E. Porter
GCR Singapore 092006.ppt
 Singapore
Export Portfolio by Cluster, 1997-2005 (continued)
3.00%
Business Services
Oil and Gas Products
Analytical Instruments
Transportation and Logistics
Singapore’s Average World
2.50% Lighting and Electrical Equipment
Singapore’s world export market share, 2005

Export Share: 2.34%

Change In Singapore’s Overall

World Export Share: -0.07%
Plastics
Jewelry, Precious
2.00%
Metals and Collectibles
Financial Services
Production Technology
Medical Devices
1.50%
Marine Equipment Biopharmaceuticals

Aerospace Vehicles
Sporting, Recreational and Children's Goods and Defense
1.00%
Metal Mining and Manufacturing Processed Food

Fishing and
Apparel Construction Services
Fishing Products
Leather and Related Products
Textiles Construction
0.50%
Agricultural Products Materials Forest Products
Footwear Automotive
Furniture
Communications Prefabricated Enclosures and Structures
Building Fixtures
Services
and Equipment
0.00%
-0.50% -0.40% -0.30% -0.20% -0.10% 0.00% 0.10% 0.20% 0.30% 0.40% 0.50%
Change in Singapore’s world export market share, 1997 – 2005
Source: Prof. Michael E. Porter, International Cluster Competitiveness Project, Institute for Strategy and Competitiveness, Harvard Business School; Exports of US$10 Billion =
Richard Bryden, Project Director. Underlying data drawn from the UN Commodity Trade Statistics Database and the IMF BOP statistics.
13 Copyright © 2006 Professor Michael E. Porter
GCR Singapore 092006.ppt
 Foreign Investment Stocks and Flows
Selected Countries
Stock of FDI as a % of GDP,
Average 2001-2004
160%

140%
Singapore

120%

100%

80% Vietnam

60%
New Zealand, Hungary Netherlands
Ireland
Denmark Switzerland
Sweden Czech. Rep.
Germany
40% Portugal
U.S.Thailand
Spain Slovakia
Greece, Norway Finland
20% Korea China Slovenia
Iceland
India Italy, Turkey
0%
Japan
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

FDI Inflows as a % of Gross Fixed Capital Formation,

Average 2001-2004
Source: UNCTAD (2005) 14 Copyright © 2006 Professor Michael E. Porter
GCR Singapore 092006.ppt
 Singapore Export Share Trends

World Export
Market Share
2.50%

2.00%

1.50%
Goods
Services
Total
1.00%

0.50%

0.00%
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Source: WTO (2006)

15 Copyright © 2006 Professor Michael E. Porter
GCR Singapore 092006.ppt
 The Process of Economic Development
Shifting Roles and Responsibilities

Old
Old Model
Model New
New Model
Model

•• Government
Government drives
drives economic
economic •• Economic
Economic development
development is is aa
development
development through
through policy
policy collaborative
collaborative process
process involving
involving
decisions
decisions and
and incentives
incentives government
government at at multiple
multiple levels,
levels,
companies,
companies, teaching
teaching and
and
research
research institutions,
institutions, and
and
institutions
institutions for
for collaboration
collaboration

• Competitiveness must become abottom-up process in which many individuals,

companies, and institutions take responsibility
• Every community and cluster can take steps to enhance competitiveness

16 Copyright © 2006 Professor Michael E. Porter

GCR Singapore 092006.ppt
 Institutions for Collaboration
Selected Massachusetts Organizations, Life Sciences

Life
Life Sciences
Sciences Industry
Industry Associations
Associations University
University Initiatives
Initiatives

zz Massachusetts
Massachusetts Biotechnology
Biotechnology Council
Council zz Harvard
Harvard Biomedical
Biomedical Community
Community
zz Massachusetts
Massachusetts Medical
Medical Device
Device Industry
Industry zz MIT
MIT Enterprise
Enterprise Forum
Forum
Council
Council zz Biotech
Biotech Club
Club at
at Harvard
Harvard Medical
Medical School
School
zz Massachusetts
Massachusetts Hospital
Hospital Association
Association zz Technology
Technology Transfer
Transfer offices
offices

General
General Industry
Industry Associations
Associations Informal
Informal networks
networks

zz Associated
Associated Industries
Industries of
of Massachusetts
Massachusetts zz Company
Company alumni
alumni groups
groups
zz Greater
Greater Boston
Boston Chamber
Chamber of of Commerce
Commerce zz Venture
Venture capital
capital community
community
zz High
High Tech
Tech Council
Council of
of Massachusetts
Massachusetts zz University
University alumni
alumni groups
groups

Economic
Economic Development
Development Initiatives
Initiatives Joint
Joint Research
Research Initiatives
Initiatives

zz Massachusetts
Massachusetts Technology
Technology Collaborative
Collaborative zz New
New England
England Healthcare
Healthcare Institute
Institute
zz Mass
Mass Biomedical
Biomedical Initiatives
Initiatives zz Whitehead
Whitehead Institute
Institute For
For Biomedical
Biomedical
zz Mass
Mass Development
Development Research
Research
zz Massachusetts
Massachusetts Alliance
Alliance for for Economic
Economic zz Center
Center for
for Integration
Integration of
of Medicine
Medicine and
and
Development
Development Innovative
Innovative Technology
Technology (CIMIT)
(CIMIT)

17 Copyright © 2006 Professor Michael E. Porter

GCR Singapore 092006.ppt
 Singapore in Transition:
Focus of Current Economic Policies
Innovation
Create new competitive advantages
for Singapore
• Investments in universities
• R&D fund for companies / clusters
• Reform of school system
• Focus on more ‘creative
environment’
Efficiency
Defend Singapore’s core
competitive advantages
• Tax reductions
18
GCR Singapore 092006.ppt
Entrepreneurship
Address existing competitive
disadvantages of Singapore
• Support internationalization
of Singaporean companies
• Liberalization of domestic
markets, e.g. telecom
• FTAs with US, ASEAN, etc.
Social policy
Defend Singapore’s
social fabric
• ‘Progress Package’ of
spending for low-income
citizens
Copyright © 2006 Professor Michael E. Porter
 Singapore Biotech Cluster
Evolution Over Time
2004
ƒ A*Star and JDRF
2000 2002
ƒ Genomics Institute of ƒ Singapore Tissue
Singapore Network provide grants to
ƒ Biomedical Research Council ƒ Institute of support 7 stem cell
ƒ
1995
ƒ Bioprocessing
research projects
ƒ Pfizer opens US$220
Bioethics Advisory Bioengineering and
Committee Nanotechnology
ƒ ƒ Cancer Syndicate
Technology
Tuas Biomedical Park million manufacturing
Centre
plant

1995 2000 2002 2005

1998 2001 2003 2005

ƒ Centre for ƒ Bioinformatics ƒ BioPolis opens for ƒ Launch of new biotech
Drug Institute business courses in Ngee Ann
Evaluation ƒ Novartis Institute of ƒ Center for Natural Polytechnic
ƒ Johns Hopkins Tropical Diseases Product Research ƒ Novartis breaks ground on
Singapore ƒ Biomedical Sciences privatized to form MerLion US$115 million production
Manpower Advisory Pharma facility in Tuas Biomedical
Committee ƒ National University of Park
ƒ Groundbreaking of Singapore and Duke ƒ Albany Molecular
Biopolis University agree to open Research established
a Graduate Medical Research Center
School

Source: Research by HBS student teams in 2005 – Li-Mei Chee, Kola Luu, Gopal Raman, Hwee Yee Yong
19 Copyright © 2006 Professor Michael E. Porter
GCR Singapore 092006.ppt
 National Economic Strategy

Value
ValueProposition
Proposition

• What is theunique competitive position of the

nation?
– What roles in the world and regional economies?
– What unique value as a business location?
– For what range or types of businesses and
functions can the nation be competitive?

Achieving
Achievingand
andMaintaining
MaintainingParity
Parity
Developing
DevelopingUnique
UniqueStrengths
Strengths with
withPeers
Peers

• Whatelements of the business • Whatmacro/political/legal/social

environment are essential to the national improvements are necessary to maintain
value proposition? parity with peer countries or regions?
• Whatexisting and emerging clusters must • What areas of thegeneral business
be mobilized? environment must improve to maintain
parity with peer countries or regions?
20 Copyright © 2006 Professor Michael E. Porter
GCR Singapore 092006.ppt
 Asia Competitiveness Institute

• Barriers to competitiveness improvement:

– The lack of objective, relevant microeconomic data to analyze
competitiveness and track the impact of competitiveness efforts
– The lack of an independent research organization separate from
the government
– The individuals with advanced training in the concepts and practice
of competitiveness

• TheAsia Competitiveness Institute (ACI) will have an important

impact on all three dimensions
• As the node in an emerging networkof professionals and institutions
throughout the ASEAN region, ACI will also become a central facilitator
of more effective regional co-operation on competitiveness

21 Copyright © 2006 Professor Michael E. Porter

GCR Singapore 092006.ppt
 Asia Competitiveness Institute
Action Priorities 2006-2007

Organizational launch Initial research projects

• Strategic plan for ACI • HBS case study on Singaporean

• Official ACI launch
• Recruitment of 2 Senior Research
Fellows and 2 Research Fellows or
equivalent
competitiveness
• Singapore Competitiveness Report
• Assembly of Singapore competitiveness
data and development of competitiveness
research database
• Projects on Indonesia and Vietnam

Network building Education and training

• Stakeholders • Microeconomic of Competitiveness

• Related Institutes, universities and course as an elective in LKY SPP
government bodies • 5-day executive program
• Regional media • Explore customized programs for ASEAN
governments

22 Copyright © 2006 Professor Michael E. Porter

GCR Singapore 092006.ppt
 Asia Competitiveness Institute
Conditions for Success

• Independence
• Permanence
• Inclusiveness
• Clear intellectual framework
• World class research
• Strong leadership

23 Copyright © 2006 Professor Michael E. Porter

GCR Singapore 092006.ppt