MOC Affliate Workshop Framework Overview

Microeconomics of Competitiveness
Core Concepts and Course Structure
Faculty Workshop
December 11th, 2018
Professor Michael E. Porter
Boston, MA
This presentation draws on ideas from Professor Porter’s books and articles, in particular, Competitive Strategy (The Free Press, 1980); Competitive
Advantage (The Free Press, 1985); “What is Strategy?” (Harvard Business Review, Nov/Dec 1996); On Competition (Harvard Business Review, 2008);
and “Creating Shared Value” (Harvard Business Review, Jan 2011). 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. For
further materials, see the website of the Institute for Strategy and Competitiveness, www.isc.hbs.edu, and FSG website, www.fsg.org.
What is MOC?
The course is… The course is not…
• A course on the competitiveness and • A course only on company
the economic and social development of strategy or multinational business
locations
• Provides a holistic framework. Highlights • Primarily about macroeconomic

the microeconomic foundations of policy
competitiveness, and the organizational
and political issues involved in improving
competitiveness in practice
• Develops implications for multiple • A mainstream course on

constituencies: federal, state and local development, focusing primarily on
governments, firms, industry associations, government policy
universities, and others
• Describes how to develop an overall • A detailed study of specific policy

economic strategy for a country or region areas
• Based on a unified framework together • A survey course that summarizes the

with in-depth case studies literature
20181211—MOC Workshop Framework Overview 2 Copyright 2018 © Professor Michael E. Porter
Topics
I. Course Overview and Core Concepts
1. Differences in Prosperity & Growth
2. Defining Competitiveness
3. Indicators and Enablers of Competitiveness
4. Integrating Economic and Social Development
5. Determinants of Competitiveness: The Core Framework
6. Geographical Influences on Competitiveness
7. National (and Regional) Economic Strategy
8. Cluster-Based Economic Development Policy
9. Organizing for Competitiveness
10. Role of the Private Sector in Economic and Social
Development
II. Course Structure
Prosperity Performance
OECD and BRIC Countries
PPP-Adjusted Real
GDP per capita, 2017
$100,000
High but Declining Average Prosperity High and Improving
Growth: +1.13%
$90,000
Luxembourg
$80,000
$70,000
Norway
Ireland
$60,000 Switzerland
Iceland
United States Sweden
$50,000 Netherlands
Denmark Australia
Austria Germany
Belgium Average Real GDP per Capita:
Finland Canada
$40,000 United Kingdom France
$37,295
Japan New Zealand South Korea
Spain
Italy Israel Lithuania
$30,000 Slovenia
Portugal Hungary Poland
Greece Estonia Russia Latvia Turkey
Slovak Republic
$20,000 Czech Republic Chile
Mexico
Brazil China
$10,000
India
Low and Declining Low but Improving
$0
-3% -2% -1% 0% 1% 2% 3% 4% 5% 6% 7% 8%
Growth in Real GDP per capita (PPP US$ at 2011 prices), CAGR 2007-2017
Source: World Development Indicators, World Bank
Prosperity Performance
Low and Lower Middle Income Countries
PPP-Adjusted Real
$12,000 High but Declining Bosnia and Herzegovina High and Improving
Albania Sri Lanka
Tunisia
Ecuador
St. Vincent and Average Prosperity Indonesia Mongolia
the Grenadines Growth: +2.18%
$10,000 Egypt
Dominica Kosovo Georgia
Namibia Armenia
Fiji Paraguay Bhutan
Jamaica
Jordan Belize Guatemala

Ukraine Philippines
Morocco
El Salvador Bolivia Guyana India
Samoa Laos
Angola Nigeria Vietnam Uzbekistan
Nicaragua
Moldova Myanmar
Tonga
$5,000 Congo, Rep. Pakistan Average Real GDP
Honduras Sudan per Capita: $5,043
Papua New Guinea Ghana
Mauritania
Marshall Islands Cote d’Ivoire
Lesotho Zambia Bangladesh
Micronesia Cameroon Cambodia
Tanzania
Senegal Kenya Tajikistan
Benin Nepal
Guinea-Bissau MaliSolomon Islands
Zimbabwe
Chad Guinea Rwanda
Togo Afghanistan
Central African Kiribati
Madagascar Haiti Uganda Burkina Faso Ethiopia
Republic Gambia Niger Malawi
Dem. Rep. Congo Mozambique
Liberia Sierra Leone
Low and Declining Burundi Low but Improving
$0
-3% -2% -1% 0% 1% 2% 3% 4% 5% 6% 7% 8%
Growth in Real GDP per capita (PPP US$ at 2011 prices), CAGR 2007-2017
Note: Based on World Bank Income group classifications; Low and Lower Middle Income Countries” are those with GDP per capita <$12,000
Income Inequality
Selected Countries
PPP-Adjusted Real
$100,000
Average : 36.52
Luxembourg
$95,000
Norway Ireland
$60,000
Switzerland
US
$50,000 Netherlands
Sweden
Denmark
Germany
Belgium
Austria
$40,000 UK
Finland
France Italy
Spain
Czech Republic Estonia Lithuania
$30,000 Slovenia Portugal
Hungary Malaysia
Slovak Republic Average Real GDP
Latvia Turkey per Capita: $23,257
Croatia Russian Federation Chile Panama
Kazakhstan
$20,000 Romania Greece Uruguay
Belarus Thailand Dominican Republic Costa Rica
Brazil
Bosnia and Herzegovina Peru
Egypt Ecuador Colombia
$10,000 Armenia Georgia Namibia
Ukraine El Salvador Paraguay
Moldova Pakistan Myanmar
Bolivia Honduras
Ethiopia Kenya
Gambia
$0 Low inequality High inequality
20 30 40 50 60
Index of Inequality, 2015

Labor Productivity Performance
PPP-Adjusted Real GDP per
Labor Force Participant, 2016
OECD and BRIC
$135,000
Ireland
Norway
$115,000
United States
Switzerland Belgium
$95,000
Denmark
Netherlands Sweden
Austria
Italy France Germany Australia
Finland
Canada Iceland
$75,000 United Kingdom Japan
Israel Average: $70,414
Spain Korea
New Zealand Turkey
Slovenia Czech Slovak Republic
$55,000 Portugal Republic
Hungary Estonia
Poland
Greece
(-2.2%, $54,887) Russian Federation Chile
Mexico
$35,000
China
Brazil
India
Average: +1.52%
$15,000
-1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%
Growth in Real GDP per Labor Force Participant (PPP US$ at 2011 prices) CAGR 2010-2016
Note: Luxembourg omitted from OECD average. Growth calculated as compound annual growth rate.
Source: World Bank (2017).
20181211—MOC Workshop Framework Overview Copyright 2018 © Professor Michael E. Porter
Workforce Participation
Labor Force Latin American and Caribbean Countries
Participation (2016)
75% Peru
High but Declining Bahamas
High and
Bolivia
Improving
Paraguay St. Vincent and
the Grenadines
70% Dominican Republic St. Lucia Belize
Colombia
Brazil Uruguay
Haiti
Average: 64.5% Barbados Jamaica Panama Honduras
65%
Ecuador Venezuela Nicaragua
Trinidad and Tobago Costa Rica El Salvador Chile
Guatemala Argentina Mexico
60%
Guyana
55% Cuba
Suriname
50%
45% Puerto Rico

(-6.2%, 42.5%)
Low and Declining Average: +0.5% Low but Improving

40%
-7% -6% -5% -4% -3% -2% -1% 0% 1% 2% 3% 4% 5% 6% 7%
Change in Labor Force Participation Rate, 2006-2016

Source: World Bank
Topics
Development
What is Competitiveness?
A nation is competitive to the extent that firms operating there are able to
compete successfully in the regional and global economy while
maintaining or improving wages and living standards for the average
citizen
• Competitiveness requires sustained improvement in the productivity of the

nation as a place to do business
- Raising the productivity of existing firms and workers
- Enabling high participation of citizens in the workforce
• Competitiveness is not:
- Low wages
- A weak currency
- Jobs per se
• Improving competitiveness requires improving the environment for business

including social conditions such as education, health, and others

10
The Dual Elements of Competitiveness
Competitiveness
Labor
Productivity
Utilization
• Labor productivity • Workforce participation rate
• Capital productivity - Affected by population
• Total factor productivity age profile
• Working hours

Topics
Development
Competitiveness Indicators and Enablers
Productivity Level and Growth
Domestic Inbound Outbound

Domestic innovation
Exports Imports foreign direct foreign direct
investment (Including assimilation
of foreign technology) investment investment
Country Competitive Environment
• Indicators and enablers are part of the diagnostic framework

for assessing a country’s business environment

Composition of Exports
Guyana’s Exports By Type of Good
World Export Market
Share (current USD)
0.045%
Processed
Semi-processed
0.040% Unprocessed
Services
Total
0.035%
0.030%
0.025%
0.020%
0.015%
0.010%
0.005%
0.000%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: Prof. Michael E. Porter, International Cluster Competitiveness Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director. Underlying data drawn from the UN Commodity Trade
Statistics Database and the IMF BOP statistics.
14
Top 25 Exports of Goods by Value, 2016
Guyana
World Change in
Export Value Export Share
Industry Cluster ($ millions) Share (2006-2016)
1 Gold, non-monetary, excluding ores Upstream Metal Manufacturing 663.7 0.23% 0.09%
2 Rice husked Food Processing and Manufacturing 147.9 10.9% 1.63%
3 Aluminum ores and concentrates Metal Mining 108.2 0.90% 0.64%
4 Sugars, molasses and honey Food Processing and Manufacturing 90.8 0.27% -0.36%
5 Crustaceans, mollusks, and aquatic invertebrates Fishing and Fishing Products 49.8 0.13% -0.05%
6 Fish, fresh, chilled, or frozen Fishing and Fishing Products 43.1 0.07% 0.00%
7 Spirits Food Processing and Manufacturing 39.8 0.15% 0.02%
8 Transport containers Trailers, Motor Homes, and Appliances 21.5 0.31% 0.18%
9 Diamonds excluding industrial Jewelry, Precious Metals and Collectibles 17.5 0.02% -0.03%
10 Rice in the husk Agricultural Products and Inputs 15.2 1.73% 1.73%
11 Miscellaneous simply shaped wood Forestry 14.5 4.88% 3.01%
12 Electric accumulators Lighting and Electrical Equipment 12.0 0.03% 0.03%
13 Wood of non-conifer, sawn Wood Products 11.9 0.13% -0.35%
14 Wood of non-conifer worked, shaped Wood Products 8.4 0.30% 0.14%
15 Fruit, nuts excluding oil nuts Food Processing and Manufacturing 8.3 0.01% 0.01%
16 Fish, dried, salted, or smoked Fishing and Fishing Products 6.4 0.12% 0.09%
17 Rice, milled or semi-milled Food Processing and Manufacturing 5.9 0.03% 0.01%
18 Miscellaneous food preparations Food Processing and Manufacturing 3.4 0.01% 0.00%
19 Sands, natural not metal bearing Nonmetal Mining 3.3 0.26% 0.19%
20 Wood rough, rough squared Forestry 2.9 0.03% -0.01%
21 Miscellaneous medicaments Biopharmaceuticals 2.9 0.00% 0.00%
22 Fruit, preserved or prepared Food Processing and Manufacturing 2.8 0.01% -0.02%
23 Precious metal waste and scrap Upstream Metal Manufacturing 2.6 0.03% n/a
24 Containers, cartons, bags/ cases of paper, paperboard Paper and Packaging 2.2 0.01% 0.00%
25 Miscellaneous non-alcohol beverage Food Processing and Manufacturing 2.0 0.01% 0.01%
TOTAL WORLD EXPORT SHARE .0081% .0029%
Top 25 Goods Exports as a Share of Guyana’s Total Goods Exports: 98.2%

15
Inbound Foreign Investment Performance
Inward FDI Stocks as %
OECD and BRIC Countries
of GDP, Average 2006-2016
160%
High but Declining Average: +21.25% High and Improving
150% Ireland
140% Belgium
130%
120%
110%
Switzerland
100%
90%
Estonia Netherlands
80%
Chile
70% Hungary
Sweden
60% Iceland
Slovak Republic
Portugal Canada Average: 51.77%
Spain
50% Mexico
New Zealand Latvia
Austria Norway Australia UK
40%
France Poland
30% Denmark Slovenia Lithuania Finland
Brazil
Germany Israel
20% Italy United States Russia
South Korea Turkey
10% India
China
Low and Declining
Japan Greece Low but Improving
0%
0% 5% 10% 15% 20% 25% 30% 80% 85%
FDI Inflows as % of Gross Fixed Capital Formation, Average 2006-2016

Note: Country set includes OECD and BRIC countries.
Source: UNCTADstat, The U.N. Conference on Trade and Development (UNCTAD), 2017
Innovation Output
Selected Countries
Average U.S. patents per 1 million
population, 2013-2015
500
Taiwan
United States
450
Japan
Israel
400
South Korea
300 Switzerland
Sweden
250
Finland
200 Germany
Canada
Denmark
Singapore
Netherlands
150 France
Austria
Belgium Iceland
Norway
100 Luxembourg
United Kingdom Ireland
Australia Hong Kong
50 Mexico Spain
New Zealand
Russia Czech Republic
Italy Malaysia Hungary Colombia Portugal Chile Saudi Arabia China
Greece Thailand India Bulgaria Turkey
South Africa Costa Rica Brazil Poland
0 PeruIndonesia Argentina Ukraine
-2% 0% 10% 20% 30% 36%
CAGR of US-registered patents, 2005-2015 = 25,000 patents (totals)

Source: U.S. Patent & Trademark Office (USPTO), 2015
Topics
Development
The Dual Challenges of Development
Economic Social
Development Development
• There is a powerful connection between economic and

social development
• The paradigm has been that economic development
measured by GDP will lead to social progress
• Improving competitiveness requires improving economic
and social conditions simultaneously
19
The Process of Development
Economic Social
Development Progress
(GDP per capita)
• But social progress also influences economic development

Topics
Development
Need For An Overall Framework
• Successful economic and social development requires a
holistic framework for understanding the drivers of
competitiveness, economic development, and social
development in countries and regions
– The MOC framework has been developed, refined, and applied
at the national, state, local level, as well as for understanding
the integration across neighboring countries
• Every country is unique, and economic and social

development strategy must be specific to the unique
country context (e.g., economy, culture, history, political
structure)
– This requires customized analysis as well as collaboration
among stakeholders. This framework will deliver different
priorities and recommendations for every country

22
What Determines Competitiveness?
Endowments
• Endowments, including natural resources, geographical location,

population, climate conditions, land area, and historical legacy
create a foundation for prosperity, but true prosperity arises from
productivity in the use of endowments

The Basis of Prosperity
Inherited Prosperity Created Prosperity
• Prosperity derived from inherited • Prosperity arising from productivity

natural resources / endowments in producing goods and services
– Prosperity is limited by the – Prosperity is unlimited
endowments themselves
• Dividing the pie • Expanding the pie

• Government usually becomes the • Companies are the central actors in
central actor in the economy the economy
• Resource revenues allow • Government’s role is to create the
unproductive policies and enabling conditions for
practices to persist and fuel productivity and foster private sector
corruption development

24
Challenges of Natural Resource Abundance
• “Dutch Disease”
• Direct subsidy of citizens in areas like

electricity, gasoline, and others that work
against productivity
• Political instability as interest groups

compete for power
• Competition to capture resources that distorts

government policy towards special interests

25
Offsetting Inherited Prosperity
Guyana
• Guyana has taken some positive steps in

anticipation of an oil windfall:
– Working to establish a sovereign wealth fund
– Soliciting advice from international organizations,
such as the IMF
– A commitment not to nationalize oil interests, which
will be critical to attracting other foreign investment
– Initial steps towards a national strategy that balances
economic and sustainability goals, to win the support
of citizens

26
Macroeconomic Competitiveness
Sound Monetary Effective Human and Social
and Fiscal Policies Public Institutions Development
Endowments
• Endowments create a foundation for prosperity, but true

prosperity arises from productive use of endowments

Sound Monetary
and Fiscal Policies
• Fiscal Policy: and Fiscal Policies Public Institutions Development
Public spending aligned
with revenues over time
• Monetary Policy: Endowments
Interest rates, exchange
rate, control of inflation
• Economic
Stabilization: Avoiding
structural imbalances
and cyclical overheating

Effective
Public Institutions
Sound Monetary Effective Human and Social • Rule of Law:
and Fiscal Policies Public Institutions Development Property rights, personal
security, and due process
• Government Institutions:
Endowments Stable and effective public
and governmental
organizations and
processes; sound political
system

Corruption Perception Index
Rank in Global Selected Countries
Corruption Index, 2017
160
Low but Worsening Low and Improving
140 Eritrea
Mozambique Nicaragua Honduras Haiti
Madagascar
Guatemala
120
Mexico
Dominican Republic Paraguay Gambia Sierra Leone
Ecuador Liberia
100 Mali Malawi
Bolivia Niger
El Salvador
Colombia Brazil Panama
80
Guyana
Argentina
Peru
60 Burkina Faso
Senegal
Jamaica
Cuba Rwanda
40
Costa Rica
Chile
20
High and Worsening High but Improving

0
-60 -40 -20 0 20 40 60
Change in Rank, Global Corruption Report, 2017 versus 2007
Source: Transparency International
30
Human and Social

Development
Sound Monetary Effective Human and Social • Human and Social
and Fiscal Policies Public Institutions Development Development: Basic
education, health care,
equal opportunity, and
Endowments others

Measuring Social Development
A healthy society is one that improves capacity to

meet the basic human needs of its citizens,
establish the building blocks that allow citizens
and communities to enhance and sustain the
quality of their lives, and create the conditions
for all individuals to reach their full potential
A holistic framework is needed

Social Progress Index Framework
Social Progress Index
Basic Human Needs Foundations of Wellbeing Opportunity
Nutrition and Basic Access to Basic Personal Rights

Medical Care Knowledge
Personal Freedom
Water and Sanitation Access to Information and Choice
and Communications
Shelter Inclusion
Health and Wellness
Personal Safety Access to Advanced
Environmental Quality Education

33
2018 Social Progress Index Results

34
Social Progress Index vs. GDP per Capita, 2018
95
DEU ISL
NZL JPN DNK CHE
90 CAN NLD NOR
ESP LUX
PRT FRA SWE
ITA BEL AUS IRL
SGP
85 CHL CZE AUT USA
CRI HRV CYP
EST ISR
80 URY
LVA SVK
TUN BRB BGR
75 ALB
Social Progress Index
ARM BLR ROU ARE

MYS
CPV MEX QAT
70 RUS
MDA DZA OMN
KGZ KAZ
65 BOL CHN TUR
IRN SAU
STP NIC GUYIDN BWA
EGY
60 GHA UZB
NPLHND
IND
55 KEN
MMR
RWA
50 PAK SWZ
NGA
LAO
LBR COG
45
BFACMR
MRT
40 ETH
GIN AGO
PNG
35 COD
AFG R² = 0.8109
30
TCD
CAF
25
$0 $20,000 $40,000 $60,000 $80,000 $100,000 $120,000
GDP PPP Per Capita

U.S. Position in the Social Agenda
Rank versus 36 OECD Countries
Category 2018 Rank Category 2018 Rank
Education Personal Safety
Secondary School Enrollment 35 Traffic Deaths 34
Primary School Enrollment 27* Homicide Rate 34
Political Terrorism 23*
Environment Inclusion
Wastewater Treatment 30 Discrimination / Violence Against Minorities 28
Rural Access to Improved Water Source 27 Acceptance of Gays and Lesbians 12**
Greenhouse Gas Emissions 31 Equality of Political Power by Socioeconomic Group 34
Biodiversity and Habitat 34 Equality of Political Power by Gender 23
Health Rights and Freedoms

Maternal Mortality Rate 35 Political Rights 32
Child Mortality Rate 33 Freedom of Expression 25
Premature Deaths from 29 Access to Justice 23
Non-Communicable Diseases
Freedom of Religion 18
Life Expectancy at 60 28
Property Rights for Women 28
*Indicates missing data for some countries, which results in rankings involving fewer than 35 countries. The U.S. Political Terrorism rank of 27, for example, is compared to 34 countries, while Primary School
Enrollment rank of 23 is versus 32 countries.
**The U.S. has made major strides in tolerance and rights for homosexuals, but this progress has regressed significantly since 2014. The historical U.S. tolerance
for immigrants has also declined substantially.
Sources: Data from Social Progress Index 2014 and 2017, accessed August 2017.
Social Progress IndexOverall 2018 SPI Rank
Peru Scorecard 2018 GDP Rank

37
Microeconomic Competitiveness
Economic Sophistication
Quality of the
Composition and of Company
Business
the State of Cluster Operations and
Environment
Development Strategy

Endowments
• Productivity ultimately requires improving the

microeconomic capabilities of the economy
and sustained improvements in institutions
and social conditions
38
Microeconomic Competitiveness The internal skills,

Quality of the Economic Sophistication
capabilities, and
National Composition and of Company management
Business the State of Cluster Operations and practices that enable
Environment Development Strategy
companies to
achieve high and
rising productivity
Endowments

Companies and Competitiveness
Differentiation
(Premium Price)
Competitive
Advantage
Lower Cost

Competitive Advantage and the Value Chain
Firm Infrastructure
(e.g., Financing, Planning, Investor Relations)
Human Resource Management

Support (e.g., Recruiting, Training, Compensation System)
Activities
Technology Development
(e.g., Product Design, Process Design, Market Research) M
Value
Procurement a
(e.g., Services, Machines, Advertising, Data) r What
g buyers are
Inbound Operations Outbound Marketing After-Sales i willing to
Logistics Logistics & Sales Service pay
n
(e.g., Customer (e.g., Branch (e.g., Order (e.g., Sales (e.g., Installation,
Access, Data Operations, Processing, Force, Customer
Collection, Assembly, Warehousing, Promotion, Support,
Incoming Component Report Advertising, Complaint
Material Fabrication) Preparation) Proposal Resolution,
Storage, Writing, Repair)
Service) Website)
Primary Activities
• The value chain is the set of activities involved in delivering value to customers
• Strategy is reflected in the choices about how activities are configured and
linked together
41
Operational Effectiveness Is Not Strategy
Operational Strategic
Effectiveness Positioning
• Assimilating and • Creating a unique

extending best practices competitive position
Doing the same things better Doing things differently

Company Capabilities in Developing Countries
Peru
• Country’s economic vitality relies heavily on the presence of a
few highly productive, large companies
• Business informality is high across the economy
– Labor informality for small-enterprises is high
– Informal companies generally have lower productivity, offer
poorer quality jobs, and pay low wages
• Local companies operate with less sophistication and base
their competitive advantage largely on lower cost
• Most companies serve the domestic market with little of
global integration
• Companies’ production processes are characterized by
low sophistication
• Most companies have weak innovation capabilities
– Company spending on R&D is low

The quality of the
business
environment that
Microeconomic Competitiveness
supports company Quality of the Economic Sophistication
operations and National Composition and of Company
Business the State of Cluster Operations and
underpins Environment Development Strategy
productivity,
innovation, and
growth
Endowments

Diagnosing the Quality of the Business Environment
The Diamond Framework
Context
for Firm
Strategy
and Rivalry
• Local rules and incentives that

encourage investment and productivity
– e.g. incentives for capital investment,
Factor IP protection Demand
(Input) – Sound corporate governance Conditions
Conditions practices
• Open and vigorous local competition
− Openness to competition
• Access to efficient and high quality − Strict competition laws • Sophisticated and demanding local
business inputs needs
– Qualified human resources – e.g., Sophisticated demand in the
– Capital availability private sector and government
Related and
– Physical infrastructure – Strict quality, safety, and
– Administrative and regulatory
Supporting environmental standards
infrastructure Industries
– Scientific and technological
infrastructure • Availability and quality of suppliers,
supporting industries and institutions
• Many things in the business environment matter for competitiveness

• Successful economic development is a process of successive upgrading, in which the
business environment improves to enable increasingly sophisticated ways of competing
Assessing Peru’s National Business Environment
2018
Context
for Firm
Strategy
and Rivalry
+ Openness to foreign investment,
trade and capital flows
+ Improvements in investor protections
Factor ± Efforts to strengthen competition
policy Demand
(Input) – High Informality in the economy Conditions
Conditions – Rigidity of employment
– Obstacles to business formation
– Market dominance in some
+ Abundant resources: mineral, agricultural, industries + Improving sophistication of local
buyers
fishing, and cultural – Low intensity of local competition
+ Advantageous location + Improving consumer protection
+ Improving administrative infrastructure regulation
± Sound banking system, but limited venture − Weak environmental standard
capital availability Related and and weak enforcement
– Poor physical infrastructure Supporting
– Weak educational system Industries
– Low skill levels in the labor force
– Skills mismatch with needs
– Limited local suppliers and
– Rising cost of doing business
supporting industries
– Weak university-industry research
– Low availability of specialized
collaboration
research and training
– Few high-quality research and scientific
– Shallow clusters
institutions
World Bank Ease of Doing Business Ranking
Peru
Change
in Rank,
2011-
2011 Rank 2018 Rank 2018
Peru overall 36 68 ▼32
Dealing with Construction Permits 97 54 ▲43

Enforcing Contracts 110 70 ▲40
Getting Credit 15 32 ▼17
Registering Property 24 45 ▼21
Protecting Minority Investors 20 51 ▼31
Paying Taxes 86 120 ▼34
Trading Across Borders 53 110 ▼57
Starting a Business 54 125 ▼71
• Peru has lost considerable ground on ease of doing business indicators

Source: Doing Business, 2012 & 2019, The World Bank
47
Clusters are
geographic
Microeconomic Competitiveness concentrations of
firms, suppliers, and
Quality of the Economic Sophistication
National Composition and of Company associated
Business State of Cluster Operations and supporting
Environment Development Strategy institutions in
particular fields (e.g.
tourism, automotive)
Macroeconomic Competitiveness that enable
productivity and
Sound Monetary Effective Human and Social innovation
• The cluster
composition of the
economy affects
Endowments productivity, wages,
and the role of
government

What is a Cluster?
Tourism Cluster in Cairns, Australia
Public Relations & Local Retail,
Market Research Travel Agents Tour Operators Health Care, and
Services Other Services
Food Local
Suppliers Attractions and Transportation
Hotels Activities
e.g., theme parks,
casinos, sports
Property Souvenirs,
Services Duty Free
Airlines,
Restaurants Banks,
Maintenance Cruise Ships
Foreign
Services
Exchange
Institutions for Collaboration (IFCs)

Government Entities
Educational Institutions Industry Groups
e.g. Australian Tourism
e.g. James Cook University, e.g. Queensland Tourism
Commission,
Cairns College of TAFE Industry Council
Great Barrier Reef Authority
• The concept of clusters reflects the fact that company productivity depends on the presence of related and support companies and institutions
Sources: HBS student team research (2003) - Peter Tynan, Chai McConnell, Alexandra West, Jean Hayden
Clusters in Developing Countries
Cut Flower Cluster in Kenya
Horticultural Agencies, NGOs & Industry Associations Post-Harvest
Cooling
Horticultural Crops Development Authority (HCDA) Technology
Government Export Policies Targeting Horticulture
Plant Stock Grading / Packaging

Non-Government Organizations Sheds
(e.g., The Rural Enterprise Agri-Business Promotion Project)
Greenhouse;
Shading Trade & Industry Associations Packaging &
Structures (e.g., Kenya Flower Council) Labeling Materials
Irrigation
Technology Refrigerated Trucks
Pre-Cooling Post-Harvest
Technology Flower Farming Handling;
Transport to Market Freight Forwarders
Fertilizers,
Pesticides, Clearing and
Herbicides Forwarding Agents
Research Institutions Air Carriers

(e.g., Kenya Agricultural Research Institute) (Scheduled and
Charters)
Agricultural Cluster Public Universities with Post Graduate Degrees in Horticulture
(e.g., University of Nairobi)
Horticultural Quality & Standards

Cluster (e.g., EUREGAP Standard, Kenya Plant Health Inspectorate Services) Tourism Cluster
Sources: MOC student team research by Kusi Hornberger, Nick Ndiritu, Lalo Ponce-Brito, Melesse Tashu, Tijan Watt, Harvard Business School, 2007
The Australian Wine Cluster
IFCs are collective institutions that foster collaboration and
underpin improvements in the business environment
Winemakers’ Federation of Australia Cooperative Centre for Viticulture
 Established 1990  Established 1991
 Focus: Public policy representation of companies  Focus: Coordination of research and education
in the wine cluster policy in viticulture
 Funding: Member companies  Funding: Cluster organizations
Australian Wine Export Council Grape and Wine R&D Corporation

 Established 1992  Established 1991 as statutory body
 Focus: Wine export promotion through international  Focus: Funding of research and development
offices in London and San Francisco activities
 Funding: Government; cluster organizations  Funding: Government; statutory levy
Wine Industry National

Wine Industry Information Service Education and Training Council
 Established 1998  Established 1995
 Focus: Information collection, organization, and  Focus: Coordination, integration, and standard
dissemination maintenance for vocational training and education
 Funding: Cluster organizations  Funding: Government; cluster organizations
Source: Porter/Solvell, The Australian Wine Cluster – Supplement, HBS 2002
Cluster Specialization by Region
Selected Indian States
Haryana
• Automotive
• Apparel
Gujarat • Recreational and Small Electronic Goods
• Jewelry and Precious Metals • Medical Devices
• Upstream Chemical Products
• Water Transportation
• Nonmetal Mining
Uttar Pradesh
• Livestock Processing
Maharashtra • Footwear
• Biopharmaceuticals • Downstream Chemical Products
• IT and Analytical Instruments • Food Processing and Manufacturing
• Jewelry and Precious Metals
• Furniture
Tamil Nadu
• Textile Manufacturing
• Automotive
• Footwear
Clusters with strongest employment • Leather and Related Products
specialization based on annual survey
of manufacturing industries 2014;
Source: India ASI 2014; India Cluster Mapping Project, Harvard ISC – Prof. Michael E. Porter, India IFC – Amit Kapoor
Cluster Emergence and Development
The Australian Wine Cluster
1930 1965 1980 1991 to 1998
First oenology Australian Wine Australian Wine New organizations

course at Bureau and Brandy created for education,
Roseworthy established Corporation research, market
Agricultural established information, and export
College 1990 promotions
1955 1970
Winemaking Winemaker’s
Australian Wine
school at Charles Federation of
Research Institute
Sturt University Australia
founded
founded established
1950s 1960s 1970s 1980s 1990s and 2000s

Import of Recruiting of Continued inflow Creation of large Surge in exports
European winery experienced of foreign capital number of new and international
technology foreign investors, and management wineries acquisitions
e.g. Wolf Bass
Source: Michael E. Porter and Örjan Sölvell, The Australian Wine Cluster – Supplement, Harvard Business School Case Study, 2002
Impact of Clusters on National and
Regional Economic Performance
Research Findings
• Presence of strong clusters • Job growth
• Breadth of local industries in the • Higher wages

clusters
• Higher patenting rates
• Strength in related clusters
• Greater new business
• Overlap between a region‘s formation, growth and survival
clusters and those in
neighboring regions • Resilience in downturns
Implications for Strategy:

• Build on the region’s existing and emerging clusters. rather than chase hot fields
• Economic diversification occurs primarily within clusters and across related
clusters
Source: “Clusters and the Great Recession” by Mercedes Delgado, Michael E. Porter, and Scott Stern (2014), “Clusters, Convergence, and Economic Performance” by Mercedes Delgado,
Michael E. Porter, and Scott Stern (2012), “Cluster and Entrepreneurship” by Mercedes Delgado, Michael E. Porter, and Scott Stern (2010); “The Economic Performance of Regions” by
Michael E. Porter (2003)
Related Clusters and Economic Diversification
World Export Share India 2015
Nonmetal Wood
> 9% Strong Jewelry & Mining Vulcanized Forestry
Products
Livestock Precious Materials
4.5% - 9.0% Moderate Agriculture Processing Metals
2.25% - 4.5% Weak Aerospace Lighting

Recreation Furniture
Construction
Fishing & Water & Electric
Fishing Transport Goods
Video Products IT &
Production Analytical Medical
Performing Down-
Instruments Devices
Arts stream Upstream
Comm- Metals Metals
unications
Music & Equip. & Transport
Sound Services &Logistics
Recording Plastics Production
Plastics
Down-
Distribution stream
& eComm. Chemicals
Hospitality Marketing Biopharma
& Tourism Services Education & Metal-
Automotive
Knowledge Metal-
working
Upstream
Creation working
Chemicals
Insurance Trailers &

Printing Appliances
Business Leather Food
Services
Services Processing
Environ-
Financial Oil & Gas
mental
Services Services
Textiles
Paper & Apparel
Packaging Electricity Coal Metal
Mining Mining
Tobacco
Footwear

55
Benchmarking Competitiveness
ISC Competitiveness Model for Peru, 2018 versus 2016
Country Competitiveness
75
7
Macroeconomic Microeconomic
Competitiveness Competitiveness
80 11 72 15
Public Macroeconomic National Business Company Operations

Institutions Policy Environment and Strategy
89 26 24 4 68 12 80 21
Factor Demand
Rule of Law
Conditions Conditions
97
12 72 6 81 6
Related and Context for

Human Development Supporting Strategy and Peru’s GDP per
76 Industries Rivalry capita rank is 57th
1 59 3 59 15
vs. 101 countries
Significant Moderate Significant
Weakness Neutral
weakness advantage advantage
Note: Rank and change in rank versus 101 countries. Color coding based on comparison relative to income.
Source: Institute for Strategy and Competitiveness, Harvard University (2018); We thank the World Economic Forum for making data available from its annual
competitiveness surveys; analysis prepared based on research findings by Michael Porter, Scott Stern, Mercedes Delgado, and Christian Ketels
56
Stages of National Competitive Development
Shifting Policy Imperatives
Factor-Driven Investment- Innovation-

Economy Driven Economy Driven Economy
Compete Based on Compete Based on Compete Based on

Low Cost Inputs Productivity in More Technology, innovation
Sophisticated Industries and Unique Value
• Monetary and fiscal, political, • Increasing local rivalry • Building advanced skills
and legal stability • Creating advanced • Creating world class
• Market opening infrastructure scientific and technological
• Improving basic human capital • Setting incentives and rules institutions
• Efficient basic infrastructure encouraging productivity • Setting incentives and rules
• Lowering the regulatory costs • Cluster formation and encouraging innovation
of doing business activation • Cluster upgrading
• Efficient access to endowments
Source: Porter, Michael E., The Competitive Advantage of Nations, Macmillan Press, 1990
Topics
Development
Geographic Influences on Competitiveness
Neighboring
Countries
Nation
States, Regions
and Cities

Sub-National Regions and Competitiveness
• Regions are the most important economic unit for

competitiveness
• Economic performance varies significantly across sub-

national regions (e.g., provinces, states, metropolitan
areas)

Prosperity Performance of U.S. States
2007 – 2017
Real GDP per capita, 2017
$75,000
High but declining High and rising
Massachusetts
prosperity versus U.S. prosperity versus U.S.
Alaska New York State
$70,000
Wyoming
North Dakota
Delaware
$65,000 Connecticut California
Minnesota Washington
New Jersey
$60,000 Illinois Maryland
U.S. GDP Per Capita, 2017: Nebraska
Colorado
$55,418
Hawaii New Hampshire
$55,000 Pennsylvania
Virginia Iowa Texas
Kansas Ohio South Dakota
$50,000 Rhode Island Oregon
Georgia Wisconsin Oklahoma
Louisiana
Nevada Indiana Vermont
North Carolina Utah
$45,000 Tennessee
Missouri Michigan
Arizona Montana
New Mexico
Kentucky
Florida South Carolina
$40,000 Maine
Alabama West Virginia
Idaho Arkansas
$35,000
Low and declining Mississippi
U.S. GDP Per Capita Real Low but rising prosperity
prosperity versus U.S. Growth Rate: 0.66% versus U.S.
$30,000
-2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0%
Real Growth in GDP per Capita, 2007 to 2017

Notes: GDP in real 2012 dollars. Growth rate is calculated as compound annual growth rate (CAGR).
Source: U.S. Bureau of Economic Analysis (BEA)
Prosperity Performance of Indian States
GDP per Capita, 2014 2005-2014
(2005 Indian Rupees)
₹ 160,000
Goa
₹ 140,000
Delhi
₹ 120,000
Puducherry
₹ 100,000 Andaman & Nicobar Islands Sikkim
Chandigarh
Haryana Maharashtra Uttarakhand

₹ 80,000
Gujarat
Himachal Pradesh
Tamil NaduKerala
₹ 60,000
Punjab
Nagaland Telangana
Arunachal Pradesh Meghalaya Karnataka
Tripura
Andhra Pradesh India Overall: ₹45,750
₹ 40,000 West Bengal Mizoram
Jammu & Kashmir Odisha Rajasthan
Assam Jharkhand Madhya Pradesh
₹ 20,000 Manipur Chattisgarh
Uttar Pradesh Bihar
India Overall: 6.6%

₹0
3% 4% 5% 6% 7% 8% 9%
Gross Domestic Product per Capita
Real growth in GDPReal
perGrowth
Capita, Rate, 1999 to 2009
2005-2014
Note: Growth rate is calculated as compound annual growth rate. Source: CEIC.

competitiveness

areas)
• Many essential levers of competitiveness reside at the

regional level
• Regional economies include both local and traded

clusters. Regions specialize in different traded clusters
– Local clusters involve industries that are present in every
region
– Regions specialize in different traded clusters

The Composition of Regional, State and Local Economies
• Serve almost • Serve national and
exclusively the local global markets
market Traded • Exposed to
• Little exposure to Clusters competition from other
international or Local regions and nations
cross-regional Clusters ``
36% of U.S.
competition for Employment
− US Average Traded Wage
employment 64% of U.S.
(2015): $71,198
Employment
− US Average Local Wage
(2015): $38,661
• In traded clusters, productivity, wage, and patenting are significantly

higher than in the average of the economy
• Roughly 44% of traded employment is in strong clusters (i.e.
regional clusters with significant critical mass)
• Regions at all stages of development benefit from cluster presence
Note: Cluster data includes all private, non-agricultural employment. Source: Michael E. Porter, Economic Performance of Regions, Regional Studies (2003); Updated via Cluster Mapping
Project, Institute for Strategy and Competitiveness, Harvard Business School (2008)
Traded Cluster Composition of the Baltimore Metropolitan Area
Baltimore Share of National
Employment 2016
1.8%
Employment Overall Change in the Baltimore Share
1.7% 2006-2016 of US Traded Employment: +0.02%
Added Jobs Aerospace Vehicles Education and
1.6%
and Defense Knowledge
Lost jobs
1.5% Water Transportation Creation
Marketing, Design,
1.4%
Financial Services and Publishing
1.3%
Distribution and
1.2% Electronic Recreational
Commerce and Small
1.1% Electric Goods Business Services
1.0% Baltimore Overall Share of US Downstream

Traded Employment: 0.86% Chemical
0.9% Products
Communications Equipment Performing
0.8%
and Services Arts
0.7% Insurance Services Food Processing and
Upstream Manufacturing
0.6% Biopharmaceuticals Chemical Transportation and Lighting and
Printing Products Logistics Electrical
0.5%
Services Hospitality and Construction Products Equipment
0.4% Tourism and Services
Paper and Production Technology and Metalworking Technology
0.3% Information
Packaging Heavy Machinery
Plastics Technology and
0.2% Downstream Metal Analytical
Wood Products
Products Instruments
0.1% Automotive
0.0%
-1.0% -0.6% -0.5% -0.4% -0.3% -0.2% -0.1% 0.0% 0.1% 0.2%
Change in Baltimore Share of National Employment 2006-2016 = 25,000 employees

Note: Only includes clusters with more than 1,000 employees; clusters with fewer than 100 employees not shown
Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director.

competitiveness

areas)
• Many essential levers of competitiveness reside at the

regional level
• Regional economies include both local and traded

clusters. Regions specialize in different traded clusters
• A region’s cluster portfolio and cluster strength directly

impacts not only regional performance but the path of
economic development
Clusters and Economic Diversification
Singapore
IT
Labor/ Water
HR-intensive Aerospace Technology
Electronics
& Defense
Med.
Devices
Capital/ Biotech Media &

HR-intensive Petro- Pharma Design
chemicals
Business Higher
Services Education
Services Regional
Financial HQs
Services
Tourism
Logistics Logistics: Logistics:
Logistics:
Infrastructure Docks, Trans-
Air Travel
Bunkering shipment
1900-1960 1970s 1980s 1990s 2000s

• Economic performance varies significantly across sub-national regions
(e.g., provinces, states, metropolitan areas)
• Many essential levers of competitiveness reside at the state, provincial or
departmental level
• States and provinces compete in different sets of clusters
• Cluster portfolio and strength directly impacts performance and the path of
reginal development
• Sub-national regions are a fundamental unit in competitiveness

• Each state or province needs its own distinctive strategy and action agenda
– Business environment improvement
– Cluster upgrading
– Improving institutional effectiveness
– Improving social progress
• Local business conditions and environments have different demands and
needs
• Economic development is enhanced if significant resources and policy
responsibility are decentralized to the state or provincial level
Geographic Influences on Competitiveness
Neighboring
Countries
Nation
States, Regions
and Cities

Integration with Neighboring Countries
Enhances Competitiveness
• Opening trade and investment among neighbors expands the
market opportunity for each country
– A nation’s neighbors are its most natural trading and investment partners
– The natural path of internationalization for local firms is the neighborhood
– Integration makes each country a more attractive location for investment
• Achieve efficiencies through coordination of policy (e.g.,

border crossing), infrastructure (e.g., power grids and major
highways) and other parts of the business environment
• Synergies through coordinating clusters that cross borders
• Gain greater bargaining power through joint efforts in
international negotiations
• Agreements with neighbors and regional groups (e.g., CARICOM)

help overcome domestic political and economic barriers to
reform
70
Models of Regional Economic Cooperation
Traditional Model Broader Model
Market Competitiveness
Opening Upgrading
• Pursue economic
• Establish free trade
integration and
areas, customs
coordination with
unions or common
neighboring countries
markets
to open trade and
investment as well as
enhancing multiple
dimensions of
competitiveness
Economic Integration Among Neighbors
Capturing Synergies
Context for Related and
Factor (Input) Demand Macroeconomic
Strategy Supporting
Conditions Conditions Competitiveness
and Rivalry Industries
• Improving the • Eliminating trade • Harmonize • Facilitating cross- • Coordinating

efficiency of the and investment environmental border cluster macroeconomic
regional barriers within standards development policies
transportation the region
• Harmonize product – e.g., Supplier • Coordinating and
network
• Simplifying and quality, safety and networks collaborating on
• Creating an efficient harmonizing technical programs to
– Efficient
regional energy cross-border standards improve security
transport and
network regulations and and public safety
• Establishing logistics
paperwork
• Open regional reciprocal
– Quality
communications • Coordinate anti- consumer
standards
and connectivity monopoly and protection laws
fair competition
• Harmonizing • Open government
policies
administrative procurement within
rules for businesses • Harmonizing IP the region
across the region protection
policies
• Link financial
markets with
neighboring
countries
• Facilitating the
movement of
students across
borders for higher
education
Topics
Development
The Need for an Economic Strategy
Policy Economic
Improvement Strategy
• Implementing best practices • An overall agenda for

in each policy area creating a more
competitive and distinctive
position for the country or
province/state, based on its
particular circumstances
• There are a huge number of
policy areas that matter
• No region or country can (or
should try to) make progress
in all areas simultaneously

What is a National Economic Strategy?
National
Value Proposition
• What is a distinctive competitive position for the nation given its
location, legacy, existing strengths, and potential strengths?
– What unique advantages as a location?
– For what types of business activities and clusters?
– What role in the region?
Developing Unique Achieving and Maintaining

Strengths Parity with Peers
• What elements of the business and • What economic and social
social environment can be unique weaknesses must be addressed to
strengths relative to peers/neighbors? remove key constraints to growth and
• What existing and emerging achieve parity with peer locations?
clusters can be built upon?
• Priorities and sequencing are fundamental to

successful economic and social development
• Essential to strategy is also choices of what not to do
75
The Role of a National or Regional
Value Proposition
• Inspire citizens
– Beyond ideology and incremental steps
– A reason for making difficult policy changes
• A guiding vision for policy makers about

what types of improvements are most critical in
order to make the economic success a reality
• A commitment to companies at home and

abroad about what assets, conditions and
programs they can expect

Creating a Successful Development Strategy
• Focuses on competitiveness, not on jobs or income per se
• Data-driven and fact-based, not political or based on wishful thinking
• Integrates both the economic and social agenda
• Guided by an overall strategy, involving clear priorities and
sequencing of improvements, rather than a list of actions
• Builds on existing and potential country strengths,
not just focused on reducing weakness
• Cluster-based, reflecting the power of cluster development in raising
productivity, job creation, and new business formation
• Improves institutional capacity as core of the strategy, which
reinforces productivity and enables successful implementation
• Early and visible progress and “wins” to build support by citizens
• Harnesses collaboration across a wide range of actors and
institutions, including firms, educational institutions, private sector
institutions, and citizen groups, not just government
77
Topics
Development
National and Regional Economic Strategy in Practice
Some Prevailing Approaches
“Build it and
“Open for “Big Game “The Next Big
They Will
Business” Hunting” Thing”
Come”
• Improve the • Compete • Enter new high • Invest in large
general business aggressively for tech/ high growth infrastructure/
environment plants and new industries industrial zone
investments projects
• Attempt to match • Zero Sum • Many competing • Rarely offer a strong

the policies of peers • “Winner’s curse” for the same fields advantage versus
• Long lists of areas – e.g. biotech, other regions
• High cost, low return ‘creative class’
for unless address • Generic
improvement, with underlying • Very few regions infrastructure will not
limited progress weaknesses have the assets to offset lack of skills,
• Table stakes succeed in them absence of related
• Neglects the existing businesses and
base other weaknesses
Clusters as a Tool for Economic Policy
• Leverages the power of linkages across companies to drive rapid
economic development
• Policies and investments strengthen multiple related
firms/institutions simultaneously
• Enhances the effectiveness of traditional economic policy areas,
such as training, R&D, export promotion, FDI attraction, etc.
• A forum for collaboration between the private sector, trade
associations, government, educational, and research institutions
– A mechanism for constructive business-government dialog
• Brings together firms of all sizes, including SME’s
• Clusters initiatives are a powerful private/public vehicle to identify
and get alignment on problems and action recommendations
• Cluster upgrading fosters greater and more sophisticated
competition rather than distorting the market
• Sound cluster policy addresses all existing and emerging

clusters, and does not pick winners
80
Organize Public Policy Around Clusters
Business Attraction
Education and
Export Promotion Workforce Training
Science and Technology

Market Information Infrastructure
and Disclosure
Clusters (e.g., centers, university
departments, technology
transfer)
Quality and Environmental

Specialized Physical standards
Infrastructure
Natural Resource Protection
• Clusters provide a framework for organizing the implementation of many

public policies and public investments directed at economic development to
make them more effective
Pre-Conditions for Cluster Activation and Development
1. A critical mass of locally-based companies or subsidiaries of foreign

companies in the cluster who have met the market test
2. Some meaningful cluster-specific advantages in the diamond or

generalized strengths that are of particular importance to the cluster
− E.g., unique demand, specialized talent, favorable locations, trusted and
appropriate regulatory framework
3. The presence of a world class multinational company in the cluster with an

important investment in the country/region and a commitment to upgrading
4. Strength in a closely related cluster or clusters
• Meeting at least two of these conditions seems to be a basic requirement

for success in cluster development
− Distinguishing emerging clusters from wishful thinking
Topics
Development
The Process of Economic Development
Shifting Roles and Responsibilities
Old Model New Model
• Government drives • Economic development is a

economic development collaborative process
through top down policy involving government at
decisions, funding and multiple levels, local and
incentives foreign companies, industry
associations, educational and
research institutions, and local
communities and citizens
• Competitiveness depends on both top-down and bottom-up

processes in which many companies and institutions take responsibility
• Translating policy into action is decisive in determining success

The Structure of Government and
Competitiveness
• Competitiveness improvement requires consistent and sustained
efforts across successive governments
– Mechanisms are needed to increase the continuity of policy over time
• Competitiveness is affected by numerous government entities and

levels of government
– Multiple agencies and departments have an influence on
competitiveness
– “Economic” agencies and “social” agencies are both essential
– Multiple levels of government (nations, states, cities, etc.) affect the
business environment
– Intergovernmental coordination with neighboring countries affect
productivity
• Coordinating structures in government are needed to bring all the

actors together around an integrated economic and social strategy
and action agenda
Politics and Competitiveness
• Political views of success (e.g., jobs and spending) are different from
competitiveness
• Political cycles do not match the competitiveness timeline
• Multiple political jurisdictions always matter to competitiveness
• Political boundaries often do not match relevant economic boundaries
• Political parties are often aligned with ideologies, not pragmatic or

consensus steps to improve competitiveness
– Coalition governments complicate the problem
• Ministry leadership is often divided among parties for political reasons,
not economic strategy reasons
• Political appointees often represent their parties and constituencies,

rather than participating in government as a team
• There is often passive resistance in ministries and government entities to

policies that affect their constituencies and do not match simplistic
ideologies

86
Organizing for Competitiveness
The South Carolina Council on Competitiveness
 Chaired by a business leader and
South Carolina Council reporting to the governor
on Competitiveness  Convenes working groups, provides
direction and strength, holds working
groups accountable
Executive
Committee
Coordinating
Staff
Cluster Committees Task Forces

Cluster Education /
Automotive Apparel
Activation Workforce
Hydrogen / Research / Start-ups /

Agriculture
Fuel Cells Investment Local Firms
Distressed /
Travel and Measuring
Textiles Disadvan.
Tourism Progress
Areas
Effective economic policy also requires coordination within government

Source: New Carolina, South Carolina’s Council on Competitiveness, U.S. Cluster Mapping Regional Project , Summer 2013
Organizing for Competitiveness
Presidential Council on National Competitiveness, Colombia
Companies Labor
Organizations
NATIONAL COMPETITIVENESS AND

INNOVATION COMMISSION
Presidential Advisor for Public

and Private Affairs
Public
Academia
Executive Committee Agencies
Private Council on National Planning

Competitiveness, Dept., Ministry of
Confecamaras Trade, Colciencias
Technical Committee
Regional
Private Competitiveness
Organizations Commissions

88
Building Local Institutional Capacity
• An important foundational principle of a competitiveness initiative is to
build local institutional capacity throughout the country, starting with
government. This is needed to carry forward the national strategy
through implementation, and ensure long-term success
• To facilitate this, a competitiveness initiative needs to embed local
stakeholders from government, the private sector, NGOs, and
academia
• Important to work with existing local institutions such as National
Competitiveness Councils to establish plans, and work with other
supporting institutions to support long-term implementation
• Working with private and public stakeholders across sectors will
facilitate development of local cluster initiatives
• Competitiveness leadership needs to leverage relationships with
international agencies, such as the World Bank and Inter-American
Development Bank, to seek both short-term project financing and
long-term support for competitiveness upgrading

89
The Role of the Diaspora in the
Development of Emerging Economies
• The diaspora can be a major contributor to the

development of emerging economies through its
resources, international relationships, and commitment to
the country
• Build programs to encourage and simplify investments

by the diaspora (housing, retirement and job
opportunities, incentives for business investment)
• Organize the diaspora as a network to facilitate trade

and investment, including foreign investment
opportunities in the various clusters in the country

Topics
Development
The Private Sector’s Role in Economic
Development
• Inform government on the needs of business and the key
constraints holding back company and cluster development
• Collaborate with other companies to improve competitiveness
through trade associations and other mechanisms
• Work closely with local educational and research institutions to
elevate quality and create specialized programs to address
actual company and cluster needs
• Nurture local suppliers and attract foreign suppliers
• Participate actively in national and provincial department level
competitiveness initiatives
• Compete as companies using shared value strategies in which
businesses address unmet social needs and challenges with a
business model (e.g. low income housing, renewable energy)
The Role of Business in Society
Evolving Approaches
Corporate Social Creating Shared

Philanthropy Responsibility Value
(CSR) (CSV)
• Donations to worthy • Compliance with • Addressing societal

social causes community standards needs and challenges
• Volunteering • Good corporate with a business model
citizenship - While making a profit
• “Sustainability”
initiatives
• Mitigating risk and

harm
• Improving trust and
reputation

93
Shared Value Strategy and Economic Development
Innova Schools, Peru
• The Intercorp Group launched Innova Schools in 2011, an affordable chain

of K-12 private schools targeted at middle class families with a monthly
tuition
of $150
• Innova offers competitive salaries and a career development path for
teachers
• Expected to have 54 schools across Peru serving 46,000 students in 2019

• Revenues are growing rapidly, with a positive EBITDA for all schools
• Innova students outperform other public and private school students in
math, reading and other subjects on national exams
• In 2014, Innova won AdvancED international accreditation, scoring in the
top 25 percent of 32,000 evaluated schools worldwide
• Innova Schools began operations in Mexico in 2018
Topics

Example of a Course Outline
Module Session Case(s)
Part I: Firms, Industries 1 Competitiveness: The Overall Framework • Costa Rica IT
and Cross-Border
Competition
2 Clusters and Cluster Development • California Wine
Part II: Locations 3 Special Session: U.S. Cluster Mapping
and Clusters 4 Cluster Internationalization • Dutch Flower Cluster
5 Lecture on Core Concepts
6 Role of Institutions for Collaboration • Acoplásticos / CSEM
7 Economic Strategy: Advanced Economies • Singapore

Part III: Strategy for 8 Economic Strategy: Middle Income Economies • Latvia
Nations and Regions 9 Economic Strategy: Developing Economies • Vietnam
10 Economic Strategy: Early Stage Developing Economies • Rwanda
11 Economic Strategy: Cross-National Regions • Central America
12 Economic Strategy: Europe • European Integration
13 Economic Strategy: States and Sub-National Regions • Basque Country
14 Economic Strategy: Cities • New York City
15 Competitiveness Initiatives • New Carolina Initiative

Part IV: The Process of
16 Cluster Initiatives • Mitteldtland
Economic Development 17 Organization for Competitiveness • Colombia
18 National Special Session: U.S. Competitiveness
19 Creating Shared Value and Competitiveness • Yara
Part V: Project 20 Team Project Presentations

21 Team Project Presentations
Presentations
22 Wrap-Up/Feedback

96
Teaching Model
Classroom
• Case study preparation and discussion

• Readings
• Concept lectures
• Guest protagonists or protagonist videos
Group Project
• Cluster/country assessment
• At Harvard, project groups can be mixed,
consisting of both HBS and non-HBS students

MOC Course Group Projects
2017
Country Cluster
• Brazil • Petrochemicals
• China • Transportation and Logistics
• Denmark • Wind Power
• France • Artificial Intelligence (AI)
• Ghana • Cocoa
• India • Pharmaceutical
• Ireland • Software
• Johannesburg • Information and Communications
• Lagos Technology (ICT)
• Lisbon • Tourism
• Norway • Fisheries
• Philippines • Electronics
• Switzerland • Banking
• USA • Clean Energy
• United Kingdom • Automotive
ISC Data Resources for Affiliates
National Competitiveness Profiles
• A rigorously calibrated model of competitiveness supported by a panel of 130
survey and hard data indicators across 154 countries and 18 years

ISC Data Resources for Affiliates
International Cluster Competitiveness Profiles
• Detailed statistics on trade in goods and services interpreted through the
cluster model available for all countries
MOC SharePoint Site
MOC LinkedIn Group

MOC Affliate Workshop Framework Overview

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Microeconomics of Competitiveness

Core Concepts and Course Structure

• Provides a holistic framework. Highlights • Primarily about macroeconomic

• Develops implications for multiple • A mainstream course on

• Describes how to develop an overall • A detailed study of specific policy

• Based on a unified framework together • A survey course that summarizes the

Jordan Belize Guatemala

Index of Inequality, 2015

Source: World Development Indicators, World Bank

45% Puerto Rico

Low and Declining Average: +0.5% Low but Improving

Change in Labor Force Participation Rate, 2006-2016

• Competitiveness requires sustained improvement in the productivity of the

• Improving competitiveness requires improving the environment for business

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Productivity Level and Growth

Domestic Inbound Outbound

Country Competitive Environment

• Indicators and enablers are part of the diagnostic framework

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Top 25 Goods Exports as a Share of Guyana’s Total Goods Exports: 98.2%

FDI Inflows as % of Gross Fixed Capital Formation, Average 2006-2016

CAGR of US-registered patents, 2005-2015 = 25,000 patents (totals)

• There is a powerful connection between economic and

• But social progress also influences economic development

20181211—MOC Workshop Framework Overview 20 Copyright 2018 © Professor Michael E. Porter

• Every country is unique, and economic and social

20181211—MOC Workshop Framework Overview Copyright 2018 © Professor Michael E. Porter

• Endowments, including natural resources, geographical location,

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Inherited Prosperity Created Prosperity

• Prosperity derived from inherited • Prosperity arising from productivity

• Dividing the pie • Expanding the pie

20181211—MOC Workshop Framework Overview Copyright 2018 © Professor Michael E. Porter

• Direct subsidy of citizens in areas like

• Political instability as interest groups

• Competition to capture resources that distorts

20181211—MOC Workshop Framework Overview Copyright 2018 © Professor Michael E. Porter

• Guyana has taken some positive steps in

20181211—MOC Workshop Framework Overview Copyright 2018 © Professor Michael E. Porter

• Endowments create a foundation for prosperity, but true

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High and Worsening High but Improving

Human and Social

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A healthy society is one that improves capacity to

A holistic framework is needed

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Social Progress Index

Basic Human Needs Foundations of Wellbeing Opportunity

Nutrition and Basic Access to Basic Personal Rights

20181211—MOC Workshop Framework Overview Copyright 2018 © Professor Michael E. Porter

20181211—MOC Workshop Framework Overview Copyright 2018 © Professor Michael E. Porter

ARM BLR ROU ARE

GDP PPP Per Capita

Health Rights and Freedoms

20181211—MOC Workshop Framework Overview Copyright 2018 © Professor Michael E. Porter

Sound Monetary Effective Human and Social

• Productivity ultimately requires improving the

Microeconomic Competitiveness The internal skills,

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