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 GCR Singapore 092006.ppt 2 Copyright © 2006 Professor Michael E. Porter 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 GCR Singapore 092006.ppt 3 Copyright © 2006 Professor Michael E. Porter Prosperity Performance Selected Countries Real PPP-adjusted GDP per Capita, 2005 $45,000 U.S. U.K., Sweden, Belgium, Australia, Ireland Switzerland Austria Finland Singapore Denmark Iceland Hong Kong NL France Japan Canada Italy Germany Spain S Korea New Zealand Greece Czech Rep. Hungary Slovakia Poland Mexico Malaysia China (8.8%, Turkey Thailand $6,290) Sri Lanka India Philippines Indonesia Laos Vietnam Myanmar Norway $40,000 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $0 0% 1% 2% 3% 4% 5% 6% Growth of Real GDP per Capita (PPP-adjusted), CAGR, 2000-2005 Source: EIU (2006), authors’ calculations GCR Singapore 092006.ppt 4 Copyright © 2006 Professor Michael E. Porter Innovation and Competitiveness Prosperity Prosperity Productivity Productivity Competitiveness Innovative Innovative Capacity Capacity GCR Singapore 092006.ppt • Innovation ismore than just scientific discovery • There areno low-tech industries, only low-tech firms 5 Copyright © 2006 Professor Michael E. Porter Labor Productivity Level and Growth Selected Countries GDP per Employee, US-$, 2005 90000 Netherlands 80000 Italy Switzerland 70000 Canada Germany Spain 60000 50000 U.S. Norway Austria Belgium France Ireland UK Finland Taiwan Japan Australia, Denmark New Zealand Iceland Greece South Korea Hungary Portugal 40000 Slovakia Mexico Malaysia 30000 20000 Philippines 10000 0% Czech Rep. Poland Turkey Thailand Indonesia Bangladesh Sri Lanka Myanmar 0 -1% Singapore Hong Kong Sweden 1% 2% 3% Vietnam India 4% 5% Growth of Real GDP Employee, CAGR, 2000 - 2005 Source: Groningen Growth and Development Centre and The Conference Board, 2006. GCR Singapore 092006.ppt 6 Copyright © 2006 Professor Michael E. Porter International Patenting Output Selected Countries Annual U.S. patents per 1 million population, 2005 300 U.S. Japan 250 Taiwan 200 Finland Switzerland 150 Germany 100 Sweden Canada South Korea Denmark Netherlands 50 France Israel Singapore Austria U.K. Australia Norway Italy 0 -8% -3% 2% 7% Compound annual growth rate of US-registered patents, 2000 – 2005 Source: USPTO, 2005 GCR Singapore 092006.ppt 7 Copyright © 2006 Professor Michael E. Porter Determinants of Competitiveness Macroeconomic, Macroeconomic, Political, Political, Legal, Legal, and and Social Social Context Context Microeconomic Microeconomic Foundations Foundations The TheQuality Qualityof ofthe the Microeconomic Microeconomic Business Business Environment Environment The TheSophistication Sophistication of ofCompany Company Operations Operationsand and Strategy Strategy • A sound macroeconomic, political, legal, and social context creates the potential for competitiveness, but is not sufficient • Onlyfirms can create wealth, not government GCR Singapore 092006.ppt 8 Copyright © 2006 Professor Michael E. Porter Determinants of Competitiveness Enhancing the Business Environment Context Contextfor for Firm Firm Strategy Strategy and andRivalry Rivalry z Factor Factor (Input) (Input) Conditions Conditions z z z Availability of high quality, specialized inputs available to firms – – – – Human resources Capital resources Physical infrastructure Administrative infrastructure (e.g. registration, permits) – Information infrastructure (e.g. economic data, corporate disclosure) – Scientific and technological infrastructure – Natural resources • z z A local context and rules that encourage productivity – e.g., incentives for capital investments, intellectual property protection Demand Incentive systems based on Demand Conditions merit Conditions Open and vigorous local competition, especially among locally based rivals z More sophisticated and demanding local customer(s) z Local customer needs that anticipate those elsewhere Related Relatedand and z Unusual local demand in Supporting Supporting specialized segments that can Industries Industries be served nationally and globally Access to capable, locally based suppliers and firms in related fields Presence of clusters instead of isolated industries Successful economic development is a process ofsuccessive economic upgrading, in which the business environment evolves to support and encourage increasingly sophisticated ways of competing GCR Singapore 092006.ppt 9 Copyright © 2006 Professor Michael E. Porter Traditional Strengths of the Singaporean Business Environment Context Contextfor for Firm Firm Strategy Strategy and andRivalry Rivalry z z Factor Factor (Input) (Input) Conditions Conditions z z z z World-class infrastructure Efficient government services and regulations Well-trained and flexible workforce Solid financial market GCR Singapore 092006.ppt z z High openness to global competition Aggressive attraction of foreign companies Attractive tax regime Professional management and governance of governmentlinked companies Demand Demand Conditions Conditions Related Relatedand and Supporting Supporting Industries Industries z Focus on selected clusters (electronics, chemicals, logistics, financial services) to overcome small economy-disadvantages 10 Copyright © 2006 Professor Michael E. Porter Cluster Development Oil and Gas, Houston Upstream Oil & Natural Gas Exploration & Development Downstream Oil & Natural Gas Completion & Production Oil Transportation Oil Trading Oil Refining Oil Distribution Oil Wholesale Marketing Oil Retail Marketing Gas Gathering Gas Processing Gas Trading Gas Transmission Gas Distribution Gas Marketing Oilfield Services/Engineering & Contracting Firms Equipment Suppliers (e.g. Oil Field Chemicals, Drilling Rigs, Drill Tools) Specialized Technology Services Subcontractors (e.g. Surveying, Mud Logging, Maintenance Services) (e.g. Drilling Consultants, Reservoir Services, Laboratory Analysis) Business Services (e.g. MIS Services, Technology Licenses, Risk Management) Specialized Institutions (e.g. Academic Institutions, Training Centers, Industry Associations) GCR Singapore 092006.ppt 11 Copyright © 2006 Professor Michael E. Porter Singapore Export Portfolio by Cluster, 1997-2005 14.00% Information Technology Singapore’s world export market share, 2005 12.00% Change In Singapore’s Overall World Export Share: -0.07% 10.00% 8.00% 6.00% Power and Power Generation Equipment Communications Equipment 4.00% 2.00% Entertainment and Reproduction Equipment Tobacco Oil and Gas Products Publishing and Printing Business Services Heavy Machinery Motor Driven Products (1.9%, -3.6%) Chemical Products Singapore’s Average World 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; Richard Bryden, Project Director. Underlying data drawn from the UN Commodity Trade Statistics Database and the IMF BOP statistics. 12 GCR Singapore 092006.ppt Exports of US$10 Billion = Copyright © 2006 Professor Michael E. Porter Singapore Export Portfolio by Cluster, 1997-2005 (continued) 3.00% Business Services Oil and Gas Products Analytical Instruments Singapore’s world export market share, 2005 Transportation and Logistics 2.50% Singapore’s Average World Export Share: 2.34% Lighting and Electrical Equipment Change In Singapore’s Overall World Export Share: -0.07% Plastics Jewelry, Precious Metals and Collectibles 2.00% Financial Services Production Technology Medical Devices 1.50% Marine Equipment Biopharmaceuticals Aerospace Vehicles and Defense Sporting, Recreational and Children's Goods 1.00% Processed Food Metal Mining and Manufacturing Fishing and Fishing Products Textiles 0.50% Agricultural Products Furniture Building Fixtures and Equipment 0.00% -0.50% -0.40% Construction Services Leather and Related Products Apparel -0.30% Construction Materials Footwear Communications Services -0.20% -0.10% Forest Products Automotive Prefabricated Enclosures and Structures 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; Richard Bryden, Project Director. Underlying data drawn from the UN Commodity Trade Statistics Database and the IMF BOP statistics. 13 GCR Singapore 092006.ppt Exports of US$10 Billion = Copyright © 2006 Professor Michael E. Porter Foreign Investment Stocks and Flows Selected Countries Stock of FDI as a % of GDP, Average 2001-2004 160% Singapore 140% 120% 100% 80% Vietnam New Zealand, Hungary Netherlands Ireland Denmark Switzerland Czech. Rep. Sweden Germany Portugal 40% U.S.Thailand Spain Slovakia Greece, Norway Finland 20% China Slovenia Korea Iceland India Italy, Turkey Japan 0% 60% 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) GCR Singapore 092006.ppt 14 Copyright © 2006 Professor Michael E. Porter 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) GCR Singapore 092006.ppt 15 Copyright © 2006 Professor Michael E. Porter The Process of Economic Development Shifting Roles and Responsibilities Old Old Model Model New New Model Model •• Government Government drives drives economic economic development development through through policy policy decisions decisions and and incentives incentives •• Economic Economic development development is is aa collaborative collaborative process process involving involving 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 GCR Singapore 092006.ppt 16 Copyright © 2006 Professor Michael E. Porter Institutions for Collaboration Selected Massachusetts Organizations, Life Sciences Life Life Sciences Sciences Industry Industry Associations Associations University University Initiatives Initiatives zz zz Massachusetts Massachusetts Biotechnology Biotechnology Council Council zz Massachusetts Massachusetts Medical Medical Device Device Industry Industry Council Council zz Massachusetts Massachusetts Hospital Hospital Association Association Harvard Harvard Biomedical Biomedical Community Community zz MIT MIT Enterprise Enterprise Forum Forum zz Biotech Biotech Club Club at at Harvard Harvard Medical Medical School School zz Technology Technology Transfer Transfer offices offices General General Industry Industry Associations Associations Informal Informal networks networks zz zz Associated Associated Industries Industries of of Massachusetts Massachusetts zz Greater Greater Boston Boston Chamber Chamber of of Commerce Commerce zz High High Tech Tech Council Council of of Massachusetts Massachusetts Company Company alumni alumni groups groups zz Venture Venture capital capital community community zz University University alumni alumni groups groups Economic Economic Development Development Initiatives Initiatives Joint Joint Research Research Initiatives Initiatives zz zz Massachusetts Massachusetts Technology Technology Collaborative Collaborative zz Mass Mass Biomedical Biomedical Initiatives Initiatives zz Mass Mass Development Development zz Massachusetts Massachusetts Alliance Alliance for for Economic Economic Development Development GCR Singapore 092006.ppt New New England England Healthcare Healthcare Institute Institute zz Whitehead Whitehead Institute Institute For For Biomedical Biomedical Research Research zz Center Center for for Integration Integration of of Medicine Medicine and and Innovative Innovative Technology Technology (CIMIT) (CIMIT) 17 Copyright © 2006 Professor Michael E. Porter Singapore in Transition: Focus of Current Economic Policies Innovation Entrepreneurship Create new competitive advantages for Singapore Address existing competitive disadvantages of Singapore • Investments in universities • Support internationalization of Singaporean companies • R&D fund for companies / clusters • • Reform of school system • Focus on more ‘creative environment’ • FTAs with US, ASEAN, etc. Efficiency Social policy Defend Singapore’s core competitive advantages Defend Singapore’s social fabric • Tax reductions GCR Singapore 092006.ppt Liberalization of domestic markets, e.g. telecom • ‘Progress Package’ of spending for low-income citizens 18 Copyright © 2006 Professor Michael E. Porter Singapore Biotech Cluster Evolution Over Time ƒ 1995 ƒ Bioprocessing Technology Centre ƒ ƒ ƒ 2000 Genomics Institute of Singapore Biomedical Research Council Bioethics Advisory Committee Tuas Biomedical Park 1995 1998 ƒ Centre for Drug Evaluation ƒ Johns Hopkins Singapore 2002 ƒ Singapore Tissue Network ƒ Institute of Bioengineering and Nanotechnology ƒ Cancer Syndicate 2000 ƒ ƒ ƒ ƒ 2004 ƒ A*Star and JDRF provide grants to support 7 stem cell research projects ƒ Pfizer opens US$220 million manufacturing plant 2002 2003 ƒ BioPolis opens for business ƒ Center for Natural Product Research privatized to form MerLion Pharma ƒ National University of Singapore and Duke University agree to open a Graduate Medical School 2001 Bioinformatics Institute Novartis Institute of Tropical Diseases Biomedical Sciences Manpower Advisory Committee Groundbreaking of Biopolis 2005 2005 ƒ Launch of new biotech courses in Ngee Ann Polytechnic ƒ Novartis breaks ground on US$115 million production facility in Tuas Biomedical Park ƒ Albany Molecular Research established Research Center Source: Research by HBS student teams in 2005 – Li-Mei Chee, Kola Luu, Gopal Raman, Hwee Yee Yong GCR Singapore 092006.ppt 19 Copyright © 2006 Professor Michael E. Porter 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 with withPeers Peers Developing DevelopingUnique UniqueStrengths Strengths • Whatmacro/political/legal/social improvements are necessary to maintain parity with peer countries or regions? • What areas of thegeneral business environment must improve to maintain parity with peer countries or regions? • Whatelements of the business environment are essential to the national value proposition? • Whatexisting and emerging clusters must be mobilized? GCR Singapore 092006.ppt 20 Copyright © 2006 Professor Michael E. Porter 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 GCR Singapore 092006.ppt 21 Copyright © 2006 Professor Michael E. Porter Asia Competitiveness Institute Action Priorities 2006-2007 Organizational launch • • • Initial research projects Strategic plan for ACI Official ACI launch Recruitment of 2 Senior Research Fellows and 2 Research Fellows or equivalent • HBS case study on Singaporean 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 Related Institutes, universities and government bodies • Regional media GCR Singapore 092006.ppt • Microeconomic of Competitiveness course as an elective in LKY SPP • 5-day executive program • Explore customized programs for ASEAN governments 22 Copyright © 2006 Professor Michael E. Porter Asia Competitiveness Institute Conditions for Success • Independence • Permanence • Inclusiveness • Clear intellectual framework • World class research • Strong leadership GCR Singapore 092006.ppt 23 Copyright © 2006 Professor Michael E. Porter