Basque Competitiveness

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  • 1. Professor Michael E. Porter Institute for Strategy and Competitiveness Harvard Business School Bilbao, Basque Country April 18 th , 2002 Basque Competitiveness This presentation draws on ideas from Professor Porters articles and books, in particular,The Competitive Advantage of Nations(The Free Press, 1990), The Microeconomic Foundations of Economic Development, inThe Global Competitiveness Report 2001/02 , (World Economic Forum, 2001), Clusters and the New Competitive Agenda for Companies and Governments inOn Competition(Harvard Business School Press, 1998),ongoing statistical study of clusters, and What is Strategy? (Harvard Business Review, Nov/Dec 1996). For further information check the web site of the Institute atwww.isc.hbs. edu . 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.

2. The Basque EconomySituation in 1990

  • High unemployment rates
  • Reliance on heavy industries that were contracting, e.g. Steel and Shipyards
  • The crisis led to a concerted effort to improve competitiveness
  • A competitiveness strategy was put in place and implemented over asustainedperiod
  • As of 2002, the Basque Country has madesignificant progress
    • Unemployment rates are down
    • Prosperity levels are up
    • Industrial structure has been upgraded
  • At higher income levels, the Basque country facesthe next set of challengesfor the competitiveness of its business environment

3. Agenda

  • Foundations of competitiveness and the role of regions
  • Basque competitive performance
  • Basque competitiveness: The next agenda

4. Sources of Rising Prosperity

  • A regions or nations standard of living (wealth) is determined by the productivity with which it uses its human, capital, and natural resources. The appropriate definition of competitiveness is productivity
    • Productivity depends both on thevalueof products and services (e.g. uniqueness and quality) as well as theefficiencywith which they are produced
    • It isnot what industries a region or nation competes in that matters for prosperity, but how firms compete in those industries
    • Productivity in a region or nation is a reflection of what both domestic and foreign firmschoose to do in that location.The location of ownership is secondary for national prosperity
    • The productivity oflocalindustries is of fundamental importance to competitiveness, not just that of traded industries
  • Regions or nations compete in offering themost productive environmentfor business
  • The public and private sectors playdifferent but interrelated rolesin creating a productive economy

5. Determinants of Productivity and Productivity Growth Microeconomic Foundations of Development Quality of theMicroeconomic Business Environment Sophistication of Company Operations and Strategy Macroeconomic, Political, Social, and LegalContext for Development

  • A sound macroeconomic, political, social, and legal context creates the potential for competitiveness,but is not sufficient
  • Competitiveness ultimately depends on improving the microeconomic capabilityof the economy and thesophistication of local competition

6. Innovation and Prosperity Productivity Innovative Capacity Prosperity

  • Innovation ismore than just scientific discovery
  • There areno low-tech industries , only low-tech firms

Competitiveness 7. Context for Firm Strategy and Rivalry Related and Supporting Industries Factor (Input) Conditions

  • A local context that encouragesefficiency ,investment , andsustained upgrading
  • Open and vigorous competition amonglocally based rivals

Demand Conditions Productivity and the Microeconomic Business Environment

  • The microeconomic business environment consists of the array ofassets, information, rules, policies, and institutionssurrounding competition
  • Sophisticated and demanding local customer(s)
  • Unusual local demand inspecialized segmentsthat can be served globally
  • Customer needs thatanticipatethose elsewhere
  • High quality, specialized inputsavailable to firms:
    • human resources
    • capital resources
    • physical infrastructure
    • administrative infrastructure
    • information infrastructure
    • scientific and technological infrastructure
    • natural resources
  • Presence of capable, locally-basedsuppliers and firms in related fields
  • Presence of clusters instead of isolated industries

8. The California Wine ClusterEducational, Research, & TradeOrganizations (e.g. Wine Institute,UC Davis, Culinary Institutes) Growers/Vineyards Sources: California Wine Institute, Internet search, California State Legislature.Based on research by MBA 1997 students R. Alexander, R. Arney, N. Black, E. Frost, and A. Shivananda. Wineries/Processing Facilities Grapestock Fertilizer, Pesticides, Herbicides Grape Harvesting Equipment Irrigation Technology Winemaking Equipment Barrels Labels Bottles Caps and Corks Public Relations and Advertising Specialized Publications (e.g., Wine Spectator, Trade Journal) Food Cluster Tourism Cluster California Agricultural Cluster State Government Agencies (e.g., Select Committee on Wine Production and Economy) 9. Institutions for Collaboration Selected Institutions for Collaboration in San Diego Source:Clusters of Innovation project ( )Private Sector

  • San Diego Chamber of Commerce
  • San Diego MIT Enterprise Forum
  • Corporate Directors Forum
  • San Diego Dialogue
  • Service Corps of Retired Executives, San Diego

Joint Private / Public

  • San Diego Regional Economic Development Corporation
  • Center for Applied Competitive Technologies
  • San Diego World Trade Center

Informal Networks

  • Linkabit Alumni
  • Hybritech Alumni
  • UCSD Alumni
  • Scripps Research Institute Alumni

Public Sector

  • San Diego Association of Governments
  • San Diego Regional Technology Alliance
  • San Diego Science and Technology Council
  • Office of Trade and Business Development
  • Small Business Development and International Trade Center

10. Stages Of Competitive Development Source: Porter, Michael E.,The Competitive Advantage of Nations , Macmillan Press, 1990 Input Cost EfficiencyUnique ValueFactor-Driven Economy Investment-Driven Economy Innovation- Driven Economy 11. Global Competitiveness Report 2001 The Relationship Between Microeconomic Competitivenessand GDP Per Capita, 2000 Data Source: Porter, Michael E. The Current Competitiveness Index: Measuring the Microeconomic Foundations of Prosperity.The Global Competitiveness Report 2001 , Oxford University Press, European Union USA Finland NL Sweden Switzerland Germany UK Denmark Australia Singapore New Zealand Taiwan Norway Iceland Ireland Greece Israel Hong Kong S Korea Argentina Hungary India Japan Belgium Austria France Canada Spain Czech Rep Slovenia Portugal Microeconomic Competitiveness Index2000 GDP per Capita* South Africa Brazil Turkey Thailand Indonesia Malaysia Russia Bolivia Ecuador Vietnam Paraguay * Adjusted for PurchasingPower Parity Basque Country GDP per capita* Italy 12. Geographic Levels and Competitiveness Broad Economic Areas Groups of Neighboring Nations States, Provinces Cities, Metropolitan Areas Nations World Economy European Union Iberian Peninsula,South-West France Spain Basque Country San Sebastian 13. Economic Performance Productivity Levels by UK Region Gross Value Added per Hour Worked, UK=100, 1999 Source:Office for National Statistics Productivity Change relative to UK average, 1999-96 Wales North East North West Yorkshire East Midlands West Midlands East London South East South West Scotland Northern Ireland 14. Economic Performance Prosperity and Productivity by UK RegionGDP Per Capita, 1999 Gross Value Added per Hour Worked, UK=100, 1999 North East West Midlands Northern Ireland Wales Yorkshire Scotland North West London East Midlands East South East Source:Office for National Statistics South West R 2= 0.86 15. Innovation and Prosperity R&D per Employee vs. Average Wages by UK Region Source:Office for National Statistics R&D per Employee, 1999 GDP per person, 1999 London North East Northern Ireland Wales North West Yorkshire South West West Midlands Scotland East South East East Midlands R 2= 0.85 (including dummy for London) 16. Regional Economic Performance Measures Overall Economy Innovation Output

  • Employment Growth
    • Rate of employment growth
  • Unemployment
    • Percentage of persons unemployed
  • Workforce Partici