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The Competitive Advantage of Singapore:Transition to the Innovation Stage
Professor Michael E. PorterHarvard Business School
New Economy Conference @ SingaporeAugust 2, 2001
This presentation draws on ideas from Professor Porter’s articles and books, in particular, The Competitive Advantage of Nations (The Free Press,1990), “The Microeconomic Foundations of Economic Development,” in The Global Competitiveness Report 1998, (World Economic Forum,1998), “Clusters and the New Competitive Agenda for Companies and Governments” in On Competition (Harvard Business School Press, 1998)and ongoing statistical study of clusters, Competing for Prosperity: The Microeconomic Foundations of Development, forthcoming, and “What isStrategy?” (Harvard Business Review, Nov/Dec 1996). No part of this publication may be reproduced, stored in a retrieval system, or transmittedin any form or by any means - electronic, mechanical, photocopying, recording, or otherwise - without the permission of Michael E. Porter.
2CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
Singapore 2001
• Singapore has achieved an extraordinary level of prosperity
• The current economic downturn is largely driven by the ITinvestment
• However, there are structural changes in the competitiveenvironment that require that Singapore revisit its economicstrategy
3CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
Singapore’s Economic Performance
15,000
17,000
19,000
21,000
23,000
25,000
27,000
29,000
31,000
33,000
35,000
0% 1% 2% 3% 4% 5% 6% 7%
Canada
Germany
Israel
South Korea
New Zealand
SINGAPORESweden
Taiwan
US
AustraliaJapan
UK
Finland
Ireland*
Compound annual growth rate of GDP per capita, 1990-2000
Weighted averageOECD
WeightedaverageOECD
GDP percapita(PPP
adjusted)in US-$,
2000
Note: Irish GNP per capita is about 20% lower than the reported GDP per capita figure due to large dividend outflows to foreign investors. We useGNP per capita for Ireland because it is more representative. For other countries GDP and GNP are very similar.
Source: WEO
4CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
Sources of Rising Prosperity• A nation’s standard of living (wealth) is determined by the productivity with which
it uses its human, capital, and natural resources. The appropriate definition ofcompetitiveness is productivity.
– Productivity depends both on the value of products and services (e.g.uniqueness, quality) as well as the efficiency with which they are produced.
– It is not what industries a nation competes in that matters for prosperity, buthow firms compete in those industries
– Productivity in a nation is a reflection of what both domestic and foreign firmschoose to do in that location. The combination of domestic and foreignfirms in a particular field creates the most fertile environment for prosperity
– The productivity of “local” industries is of fundamental importance tocompetitiveness, not just that of traded industries
– Devaluation does not make a country more “competitive”, rather it reveals alack of fundamental competitiveness
• Nations compete in offering the most productive environment for business
• The public and private sectors play different but interrelated roles in creating aproductive economy
5CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
Innovation and Prosperity
Competitiveness(Productivity)
Innovative Capacity
Prosperity
• In advanced economies, innovation is needed tosupport high levels of prosperity
6CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
Microeconomic Foundations of DevelopmentMicroeconomic Foundations of Development
Quality of the Microeconomic
BusinessEnvironment
Quality of the Microeconomic
BusinessEnvironment
Sophisticationof Company
Operations andStrategy
Sophisticationof Company
Operations andStrategy
Determinants of Productivity and Productivity Growth
Macroeconomic, Political, and Legal Context for DevelopmentMacroeconomic, Political, and Legal Context for Development
• Sound macroeconomic policies and a stable political / legal context arenecessary to ensure a prosperous economy, but not sufficient
• Competitiveness ultimately depends on improving the microeconomicfoundations of competition
7CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
Context forFirm
Strategyand Rivalry
Context forFirm
Strategyand Rivalry
Related andSupportingIndustries
Related andSupportingIndustries
Factor(Input)
Conditions
Factor(Input)
Conditions
• Sophisticated anddemanding local customer(s)
• Unusual local demand inspecialized segments that canbe served globally
• Customer needs thatanticipate those elsewhere
• A local context thatencourages efficiency,investment, andsustained upgrading
• Open and vigorouscompetition among locallybased rivals
DemandConditionsDemand
Conditions
• High quality, specializedinputs available to firms:
- human resources- capital resources- physical infrastructure- administrative infrastructure- information infrastructure- scientific and technological
infrastructure- natural resources
Productivity and the Microeconomic Business Environment
• Presence of capable, locally-based suppliers and firms inrelated fields
• Presence of clusters insteadof isolated industries
8CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
California Wine Cluster
Educational, Research, & Trade Organizations (e.g. Wine Institute,
UC Davis, Culinary Institutes)
Educational, Research, & Trade Organizations (e.g. Wine Institute,
UC Davis, Culinary Institutes)
Growers/VineyardsGrowers/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/ProcessingFacilities
Wineries/ProcessingFacilities
GrapestockGrapestock
Fertilizer, Pesticides,Herbicides
Fertilizer, Pesticides,Herbicides
Grape HarvestingEquipment
Grape HarvestingEquipment
Irrigation TechnologyIrrigation Technology
Winemaking EquipmentWinemaking Equipment
BarrelsBarrels
LabelsLabels
BottlesBottles
Caps and CorksCaps and Corks
Public Relations andAdvertising
Public Relations andAdvertising
Specialized Publications(e.g., Wine Spectator, Trade
Journal)
Specialized Publications(e.g., Wine Spectator, Trade
Journal)
Food ClusterFood Cluster
Tourism ClusterTourism ClusterCaliforniaAgricultural Cluster
CaliforniaAgricultural Cluster
State Government Agencies(e.g., Select Committee on Wine
Production and Economy)
9CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
Finland
United States
GermanyNetherlands
SwitzerlandDenmark
SwedenUnited Kingdom
AustraliaCanada
BelgiumAustria
Japan
FranceHong Kong
Iceland
Israel
New Zealand
Norway
Taiwan
Ireland
Spain
Italy
South Africa
ChileKorea
Portugal
Turkey
Malaysia
Brazil
Hungary
Greece
Czech Republic
Jordan
Slovakia
India
Mauritius
EgyptThailand
PolandMexico
Costa Rica
China
Argentina
PhilippinesIndonesia
Colombia
Peru
ZimbabweEl Salvador
Russia
Vietnam
Venezuela
BulgariaUkraine
Ecuador
Bolivia
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
Global Competitiveness Report 2000The Relationship Between Microeconomic Competitiveness
and GDP Per Capita
Microeconomic Competitiveness Index
Source: Porter, Michael E. “The Current Competitiveness Index: Measuring the Microeconomic Foundations of Prosperity.” The GlobalCompetitiveness Report 2000, New York: Oxford University Press, 2000
1999 GDP perCapita*
* Adjusted for Purchasing Power Parity
SINGAPORE
10CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
Stages Of Competitive Development
Factor-DrivenEconomy
Factor-DrivenEconomy
Investment-Driven Economy
Investment-Driven Economy
Innovation-Driven Economy
Innovation-Driven Economy
Source: Porter, Michael E.,The Competitive Advantage of Nations,Macmillan Press, 1990
InputCost
Efficiency UniqueValue
11CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
Geographic Levels and Competitiveness
Broad Economic AreasBroad Economic Areas
Groups of NeighboringNations
Groups of NeighboringNations
States, ProvincesStates, Provinces
Cities, MetropolitanAreas
Cities, MetropolitanAreas
NationsNations
World EconomyWorld Economy
e.g. APEC, ASEAN
12CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
Singapore’s Current Position
• Singapore has taken the Investment-Driven strategy ofeconomic development to an extraordinary level of prosperity
• But the limits of the Investment-Driven strategy are becomingapparent
– Singaporean wages are already higher than other locationscompeting for investment-driven activities
– Labor force participation is near its upper limit– Capital/labor ratios are at or near U.S. levels– China is fundamentally altering patterns of FDI and the competitive
landscape– Progress in growing and globalizing indigenous companies is slow
• Regional cooperation initiatives have yet to yield major benefits
13CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
I. Address some enduring and emerging weaknesses
II. Make the transition to an Innovation-Driven economy with aunique role in the region
III. Transform company strategies
IV.Reorient and broaden the approach to regional cooperation
Singapore’s Economic Agenda in 2001
14CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
I. Address some enduring and emerging weaknesses– Improve the efficiency of domestic industries
Singapore’s Economic Agenda in 2001
15CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. PorterSource: WEO
12345678910111213141516171819202122232425
LuxembourgJapanUnited StatesNorwaySwitzerlandDenmarkIcelandSINGAPORESwedenUnited KingdomFinlandHong KongNetherlandsAustriaGermanyBelgiumCanadaFranceIrelandAustraliaItalyIsraelSpainTaiwanNew Zealand
Rank GDP per capita (currentexchange rate) Index rank
GDP per capita (PPP)Index rank
LuxembourgUnited StatesNorwayIcelandSwitzerlandCanadaDenmarkBelgiumAustriaJapanIrelandAustraliaNetherlandsGermanyFinlandHong KongFranceSwedenItalyUnited KingdomSINGAPORENew ZealandIsraelSpainKorea
Competition and Local PricesRelative Prices for Local Goods and Services, 2000
16CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
I. Address some enduring and emerging weaknesses – Improve the efficiency of domestic industries– Strengthen domestic competition and antitrust policy
Singapore’s Economic Agenda in 2001
17CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
Competition and Competition PolicySingapore’s Relative Position
Context forFirm Strategyand Rivalry
Context forFirm Strategyand Rivalry
Note: Rank by countries; overall Singapore ranks 9 (5 on Quality of Business Environment)Source: Global Competitiveness Report 2000
Absence of Distortive 1Government Subsidies
Tariff Liberalization 1
Hidden Trade Barrier Liberalization 6
Absence of Legal Barriers to Entry 8
Extent of Locally Based Competitors 40
Intensity of Local Competition 27
Effectiveness of Anti-trust Policy 14
Competitive DisadvantagesRelative to GDP per Capita
Competitive AdvantagesRelative to GDP per Capita
Country Ranking Country Ranking
18CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
0%
5%
10%
15%
20%
25%
30%
Singapore Hong Kong OECD US
Competitive Pressure in SingaporeComparative Price-Cost Margins in Manufacturing
Price - AverageCost Margin,
Average, 1990 - 98
Source: IMF
19CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
I. Address some enduring and emerging weaknesses – Improve the efficiency of domestic industries– Strengthen domestic competition and anti-trust policy– Improve the capabilities of the education system
Singapore’s Economic Agenda in 2001
20CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
Comparative Educational Spending,Selected Countries
Source: UN
2%
3%
4%
5%
6%
7%
8%
9%
0% 2% 4% 6% 8% 10% 12% 14%
Public expenditure oneducation, Share of
GDP 1996
Growth of public education spending,CAGR 1990 - 1996
Malaysia
PhilippinesS Korea
Thailand
Singapore
Australia
New Zealand
Ireland
Finland
Sweden
UK
Canada
US
21CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
I. Address some enduring and emerging weaknesses – Improve the efficiency of domestic industries– Strengthen domestic competition and anti-trust policy– Improve the capabilities of the education system– Create an explicit strategy to mobilize older and
underemployed citizens
Singapore’s Economic Agenda in 2001
22CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
I. Address some enduring and emerging weaknesses – Improve the efficiency of domestic industries– Strengthen domestic competition and anti-trust policy– Improve the capabilities of the education system– Create an explicit strategy to mobilize older and underemployed
citizens– Reduce government involvement in the economy
Singapore’s Economic Agenda in 2001
23CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
Government-Ownership In Singaporean CompaniesComparison with other Asian Countries
Share of top 20 companieswith state share > 20%*
> 10% > 20% > 30%
Singapore
Hong Kong
Japan
Korea
Malaysia
Taiwan
Philippines
45%
5%
5%
15%
NA
NA
NA
23.6%
3.7%
1.1%
5.1%
17.8%
3.0%
3.6%
23.5%
1,4%
0.8%
1.6%
13.4%
2.8%
2.1%
11.3%
0.9%
0.4%
1.2%
8.2%
2.8%
2.1%
Share of companies withstate share**
Source: *La Porta et al (1998), **Claessens et al. (1999) cover 3’000 publicly traded companies in Asia
24CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
Evolving the Role of Government
• A strong and effective government role proved beneficial in theinvestment phase when efficiency and reliability were the principalcompetitive advantages
• Substantial government involvement will have diminishing returns- Government ownership is still high despite recent partial
privatizations. Government ownership places constraints oncompany strategy, and limits competition in the affected sectors
- Outward investments by government-linked companies are viewedwith suspicion in many countries, and are likely to be politicized
- Government “guidance” in the form of financial incentives andapproval requirements draws management to focus more on thegovernment than on the market
• A more open, pluralistic and heterogeneous society and economy areneeded to spur innovation and attract mobile knowledge workers
• Government’s role must shift to improving the business environmentand less involvement in the competitive process
25CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
I. Address some enduring and emerging weaknesses – Improve the efficiency of domestic industries– Strengthen domestic competition and anti-trust policy– Improve the capabilities of the education system– Mount an explicit strategy to mobilize older and underemployed
citizens– Reduce government involvement in the economy
II. Make the transition to an Innovation-Driven economy– Signs of Progress
Singapore’s Economic Agenda in 2001
26CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
0% 5% 10% 15% 20% 25%
Change in R&D InvestmentsCompound Annual Growth Rate in R&D Expenditures, 1985-1998
Source: US Competitiveness 2001: Strengths, Vulnerabilities, and Innovation Priorities Report; Global Competitiveness Report 2000
USA
Germany
UK
Sweden
Canada
SINGAPOREAustralia
Japan
Ireland
Italy New Zealand
South Korea
FranceIsrael
R&D Spending as Shareof GDP, 1998
R&D Expenditures, CAGR, 1985 - 1998
27CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. PorterSource: US Patent and Trademark Office (www.uspto.gov). Author’s analysis.
Annual U.S. patentsper 1 million
population, 2000
Compound annual growth rate of US-registered patents, 1990 - 2000
International Patenting Output
0
50
100
150
200
250
300
350
400
450
0% 5% 10% 15% 20% 25% 30% 35% 40%
Australia
Canada
Germany
Japan
South Korea
New Zealand
SINGAPORE
Sweden
Taiwan
UK
Israel
= 10,000patentsgranted in2000
USA
28CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
I. Address some enduring and emerging weaknesses – Improve the efficiency of domestic industries– Strengthen domestic competition and anti-trust policy– Improve the capabilities of the education system– Mount an explicit strategy to mobilize older and underemployed
citizens– Reduce government involvement in the economy
II. Make the transition to an Innovation-Driven economy– Signs of Progress– Challenges
• Upgrade Singapore’s scientific, technological and knowledgecreation capacity
Singapore’s Economic Agenda in 2001
29CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
Science and Technology InfrastructureSingapore’s Relative Position
Licensing of Foreign Technology 4 University / Industry Research 19Collaboration
Quality of Business Schools 18
Quality of Science Research 15Institutions
Intellectual Property Protection 12
Company Spending on R&D 12
Competitive DisadvantagesRelative to GDP per Capita
Competitive AdvantagesRelative to GDP per Capita
Note: Rank by countries; overall Singapore ranks 9 (5 on Quality of Business Environment)Source: Global Competitiveness Report 2000
Country Ranking Country Ranking
30CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
• Top 10 Singaporean-based inventors in terms of U.S. patents, 1999– CHARTERED SEMICONDUCTOR MANUFACTURING PTE LTD (37 patents)– TEXAS INSTRUMENTS, INCORPORATED (10)– HEWLETT-PACKARD COMPANY (9)– TRITECH MICROELECTRONICS INTERNATIONAL PTE LTD. (8)– NATIONAL UNIVERSITY OF SINGAPORE (7)– TRITECH MICROELECTRONICS, LTD.– SEAGATE TECHNOLOGY, INCORPORATED– BERG TECHNOLOGY, INC.– BLACK & DECKER INC.– MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.
• The electronics cluster accounts for more than 2/3 of all U.S. patents filedby Singaporean entities in 1999
Composition of Singaporean Patenting in the USTop Patenting Industries and Companies, 1999
Source: US Patent and Trademark Office (www.uspto.gov). Author’s analysis.
31CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
I. Address some enduring and emerging weaknesses – Improve the efficiency of domestic industries– Strengthen domestic competition and anti-trust policy– Improve the capabilities of the education system– Mount an explicit strategy to mobilize older and underemployed
citizens– Reduce government involvement in the economy
II. Make the transition to an Innovation-Driven economy– Signs of Progress– Challenges
• Upgrade Singapore’s scientific, technological and knowledge creationcapacity
• Create advanced demand conditions
Singapore’s Economic Agenda in 2001
32CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
Demand ConditionsSingapore’s Relative Position
DemandConditionsDemand
Conditions
Note: Rank by countries; overall Singapore ranks 9 (5 on Quality of Business Environment)Source: Global Competitiveness Report 2000
Extent of Regulatory Distortion of 1Competition
Openness of Public Sector 4Contracts
Demanding Regulatory 15Standards
Buyer Sophistication 12
Demanding Regulatory Standards 10
Competitive DisadvantagesRelative to GDP per Capita
Competitive AdvantagesRelative to GDP per Capita
Country Ranking Country Ranking
33CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
Finnish Wireless Cluster
! Finland is home to Nokia, the world’s most competitivehandset company
! There are approximately 3,000 Finnish firms in telecomand IT related products and services
Related andSupportingIndustries
Related andSupportingIndustries
Factor(Input)
Conditions
Factor(Input)
ConditionsDemand
ConditionsDemand
Conditions
! A history of competition intelecommunications servicesthroughout the 20th century
! Early to deregulate in telecomrelated industries
! More than 100 localoperators
! Active local rivalry in wirelesscommunications
Context forFirm
Strategyand Rivalry
Context forFirm
Strategyand Rivalry
! World’s most sophisticatedconsumers
! 70 percent penetration ofmobile phones (20 percent ofhouseholds have abandonedwireline phones)
! First country to allocatelicenses for 3rd generationwireless networks (3competitive groups)
! Heavy usage of shortmessage services
! Finland is a test market forWAP applications
! Substantial public investmentin telecommunications-relatedR&D, with a focus on wirelesstechnology
! Significant local venturecapital for mobile applications
! Finland is becoming aninternational center for WAPdevelopment (e.g., HewlettPackard, Siemens)
Source: “The Economic Impact of Third-Growth Wireless Technology,” U.S. Councilof Economic Advisors, October 2000Sou
34CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
I. Address some enduring and emerging weaknesses – Improve the efficiency of domestic industries– Strengthen domestic competition and anti-trust policy– Improve the capabilities of the education system– Mount an explicit strategy to mobilize older and underemployed citizens– Reduce government involvement in the economy
II. Make the transition to an Innovation-Driven economy– Signs of Progress– Challenges
• Upgrade Singapore’s scientific, technological and knowledge creation capacity• Upgrade the science, technology infrastructure• Create advanced demand conditions• Encourage private sector-led cluster development• Widen the base of clusters in the economy around Singapore’s unique
advantages in the region
Singapore’s Economic Agenda in 2001
35CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
Related and Supporting IndustriesSingapore’s Relative Position
Related andSupportingIndustries
Related andSupportingIndustries
Note: Rank by countries; overall Singapore ranks 9 (5 on Quality of Business Environment)Source: Global Competitiveness Report 2000
Cluster Presence 4 Domestic Supplier Quality 22
Domestic Supplier Quantity 19
Competitive DisadvantagesRelative to GDP per Capita
Competitive AdvantagesRelative to GDP per Capita
Country Ranking Country Ranking
36CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
Public / Private Cooperation in Cluster UpgradingMinnesota’s Medical Device Cluster
Context forFirm
Strategyand Rivalry
Context forFirm
Strategyand Rivalry
Related andSupportingIndustries
Related andSupportingIndustries
Factor(Input)
Conditions
Factor(Input)
ConditionsDemand
ConditionsDemand
Conditions
• Joint development of vocational-technical college curricula with themedical device industry
• Minnesota Project Outreach exposesbusinesses to resources available atuniversity and state governmentagencies
• Active medical technology licensingthrough University of Minnesota
• State-formed Greater Minnesota Corp.to finance applied research, invest innew products, and assist in technologytransfer
• State sanctionedreimbursement policiesto enable easier adoptionand reimbursement forinnovative products
• Aggressive trade associations(Medical Alley Association, HighTech Council)
• Effective global marketing of thecluster and of Minnesota as the“The Great State of Health”
• Full-time “Health Care IndustrySpecialist” in the department ofTrade and Economic Development
37CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
KnowledgeCreation
KnowledgeCreation
HealthcareHealthcare FinancialServices
FinancialServices
InformationTechnologyInformationTechnology
ApparelTextiles and
Footwear
ApparelTextiles and
Footwear
MarineMarineTourism andLeisure
Tourism andLeisure
PolymersPolymers
MetalworkingMetalworking
Specialty Paper
Specialty Paper
EnvironmentalProducts and
Services
EnvironmentalProducts and
Services
Massachusetts ClustersWidening the Cluster Base
38CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
Microeconomic Business EnvironmentSingapore’s Relative Position
Government Infrastructure 1Investment
Port Infrastructure Quality 1
Road Infrastructure Quality 1
Air Transport Infrastructure Quality 1
Overall Infrastructure Quality 1
Quality of Public Schools 4
Telephone / Fax Infrastructure Quality 6
Competitive AdvantagesRelative to GDP per Capita
Note: Rank by countries; overall Singapore ranks 9 (5 on Quality of Business Environment)Source: Global Competitiveness Report 2000
Country Ranking
39CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
I. Address some enduring and emerging weaknesses
II. Make the transition from an Investment-Driven to a trueInnovation-Driven economy
III. Transform company strategies
Singapore’s Economic Agenda in 2001
40CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
1234567891011121314151617181920
1234567891011121314151617181920
Global Competitiveness Report 2000Singapore’s Ranking
FinlandUnited StatesGermanyNetherlandsSwitzerlandDenmarkSwedenUnited KingdomSingaporeAustraliaCanadaBelgiumAustriaJapanFranceHong KongIcelandIsraelNew ZealandNorway
GermanyUnited StatesFinlandJapanSwitzerlandSwedenNetherlandsDenmarkFranceBelgiumUnited KingdomAustriaIsraelIcelandSingaporeCanadaItalyTaiwanIrelandAustralia
FinlandUnited StatesNetherlandsDenmarkSingaporeGermanyAustraliaCanadaUnited KingdomSwitzerlandSwedenAustriaBelgiumHong KongFranceIcelandNew ZealandNorwayJapanIsrael
Rank Current CompetitivenessIndex
Company Strategy &Operations Index
National BusinessEnvironment IndexNational BusinessEnvironment Index
Source: Global Competitiveness Report 2000
SINGAPORE
SINGAPORE
SINGAPORE
41CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
Licensing of Foreign Technology 4
Note: Rank by countries; overall Singapore ranks 9 (15 on Company Operations and Strategy)Source: Global Competitiveness Report 2000
Product Designs 25
Control of International Distribution 25
Capacity for Innovation 25
Extent of Branding 21
Extent of Regional Sales 21
Marketing Expertise 17
Nature of Competitive Advantage 16
Value Chain Presence 16
Production Processes 13
Senior Management Recruitment 13
Breadth of International Markets 13
Company Spending on R&D 12
Competitive DisadvantagesRelative to GDP per Capita
Competitive AdvantagesRelative to GDP per Capita
Company Operations and StrategySingapore’s Relative Position
Country Ranking Country Ranking
42CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
Determinants of Relative PerformanceTypes of Competitive Advantage
Differentiation(Non-Price Value)
Lower Cost
CompetitiveAdvantage
CompetitiveAdvantage
43CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
Sources of Competitive Advantage
• Creating a unique andsustainable competitiveposition
• Assimilating, attaining, andextending best practice
Do the same thing better Compete in a different way
StrategicPositioning
OperationalEffectiveness
44CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
I. Address some chronic weaknesses
II. Make the transition from an Investment-Driven to a trueInnovation-Driven economy
III. Transform company strategies
IV.Reorient and broaden the approach to regionalcooperation
Singapore’s Economic Agenda in 2001
45CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
Geographic Levels and Competitiveness
Broad Economic AreasBroad Economic Areas
Groups of NeighboringNations
Groups of NeighboringNations
States, ProvincesStates, Provinces
Cities, MetropolitanAreas
Cities, MetropolitanAreas
NationsNations
World EconomyWorld Economy
e.g. APEC, ASEAN
46CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
The Mutual Dependence ofNations and Their Regional Neighbors
• A nation’s economic growth and prosperity can be greatly enhanced by healthy neighboring economies
- A collectively larger overall market increases specialization,widens export industries, and attracts foreign investments
- Individual nations can focus on their unique strengths
• A nation will inevitably suffer if it is isolated or an island amidcountries that are not prospering
- e.g. Israel
• A nation’s productivity can be greatly enhanced by regionalcoordination versus unilateral action
47CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
Finland
United States
GermanyNetherlands
SwitzerlandDenmark
SwedenUnited Kingdom
AustraliaCanada
BelgiumAustria
Japan
FranceHong Kong
Iceland
New Zealand
Norway
Taiwan
Ireland
Spain
Italy
South Africa
ChileKorea
Portugal
Turkey
Malaysia
Brazil
Hungary
Greece
Czech Republic
Jordan
Slovakia
India
Mauritius
EgyptThailand
PolandMexico
Costa Rica
China
Argentina
PhilippinesIndonesia
Colombia
Peru
ZimbabweEl Salvador
Russia
Vietnam
Venezuela
BulgariaUkraine
Ecuador
Bolivia
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
Global Competitiveness Report 2000The Relationship Between Microeconomic Competitiveness
and GDP Per Capita
Microeconomic Competitiveness Index
Source: Porter, Michael E. “The Current Competitiveness Index: Measuring the Microeconomic Foundations of Prosperity.” The GlobalCompetitiveness Report 2000, New York: Oxford University Press, 2000
1999 GDP perCapita*
* Adjusted for Purchasing Power Parity
Singapore
ISRAEL
48CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
Regional Strategy and Geographic Scope
Broad EconomicAreas
Broad EconomicAreas
Groups of ProximateNeighboring Nations
Groups of ProximateNeighboring Nations
• Communication and mutualunderstanding
• Gains from increased tradeand investment
• Communication and mutualunderstanding
• Greater gains from increasedtrade and investment- Widen the range of traded
industries- More efficient specialization
by industry and stage in thevalue chain
• Investments in the businessenvironment of each nation
Benefitsof
regionalcooperation
Geographic proximity
49CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
Regional Strategy and CompetitivenessTraditional View• Free trade zone
– Gains from trade and investment
New View• A regional strategy to enhance competitiveness in each neighboring
country- Deep gains from trade and investment
- Policy coordination to capture mutual benefits to productivity amongcountries via specialization and capturing externalities across borders
- A powerful lever for speeding up the process of economic reform at thenational level
- A tool for promoting interest and investment in the region by theinternational community
and
50CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
• Coordinatemacroecono-mic policies
• Eliminate tradeandinvestmentbarriers withinthe region
• Simplify andstandardizecross-borderregulations andpaperwork
• Guaranteeminimum basicinvestorprotections
• Set minimumenvironmentalstandards
• Set minimumsafetystandards
• Establishreciprocalconsumerprotection laws
• Agree on foreigninvestmentpromotionguidelines to limitforms ofinvestmentpromotion that donot enhanceproductivity
• Coordinatecompetitionpolicy
• Improve regionaltransportationinfrastructure
• Create an efficientenergy network
• Upgrade/link regionalcommunications
• Upgrade/link financial markets
• Upgrade highereducation throughfacilitatingspecialization andstudent exchanges
• Expand cross-borderbusiness and financialinformation accessand sharing
• Coordinate activities toensure personal andphysical safety
• Enhancespecialization andupgrading inclusters thatcross nationalborders, e.g.
– Tourism
– Agribusiness
– Textiles andApparel
– InformationTechnology
• Share bestpractices ingovernmentoperations
• Improve regionalinstitutions
– Regionaldevelopmentbanks
– Disputeresolutionmechanisms
– Policycoordinationbodies
• Develop aregionalmarketingstrategy
Factor (Input)
Conditions
Factor (Input)
ConditionsRegional
GovernanceRegional
GovernanceContext for
Strategy and Rivalry
Context for Strategy
and Rivalry
Related and Supporting Industries
Related and Supporting Industries
Demand ConditionsDemand
Conditions
Regional Economic CoordinationIllustrative Policy Levers
51CAON Singapore 2001 - 08-02-01 CK Copyright © 2001 Professor Michael E. Porter
• APEC and ASEAN cover a vast geographic area andencompass countries with widely different political systems andstages of development
– APEC and ASEAN’s role can be useful in trade expansion andestablishing general rules and guidelines
– Cooperation with individual countries within the Asia area can boosttrade and strengthen the competitiveness of specific clusters
• Deeper cooperation with immediate neighbors like Indonesiaand Malaysia can produce significant productivity benefits
– Meaningful cluster integration– Coordination of government economic and infrastructure policies
• At the same time, market integration within ASEAN, and withIndia, offer compelling strategic advantages to Singapore
The Role of Regional Coordination
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