Competitiveness: Implications for Central and Europe and the Czech

1 Copyright 2007 © Professor Michael E. Porter20071022 Czech Republic - DRAFT.ppt

Competitiveness: Implications for Central and Europe and the Czech Republic

Professor Michael E. PorterHarvard Business School

Prague, Czech Republic22 October 2007

This presentation draws on ideas from Professor Porter’s articles and books, in particular, The Competitive Advantage of Nations (The Free Press, 1990), “Building the Microeconomic Foundations of Competitiveness,” in The Global Competitiveness Report 2006 (World Economic Forum, 2006), “Clusters and the New Competitive Agenda for Companies and Governments” in On Competition (Harvard Business School Press, 1998), and ongoing research on clusters and competitiveness. 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.Further information on Professor Porter’s work and the Institute for Strategy and Competitiveness is available at www.isc.hbs.edu


Perspectives on Firm Success

InternalInternal ExternalExternal

• Competitive advantage resides solely inside a company or in its industry

• Competitive success depends primarily on company choices

• Competitive advantage (or disadvantage) resides partly in the locations at which a company’s business units are based

• Cluster participation is an important contributor to competitiveness


$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

$50,000

0% 1% 2% 3% 4% 5% 6% 7% 8% 9%

Prosperity PerformanceSelected Countries

PPP-adjusted GDP per Capita, 2006

Growth of Real GDP per Capita (PPP-adjusted), CAGR, 1998-2006Source: EIU (2007), authors calculations

Ireland

USA

Hungary

Armenia (10.9%)Albania

PolandLithuania

Greece

Turkey

Portugal

Switzerland

Norway

Czech Republic

Slovakia

Germany

FinlandIceland

Sweden

Spain

UK

Netherlands

Austria

Denmark

France

Russia

Serbia & Montenegro

Turkey

CroatiaLatvia

Estonia

BulgariaBosnia &

HerzegovinaUkraine

Slovenia

Macedonia

Moldova


Central and Eastern European Economies in 2007Common Themes

• Strong economic growth and fast rate of prosperity catch-up• Opening to foreign investment and European integration have

driven growth

However

• Rapid wage growth is threatening a key traditional source of the region’s attractiveness

• Concerns about macroeconomic overheating are rising

• The region needs to prepare for the next stage of economicdevelopment in a more challenging global economic environment


• Competitiveness is determined by the productivity with which a nation uses its human, capital, and natural resources.

– Sets the standard of living (wages, returns on capital, returns on natural resources) that a country can sustain

– Productivity depends on the prices per unit that a nation’s products and services can command (due to uniqueness and quality), not just on efficiency

– It is not what industries a nation competes in that matters for prosperity, but how it competes in those industries

– Productivity requires a combination of domestic and foreign firms operating in the nation

– The productivity of “local” or domestic industries is fundamental to competitiveness, not just that of traded industries

What is Competitiveness?

• Nations compete in offering the most productive environment for business

• The public and private sectors play different but interrelated roles in creating a productive economy


What Creates Sustainable Prosperity?

ProductivityProductivity

Innovative CapacityInnovative CapacityInnovative Capacity

Competitiveness

ProsperityProsperityProsperity


Decomposing Prosperity

Per Capita IncomePer Capita IncomePer Capita Income

Labor Productivity

Labor Productivity

Labor Utilization

Labor Utilization

Domestic Purchasing

Power

Domestic Purchasing

Power• Consumption taxes• Local prices

– Efficiency of local industries

– Level of local market competition

ProsperityProsperityProsperity

• Skills• Capital stock• Total factor productivity

• Working hours• Unemployment• Workforce participation rate

– Population age profile

• Standard of living• Inequality


0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

-2% -1% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9%

Comparative Labor Productivity PerformanceSelected Developing Countries

Compound annual growth rate (CAGR) of real GDP per employee (PPP-adjusted), 2001-2006

GDP per employee

(PPP adjusted) in US-$, 2006

Source: EIU (2007)

Turkey

Spain

Czech Republic

Switzerland

Norway

Slovakia

Ukraine

Austria

UK

Portugal

France

Germany

Greece

Netherlands

Poland

Sweden

Latvia

Slovenia

Hungary

Untied States

Denmark

MacedoniaBulgaria

Croatia Estonia

Romania

Iceland

Ireland

Lithuania


0

0.1

0.2

0.3

0.4

0.5

0.6

ICELA

NDDENMARKPORTU

GALNORWAYGERMANY

CZECH R

EPUBLICESTONIA

SWITZERLAND

UNITED KIN

GDOM

UNITED STA

TESSWEDENIR

ELAND

LATV

IACYPRUS

SLOVAKIASPAIN

LITHUANIA

UKRAINE

FRANCE

NETHERLANDS

BULGARIA

SLOVENIA

GREECEPOLA

NDROMANIA

MACEDONIAAUSTRIAHUNGARYMOLD

OVACROATIA

TURKEY

Labor Force MobilizationSelected Countries

Employees as % of Population, 2006

Source: EIU, 2007


Labor MobilizationHours Worked Per Employee

1,500

1,600

1,700

1,800

1,900

2,000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Source: Groningen Growth and Development Center (2007)

United States

EU-8

EU-15


0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

-6% -5% -4% -3% -2% -1% 0% 1% 2% 3% 4%

Unemployment PerformanceSelected CountriesUnemployment

Rate, 2006

Change of Unemployment Rate in Percentage Points,1998 - 2006

Source: EIU (2007)

TurkeySpain

(-10.1%)Slovenia

Czech Republic

Switzerland Norway

Slovakia

Latvia

Estonia

AustriaUK

Portugal

France

Germany

Greece

Netherlands

Poland(6.2%)

Sweden

Iceland

Romania

Croatia

Bulgaria

Hungary

Untied StatesDenmarkIreland

Macedonia(35%)

LithuaniaUkraine

Improving Deteriorating


Productivity

Competitiveness Environment

ExportsInbound

Foreign Direct Investment

OutboundForeign Direct

Investment

DomesticInnovation

Domestic InvestmentImports

Enablers and Indicators of Competitiveness


-5% -3% -1% 1% 3% 5% 7% 9%

Export IntensitySelected CountriesExports as %

GDP (2006)

Compound Annual Growth Exports (as % of GDP), 2001 - 2006

Spain

Czech Republic

SwitzerlandNorway

Slovakia

MacedoniaAustria

UK

Portugal

France

Germany

Bulgaria

Netherlands

Poland(11.1%)

Sweden

Latvia

Slovenia

Hungary

US

Iceland

Denmark

Estonia

Bosnia & Herzegovina

Finland

Lithuania

Greece

Russia

Romania

Ireland (-8.9%)

Cyprus (-8.9%)

Ukraine

Belarus

Moldova

Croatia

USD 100M =

80%

70%

60%

50%

40%

30%

20%

10%

0%

Source: EUI (2007), authors’ analysis


Inbound Foreign Investment PerformanceStocks and Flows, Selected Countries

Source: UNCTAD (2007), EIU (2007)

0%

10%

20%

30%

40%

50%

60%

70%

80%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

FDI Stocks as % of GDP, Average 2002 - 2006

FDI Inflows as % of Gross Fixed Capital Formation, Average 2002 - 2006

Romania

Ukraine

Bulgaria

Turkey

Slovenia

Finland

Hungary

DenmarkSweden

Netherlands

Cyprus

Croatia

Lithuania

Switzerland

Ireland(112.4%))

Latvia Poland

GreeceUnited States

Norway

Estonia

Spain

France

Austria

Czech Republic

United KingdomPortugal

Germany

Slovakia


15%

17%

19%

21%

23%

25%

27%

29%

31%

33%

35%

-6% -4% -2% 0% 2% 4% 6% 8% 10% 12%

Fixed Investment RatesSelected CountriesGross Fixed Investment

as % of GDP (2006)

Source: EIU, 2007.

CAGR Gross Fixed Investment (as % of GDP), 2001 - 2006

Turkey

Spain

Czech Republic

Switzerland

Norway

Slovakia

Macedonia

Austria

UK

PortugalFrance

Germany

Bulgaria

Netherlands Poland

Sweden

Latvia

Slovenia

Hungary

US

Armenia(13.5%)

Denmark

Croatia

Estonia

Finland

Lithuania

Cyprus

Albania

Russia

Romania

Ireland Greece

Ukraine

Belarus

Iceland

Moldova


0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

-5% 0% 5% 10% 15% 20% 25% 30% 35%

International Patenting OutputSelected Countries

Source: USPTO (2006)

Annual U.S. patents per 1 million population, 2006

CAGR of US-registered patents, 1998 – 2006

RussiaHungary

China

Greece Czech Republic

Croatia

LithuaniaBrazil

UkrainePoland

Turkey

Slovenia

Slovakia

Romania

Philippines

India

Latvia

Ireland

Norway Hong Kong

Belgium


Macroeconomic, Political, Legal, and Social Context

Microeconomic Competitiveness

The Quality of the Microeconomic

BusinessEnvironment

The Quality of the Microeconomic

BusinessEnvironment

The Sophisticationof Company

Operations andStrategy

The Sophisticationof Company

Operations andStrategy

State of Cluster Development

State of Cluster State of Cluster DevelopmentDevelopment

Determinants of Competitiveness

• A strong context creates the potential for competitiveness, but is not sufficient

• Competitiveness ultimately depends on improving the microeconomic competitiveness of the economy


• Sound fiscal and monetary policies create stability and encourage business investment and upgrading

• Sound and stable macroeconomic conditions hold down interest rates and provide accurate price signals for market transactions

Macroeconomic policies

• An independent, timely, effective and trusted legal system solidifies the rule of law and provides a fair environment forbusiness, encouraging investment

• Strict monitoring and prosecution of corruption rewards productivity instead of favoritism

Legal system

Macroeconomic, Political, Legal, and Social Context

• Improving social conditions in basic education, housing, health, and absence of discrimination enhance productivity

• A functioning social safety net gives citizens the confidence to accept and deal with change in the economy

• Improvements of social conditions signal the benefits of reforms and increase thepolitical support for policies to enhance competitiveness

Social conditions

• Due process in political decisions and orderly transfers of power create a stable planning horizon for business

• Checks and balances in the political system mitigate instability and the abuse of power

Political governance


-20 -15 -10 -5 0 5 10 15 20

Corruption Perception Index, 2007

Note: Ranks only countries available in both years (91 countries total)Source: Global Corruption Report, 2007

Change in Rank, Global Corruption Report, 2007 versus 2001

Rank in Global

CorruptionIndex,2007

91

1ImprovingDeteriorating

Highcorruption

Lowcorruption

FinlandDenmark

Canada

Bangladesh

Indonesia

Ireland

Portugal

Bulgaria

Iceland

Czech RepublicSlovakia

South Korea

Latvia

India

Slovenia

Thailand

Switzerland

France

Romania

Turkey

Estonia

AustriaGermanyJapan

Vietnam

China

NorwayUK

MalaysiaLithuania

Colombia

Hungary

TaiwanSpain

Hong Kong

Netherlands

ChileUnited States

South Africa

Mexico

Croatia

Italy

Poland

Brazil

Argentina

Israel

VenezuelaRussia


Improving the Business Environment: The Diamond

Context for Firm

Strategy and Rivalry

Context for Firm


Related and Supporting Industries


High quality, efficient and specialized inputs to business

– Natural endowments– Human resources– Capital availability– Physical infrastructure– Administrative infrastructure

(e.g. registration, permitting)– Scientific and technological

infrastructure

Capable, locally based suppliers and supporting industriesThe presence of clusters instead of isolated firms

Demanding and sophisticated local customers and needs

–Challenging quality, safety, and environmental standards

• Successful economic development is a process of successive upgrading, in which the business environment improves to enable increasingly sophisticated ways of competing

Local rules and incentivesthat encourage investment and productivity

– e.g., incentives for capital investments, intellectual property protection

Vigorous local competition– Openness to foreign and

local competition

Factor(Input)

Conditions

Factor(Input)

ConditionsDemand

ConditionsDemand

Conditions


Quality of the Business EnvironmentCzech Republic

Control of international distribution 59

Neutrality in decisions of government 56 officials

Local equity market access 53

Reliability of police services 51

Efficiency of legal framework 51

Venture capital availability 49

Ease of access to loans 48

Quality of port infrastructure 45

Extent of incentive compensation 43

Business costs of corruption 43

Nature of competitive advantage 42

Financial market sophistication 42

Degree of customer orientation 41

Judicial independence 41

Competitive Disadvantages Relative to GDP per Capita

Competitive Advantages Relative to GDP per Capita

Source: Global Competitiveness Report 2007.

Cellular Telephones per 100 inhabitants 4

Availability of scientists and engineers 5

Quality of math and science education 8

Quality of primary education 10

Absence of trade barriers 10

Intensity of local competition 11

Decentralization of economic policymaking 13

Extent of regional sales 16

Stringency of environmental regulations 16

Local supplier quantity 16

Quality of electricity supply 22

Presence of demanding regulatory 22 standards

Local supplier quality 23

Change up/down of more than 5 ranks since 2002


0

20

40

60

80

100

120

DoingBusiness

GettingCredit

TradingAcrossBorders

RegisteringProperty

EmployingWorkers

Dealingwith

Licenses

ProtectingInvestors

Starting aBusiness

EnforcingContracts

Closing aBusiness

PayingTaxes

Ease of Doing BusinessCzech Republic

Ranking, 2006 (of 175 countries)

Source: World Bank Doing Business (2007)

Favorable Unfavorable

Median Ranking, EU8 countries

Czech Republic per capita GDP rank: 33


Sources: HBS student team research (2003) - Peter Tynan, Chai McConnell, Alexandra West, Jean Hayden

HotelsHotels

Attractions andActivities

e.g., theme parks, casinos, sports

Attractions andActivities

e.g., theme parks, casinos, sports

Airlines, Cruise Ships

Airlines, Cruise Ships

Travel agentsTravel agents Tour operatorsTour operators

RestaurantsRestaurants

PropertyServicesPropertyServices

MaintenanceServices

MaintenanceServices

Government agenciese.g. Australian Tourism Commission,

Great Barrier Reef Authority

Government agenciese.g. Australian Tourism Commission,

Great Barrier Reef Authority

Educational Institutionse.g. James Cook University,

Cairns College of TAFE

Educational Institutionse.g. James Cook University,

Cairns College of TAFE

Industry Groupse.g. Queensland Tourism

Industry Council

Industry Groupse.g. Queensland Tourism

Industry Council

FoodSuppliers

FoodSuppliers

Public Relations & Market Research

Services

Public Relations & Market Research

Services

Local retail, health care, andother services

Local retail, health care, andother services

Souvenirs, Duty Free

Souvenirs, Duty Free

Banks,Foreign

Exchange

Banks,Foreign

Exchange

Local Transportation

Local Transportation

Enhancing Cluster DevelopmentTourism Cluster in Cairns, Australia


Research OrganizationsResearch OrganizationsResearch Organizations

Biological Products

Biological Biological ProductsProducts

Specialized Risk CapitalVC Firms, Angel Networks

Specialized Risk CapitalVC Firms, Angel Networks

Biopharma-ceutical

Products

BiopharmaBiopharma--ceutical ceutical

ProductsProducts

Specialized BusinessServices

Banking, Accounting, Legal

Specialized BusinessServices

Banking, Accounting, Legal

Specialized ResearchService Providers

Laboratory, Clinical Testing

Specialized ResearchService Providers

Laboratory, Clinical Testing

Dental Instrumentsand Suppliers

Dental Instrumentsand Suppliers

Surgical Instruments and Suppliers

Surgical Instruments and Suppliers

Diagnostic SubstancesDiagnostic Substances

ContainersContainersContainers

Medical EquipmentMedical Equipment

Ophthalmic GoodsOphthalmic Goods

Health and Beauty Products

Health and Beauty Health and Beauty ProductsProducts Teaching and Specialized HospitalsTeaching and Specialized Hospitals

Educational InstitutionsHarvard University, MIT, Tufts University,

Boston University, UMass

Educational InstitutionsHarvard University, MIT, Tufts University,

Boston University, UMass

Cluster OrganizationsMassMedic, MassBio, othersCluster Organizations

MassMedic, MassBio, others

Analytical InstrumentsAnalytical InstrumentsAnalytical Instruments

State of Cluster DevelopmentMassachusetts, Life Sciences


Institutions for CollaborationSelected Massachusetts Organizations, Life Sciences

Economic Development InitiativesEconomic Development Initiatives

Massachusetts Technology CollaborativeMass Biomedical InitiativesMass DevelopmentMassachusetts Alliance for Economic Development

Massachusetts Technology CollaborativeMass Biomedical InitiativesMass DevelopmentMassachusetts Alliance for Economic Development

Life Sciences Industry AssociationsLife Sciences Industry Associations

Massachusetts Biotechnology CouncilMassachusetts Medical Device Industry CouncilMassachusetts Hospital Association

Massachusetts Biotechnology CouncilMassachusetts Medical Device Industry CouncilMassachusetts Hospital Association

General Industry AssociationsGeneral Industry Associations

Associated Industries of MassachusettsGreater Boston Chamber of CommerceHigh Tech Council of Massachusetts

Associated Industries of MassachusettsGreater Boston Chamber of CommerceHigh Tech Council of Massachusetts

University InitiativesUniversity Initiatives

Harvard Biomedical CommunityMIT Enterprise ForumBiotech Club at Harvard Medical SchoolTechnology Transfer offices

Harvard Biomedical CommunityMIT Enterprise ForumBiotech Club at Harvard Medical SchoolTechnology Transfer offices

Informal networksInformal networks

Company alumni groupsVenture capital communityUniversity alumni groups

Company alumni groupsVenture capital communityUniversity alumni groups

Joint Research InitiativesJoint Research Initiatives

New England Healthcare InstituteWhitehead Institute For Biomedical ResearchCenter for Integration of Medicine and Innovative Technology (CIMIT)

New England Healthcare InstituteWhitehead Institute For Biomedical ResearchCenter for Integration of Medicine and Innovative Technology (CIMIT)


0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

-1.0% -0.5% 0.0% 0.5% 1.0% 1.5%

Czech National Cluster Export Portfolio1997-2005

Change in Czech Republic's world export market share, 1997 – 2005Source: 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.

Cze

ch R

epub

lic's

wor

ld e

xpor

t mar

ket s

hare

, 200

5

Change In Czech Republic's Overall World Export Share: +0.295%

Czech Republic's Overall World Export Share: 0.790%

Exports of US$3 Billion =

Metal Mining and Manufacturing

Automotive

Information Technology

Hospitality and Tourism

Motor Driven Products

Production Technology

Building Fixtures and Equipment

Transportation and Logistics

Communications Equipment

Lighting and Electrical Equipment

Textiles

Plastics

Chemical Products

Entertainment and Reproduction EquipmentProcessed Food

Heavy Machinery

Business Services Agricultural Products

Power and Power Generation Equipment

Furniture

Forest Products

ApparelAnalytical Instruments

Prefabricated Enclosures and Structures

Construction Materials

Publishing and Printing

Oil and Gas Products

Coal and Briquettes

Construction ServicesFootwear


The Process of Economic DevelopmentShifting Roles and Responsibilities

Old ModelOld Model

• Government drives economic development through policy decisions and incentives

• Government drives economic development through policy decisions and incentives

New ModelNew Model

• Economic development is a collaborative process involving government at multiple levels, companies, teaching and research institutions, and institutions for collaboration

• Economic development is a collaborative process involving government at multiple levels, companies, teaching and research institutions, and institutions for collaboration

• Competitiveness must become a bottoms-up process in which many individuals, companies, and institutions take responsibility

• Every community and cluster can take steps to enhance competitiveness


0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000 United States

Switzerland

Italy

DenmarkIreland

India

Business Competitiveness Index

2006 GDP per Capita (PPP- adjusted)

Malaysia

Source: Global Competitiveness Report 2007

SwedenKuwait Finland

Germany

Qatar

Norway

HighLow

Greece

Argentina

SpainBahrain

Libya

IndonesiaKenya

Tunisia

Korea

ColombiaVariation in BCI score explains 82%

of variation in GDP per capita

Ranking Microeconomic CompetitivenessBusiness Competitiveness Index, 2007

IcelandHong Kong

New Zealand

Estonia

Japan

Chile

ThailandCosta Rica

Jordan

Russia

Venezuela

Hungary

Cyprus

SloveniaPortugal

Israel

TaiwanFrance

Australia

LatviaPoland

Slovakia

Lithuania

Czech Republic


0

5

10

15

20

25

30

35

40

45

Hourly Wage in Manufacturing (USD),

2005

Brazil

Finland

Denmark

Canada

Hungary

Italy

Mexico

Korea

Norway

Germany

Hong Kong Taiwan Singapore

Source: Global Competitiveness Report 2005-2006 and US Bureau of Labor Statistics

Competitiveness versus Wage Level Across Countries

Business Competitiveness Index 2005 HighLow

Australia

AustriaBelgium

France

Greece

Czech Republic

Ireland

Israel

Japan

Poland

Netherlands

New Zealand

Portugal

Spain

Sweden Switzerland

UKUSA

Sri Lanka


BCI Value, 2007

Dynamism Score, 2002 - 2007

Rate of Competitiveness Improvement2002 - 2007

High

Low

Below average Above averageAverage

High-incomeMiddle-incomeLow-income

ItalyHungary

Trinidad and Tobago

Zambia

Brazil

Finland

Dominican Republic

Australia

Zimbabwe

United Kingdom

Spain

France

United States

Netherlands

New Zealand

Sweden

Canada

China

Uganda

Poland

Tanzania

Latvia

Jamaica

Czech Republic

Guatemala

Honduras

Malaysia

Indonesia

Korea

TurkeySri Lanka

Peru

Ecuador

Lithuania

Romania

Mali

Kenya

Chad

Thailand

Norway

Estonia

Pakistan

Costa RicaPanama

Nicaragua

India

Bangladesh

JapanHong Kong

SloveniaSlovakia


Historical Economic Growth Model Czech Republic

• Strong manufacturing legacy

• Skill base at attractive wage levels

• Proximity to Germany and other Western European economies

• Strong focus on FDI attraction

• Export-led growth


Improving Czech Competitiveness

• Improve business regulation and governance

• Upgrade financial markets

• Drive cluster development, including the strengthening of local supplier networks around foreign investments

• Improve innovative capacity

• Strengthen collaboration with neighbors


The Australian Wine ClusterHistory

1955

Australian Wine Research Institute founded

1970

Winemaking school at Charles Sturt University founded

1980

Australian Wine and Brandy Corporation established

1965

Australian Wine Bureau established

1930

First oenology course at RoseworthyAgricultural College

1950s

Import of European winery technology

1960s

Recruiting of experienced foreign investors, e.g. Wolf Bass

1990s

Surge in exports and international acquisitions

1980s

Creation of large number of new wineries

1970s

Continued inflow of foreign capital and management

1990

Winemaker’s Federation of Australia established

1991 to 1998

New organizations created for education, research, market information, and export promotions

Source: Michael E. Porter and Örjan Sölvell, The Australian Wine Cluster – Supplement, Harvard Business School Case Study, 2002


Clusters and Economic Policy

ClustersClusters

Specialized Physical Infrastructure

Natural Resource Protection

Environmental Stewardship

Science and TechnologyInvestments (e.g., centers, university departments, technology transfer)

Education and Workforce TrainingBusiness Attraction

Export Promotion

• Clusters provide a framework for organizing the implementation of public policy and public investments towards economic development

Standard settingMarket Information and Disclosure


The Evolution of National and Regional EconomiesSan Diego

U.S. Military

U.S. Military

CommunicationsEquipment

Sporting andLeather Goods

Analytical Instruments

Power GenerationAerospace Vehicles

and Defense

Transportationand Logistics

Information Technology

19101910 19301930 19501950 1990199019701970

Bioscience Research Centers

Bioscience Bioscience Research Research CentersCenters

Climate and

Geography

Climate and

Geography

Hospitality and Tourism

Medical Devices

Biotech / Pharmaceuticals

Education andKnowledge Creation


FurnitureBuilding Fixtures,

Equipment & Services

Fishing & Fishing Products Hospitality

& TourismAgricultural

ProductsTransportation

& Logistics

Diversifying the EconomyHarnessing Linkages Across Clusters

Plastics

Oil & Gas

Chemical Products

Biopharma-ceuticals

Power Generation

Aerospace Vehicles &

Defense

Lightning & ElectricalEquipment

Financial Services

Publishing & Printing

Entertainment

Information Tech.

Communi-cations

Equipment

Aerospace Engines

Business Services

DistributionServices

Forest Products

Heavy Construction

Services

ConstructionMaterials

Prefabricated Enclosures

Heavy Machinery

Sporting & Recreation

Goods

Automotive

Production Technology

Motor Driven Products

Metal Manufacturing

Apparel

Leather & Related Products

Jewelry & Precious Metals

Textiles

Footwear

Processed Food

Tobacco

Medical Devices

Analytical InstrumentsEducation &

Knowledge Creation

Note: Clusters with overlapping borders or identical shading have at least 20% overlap (by number of industries) in both directions.


Geographic Influences on CompetitivenessLevels of Influence

Broad Economic AreasBroad Economic Areas

Groups of Neighboring Nations

Groups of Neighboring Nations

States, ProvincesStates, Provinces

Metropolitan AreasMetropolitan Areas

NationsNations

World EconomyWorld Economy

Distressed Urban and Rural Communities

Distressed Urban and Rural Communities


The Role of European Union Membership

Key Advantages

• Access to large markets

• Rapid implementation of credible and tested regulatory framework

• Stabilization of fragile political systems through external anchor, i.e. reforms needed to achieve EU membership

• Access to financial resources for competitiveness upgrading

Key Disadvantages

• Complex rules and regulationsnot aligned with needs of transition economies

• Bureaucracy and inflexibility


Central European Neighborhood

•Neighboring countries can move further than the European Union on economic integration•Neighboring countries can together influence EU policies more effectively than alone


• Coordinate macroecono-mic policies

• Eliminate trade and investmentbarriers within the region

• Simplify and harmonize cross-borderregulations and paperwork

• Harmonize environmentalstandards

• Harmonize product safety standards

• Establish reciprocal consumer protection laws

• Coordinateantimonopoly and fair competition policies

• Improve regional transportation infrastructure

• Create an efficient energy network

• Interconnect regional communications

• Link financial markets

• Facilitate the movement of students to enhance higher education

• Harmonize regulatory requirements for business

• Coordinate programs to improve public safety

• Coordinate development of cross-border clusters, e.g.

– Tourism

– Agribusiness

– Transport & Logistics

– Business services

• Share best practices in government operations

• Create regional institutions

– Dispute resolution mechanisms

– Regional development bank

• Develop a regional marketingstrategy

Factor (Input)

Conditions

Factor Factor (Input)(Input)

ConditionsConditionsRegional

GovernanceRegional

GovernanceContext for


Context for Context for Strategy Strategy

and Rivalryand Rivalry



Demand ConditionsDemand Demand

ConditionsConditions

Regional Economic Coordination Illustrative Policy Areas


Role of the Private Sector in Economic Development

• A company’s competitive advantage depends partly on the quality of the businessenvironment

• A company gains advantages from being part of a cluster• Companies have a strong role to play in upgrading their business environment

• Take an active role in upgrading the local infrastructure• Nurture local suppliers and attract foreign suppliers • Work closely with local educational and research institutions, to upgrade their

quality and create specialized programs addressing the cluster’s needs• Inform government on regulatory issues and constraints bearing on cluster

development• Focus corporate philanthropy on enhancing the local business environment

• An important role for trade associations– Greater influence if many companies are united– Cost sharing between members

Documents

Competitiveness: Implications for Central and Europe and the Czech