Competitiveness in the Global Economy: Sweden’s Position Professor Michael E. Porter Dr Christian Ketels Institute for Strategy and Competitiveness Harvard Business School Globalization Council Stockholm, Sweden April 27, 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
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Competitiveness in the Global Economy:Sweden’s Position
Professor Michael E. PorterDr Christian Ketels
Institute for Strategy and Competitiveness Harvard Business School
Globalization CouncilStockholm, Sweden
April 27, 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
• Fewer barriers to trade and investment• Rapidly increasing stock and diffusion of knowledge• Competitiveness upgrading in many countries
• Globalization of markets• Globalization of value chains• Internationalization of capital, especially portfolio investment• Increasing knowledge and skill intensity of competition• Value increasingly in the service component of activities
• Productivity increasingly determines success• Competition among nations need not be zero-sum• Economic success depends on providing unique value, not
Determinants of Productivity and Productivity Growth
Macroeconomic, Political, Legal, and Social ContextMacroeconomic, Political, Legal, and Social ContextMacroeconomic, Political, Legal, and Social Context
• A sound context creates the potential for competitiveness, but is not sufficient• Competitiveness ultimately depends on improving the microeconomic capability
of the economy and the sophistication of local companies and local competition
• Successful economic development is a process of successive economic upgrading, in which the business environment in a nation evolves to support and encourage increasingly sophisticated ways of competing
Sophisticated and demandinglocal customer(s)Local customer needs that anticipate those elsewhereUnusual local demand in specialized segments that can be served nationally and globally
Presence of high quality, specialized inputs available to firms
–Human resources–Capital resources–Physical infrastructure–Administrative infrastructure–Information infrastructure–Scientific and technological
infrastructure–Natural resources
Access to capable, locally based suppliersand firms in related fieldsPresence of clusters instead of isolated industries
A local context and rules that encourage investment and sustained upgrading
–e.g., Intellectual property protection
Meritocratic incentive systems across all major institutionsOpen and vigorous competition among locally based rivals
Note: 2004 data, except relative productivity which uses 1997 data.Source: Prof. Michael E. Porter, Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School
The Composition of Regional EconomiesUnited States, 2004
Note: Clusters listed are the three highest ranking clusters in terms of share of national employmentSource: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School
Note: Clusters with overlapping borders or identical shading have at least 20% overlap (by number of industries) in both directions. Clusters in which Stockholm has a strong position within Sweden are in bold
Sporting and Recreation
Goods
Business Services
DistributionServices
Fishing & Fishing
Products
Footwear
Forest Products
Heavy Construction
Services
Jewelry & Precious Metals
ConstructionMaterials
Prefabricated Enclosures
Textiles
Tobacco
Heavy Machinery
Aerospace Engines
Automotive
Production Technology
Motor Driven Products
Metal Manufacturing
Related Clusters in the U.S. EconomySchematic Representation
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 bottom-up process in which many individuals, companies, clusters, and institutions take responsibility
• Every region and cluster can take steps to enhance competitiveness
• Successful competitiveness efforts set clear priorities reflecting the specific barriers companies face
• Prosperity driven by solid levels of productivity and labor mobilization– Labor productivity still below EU-15 average but closing the gap– Labor mobilization advantage relative to EU-15 stable after
significant drop in 1990s; little job creation in the private sector
• Strong integration into global markets, driven by core of multinationals– Export market share broadly stable, shifting to services– Significant presence of foreign companies– Strong outward investment, especially in the Baltic Sea Region
• Low domestic investment rate
• High but falling patenting rate– Universities leading in the region, but not globally
Change in Sweden’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.
Swed
en’s
wor
ld e
xpor
t mar
ket s
hare
, 200
5
0%
1%
2%
3%
4%
5%
6%
7%
8%
-3.5% -2.5% -1.5% -0.5% 0.5% 1.5% 2.5%
Change In Sweden’s Overall World Export Share: -0.05%
Change in Sweden’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.
Swed
en’s
wor
ld e
xpor
t mar
ket s
hare
, 200
5
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
-0.5% -0.3% -0.1% 0.1% 0.3% 0.5%
Change In Sweden’s Overall World Export Share: -0.05%
Competitive Disadvantages Relative to GDP per Capita
Competitive Advantages Relative to GDP per Capita
Quality of math and science education 35
Reliability of police services 26
Quality of public schools 25
Quality of management schools 25
Air transport infrastructure quality 23
Quality of electricity supply 18
Overall infrastructure quality 17
Country Ranking, Arrows indicate a change of 5 or more
ranks since 2001
Country Ranking, Arrows indicate a change of 5 or more
ranks since 2001
Factor (Input) ConditionsSweden’s Relative Position 2006
Factor(Input)
Conditions
Factor(Input)
Conditions
Note: Rank versus 121 countries; overall, Sweden ranks 7th in Business Competitiveness and 18th in 2005 PPP adjusted GDP per capita.Source: Global Competitiveness Report 2006-2007.
Context for Firm Strategy and RivalrySweden’s Relative Position 2006
Efficacy of corporate boards 2
Prevalence of trade barriers 4
Intellectual property protection 8
Business costs of corruption 9
Intensity of local competition 11
Favoritism in decisions of government 11 officials
Effectiveness of antitrust policy 14
Competitive Disadvantages Relative to GDP per Capita
Competitive Advantages Relative to GDP per Capita
Centralization of economic policymaking 65
Decentralization of corporate activity 25
Cooperation in labor-employer relations 18
Country Ranking, Arrows indicate a change of 5 or more
ranks since 2001
Country Ranking, Arrows indicate a change of 5 or more
ranks since 2001
Context for Firm Strategy and Rivalry
Context for Firm Strategy and Rivalry
Note: Rank versus 121 countries; overall, Sweden ranks 7th in Business Competitiveness and 18th in 2005 PPP adjusted GDP per capita.Source: Global Competitiveness Report 2006-2007.
Competitive Disadvantages Relative to GDP per Capita
Competitive Advantages Relative to GDP per Capita
Country Ranking, Arrows indicate a change of 5 or more
ranks since 2001
Country Ranking, Arrows indicate a change of 5 or more
ranks since 2001
Stringency of environmental regulations 5
Presence of demanding regulatory 5 standards
Demand ConditionsDemand
Conditions
Laws relating to ICT 18
Government procurement advanced 18technology products
Buyer sophistication 16
Note: Rank versus 121 countries; overall, Sweden ranks 7th in Business Competitiveness and 18th in 2005 PPP adjusted GDP per capita.Source: Global Competitiveness Report 2006-2007.
Related and Supporting IndustriesSweden’s Relative Position 2006
Competitive Disadvantages Relative to GDP per Capita
Competitive Advantages Relative to GDP per Capita
Country Ranking, Arrows indicate a change of 5 or more
ranks since 2001
Related and Supporting Industries
Related and Supporting Industries
Local supplier quality 7
Local availability of specialized research 9 and training services
Local availability of process machinery 10
Local supplier quantity 11
Country Ranking, Arrows indicate a change of 5 or more
ranks since 2001
Note: Rank versus 121 countries; overall, Sweden ranks 7th in Business Competitiveness and 18th in 2005 PPP adjusted GDP per capita.Source: Global Competitiveness Report 2006-2007.
21 Motor vehicle bodies Automotive 15.43% -1.00% $868,325
22 Fish, fresh, chilled, or frozen Fishing and Fishing Products 2.77% 1.68% $850,010
23 Polymers of ethylene Plastics 2.19% 2.02% $788,119
24 Work trucks, tractors, and parts Production Technology 6.54% 0.87% $778,778
25 Other plastics in primary forms Plastics 1.26% 0.70% $764,654
SwedenLeading Goods Export Industries, 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.
Top 50 Industries as % of Sweden’s total goods exports: 58.3% 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.
Company Operations and StrategySweden’s Relative Position 2006
Competitive Disadvantages Relative to GDP per Capita
Competitive Advantages Relative to GDP per Capita
Country Ranking, Arrows indicate a change of 5 or more
ranks since 2001
Note: Rank versus 121 countries; overall, Sweden ranks 7th in Business Competitiveness and 18th in 2005 PPP adjusted GDP per capita.Source: Global Competitiveness Report 2006-2007.
Willingness to delegate authority 1Reliance on professional management 1Capacity for innovation 2Breadth of international markets 3Extent of staff training 3Company spending on research and 5 development Extent of regional sales 5Extent of incentive compensation 5Nature of competitive advantage 7Production process sophistication 7Value chain presence 9Degree of customer orientation 9Control of international distribution 9Extent of marketing 10
Country Ranking, Arrows indicate a change of 5 or more
Patenting Intensity: 1996 – 2005Selected Countries
0
50
100
150
200
250
300
350
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
United StatesJapanTaiwanFinlandIsraelSwitzerlandSwedenGermanyS KoreaCanadaSingaporeIcelandDenmarkNorwayEstoniaRussiaLithuaniaLatviaPolandBrazilIndiaChina
U.S. Patents by Sweden-based InstitutionsPatentor Number of patents, 2000-04
1 TELEFONAKTIEBOLAGET LM ERICSSON 16982 SANDVIK AKTIEBOLAG 2263 ASEA BROWN BOVERI AB 1794 SCA HYGIENE PRODUCTS AB 1645 ASTRAZENECA AB 1426 TETRA LAVAL HOLDINGS & FINANCE S.A. 1217 SIEMENS ELEMA AB 908 AKTIEBOLAGET ASTRA 889 VOLVO LASTVAGNAR AB 7510 AB VOLVO 7411 AKTIEBOLAGET ELECTROLUX 6412 KVAERNER PULPING AKTIEBOLAG 6413 AKZO NOBEL NV 5714 SCANIA CV AKTIEBOLAG 5615 PHARMACIA AKTIEBOLAG 5116 VALMET FIBERTECH AKTIEBOLAG 5016 VOLVO CAR CORPORATION AB 5018 ALLGON AB 4918 VOLVO PERSONVAGNAR AB 4920 DELAVAL HOLDING AB 4821 ALFA-LAVAL AB 4722 AUTOLIV DEVELOPMENT AB 4322 SECO TOOLS AB 4324 PACESETTER AB 3925 ERICSSON, Inc. 38
Source: World Bank – Doing Business (2007), author’s analysis.
Category Rank
Enforcing Contracts 2Registering Property 7Trading Across Borders 9OVERALL 13Closing a Business 17Dealing with Licenses 17Starting a Business 20Getting Credit 33Paying Taxes 39Protecting Investors 46Employing Workers 94
Hong KongSingaporeIrelandIcelandUKEstoniaDenmarkUnited StatesCanadaFinlandChileSwitzerlandGermanySwedenLithuaniaJapanNorwaySpainSlovakiaTaiwanSloveniaLatviaPoland
Free
Index of Economic Freedom1996 - 2006
Source: Index of Economic Freedom (2006), author’s analysis.