The Competitive Advantage of Regions Professor Michael E. Porter Institute for Strategy and Competitiveness Harvard Business School Prepared for The Columbus Partnership Retreat John F. Kennedy School of Government February 27, 2004 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 2001 , (World Economic Forum, 2001), “Clusters and the New Competitive Agenda for Companies and Governments” in On Competition (Harvard Business School Press, 1998), the Clusters of Innovation Initiative, a joint effort of the Council on Competitiveness, Monitor Group, and Professor Porter. Additional content is drawn from the work of the Initiative for a Competitive Inner City, www.icic.org . 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. www.isc.hbs.edu Additional information may be found at the website of the Institute for Strategy and Competitiveness,
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
The Competitive Advantage of Regions
Professor Michael E. PorterInstitute for Strategy and Competitiveness
Harvard Business School
Prepared forThe Columbus Partnership Retreat
John F. Kennedy School of GovernmentFebruary 27, 2004
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 2001, (World Economic Forum, 2001), “Clusters and the New Competitive Agenda for Companies and Governments” in On Competition (Harvard Business School Press, 1998), the Clusters of Innovation Initiative, a joint effort of the Council on Competitiveness, Monitor Group, and Professor Porter. Additional content is drawn from the work of the Initiative for a Competitive Inner City, www.icic.org. 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.
www.isc.hbs.eduAdditional information may be found at the website of the Institute for Strategy and Competitiveness,
• Competitiveness is determined by the productivity with which a region uses its human, capital, and natural resources. Productivity sets a region’s standard of living (wages, returns to capital)
– 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 region competes in that matters for prosperity, buthow firms compete in those industries
– Productivity in a region is a reflection of what both domestic and “foreign” firms choose to do in that location.
– The productivity of “local” industries is of fundamental importance to competitiveness, not just that of traded industries
• Regions compete in offering the most productive environment for business
• The public and private sectors play different but interrelated roles in creating a productive economy
Context for Firm
Strategy and Rivalry
Context for Firm
Strategy and Rivalry
Related and Supporting Industries
Related and Supporting Industries
Factor(Input)
Conditions
Factor(Input)
ConditionsDemand
ConditionsDemand
Conditions
Productivity, Innovation, and the Business Environment
Sophisticated and demanding local customer(s)Local customer needs that anticipatethose 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
• Successful economic development is a process of successive economic upgrading, in which the business environment in a nation or region evolves to support and encourage increasingly sophisticated ways of competing
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.
Shifting Responsibilities for Economic Development
Old ModelOld Model New ModelNew Model
• Government drives economic development through policy decisions and incentives
• Government drives economic development through policy decisions and incentives
• 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
Composition of Regional Economies United States, 2001
Traded ClustersTraded Clusters Local ClustersLocal Clusters Natural Resource-Driven Industries
Natural Resource-Driven Industries
31.6%1.7%
$46,596133.85.0%
144.1
21.3
590
31.6%1.7%
$46,596133.85.0%
144.1
21.3
590
67.6%2.8%
$28,28884.23.6%
79.3
1.3
241
67.6%2.8%
$28,28884.23.6%
79.3
1.3
241
0.8%-1.0%
$33,24599.01.9%
140.1
7.0
48
0.8%-1.0%
$33,24599.01.9%
140.1
7.0
48
Share of EmploymentEmployment Growth, 1990
to 2001
Average WageRelative WageWage Growth
Relative Productivity
Patents per 10,000 Employees
Number of SIC Industries
Note: 2001 data, except relative productivity which is 1997 data.Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School
Denver, COLeather and Sporting GoodsOil and GasAerospace Vehicles and Defense
Denver, COLeather and Sporting GoodsOil and GasAerospace Vehicles and Defense
San DiegoLeather and Sporting GoodsPower GenerationEducation and Knowledge
Creation
San DiegoLeather and Sporting GoodsPower GenerationEducation and Knowledge
Creation
San Francisco-Oakland-San Jose Bay AreaCommunications
EquipmentAgricultural
ProductsInformation
Technology
San Francisco-Oakland-San Jose Bay AreaCommunications
EquipmentAgricultural
ProductsInformation
Technology
Seattle-Bellevue-Everett, WAAerospace Vehicles and
DefenseFishing and Fishing
ProductsAnalytical Instruments
Seattle-Bellevue-Everett, WAAerospace Vehicles and
DefenseFishing and Fishing
ProductsAnalytical Instruments
HoustonHeavy Construction ServicesOil and GasAerospace Vehicles and Defense
HoustonHeavy Construction ServicesOil and GasAerospace Vehicles and Defense
Pittsburgh, PAConstruction MaterialsMetal ManufacturingEducation and Knowledge
Creation
Pittsburgh, PAConstruction MaterialsMetal ManufacturingEducation and Knowledge
Creation
Atlanta, GAConstruction MaterialsTransportation and LogisticsBusiness Services
Atlanta, GAConstruction MaterialsTransportation and LogisticsBusiness Services
Raleigh-Durham, NCCommunications EquipmentInformation TechnologyEducation and
Knowledge Creation
Raleigh-Durham, NCCommunications EquipmentInformation TechnologyEducation and
Knowledge Creation
Wichita, KSAerospace Vehicles and
DefenseHeavy MachineryOil and Gas
Wichita, KSAerospace Vehicles and
DefenseHeavy MachineryOil and Gas
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
Employment growth per year, 1990 to 2001in Columbus: 2.45% (rank 117) in the US: 1.91%
Unemployment rate, December 2003in Columbus: 4.1% (rank 93) in the US: 5.4%
Average local wages, 2001in Columbus: $27,511 (rank 53) in the US: $28,288Columbus as % of US: 97.2%
Average traded wages, 2001in Columbus: $ 43,501 (rank 53 ) in the US: $ 44,956Columbus as % of US: 96.8%
Traded wage growth per year, 1990 to 2001in Columbus: 5.27% (rank 100 ) in the US: 4.53%
Employment1, 2001in Columbus: 773,508 (rank 37)2
% of US: 0.67%
Employment growth per year, 1990 to 2001in Columbus: 2.45% (rank 117) in the US: 1.91%
Unemployment rate, December 2003in Columbus: 4.1% (rank 93) in the US: 5.4%
Average local wages, 2001in Columbus: $27,511 (rank 53) in the US: $28,288Columbus as % of US: 97.2%
Average traded wages, 2001in Columbus: $ 43,501 (rank 53 ) in the US: $ 44,956Columbus as % of US: 96.8%
Traded wage growth per year, 1990 to 2001in Columbus: 5.27% (rank 100 ) in the US: 4.53%
Patents per 10,000 employees, 2001in Columbus: 4.69 (rank 149) in the US: 7.71
Growth in patents per year, 1990 to 2001in Columbus: 5.0% (rank 142) in the US: 5.9%
Traded establishment formation, 1990 to 2001in Columbus: 4.2% (rank 125) in the US: 4.0%
Patents per 10,000 employees, 2001in Columbus: 4.69 (rank 149) in the US: 7.71
Growth in patents per year, 1990 to 2001in Columbus: 5.0% (rank 142) in the US: 5.9%
Traded establishment formation, 1990 to 2001in Columbus: 4.2% (rank 125) in the US: 4.0%
Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School
1 Employment data includes all employees on firm payrolls; excludes government and agricultural employees and the self-employed.2 Ranks are among 318 US metro areas.
Employment By Traded ClusterColumbus Metropolitan Area
Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business SchoolEmployment, 2001
Job Creation By Traded ClusterColumbus Metropolitan Area
Job
Cre
atio
n, 1
990-
2000
-5,000
0
5,000
10,000
15,000
20,000
25,000
Fina
ncia
l Ser
vice
s
Bus
ines
s S
ervi
ces
Tran
spor
tatio
n an
d Lo
gist
ics
Dis
tribu
tion
Ser
vice
s
Com
mun
icat
ions
Equ
ipm
ent
Hea
vy C
onst
ruct
ion
Ser
vice
s
Info
rmat
ion
Tech
nolo
gy
Hos
pita
lity
and
Tour
ism
Ent
erta
inm
ent
Con
stru
ctio
n M
ater
ials
Pow
er G
ener
atio
n an
d Tr
ansm
issi
on
Pre
fabr
icat
ed E
nclo
sure
s
Pla
stic
s
Ligh
ting
and
Ele
ctric
al E
quip
men
t
Furn
iture
App
arel
Med
ical
Dev
ices
Toba
cco
Spo
rting
, Rec
reat
iona
l and
Chi
ldre
n's
Goo
ds
Proc
esse
d Fo
od
Jew
elry
and
Pre
ciou
s M
etal
s
Prod
uctio
n Te
chno
logy
Biop
harm
aceu
tical
s
Foot
wea
r
Fish
ing
and
Fish
ing
Prod
ucts
Aero
spac
e E
ngin
es
Text
iles
Fore
st P
rodu
cts
Agr
icul
tura
l Pro
duct
s
Leat
her a
nd R
elat
ed P
rodu
cts
Hea
vy M
achi
nery
Oil
and
Gas
Pro
duct
s an
d S
ervi
ces
Bui
ldin
g Fi
xtur
es, E
quip
men
t and
Ser
vice
s
Che
mic
al P
rodu
cts
Pub
lishi
ng a
nd P
rintin
g
Aer
ospa
ce V
ehic
les
and
Def
ense
Edu
catio
n an
d K
now
ledg
e C
reat
ion
Met
al M
anuf
actu
ring
Aut
omot
ive
Ana
lytic
al In
stru
men
ts
Mot
or D
riven
Pro
duct
s
Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business SchoolIndicates expected job creation at rates achieved in national benchmark clusters, i.e. percent change in national benchmark times starting local employment.
LegendGreen = Inner City AreasWhite = Columbus boundary
Key Facts
• Inner city Columbus is home to 188,000 residents or 26% of the city's total population.
• Inner city Columbus is home to over 6,000 establishments employing 37,000 workers.
• Employment growth of negative 1.3% in Inner City Columbus is far below the rest of the MSA (+4.2%).
• The largest industry clusters in inner city Columbus: Local Commercial ServicesLocal Health ServicesLocal Real Estate, Construction, and DevelopmentLocal Hospitality EstablishmentsFinancial Services
0 2 4 61
Miles
Source: State of the Inner City Economies Project, Initiative for a Competitive Inner City