Competitiveness for the Third Millennium: Implications for Croatia
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Competitiveness for the Third Millennium: Implications for Croatia Professor Michael E. Porter Harvard Business School CEO Agenda Forum Zagreb, Croatia May 15, 2009 This presentation draws on ideas from Professor Porter’s books and articles, in particular, Competitive Strategy (The Free Press, 1980); Competitive Advantage (The Free Press, 1985); “What is Strategy?” (Harvard Business Review, Nov/Dec 1996); “Strategy and the Internet” (Harvard Business Review, March 2001); and a forthcoming book. 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. Additional information may be found at the website of the Institute for Strategy and Competitiveness, www.isc.hbs.edu. Version: May 13, 2pm 20090515 – CAON Crotia.ppt 1 Copyright 2009 © Professor Michael E. Porter The Croatian Economy in 2009 • Croatia has experienced solid growth rates over the last few years, taking advantage of the transition to a market economy • The global economic crisis is now starting to take its toll • Despite the recent period of growth, however, Croatia is facing serious competitiveness challenges • Croatia needs to address these issues aggressively instead of hoping for an automatic return to growth after the crisis or that EU ascension is sufficient • Croatia lacks a clear strategy and an effective implementation mechanism for improving competitiveness 20090515 – CAON Crotia.ppt 2 Copyright 2009 © Professor Michael E. Porter Prosperity Performance PPP-adjusted GDP per Selected Countries Capita, 2007 ($USD) $50,000 Qatar ($57,175, 0.92%) Norway ($54,604) United States $45,000 Ireland Eastern and Southern Europe Other countries Singapore Hong Kong $40,000 Switzerland Canada Kuwait Austria Sweden Australia $35,000 UK Finland Taiwan Germany Japan France Italy Spain $30,000 Greece UAE Slovenia Israel New Zealand $25,000 Bahrain Cyprus South Korea Czech Republic Malta Saudi Arabia Oman Estonia Slovakia $20,000 Hungary Lithuania Croatia Libya Poland Latvia (12.6%) $15,000 Malaysia Russia Mexico Argentina Chile Turkey Kazakhstan (12.3%) Iran Bulgaria Romania Belarus $10,000 Lebanon Brazil South Africa Belize Macedonia Thailand Bosnia & Herzegovina Ukraine Albania $5,000 Guatemala Egypt China (13.0%) El Salvador Syria Jordan Moldova Philippines India Vietnam Yemen Pakistan Laos Cambodia $0 2% 4% 6% 8% 10% 12% Growth of Real GDP per Capita (PPP-adjusted), CAGR, 2000 to 2007 • Croatia has benefited from the end of conflict and market reforms Note: highlighted countries are part of the East African Community (EAC). Source: EIU (2009), authors calculations 20090515 – CAON Crotia.ppt 3 Copyright 2009 © Professor Michael E. Porter What is Competitiveness? • Competitiveness depends on the productivity with which a nation uses its human, capital, and natural resources. – Productivity sets the sustainable standard of living (wages, returns on capital, returns on natural resources) – It is not what industries a nation competes in that matters for prosperity, but how productively it competes in those industries – Productivity in a national economy arises from a combination of domestic and foreign firms – The productivity of “local” or domestic industries is fundamental to competitiveness, not just that of export industries • Only competitive businesses can create wealth and jobs • Nations compete to offer the most productive environment for business • The public and private sectors play different but interrelated roles in creating a productive economy 20090515 – CAON Crotia.ppt 4 Copyright 2009 © Professor Michael E. Porter Comparative Labor Productivity Real GDP per employee (PPP adjusted US$), 2008 Selected Countries $90,000 USA Ireland $80,000 Hong Kong France Eastern and Southern Europe Austria UK Other countries Canada $70,000 Australia Finland Greece Saudi Arabia Italy Germany Spain Switzerland Japan Oman $60,000 Malta Slovenia $50,000 New Zealand Korea Slovakia Cyprus Hungary Czech Republic Portugal Croatia $40,000 Poland Estonia Lithuania Turkey Malaysia Chile Mexico Latvia $30,000 Argentina Russia Macedonia Romania Iran Belarus (8.6%) Bulgaria South Africa Kazakhstan $20,000 Peru Brazil Albania Algeria Tunisia Egypt Thailand Ukraine Syria Morocco Philippines China (10.1%) $10,000 Indonesia Pakistan India Angola (14.0%) Cote d’Ivoire Cameroon Nigeria Bangladesh Kenya Vietnam Senegal Uganda Cambodia Zimbabwe (-8.9%) Ghana Mozambique $0 -2% -1% 0% 1% 2% 3% 4% 5% 6% 7% 8% Growth of real GDP per employee (PPP-adjusted), 2004 to 2008 • Croatia’s labor productivity is lagging, and overstated by low workforce participation Source:20090515 authors– CAON Crotia.ppt calculation, Groningen Growth and Development Centre (2009), EIU (2009)5 Copyright 2009 © Professor Michael E. Porter Labor Force Utilization Labor Force Participation Rates, Selected Countries Participation Rate, 2008 65% Kuwait Eastern and Southern Europe China Singapore 60% Other countries Iceland Thailand 55% Canada Norway Australia Vietnam Germany Sweden Russia Denmark New Zealand Latvia Japan Czech Rep. Ireland USA UK Estonia Finland Spain 50% South Korea Cyprus Brazil Slovakia Lithuania Indonesia Ukraine France India Netherlands Slovenia 45% Greece Poland Chile Macedonia Ghana Romania Austria Hungary Italy Colombia Mexico Argentina Israel 40% Philippines Malaysia Moldova Croatia South Africa Cote d’Ivoire Bulgaria 35% Nigeria Tunisia Turkey Albania Egypt 30% Pakistan Libya Saudi Arabia 25% -3%-2%-1%0%1%2%3%4%5% Change in Labor Force Participation Rate, 2004 to 2008 • Croatia is caught in a trap where low productivity retards job growth, but unemployment retards needed reforms Source: Economist Intelligence Unit (2009) 20090515 – CAON Crotia.ppt 6 Copyright 2009 © Professor Michael E. Porter Export Performance Exports of Goods and Services (% of GDP), 2008 Selected Countries 100% Malaysia (103.5%) Slovakia 90% Belgium Ireland Hungary 80% Czech Republic Vietnam Thailand Netherlands Taiwan Estonia 70% Slovenia Saudi Arabia Belarus 60% Bulgaria Lithuania Cambodia Austria Korea Jordan Sweden Denmark 50% Cyprus Croatia Norway Macedonia Chile Germany Finland Iceland Egypt Ukraine (-17.5%) Latvia 40% Israel Poland Bolivia Moldova China South Africa Philippines Canada Russia New Zealand Portugal Romania Mexico 30% Indonesia Italy Spain France UK Peru Argentina India Bangladesh Greece Australia 20% Albania Turkey Japan Benin Pakistan Brazil USA 10% Ethiopia Eastern and Southern Europe Other countries Burundi 0% -15% -10% -5% 0% 5% 10% 15% 20% Change in Exports of Goods and Services (% of GDP), 2004 to 2008 Source: EIU (2008), authors’ analysis • Croatia's export growth is lagging 20090515 – CAON Crotia.ppt 7 Copyright 2009 © Professor Michael E. Porter Export Performance Selected Countries Exports of Goods and Services (% of GDP) Rank, 2008 95% Slovakia Hungary Czech Republic 85% Slovenia Croatia 75% 65% 55% 45% 35% 25% 1994 1996 1998 2000 2002 2004 2006 2008 20090515 – CAON Crotia.ppt 8 Copyright 2009 © Professor Michael E. Porter Croatia’s Exports By Type of Industry World Export Market Share (current USD) 0.50% Processed Goods Semi- and Unprocessed Goods 0.45% Services TOTAL 0.40% 0.35% 0.30% 0.25% 0.20% 0.15% 0.10% 0.05% 0.00% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Source: UNComTrade, WTO (2008) 20090515 – CAON Crotia.ppt 9 Copyright 2009 © Professor Michael E. Porter Domestic Fixed Investment Rates Gross Fixed Investment Selected Countries as % of GDP, 2008 36% China (40.8%) India Vietnam (44.6%) Eastern and Southern Europe Nicaragua Other countries Romania (11.1%) Bulgaria (12.6%) 32% Croatia Belarus Latvia Estonia Spain Australia Singapore 28% Kazakhstan Korea Thailand Slovenia Indonesia Slovakia Lithuania Ukraine Chile Colombia Czech Rep. Tunisia 24% Iceland Albania Japan Mexico Argentina New Zealand Canada Austria Russia Cambodia Portugal Denmark France Poland Ireland Switzerland Belgium Cyprus Greece Macedonia Italy Netherlands Norway South Africa Hungary Finland Sweden 20% Malaysia Turkey Egypt Pakistan Hong Kong Saudi Arabia Malta Germany Brazil Israel UK 16% Philippines USA 12% -4% -2% 0% 2% 4% 6% 8% Change in Gross Fixed Investment (as % of GDP), 2004 to 2008 • High investment is due to catch-up investments and FDI driven by privatization Note: Includes inbound FDI Source:20090515 EIU,– CAON 2009 Crotia.ppt 10 Copyright 2009 © Professor Michael E. Porter Inbound Foreign Investment Performance Inward FDI Stocks as % of Stocks and Flows, Selected Countries GDP, Average 2003 - 2007 80% Netherlands Estonia Eastern and Southern Europe Singapore Other countries 70% (160.1%, 64.7%) Hungary Chile Cyprus 60% Vietnam Bulgaria (69%) Switzerland New Zealand Sweden Slovakia Czech Republic 50% Croatia Denmark Kazakhstan Portugal Cambodia 40% Macedonia UK Spain Thailand Philippines Moldova Australia Canada Latvia South Africa Poland Egypt Iceland (46.7%) Finland Lithuania France 30% Armenia Israel Romania Colombia Bosnia & Laos Mexico Norway Austria Herzegovina Slovenia Brazil Russia Ukraine 20% Germany Turkey Greece China USA Malaysia South Korea Italy Saudi Arabia Indonesia Pakistan 10% Belarus India Japan 0% -5% 0% 5% 10% 15% 20% 25% 30% 35% 40% FDI Inflows as % of Gross Fixed Capital Formation, Average 2003 - 2007 • Foreign direct investment inflows have been a key driver of economic growth, but Source: UNCTAD, World most are due to privatization rather than greenfield investments Investment20090515 – CAON Report Crotia.ppt