Regional Competitiveness in Central Massachusetts Professor Michael E. Porter Institute for Strategy and Competitiveness Harvard Business School Central Massachusetts Regional Competitiveness Council Meeting Techman International Charlton, MA October 10, 2003 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 2002, (World Economic Forum, 2002), “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 Sources of Prosperity ProsperitProsperityProsperityy ProductivityProductivity “Competitiveness” InnovativeInnovative CapacityCapacity z The most important sources of prosperity are created not inherited z Productivity does not depend on what industries a region competes in, but on how it competes z The prosperity of a region depends on the productivity of all its industries z Innovation is vital for long-term increases in productivity RCC Central 10-10-03 CK RB3 2 Copyright © 2003 Professor Michael E. Porter Productivity, Innovation, and the Business Environment ContextContext forfor FirmFirm StrategyStrategy andand RivalryRivalry z A local context and rules that encourage investment and sustained upgrading Factor –e.g., Intellectual property Factor Demand (Input) protection Demand (Input) Conditions Conditions z Meritocratic incentive systems Conditions Conditions across all major institutions z Open and vigorous competition z Presence of high quality, among locally based rivals z Sophisticated and demanding local specialized inputs available customer(s) to firms z Local customer needs that anticipate –Human resources those elsewhere –Capital resources RelatedRelated andand z Unusual local demand in specialized –Physical infrastructure SupportingSupporting segments that can be served –Administrative infrastructure IndustriesIndustries nationally and globally –Information infrastructure –Scientific and technological z Access to capable, locally based suppliers infrastructure and firms in related fields –Natural resources z Presence of clusters instead of isolated industries • 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 RCC Central 10-10-03 CK RB3 3 Copyright © 2003 Professor Michael E. Porter Composition of Regional Economies United States NaturalNatural ResResource-ource- TradedTraded ClustersClusters LocalLocal ClustersClusters DrivenDriven IndustriesIndustries Share of Employment 31.6%31.6% 67.6%67.6% 0.8%0.8% Employment Growth, 1990 1.7%1.7% 2.8%2.8% -1.0%-1.0% to 2001 Average Wage $46,596$46,596 $28,288$28,288 $33,245$33,245 Relative Wage 133.8133.8 84.284.2 99.099.0 Wage Growth 5.0%5.0% 3.6%3.6% 1.9%1.9% Relative Productivity 144.1144.1 79.379.3 140.1140.1 Patents per 10,000 21.321.3 1.31.3 7.07.0 Employees Number of SIC Industries 590590 241241 4848 Note: 2001 data, except relative productivity which is 1997 data. Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School Specialization of Regional Economies Select U.S. Geographic Areas DenvDenverer, ,C COO ChiChiccagoago LeatherLeather and and Spo Sporrtingting Goo Gooddss Communications Equipment Communications Equipment Boston OOilil and and Gas Gas ProProccessedessed Food Food Boston Aerospace Vehicles and Defense AAnnalyticalalytical I nInststrumrumeentntss SSeeattlattle-Be-Beelllleevvue-ue- Aerospace Vehicles and Defense HHeeavyavy Machiner Machineryy EducaEducationtion and and Know Knowledgeledge C Crreationeation EvEveerrett,ett, WA WA CCoommunmmunicationsications Equ Equipipmmenentt AeAerospacerospace Veh Vehicicleless and and Wichita,Wichita, KS KS Pittsburgh,Pittsburgh, PA PA DDeefensefense AeAerospacerospace Veh Vehicicleless and and CConstructiononstruction Ma Matteerrialsials FFisishhinging and and Fis Fishhinging DeDefefensense MMeetatal lManu Manufacfactuturringing ProducProductsts HHeeavyavy Machiner Machineryy EducaEducationtion and and Know Knowledgeledge AAnnalyticalalytical I nInststrumrumeentntss OOilil and and Gas Gas CCrreationeation SSaann FrFraanncicisscco-o- OaklaOaklanndd--SaSann JJoosese BayBay ArAreeaa CCoommunmmunicationsications EEqquiuipmpmeenntt AAggricultriculturalural RaRaleleigh-Durigh-Durhhamam, ,NC NC ProducProductsts CCoommunmmunicationsications Equ Equipipmmentent InfoInforrmmationation InfoInforrmmationation Techno Technologylogy TTeechnochnologylogy EducaEducationtion and and KnoKnowwledgeledge Cr Creationeation LLooss AAnngelesgeles AArreaea Apparel Apparel AtlantAtlantaa, ,GA GA Building Fixtures, San Diego Building Fixtures, San Diego CConstructiononstruction Ma Matteerrialsials Equipment and Leather and Sporting Goods Equipment and Leather and Sporting Goods TTrranspoansporrtatationtion and and Lo Loggisisticstics Services Power Generation Houston Services Power Generation Houston BusBusinesinesss Se Servrviciceses EEnntteertrtaiainmnmeenntt EducaEducationtion and and Know Knowledgeledge HHeeaavyvy Construc Constructiontion Se Serrvvicesices CCrreationeation OOilil and and Gas Gas AeAerospacerospace Veh Vehicicleless and and De Defensefense Note: Clusters listed are the three highest ranking clusters in terms of share of national employment Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School RCC Central 10-10-03 CK RB3 5 Copyright © 2003 Professor Michael E. Porter Massachusetts Life Sciences Cluster ClusterCluster OrganizationsOrganizations HealthHealth andand BeautyBeauty MassMedMassMedic,ic,MMassBio,assBio, otheothersrs ProductsProducts HealthHealth ServicesServices ProviderProvider SurgSurgicalical InstrumentsInstruments aanndd SupplieSupplierrss MedicalMedical EquiEquipmentpment SpecializedSpecialized BusinBusineessss Services Biopharma-Biopharma- Services BiologicalBiological Banking,Banking, AccountiAccountinng,g, LegalLegal Dental Instruments ceuticalceutical Dental Instruments ProductsProducts aanndd SupplieSupplierrss ProductsProducts SpecializedSpecialized RiskRisk CapitalCapital OphthalmicOphthalmic GoodsGoods VCVC FirmFirms,s, AngelAngel NetNetwwoorrkkss Diagnostic Substances Diagnostic Substances SpecializedSpecialized ResearchResearch ServiceService ProvidProvidersers ResResearchearch OrganizationsOrganizations LaboratorLaboratoryy,, ClinicalClinical TestingTesting ContainersContainers EducationalEducational InstitutionsInstitutions AnalyAnalytticalical InInstrustrumentsments HarvHarvarardd UnUniversity,iversity, MIT,MIT, TuftsTufts University,University, BostonBoston UUnniviversity,ersity, UMass,UMass, othotheersrs RCC Central 10-10-03 CK RB3 6 Copyright © 2003 Professor Michael E. Porter Traded Clusters Overlap Textiles Apparel Construction Footwear Leather Plastics Materials and Furniture Sporting Building Goods Fixtures, Chemical Oil and Equipment Products Gas and Financial Agricultural Services Products Services Pharma- Heavy Forest ceuticals Construction Products Services Education Publishing Prefabricated Processed and Medical and Printing Enclosures Food Knowledge Devices Creation Fishing & Analytical Aerospace Aerospace Fishing Information Instruments Vehicles & Engines Products Technology Defense Automotive Tobacco Lightning & Transportation Communi- Electrical Metal and Logistics cations Equipment Manufacturing Equipment Production Hospitality Power Technology Heavy and Tourism Generation Machinery Jewelry & Entertainment Distribution Motor Driven Precious Sporting, Services Products Metals Business Recreation and Services Children’s Note: Clusters with overlapping borders or identical shading Goods have at least 20% overlap (by number of industries) in both directions RCC Central 10-10-03 CK RB3 7 Copyright © 2003 Professor Michael E. Porter The Evolution of Regional Economies San Diego Hospitality and Tourism ClimateClimate Sporting and Leather Goods andand Transportation GeograGeographyphy and Logistics Power Generation Aerospace Vehicles Communications and Defense Equipment U.S.U.S. Information Technology MilitaryMilitary Analytical Instruments Education and Knowledge Creation Medical Devices BioscienceBioscience Biotech / Pharmaceuticals ResearchResearch CentersCenters 1910 1930 1950 1970 1990 RCC Central 10-10-03 CK RB3 8 Copyright © 2003 Professor Michael E. Porter Institutions for Collaboration Selected Massachusetts Organizations. Life Sciences LifeLife SciencesSciences IndustryIndustry AssociatAssociationsions UniversityUniversity InitInitiatiatiivesves z zz MassachusettsMassachusetts BiotechnologyBiotechnology CouncilCouncil z HarvardHarvard BiomediBiomedicalcal ComCommmuunitynity z zz MassachusettsMassachusetts MedicaMedicall DeviDevicece IInndustdustryry z MITMIT EnterpriseEnterprise ForumForum CouncilCouncil zz BiotechBiotech ClubClub atat HHarvardarvard MedicalMedical SchoolSchool z z MassachusettsMassachusetts HospitalHospital AssociAssociatiatioonn