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European Competitiveness in 2004
Christian H.M. Ketels, PhD
Institute for Strategy and Competitiveness
Harvard Business School
MBA Lecture
University of Zagreb, Graduate School of Business and Economics
16 June 2004
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 2003-2004,
(Oxford University Press, 2004), “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
European Competitiveness CROATIA 06-16-04 CK.ppt
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Copyright 2004 © Porter/Ketels
European Competitiveness 2004
•
The economic climate is weak in most European countries,
especially the large continental economies
•
The prosperity catch-up to the United States has stalled and is now
in reverse
•
Europe is making little if any progress on the competitiveness
targets set by the European Union (Lisbon-Agenda)
•
The political discussion in Europe has moved away from a
consensus focus on competitiveness
– Other topics demand attention (Eastern accession, constitution,
new commission, Stability and Growth Pact)
– France and Germany toying with a return to Industrial Policy
(Aventis, Alstom, …)
European Competitiveness CROATIA 06-16-04 CK.ppt
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Copyright 2004 © Porter/Ketels
European Prosperity Over Time
European GDP per Capita
in % of U.S.
GDP per Capita, US-$, PPP
40,000
80%
35,000
U.S.
30,000
75%
25,000
EU-15
20,000
70%
EU / US
15,000
65%
10,000
5,000
60%
0
1985
1988
1990
1992
1994
1996
1998
2000
2002
2004e
Source: EIU (2004)
European Competitiveness CROATIA 06-16-04 CK.ppt
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Copyright 2004 © Porter/Ketels
European Competitiveness
Key Questions
•
How does the European Union affect competitiveness in Europe?
•
What are the areas to focus on for the European Union to upgrade
European competitiveness?
•
What are the implications for Croatia?
European Competitiveness CROATIA 06-16-04 CK.ppt
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Copyright 2004 © Porter/Ketels
Measures of Competitiveness
Prosperity
Prosperity
Productivity
Productivity
Competitiveness
Innovative
Innovative Capacity
Capacity
European Competitiveness CROATIA 06-16-04 CK.ppt
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Copyright 2004 © Porter/Ketels
Prosperity
40,000
Norway
United States
35,000
Ireland
Canada
Switzerland Denmark
GDP per
capita
(PPP
adjusted)
in US-$,
2003
30,000
Netherlands Belgium
Japan
France
Australia
UK
Finland
Germany Italy EU-15 Sweden
25,000
New Zealand
Spain
20,000
Portugal
Greece
South Korea
Czech Republic
15,000
0%
1%
2%
3%
4%
5%
6%
Compound annual growth rate of real GDP per capita, 1998-2003
Source: EIU (2004)
European Competitiveness CROATIA 06-16-04 CK.ppt
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Copyright 2004 © Porter/Ketels
Decomposing Prosperity
Prosperity
Prosperity
Labor
Labor Productivity
Productivity
Capital
CapitalIntensity
Intensity
Unemployment
Unemployment
Skills
Skills
Workforce/Population
Workforce/Population
TFP
TFP
Hours/Employee
Hours/Employee
Efficiency
Efficiency
European Competitiveness CROATIA 06-16-04 CK.ppt
Labor
Labor Participation
Participation
Innovation
Innovation
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Copyright 2004 © Porter/Ketels
Decomposing Prosperity
The EU-U.S. Gap
GDP per Hour Worked, 2000
120%
Belgium
110%
France
Italy
100%
Netherlands
U.S.
Austria Ireland
Denmark
Germany
EU-15
Finland
Sweden
UK
90%
80%
Spain
70%
Greece
60%
Portugal
50%
60%
65%
70%
75%
80%
85%
90%
95%
100%
105%
Hours Worked per Population, 2000
Source: Sapir-Report (2003)
European Competitiveness CROATIA 06-16-04 CK.ppt
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Copyright 2004 © Porter/Ketels
Decomposing Prosperity
The EU-U.S. Gap between 1970 and 2000
Change relative to the U.S.,
1970 - 2000
30%
20%
10%
Working Age Population
per Population
0%
Employees per Working
Age Population
-10%
-20%
Working Hours per Employee
-30%
-40%
GDP per Hour worked
European Competitiveness CROATIA 06-16-04 CK.ppt
Hours worked per Population
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Copyright 2004 © Porter/Ketels
Labor Productivity Over Time
GDP per Hour Worked
U.S. = 100
110%
105%
France
Germany
100%
U.S.
EU-15
95%
Italy
90%
85%
UK
80%
75%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Source: Groningen Growth and Development Centre, 2004
European Competitiveness CROATIA 06-16-04 CK.ppt
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Copyright 2004 © Porter/Ketels
Determinants of Productivity and Productivity Growth
Macroeconomic,
Macroeconomic, Political,
Political, Legal,
Legal, and
and Social
Social
Context
Context for
for Development
Development
Microeconomic
Microeconomic Foundations
Foundations of
of Development
Development
Sophistication
Sophistication
of
ofCompany
Company
Operations
Operationsand
and
Strategy
Strategy
Quality
Qualityof
ofthe
the
Microeconomic
Microeconomic
Business
Business
Environment
Environment
• A sound macroeconomic, political, legal, and social 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
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Integration of Macro- and Microeconomic Reforms
Stability and confidence support
investment and upgrading
Macro reform
alone can
Create opportunity
Required to achieve
lead to short
for productivity
productivity
term capital
inflows
Macroeconomic
Microeconomic
and
growth
reform
reform
spurts
that
ultimately
are not
Productivity growth allows economic
sustainable
Micro reform
is needed
to raise
the level of
sustainable
prosperity
growth without inflation, making
macroeconomic stability easier to
achieve
European Competitiveness CROATIA 06-16-04 CK.ppt
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Copyright 2004 © Porter/Ketels
Business Competitiveness Index 2003
Relationship with GDP Per Capita
Norway
35,000
USA
y = 2002.2x2 + 8427.7x + 9514.9
R2 = 0.8266
Iceland
Denmark
Canada
Austria
Ireland
Switzerland
Germany Finland
Italy
UK
Sweden
Taiwan
Singapore
30,000
2002 GDP per
Capita 25,000
(Purchasing
Power Adjusted)
Spain
20,000
New Zealand
Israel
Greece Portugal
Slovenia
Malta
S Korea
Czech Rep
15,000
Hungary
Argentina
10,000
Paraguay
0
South Africa
Malaysia
Russia
Bulgaria
5,000
Estonia
Croatia
Brazil
Thailand
Tunisia
China Jordan
Algeria
Vietnam
Kenya
Tanzania
India
Business Competitiveness Index
Source:Global Competitiveness Report 2003
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Productivity and the Business Environment
Context
Context for
for
Firm
Firm
Strategy
Strategy
and
and Rivalry
Rivalry
z
Factor
Factor
(Input)
(Input)
Conditions
Conditions
z
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
z
z
z
z
A local context and rules that
encourage investment and
sustained upgrading
–e.g., Intellectual property
Demand
protection
Demand
Conditions
Meritocratic incentive system
Conditions
across institutions
Open and vigorous competition
among locally based rivals z Sophisticated and demanding
local customer(s)
z Local customer needs that
anticipate those elsewhere
Related
and
Related and
z Unusual local demand in
Supporting
Supporting
specialized segments that can be
Industries
served regionally and globally
Industries
Access to capable, locally based suppliers
and firms in related fields
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 evolves to support and encourage increasingly
sophisticated ways of competing
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Business Environments in Europe and the U.S.
Country Ranking by GCR Sub-Index, 2002/03
Rank
1
10
20
30
40
50
United States
EU-14 average
60
15
io
n
Co
m
pe
tit
es
In
ce
nt
iv
st
er
s
Cl
u
ns
Co
nd
itio
Related &
Demand
Supporting
Conditions
Industries
Factor Conditions
Note: Every horizontal line indicates one European country
European Competitiveness
CROATIA 06-16-04 CK.ppt Report 2002/03
Source:
Global Competitiveness
De
m
an
d
Ca
pi
ta
lM
ar
ke
ts
og
y
Te
ch
no
l
Re
so
ur
ce
s
ra
t io
n
in
ist
Ad
m
Hu
m
an
Ph
ys
i
ca
l
In
fra
st
ru
ct
ur
e
O
ve
ra
ll
70
Context for Firm
Strategy and
Rivalry
Copyright 2004 © Porter/Ketels
Microeconomic Business Environment
Effects of European Integration
Context
Context for
for
Firm
Firm
Strategy
Strategy
and
and Rivalry
Rivalry
Factor
Factor
(Input)
(Input)
Conditions
Conditions
• E.g., exchange programs
for European researchers
and students
• E.g., coordinated investments
in European infrastructure
networks
• E.g., open access to member
countries’ markets
• E.g., common standards for
government aid, competition
policy, and other rules
• E.g., fixed exchange rates for
EMU member countries
Demand
Demand
Conditions
Conditions
• E.g., harmonized regulations
with a high level of
environmental and consumer
protection
Related
Related and
and
Supporting
Supporting
Industries
Industries
• E.g., increased level of competition and
cooperation between regional clusters
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Copyright 2004 © Porter/Ketels
The Boston Life Sciences Cluster
Health
Health and
and Beauty
Beauty
Products
Products
Cluster
Cluster Organizations
Organizations
Teaching
Teaching and
and Specialized
Specialized Hospitals
Hospitals
MassMedic,
MassMedic, MassBio,
MassBio, others
others
Surgical
Surgical Instruments
Instruments
and
Suppliers
and Suppliers
Medical
Medical Equipment
Equipment
Dental
Dental Instruments
Instruments
and
Suppliers
and Suppliers
Biopharma
Biopharmaceutical
ceutical
Products
Products
Biological
Biological
Products
Products
Specialized
Specialized Business
Business
Services
Services
Banking,
Banking, Accounting,
Accounting, Legal
Legal
Specialized
Specialized Risk
Risk Capital
Capital
Ophthalmic
Ophthalmic Goods
Goods
VC
VC Firms,
Firms, Angel
Angel Networks
Networks
Diagnostic
Diagnostic Substances
Substances
Specialized
Specialized Research
Research
Service
Service Providers
Providers
Containers
Containers
Analytical
Analytical Instruments
Instruments
European Competitiveness CROATIA 06-16-04 CK.ppt
Research
Research Organizations
Organizations
Laboratory,
Laboratory, Clinical
Clinical Testing
Testing
Educational
Educational Institutions
Institutions
Harvard
Harvard University,
University, MIT,
MIT, Tufts
Tufts University,
University,
Boston
University,
UMass
Boston University, UMass
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Copyright 2004 © Porter/Ketels
Composition of Regional Economies
United States, 2001
Traded
Traded Clusters
Clusters
Local
Local Clusters
Clusters
Natural
Natural Resource
Resource-Driven
Driven Industries
Industries
31.6%
31.6%
1.7%
1.7%
67.6%
67.6%
2.8%
2.8%
0.8%
0.8%
--1.0%
1.0%
$44,956
$44,956
133.8
133.8
4.5%
4.5%
$28,288
$28,288
84.2
84.2
3.7%
3.7%
$33,245
$33,245
99.0
99.0
2.0%
2.0%
144.1
144.1
79.3
79.3
140.1
140.1
Patents per 10,000
Employees
21.7
21.7
1.3
1.3
7.2
7.2
Number of SIC Industries
590
590
241
241
48
48
Share of Employment
Employment Growth, 1990
to 2001
Average Wage
Relative Wage
Wage Growth
Relative Productivity
Note: 2001 data, except relative productivity which is 1997 data.
Source: Cluster Mapping Project, Institute for Strategy and Competitiveness, Harvard Business School
Types of Clusters
• There is often an array of clusters at different locations in a given field,
each with different levels of specialization and sophistication
• Global innovation centers, such as Silicon Valley in semiconductors, are
few in number. If there are multiple innovation centers, they normally
specialize in different market segments
• Other clusters focus on manufacturing, outsourced service functions, or
play the role of regional assembly or service centers
• Firms based in the most advanced clusters often seed or enhance
clusters in other locations in order to reduce the risk of a single site, access
lower cost inputs, or better serve particular regional markets
• The challenge for an economy is to move from isolated firms to an array of
clusters, and then to upgrade the breadth and sophistication of clusters
to more advanced activities
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Copyright 2004 © Porter/Ketels
Cluster Strength in Europe
EU-14
EU-14
U.S.
U.S.
EU-14
EU-14
22
44
55
77
88
99
10
10
14
14
15
15
17
17
18
18
21
21
41
41
51
51
Finland
Finland
Italy
Italy
Germany
Germany
Denmark
Denmark
Sweden
Sweden
United
UnitedKingdom
Kingdom
France
France
Austria
Austria
Netherlands
Netherlands
Spain
Spain
Ireland
Ireland
Belgium
Belgium
Portugal
Portugal
Greece
Greece
Accession
AccessionCountries
Countries
Acc.
Acc.
31
31
32
32
33
33
34
34
40
40
44
44
45
45
53
53
68
68
Czech
CzechRepublic
Republic
Lithuania
Lithuania
Latvia
Latvia
Poland
Poland
Slovak
SlovakRepublic
Republic
Estonia
Estonia
Slovenia
Slovenia
Hungary
Hungary
Malta
Malta
Source: Global Competitiveness Report 2003/04
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Cluster Presence
Effects of European Integration
• The European integration process removes barriers to competition that have
created an artificial structure of regional clusters across Europe
• The emerging pattern of European clusters will depend on different, sometimes
countervailing forces
– Higher levels of competition will reduce the overall number of clusters in a given
sector, and lead to concentration in the locations with the best cluster-specific
business environments
– Lower levels of barriers to trade, investment, and communication will offer new
opportunities for the creation of “satellite” clusters to take advantage of lower
input costs
• The relative quality of regional business environments will determine prosperity
and attraction of economic activities across European locations
– Differences in regional business environment quality will be the ultimate
determinant of regional prosperity across Europe
– If regional factor costs (wages, rents) are not flexible enough to reflect the
underlying economic quality of their location, economic activity will concentrate
in the most productive European locations
• The common European currency (EMU) has removed exchange rate
flexibility as the traditional lever to bring factor prices in line with relative
productivity levels
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European Competitiveness
• Understanding European Competitiveness
• The Competitiveness Agenda for the EU
• Implications for Croatia
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Copyright 2004 © Porter/Ketels
Guiding Questions
•
What policy areas does Europe need to focus on to improve
competitiveness, and what is already being done?
•
Which of these should be tackled on the EU level, and how well is
the EU equipped to enact the necessary changes?
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European Business Environment
Barriers to Higher Productivity
•
Labor market and social policies
– Reduce non-wage labor costs (social security contributions)
– Improve incentives to work (taxes)
– …
•
Competition
–
–
–
–
–
•
Remove existing barriers between European markets
Reduce subsidies
Reform bankruptcy laws
Integrate financial markets
…
Mobilization of Europe’s innovative capacity
–
–
–
–
Modernize the university system
Introduce EU patent
Address weaknesses in education and life-long learning
…
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Copyright 2004 © Porter/Ketels
European Economic Integration
Evolution
1957
Treaty of Rome
1973
Northern
Extension:
1981
1st Southern
Extension:
1986
2nd Southern
Extension:
1995
Ex-EFTA
Extension:
2004 / 2007(?)
Eastern
Extension:
Denmark,
Ireland, UK
Greece
Portugal,
Spain
Austria,
Finland,
Sweden
Eastern European
countries
1979
European
Monetary
System
1986
Single
European
Act
1968
Creation of the
European
Community
(EC)
1991
1997
Maastricht Stability
Treaty
and
Growth
Pact
1999
EMU: Fixing of
Exchange
Rates
2000
Lisbon European
Council
European Competitiveness CROATIA 06-16-04 CK.ppt
25
2002
EMU: Euro coins
in circulation
Copyright 2004 © Porter/Ketels
The Lisbon Agenda
European Council, 23/24 March 2000
“Become the most competitive and knowledge-based economy
in the world economy by 2010”
Transition
Transitionto
toaacompetitive
competitive
knowledge-based
knowledge-basedeconomy
economy
Modernization
Modernizationof
ofthe
theEuropean
European
Social
SocialModel
Model
•• Improve
Improveuse
useof
ofIT
IT
•• Create
CreateaaEuropean
EuropeanResearch
ResearchArea
Area
•• Upgrade
Upgradebusiness
businessenvironment
environmentfor
for
SMEs
SMEs
•• Deepen
Deepenthe
thecommon
commonmarket
market
•• Integrate
Integratefinancial
financialmarkets
markets
•• Strengthen
Strengthencoordination
coordinationof
of
macroeconomic
macroeconomicpolicies
policies
•• Invest
Investinineducation
education
•• Modernize
Modernizeemployment
employmentpolicy
policy
•• Reform
Reformsocial
socialpolicy
policy
Improve productivity
European Competitiveness CROATIA 06-16-04 CK.ppt
Improve labor participation
26
Copyright 2004 © Porter/Ketels
Motivation of the Lisbon Agenda
•
Success of the U.S. economy in increasing productivity and prosperity
from a high level, especially through the use of IT
•
Apparent weaknesses of alternative approaches used in EU member
countries
– Market opening and macroeconomic stabilization (UK) alone has over
time tended to exhibit falling returns
– Wage moderation (NL) has failed to create sustainable prosperity growth
and distorted market signals
– Increasing the quality of factor conditions alone, for example through R&D
investments (Sweden) is exhibiting falling returns
– Market intervention and industrial policy (France) have fared even worse,
undermining prosperity over time
•
Microeconomic competitiveness is seen as a market-based approach to
economic policy that can overcome the limitations of past approaches
– Clusters are a prominent tool that is perceived as the key practical
application of the competitiveness approach
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Influences on Competitiveness
Multiple Geographic Levels
World Economy
• E.g., WTO
Broad Economic Areas
• E.g., European Union
Groups of Neighboring
Nations
• E.g., Baltic Sea Region
Nations
States, Provinces
Cluster
European Competitiveness CROATIA 06-16-04 CK.ppt
• E.g., Germany
• E.g., Bavaria
• E.g., Munich Biotech
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Copyright 2004 © Porter/Ketels
Possible Transition of the EU’s Strategic Role
Harmonization
Harmonization
Support
SupportUpgrading
Upgrading
•• Continue
Continueto
toopen
openmarkets
markets
•• Create
Createaalevel
levelplaying
playingfield
fieldinin
regulation,
regulation,industrial
industrialpolicy,
policy,and
and
infrastructure
infrastructure
•• Open
Openmarkets
marketsfor
forgoods,
goods,services,
services,
capital,
capital,and
andlabor
labor
•• Harmonize
Harmonizeregulations
regulations
•• Limit
Limitnational
nationalinterventions
interventionsthat
thataffect
affect
regional
regionalcompetition
competition
•• Upgrade
Upgradephysical
physicalinfrastructure
infrastructureto
to
common
commonminimum
minimumstandard
standard
AND
AND
•• Support/pressure
Support/pressurenational
national
governments
governmentsto
toliberalize
liberalize
•• Support
Supportsub
subnational
national/ /regional
regional
economic
economicstrategies
strategies
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Who is in Charge of Competitiveness?
European Union
EU
EU
Countries
Countries
Regions
Regions
•• Sole
Soleresponsibility
responsibilityfor
forforeign
foreigntrade
tradepolicy
policy
•• Can
Cantake
takeinitiative
initiativeininareas
areasdefined
definedby
bythe
theTreaty
Treatyof
ofthe
theEU
EU
–– Removal
Removalof
ofinternal
internalfrontiers,
frontiers,strengthening
strengtheningof
ofeconomic
economicand
andsocial
social
cohesion,
cohesion,and
andestablishment
establishmentof
ofeconomic
economicand
andmonetary
monetaryunion
union
•• Sole
Soleresponsibility
responsibilityfor
forareas
areaslike
liketax
taxand
andsocial
socialpolicy,
policy,and
and
control
controlthe
theimplementation
implementationof
ofEU
EUrules
rules
•• Key
Keyrole
roleininsetting
settingand
andimplementing
implementingEU
EUpolicies
policies
•• In
Insome
someEuropean
Europeancountries
countriesregional
regionalgovernments
governmentshave
havesole
sole
responsibility
responsibilityfor
forareas
areaslike
likeplanning
planningand
andeducation
education
•• Most
MostEuropean
Europeanregions
regionshave
haveaastrong
strongrole
roleinineconomic
economic
development
developmentefforts
efforts
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Copyright 2004 © Porter/Ketels
Organizing A Coherent EU Competitiveness Policy
•
Most EU institutions, the Commission being the prime example, are
organized by functional specialty
•
Given the political architecture of Europe, there is significant freedom
for different policies within and across these institutions
•
•
Competitiveness is not a functional specialty
Competitiveness is a cross-functional approach that requires a unified
strategy with coordinated activities in different functional areas
– A Vice-President for Competitiveness in the Commission could help, but the
odds of success are low
•
•
Europe lacks a common understanding of the sources of economic
success that could integrate policies
Individual policies follow inconsistent underlying views about the merits
of competition and government intervention
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Copyright 2004 © Porter/Ketels
European Competitiveness
Priorities Reviewed
•
Move towards a common view on the sources of economic
prosperity
•
Assign clear responsibilities for policy areas to geographical
levels based on agreed set of economic and political factors
•
Reorganize the structure of the EU policy process and
institutions to allow consistent cross-functional strategies
•
Review and implement the action agenda to remove specific
barriers in the European business environment(s)
•
Without progress on strategy and process it is hard to see how
Europe can move effectively in those areas identified as critical
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Copyright 2004 © Porter/Ketels
European Competitiveness
• Understanding European Competitiveness
• The Competitiveness Agenda for the EU
• Implications for Croatia
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Copyright 2004 © Porter/Ketels
Why Should Croatia Care?
•
Croatia’s economy is tightly integrated with the EU and will be
strongly affected by its performance and policies
•
Croatia wants to become an EU member and will be faced with the
challenge to integrate into EU institutions and initiatives
•
Croatia can learn from the EU’s (and its member countries’)
experience in competitiveness
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Stages Of Competitive Development
Factor
-Driven
Factor-Driven
Economy
Economy
Investment
Investment-Driven
Driven Economy
Economy
Innovation
Innovation-Driven
Driven Economy
Economy
Input
Cost
Efficiency
Unique
Value
Source: Porter, Michael E., The Competitive Advantage of Nations, Macmillan Press, 1990
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Opportunities of More Diverse EU Membership
Factor-Driven
Factor-Driven
Economies
Economies
• E.g., Romania
Investment-Driven
Investment-Driven
Economies
Economies
• E.g., Poland
• Gain access to standard technology and global distribution
channels
• Gain attractiveness for foreign direct investment
• Adopt tested macroeconomic, legal, and regulatory policies
• Gain access to world-class technology and innovative
management techniques
• Integrate into the value chain of world class clusters, and gain
support for own emerging clusters
• Improve attractiveness for foreign direct investment
Innovation-Driven
Innovation-Driven
Economies
Economies
• E.g., Germany
• Gain additional markets and investment opportunities, especially
for advanced services to emerging clusters
• Strengthen existing clusters by outsourcing lower value-add
activities to less costly locations
• For these economic opportunities to materialize, a strategy of business environment
upgrading will be critical
• Without it, prosperity divergence and geographic concentration of economic activity
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Implications for Croatia
•
Croatia needs to identify how it aims to compete as a place to do
business in the world economy in the future
•
Croatia then needs to mobilize a coherent strategy to remove the
most pressing barriers currently on the way to that goal
– The existing National Competitiveness Council provides a
promising operational platform
– Cooperation with regional neighbors will be important and carry
both economic and political benefits
•
With a clear competitiveness strategy of its own, Croatia will be
able to take maximum advantage of closer ties to the EU without
being dragged into a generic plan for economic development
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Appendix:
Croatian Competitiveness Data
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Comparative Economic Performance
Real GDP Growth Rates
Annual growth rate
of real GDP
Countries sorted by 19902002 annual real GDP
growth rate (CAGR)
20%
Moldova
Serbia & Montenegro
Azerbaijan
10%
Poland
Russian Federation
Slovenia
0%
Slovakia
Lithuania
Kazakhstan
-10%
Hungary
Romania
Croatia
Czech Republic
Macedonia
-20%
Estonia
Uzbekistan
-30%
Ukraine
Latvia
Bulgaria
-40%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Source: EIU (2003)
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Comparative Economic Performance
18,000
Slovenia
16,000
Czech Republic
14,000
Hungary
12,000
Slovakia
GDP per
capita
10,000
(PPP
adjusted)
in US-$,
8,000
2002
Croatia
Estonia
Lithuania
Latvia
Romania
6,000
4,000
Poland
Serbia &
Montenegro
Kazakhstan
Azerbaijan
Moldova
2,000
0
-2%
Russia
Bulgaria
Macedonia
Ukraine
0%
Uzbekistan
2%
4%
6%
8%
10%
Compound annual growth rate of real GDP per capita, 1996-2002
Source: EIU (2003)
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Comparative Labor Productivity Performance
45,000
Slovenia
40,000
35,000
30,000
Hungary
Czech Republic
Slovakia
Croatia
Poland
GDP per 25,000
employee
(PPP
adjusted) 20,000
in US-$,
2002
15,000
Serbia & Montenegro
Romania
Russia
Estonia
Lithuania
Bulgaria
Kazakhstan
Latvia
Ukraine
10,000
5,000
Azerbaijan
Uzbekistan
0
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
Compound annual growth rate of real GDP per employee, 1996-2002
Source: EIU (2003)
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Decomposing Croatian GDP per Capita Growth
Contribution to change in
GDP per Capita
$1,000
$800
Labor
Productivity
$600
$400
$200
Labor Force
Participation
$0
-$200
-$400
1994
1995
1996
1997
1998
1999
2000
2001
2002
Source: EIU (2003)
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Unemployment in Transition Countries
Unemployment
Rate, 2002
35%
Serbia & Montenegro
30%
25%
Croatia
20%
Slovakia
Poland
Bulgaria
15%
Slovenia
Kazakhstan
Romania
10%
5%
Russia
Estonia
Latvia
Lithuania
Czech Rep.
Hungary
0%
-6%
Uzbekistan
-4%
-2%
0%
Azerbaijan
2%
4%
6%
8%
10%
Change of Unemployment Rate in Percentage Points,
1995 - 2002
Source: EIU (2003)
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Croatia’s Export Performance
World Export Market Shares
World export
share in %
0.35%
0.30%
0.25%
0.20%
Goods
Services
Total
0.15%
0.10%
0.05%
0.00%
1993
1994
1995
1996
1997
1998
1999
2000
2001
Source: WTO (2002)
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Comparative Inward Foreign Investment
Selected Economies
FDI Stocks as % of GDP,
Average 1998-2000
50%
Estonia
Hungary
40%
Netherlands
New Zealand
30%
Czech Rep.
Moldova
Latvia
Australia
Spain Slovakia Lithuania
20%
China
Croatia
Poland
Slovenia
Romania
Argentina
Serbia
Germany*
Ukraine
10% Bellarus
US
Italy
Bosnia
Russia
Japan
UK
Sweden
(18%, 89%)
Bulgaria
Finland
0%
0%
10%
20%
30%
40%
50%
60%
FDI Inflows as % of Gross Fixed Capital Formation, Average 1998-2000
Note: FDI Stocks and Inflows for transition countries are the average of 1998-2001
Germany’s FDI inflows in this period were exceptionally high due to the Vodafone-Mannesmann takeover in 2000
Source: World Investment Report 2002
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Global Competitiveness Report 2003
The Relationship Between Business Competitiveness and GDP Per Capita
Norway
35,000
Iceland
Denmark
Austria
Canada
Switzerland
Ireland
Germany
Finland
Italy
UK Sweden
Taiwan
Singapore
30,000
2002 GDP per
Capita 25,000
(Purchasing
Power Adjusted)
Spain
20,000
Greece
Malta
15,000
New Zealand
Israel
Czech Rep
Slovenia
S Korea
Portugal
Uruguay
Hungary
Slovak Rep.
Argentina
10,000
5,000
USA
Croatia
Paraguay
0
Poland
Russia
Bulgaria
Romania
Ukraine
Estonia
Lithuania
Brazil
South Africa
Latvia Malaysia
Thailand
China
Jordan
Vietnam India
Serbia
Kenya
Tanzania
Business Competitiveness Index
Source:Global Competitiveness Report 2003
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Current Competitiveness Index
Croatia’s Position over Time
Rank
50
2002
2003
60
70
BCI Rank
Company Operation &
Strategy Rank
National Business
Environment Rank
Note: Constant sample of countries
Source: Global Competitiveness Report 2003
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Determinants of Productivity and Productivity Growth
Macroeconomic,
Macroeconomic, Political,
Political, Legal,
Legal, and
and Social
Social
Context
Context for
for Development
Development
Microeconomic
Microeconomic Foundations
Foundations of
of Development
Development
Sophistication
Sophistication
of
ofCompany
Company
Operations
Operationsand
and
Strategy
Strategy
European Competitiveness CROATIA 06-16-04 CK.ppt
Quality
Qualityof
ofthe
the
Microeconomic
Microeconomic
Business
Business
Environment
Environment
48
Copyright 2004 © Porter/Ketels
Company Operations and Strategy
Croatia’s Relative Position 2003
Competitive Advantages
Relative to GDP per Capita
Competitive Disadvantages
Relative to GDP per Capita
Country Ranking, Arrows
indicate a change of 5 or more
ranks since 2002
Prevalence of Foreign Technology
Licensing
21
Control of International Distribution
33
Nature of Competitive Advantage
42
Capacity for Innovation
43
Extent of Branding
48
Value Chain Presence
51
Company Spending on R&D
53
Willingness to Delegate Authority
62
Country Ranking, Arrows
indicate a change of 5 or more
ranks since 2002
Breadth of International Markets
82
Extent of Regional Sales
77
Degree of Customer Orientation
73
Extent of Staff Training
72
Reliance on Professional Management 67
Extent of Incentive Compensation
66
Production Process Sophistication
65
Extent of Marketing
65
Note: Rank by countries; overall Croatia ranks 62 (65 on Company Operations and Strategy, 40 on GDP pc 2002)
Source: Global Competitiveness Report 2003
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Determinants of Productivity and Productivity Growth
Macroeconomic,
Macroeconomic, Political,
Political, Legal,
Legal, and
and Social
Social
Context
Context for
for Development
Development
Microeconomic
Microeconomic Foundations
Foundations of
of Development
Development
Sophistication
Sophistication
of
ofCompany
Company
Operations
Operationsand
and
Strategy
Strategy
European Competitiveness CROATIA 06-16-04 CK.ppt
Quality
Qualityof
ofthe
the
Microeconomic
Microeconomic
Business
Business
Environment
Environment
50
Copyright 2004 © Porter/Ketels
National Business Environment Overview
Croatia’s Relative Strengths and Weaknesses
Rank
40
BETTER
WORSE
50
Overall rank: 57
60
70
s
en
t
ar
k
M
ar
ke
tI
nc
M
ta
l
ap
i
C
m
in
i
st
ra
tiv
e
Vi
ta
lity
ive
et
s
on
tit
i
of
C
om
pe
Pr
oc
ed
an
Ru
l
es
ys
ica
l
Ph
an
em
D
d
In
f
ra
s
Co
n
d
Ad
Factor Conditions
Context for Firm Strategy and Rivalry
Demand Conditions
Related and Supporting Industries
ur
es
ct
ur
e
di
tru
tio
ns
s
rc
e
es
s
um
H
Sc
ie
n
ce
an
an
d
R
Te
C
ch
ou
no
lu
st
er
lo
g
s
y
80
Source:Global Competitiveness Report 2003
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Factor
Factor
(Input)
(Input)
Conditions
Conditions
Factor (Input) Conditions
Croatia’s Relative Position
Competitive Advantages
Relative to GDP per Capita
Competitive Disadvantages
Relative to GDP per Capita
Country Ranking, Arrows
indicate a change of 5 or more
ranks since 2002
Country Ranking, Arrows
indicate a change of 5 or more
ranks since 2002
Extent of Bureaucratic Red Tape
9
Port Infrastructure Quality
78
Patents per million Population (2002)
30
Overall Infrastructure Quality
78
Internet users per 100 people (2002)
33
Quality of Management Schools
75
Cell phones per 100 people (2002)
34
Judicial Independence
73
Quality of Math and Science Education
35
Financial Market Sophistication
72
Quality of Scientific Research Institutions
40
Local Equity Market Access
72
Quality of Public Schools
40
Air Transport Infrastructure Quality
70
Availability of Scientists and Engineers
41
Adequacy of Public Sector Legal Recourse 68
Telephone/Fax Infrastructure Quality
41
Railroad Infrastructure Quality
66
University/Industry Research Collaboration 44
Venture Capital Availability
62
Quality of Electricity Supply
50
Police Protection of Businesses
60
Administrative Burden for Start-Ups
51
Ease of Access to Loans
58
Quality of Educational System
52
Note: Rank by countries; overall Croatia ranks 62 (57 on National Business Environment, 40 on GDP pc 2002)
Source: Global Competitiveness Report 2003
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Factor
Factor
(Input)
(Input)
Conditions
Conditions
International Patenting Output
Selected Transition Countries
Annual U.S. patents per 1
million population, 2001
Average Growth Rate of
Countries shown: 11.1%
12.0
Slovenia
10.0
8.0
Hungary
6.0
4.0
Croatia
Slovakia
2.0
Serbia & Mont.
0.0
-10%
Estonia
Ukraine
Average
Patents per
Czech
Rep.
Capita for
Russia
Countries
shown: 1.9
Romania
Bulgaria
Poland
0%
10%
20%
Compound annual growth rate of US-registered patents, 1996 - 2001
30%
= 100
patents
granted in
2001
Note: Other Latin American countries have negligible rates of US patenting
Source: US Patent and Trademark Office (www.uspto.gov). Author’s analysis.
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Innovative Capacity Index
2003 Rankings
Rank
Rank Scientists &
Engineers Index
....
40
40
41
41
42
42
43
43
44
44
45
45
46
46
47
47
48
48
49
49
50
50
51
51
52
52
53
53
54
54
55
55
56
56
57
57
58
58
59
59
60
60
....
Croatia (37)
Latvia
Romania
Argentina
China
Costa Rica
Egypt
Mauritius
Macedonia
Chile
Indonesia
Turkey
Tunisia
Brazil
Vietnam
Mexico
Peru
Uruguay
Venezuela
Sri Lanka
Philippines
Malaysia
..
Innovation Policy
Index
Cluster Environment Index
..
Latvia
India
Vietnam
Slovak Republic
Jordan
Indonesia
Mexico
China
Botswana
Poland
Rwanda
Mauritius
Morocco
Trinidad & Tobago
Croatia
Turkey
Namibia
Panama
Costa Rica
Egypt
Bulgaria
..
..
Czech Republic
Turkey
Chile
Tunisia
Croatia
Slovak Republic
Mauritius
Morocco
Mexico
Romania
Costa Rica
Egypt
Jordan
Indonesia
Lithuania
Russia
Colombia
Philippines
Ukraine
Sri Lanka
Pakistan
..
Linkages
Index
..
Russia
China
Greece
Romania
Croatia
Hungary
Mauritius
Costa Rica
Jordan
Thailand
Dominican Rep.
Morocco
Egypt
Panama
Mexico
Slovak Republic
Vietnam
Ghana
Uganda
Sri Lanka
Jamaica
..
Operations and
Strategy Index
..
El Salvador
Greece
South Africa
Hungary
Malta
Tunisia
Slovak Republic
Mauritius
Namibia
Morocco
Egypt
Indonesia
China
Mexico
Kenya
India
Panama
Botswana
Jordan
Philippines
Vietnam
Croatia (64)
Source: Global Competitiveness Report 2003
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Factor
Factor
(Input)
(Input)
Conditions
Conditions
U.S. Patenting by Croatian Organizations
1996
1997
1998
1999
2000
2001
Patents Issued
1996-2001
PLIVA FARMACEUTSKA, KEMIJSKA, PREHRAMBENA I KOZMETICKA
1
6
5
4
4
1
21
PACESETTER AB
0
1
2
1
0
0
4
PLIVA FARMACEUTSKA
1
1
0
1
0
0
3
AT&T CORP.
0
0
0
1
1
0
2
UNIVERSAL MASCHINENFABRIK DR. RUDOLF SCHIEBER KG
1
0
0
0
0
0
1
UNIVERSITY OF SOUTH FLORIDA
0
1
0
0
0
0
1
RHONE-POULENC AGROCHIMIE LIMITED
0
0
0
0
1
0
1
INDUSTRIE CHIMICHE CAPPARO S.P.A.
0
0
1
0
0
0
1
SULZER OSYPKA GMBH
0
0
1
0
0
0
1
IVASIM D.D. ZA PROIZVODNJU KEMIJSKIH PROIZVODA
0
0
0
1
0
0
1
PLIVA, FARMACEUTSKA INDUSTRIJA, DIONICKO DRUSTVO
0
0
0
0
0
1
1
Organization
Note: Shading indicates universities, research institutions, and other government agencies
Source: US Patent and Trademark Office (www.uspto.gov). Author’s analysis.
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Context
Contextfor
for
Firm
Strategy
Firm Strategy
and
andRivalry
Rivalry
Context for Firm Strategy and Rivalry
Croatia’s Relative Position
Competitive Advantages
Relative to GDP per Capita
Competitive Disadvantages
Relative to GDP per Capita
Country Ranking, Arrows
indicate a change of 5 or more
ranks since 2002
Country Ranking, Arrows
indicate a change of 5 or more
ranks since 2002
Centralization of Economic Policy-making 36
Cooperation in Labor-Employer Relations 90
Tariff Liberalization
Foreign Ownership of Companies
86
Protection of Minority Shareholders
85
Existence of Bankruptcy Law
79
Regulation of Securities Exchanges
76
53
Extent of Distortive Government Subsidies 76
Extent of Locally Based Competitors
75
Prevalence of mergers and acquisitions
74
Business Costs of Corruption
73
Efficacy of Corporate Boards
72
Note: Rank by countries; overall Croatia ranks 62 (57 on National Business Environment, 40 on GDP pc 2002)
Source: Global Competitiveness Report 2003
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Context
Contextfor
for
Firm
Strategy
Firm Strategy
and
andRivalry
Rivalry
Context for Firm Strategy and Rivalry
Croatia’s Relative Position (Continued)
Competitive Advantages
Relative to GDP per Capita
Competitive Disadvantages
Relative to GDP per Capita
Country Ranking, Arrows
indicate a change of 5 or more
ranks since 2002
Intellectual Property Protection
70
Favoritism in Decisions of Government
Officials
67
Decentralization of Corporate Activity
63
Effectiveness of Anti-Trust Policy
63
Intensity of Local Competition
62
Hidden Trade Barrier Liberalization
61
Note: Rank by countries; overall Croatia ranks 62 (57 on National Business Environment, 40 on GDP pc 2002)
Source: Global Competitiveness Report 2003
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Demand
Demand
Conditions
Conditions
Demand Conditions
Croatia’s Relative Position
Competitive Advantages
Relative to GDP per Capita
Competitive Disadvantages
Relative to GDP per Capita
Country Ranking, Arrows
indicate a change of 5 or more
ranks since 2002
Stringency of Environmental Regulations
Country Ranking, Arrows
indicate a change of 5 or more
ranks since 2002
45
Buyer Sophistication
66
Government Procurement of Advanced
Technology Products
65
Laws Relating to Information Technology
59
Consumer Adoption of Latest Products
59
Presence of Demanding Regulatory
Standards
58
Note: Rank by countries; overall Croatia ranks 62 (57 on National Business Environment, 40 on GDP pc 2002)
Source: Global Competitiveness Report 2003
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Related
Relatedand
and
Supporting
Supporting
Industries
Industries
Related and Supporting Industries
Croatia’s Relative Position
Competitive Advantages
Relative to GDP per Capita
Competitive Disadvantages
Relative to GDP per Capita
Country Ranking, Arrows
indicate a change of 5 or more
ranks since 2002
Extent of Product and Process
Collaboration
Country Ranking, Arrows
indicate a change of 5 or more
ranks since 2002
14
State of Cluster Development
72
Local Supplier Quality
64
Local Availability of Specialized Research 35
and Training Services
Local Availability of Process Machinery
41
Local Availability of Components and Parts 50
Local Supplier Quantity
54
Note: Rank by countries; overall Croatia ranks 62 (57 on National Business Environment, 40 on GDP pc 2002)
Source: Global Competitiveness Report 2003
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