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SingaporeCompetitivenessProfessorMichaelE.PorterInstituteforStrategyandCompetitivenessHarvardBusinessSchoolSingaporeIIRLeadingMindsConference30July,2002ThispresentationdrawsonideasfromProfessorPorter’sarticlesandbooks,inparticular,TheCompetitiveAdvantageofNations(TheFreePress,1990),“TheMicroeconomicFoundationsofEconomicDevelopment,”inTheGlobalCompetitivenessReport2001,(WorldEconomicForum,2001),“ClustersandtheNewCompetitiveAgendaforCompaniesandGovernments”inOnCompetition(HarvardBusinessSchoolPress,1998),andtheClustersofInnovationInitiative(),ajointeffortoftheCouncilonCompetitiveness,MonitorGroup,andProfessorPorter.Nopartofthispublicationmaybereproduced,storedinaretrievalsystem,ortransmittedinanyformorbyanymeans-electronic,mechanical,photocopying,recording,orotherwise-withoutthepermissionofMichaelE.Porter.AdditionalinformationmaybefoundatthewebsiteoftheInstituteforStrategyandCompetitiveness,©2002ProfessorMichaelE.PorterSourcesofFirmSuccessInternalInternalInternalExternalExternalExternal•Competitiveadvantageresidessolelyinsideacompanyorinitsindustry•Competitivesuccessdependsprimarilyoncompanychoices•Competitiveadvantageresidespartlyinthelocationsatwhichacompany’sbusinessunitsarebased•Clusterparticipationisanimportantcontributortocompanysuccess3CAONSingapore2002-07-30-02CKCopyright©2002ProfessorMichaelE.PorterSingapore2002•Singaporehasachievedanextraordinarylevelofprosperity•ThecurrenteconomicdownturnislargelydrivenbyITinvestmentsandaworldeconomicslowdown•However,therearestructuralchangesinthecompetitiveenvironmentthatrequireSingaporetorevisititseconomicstrategy•Policyandbusinessleadersarestartingtoaddressthisnewchallenge4CAONSingapore2002-07-30-02CKCopyright©2002ProfessorMichaelE.PorterSingapore’sEconomicPerformance15,00017,00019,00021,00023,00025,00027,00029,00031,00033,00035,0000%1%2%3%4%5%6%7%CanadaGermanyIsraelSouthKoreaNewZealandSINGAPORESwedenTaiwanUSAustraliaJapanUKFinlandIreland*CompoundannualgrowthrateofGDPpercapita,1990-2000GDPpercapita(PPPadjusted)inUS-$,2000Note:IrishGNPpercapitaisabout20%lowerthanthereportedGDPpercapitafigureduetolargedividendoutflowstoforeigninvestors.WeuseGNPpercapitaforIrelandbecauseitismorerepresentative.ForothercountriesGDPandGNPareverysimilar.Source:WTO5CAONSingapore2002-07-30-02CKCopyright©2002ProfessorMichaelE.PorterComparativeEconomicPerformanceRealGDPGrowthRatesSource:EIU(2001),OECD(2002),SingaporeStatistics(2002)-10%-5%0%5%10%15%199019911992199319941995199619971998199920002001SpainAustraliaFranceNewZealandCanadaUSSwedenNetherlandsFinlandSingaporeUKGermany6CAONSingapore2002-07-30-02CKCopyright©2002ProfessorMichaelE.PorterSourcesofRisingProsperity•Anation’sstandardofliving(wealth)isdeterminedbytheproductivitywithwhichitusesitshuman,capital,andnaturalresources.Theappropriatedefinitionofcompetitivenessisproductivity–Productivitydependsbothonthevalueofproductsandservices(e.g.uniqueness,quality)aswellastheefficiencywithwhichtheyareproduced.–Itisnotwhatindustriesanationcompetesinthatmattersforprosperity,buthowfirmscompeteinthoseindustries–Productivityinanationisareflectionofwhatbothdomesticandforeignfirmschoosetodointhatlocation.Thecombinationofdomesticandforeignfirmsinaparticularfieldcreatesthemostfertileenvironmentforprosperity–Theproductivityof“local”industriesisoffundamentalimportancetocompetitiveness,notjustthatoftradedindustries•Nationscompeteinofferingthemostproductiveenvironmentforbusiness•Thepublicandprivatesectorsplaydifferentbutinterrelatedrolesincreatingaproductiveeconomy7CAONSingapore2002-07-30-02CKCopyright©2002ProfessorMichaelE.PorterInnovationandProsperityProsperityCompetitiveness(Productivity)InnovativeCapacity•Inadvancedeconomies,innovationisneededtosupporthighlevelsofprosperity8CAONSingapore2002-07-30-02CKCopyright©2002ProfessorMichaelE.PorterDeterminantsofProductivityandProductivityGrowthMacroeconomic,Political,Legal,andSocialContextforDevelopmentMacroeconomic,Political,Legal,andSocialMacroeconomic,Political,Legal,andSocialContextforDevelopmentContextforDevelopmentMicroeconomicFoundationsofDevelopmentMicroeconomicFoundationsofDevelopmentQualityoftheMicroeconomicBusinessEnvironmentQualityoftheQualityoftheMicroeconomicMicroeconomicBusinessBusinessEnvironmentEnvironmentSophisticationofCompanyOperationsandStrategySophisticationSophisticationofCompanyofCompanyOperationsandOperationsandStrategyStrategy•Asoundmacroeconomic,political,legal,andsocialcontextcreatesthepotentialforcompetitiveness,butisnotsufficient•Competitivenessultimatelydependsonimprovingthemicroeconomiccapabilityoftheeconomyandthesophisticationoflocalcompetition9CAONSingapore2002-07-30-02CKCopyright©2002ProfessorMichaelE.PorterContextforFirmStrategyandRivalryContextforContextforFirmFirmStrategyStrategyandRivalryandRivalryRelatedandSupportingIndustriesRelatedandSupportingIndustriesFactor(Input)ConditionsFactorFactor(Input)(Input)ConditionsConditions•Alocalcontextthatencouragesefficiency,investment,andsustainedupgrading•Openandvigoro