2000 Harvard C I T Cluster Study
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1) The document discusses Professor Michael Porter's research on clusters and competitiveness. It argues that a nation's prosperity is determined by productivity, not comparative advantage. 2) Productivity depends on both the value and efficiency of production. Nations compete by offering the most productive business environment. Wealth is created by choices, not endowments. 3) A nation's productivity and growth are determined by internal company operations/strategy and external quality of the business environment, including clusters of competing and collaborating firms in an industry.
2000 Harvard C I T Cluster Study
- 1. The Microeconomic Foundations of Competitiveness and the Role of Clusters Professor Michael E. Porter Harvard Business School Mississippi May, 2000 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 1998, (World Economic Forum, 1998), “Clusters and the New Competitive Agenda for Companies and Governments” in On Competition (Harvard Business School Press, 1998) and ongoing statistical study of clusters, and “What is Strategy?” (Harvard Business Review, Nov/Dec 1996). 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.
- 2. The Shifting Economic Policy Agenda • Macro • Micro • Current Productivity • Innovation • Economy Wide • Clusters • Cross-national • National • Regional / local • Economic • Economic integrated with social Mississippi - Micro - 05-00.ppt 2 Copyright © 2000 Professor Michael E. Porter
- 3. Sources of Rising Prosperity • A nation or region’s standard of living (wealth) is determined by the productivity with which it uses its human, capital, and natural resources. The appropriate definition of competitiveness is productivity. – Productivity depends both on the value of products and services (e.g. uniqueness, quality) as well as the efficiency with which they are produced. Productivity should be measured in terms of the value (revenue) produced per unit of labor or capital, not just the volume. – It is not what industries a nation or region competes in that matters for prosperity, but how firms compete in those industries – Productivity in a nation or region is a reflection of what both domestic and foreign firms choose to do in that location. The location of ownership is secondary for national prosperity. – The productivity of “local” industries is of fundamental importance to competitiveness, not just that of traded industries • Nations and regions compete in offering the most productive environment for business Mississippi - Micro - 05-00.ppt 3 Copyright © 2000 Professor Michael E. Porter
- 4. Shifting Sources of Prosperity Comparative Competitive Advantage Advantage Wealth is set by Wealth is created by a endowments nation or region’s choices Mississippi - Micro - 05-00.ppt 4 Copyright © 2000 Professor Michael E. Porter
- 5. Determinants of Productivity and Productivity Growth Macroeconomic, Political, and Legal Context Macroeconomic, Political, and Legal Context Microeconomic Foundations Internal External Sophistication of Quality of the Company Operations Microeconomic Business and Strategy Environment Mississippi - Micro - 05-00.ppt 5 Copyright © 2000 Professor Michael E. Porter
- 6. The Relationship Between Microeconomic Foundations and GDP Per Capita $40,000 (Current Dollars Adjusted for Purchasing Power Parity) United States $30,000 1998 GDP per Capita Singapore Switzerland Norway Iceland Belgium Austria Denmark Hong Kong Canada Japan France Netherlands Australia Germany Italy United Kingdom Finland Taiwan Sweden $20,000 Ireland Israel Spain New Zealand Portugal Greece Korea Chile Czech Republic Argentina Malaysia Mauritius $10,000 Venezuela Slovakia Mexico Hungary Colombia Costa Rica Poland Turkey South Africa Thailand Ecuador Brazil Bulgaria Peru Russia China Philippines Jordan Bolivia Indonesia Egypt El Salvador Zimbabwe Ukraine India Vietnam $0 -2 -1 0 1 2 Microeconomic Competitiveness Factor (MICI) Source: M. Porter, “Microeconomic Competitiveness: Findings from the 1999 Executive Survey ,” Global Competitiveness Report, Geneva: World Economic Mississippi - Micro - 05-00.ppt Forum, 1999. Refer also to 1998 report. 6 Copyright © 2000 Professor Michael E. Porter
- 7. Sources of Superior Performance Operational Strategic Strategic Effectiveness Positioning Positioning • Assimilating, attaining, and • Creating a unique and extending best practice sustainable competitive position Mississippi - Micro - 05-00.ppt 7 Copyright © 2000 Professor Michael E. Porter
- 8. Productivity and the Microeconomic Business Environment Context for Context for Firm Firm Strategy Strategy and Rivalry and Rivalry • A local context that encourages investment and sustained upgrading Factor Factor • Vigorous competition Demand Demand (Input) (Input) among locally-based Conditions Conditions Conditions Conditions rivals • Factor (input) quantity • Sophisticated and and cost demanding local customer(s) • Unusual local demand in Related and Related and specialized segments that can • Factor quality Supporting Supporting be served globally • Factor specialization Industries Industries • Customer needs that anticipate those elsewhere • Presence of capable, locally- based suppliers and firms in related fields • Presence of clusters instead Mississippi - Micro - 05-00.ppt of isolated industries 8 Copyright © 2000 Professor Michael E. Porter
- 9. The California Wine Cluster Winemaking Equipment Winemaking Equipment Grapestock Grapestock Barrels Barrels State Government Agencies (e.g., Select Committee on Wine Production and Economy) Fertilizer, Pesticides, Fertilizer, Pesticides, Bottles Bottles Herbicides Herbicides Grape Harvesting Caps and Corks Caps and Corks Grape Harvesting Equipment Equipment Labels Labels Irrigation Technology Irrigation Technology Wineries/Processing Wineries/Processing Growers/Vineyards Growers/Vineyards Facilities Facilities Public Relations and Public Relations and Advertising Advertising Specialized Publications Specialized Publications (e.g., Wine Spectator, Trade (e.g., Wine Spectator, Trade Journal) Journal) California California Educational, Research, & Trade Educational, Research, & Trade Tourism Cluster Tourism Cluster Agricultural Cluster Agricultural Cluster Organizations (e.g. Wine Institute, Organizations (e.g. Wine Institute, UC Davis, Culinary Institutes) UC Davis, Culinary Institutes) Food Cluster Food Cluster 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. Mississippi - Micro - 05-00.ppt 9 Copyright © 2000 Professor Michael E. Porter
- 10. What is a Cluster? A cluster is a geographically proximate group of interconnected companies and associated institutions in a particular field, linked by commonalities and complementarities • End-product or service companies • Suppliers of specialized inputs, components, machinery, financing, and services • Firms in related and downstream industries (i.e., channels or customers) • Producers of complementary products • Specialized infrastructure providers • Government and other institutions providing specialized training, education, information, research, and technical support (e.g. universities, think tanks, vocational training providers) • Standards-setting and influential government agencies • Trade associations and other collective private sector bodies Clusters go beyond a single industry Mississippi - Micro - 05-00.ppt 10 Copyright © 2000 Professor Michael E. Porter
- 11. The Norwegian Maritime Cluster Fisheries Fisheries and and Fishing Fishing Ship owners Ship owners Equipment Equipment Shipyards Shipyards Ship brokers Ship brokers and agents and agents Boat builders Boat builders Banking and Banking and Maritime Maritime Maritime Maritime Equipment Finance Finance Services Shipping Shipping Equipment Services Suppliers Suppliers Ship equipment Ship equipment Maritime lawyers Maritime lawyers Underwriters and Underwriters and Maritime Maritime maritime insurance maritime insurance authorities authorities Offshore Offshore Exploration Exploration Maritime Maritime and Oil and Oil R&D Production Classification Classification R&D Production societies societies Maritime Maritime consultants consultants Maritime Maritime education education Processing Processing Fixed platforms Fixed platforms Pipelines Pipelines equipment equipment • Norway has 0.1% of the world’s population, represents 1.0% of the world’s economy, yet accounts for 10% of world seaborne transportation Source: Sven Ullring, presented to M.I.T. Mississippi - Micro - 05-00.ppt 11 Copyright © 2000 Professor Michael E. Porter
- 12. The Houston Oil and Gas Cluster Upstream Downstream Oil Oil Oil Oil Oil Oil Trans- Wholesale Retail Oil & Natural Gas Oil & Natural Gas Trading Refining Distribution Marketing portation Marketing Exploration & Completion & Development Production Gas Gas Gas Gas Gas Gas Transmis- Gathering Processing Trading Distribution Marketing sion Oilfield Services/Engineering & Contracting Firms Equipment Specialized Subcontractors Business Suppliers Technology Services Services (e.g. Surveying, (e.g. Oil Field Mud Logging, (e.g. MIS Services, Chemicals, (e.g. Drilling Maintenance Technology Drilling Rigs, Consultants, Services) Licenses, Drill Tools) Reservoir Services, Risk Management) Laboratory Analysis) Specialized Institutions (e.g. Academic Institutions, Training Centers, Industry Associations) Mississippi - Micro - 05-00.ppt 12 Copyright © 2000 Professor Michael E. Porter
- 13. Clusters and Competitive Advantage Productivity • Efficient access to information, specialized inputs and employees, institutions, and “public goods” • Achieving complementarities across businesses • Better incentives and performance measurement Innovation • Ability to perceive and respond to innovation opportunities • Rapid diffusion of improvements New Business Formation • Perceiving opportunities for new businesses • Lowering barriers to entry (including perceived risk) • Competition is fundamentally affected by externalities / linkages across firms, industries, and associated institutions Mississippi - Micro - 05-00.ppt 13 Copyright © 2000 Professor Michael E. Porter
- 14. The Influence of Clusters on the Nature of Local Competition Operational Operational Strategic Strategic Effectiveness Effectiveness Positioning Positioning • Clusters facilitate rapid • Clusters foster strategic operational improvement competition instead of imitation and extending the and price cutting productivity frontier – OE differences within – Rapid dissemination of Clusters clusters are hard to sustain Clusters best practices – Proximity discourages – Opportunities for imitation vs. the pursuit of experimentation with different strategies new activity – Clusters can provide a better configurations and environment in which to approaches perceive new needs and segments – The presence of local suppliers, related firms, and supporting institutions enables strategic differences Mississippi - Micro - 05-00.ppt 14 Copyright © 2000 Professor Michael E. Porter
- 15. Why Innovation Matters • Advanced nations cannot support high wages and profits through producing standard products or services made with standard methods – High wages can only be justified by productivity differences – Developing economies have far lower wages and improving skills and infrastructure – Developing nations can access existing technology via outsourcing and technology acquisition – A broader array of nations are building innovative capability – Multinational companies can choose to locate activities anywhere, including innovation-related activities • The prosperity of advanced nations depends on innovation • A faster rate of innovation is also fundamental to coping with slow workforce growth and to expanding the world economic pie • Innovation holds the key to solving many of the world’s most pressing social challenges (e.g., health care and the environment) Mississippi - Micro - 05-00.ppt 15 Copyright © 2000 Professor Michael E. Porter
- 16. Innovation and the Standard of Living Prosperity Competitiveness (Productivity) Innovative Capacity Mississippi - Micro - 05-00.ppt 16 Copyright © 2000 Professor Michael E. Porter
- 17. Massachusetts Clusters Biotechnology Biotechnology Financial Financial Healthcare Healthcare Services Services Information Information Technology Technology Tourism & Tourism & • Services Leisure Leisure • Hardware Defense Knowledge Knowledge Environmental Environmental Defense Creation Products & Products & Creation Services Services •• Advanced Education Advanced Education •• Innovation Services Innovation Services Metal Metal Fabrication // Fabrication Specialty Specialty Processing Processing Paper Paper Photonics Photonics Polymers Polymers Marine Marine Textiles, Textiles, Equipment Equipment Apparel & Apparel & & Services & Services Footwear Footwear Mississippi - Micro - 05-00.ppt 17 Copyright © 2000 Professor Michael E. Porter
- 18. Selected Regional Clusters of Competitive U.S. Industries Boise Wisconsin / Iowa / Illinois Sawmills Agricultural Equipment Minneapolis West Michigan Boston Western Massachusetts Farm Machinery Cardio-vascular Office and Institutional Mutual Funds Polymers Omaha Equipment Furniture Biotechnology Seattle Telemarketing and Services Rochester Software and Aircraft Equipment and Design Hotel Reservations Imaging Michigan Networking Boat and Ship Building Credit Card Processing Equipment Warsaw, Indiana Clocks Venture Capital Metal Fabrication Detroit Orthopedic Devices Auto Equipment Hartford Oregon and Parts Insurance Electrical Measuring Providence Equipment Jewelry Woodworking Equipment Marine Equipment Logging / Lumber Supplies New York City Financial Services Silicon Valley Advertising Microelectronics Publishing Biotechnology Multimedia Venture Capital Pennsylvania / New Jersey Pharmaceuticals Las Vegas Pittsburgh Amusement / Advanced Materials Casinos Energy Small Airlines North Carolina Los Angeles Area Household Furniture Defense Aerospace Synthetic Fibers Entertainment Hosiery Wichita Carlsbad Light Aircraft Cleveland / Louisville Golf Equipment Farm Equipment Paints & Coatings Baton Rouge / Phoenix New Orleans Dalton, Georgia Helicopters Dallas Specialty Foods Carpets Semiconductors Real Estate Development Southeast Texas / Electronic Testing Labs Nashville / Louisville Colorado Louisiana Optics Hospital Management South Florida Computer Integrated Systems / Programming Chemicals Health Technology Engineering Services Computers Mississippi - Micro - 05-00.ppt Mining / Oil and Gas Exploration 18 Copyright © 2000 Professor Michael E. Porter
- 19. The Composition of Regional Economies 50 “Traded” Clusters (35.7% of Total Employment) 50 “Traded” Clusters (35.7% of Total Employment) Natural Natural Resource Resource e.g. • Aerospace Engines Driven Driven • Aerospace Vehicles and Defense Industries Industries • Analytical Instruments • Apparel... 19 Local Clusters (64.2% of Total Employment) e.g. • Local Agriculture • Local Commercial Services • Local Community and Civic Organizations • Local Construction Services... Mississippi - Micro - 05-00.ppt 19 Copyright © 2000 Professor Michael E. Porter
- 20. The Information Technology Cluster Services Hardware Software and Programmer Services Computers Peripherals Telecommunications Equipment Computer programming services Electronic Computers Computer storage devices Telephone and telegraph aparatus Prepackaged software Computer terminals Radio and TV communications equipment Computer integrated systems design Computer peripheral equipment Communications equipment N.E.C. Computer and Information Services Information Retrieval Services Data processing and preparation Computer facilities management Computer rental and leasing Components Computer maintenance and repair Computer related services N.E.C. Semiconductors Optical Devices Electrical components, parts and processes Electron tubes Magnetic and optical recording media Electronic connectors Semiconductors and related Optical instruments and lenses Electronic Components N.E.C. Plating and polishing Electrical industrial apparatus N.E.C. Printed circuit boards Electronic resistors Electronic coils and transformers Research Organizations Instruments Commercial physical research Instruments to measure electricity Noncommercial research organizations Analytical instruments Measuring and controlling devices Mississippi - Micro - 05-00.ppt 20 Copyright © 2000 Professor Michael E. Porter
- 21. Computer The Information Technology Cluster Rental and Computer Leasing Integrated Information Systems 0.310** Retrieval Design Services Computer 0..505** 0.554** Related Services nec Computer Data 0.610** Programming Processing Services and Preparation 0.613** Noncom- Computer mercial Facilities 0.579** Research Management Computer Commercial Prepackaged Orgs. Maintenance Physical Software 0.681** and Repair Research 0.416** 0.699** 0.725** 0.667** Radio and TV Communi- Calculating / Telephone & Electronic Computer Storage Computer Communi- cations Accounting Telegraph Terminals Devices Peripherals cation Equip. Equipment Apparatus Computers Machines nec nec 0.534** 0.536** 0.773** 1.000 0.642** 0.595** 0.498** 0.328** Magnetic and Measuring Analytical Optical Electronic Semicon- and Instruments Recording Components ductors and Controlling Media Related Optical Devices Devices Plating and Instruments 0.684** 0.777** 0.860** Polishing Instruments and Lenses 0.669** Electronic 0.765** to Measure Coils & Printed Electricity 0.651** 0.569** Transformers Circuit Boards 0.645** Electronic 0.353** Connectors 0.695** Electronic Resistors Electrical 0.752** Electron Note: **Locational correlation of employment with the core industry Industrial Tubes 0.416** across U.S. states. Correlations are statistically significant at the Apparatus 95% level. nec 0.342** Source: Professor Michael E. Porter, Cluster Mapping Project, 1999. Mississippi - Micro - 05-00.ppt 0.573** 21 Copyright © 2000 Professor Michael E. Porter
- 22. The Information Technology Cluster SF-OaklandBay Area- Silicon Valley, CA Knoxville, TN BoiseCity.ID-OR Denver-Boulder, CO Boston, MA Raleigh- Durham NC , San Diego, CA Location Quotient* 2to 3 Austin, TX *Measure of a cluster’s concentration in a Albuquerque, NM-AZ 1to 2 region relative to a cluster’s concentration in the nation Huntsville, AL 0to 1 Source: Cluster Mapping Project Mississippi - Micro - 05-00.ppt 22 Copyright © 2000 Professor Michael E. Porter
- 23. The Information Technology Cluster Software and Programmer Services Washington- Baltimore, DC-MD Seattle, WA Salt Lake City, UT Minneapolis- Denver-Boulder, CO Portland, OR St. Paul, MN Boston, MA Raleigh- Durham-NC San Diego, CA Location Quotient* SF-Oakland Bay Area Tucson, AZ Huntsville- Silicon Valley, CA Atlanta, AL-GA 1.51 to 3.5 Austin, TX 1 to 1.50 *Measure of a cluster’s concentration in a region relative to a cluster’s concentration in the nation 0 to 1 Source: Cluster Mapping Project Mississippi - Micro - 05-00.ppt 23 Copyright © 2000 Professor Michael E. Porter
- 24. The Automotive Cluster Detroit-AnnArbor- Cleveland-Akron- Traverse City-Columbus, MI-OH Grand Forks, ND Buffalo Falls, NY Greenville- Spartanburg, NC-SC Location Quotient* Fort Smith, AR-OK 2to 4 Jonesboro, AR 1to 2 Tupelo, MS Western *Measure of a cluster’s concentration in a region relative Tennesee to a cluster’s concentration in the nation 0to 1 Source: Cluster Mapping Project Mississippi - Micro - 05-00.ppt 24 Copyright © 2000 Professor Michael E. Porter
- 25. Level of Aggregation and Competitiveness Company Industry Cluster Sector Economy e.g., services, manufacturing, “high-tech” Mississippi - Micro - 05-00.ppt 25 Copyright © 2000 Professor Michael E. Porter
- 26. Appropriate Roles of Government in Economic Development 1. Establish a stable and predictable macroeconomic and political environment 2. Improve the availability, quality, and efficiency of general purpose inputs, infrastructure and institutions 3. Establish overall rules and incentives governing competition that encourage productivity growth 4. Facilitate cluster development and upgrading 5. Develop and implement a positive and long-term process for economic upgrading which mobilizes national government, local government, business, institutions, and citizens Mississippi - Micro - 05-00.ppt 26 Copyright © 2000 Professor Michael E. Porter
- 27. Cluster Policy versus Industrial Policy Industrial Cluster-based Policy Policy • Target desirable industries / • All clusters can contribute to prosperity sectors • Domestic and foreign companies both • Focus on domestic companies enhance productivity • Intervene in competition (e.g., • Relax impediments and constraints to protection, industry promotion, productivity subsidies) • Emphasize cross-industry linkages / complementarities • Encourages initiative at the state and local • Centralizes decisions at the level national level Distort competition Enhance competition Mississippi - Micro - 05-00.ppt 27 Copyright © 2000 Professor Michael E. Porter
- 28. Illustrative Government Influences on Cluster Upgrading Context for Context for Firm Firm Strategy Strategy and Rivalry and Rivalry l Eliminate barriers to local competition l Focus efforts to attract foreign investment around Factor Factor clusters Demand Demand (Input) (Input) l Focus export promotion Conditions Conditions Conditions Conditions around clusters l Organize relevant government departments around clusters l Create streamlined, pro- l Create specialized education innovation regulatory and training programs standards affecting the cluster l Establish local university to research efforts in cluster- l reduce regulatory uncertainty related technologies l stimulate early adoption Related and Related and l encourage innovation or new l Support cluster-specific information gathering and Supporting Supporting products and processes l Sponsor independent compilation Industries Industries testing, product l Improve specialized certification, and rating transportation, services for cluster communications, and other l Sponsor forums to bring together cluster participants products/services infrastructure required by l Cluster-specific efforts to attract suppliers and service l Act as sophisticated buyer cluster providers from other locations of the cluster’s products / l Establish cluster-oriented free trade zones, industrial services Mississippi - Micro - 05-00.ppt parks, or supplier parks 28 Copyright © 2000 Professor Michael E. Porter
- 29. Government and Cluster Development Principles • Cluster policy does not substitute for the need to improve the general business environment • Clusters offer a different way to view and understand the economy • Clusters offer a mechanism to bring together government and the private sector • Cluster policy seeks to upgrade all existing and emerging clusters, not choose amongst them • Cluster policy is focused on removing impediments and obstacles to cluster development. It is not the same as “industrial policy” Mississippi - Micro - 05-00.ppt 29 Copyright © 2000 Professor Michael E. Porter
- 30. Government Roles in Cluster Development • Convening cluster participants – Involve institutions and multiple levels of government • Acting on government induced / influenced weaknesses or obstacles to productivity • Aligning government organizational structure, and other data collection, with clusters • Encouraging other institutions to develop cluster-based strategies – e.g. universities, training providers Mississippi - Micro - 05-00.ppt 30 Copyright © 2000 Professor Michael E. Porter
- 31. Public / Private Cooperation in Cluster Upgrading Minnesota’s Medical Device Cluster Firm Firm Strategy, Strategy, Structure Structure and Rivalry and Rivalry l Aggressive trade associations (Medical Alley Association, High Tech Council) l Effective global marketing of the cluster Factor and of Minnesota as the “The Great Demand Factor State of Health” Demand Conditions Conditions l Full-time “Health Care Industry Conditions Conditions Specialist” in the department of Trade and Economic Development l Joint development of vocational- l State sanctioned technical college curricula with the reimbursement policies to medical device industry enable easier adoption l Minnesota Project Outreach exposes and reimbursement for businesses to resources available at innovative products university and state government Related and Related and agencies Supporting Supporting l Active medical technology licensing Industries through University of Minnesota Industries l State-formed Greater Minnesota Corp. to finance applied research, invest in new products, and assist in technology transfer Mississippi - Micro - 05-00.ppt 31 Copyright © 2000 Professor Michael E. Porter
- 32. Company Attitudes Towards Clusters First Reaction Upon Reflection • Create more competition • Increase efficiency • Lose employees to spin-offs • Expand the availability of inputs • Drive up local costs • Increase flexibility • Increase information • Facilitate marketing • Speed innovation • Most cluster participants are not direct competitors Mississippi - Micro - 05-00.ppt 32 Copyright © 2000 Professor Michael E. Porter
- 33. Illustrative Private Sector Influences on Cluster Upgrading Context for Context for Firm Firm Strategy Strategy and Rivalry and Rivalry l Market jointly through trade fairs and delegations l Collaborate with Factor Factor government export Demand Demand (Input) (Input) promotion efforts Conditions Conditions Conditions Conditions l Create directories of cluster participants l Jointly develop specialized vocational, technical, college l Work with government and university curricula to streamline l Sponsor specialized university regulations and modify research centers Related and Related and them to encourage l Collect cluster information Supporting innovation Supporting through trade associations Industries l Establish local testing l Maintain close liaison with Industries and standards infrastructure providers to organizations address specialized cluster l Establish a cluster-based trade needs (e.g., data association communications, logistics) l Encourage local supplier formation l Develop courses for managers and attract local investments by on regulatory, quality, and suppliers based elsewhere through managerial issues Mississippi - Micro - 05-00.ppt individual and collective efforts 33 Copyright © 2000 Professor Michael E. Porter
- 34. Guidelines for Organizing and Implementing a Successful Cluster Initiative • Shared understanding of competitiveness and the role of clusters • Private-sector led with active government participation, rather than organized and controlled by government • Focus on removing obstacles and easing constraints to cluster upgrading rather than seeking subsidies or limiting competition • Encompass (over time) all clusters in a region or nation • Appropriate cluster boundaries • Wide involvement of cluster participants as well as associated institutions • Attention to personal relationships to facilitate linkages, foster open communications, and build trust • A bias towards action • Clusters are institutionalized by the private sector Mississippi - Micro - 05-00.ppt 34 Copyright © 2000 Professor Michael E. Porter
- 35. Common Pitfalls in Cluster Initiatives •• Prioritizing or “picking” clusters Prioritizing or “picking” clusters •• Government-driven Government-driven •• Overly broad or overly narrow cluster definitions Overly broad or overly narrow cluster definitions •• Using the cluster concept as aacover for industrial policy Using the cluster concept as cover for industrial policy •• Orientation toward subsidies or limiting competition Orientation toward subsidies or limiting competition •• Ignoring small or emerging clusters Ignoring small or emerging clusters •• Attempting to create clusters from “scratch” Attempting to create clusters from “scratch” Mississippi - Micro - 05-00.ppt 35 Copyright © 2000 Professor Michael E. Porter
- 36. The Shifting Economic Policy Agenda • Macro • Micro • Current Productivity • Innovation • Economy Wide • Clusters • Cross-national • National • Regional / local • Economic • Economic integrated with social Mississippi - Micro - 05-00.ppt 36 Copyright © 2000 Professor Michael E. Porter
- 37. The Shifting Economic Policy Agenda • Macro • Micro • Current Productivity • Innovation • Economy Wide • Clusters • Cross-national • National • Regional / local •• Economic Economic •• Economic integrated Economic integrated with social with social • From market intervention to help the poor to equipping disadvantaged citizens to succeed in the market • From inequality as a failure of the market to inequality as a failure of government • From inflicting environmental standards on business to fostering corporate environmental innovation • From cutting health care cost to finding innovative health solutions Mississippi - Micro - 05-00.ppt 37 Copyright © 2000 Professor Michael E. Porter
- 38. Integrating Economic and Social Policy There is no inherent conflict between capitalism and social needs Economic Social Policy Policy • A productive and growing economy requires: – Rising skill levels – Safe working conditions – Healthy workers who live in decent housing in safe neighborhoods – A sense of opportunity – Assimilation of underemployed citizens into the productive workforce – Low levels of pollution (pollution is a sign of unproductive use of physical resources) • “Social” policies must be aligned with productivity in the economy and prepare and motivate citizens to succeed in the market system Mississippi - Micro - 05-00.ppt 38 Copyright © 2000 Professor Michael E. Porter
- 39. Economic Development in Inner Cities Premises of the New Model • Inner-city distress is as much an economic as a social problem – Without viable jobs, social investments will be insufficient • Economic development in inner cities must be approached from a business strategy perspective - businesses must be genuinely profitable, and the private sector must play the leading role • There are existing and potential competitive advantages of inner cities that can support viable businesses and jobs • The disadvantages of inner cities as business locations must be addressed directly, not offset by subsidies • The inner city can only prosper if it is integrated into the regional and national economy • The paradigm must shift from: – reducing poverty to creating income, jobs, and wealth – community deficiencies to market opportunities Widen prosperity to all of our citizens Mississippi - Micro - 05-00.ppt 39 Copyright © 2000 Professor Michael E. Porter
- 40. The Shifting Economic Policy Agenda • Macro • Micro • Current Productivity • Innovation • Economy Wide • Clusters • Cross-national • National • Regional / local • Economic • Economic integrated with social Mississippi - Micro - 05-00.ppt 40 Copyright © 2000 Professor Michael E. Porter
- 41. Selected References Michael E. Porter • “Microeconomic Competitiveness: Findings from the 1999 Executive Survey” in The Global Competitiveness Report 1999, (World Economic Forum, 1999) • “The Determinants of National Innovative Capacity”, with Scott Stern and Jeffrey Furman, (Harvard Business School Working Paper, 1999) • “The Microeconomic Foundations of Economic Development,” in The Global Competitiveness Report 1998, (World Economic Forum, 1998) • “Clusters and the New Competitive Agenda for Companies and Governments” in On Competition (Harvard Business School Press, 1998) • “What is Strategy?” (Harvard Business Review, Nov-Dec 1996) • “The Competitive Advantage of the Inner City,” (Harvard Business Review, May-June 1995) • "Toward a New Conception of the Environment-Competitiveness Relationship," with Claas van der Linde (The Journal of Economic Perspectives, Fall 1995). • "Making Competition in Health Care Work,” with Elizabeth O. Teisberg and Gregory B. Brown (Harvard Business Review, July-Aug 1994) • The Competitive Advantage of Nations (The Free Press, 1990) Mississippi - Micro - 05-00.ppt 41 Copyright © 2000 Professor Michael E. Porter