Just reading Prof. Michael Porter's brief biography is mind blowing. Here is snapshot - identified as the world's most influential thinker on management and competitiveness, graduate from Princeton University (can you guess in what - Aerospace and Mechanical engineering - gives a lot of confidence to all those engineers who aspire to do an MBA!), MBA and doctorate from Harvard, 18 books, 125+ articles, numerous awards and recognitions, and the list goes on. Professor Porter speaks widely on strategy, competitiveness, health care delivery, related subjects to business, government, non-profit, and philanthropic leaders.
Like many teachers here in HBS, he also is passionate and energetic - and this lights up the class. His session to us was on, "The Competitive Advantage of Nations, States, and Regions".
Why are some locations more competitive than the others ? Here location could mean an area (like Silicon Valley), or a state or a nation. According to Prof. Porter, competitiveness is a direct function of productivity of the location. And productivity not just of people, but people, capital and natural resources. And productivity growth determines sustainable economic growth.
Unlike what most people think, he believes that it is not just a political issue. Businesses have a role to play and have to get involved more. It is not just a question of what we do, but how we do. Productivity arises from both local and foreign companies. And only way to increase productivity continuously is by innovation and up gradation of technology.
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) that a country can sustain
- 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
All nations compete to provide a most productive environment to business. And the private and public sector play different but inter-related roles in creating a productive economy.
There are three layers which determine a locations' competitiveness:
- Micro-economic competitiveness
- Quality of national business environment (? not sure what this means)
- State of cluster development
- Sophistication of company operations and strategy
- Macro-economic competitiveness
- Social infrastructure and political institutions
- Macroeconomic policies
- Inherited endowments
Cluster development is easy to understand but difficult to implement. For example, if any region wants to be a tourist destination - then many clusters related to tourism have to develop in that area. Like tourist attractions, good hotels, airlines, local transportation, good restaurants, foreign exchange, duty free shops, tour operators, travel agents, etc.
Developing cluster is a slow process and government alone cannot do it, private sector has to get involved.
Social infrastructure and political institutions include basic human development, rule of law and political institutions.
Inherited endowments includes natural resources, population, physical location in the world. Counter intuitively, high inheritance is disadvantageous - a good example is some countries in the Middle-east which has abundance of oil - irrespective of how competitive you are, people will come to you, governments there can be quite inefficient and still survive. It is no different from a born rich kid, who might not have the hunger in the belly to work hard and succeed.
The model is also shifting rapidly - the old model was - Government drives economic development through policy decisions and incentives. The new model is - Economic development is a collaborative process involving government at multiple levels, companies, teaching and research institutions and private sector organizations.
To me it seems that it is a grounds up process where every one involved has a role to play and that is probably the way in which the competitiveness of a location improves. Overall it was great to listen to Prof. Porter.
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