Professor Michael E Porter on Competitiveness of Nations and Regions: The New Learning

This presentation draws on ideas from Professor Porter’s books and articles, in particular, Competitive Strategy (The Free Press, 1980); Competitive
Advantage (The Free Press, 1985); “What is Strategy?” (Harvard Business Review, Nov/Dec 1996); On Competition (Harvard Business Review, 2008);
and “Creating Shared Value” (Harvard Business Review, Jan 2011). 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. For
further materials, see the website of the Institute for Strategy and Competitiveness, www.isc.hbs.edu, and FSG website, www.fsg.org.
Competitiveness of Nations and Regions:
The New Learning
Professor Michael E. Porter
Harvard Business School
New Delhi,
May 25th, 2017

20170525—India Competitiveness Copyright 2017 © Professor Michael E. Porter
Armenia
Benin
Bhutan
Bolivia
Burkina
Faso
Burundi
Cambodia
CameroonCentral African Republic
(-3.8%, $505)
Chad
Comoros
Congo
(Brazzaville)
Congo (D.R.)
Côte d'Ivoire Djibouti
El Salvador
Eritrea
Ethiopia
Gambia
Georgia
Ghana
Guatemala
Guinea
Guinea-Bissau
Guyana
Haiti
Honduras
India
Kenya
Kyrgyz
Republic
Laos
Lesotho
Liberia
Madagascar
Malawi
Mali
Mauritania
Moldova
Morocco
Mozambique
Nepal
Niger
Nigeria
Pakistan
Papua New Guinea
Philippines
Rwanda
Samoa
São Tomé
and…
Senegal
Sierra
Leone
Solomon Islands
Sudan
Swaziland
Tajikistan
Tanzania
Uganda
Ukraine
Uzbekistan
Vanuatu
Vietnam
Zambia
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
-2% 0% 2% 4% 6% 8%
PPP-Adjusted Real GDP
per Capita, 2016
($USD at 2005 prices)
Growth in Real GDP per Capita (PPP $US at 2005 prices), CAGR, 2006-2016
Bangladesh
Average Prosperity Growth: +2.9%
Prosperity Performance
Low and Lower Middle Income Countries
Source: EIU (2015), authors calculations.
Note: Low and Lower Middle Countries according to World Bank Income Groups based on GNI per capita.
Average Real GDP per
Capita: $3,671
High but Declining
Low and Declining
High and Improving
Low but Improving
2

Prosperity
Productivity Workforce Participation
• Skills, capital stock, and
technology
• Sectoral mix
• Firm capabilities
• Unemployment
• Labor participation by
gender and other groups
• Population age profile
Prosperity and Competitiveness
Competitiveness
3

• Only firms can create prosperity
• Competitiveness depends on the long-run productivity of a location
as a place for firms to do business
- Productivity of existing firms and workers
- Enabling high participation of citizens in the workforce
• Competitiveness is not:
- Low wages
- A weak currency
- Jobs per se
A nation or region is competitive to the extent that firms operating there
are able to compete successfully in the national and global economy
while maintaining or improving wages and living standards for the
average citizen
What is Competitiveness?
4
• Successful economic development requires improving competitiveness

The Dual Challenges of Development
• There is a powerful connection between economic
and social development
• Improving competitiveness requires improving the
economic and social context simultaneously
Economic
Development
Social
Development
5

20170525—India Competitiveness Copyright 2017 © Professor Michael E. Porter6
India in 2017
• India has made significant economic progress over
the last few years, despite a challenging global context
− Robust growth of GDP, prosperity, and productivity
− Rising FDI inflows and exports
− Falling poverty
• Policy choices have begun to address some of India’s
deep-seated structural challenges
− Sustainability of macroeconomic policies
− Effectiveness of public programs
− Corruption
− Upgrading specific elements of the business
environment: Infrastructure, skills, business regulations

The Path Ahead
•India has a promising future, but multiple
weaknesses and distortions remain that will
require time and determined action to overcome
– E.g. high informality, high level of bureaucracy, limited
access to capital, skills and infrastructure deficits
•Reaching India’s full potential, both domestically
and in the global economy, will require a shared
understanding of competitiveness, a coherent
strategy, and excellence in implementation

Endowments
What Determines Competitiveness?
• Endowments, including natural resources, geographical location,
population, and land area, create a foundation for prosperity, but
true prosperity arises from productivity in the use of endowments
8

Endowments
Macroeconomic Competitiveness
Human Development
and Effective
Public Institutions
Sound Monetary
and Fiscal Policies
• Macroeconomic competitiveness sets the economy-wide
context for productivity to emerge, but is not sufficient to
ensure productivity
9

Sound Monetary
and Fiscal Policies
Endowments
Human Development
and Effective
Public Institutions
• Fiscal Policy:
Public spending aligned
with revenues over time
• Monetary Policy:
Low levels of inflation
• Economic
Stabilization: Avoiding
structural imbalances
and cyclical
overheating
Sound Monetary
and Fiscal Policies
10

• Human Development:
Basic education, health
care, equal opportunity
• Rule of Law:
Property rights, personal
security, and due process
• Government Institutions:
Stable and effective
political and governmental
organizations and
processes
Human Development
and Effective
Public Institutions
Endowments
Sound Monetary
and Fiscal Policies
Human Development
and Effective
Public Institutions
11

How Do We Measure Development
12
Economic
Development
GDP per Capita
Social
Progress

Social Progress Index Framework
Nutrition and Basic
Medical Care
Water and Sanitation
Shelter
Personal Safety
Personal Rights
Personal Freedom
and Choice
Tolerance and Inclusion
Access to Advanced
Education
Basic Human Needs Foundations of Wellbeing Opportunity
Social Progress Index
Access to Basic
Knowledge
Access to Information
and Communications
Health and Wellness
Environmental Quality

Social Progress Index vs. GDP per Capita
2016
India
Russia
China
Brazil
South
Africa
14

Microeconomic Competitiveness
Sophistication
of Company
Operations and
Strategy
Quality of the
Business
Environment
State of Cluster
Development
Endowments
Human Development
and Effective
Public Institutions
Sound Monetary
and Fiscal Policies
• Productivity ultimately depends on improving the
microeconomic capability of the economy
• Many things matter; there is no silver bullet
15

The internal skills,
capabilities, and
management
practices that enable
companies to attain
the highest level of
productivity and
innovation possibleMacroeconomic Competitiveness
Sophistication
of Company
Operations and
Strategy
Quality of the
National
Business
Environment
State of Cluster
Development
Endowments
Human Development
and Effective
Public Institutions
Sound Monetary
and Fiscal Policies
16

The quality of the
external business
environment
conditions
supporting
company
productivity,
innovation, and
growth
Sophistication
of Company
Operations and
Strategy
Quality of the
National
Business
Environment
State of Cluster
Development
Endowments
Human Development
and Effective
Public Institutions
Sound Monetary
and Fiscal Policies
17

Context
for Firm
Strategy
and Rivalry
Related and
Supporting
Industries
Factor
(Input)
Conditions
Demand
Conditions
• Sophisticated and demanding local
needs
– e.g., Sophisticated demand in the
private sector and government
– Strict quality, safety, and
environmental standards
• Many things in the business environment matter for competitiveness
• Successful economic development is a process of successive upgrading, in which the
business environment improves to enable increasingly sophisticated ways of competing
• Local rules and incentives that
encourage investment and productivity
– e.g. incentives for capital investment,
IP protection
– Sound corporate governance
and accountability
• Open and vigorous local competition
− Openness to competition
− Strict competition laws
• Improving access to high quality
business inputs
– Qualified human resources
– Capital availability
– Physical infrastructure
– Scientific and technological
infrastructure
– Administrative and regulatory
infrastructure • Availability and quality of suppliers and
supporting industries
Improving the Quality of the Business Environment
The Diamond Model
18

Improving the National Business Environment
Peru, 2012
+ Abundant resources: mineral, agricultural,
fishing, and cultural
+ Advantageous location
+ Improving administrative infrastructure
± Sound banking system, but high interest
spreads and limited venture capital
availability
– Poor physical infrastructure
– Low skill levels in the labor force,
mismatch with demand
– Weak university-industry research
collaboration
– Few high-quality research and scientific
institutions
+ Improving consumer protection
regulation
± Improving sophistication of local buyers
− Weak environmental standards
enforcement
– Limited local suppliers and
supporting industries
– Shallow clusters
+ Openness to foreign investment,
trade, capital flows
+ Improvements in investor protections
± Efforts to strengthen competition policy
– Rigidity of employment
– Difficulty in business formation
– Low intensity of local competition
– High Informality of the economy
Context
for Firm
Strategy
and Rivalry
Related and
Supporting
Industries
Factor
(Input)
Conditions
Demand
Conditions
19

0
10
20
30
40
50
60
70
80
90
100
110
120
130
140
150
160
170
180
190
200
Business Environment Quality
Ease of Doing Business Rankings, India
Ranking, 2017
(vs. 190 countries)
India’s
GDP
per capita
rank: 117
Favorable
Source: World Bank Report, Doing Business (2017)
20
Unfavorable

Geographic
concentrations of
firms, suppliers, and
related institutions in
particular fields (e.g.
tourism, automotive)
that enable
productivity and
innovation
Quality of the
National
Business
Environment
State of Cluster
Development
Endowments
Human Development
and Effective
Public Institutions
Sound Monetary
and Fiscal Policies
Sophistication
of Company
Operations and
Strategy
21

Sources: HBS student team research (2003) - Peter Tynan, Chai McConnell, Alexandra West, Jean Hayden
Restaurants
Attractions and
Activities
e.g., theme parks,
casinos, sports
Airlines,
Cruise Ships
Travel Agents Tour Operators
Hotels
Property
Services
Maintenance
Services
Government Agencies
e.g. Australian Tourism
Commission,
Great Barrier Reef Authority
Educational Institutions
e.g. James Cook University,
Cairns College of TAFE
Industry Groups
e.g. Queensland Tourism
Industry Council
Food
Suppliers
Public Relations &
Market Research
Services
Local Retail,
Health Care, and
Other Services
Souvenirs,
Duty Free
Banks,
Foreign
Exchange
Local
Transportation
What is a Cluster?
Tourism Cluster in Cairns, Australia
22

Pharmaceutical Cluster in Andhra Pradesh
Source: MOC Student Project 2013
Pharmaceutical Companies
(MNCs, Domestic Companies, SOEs)
Chemical Suppliers
Printing & Packaging
Material Suppliers
Testing
Laboratories
Energy
Suppliers
International Institutions
(US FDA, EDQUM in Europe, ISO, ICH,
GLP, GCP, etc.)
Marketers, BDS &
Agents
CFA and Stockists
Hospitals
Pharma Resellers
Pharmacies
Distributors /
Customers
Multi-lateral Agencies
(e.g. WHO)
Pharma Machinery
Manufacturers
Law Firms
Transportation
& Logistics
Supporting
Industry
Financial Inst.
IT / ITES
Related Industries
Medical
Tourism
Medical
Devices
Agribusiness
Health
Insurance
Bulk Mfg.
Contract
R&D
Formulation
Mfg.
Institutions for Collaboration
Industry
Associations
(BDMA, OPPI,
NDMA,
PASS etc)
Education &
Research
(Pharma
Colleges;
Research Inst. -
NIPER, CCMB,
IICT etc)
Government
(Central, State, Patent Office)
Government, Regulatory, Quality

Note: Showing only clusters with greater than $5 billion in export value.
Source: International Cluster Competitiveness Profiles project; Harvard - Prof. Michael E. Porter; Richard Bryden, Director.
= $2 billion
Business Services
Oil and Gas Production and
Transportation
Hospitality and Tourism
Upstream Metal Manufacturing
Food Processing and Manufacturing
Apparel
Textile Manufacturing
Biopharmaceuticals
Transportation and Logistics
Automotive
Upstream Chemical Products
Downstream Chemical…
Plastics
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
-0.50% 0.00% 0.50% 1.00% 1.50% 2.00%
World Export
Market Share, 2015
Change in World Export Market Share, 2005-2015
Computer and
Communication
services
(-2.2%, 12.7%)
7.00%
Jewelry, Precious
Metals and Collectibles
(+1.7%, 14.9%)
Overall Export Share
2015: 2.225%
24
Change in Overall
Export Growth
2005-2015: +0.874%
India’s Exports by Traded Cluster
Production Technology
and Heavy Machinery Financial Services
Downstream Metal Products

Source: “Clusters and the Great Recession” by Mercedes Delgado, Michael E. Porter, and Scott Stern (2014), “Clusters, Convergence, and Economic Performance” by Mercedes Delgado,
Michael E. Porter, and Scott Stern (2012), “Cluster and Entrepreneurship” by Mercedes Delgado, Michael E. Porter, and Scott Stern (2010); “The Economic Performance of Regions” by
Michael E. Porter (2003)
• Presence of strong clusters
• Breadth of industries within a
cluster
• Strength in related clusters
• Presence of a region‘s clusters
in neighboring regions
• Job growth
• Higher wages
• Higher patenting rates
• Greater new business
formation, growth and survival
• Resilience in downturns
• Build on the region’s existing and emerging clusters rather than chase hot fields
• Economic diversification occurs within clusters and across related clusters
Clusters and Economic Performance
Research Findings
25

Metal-
working
Strongest
link
Food
Processing
Lighting
Medical
Devices
IT &
Analytical
Instruments
Comm-
unications
Equip. &
Services
Down-
stream
ChemicalsBiopharma
Leather
Apparel
Printing
Services
Financial
Services
Insurance
Environ-
mental
Services
Business
Services
Education &
Knowledge
Creation
Marketing
Services
Music &
Sound
Recording
Performing
Arts
Video
Production
Hospitality
& Tourism
Metal
Mining
Coal
Mining
Upstream
Metals
Wood
Products
Furniture
Tobacco
Aerospace
Upstream
Chemicals
Trailers &
Appliances
Textiles
Footwear
Forestry
Agriculture
Plastics
Plastics
Distribution
& eComm.
Livestock
Processing
Fishing &
Fishing
Products
Water
Transport
Transport
&Logistics
Vulcanized
Materials
Construction
Nonmetal
Mining
Oil & Gas
Electricity
Down-
stream
Metals
Production
Metal-
working
Automotive
Paper &
Packaging
Recreation
& Electric
Goods
Jewelry &
Precious
Metals
Related Clusters and Economic Diversification
Strong link
Other links
26

Metal-
working
Food
Processing
Lighting
Medical
Devices
IT &
Analytical
Instruments
Comm-
unications
Equip. &
Services
Down-
stream
ChemicalsBiopharma
Leather
Apparel
Printing
Services
Financial
Services
Insurance
Environ-
mental
Services
Business
Services
Education &
Knowledge
Creation
Marketing
Services
Music &
Sound
Recording
Performing
Arts
Video
Production
Hospitality
& Tourism
Metal
Mining
Coal
Mining
Upstream
Metals
Wood
Products
Furniture
Tobacco
Aerospace
Upstream
Chemicals
Trailers &
Appliances
Textiles
Footwear
Forestry
Agriculture
Plastics
Plastics
Distribution
& eComm.
Livestock
Processing
Fishing &
Fishing
Products
Water
Transport
Transport
&Logistics
Vulcanized
Materials
Construction
Nonmetal
Mining
Oil & Gas
Electricity
Down-
stream
Metals
Production
Metal-
working
Automotive
Paper &
Packaging
Recreation
& Electric
Goods
Jewelry &
Precious
Metals
Related Clusters and Economic Diversification
India 2015
4.5% - 9.0%
> 9%
World Export Share
2.25% - 4.5%
27

• Leverages the power of linkages across companies to drive rapid
economic development
• Policies and investments strengthen multiple related
firms/institutions simultaneously
• Enhances the effectiveness of traditional economic policy areas,
such as training, R&D, export promotion, FDI attraction, etc.
• A forum for collaboration between the private sector, trade
associations, government, educational, and research institutions
– A mechanism for constructive business-government dialog
• Brings together firms of all sizes, including SME’s
• Clusters initiatives are a powerful private/public vehicle to identify
and get alignment on problems and action recommendations
• Cluster upgrading fosters greater and more sophisticated
competition rather than distorting the market
Clusters as a Tool for Economic Policy
• Sound cluster policy addresses all existing and
emerging clusters, and does not pick winners
28

Clusters
Specialized Physical
Infrastructure
Natural Resource Protection
Science and Technology
Infrastructure
(e.g., centers, university
departments, technology
transfer)
Education and
Workforce Training
Business Attraction
Export Promotion
• Clusters provide a framework for organizing the implementation of many
public policies and public investments directed at economic development
Quality and Environmental
standards
Market Information
and Disclosure
Organize Public Policy around Clusters
29

Geographic Influences on Competitiveness
States, Regions
and Cities
Nation
• Regions are the most important economic unit for
competitiveness in larger countries, especially countries
beyond subsistence development
30

• Economic performance varies significantly across sub-national
regions (e.g., provinces, states, metropolitan areas)
The Role of Sub-National Regions in
Economic Development
31

Alabama
Alaska
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
New Hampshire
New Jersey
New Mexico
New York
North Carolina Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
$30,000
$35,000
$40,000
$45,000
$50,000
$55,000
$60,000
$65,000
$70,000
-1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0%
High but declining
prosperity versus U.S.
High and rising prosperity
versus U.S.
Low and declining
prosperity versus U.S.
Low but rising prosperity
versus U.S.
Source: BEA. Notes: GDP in real 2009 dollars. Growth rate is calculated as compound annual growth rate.
Real Growth in Gross Domestic Product per Capita, 2005 to 2015
Prosperity Performance of U.S. StatesReal GDP per
Capita, 2015
U.S. Average GDP Per
Capita, 2014: $50,054
North Dakota
Nevada
U.S. Average growth in GDP
Per Capita, 2014: 0.4%
2005-2015
32

Prosperity Performance of Indian States
2005-2014
Gross Domestic Product per Capita Real Growth Rate, 1999 to 2009
Note: Growth rate is calculated as compound annual growth rate. Source: CEIC.
Real growth in GDP per Capita, 2005-2014
GDP per Capita, 2014
(2005 Indian Rupees)
India Overall: ₹45,750
India Overall: 6.6%
Chandigarh
Sikkim
Uttarakhand
Andaman & Nicobar Islands
Andhra Pradesh
Arunachal Pradesh
Assam
Bihar
Chattisgarh
Delhi
Goa
Gujarat
Haryana
Himachal Pradesh
Jammu & Kashmir
Jharkhand
Karnataka
Kerala
Madhya Pradesh
Maharashtra
Manipur
Meghalaya
Mizoram
Nagaland
Odisha
Puducherry
Punjab
Rajasthan
Tamil Nadu
Telangana
Tripura
Uttar Pradesh
West Bengal
₹ 0
₹ 20,000
₹ 40,000
₹ 60,000
₹ 80,000
₹ 100,000
₹ 120,000
₹ 140,000
₹ 160,000
3% 4% 5% 6% 7% 8% 9%
33

• Economic performance varies significantly across sub-
national regions (e.g., provinces, states, metropolitan areas)
• Many essential levers of competitiveness reside at the
regional and sub-regional level
• Regional economies include both local and traded clusters.
Regions specialize in different traded clusters
• The cluster portfolio and strength directly impacts not only
regional performance but the path of development
34

The Composition of State and Regional Economies
• Serve almost
exclusively the
local market
Local
Clusters
Traded
Clusters
• Serve national and
global markets
Source: Michael E. Porter, Economic Performance of Regions, Regional Studies (2003); Updated via Cluster Mapping Project, Institute for Strategy and
Competitiveness, Harvard Business School (2008)
35

36
Traded Cluster Specialization
Selected Indian States
Tamil Nadu
• Textile Manufacturing
• Automotive
• Footwear
• Leather and Related Products
Gujarat
• Jewelry and Precious Metals
• Upstream Chemical Products
• Water Transportation
• Nonmetal Mining
Maharashtra
• Biopharmaceuticals
• IT and Analytical Instruments
• Jewelry and Precious Metals
• Furniture
Source: India ASI 2014; India Cluster Mapping Project, Harvard ISC – Prof. Michael E. Porter, India IFC – Amit Kapoor
Uttar Pradesh
• Livestock Processing
• Footwear
• Downstream Chemical Products
• Food Processing and Manufacturing
Haryana
• Automotive
• Apparel
• Recreational and Small Electronic Goods
• Medical Devices
Clusters with strongest employment
specialization based on annual survey
of manufacturing industries 2014;

Labor/
HR-intensive
Capital/
HR-intensive
Services
Logistics
Med.
Devices
Logistics:
Docks,
Bunkering
Electronics
Petro-
chemicals
Financial
Services
Pharma
Business
Services
Aerospace
& Defense
Tourism
Media &
Design
IT
Logistics:
Air Travel
Logistics:
Trans-
shipment
Water
Technology
Higher
Education
1900-1960 1970s 1980s 1990s 2000s
Regional
HQs
Biotech
The Evolution of Regional Economies
Singapore
37

• Economic performance varies significantly across sub-national regions
(e.g., provinces, states, metropolitan areas)
• Many essential levers of competitiveness reside at the regional level and
sub-regional level
• Regions specialize in different sets of clusters
• The cluster portfolio and strength directly impacts not only regional
performance but the path of development
• Regions are a critical unit in competitiveness
• Each region needs its own distinctive strategy and action agenda
– Business environment improvement
– Cluster upgrading
– Improving institutional effectiveness
• Economic development is enhanced if significant resources and policy
responsibility are decentralized to regions
38

Geographic Influences on Competitiveness
“The
Neighborhood”
Neighboring
Countries
States, Regions
and Cities
Nation
39

• An overall agenda for
creating a more distinctive
and competitive position for
a country or region, based
on its particular
circumstances
• Implementing best practices
in each policy area
• There are a huge number of
policy areas that matter
• No region or country can (or
should try to) make progress
in all areas simultaneously
Policy
Improvement
Economic
Strategy
The Need for an Economic Strategy
40

National or Regional
Value Proposition
Developing an Economic Strategy
• What is a distinctive competitive position for the nation given its
location, legacy, existing strengths, and potential strengths?
– What unique advantages as a location?
– For what types of activities and clusters?
– What roles in the neighborhood and the broader global economy?
Developing Unique
Strengths
Achieving and Maintaining
Parity with Peers
• What elements of the business
environment can be unique strengths
relative to peers/neighbors?
• What existing and emerging
clusters can be built upon?
• What weaknesses must be
addressed to remove key constraints
to growth and achieve parity with
peer locations?
• Priorities and sequencing are fundamental
to successful economic development41

What is Unique About India?
• Vibrant and largest democracy of the world
• Large domestic market
• Growing and young labor force, including strong reservoir of
skilled graduates
• Well-established position in IT services
• Growing group of internationally active firms
• Large, heterogeneous country, with high level of internal mobility
and economic integration
• Deep international linkages through history, diaspora, and growing
trade and investment
• Rich history, culture, and diversity
• What can India distinctively compete in?
• With what set of competitive advantages?

• Competitiveness improvement requires sustained efforts across
multiple years and presidential administrations
– Mechanisms needed to improve the continuity of policy over time
• Competitiveness is affected by numerous government entities and
levels of government
– Competitiveness is never the sole agenda of a single government agency
– Multiple agencies and departments (e.g. finance, trade, science and
technology, commerce, regional policy, energy, agriculture) have an influence
on competitiveness
– “Economic” agencies and “social” agencies are both involved
– Multiple levels of government (nations, states, cities, etc.) affect the business
environment and macro context
– Intergovernmental relations with neighboring countries affect productivity
• A coordinating structure is needed (e.g. “competitiveness policy
council”) that brings together the ministers and department heads
necessary to formulate and implement an economic strategy
Government Structure and
43

Politics and Competitiveness
• Political definitions of success (e.g., jobs and spending) are different
from competitiveness
• Political cycles do not match competitiveness cycles
• Political boundaries often do not match relevant economic boundaries
• Multiple political jurisdictions always matter to competitiveness
• Political parties are often aligned with ideologies, not pragmatic or
consensus steps to improve competitiveness
– Coalition governments complicate the problem
• Ministry leadership is often divided among parties
• Ministers and other political appointees often represent their regions
and constituencies, not the government as a team
• There is often passive resistance in ministries and government entities to
policies that threaten their constituencies
44

The Imperative of Private Sector
Engagement in Economic Development
Company Success Depends on competitiveness
• The competitive advantage of companies depends partly on the quality of the
business environment at the national and regional level
• A company gains advantages from being part of a strong cluster
Business role in competitiveness
• Inform government on business needs and constraints bearing on company
and cluster development
• Work closely with local educational and research institutions to improve their
quality and create specialized programs addressing the cluster’s needs
• Nurture local suppliers and attract foreign suppliers
• Collaborate with other companies to enhance competitiveness through trade
associations and other mechanisms
• Participate actively in national and regional competitiveness initiatives
45

Old Model
• Government drives
economic development
through top down policy
decisions and incentives
New Model
• Economic development is a
collaborative process
involving government at
multiple levels, companies,
educational and research
institutions, and private sector
organizations
• Competitiveness is the result of both top-down and bottom-up
processes in which many companies and institutions take
responsibility
• Translating policy into action is decisive in determining success
The New Process of Economic Development
Shifting Roles and Responsibilities
46

Themes for India
1. Enable broad-based development, which integrated economic
and social progress
2. Implement a cluster-based economic development approach
3. Create clear and complementary roles for the national and state
governments in upgrading Indian competitiveness
4. Engage the private sector as a true partner in competitiveness
upgrading
5. Upgrade data, and benchmarking to inform evidence-based
policy
6. Define India’s value proposition, and aspirations in the global
economy

Professor Michael E Porter on Competitiveness of Nations and Regions: The New Learning

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