Competitiveness and Company Strategy:
Issues for Brazil
Professor Michael E. Porter
Institute for Strategy and Competitiveness
Harvard Business School
ExpoManagement
Sao Paulo, Brazil
November 4, 2003
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 2002, (World Economic Forum, 2003),
“Clusters and the New Competitive Agenda for Companies and Governments” in On Competition (Harvard Business School Press, 1998), and the
Clusters of Innovation Initiative (www.compete.org), a joint effort of the Council on Competitiveness, Monitor Group, and Professor Porter. 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.
Additional information may be found at the website of the Institute for Strategy and Competitiveness, www.isc.hbs.edu
GCR Brazil 2003 10-09-03 CK.ppt
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Copyright 2003 © Professor Michael E. Porter
Perspectives on Firm Success
External
Internal
• Competitive advantage
resides inside a
company
• Competitive advantage (or
disadvantage) resides partly in the
proximate environment in which a
company’s business units operate
– Cluster participation
• Competitive success
depends primarily on
company choices
GCR Brazil 2003 10-09-03 CK.ppt
• Company choices are strongly
influenced by location
2
Copyright 2003 © Professor Michael E. Porter
Competitiveness and Productivity
•
Competitiveness is determined by the productivity with which a nation, region, or
cluster uses its human, capital, and natural resources. Productivity sets a nation’s or
region’s standard of living (wages, returns on capital, returns on natural resources)
Productivity
Productivity
Competitiveness
Innovative
Innovative Capacity
Capacity
•
•
•
•
The most important sources of prosperity are created not inherited
Productivity does not depend on what industries a region competes in,
but on how it competes
The prosperity of a region depends on the productivity of all its industries
There are no low-tech industries, only low-tech firms
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Copyright 2003 © Professor Michael E. Porter
Comparative Economic Performance
12,000
10,000
Argentina
8,000
GDP per
capita
(PPP
adjusted)
in US-$,
2002
Brazil
Mexico
Panama
Costa Rica
Chile
Trinidad & Tobago
Uruguay
6,000
Colombia
Dominican Republic
Venezuela
Guatemala
4,000
Jamaica
Paraguay
Honduras
2,000
0
-2%
Ecuador
Bolivia
-1%
0%
Peru
El Salvador
Nicaragua
1%
2%
3%
4%
5%
Compound annual growth rate of real GDP per capita, 1990-2002
Source: EIU (2003)
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Copyright 2003 © Professor Michael E. Porter
International Patenting Output
Annual U.S. patents
per 1 million
population, 2001
400
350
USA
300
Taiwan
250
Japan
Sweden
200
= 10,000
patents
granted in
2001
Germany
150
Israel
Finland
100
Canada
UK
50
Australia
New Zealand
Singapore
South Korea
Ireland
Brazil
0
0%
10%
20%
30%
40%
Compound annual growth rate of US-registered patents, 1990 - 2001
Source: US Patent and Trademark Office (www.uspto.gov). Author’s analysis.
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Copyright 2003 © Professor Michael E. Porter
International Patenting Output
Selected Latin American Countries
Annual U.S. patents per 1
million population, 2001
1.6
Average Growth Rate of
Countries shown: 7.9%
1.4
Argentina
Venezuela
1.2
1.0
Mexico
Costa Rica
0.8
Chile
0.6
0.4
Brazil
Jamaica
Ecuador
Patents per
Capita for total
of Countries
shown: 0.71
Colombia
0.2
Peru
0.0
-5%
0%
5%
10%
15%
Compound annual growth rate of US-registered patents, 1990 - 2001
20%
= 15
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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Copyright 2003 © Professor Michael E. Porter
Comparison of U.S. Patenting
1997 - 2001
Rank
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Brazilian Institution
PETROLEO BRASILEIRO
CARRIER CORPORATION
EMP. BR. DE COMPR.
METAGAL INDUSTRIA
CO. VALE DO RIO DOCE
PRAXAIR TECHNOLOGY
SMAR RESEARCH CORP.
TELECOM. BRASILEIRAS
ELC PRODUTOS DE SEG.
FORJAS TAURUS S/A
SABO INDUSTRIA E COM.
TECUMSEH PRODUCTS
EXOGEN, INC.
HENKEL CORPORATION
AEROMOVEL
INDUSTRIAS ROMI S.A.
MAQUINAS AGRICOLAS
METAL LEVE S.A.
METALGRAFICA ROJEK
WHITAKER CORP.
Source:Global Competitiveness Report 2003
GCR Brazil 2003 10-09-03 CK.ppt
Patents
Massachusetts Institution
58
29
17
10
10
8
6
5
4
4
3
3
3
3
3
3
3
2
2
2
MIT
MASS GENERAL HOSPITAL
EMC CORPORATION
DEC
POLAROID CORPORATION
ANALOG DEVICES, INC.
MILLENNIUM PHARMAC.
HARVARD UNIVERSITY
COMPAQ COMPUTER
SUN MICROSYSTEMS, INC.
BOSTON SCIENTIFIC CORP.
ACUSHNET COMPANY
GENETICS INSTITUTE, INC.
GILLETTE COMPANY
BRIGHAM & WOMEN'S HOSP.
RAYTHEON COMPANY
GENERAL ELECTRIC COMPANY
HEWLETT-PACKARD COMPANY
CHILDREN'S MEDICAL CENTER
QUANTUM CORP. (CA)
7
Patents
518
296
269
261
213
167
165
150
147
143
135
130
127
112
107
101
99
96
93
93
Copyright 2003 © Professor Michael E. Porter
What Causes Competitiveness?
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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Copyright 2003 © Professor Michael E. Porter
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
Demand
protection
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 nationally 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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Copyright 2003 © Professor Michael E. Porter
The California Wine Cluster
Grapestock
Grapestock
Fertilizer,
Fertilizer, Pesticides,
Pesticides,
Herbicides
Herbicides
State Government Agencies
(e.g., Select Committee on Wine
Production and Economy)
Winemaking
Winemaking
Equipment
Equipment
Barrels
Barrels
Bottles
Bottles
Caps
Caps and
and Corks
Corks
Grape
Grape Harvesting
Harvesting
Equipment
Equipment
Labels
Labels
Irrigation
Irrigation Technology
Technology
Growers/Vineyards
Growers/Vineyards
Wineries/Processing
Wineries/Processing
Facilities
Facilities
Public
Public Relations
Relations and
and
Advertising
Advertising
Specialized
SpecializedPublications
Publications
(e.g.,
(e.g.,Wine
WineSpectator,
Spectator,
Trade
TradeJournal)
Journal)
California
California
Agricultural
Agricultural Cluster
Cluster
Educational,
Educational, Research,
Research, && Trade
Trade
Organizations
Organizations (e.g.
(e.g. Wine
Wine Institute,
Institute,
UC
UC Davis,
Davis, Culinary
Culinary Institutes)
Institutes)
Tourism
Tourism Cluster
Cluster
Food
Food Cluster
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.
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Copyright 2003 © Professor Michael E. Porter
Leading Footwear Clusters
Romania
• Production subsidiaries
of Italian companies
• Focus on lower to
medium price range
Portugal
• Production
• Focus on shortproduction runs in the
medium price range
Italy
• Design, marketing,
and production of
premium shoes
• Export widely to the
world market
United States
• Design and marketing
• Focus on specific market
segments like sport and
recreational shoes and boots
• Manufacturing only in
selected lines such as handsewn casual shoes and boots
Source: Research by HBS student teams in 2002
GCR Brazil 2003 10-09-03 CK.ppt
China
• OEM Production
• Focus on low cost
segment mainly for the
US market
11
Vietnam/Indonesia
• OEM Production
• Focus on the low cost
segment mainly for the
European market
Copyright 2003 © Professor Michael E. Porter
The Costa Rica Information Technology Cluster
Electronic Assembly
Specialized
Specialized Packaging
Packaging
(e.g.,
(e.g., plastics,
plastics, corrugated
corrugated
materials)
materials)
Other
Electronic Components
Computer
ComputerSoftware
Software
(e.g.,
(e.g., ArtinSoft)
ArtinSoft)
(e.g., circuitboards)
Passive
Electronic Components
(e.g., inductors, transistors)
Specialized
SpecializedChemicals
Chemicals
Venture
Venture Capital
Capital Firms
Firms
Semiconductor Production
Specialized
Specialized Academic
Academic and
and Training
Training
Institutions
Institutions
(e.g.,
(e.g.,Instituto
InstitutoTecnológico
Tecnológicode
deCosta
CostaRica,
Rica,
Instituto
Nacional
de
Aprendizaje)
Instituto Nacional de Aprendizaje)
State
StateGovernment
GovernmentAgencies
Agencies
(e.g.,
export
and
investments
(e.g., export and investmentspromotion
promotion
agencies:
agencies:Cinde
Cindeand
andProcomer)
Procomer)
Source: Niels Ketelhohn research for Professor Michael E. Porter
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Copyright 2003 © Professor Michael E. Porter
Influences on Competitiveness
Multiple Geographic Levels
World Economy
Broad Economic Areas
Groups of Neighboring
Nations
Nations
States, Provinces
Cities, Metropolitan
Areas
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Copyright 2003 © Professor Michael E. Porter
Shifting Responsibilities for Economic Development
Old
Old Model
Model
New
New Model
Model
•• Government
Government drives
drives economic
economic
development
development through
through policy
policy
decisions
decisions and
and incentives
incentives
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•• Economic
Economic development
development is
is aa
collaborative
collaborative process
process involving
involving
government
government at
at multiple
multiple levels,
levels,
companies,
companies, teaching
teaching and
and
research
research institutions,
institutions, and
and
institutions
institutions for
for collaboration
collaboration
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Copyright 2003 © Professor Michael E. Porter
Brazil’s Competitive Position
• Ranks 30 overall in the Business Competitiveness Index
– Second highest Latin American country after Chile, but on a
negative trend since 2001
– Company operations and strategy (currently ranked 26) is
consistently ranked higher than business environment (ranked
35)
• Key competitive advantages
– Cluster presence; but largely a legacy of a closed economy
– Local competition
– Strong regional governments
• Key competitive disadvantages
– Trade barriers
– Human resource weaknesses
– Cumbersome and inefficient administrative infrastructure
– Weaknesses in the physical infrastructure
– Inequality
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Copyright 2003 © Professor Michael E. Porter
Implications for Brazilian Companies
•
Create a regional company strategy
•
Build the cluster
•
Take a leadership role in economic development
•
Link corporate philanthropy to the competitive context
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Copyright 2003 © Professor Michael E. Porter
Brazil’s Exports By Destination
1997-2001
Change in Share,
1997-2001:
100%
80%
60%
Europe
-1.0%
North America
+6.8%
Latin America
-4.5%
Asia
-2.0%
40%
20%
0%
1997
1998
1999
2000
2001
Source: UNCTAD Trade Data. Author’s analysis.
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Copyright 2003 © Professor Michael E. Porter
Internationalization Strategy
Hilasal
Set
Set of
of
Activities
Activities
Value
Value Proposition
Proposition
•• High
High quality,
quality, fashionable
fashionable printed
printed towels
towels
designed
designed for
for global
global markets
markets
••
••
••
••
••
••
••
••
••
Highly
Highly customized
customized products
products with
with rapid
rapid delivery
delivery
R&D
R&D located
located at
at production
production sites
sites to
to enable
enable rapid
rapid
implementation
of
technology
improvements
implementation of technology improvements
Design
Design groups
groups organized
organized to
to provide
provide fast
fast response
response
to
to custom
custom orders
orders
Bilingual
Bilingual sales
sales office
office based
based in
in Miami
Miami
Manufacturing
Manufacturing located
located in
in El
El Salvador
Salvador and
and Mexico
Mexico
to
to minimize
minimize costs
costs while
while maintaining
maintaining close
close access
access
to
to the
the U.S.
U.S. market
market
State-of-the-art
State-of-the-art computer
computer systems
systems to
to track
track
customer
orders
from
design
to
shipping
customer orders from design to shipping
Highest
Highest quality
quality machinery,
machinery, equipment,
equipment, cotton,
cotton, and
and
dyes
dyes sourced
sourced from
from Europe
Europe and
and the
the U.S.
U.S.
Firm
-based competitive
Firm-based
competitive advantage
advantage in
in aa particular
particular segment
segment
Hilasal
-based positioning
Hilasal developed
developed aa successful
successful differentiation
differentiation-based
positioning
Source: Condo, A. “Internationalization of Firms Based in Developing Countries.” Ph.D. dissertation, Harvard Business School, Boston, 2000.
18
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Copyright 2003 © Professor Michael E. Porter
Public / Private Cooperation in Cluster Upgrading
Minnesota’s Medical Device Cluster
Context
Context for
for
Firm
Firm
Strategy
Strategy
and
and Rivalry
Rivalry
Factor
Factor
(Input)
(Input)
Conditions
Conditions
• Joint development of vocationaltechnical college curricula with the
medical device industry
• Minnesota Project Outreach exposes
businesses to resources available at
university and state government
agencies
• Active medical technology licensing
through University of Minnesota
• State-formed Greater Minnesota Corp.
to finance applied research, invest in
new products, and assist in technology
transfer
GCR Brazil 2003 10-09-03 CK.ppt
• Aggressive trade associations
(Medical Alley Association, High
Tech Council)
• Effective global marketing of the
cluster and of Minnesota as the
“The Great State of Health”
• Full-time “Health Care Industry
Specialist” in the department of
Trade and Economic Development
Demand
Demand
Conditions
Conditions
• State sanctioned
reimbursement policies
to enable easier adoption
and reimbursement for
innovative products
Related
Related and
and
Supporting
Supporting
Industries
Industries
19
Copyright 2003 © Professor Michael E. Porter
The Australian Wine Cluster
Trade Performance
Australian Wine
Exports in million US
Dollars
Australian Wine
World Export Market
Share
$1,000
8%
$900
7%
$800
6%
$700
$600
5%
$500
4%
$400
3%
Value
Market Share
$300
2%
$200
$100
1%
$0
0%
1995
1996
1997
1998
1999
2000
Source: UN Trade Statistics
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Copyright 2003 © Professor Michael E. Porter
The Australian Wine Cluster
History
1991 to 1998
1930
1965
1980
First oenology
course at
Roseworthy
Agricultural
College 1955
Australian Wine
Bureau
established
Australian Wine
and Brandy
Corporation
established 1990
1970
New organizations
created for education,
research, market
information, and
export promotions
Winemaker’s
Federation of
Australia
established
Winemaking
school at
Charles Sturt
University
founded
Australian Wine
Research
Institute founded
1950s
1960s
1970s
1980s
1990s
Import of
European winery
technology
Recruiting of
experienced
foreign investors,
e.g. Wolf Bass
Continued inflow
of foreign capital
and
management
Creation of
large number
of new wineries
Surge in exports
and international
acquisitions
Source: Michael E. Porter and Örjan Sölvell, The Australian Wine Cluster – Supplement, Harvard Business School Case Study, 2002
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Copyright 2003 © Professor Michael E. Porter
Role of the Private Sector in Economic Development
•
•
•
•
•
•
•
•
•
A company’s competitive advantage is partly the result of the local
environment
Company membership in a cluster offers collective benefits
Private investment in “public goods” is justified
Take an active role in upgrading the local infrastructure
Nurture local suppliers and attract new supplier investments
Work closely with local educational and research institutions to
upgrade quality and create specialized programs addressing
cluster needs
Provide government with information and substantive input on
regulatory issues and constraints bearing on cluster development
Focus corporate philanthropy on enhancing the local business
environment
An important role for trade associations
– Greater influence
– Cost sharing
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Copyright 2003 © Professor Michael E. Porter
The New Role of Corporate Philanthropy
Where to Focus
Corporate Philanthropy
How Companies Should
Invest in Philanthropy
•• Social
Social and
and economic
economic
goals
goals can
can be
be addressed
addressed
simultaneously
simultaneously by
by
improving
improving aa company’s
company’s
competitive
competitive context
context
•• Companies
Companies should
should give
give
not
not just
just money
money but
but
leverage
leverage the
the company’s
company’s
unique
unique capabilities
capabilities in
in
support
support of
of social
social causes,
causes,
far
far exceeding
exceeding the
the impact
impact
possible
possible by
by individuals
individuals
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Copyright 2003 © Professor Michael E. Porter
Philanthropy's Impact on the Competitive Context
Advanced Micro Devices
Context
Contextfor
for
Firm
FirmStrategy
Strategy
and
Rivalry
and Rivalry
Factor
Factor
(Input)
(Input)
Conditions
Conditions
Demand
Demand
Conditions
Conditions
Related
Relatedand
and
Supporting
Supporting
Industries
Industries
z
z
z
Advanced Micro Devices (AMD) is a leading semiconductor manufacturer
Due to labor constraints, AMD has difficulty finding skilled workers for its semiconductor
fabrication facility in Austin, TX. The cost of recruiting and filling these positions was up
to $12,000 per person
AMD invested in the development of a regional training and apprenticeship program for
minority students from low-income areas called Accelerated Careers in Education
Social
Social Benefits:
Benefits: Nearly
Nearly all
all of
of the
the program’s
program’s graduates
graduates received
received jobs
jobs or
or continued
continued on
on to
to
higher
higher education
education
Economic
Economic Benefits:
Benefits: 55%
55% of
of the
the graduates
graduates came
came to
to work
work for
for AMD,
AMD, saving
saving recruitment
recruitment and
and
training
training costs
costs that
that more
more than
than paid
paid for
for the
the program.
program. The
The program
program has
has also
also expanded
expanded the
the pool
pool
of
of qualified
qualified job
job candidates
candidates for
for the
the future.
future.
Source: “Business Development: Aligning Corporate Performance with Community Economic Development to Achieve Win-Win Impacts”, The Center for
Corporate Citizenship at Boston College
Selected References
• The Competitive Advantage of Nations, New York: The Free Press, 1990
• “Clusters and the New Competitive Agenda for Companies and Governments” in On Competition, Boston:
Harvard Business School Press, 1998
• “The Microeconomic Foundations of Economic Development,” in The Global Competitiveness Report 199899, (World Economic Forum, 1998)
• “The Current Competitiveness Index: Measuring the Microeconomic Foundations of Prosperity” in The Global
Competitiveness Report 2000-01, New York: Oxford University Press, 2000
• “Enhancing the Microeconomic Foundations of Prosperity: The Current Competitiveness Index” in The Global
Competitiveness Report 2001-02, New York: Oxford University Press, 2001
• “Building the Microeconomic Foundations of Prosperity: Findings from the Microeconomic Competitiveness
Index” in The Global Competitiveness Report 2002-03, New York: Oxford University Press, New York: Oxford
University Press, 2002
• “The Economic Performance of Regions”, Regional Studies, 37(6&7), 2003: 549–678.
• “Location, Competition, and Economic Development: Local Clusters in a Global Economy,” Economic
Development Quarterly, February 2000, 15-34.
• “Locations, Clusters, and Company Strategy” in The Oxford Handbook of Economic Geography, (G. L. Clark,
M.P. Feldman, and M.S. Gertler, eds.), New York: Oxford University Press, 2000
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Copyright 2003 © Professor Michael E. Porter
Selected References (continued)
• “Attitudes, Values, Beliefs and the Microeconomics of Prosperity,” in Culture Matters: How Values Shape
Human Progress, (Harrison, Huntington, eds.), New York: Basic Books, 2000
• “U.S. Competitiveness 2001,” (with Debra van Opstal), Washington, DC: Council on Competitiveness,
2001
• “Innovation Lecture,” published by the Dutch Ministry of Economics, 2001
• “National Report: Clusters of Innovation Initiative,” (with the Council on Competitiveness, Monitor Group,
and ontheFRONTIER), Washington, DC: Council on Competitiveness, 2001
• “Clusters of Innovation Initiative: San Diego Report,” (with the Council on Competitiveness, Monitor Group,
and ontheFRONTIER), Washington, DC: Council on Competitiveness, 2001
• “Clusters of Innovation Initiative: Wichita Report,” (with the Council on Competitiveness, Monitor Group,
and ontheFRONTIER), Washington, DC: Council on Competitiveness, 2002
• “Clusters of Innovation Initiative: Research Triangle Report,” (with the Council on Competitiveness,
Monitor Group, and ontheFRONTIER), Washington, DC: Council on Competitiveness, 2002
• “Clusters of Innovation Initiative: Pittsburgh Report,” (with the Council on Competitiveness, Monitor Group,
and ontheFRONTIER), Washington, DC: Council on Competitiveness, 2002
• “Clusters of Innovation Initiative: Atlanta Report,” (with the Council on Competitiveness, Monitor Group,
and ontheFRONTIER), Washington, DC: Council on Competitiveness, 2002
• “The Competitive Advantage of Corporate Philanthropy,” (with Mark Kramer), Harvard Business Review,
December 2002
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Copyright 2003 © Professor Michael E. Porter