Regional Economic and Social Development: The New Learning Files/20140507 - Cali Colom… ·...

This presentation draws on ideas from Professor Porter’s articles and books, in particular, The Competitive Advantage of Nations (The Free Press, 1990), ―Building the Microeconomic

Foundations of Competitiveness,‖ in The Global Competitiveness Report (World Economic Forum), ―Clusters and the New Competitive Agenda for Companies and Governments‖ in On

Competition (Harvard Business School Press, 2008), ―Creating Shared Value‖ (Harvard Business Review, Jan 2011), the Social Progress Index Report (Social Progress Imperative)

and ongoing related research. 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), FSG (www.fsg.org) and the Social Progress Imperative (www.socialprogressimperative.org).

Regional Economic and Social Development:

The New Learning

Professor Michael E. Porter Harvard Business School

Expogestión

Cali, Colombia May 7th, 2014

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http://www.socialprogressimperative.org/





Copyright 2014 © Professor Michael E. Porter 2 20140507—Cali Regional Development Presentation—FINAL

The Dual Challenges of Development

Social

Development

Economic

Development

GDP per

capita



Social

Development

Economic

Development

GDP per

capita



• There is a powerful connection between economic and social

development, that goes in both directions

• Successful development requires improving the economic and social

context simultaneously

Social

Development

Economic

Development

GDP per

capita


1. Competitiveness and Economic Development

2. Enhancing Social Development

3. Business as a Driver of Social and Economic Development

4. Creating a Regional Strategy


The New Learning


Prosperity Performance Latin America and the Caribbean

Source: EIU (2014), author’s calculations

Average: $12,677

Average: 4.53% Barbados

(+5.25%, $63,170)

Antigua & Barbuda

Argentina Bahamas

Belize

Bolivia

Brazil

Chile

Colombia

Costa Rica

Dominica

Dominican Republic Ecuador

El Salvador

Grenada

Guatemala Guyana

Haiti Honduras

Jamaica

Mexico

Nicaragua

Panama

Paraguay

Peru

St Kitts & Nevis

St Lucia St Vincent &

The Grenadines

Suriname

Trinidad and Tobago

Uruguay

Venezuela

$0

$5,000

$10,000

$15,000

$20,000

$25,000

0% 1% 2% 3% 4% 5% 6% 7% 8% 9%

PPP-Adjusted GDP per Capita, 2013 ($USD)

Growth in Real GDP per Capita (PPP-adjusted), CAGR, 2003-2013


• Competitiveness depends on the long-run productivity and efficiency of a

location as a place to do business

- The productivity of existing firms and workers

- The ability to achieve 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 regional and global economy while maintaining

or improving wages and living standards for the average citizen

Competitiveness and Economic Development


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


• Macroeconomic competitiveness sets the economy-wide context for productivity to emerge, but

is not sufficient to ensure productivity



endowments

Endowments

Macroeconomic Competitiveness

Sound Monetary

and Fiscal Policies




• Productivity ultimately depends on improving the microeconomic capability of the economy and

the sophistication of local competition revealed at the level of firms, clusters, and regions

• Macroeconomic competitiveness sets the economy-wide context for productivity to emerge, but

is not sufficient to ensure productivity



endowments

Endowments


Sound Monetary

and Fiscal Policies

Microeconomic Competitiveness

Quality of the

Business

Environment

Sophistication

of Company

Operations and

Strategy

State of Cluster

Development


Improving the Quality of the Business Environment

Context for Firm Strategy and Rivalry

Related and Supporting Industries

Factor (Input)

Conditions

Demand Conditions

• Sophisticated and demanding local

needs

– e.g., Strict quality, safety, and

environmental standards

– Sophisticated demand in the private

sector or government

• Many things 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 investments,

IP protection

• Sound corporate governance

• 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


Valle del Cauca's Business Environment: Assessment

+ Growing middle class

with purchasing power

– Consumer demand not

sophisticated or trend-setting

– Regional and local government

procurement focused on price

not quality

– Weak environmental standards

+ Good geographical location

+ Good growing conditions

+ Solid road and air transportation

+ Good logistical infrastructure

+ Access to the main port in Colombia

+ Solid technology infrastructure

+ Good quality of tertiary education

+ Supply of advanced degree holders

+ Improving innovation system

– Inefficient administrative infrastructure

– Skills deficit in the labor force

– Scarce bilingual population

– Low access to financial services

+ Increasing number of local suppliers

– Low supplier quality

– Weak collaboration among

regional actors

Context for Firm Strategy and Rivalry

Related and Supporting Industries

Factor (Input)

Conditions

Demand Conditions

+ High intensity of competition

+ Open to foreign investment

+ Increasing

internationalization of firms

– High tax rates

– High level of informality

Note: Assessment based on the Regional Plan on Competitiveness, Competitiveness Rankings of Cepal and CPC, 2013, and CEC


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

State of Cluster Development Tourism in Cairns, Australia


Why Clusters Matter?

• Clusters increase productivity and operational efficiency

• Clusters stimulate and enable innovations

• Clusters facilitate commercialization and new business formation

• Clusters reflect the fundamental importance to productivity and innovation of

linkages and spill-overs across firms and associated institutions


Colombia National Cluster Export Portfolio, 2011

Colombia Overall

World Export Share: 0.17%

= $750 million

World Export Market

Share, 2011

Change in World Export Market Share, 2001-2011

Change in Colombia Overall World Export Share: +.053%

Communications

Services

(-.14%, .08%)

Publishing

and Printing

-.10%, .13%)

Oil and Gas Products

Coal and Briquettes (+.19%, 2.7%)

Agricultural Products

Jewelry, Precious Metals and Collectibles (+.23%, .28%) Hospitality and Tourism

Metal Mining & Manufacturing

Plastics

Transportation and Logistics

Chemical Products

Biopharmaceuticals

Processed Food

Apparel

Forest Products Textiles

Business Services

Automotive

Motor Driven Products Building Fixtures and Equipment

Construction Materials

Furniture

Leather and Related Products

Power and Power Generation Equipment Fishing &

Fishing Products

Lighting and Electrical Equipment

0.0%

0.1%

0.2%

0.3%

0.4%

0.5%

0.6%

-0.10% -0.05% 0.00% 0.05% 0.10% 0.15% 0.20%


Marine

Equipment

Cluster Relatedness

Furniture Building

Fixtures,

Equipment &

Services

Fishing &

Fishing

Products

Hospitality

& Tourism Agricultural

Products

Transportation

& Logistics

Plastics

Oil & Gas

Products

Chemical

Products

Biopharma-

ceuticals

Power

Generation &

Transmission

Aerospace

Vehicles &

Defense

Lighting &

Electrical

Equipment

Financial

Services

Publishing

& Printing

Entertainment

Information

Technology

Aerospace

Engines

Business

Services

Distribution

Services

Forest

Products

Heavy

Construction

Services

Construction

Materials

Prefabricated

Enclosures

Heavy

Machinery

Automotive

Sporting,

Recreational &

Children’s

Goods

Production

Technology Motor Driven

Products

Metal

Manufacturing

Jewelry &

Precious

Metals

Textiles

Footwear

Processed

Food

Tobacco

Medical

Devices

Analytical

Instruments Education &

Knowledge

Creation

Apparel

Leather &

Related

Products

Note: Clusters with overlapping borders or identical shading have at least 20% overlap (by number of industries) in both directions.

Communications

Services Coal &

Briquettes


Furniture Building

Fixtures,

Equipment &

Services

Fishing &

Fishing

Products Hospitality

& Tourism Agricultural

Products Transportation

& Logistics

Colombia’s Position in Related Clusters, 2011

Plastics

Oil &

Gas Products

Chemical

Products

Biopharma-

ceuticals

Power

Generation

Aerospace

Vehicles &

Defense

Lightning &

Electrical

Equipment

Financial

Services

Publishing

& Printing

Information

Tech.

Communi-

cations

Services

Business

Services

Distribution

Services

Forest

Products

Heavy

Construction

Services

Construction

Materials

Prefabricated

Enclosures

Apparel

Leather &

Related

Products

Jewelry &

Precious

Metals

Textiles

Footwear

Processed

Food

Tobacco

Medical

Devices

Analytical

Instruments Education &

Knowledge

Creation

Note: Clusters with overlapping borders have at least 20% overlap (by number of industries) in both directions.

Marine

Equipment

Aerospace

Engines

Heavy

Machinery

Sporting

& Recreation

Goods

Automotive

Production

Technology

Motor Driven

Products

Mining & Metal

Manufacturing

Enter-

tainment

> 0.10%

> 0.25%

> 0.50%

World Market Share

Coal &

Briquettes


Geographic Influences on Competitiveness

Regions and Cities

Nation

• Regions are the most important economic unit for competitiveness in larger countries,

especially countries beyond subsistence development


• Economic performance varies significantly across sub-national

regions (e.g., provinces, states, metropolitan areas)

Regions and Competitiveness


Prosperity Performance Colombian Departments, 2012

Note: GDP in thousands of constant 2005 Colombian Pesos; bubble size proportional to department population.

Source: Banco de la República.

Colombia GDP

per Capita:

$10,106

Colombia Real Growth Rate

of GDP per Capita: 3.5%

GDP per Capita, 2012

(thousands of Pesos)

Growth in GDP per Capita (CAGR), 2002-2012

Bogotá D. C.

Antioquia Valle

Cundinamarca

Atlántico

Santander

Bolívar

Nariño

Córdoba

Tolima

Cauca

Norte Santander

Boyacá

Magdalena

Huila

Cesar

Caldas

Risaralda

Meta (+15.3%, 31,029)

La Guajira

Sucre

Quindío

Chocó Caquetá

Casanare (+3.2%, 33,111)

Putumayo (+10.6%, 7,879)

Arauca

Guaviare

San Andrés y Providencia

Amazonas Vichada

Vaupés

Guainía

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

$20,000

0% 1% 2% 3% 4% 5% 6% 7% 8% 9%




• Many essential levers of competitiveness reside at the regional level



Competitiveness of Colombian Departments, 2012

Competitiveness Index, 2012

Note: GDP in thousands of constant 2005 Colombian Pesos; bubble size proportional to department population.

Sources: Banco de la República, CEPAL

GDP per Capita, 2012

(thousands of Pesos)

Colombia GDP per Capita: $10,106

Bogotá D. C.

Antioquia Valle

Atlántico

Santander

Bolívar

Nariño

Córdoba

Tolima

Cauca Norte Santander

Boyacá

Magdalena

Huila

Cesar

Caldas

Risaralda

Meta (49.0, 31,029)

La Guajira Sucre

Quindío Chocó (19.0)

Caquetá

Casanare (44.3, 33,111)

Putumayo

Arauca

Guaviare

San Andrés y Providencia

Amazonas

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

20 30 40 50 60 70 80 90 100 110





• Regions specialize in different sets of clusters

• Cluster strength directly impacts regional performance






• Regions specialize in different sets of clusters

• Cluster strength directly impacts regional performance

• 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 resources and policy

responsibility are decentralized to regions



• Improving the general business environment is essential, but cluster development is

necessary to attain middle-income levels

• Developing economies should upgrade traditional clusters (including agriculture), never

abandon them

• Existing MNCs in the country should be treated as nodes for cluster development

– The best way to retain companies is for them to be part of a cluster

• Attracting foreign direct investment should focus on existing and emerging clusters, not

generalized appeals to locate in the country

• Free Trade or Export Processing Zones should be organized around clusters, with

governing regulations designed to encourage linkages with the local economy

• A formal process for cluster development is an important component of economic

development

– Private sector led

– Government roles in convening, supporting, and participating

– Seed funding for cluster assessment and the formation of cluster-based IFCs

Clusters in Developing Economies Principles


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


Cluster Development in Valle del Cauca

• Valle has existing and potential strengths in a wide array of clusters,

including sugar, health, bioenergy, software, meat, and leather

• Some of Valle’s clusters are based on abundant natural endowments

• In the main cities of Valle there are some emerging clusters outside

natural resources consisting largely of small firms

• Valle’s clusters have weak suppliers and few supporting institutions

• Cluster development efforts are beginning but still weak coordination

between the private and public sectors


Cluster Development in Valle del Cauca Action Priorities

• Adopt cluster development as a central tool for organizing business development and policy implementation

• Utilize cluster initiatives as a tool to engage the private sector in more effective collaboration with government at the national and regional levels

• Reduce the skills mismatch by adjusting university curricula in the region to meet cluster needs

• Use clusters to organize efforts to promote higher value exports, FDI attraction, and otherwise improve integration with the global economy

• Extend cluster development to meet the needs of lower income communities through corporate shared value initiatives




3. Business as a Driver of Social and Economic

Development



The New Learning



Microeconomic Competitiveness

Sophistication

of Company

Operations and

Strategy

Quality of the

Business

Environment

State of Cluster

Development

Endowments

Human Development

and Effective

Political Institutions

Sound Monetary

and Fiscal Policies



The Need to Go Beyond GDP

• There has been a growing recognition that we need to move beyond

GDP in measuring national performance:

“In an increasingly performance-oriented society, metrics matter. What we

measure affects what we do. If we have the wrong metrics, we will strive for

the wrong things” - Jean-Paul Fitoussi, Amartya Sen, Joseph Stiglitz, Mismeasuring

Our Lives

• Starting with the Human Development Index, there have been a

number of efforts to add additional measures

• More recently, there has also been a focus on life

satisfaction/happiness


Social Progress Index: Design Principles

Exclusively

social and

environmental

indicators

Outcomes –

not inputs

Actionability Relevant to all

countries


What is Social Progress?

Social progress is the capacity of a society to meet the basic

human needs of its citizens, establish the building blocks

that allow citizens and communities to enhance and sustain

the quality of their lives, and create the conditions for all

individuals to reach their full potential.

A holistic framework is needed


Social Progress Index Model, 2014

Social Progress Index

Nutrition and Basic Medical Care

Water and Sanitation

Shelter

Personal Safety

Access to Basic Knowledge

Access to Information and

Communications

Health and Wellness

Ecosystem Sustainability

Personal Rights

Access to Advanced Education

Personal Freedom and Choice

Tolerance and Inclusion

Does a country provide

for its people’s most

essential needs?

Are the building blocks in

place for individuals and

communities to enhance

and sustain wellbeing?

Is there opportunity for

all individuals to reach

their full potential?

Opportunity Foundations of Wellbeing Basic Human Needs


The Social Progress Index 2014

RANK SCORE COUNTRYPPP GDP

PER CAPITARANK SCORE COUNTRY

PPP GDP


PPP GDP


PPP GDP

PER CAPITA

1 88.24 New Zealand $25,857 34 73.68 Mauritius $13,056 67 63.78 Venezuela $11,623 100 51.89 Cambodia $2,150

2 88.19 Switzerland $39,293 35 73.43 Greece $20,922 68 63.03 Dominican Republic $8,794 101 51.58 Nepal $1,276

3 88.07 Iceland $33,880 36 73.31 Croatia $16,005 69 62.96 South Africa $9,860 102 50.24 India $3,341

4 87.37 Netherlands $36,438 37 72.92 United Arab Emirates $36,267 69 62.96 Tunisia $8,442 103 50.20 Kenya $1,522

5 87.12 Norway $47,547 38 72.58 Panama $14,320 71 62.90 Bolivia $4,552 104 49.88 Zambia $1,475

6 87.08 Sweden $34,945 39 71.40 Israel $27,296 72 62.65 Paraguay $5,290 105 49.46 Rwanda $1,167

7 86.95 Canada $35,936 40 70.66 Kuwait $40,102 73 62.44 Azerbaijan $8,871 106 49.11 Benin $1,364

8 86.91 Finland $31,610 41 70.61 Serbia $9,683 74 62.33 Nicaragua $3,510 107 48.94 Lesotho $1,692

9 86.55 Denmark $32,363 42 70.59 Argentina $11,658 75 61.92 Jordan $5,289 108 48.87 Swaziland $4,522

10 86.10 Australia $35,669 43 70.39 Jamaica $7,083 76 61.37 Guatemala $4,397 109 48.79 Malawi $660

11 85.11 Austria $36,200 44 70.24 Bulgaria $12,178 77 61.28 Honduras $3,657 110 47.99 Congo, Republic of $3,815

12 84.61 Germany $34,819 45 70.00 Malaysia $14,822 78 61.19 Namibia $6,520 111 47.75 Uganda $1,165

13 84.56 United Kingdom $32,671 46 69.97 Brazil $10,264 79 61.07 Cuba 112 47.33 Burkina Faso $1,304

14 84.21 Japan $31,425 47 69.88 Trinidad and Tobago $23,260 80 60.79 Russia $15,177 113 46.85 Mali $1,047

15 84.05 Ireland $36,723 48 69.13 Albania $8,123 81 60.12 Moldova $2,951 114 46.06 Tanzania $1,380

16 82.77 United States $45,336 49 68.33 Macedonia $9,323 82 60.06 Guyana $2,930 115 45.95 Djibouti $2,051

17 82.63 Belgium $32,639 50 68.15 Ecuador $8,443 83 60.05 Lebanon $12,592 116 45.51 Cameroon $2,025

18 81.65 Slovenia $24,483 51 67.72 Romania $11,444 84 59.97 Egypt $5,795 117 45.23 Mozambique $882

19 81.28 Estonia $18,927 52 67.24 Colombia $9,143 85 59.71 Sri Lanka $5,384 118 44.84 Iraq $3,659

20 81.11 France $29,819 53 66.80 Montenegro $10,602 86 59.47 Kazakhstan $11,973 119 44.28 Madagascar $843

21 80.77 Spain $26,395 54 66.41 Mexico $13,067 87 59.13 Algeria $7,400 120 44.02 Liberia $560

22 80.49 Portugal $21,032 55 66.29 Peru $9,431 88 58.98 Indonesia $4,272 121 43.11 Mauritania $2,244

23 80.41 Czech Republic $23,815 56 65.86 Philippines $3,801 89 58.97 Mongolia $4,708 122 42.80 Togo $906

24 78.93 Slovakia $21,175 57 65.60 Botswana $14,109 90 58.67 China $7,958 123 42.65 Nigeria $2,335

25 77.75 Costa Rica $11,156 58 65.20 Belarus $13,427 91 58.01 Morocco $4,573 124 42.40 Pakistan $2,402

26 77.51 Uruguay $13,821 59 65.14 Thailand $8,463 92 57.34 Uzbekistan $3,095 125 40.23 Yemen $2,145

27 77.44 Poland $18,304 60 65.03 Armenia $7,374 93 57.08 Kyrgyzstan $2,077 126 40.10 Niger $674

28 77.18 Korea, Republic of $27,991 61 64.99 Bosnia and Herzegovina $7,356 94 56.65 Iran $10,405 127 39.93 Angola $5,262

29 76.93 Italy $26,310 62 64.91 Ukraine $6,394 95 56.05 Tajikistan $1,920 128 38.45 Sudan $1,894

30 76.30 Chile $15,848 63 64.70 El Salvador $6,125 96 55.96 Ghana $1,764 129 37.41 Guinea $921

31 73.91 Latvia $15,826 64 64.62 Turkey $13,737 97 53.52 Senegal $1,671 130 37.33 Burundi $483

32 73.87 Hungary $17,033 65 64.38 Saudi Arabia $27,346 98 52.41 Laos $2,522 131 34.17 Central African Republic $943

33 73.76 Lithuania $18,799 66 63.94 Georgia $5,086 99 52.04 Bangladesh $1,622 132 32.60 Chad $1,870


The Social Progress Index 2014 Latin America and the Caribbean

RANK SCORE COUNTRYPPP GDP


PPP GDP


PPP GDP


PPP GDP

PER CAPITA

1 88.24 New Zealand $25,857 34 73.68 Mauritius $13,056 67 63.78 Venezuela $11,623 100 51.89 Cambodia $2,150

2 88.19 Switzerland $39,293 35 73.43 Greece $20,922 68 63.03 Dominican Republic $8,794 101 51.58 Nepal $1,276

3 88.07 Iceland $33,880 36 73.31 Croatia $16,005 69 62.96 South Africa $9,860 102 50.24 India $3,341

4 87.37 Netherlands $36,438 37 72.92 United Arab Emirates $36,267 69 62.96 Tunisia $8,442 103 50.20 Kenya $1,522

5 87.12 Norway $47,547 38 72.58 Panama $14,320 71 62.90 Bolivia $4,552 104 49.88 Zambia $1,475

6 87.08 Sweden $34,945 39 71.40 Israel $27,296 72 62.65 Paraguay $5,290 105 49.46 Rwanda $1,167

7 86.95 Canada $35,936 40 70.66 Kuwait $40,102 73 62.44 Azerbaijan $8,871 106 49.11 Benin $1,364

8 86.91 Finland $31,610 41 70.61 Serbia $9,683 74 62.33 Nicaragua $3,510 107 48.94 Lesotho $1,692

9 86.55 Denmark $32,363 42 70.59 Argentina $11,658 75 61.92 Jordan $5,289 108 48.87 Swaziland $4,522

10 86.10 Australia $35,669 43 70.39 Jamaica $7,083 76 61.37 Guatemala $4,397 109 48.79 Malawi $660

11 85.11 Austria $36,200 44 70.24 Bulgaria $12,178 77 61.28 Honduras $3,657 110 47.99 Congo, Republic of $3,815

12 84.61 Germany $34,819 45 70.00 Malaysia $14,822 78 61.19 Namibia $6,520 111 47.75 Uganda $1,165

13 84.56 United Kingdom $32,671 46 69.97 Brazil $10,264 79 61.07 Cuba 112 47.33 Burkina Faso $1,304

14 84.21 Japan $31,425 47 69.88 Trinidad and Tobago $23,260 80 60.79 Russia $15,177 113 46.85 Mali $1,047

15 84.05 Ireland $36,723 48 69.13 Albania $8,123 81 60.12 Moldova $2,951 114 46.06 Tanzania $1,380

16 82.77 United States $45,336 49 68.33 Macedonia $9,323 82 60.06 Guyana $2,930 115 45.95 Djibouti $2,051

17 82.63 Belgium $32,639 50 68.15 Ecuador $8,443 83 60.05 Lebanon $12,592 116 45.51 Cameroon $2,025

18 81.65 Slovenia $24,483 51 67.72 Romania $11,444 84 59.97 Egypt $5,795 117 45.23 Mozambique $882

19 81.28 Estonia $18,927 52 67.24 Colombia $9,143 85 59.71 Sri Lanka $5,384 118 44.84 Iraq $3,659

20 81.11 France $29,819 53 66.80 Montenegro $10,602 86 59.47 Kazakhstan $11,973 119 44.28 Madagascar $843

21 80.77 Spain $26,395 54 66.41 Mexico $13,067 87 59.13 Algeria $7,400 120 44.02 Liberia $560

22 80.49 Portugal $21,032 55 66.29 Peru $9,431 88 58.98 Indonesia $4,272 121 43.11 Mauritania $2,244

23 80.41 Czech Republic $23,815 56 65.86 Philippines $3,801 89 58.97 Mongolia $4,708 122 42.80 Togo $906

24 78.93 Slovakia $21,175 57 65.60 Botswana $14,109 90 58.67 China $7,958 123 42.65 Nigeria $2,335

25 77.75 Costa Rica $11,156 58 65.20 Belarus $13,427 91 58.01 Morocco $4,573 124 42.40 Pakistan $2,402

26 77.51 Uruguay $13,821 59 65.14 Thailand $8,463 92 57.34 Uzbekistan $3,095 125 40.23 Yemen $2,145

27 77.44 Poland $18,304 60 65.03 Armenia $7,374 93 57.08 Kyrgyzstan $2,077 126 40.10 Niger $674

28 77.18 Korea, Republic of $27,991 61 64.99 Bosnia and Herzegovina $7,356 94 56.65 Iran $10,405 127 39.93 Angola $5,262

29 76.93 Italy $26,310 62 64.91 Ukraine $6,394 95 56.05 Tajikistan $1,920 128 38.45 Sudan $1,894

30 76.30 Chile $15,848 63 64.70 El Salvador $6,125 96 55.96 Ghana $1,764 129 37.41 Guinea $921

31 73.91 Latvia $15,826 64 64.62 Turkey $13,737 97 53.52 Senegal $1,671 130 37.33 Burundi $483

32 73.87 Hungary $17,033 65 64.38 Saudi Arabia $27,346 98 52.41 Laos $2,522 131 34.17 Central African Republic $943

33 73.76 Lithuania $18,799 66 63.94 Georgia $5,086 99 52.04 Bangladesh $1,622 132 32.60 Chad $1,870


The Social Progress Index: Key Findings

• Economic development is necessary but not sufficient as a

measure of national performance. GDP per capita is an

incomplete measure of a country's overall performance


Social Progress Index vs. GDP per Capita (PPP), 2014

Colombia


Social Progress Index Dimensions vs. GDP per Capita (PPP)


The Social Progress Index: Key Findings

• Economic development is necessary but not sufficient as a

measure of national performance. GDP per capita is an

incomplete measure of a country's overall performance

• Just as economic development helps social progress, social

progress can enable sustainable economic development

• Some approaches to economic development are less effective

than others in advancing social progress, and even

counterproductive, and vice versa

• The amount of government spending (as a percent of GDP) is an

incomplete explanation for social progress performance


Social Progress Index vs. Government Expenditure

Colombia


Social Progress Index Rank: 52 GDP per Capita Rank: 62 COLOMBIA

BASIC HUMAN NEEDS

Score

(100)

Rank

(132)

W FOUNDATIONS OF WELLBEING

Score

(100)

Rank

(132)

S OPPORTUNITY

Score

(100)

Rank

(132)

N 69.56 75 75.72 39 56.45 51

Nutrition and Basic Medical Care 90.61 72 N Access to Basic Knowledge 89.63 75 N Personal Rights 58.60 65 N

Undernourishment W- Adult literacy rate N Political rights N

Depth of food deficit W Primary school enrollment W- Freedom of speech N

Maternal mortality rate N Lower secondary school enrollment N Freedom of assembly/association N

Stillbirth rate S Upper secondary school enrollment N Freedom of movement N

Child mortality rate N Gender parity in secondary enrollment N Private property rights S

Deaths from infectious diseases N

Water and Sanitation 72.18 81 W Access to Information and Communications 61.84 67 N Personal Freedom and Choice 75.13 30 S

Access to piped water N Mobile telephone subscriptions N Freedom over life choices S

Rural vs. urban access to improved water source W- Internet users N Freedom of religion N

Access to improved sanitation facilities W Press Freedom Index W Modern slavery, human trafficking, child marriage N

Satisfied demand for contraception S

Corruption N

Shelter 76.88 40 S Health and Wellness 79.21 21 N Tolerance and Inclusion 51.41 61 N

Availability of affordable housing N Life expectancy N Women treated with respect W

Access to electricity N Non-communicable disease deaths between 30 and 70 S Tolerance for immigrants S

Quality of electricity supply N Obesity rate N Tolerance for homosexuals S

Indoor air pollution attributable deaths N Outdoor air pollution attributable deaths N Discrimination and violence against minorities N

Suicide rate N Religious tolerance N

Community safety net S

Personal Safety 38.56 119 W Ecosystem Sustainability 72.18 17 S Access to Advanced Education 40.67 70 N

Homicide rate W- Greenhouse gas emissions N Years of tertiary schooling N

Level of violent crime W Water withdrawals as a percent of resources S+ Women's average years in school N

Perceived criminality N Biodiversity and habitat N Inequality in the attainment of education N

Political terror W Number of globally ranked universities S+

Traffic deaths N

Relative Strength Neutral Relative Weakness

Note: Strengths and weaknesses are relative to 15 countries of similar GDP: Macedonia, Azerbaijan, Peru, Dominican Republic, Serbia, Thailand, Ecuador,

Tunisia, South Africa, Albania, Brazil, China, Iran, Montenegro, and Algeria


The Social Progress Network: Paraguay Committee

43

• La Asociación de Empresarios Cristianos (ADEC)

• La Federación de la Producción, la Industria y el Comercio (FEPRINCO)

• La Fundación Paraguaya

• La Fundación Moisés Bertoni

• La Fundación Desarrollo en Democracia (DENDE)

• Fundación Avina

• La Universidad Católica- Programa de Maestría en Administración de Empresas

Paraguay has organized a local committee to deploy the Social Progress Index at all levels

The National Social Progress committee has started work in three priority areas:

• Nutrition (meet the nutritional needs of 1,000,000 additional Paraguayans)

• Water and sanitation

• Shelter





Development



The New Learning


• Only business can create economic prosperity, through meeting

needs at a profit

• Societies everywhere are facing significant social, environmental

and economic development challenges

• Government and NGO’s lack sufficient resources and

capabilities to fully meet these challenges alone

• Corporate social responsibility efforts are greater than ever, but the

legitimacy of business has fallen

We need a new approach

The Role of Business in Society


Philanthropy

• Donations to worthy

social causes

• Volunteering

The Role of Business in Social and Economic Progress Evolving Approaches


Corporate Social

Responsibility

(CSR)

Philanthropy


social causes

• Volunteering

• Compliance with

community standards

• Good corporate

citizenship

• ―Sustainability‖

• Mitigating risk and

harm

• Improving trust and

reputation



Corporate Social

Responsibility

(CSR)

Creating Shared

Value

(CSV)

Philanthropy


social causes

• Volunteering

• Compliance with

community standards

• Good corporate

citizenship

• ―Sustainability‖

• Mitigating risk and

harm

• Improving trust and

reputation

• Addressing societal

needs and challenges

with a business model



• Social deficits and environmental impact create economic costs for companies

• Community weaknesses affect company productivity

• Social needs represent the largest unserved market opportunities

Company

Productivity

Workforce

Skills

Worker Safety

Environmental

Improvement

Education

Water Use

Energy

Efficiency

Health

Affordable

Housing

Community

Economic

Development

The Opportunity for Shared Value


Levels of Shared Value

I. Meeting social needs through products and underserved

customers

II. Redefining productivity in the value chain

III. Improving the local and regional business environment

Copyright 2014 © Professor Michael E. Porter 51 20140506—Bogota Chamber of Commerce CSV and Clusters Presentation—V6

Shared Value in Products and Markets Banco de Crédito e Inversiones (BCI), Chile

• BCI launched in 2007 the ―Nace” fund to provide credit to scale entrepreneurs who

did not qualify for conventional financing

• Unique lending criteria targeted entrepreneurs with a high level of commitment

and perseverance, as well as high quality business plans

• In addition to capital, Nace provides tools and advice to clients for business

planning and networking

• Since its inception, the program has extended $160 million in credit to 7,500

entrepreneurs with a comparable default rate to BCI’s conventional SME clients

• An estimated 15,000 new jobs have been created

• Nace profits have grown by a factor of 25 and the program is considered to be an

important opportunity for continued growth at the bank

Copyright 2014 © Professor Michael E. Porter 52 20140506—Bogota Chamber of Commerce CSV and Clusters Presentation—V6

Shared Value in the Value Chain

Marketing

& Sales

(e.g., Sales

Force,

Promotion,

Advertising,

Proposal

Writing,

Website)

Inbound

Logistics

(e.g., Incoming

Material

Storage, Data

Collection,

Service,

Customer

Access)

Operations

(e.g., Assembly,

Component

Fabrication,

Branch

Operations)

Outbound

Logistics

(e.g., Order

Processing,

Warehousing,

Report

Preparation)

After-Sales

Service

(e.g., Installation,

Customer

Support,

Complaint

Resolution,

Repair)

M

a

r

g

i

n

Firm Infrastructure (e.g., Financing, Planning, Investor Relations)

Procurement (e.g., Components, Machinery, Advertising, Services)

Technology Development (e.g., Product Design, Testing, Process Design, Material Research, Market Research)

Human Resource Management (e.g., Recruiting, Training, Compensation System)

• Procurement that enhances supplier

capabilities and efficiency

• Improving energy, water and resource

efficiency across the value chain

• Minimizing logistical intensity

• Improving employee health and safety

• Enhancing the productivity (and through this

wages) of lower income employees

• Recruiting to reflect the diversity of

customers and the communities where a

company operates

• Others…


Shared Value in the Value Chain Fibria, Brazil

• Fibria, the world’s leading manufacturer of chemical pulp, utilizes planted

eucalyptus trees and integration of native habitat to dramatically reduce the

land required and sustainability in wood fiber cultivation

• The company also encourages small-scale producers near its mills to plant

eucalyptus in conjunction with other crops, assisting them with technical

training and inputs

• Fibria achieves far greater land and water efficiency versus traditional

plantation methods

• Small scale producers currently contribute 27% of the raw material volume

utilized in Fibria mills, improving efficiency

• Over 4000 households have significantly increased employment and incomes


Shared Value in the Value Chain Manuelita Palm Oil Company, Colombia

• Manuelita’s palm oil extraction company in the Eastern Plains of Colombia

involved high energy cost, and methane emissions from the production

process were a major environmental problem

• The company began capturing the methane gas emitted during production

and invested $8.5 million in a bioreactor for gas processing

• Manuelita energy costs fell by 80%

• Methane gas emissions fell by 85%


55

Shared Value in the Value Chain Manuelita Palm Oil Company, Colombia


Shared Value in the Local Business Environment Arca Continental

• Arca Continental is the second largest bottling company in Latin America,

and one of the largest Coca-Cola bottlers in the world

• Arca Continental established a program to train and invest in the micro-

entrepreneur retailers who sell more than 60% of the Company’s products,

including management, sales and marketing and merchandising

• Invests in low energy use coolers and fixture improvements

• Participating retailers register sales increases of 25% or more, with improved

customer satisfaction, leading to similar increases in the sales of Arca’s

products

• Arca Continental recovers its investment in 6 months or less

• Beginning in Mexico, the program is being extended to Argentina and

Ecuador


Creating Shared Value: Where is the Opportunity?

Nestlé

Water Rural

Development

Nutrition

• Opportunities to create shared value are inevitably

tied closely to a company’s particular businesses


• Natural, fresh, organic, and freshly prepared foods and

health items with excellent service at premium prices

• Cater to specialized nutritional requirements (gluten

allergies, vegan, etc.)

• Serve educated customers who are passionate about

food and a healthy lifestyle

• Well-lit, inviting supermarket store formats with

appealing displays and extensive prepared foods

sections

• Produce section as ―theater‖

• Café-style seating areas with wireless internet for

meals and meetings

• Each store carries local produce and has the authority

to contract with the local farmers. Company provides

low-interest loans if needed

• Nutrition information and education provided to

shoppers along with products

• High touch in-store customer service via

knowledgeable, flexible, and highly motivated

personnel

• Flat compensation structure

• Own seafood procurement and processing facilities to

control quality, sustainability and price from the boat to

the counter

• Heavy emphasis on environmental sustainability in all

activities

• Emphasis on supporting community development

Value Proposition Distinctive Activities

• Whole Foods is the most economically successful food retailer in North America

• Successful strategies in the future will embody a significant shared value dimension

Shared Value and Company Strategy Whole Foods Markets


Purpose Based Strategic Positioning

Traditional Positioning New Positioning

• Food and Beverage

Company

• Nutrition, Health and Wellness

Company

Nestlé

• Defining the clear social purpose underlying a company’s products and activities opens

new opportunities for growth and profitability, while motivating and attracting

consumers, business partners, employees, shareholders, and the public

• Health Insurance • ―Making People Healthier and

Enhancing Their Lives‖

Discovery

Health

Insurance

• Book Publishing • Improving Educational

Outcomes Pearson


The Purpose of Business

• The purpose in business is to create economic value while creating shared

value for society

• Businesses acting as businesses, not as charitable givers, are arguably the

most powerful force for addressing many of the pressing issues facing our

society

• Shared value will give rise to far broader opportunities for strategy and

economic value creation and will drive the next wave of innovation,

productivity, and economic growth

• A transformation of business practice around shared value will give purpose to

the corporation





Development



The New Learning


• An overall agenda for creating a

distinctive and more

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 country can (or should try to)

make progress in all areas

simultaneously

Policy

Improvement

Economic

Strategy

What Is an Economic Strategy?


Regional Value Proposition

Developing a Regional Economic Strategy

• What is the distinctive competitive position of the region given its

location, legacy, existing strengths, and potential strengths?

– What unique advantages as a business location?

– For what types of activities and clusters?

– What roles with the surrounding regions, countries, and the 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 and achieve parity

with peer locations?

• Priorities and sequencing are a necessity in economic development


Principles of Regional Economic Strategy

• The central goal of economic strategy is to enhance a region’s

productivity. This is the only way to create jobs, high income, and

wealth in the long run

• Economic strategy is non-partisan and about getting results

• Improving productivity does not just involve new public resources, but

using existing resources better

• Improving productivity demands that the private sector engage

government and vice versa

• Improvements in competitiveness take time to produce results

• Competitiveness improvement is essential to take advantage of the

FTAs


Tests of Regional Economic Strategy

• Does the strategy articulate a distinctive position for the region?

– That will create a positive identity?

– That will inspire citizens?

• Does the strategy build on existing or potential strengths?

– Are the strengths realistic versus neighbors and other peer regions?

• Does the strategy fit with trends in the neighborhood and the world economy?

• Is the strategy realistic given the region’s weaknesses? Can weaknesses that retard the strategy be neutralized?

• Are social and political reforms integrated with economic reforms and pursued simultaneously?

• Is there the political will and the political consensus to implement the strategy?


Tests of an Economic Strategy Continued

• Do the policy priorities fit the strategy?

– The choice of policies, and their design?

– The sequence in which policies are implemented?

• Has the strategy been communicated clearly to all stakeholders?

• Is the private sector engaged?

• Is government organized around the strategy?

• Is there an overall coordinating structure for economic development?

• Is the quality of governmental agencies and other institutions sufficient for effective implementation?

• Are there mechanisms to measure progress and review / modify the strategy as prosperity improves or conditions change?


• Adopt a cluster-based economic development framework

• Create a clear economic strategy for the department of Valle del

Cauca in collaboration with government and other stakeholders

• Strengthen the organizational capacity to upgrade competitiveness

• Engage the private sector more effectively in cluster development and

improving the departmental business environment

• Embrace the creating shared value model as a way to engage

business to addressing the social and environmental problems of the

region

• Take advantage of opportunities for collaboration with neighboring

departments to improve productivity in logistics, energy networks,

higher education and other areas

Recommendations for Valle del Cauca

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