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1 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Professor Michael E. PorterHarvard Business School
Ho Chi Minh, VietnamDecember 1, 2008This presentation draws on ideas from Professor Porters booksand articles, in particular, Competitive Strategy(The Free Press, 1980); CompetitiveAdvantage(The Free Press, 1985); What is Strategy? (Harvard Business Review, Nov/Dec 1996);Strategy and the Internet (Harvard BusinessReview, March 2001);and a forthcoming book.No partof this publication maybe reproduced,stored ina retrievalsystem,or transmittedin anyform orby anymeanselectronic,mechanical, photocopying,recording, or otherwisewithout thepermission of MichaelE. Porter. Additional informationmaybefoundat thewebsiteof theInstitute forStrategy andCompetitiveness,www.isc.hbs.edu .Version:November18, 2008,3pm
Vietnams Competitivenessand the Role of the Private Sector
2 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
The Need For An Economic Strategy
Vietnam has experienced an impressive growth over the last twodecades
However, reforms so far are insufficient to move Vietnam to a middleincome economy
The next several years will determine whether Vietnam will follow theexperience of Korea, or the Philippines
Vietnams reform have been piecemeal and reactive
Improving Vietnams standard of living will require a long termeconomic strategy
A set of interrelated policy changes, institutional structures,andrigorous implementation mechanisms
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3 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Agenda
Understanding Vietnams Economic Performance
Assessing Vietnamese Competitiveness
Identifying Action Priorities
Organizing for Competitiveness
Creating an Economic Strategy
Integrating Corporate Social Responsibility
4 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
0% 2% 4% 6% 8% 10% 12%
Prosperity Performance
Selected CountriesPPP-adjusted GDPper Capita, 2007
Growth of Real GDP per Capita (PPP-adjusted), CAGR, 2003-2007Source: EIU (2008), authors calculations
Ireland
USA
Hungary
China
Taiwan
Greece
Pakistan
Portugal
Switzerland
Czech Republic
Slovakia
Germany Finland
Iceland
Sweden
Spain
UK
Netherlands
Austria
France
Russia
Saudi Arabia
TurkeyThailand
Chile
Singapore
Croatia
Philippines
Slovenia
Bahrain
Canada
Italy
Australia
Japan
Korea
Mexico
New Zealand
Brazil
IndiaIndonesia
Argentina
Hong Kong
Israel
Malaysia
South Africa
Poland
Romania
Lithuania Latvia
Estonia
Colombia Vietnam
Costa Rica
Egypt
Nigeria Bangladesh
Sri Lanka
Cambodia
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5 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.pptSource: Economist Intelligence Unit (2008)
Labor Force UtilizationParticipation Rates, Selected Countries
30%
35%
40%
45%
50%
55%
60%
65%
-3% -2% -1% 0% 1% 2% 3% 4% 5% 6%
Labor ForceParticipation Rate, 2007
Change in Labor Force Participation Rate, 2003-2007
France
UKFinland
Germany
Italy
Latvia
Sweden
Norway
Lithuania
Ireland
South Korea
Czech Rep.
Singapore (6.16%)
Poland
Colombia Mexico
Slovenia
USA
Pakistan
Austria
Morocco
New ZealandJapan
Hungary
Romania
Turkey
Slovakia
Australia
Bulgaria
Canada
Spain
Iceland
Bangladesh
Brazil
Portugal
Indonesia
China
Argentina
Philippines
Russia
Hong Kong
India
Sri Lanka
Nicaragua
Malaysia
Chile
Taiwan
Thailand Vietnam
6 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Comparative Labor ProductivitySelected Countries
Compound annual growth rate (CAGR) of real GDP per employee(PPP-adjusted), 2003-2007
GDP per employee
(PPP adjusted US$),2007
Source: authors c alculation Groningen Growth and Development Centre (2008)
France
UK
Argentina
Finland
Germany
Italy
Poland
SwedenNorway
Lithuania
Ireland
South Korea
Czech Republic
Latvia
Hong Kong
Estonia
Mexico
Slovenia
Austria
Switzerland
New Zealand
Japan
HungaryBelarus
TurkeyMalaysia
Slovakia
Australia
China
Canada
Spain
Singapore
USA
IndiaPhilippinesIndonesia
Russia
BrazilSouth Africa
Saudi Arabia
Thailand
ChilePortugal
Iran
TaiwanDenmark
IcelandIsrael
Croatia
Greece
Venezuela
Sri Lanka
Ukraine
Syria
Yemen
Cote dIvoire
Dominican Republic
Ecuador
SenegalKenya Ghana
BangladeshCambodiaEthiopia
Nigeria
Pakistan
EgyptPeruTunisia
Costa Rica Bulgaria
Kazakhstan
Colombia
Vietnam
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7 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Decomposition of Vietnamese Growth
Source: Ohno (2008)
Contribution toAnnual GDPgrowth (%)
-2%
0%
2%
4%
6%
8%
10%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Capi tal Labor TFP
8 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
14%
16%
18%
20%
22%
24%
26%
28%
30%
32%
34%
36%
-4% -2% 0% 2% 4% 6% 8% 10% 12%
Domestic Fixed Investment RatesSelected CountriesGross Fixed Investment
as % of GDP (2007)
Note: Includes inbound FDISource: EIU, 2008
Change in Gross Fixed Investment (as % of GDP), 2003 - 2007
Turkey
Spain
Czech Republic
Australia
Norway
Slovakia
PakistanAustria
Brazil
Malaysia
France
Germany
Colombia
Netherlands
Poland
Sweden
Latvia
Slovenia
Hungary
USA
ArgentinaDenmark
China (40.4%)
Estonia
UK
Lithuania
South Africa
Philippines
Russia
IndonesiaIreland
Singapore
Korea
India
Iceland
Thailand
Italy
JapanNew Zealand
CanadaMexico
Kenya
Egypt
Tunisia
Greece
Romania
Sri LankaKazakhstan
Dominican Republic
Finland
Portugal
Hong Kong Chile
Cambodia
Ukraine
Venezuela
Croatia
Saudi Arabia
Vietnam
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9 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
0%
10%
20%
30%
40%
50%
60%
70%
80%
-5% 0% 5% 10% 15% 20% 25% 30% 35% 40%
Inbound Foreign Investment PerformanceStocks and Flows, Selected Countries
Source: UNCTAD, World Investment Report (2007)
Inward FDI Stocks as % ofGDP, Average 2003 - 2007
FDI Inflows as % of Gross Fixed Capital Formation, Average 2003 - 2007
Japan
Russia
Saudi
Arabia
Turkey
Slovenia
UK
Hungary
SlovakiaCzech Republic
Australi
a
Denmark
Chile
Netherlands
Poland
USA
Colombia
Estonia
Malaysia
Thailan
dSouth Africa
New Zealand
Indonesia
Iceland (46.7%)
China
Sweden
CanadaLithuania
India
Brazil
France
Pakistan
South Korea
Austria
Latvia
Switzerland
Spain
Italy
Norway
Germany
Mexico
Portugal
Finland
Laos
Cambodia
Philippines
Singapore(160.1%, 64.7%)
Greece
Israel
Vietnam
10 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
-15% -10% -5% 0% 5% 10% 15% 20% 25% 30%
Export PerformanceSelected CountriesExports as Share of
GDP (in %, 2007)
Change of Exports as Share of GDP, 2003 to 2007
Russia
Thailand Estonia
Hungary
LithuaniaSaudi Arabia
Italy
Latvia
China
TunisiaGermany
Switzerland
Philippines
UK
Canada
France
South Africa
Ireland
USA
India
Norway
Spain
Austria
Brazil
Cambodia
Chile
VenezuelaNew Zealand
Indonesia
Australia
Czech Republic
Slovenia
Slovakia
Turkey
Mexico
South Korea
Pakistan
Argentina
Netherlands
Malaysia (116.4%)
Finland
Ukraine
Sri Lanka
Croatia
Source: EIU (2008), authors analysis
Japan
Portugal
Egypt
Belgium
Kazakhstan
BangladeshColombi
a
Poland
Bulgaria
Dominican Republic
Slovenia
Imports as a share of GDP are equally high
Vietnam
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11 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Vietnams Exports By Type of Industry
0.0%
0.1%
0.2%
0.3%
0.4%
0.5%
0.6%
0.7%
0.8%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Processed Goods
Semi-processed GoodsUnprocessed Goods
Services
TOTAL
Source: UNComTrade, WTO (2008)
World Export MarketShare (current USD)
12 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
0%
1%
2%
3%
4%
5%
-0.3% -0.1% 0.1% 0.3% 0.5% 0.7% 0.9% 1.1% 1.3% 1.5%
Vietnams Cluster Export Portfolio2000-2006
Change in Vietnams world export market share, 2000 2006Source: Prof. Michael E. Porter, International Cluster Competitiveness P roject, Institute for Strategy and Competitiveness, Harvard
Business School; Richard Bryden, Project Director. Underlying data drawn from the UN Commodity Trade Statistics Database and theIMF BOP statistics.
V
ietnams
worldexportmarketshare,
2006
Change In Vietnams OverallGrowth In World Export Share:
0.25%
Vietnams Average WorldExport Share: 0.31%
Exports of US$1.1 Billion=
Footwear (5.68%, 1.91%)
Plastics
Textiles
Apparel
Fishing and FishingProducts
Tobacco
Coal & Briquettes
Furniture
0%
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13 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Agenda
Understanding Vietnams Economic Performance
Assessing Vietnamese Competitiveness
Identifying Action Priorities
Organizing for Competitiveness
Creating an Economic Strategy
Integrating Corporate Social Responsibility
14 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
What is Competitiveness?
Nations compete to offer the most productive environment for business
The public and private sectors play different but interrelated roles increating a productive economy
Competitiveness depends on the productivity with which a nation usesits human, capital, and natural resources.
Productivity sets the sustainable standard of living (wages, returns oncapital, returns on natural resources)
It is not what industries a nation competes in that matters for prosperity, buthow productively it competes in those industries
Productivity in a national economy arises from a combination of domesticand foreign firms
The productivity of local or domestic industries is fundamental tocompetitiveness, not just that of export industries
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15 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Macroeconomic Competitiveness
Microeconomic Competitiveness
Sophisticationof Company
Operations andStrategy
Quality of theNationalBusiness
Environment
MacroeconomicPolicies
SocialInfrastructureand PoliticalInstitutions
State of ClusterDevelopment
Macroeconomic competitiveness creates the potential for high productivity, but isnot sufficient
Productivity ultimately depends on improving the microeconomic capability ofthe economy and the sophistication of local competition
Determinants of Competitiveness
Natural Endowments
16 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Wage Level ComparisonSelected CountriesMonthly Minimum Wage
USD, log scale, 2008
Source: Global Competitiveness Report, 2008; EuroStat, 2008; Philippines Department of Labor and Employment,2008
Global Competitiveness Index Score, 2008
New ZealandAustralia
Taiwan
SingaporeKorea
Malaysia
Cambodia
Philippines Indonesia
ThailandChina
Italy
GreeceSlovenia
Portugal
Czech Republic
Estonia
Spain
Cyprus
Lithuania
Austria
Sweden
Netherlands
DenmarkIreland
United Kingdom
Japan / Belgium / France
Germany
Hungary Poland Slovakia
LatviaRomania
Bulgaria
$0
$1,000
$3,000
$500
$100
$50
Vietnam
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17 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
BCI Value, 2007
Dynamism Score, 2002 - 2007
Below average Above averageAverage
Zambia Zimbabwe
Uganda
Tanzania Honduras
Indonesia
Sri Lanka
Bolivia
Mali
Pakistan
Nicaragua
India
Bangladesh
Rate of Competitiveness ImprovementLow Income Countries, 2002 - 2007
Paraguay
El Salvador
Chad
Mozambique
Madagascar
Nigeria Gambia
Ethiopia
Source: Global Competitiveness Report 2007
High
Low
Vietnam
18 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Macroeconomic Competitiveness
Basic human capacity Basic education
Health system
Political institutions Political freedom
Voice and accountability
Political stability
Centralization of economic policymaking
Government effectiveness
Rule of law Judicial independence
Efficiency of legal framework
Civil r ights
Business costs of corruption
Reliability of police
Prevalence and costs of crime
Fiscal policy Government surplus/deficit
Government debt
Savings / Investment rates
Monetary policy Inflat ion
Interest rate spread
Social Infrastructure andPolitical Institutions
MacroeconomicPolicies
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19 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Macroeconomic CompetitivenessVietnams Position
Social Infrastructure and
Political Institutions
Macroeconomic
Policies
Basic health and education
+ Solid provision of basic servicesIncreasing concerns about the quality of these
public services
Fiscal policy
+ Government budget and debt at acceptablelevels
Government budget still reliant on foreign aid
Monetary Policy
High levels of inflationPolitical institutions
+ High levels of political stability+ Increasing decentralization of economic
policy responsibilities
Little effective policy dialogueCorruption remains a significant challenge
Rule of law+ Quality of laws tends to be good
Effectiveness of implementation remainsweak
20 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Sing
apore
Japa
n
SouthK
orea
Taiw
an
Mala
ysia
Brazil
India
Thailan
d
SriL
anka
Philip
pines
Indo
nesia
China
Vietna
m
Russia
Cambo
dia
Bangla
desh
Laos
Pakis
tan
Voice and AccountabilityPolitical StabilityGovernment Effectiveness
Regulatory QualityRule of LawControl of Corruption
Governance IndicatorsSelected Countries
Note: Sorted left to right by decreasing average value across all indicators. The zero horizontal line corresponds to the median countrys average value across allindicators.
Source: World Bank 2008
Worst
country inthe world
Index ofGovernance
Quality,2007
Bestcountry inthe world
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21 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
-20 -15 -10 -5 0 5 10 15 20
Corruption Perception Index, 2007
Note: Ranks only countries available in both years (91 countries total)Source:Global Corruption Report, 2007
Change in Rank, Global Corruption Report, 2007 versus 2001
Rank inGlobal
CorruptionIndex,2007
91
1
ImprovingDeteriorating
High
corruption
Lowcorruption
Finland
Canada
Bangladesh
Indonesia
Ireland
Portugal
Egypt
Iceland
Czech Republic
Slovakia
South Korea
Latvia
India
Slovenia
Thailand
Switzerland
France
Romania
Turkey
Estonia
Austria GermanyJapan
China
NorwayUK
Malaysia
Lithuania
Colombia
HungaryTaiwan
Spain
Hong Kong
ChileUnited States
South Africa
Mexico
Croatia
Italy
Poland
Brazil
Argentina
Israel
Venezuela
Russia
Uruguay
New ZealandSweden
Tunisia
Peru
Tanzania
Uganda
Senegal
Philippines
ZimbabweCote dIvoire
Nigeria
Pakistan
GreeceJordan
Ukraine
Panama
Vietnam
22 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Access to high qualitybusiness inputs Human resources
Capital availability
Physical infrastructure
Administrative infrastructure
(e.g. registration, permitting) Information and transparency
Scientific and technologicalinfrastructure
Microeconomic Competitiveness: Quality of theBusiness Environment
Context forFirm
Strategyand Rivalry
Related andSupportingIndustries
Factor(Input)
Conditions
DemandConditions
Availability of suppliers andsupporting industries
Sophistication of localcustomers and needs
e.g., strict quality, safety,and environmentalstandards
Many things matter for competitiveness
Successful economic development is a process of successive upgrading, in which the businessenvironment improves to enable increasingly sophisticated ways of competing
Local rules and incentives thatencourage investment andproductivity
e.g. incentives for capitalinvestments, intellectual propertyprotection
Vigorous local competition Openness to foreign and local
competition
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23 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Communications infrastructure(rank 72)
E.g., quality of the telephoneinfrastructure
Local competition (rank 75) E.g., intensity of local
competition
Government intervention (rank 119) E.g., SOE market dominance
Trade barriers (rank 113) E.g., level of import tariffs
Competitive DisadvantagesCompetitive Advantages
Vietnamese Business EnvironmentVietnams Relative Position 2008
Note: Rank versus 130 countries; overall, Vietnam ranks 102 nd in 2008 PPP adjusted GDP per capita and 76 th in New Global CompetitivenessSource: Institute for Strategy and Competitiveness, Harvard University (2008)
24 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
0
20
40
60
80
100
120
140
160
HongKong
Singapore
UnitedStates
Taiwan
Germany
New
Zealand
Japan
Philippines
Malaysia
Thailand
Indonesia
Brazil
China
SriLanka
SouthKorea
Pakistan
Vietnam
Laos
Cambodia
India
Russia
Openness to TradeSelected Countries, 2008Rank (157countries)
Source: Index of Economic Freed om (2008), Heritage Foundation
Vietnams lack of openness will retard further competitiveness upgrading
Vietnam
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25 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Communications infrastructure(rank 72)
E.g., quality of the telephoneinfrastructure
Local competition (rank 75) E.g., intensity of local
competition
Government intervention (rank 119) E.g., SOE market dominance
Trade barriers (rank 113) E.g., level of import tariffs
Energy infrastructure (rank 109) E.g., quality of electricity supply
Access to finance (rank 109) E.g., financial market sophistication
Innovation infrastructure (rank 99) E.g., patents per capita
Logistical infrastructure (rank 96) E.g., quality of roads
Competitive DisadvantagesCompetitive Advantages
Vietnamese Business EnvironmentVietnams Relative Position 2008
Note: Rank versus 130 countries; overall, Vietnam ranks 102 nd in 2008 PPP adjusted GDP per capita and 76 th in New Global CompetitivenessSource: Institute for Strategy and Competitiveness, Harvard University (2008)
26 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Cost of Doing BusinessVietnam, 2008Ranking, 2008
(of 181 countries)
Source: World Bank Report, Doing Business (2008)
Favorable Unfavorable
Vietnams per capita GDP rank: 70th
Median Ranking,East Asia and Pacific
Especially in land ownership in rural areas significant problems remain
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27 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
State-Owned Enterprises (SOEs) in Vietnam
SOEs continue to play a dominant role in the Vietnamese economy,
despite the commitment to privatization
Government oversight of these companies and their spending islimited and largely reactive
The costs of slow progress on privatization are high for Vietnamscompetitiveness
Retards entry of new private companies
Creates risks of corruption
Can exacerbate economic volatility through excessive investmentfinanced through soft credit
An effective privatization program strategy for Vietnam must shifteconomic structure, not just change ownership
Privatization must go hand-in-hand with market opening and policies tocurtail anti-competitive practices
Owners are needed that contribute new capital and skills
Minority stakes can distribute ownership more widely
28 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Sources: HBS student team research (2003) - Peter Tynan, Chai McConnell, Alexandra West, Jean Hayden
Hotels
Attractions andActivities
e.g., theme parks,casinos, sports
Airlines,Cruise Ships
Travel agents Tour operators
Restaurants
PropertyServices
Maintenance
Services
Government agenciese.g. Australian Tourism Commission,
Great Barrier Reef Authority
Educational Institutionse.g. James Cook University,
Cairns College of TAFE
Industry Groupse.g. Queensland Tourism
Industry Council
FoodSuppliers
Public Relations &Market Research
Services
Local retail,health care, andother services
Souvenirs,Duty Free
Banks,Foreign
Exchange
LocalTransportation
State of Cluster DevelopmentTourism Cluster in Cairns, Australia
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0%
1%
2%
3%
4%
5%
-0.3% -0.1% 0.1% 0.3% 0.5% 0.7% 0.9% 1.1% 1.3% 1.5%
Vietnams Cluster Export Portfolio2000-2006
Change in Vietnams world export market share, 2000 2006Source: Prof. Michael E. Porter, International Cluster Competitiveness P roject, Institute for Strategy and Competitiveness, Harvard
Business School; Richard Bryden, Project Director. Underlying data drawn from the UN Commodity Trade Statistics Database and theIMF BOP statistics.
Vietnams
worldexportmarketshare,
2006
Change In Vietnams OverallGrowth In World Export Share:
0.25%
Vietnams Average WorldExport Share: 0.31%
Exports of US$1.1 Billion=
Footwear (5.68%, 1.91%)
Plastics
Textiles
Apparel
Fishing and FishingProducts
Tobacco
Coal & Briquettes
Furniture
0%
30 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
-0.10% -0.05% 0.00% 0.05% 0.10% 0.15% 0.20% 0.25% 0.30%
Vietnams Cluster Export Portfolio contd2000-2006
Change in Vietnams world export market share, 2000 2006Source: Prof. Michael E. Porter, International Cluster Competitiveness P roject, Institute for Strategy and Competitiveness, Harvard
Business School; Richard Bryden, Project Director. Underlying data drawn from the UN Commodity Trade Statistics Database and theIMF BOP statistics.
V
ietnams
worldexportmarketshare,
2006
AutomotiveProduction Technology
Motor DrivenProducts
InformationTechnology
Textiles
Prefabricated Enclosures and Structures
Leather and Related Products
Analytical InstrumentsJewelry, Precious Metals and
Collectibles
Communications Equipment
Oil & Gas
Agricultural Products
Biopharmaceuticals
Processed Foods
Chemical Products
Forest Products
TotalServices
Power and Power Generation Equipment
Construction Materials
Lighting and Electrical Equipment
Medical Devices
Publishing and Printing
Metal Mining and Manufacturing
Entertainment
Building Fixtures and Equipment
Sporting, Recreationaland Children's Goods
Exports of US$1.1 Billion=
Change In Vietnams OverallGrowth in World Export Share:
0.25%
Vietnams AverageWorld ExportShare: 0.31%
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33 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Geographic Levels and Competitiveness
Broad Economic Areas
Groups ofNeighboring Nations
States, Provinces
Metropolitan and Rural Areas
Nations
World Economy
Asia
Southeast Asia
Vietnam
Vietnamese provinces
Ho Chi Minh City
WTO
The business environment at a givenlocation is the cumulative outcome ofpolicy at all geographic levels
Many competitiveness drivers occurat the regional and local level
The allocation of competitivenessresponsibilities across geographiclevels is a crucial policy challenge
34 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Specialization of Regional EconomiesSelected U.S. Geographic Areas
BostonAnalytical InstrumentsEducation and Knowledge Crea tionCommunications Equipment
Los Angeles AreaApparelBuilding Fixtures,
Equipment andServices
Entertainment
ChicagoCommunications EquipmentProcessed FoodHeavy Machinery
Denver, COLeather and Sporting GoodsOil and GasAerospace Vehicles and Defense
San DiegoLeather and Sporting GoodsPower GenerationEducation and KnowledgeCreation
San Francisco-Oakland-San JoseBay AreaCommunicationsEquipmentAgriculturalProductsInformationTechnology
Seattle-Bellevue-Everett, WAAerospace Vehicles andDefenseFishing and FishingProductsAnalytical Instruments
HoustonOil and Gas Products and ServicesChemical ProductsHeavy Construction Services
Pittsburgh, PAConstruction MaterialsMetal ManufacturingEducation and Knowledge
Creation
Atlanta, GAConstruction MaterialsTransportation and LogisticsBusiness Services
Raleigh-Durham, NCCommunications EquipmentInformation TechnologyEducation andKnowledge Creati on
Wichita, KSAerospace Vehicles and
DefenseHeavy MachineryOil and Gas
Note: Clusters listed are the three highest ranking clusters in terms of share of national employment.Source: Cluster Mapping Project, Insti tute for Strategy and Competitiveness, Harvard Business School, 11/2006.
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35 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Vietnam Provincial Competitiveness Index, 2006
ExcellentHigh PerformingMid-highAverageMid-lowLow Performing
Source: Vietnam Provincial Competitiveness Index 2006 (USAID)
36 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
The NeighborhoodSoutheast Asia
Vietnam has a central position between ASEAN and China
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37 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Eliminatingtrade andinvestmentbarriers withinthe region
Simplifying andharmonizingcross-borderregulations andpaperwork
Coordinatinganti-monopoly andfaircompetitionpolicies
Harmonizingenvironmentalstandards
Harmonizingproduct safetystandards
Establishingreciprocalconsumerprotection laws
Openinggovernmentprocurementwithin the region
Improving regionaltransportationinfrastructure
Creating an efficientenergy network
Enhancing regionalcommunicationsand connectivity
Linkingfinancialmarkets
Opening themovement ofstudents for highereducation
Harmonizingadministrativerequirements forbusinesses
Facilitating cross-border clusterupgrading, e.g.
Tourism
Agribusiness
Transport &Logistics
Businessservices
Creating aregional marketingprogram
Sharing bestpractices ingovernmentoperations
Creating regionalinstitutions Dispute
resolutionmechanisms
Regionaldevelopmentbank
Developing a
regionalnegotiatingposition withinternationalorganizations
FactorFactor
(Input)(Input)ConditionsConditions
Regional
Strategy &Governance
Context forContext for
StrategyStrategyand Rivalryand Rivalry
Related and
SupportingIndustries
DemandDemandConditionsConditions
Economic Coordination Among NeighborsEnhancing Productivity
MacroeconomicCompetitiveness
Coordinatingprograms toimprove publicsafety
Coordinatingmacro-economicpolicies
38 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Agenda
Understanding Vietnams Economic Performance
Assessing Vietnamese Competitiveness
Identifying Action Priorities
Organizing for Competitiveness
Creating an Economic Strategy
Integrating Corporate Social Responsibility
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39 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Stages of National Competitive DevelopmentShifting Policy Imperatives
FactorFactor--DrivenDrivenEconomyEconomy
InvestmentInvestment--Driven EconomyDriven Economy
InnovationInnovation--Driven EconomyDriven Economy
Source: Porter, Michael E., The Competitive Advantage of Nations, Macmillan Press, 1990
Low Cost Inputs Productivity Unique Value
Macro, political, and legalstability
Efficient basicinfrastructure
Lowering regulatory costsof doing business
Increasing local competition
Market openness
Advanced infrastructure
Incentives and rulesencouraging productivity
Cluster formation andactivation
Advanced skills
Scientific and technologicalinstitutions
Incentives and rulesencouraging innovation
Cluster upgrading
40 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Competitiveness Action Agenda: Key Priorities
Reduce corruption
Improve infrastructure
Deepen financial marketreforms
Impose regulatoryattractiveness
Fundamental ReformContinue Existing Efforts
Human resourcedevelopment at all levels
Reform of SOEs
Cluster development
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41 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Reducing Corruption
The government has repeatedly committed itself towards reducing
corruption; and some action has been taken Evidence reveals little progress
Vietnam needs to target corruption as a crucial barrier for growth anddesign an integrated strategy to tackle its occurrence
Action priorities
Reduce the potential for corruption through simplified regulations, useof modern information technology, and improved SOE governance/privatization
Set clear guidelines and reporting requirements for management ofSOEs
Demonstrate a commitment for transparency, including support for astrong press
42 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Improving Infrastructure
Significant infrastructure investments have been made in recentyears
Evidence on their impact is mixed as best. There is significantduplication of efforts and companies complain about seriousbottlenecks
Vietnam needs to better target infrastructure investments to meetthe needs of its growing economy
Action priorities
Establish a national fund for key infrastructure projects to beimplemented under the supervision of the Prime Ministers off ice
Utilize matching funds incentives to improve effectiveness ifinvestments by provincial governments
Create a public-private council to advise on spending priorities
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43 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Deepening Financial Markets
Vietnam has made clear progress on opening up financial markets,
more recently also to foreign companies as part of the WTO agreement But the weakness of Vietnams financial markets even before the
global crisis, and the financing constraints faced by privatecompanies, indicate that serious challenges remain
Vietnam needs to develop a modern regulatory and institutionalstructure to enable an effective financial system
Action priorities
Continue opening financial markets in line with WTO commitments
Create an effective, independent financial regulator, using outsidehelp as needed
Establish a development bank to develop financing tools for privateSMEs
44 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Regulatory Reform
Regulatory reform has been on the Vietnamese policy agenda forsome time, especially over the last f ive years
Despite some progress, the overall regulatory burden on businessesand citizens remains high with no clear societal benefits
Vietnam needs a fundamentally new approach to regulatory reformand assessment of new regulations
Action priorities
Aggressively pursue the work on regulatory reform initiated withforeign donors
Improve institutional capacity to evaluate and administer regulations,not just the rules themselves
Include an obligatory assessment of the administrative burden onbusiness in the process of introducing new laws and regulations
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45 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Human Resource Development
Basiceducation
Vocationaltraining
Highereducation
Enrolment rates have increased significantly but quality is low andskills fail to meet company needs Vietnam needs to dramatically improve educational quality, through
setting standards, improving curricula, and involving the privatesector in governance
Vietnam lacks a skills training system Companies have launched own training efforts to address skill
bottlenecks Vietnam needs a clear program for cluster-based workforce
development
The number of universities has increased but quality is low and skillsdo not match company needs
Higher university education standards must be set and enforced,drawing on international experts
Vietnam needs to develop a plan and enabling institutions forassimilation of global technology
46 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Restructuring of State Owned Enterprises
The government has an explicit policy to promote private enterprise but there isdeep-seated ambivalence towards privatization
Without a thorough reform of the SOE sector, there is little hope for Vietnam toreach the next level of economic development
The creation of SOE groups is not a solution and can exacerbate problems ifno other reforms are being implemented
SOEgovernance
Competition inmarkets with
SOEs
Privatization
Create independent boards of directors Implement transparent financial reporting Define clear financial objectives
Set corporate charters
Remove existing trade, investment, and artificial entry barriersprotecting SOEs
Establish strong, independent regulatory bodies Support start-ups and spin-offs from SOEs
Create clear legal conditions for privatization Define explicit objectives for privatization process Create a dedicated structure for implementing privatization
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47 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Cluster Development in Vietnam
Vietnams clusters currently tend to be narrowly focused on
individual products
There is limited collaboration among companies, suppliers and otherinstitutions
Some clusters, like coffee, have the potential to significantly increase theirperformance if they adopt a collaboration approach
Cluster-based development thinking is crucial in improving the deliveryof other economic policies
Workforce skill development around clusters
FDI attraction/industrial zones around clusters
Cluster-based regional development initiatives
Quality and technology transfer organization for each cluster
Policy should upgrade all existing and emerging clusters, not chooseamong them
48 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Clusters and Economic Policy
Clusters
PhysicalInfrastructure
Natural ResourceProtection
EnvironmentalStewardship
Science and TechnologyInvestments
(e.g., centers, universitydepartments,
technology transfer)
Education andWorkforce Training
FDI/Business Attraction
Export Promotion
Clusters provide a framework for implementing public policy andorganizing public-private collaboration to enhance competitiveness
Standard setting andquality initiatives
Market Informationand Disclosure
Management Training
Industrial parks and
free trade zones
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49 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Turn Niche Products IntoClusters
Develop Related Clusters
Clusters and Economic Diversification
Deepen Existing ClustersBuild Clusters Around
MNCs
Upgrade Existing ExportProducts and Services
50 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Upgrading Vietnamese Niche Positions, 2006
Source: Prof. Michael E. Porter, International Cluster Competitiveness P roject, Institute for Strategy and Competitiveness, Harvard BusinessSchool; Richard Bryden, Project Director. Underlying data drawn from the UN Commodity Trade Statistics Database.
Cluster Cluster WorldExport Share
Subcluster Industry
Industry
Share ofWorld
Exports
Change in
Share (19972006)
Export Value (in$thousands)
Rubber Natural rubber, balata and similar natural gums 7.82% 3.40% 1,137,205$
Plastic Waste Reclaimed unhardened rubber; waste 1.88% 1.87% 6,084$
Plastic Products Plastic sacks, bags 1.55% 0.65% 150,234$
Rubber Synthetic rubber 1.13% 1.13% 143,316$
Mot orc yc le s a nd B ic ycl es P art s o f o ther mo to rcy cle s 1.42% 1.22% 60,962$
M otorcyc le s and B icyc les B icyc le s and othe r cyc le s, non -m otor ized 1.27% -1.56% 49,628$
S pe cial ty Of fice M achine s P ar ts for calcu lating , accoun ting mach in es 23.04% 23.04% 444,384$
Electrical and Electronic Components Insulted wire, cable and conductors 1.07% 0.72% 705,725$
Specialty Foods and Ingredients Starches, inulin and gluten 7.93% 6.23% 148,445$
Foo d Pro duc ts Mac hi ne ry D is til li ng, rect ify ing pl an t 2.64% 2.64% 19,449$
Specialty Foods and Ingredients Vegetable saps, extracts 0.90% 0.50% 9,193$
Dairy an d R elated P rodu cts M ilk, concen tr ated or sw eetene d 0.84% -0.22% 89,315$
S pe cial ty F oods and Ing re dien ts Y easts 0.81% 0.27% 7,962$
Specialty Foods and Ingredients Homogenized food preparations 0.76% 0.59% 4,888$
Glass Drawn, float, cast glass, worked 6.39% 6.37% 78,185$
Electrical Parts Other inductors 3.20% 2.86% 137,477$
Electrical Parts Other electric transformers 1.17% 0.68% 63,386$
Motors and Generators Electric motors
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51 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Agenda
Understanding Vietnams Economic Performance
Assessing Vietnamese Competitiveness
Identifying Action Priorities
Organizing for Competitiveness
Creating an Economic Strategy
Integrating Corporate Social Responsibility
52 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
The Process of Economic Development
Shifting Roles and Responsibilities
Old Model
Government drives economic
development through policy
decisions and incentives
New Model
Economic development is a
collaborative process involving
government at multiple levels,
companies, teaching and
research institutions, and
institutions for collaboration
Competitiveness must become a bottoms-up process in which many individuals,companies, and institutions take responsibility
Every community and cluster can take steps to enhance competitiveness
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53 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Government and the Process of Economic Development
Competitiveness is affected by a myriad of government entities
Multiple agencies and departments (e.g. finance, trade, education, scienceand technology, commerce, regional policy, energy, agriculture)
Multiple levels of government (nations, states, cities, etc.)
Intergovernmental relations with neighboring countries affectcompetitiveness
Competitiveness is rarely the sole agenda of any government agency
Coordinating structures are needed that brings together the ministriesand departments necessary to formulate and implement an economic
strategy Explicit mechanisms are needed to engage the private sector in dialog
about policy priorities and implementation progress
54 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Organizing for Competitiveness in VietnamRecommendations
Create effective, independent regulatory organizations
Improve economic policy at the provincial level
Improve mechanisms for public-private discussion and collaboration
Enhance strategic planning and program management capacity inthe central and provincial governments
Develop a national economic strategy process to guide priorities inimproving the business environment
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55 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Regional Development in Vietnam
Vietnams provinces are developing at different rates; prosperity levels
between the richest and poorest regions differs greatly
Political power and responsibility for economic development has beendecentralized to the provinces, who apply to the national government for funds
Provinces have adopted unfocused growth strategieswith much duplicationand li ttle specialization across provinces
Provinces have insufficient technical capacity for policy design andimplementation
Each province should be charged with developing an economic plan based onits unique strengths and potential
Each province should be expected to publicly report on implementation
56 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Competitiveness Institutions
Economic strategy unit in the Prime Ministers office
Regularly updating on progress
Lead a formal planning and program management process involving allagencies
Public-private competitiveness council
Vietnam Competitiveness Institute
To conduct analyses, benchmark vs. other countries, and traingovernment leaders
Joint national and provincial
Enhanced role of business associations
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57 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Agenda
Understanding Vietnams Economic Performance
Assessing Vietnamese Competitiveness
Identifying Action Priorities
Organizing for Competitiveness
Creating an Economic Strategy
Integrating Corporate Social Responsibility
58 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
National Value Proposition
Defining an Economic Strategy
Developing Unique StrengthsAchieving and Maintaining Parity
with Peers
What elements of context and thebusiness environment are crucialpriorities?
What existing and emerging clustersshould be developed first?
What weaknesses must be addressed toachieve parity with peer countries?
What is the unique competitive position of the nation orregion given its location, legacy, and existing and potentialstrengths?
What roles with neighbors, the region, and the broader world?
What unique value as a business location?
For what types of activities and clusters?
Prioritiesand sequencing are a necessity in economic development
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59 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
The Need for an Economic Strategy
The Vietnamese government follows largely an evolutionary and
reactive approach in response to crises and specific problems Foreign aid inflows are fragmented and driven by donor-priorities
This approach has been successful in achieving success in factor-based economic development, but will be insufficient to move to anew stage
Government needs leads in a broad-based discussion on a neweconomic strategy that sets priorities for improvements in thebusiness environment and institutions
Internally, the government needs to increase its technical capacity to
support such a strategic dialogue, for example through a strategy unit inthe Prime Ministers office
60 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Agenda
Understanding Vietnams Economic Performance
Assessing Vietnamese Competitiveness
Identifying Action Priorities
Organizing for Competitiveness
Creating an Economic Strategy
Integrating Corporate Social Responsibility
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61 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Implications for Companies
A companys competitive advantage depends partly on the quality of the businessenvironment
A company gains advantages from being part of a cluster
Companies have a strong role to play in upgrading their business environment
Take an active role in upgrading the local infrastructure
Nurture local suppliers and attract foreign suppliers
Work closely with local educational and research institutions, to upgrade theirquality and create specialized programs addressing the clusters needs
Inform government on regulatory issues and constraints bearing on clusterdevelopment
Focus corporate philanthropy on enhancing the local business environment
An important role for trade associations Greater influence if many companies are united
Cost sharing between members
62 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Corporate Social Responsibility
A Growing Agenda
External pressures for CSR continue to grow
Numerous organizations monitor, rank, and report socialperformance
The legal and business risks are great for companies engaging inpractices deemed unacceptable
CSR is increasingly important to business leaders, yet the conceptand its justifications remain unclear
Few companies have integrated society into strategy in a way thatreinforces competitive advantage for the business
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There is an inevitable link between a business and society
The health of a society depends on having competitive companies that can createwealth and support high wages
The competitiveness of companies depends on the surrounding community
E.g., educated and skilled employees
Safe working conditions
A transparent, corruption-free business environment
A sense of equal opportunity
Low levels of environmental degradation (productive use of physical resources)
Companies can positively affect many social issues
There is a long-term synergy between economic and social objectives
To maximize this synergy, business decisions and social policies must follow theprinciple of shared value
Company competitiveness and social conditions must benefit simultaneously
Integrating Strategy and Society
EconomicObjectives
SocialObjectives
64 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
The Role of Business in Social Issues
Business cannot solve all of societys problems, nor bear the cost ofdoing so
There are many worthy causes
Business must approach its social agenda proactively andstrategically
Business must address society and social issues where it can add themost value
Where is a company able to have the greatest impact on social issuesversus other institutions?
Social Benefits
Resources ExpendedSocial Value =
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Inside-Out Links with SocietyValue Chain Social Impacts
InboundLogistics(e.g. Incoming
MaterialStorage, Data
Collection,Service,
CustomerAccess)
Operations
(e.g. Assembly,Component
Fabrication,Branch
Operations)
OutboundLogistics
(e.g. Order
Processing,Warehousing,
ReportPreparation)
Marketing& Sales
(e.g. Sales Force,
Promotion,Advertising,
ProposalWriting, Web
site)
After-SalesService
(e.g. Installation,Customer
Support,ComplaintResolution,
Repair)
M
a
rg
i
n
Primary Activities
SupportActivities
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)
Value
What
buyers arewilling topay
InboundLogistics(e.g. Incoming
MaterialStorage, Data
Collection,Service,
CustomerAccess)
Operations
(e.g. Assembly,Component
Fabrication,Branch
Operations)
OutboundLogistics
(e.g. Order
Processing,Warehousing,
ReportPreparation)
Marketing& Sales
(e.g. Sales Force,
Promotion,Advertising,
ProposalWriting, Web
site)
After-SalesService
(e.g. Installation,Customer
Support,ComplaintResolution,
Repair)
M
a
rg
i
n
Primary Activities
SupportActivities
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)
InboundLogistics(e.g. Incoming
MaterialStorage, Data
Collection,Service,
CustomerAccess)
Operations
(e.g. Assembly,Component
Fabrication,Branch
Operations)
OutboundLogistics
(e.g. Order
Processing,Warehousing,
ReportPreparation)
Marketing& Sales
(e.g. Sales Force,
Promotion,Advertising,
ProposalWriting, Web
site)
After-SalesService
(e.g. Installation,Customer
Support,ComplaintResolution,
Repair)
M
a
rg
i
n
Primary Activities
SupportActivitiesSupportActivities
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)
Value
What
buyers arewilling topay
Financial reporting practices
Governance practices Transparency Use of lobbying
Relationships with universities Ethical research practices
(e.g. animal testing, GMOs) Product safety
Procurement practices(e.g. bribery, child labor,conflict diamonds, pricing tofarmers)
Use of particular inputs(e.g. animal fur)
Conservation of raw materials
Recycling
Transportation impacts(e.g. emissions, congestion,logging roads)
Emissions and waste Biodiversity and ecological
impacts Energy and water use Worker safety and labor
relations Hazardous materials
Packaging use anddisposal(e.g. McDonalds clamshell)
Transportation impacts
Employee education and jobtraining
Safe working conditions
Diversity and discrimination
Health care and other bene fits
Compensation policies
Layoff policies
Disposal of obsolete products Handling of consumables
(e.g. motor oil, printing ink Customer privacy
Marketing and advertising (e.g. truthfuladvertising, advertising to children)
Pricing practices (e.g. pricediscrimination among customers,anticompetitive pricing practices, pricingpolicy to the poor)
Consumer information
Every activity in the value chain touches on communities in the locations where acompany operates. These impacts can be positive or negative.
66 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Identifying Shared ValueOutside-In Social Impact on the Company
Source: Michael Porter, The Competitive Advantage of Nations, 1990
Competitive context is often influenced by or inextricably linked with social conditions
Availability of qualified human resources(Marriotts job training)
Access tospecialized training programs Efficient physical infrastructure Efficient permitting and regulatory practices Availability of scientific and technological
institutions (Microsofts W orking Connections;Nestls knowledge transfer t o farmers)
Sustainable access to natural resources(GrupoNuevas water conserva tion)
Efficient access to capital
Fair and open local competition (e.g., theabsence of trade barriers, fair re gulations)
Intellectual property protection Transparency(e.g., financial reporting,
corruption: Extractive IndustriesTransparency Initiative)
Rule of law (e.g., security, protection ofproperty, legal system)
Meritocratic incentive systems (e.g.,antidiscrimination)
Nature of local demand (e.g. appeal ofsocial value propositions: Whole Foods
customers) Fair and demanding regulatory
standards (California auto emissions &mileage standards)
Local needs that can be servednationally and globally (Urbis housingfinancing, Unilevers bottom of thepyramid strategy)
Availability of local suppliers and supportservices (Syscos locally grown produce;Nestls milk collection dairies)
Access to partner firms in related fields Access to a cluster instead of isolated
firms andindustries
Context forFirm Strategyand Rivalry
Related andSupportingIndustries
Factor(Input)
Conditions
DemandConditions
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67 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Creating a Corporate Social Agenda
GenericSocial Impacts
Value Chain SocialImpacts
Social Dimensionsof Competitive
Context
Good citizenship Mitigate harm fromvalue chain activities
Responsive CSR Strategic CSR
Transform value chainactivities to benefitsociety whilereinforcing strategy
Strategic philanthropythat improves salientareas of competitivecontext
The impact of CSR is greatest when responsive CSR, value chain socialimpacts, and investments in competitive context are integrated
Create a socialdimension of the valueproposition
68 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Strategic CSR: ChoicePoint
ChoicePoints core business is providing personal identification,screening, and credit verification e.g., employment background screening, credit verification, DNA identification,
drug testing
The companys CSR program focuses on providing identification andverification services and advice to social organizations: e.g., background checks of volunteers working with children
Identity verification for disaster victims
Assisting NGOs to find missing children and prevent identity theft
ChoicePoints CSR is aligned with its founding principle: creating asafer and more secure society through responsible use of information
ChoicePoint leverages its skills, data, technological knowledge, andstaff to maximize social benefit
CSR activities are not just charity but improve the companyscapabilities around identity issues
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69 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
Strategic CSR: Nestl in India
Nestls entered the poor Moga region of India in 1962
Local milk supply was hampered by small parcels of land, poor soil, periodicdroughts, animal disease, and lack of a commercial market
Nestl established local milk purchasing organizations in each town
Nestl invested in improving competitive context
Collection infrastructure such as refrigerated dairies was accompanied byveterinarians, nutritionists, agronomists, and quality assurance experts to assistsmall farmers
Medicines and nutritional supplements were provided to improve animal health
Monthly training sessions were held for local farmers
Wells to secure water supply for animals were dug with financing and technicalassistance from Nestl
Nestl has built a productivemilk cluster in Moga, buying milk from more than75,000 farmers through 650 local dairies
Moga has dramatically improved social conditions
Nestl has developed a long-term competitive advantage in the milk cluster
70 Copyright 2007 Professor Michael E. Porter20081201 PACE strategy.ppt
The Moral Purpose of Business
The most important thing a corporation can do for society is to contribute to aprosperous economy
Only business can create wealth; other institutions in society are principallyinvolved in redistributing wealth or investing it to meet human needs
Business has the tools, capabilities, and resources to make a far greaterpositive impact on social issues than most other institutions
Corporations depend on a healthy society to sustain competitiveness
Business is more transparent and more accountable than most foundationsand NGOs
Corporations are not responsible for all the worlds problems, nor do theyhave the resources to solve them all
Business has no need to be defensive about its role in society
Each company can and should identify the particular set of societalproblemsthat it is best equipped to help resolve, and from which it can gainthe greatest competitive benefit
Addressing social issues through shared value strategieswill lead to self-sustaining solutions
Using these principles, businesses can have a greater impact on social goodthan any other institution or philanthropic organization