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Transition Economies: Porter Model Comparisons. Maj Ryan Craycraft. Introduction. Thesis Porter Model Explanation Case Studies Russia Poland China Conclusion. Proposition. If a country is to be successful in the global market economy, its domestic businesses must be competitive.

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Presentation Transcript
introduction
Introduction
  • Thesis
  • Porter Model Explanation
  • Case Studies
    • Russia
    • Poland
    • China
  • Conclusion
proposition
Proposition
  • If a country is to be successful in the global market economy, its domestic businesses must be competitive.
  • IV: High levels of competitiveness
  • DV: Successful Market Economy
michael porter s index
Michael Porter’s Index
  • Michael Porter, Harvard Business School has developed a competitive index
    • “The Current Competitiveness Index examines the microeconomic bases of a nation’s GDP per capita.”
  • Macroeconomic conditions are usually the object of study, but although necessary, they are not sufficient
  • Microeconomic conditions are what actually create wealth and “sustainable productivity”
  • Comparative in nature
porter s model
Porter’s Model
  • Like a business cycle, interactions among the previous activities help countries move along the macroeconomic country cycle
porter s model1
Porter’s Model

(Nat’l Corporate Culture)

(Consumers)

(Supply Context)

(Indirect Efficiencies)

  • Business Environment Diamond, aka “The Diamond”
poland
Poland
  • Transition Plan:
    • Free Elections
    • Evolve to purely private economy
    • Create the Institutions of a capitalist economy
      • Rapidly to market economy
      • Liberalize economic functions (int’l trade / FDI)
      • Privatization
      • Construct Social Safety Net
      • Mobilize Int’l Monetary Aid
poland s successes
Poland’s Successes
  • Solid GDP Growth
  • Stable currency
  • Solid Manufacturing Sector
  • Exports
  • FDI
  • Small / Medium business growth
poland s challenges
Poland’s Challenges
  • Poor Infrastructure
  • Political Instability
  • Small inflation (<5%)
  • Social Safety Net in jeopardy
  • Unemployment (esp. eastern Poland)
  • Debt of 50% GDP (2004)
poland in porter s framework
Poland in Porter’s Framework
  • Moving from Factor Driven to Investment Driven
    • Strong Manufacturing Sector, esp. automobiles due to relatively cheap, educated labor force
    • Strong FDI
poland in porter s diamond
Poland in Porter’s Diamond

(Nat’l Corporate Culture)

(Consumers

$14K PPP)

(Supply Context)

(Indirect Efficiencies)

  • Neutral Achievement
  • Balanced Income and Competitiveness
russia a middle income country
Russia: A Middle Income Country
  • Also a shock-therapy transition
  • #1 CIS country, but behind E. Europe countries
    • No EU Charter guidance
russia strengths
Russia: Strengths
  • Macroeconomic Stability (oil revenue)
    • 7th highest fiscal surplus in 2006
  • Cold War capacities
    • Higher education
    • Research institutions spurring innovation
    • Cultural factors that support innovation
  • Flexible labor market
russia challenges
Russia: Challenges
  • Public institutions
  • Health factors
    • Infant mortality
    • Life expectancy
  • Petrodollars preventing necessary painful reforms
  • Inflation near 10%
  • Technological readiness of business sector
  • Low intensity of domestic competition
russia in porter s framework
Russia in Porter’s Framework
  • Classified by WEF in the Efficiency-driven stage
    • “Needs to focus on higher education and training, market efficiency and technological readiness”
    • While continuing public institution reform
russia in porter s diamond
Russia in Porter’s Diamond

(Low Competitiveness)

(Consumers

$12K PPP)

(Mixed Bag)

(Supporting Infrastructure)

  • Overachieving Country
  • High Income compared to low competitiveness index
china commanded transition
China: Commanded Transition
  • Slow transition method
  • Excess production allowed to go the open market
  • When private enterprise failed, it was cancelled
  • Government-controlled financial system
china strengths
China: Strengths
  • Macroeconomic indicators
    • High growth rates
    • Low inflation
    • High savings rate
    • Moderate public debt
china challenges
China: Challenges
  • State-controlled banking sector
  • Low penetration of technology in industry
  • Poor secondary / tertiary education system
  • Public and Private institution quality
    • Turning to capital punishment for corruption
    • Burdensom government regulation
    • Poor property rights
    • Judiciary lacks independence
china in porter s framework
China in Porter’s Framework
  • Moving from capture of cheap labor to need for efficiency to compete because cheap labor in other places
  • Same as Russia’s recommendations:
    • “Needs to focus on higher education and training, market efficiency and technological readiness”
    • While continuing public institution reform
china in porter s diamond
China in Porter’s Diamond

(Low Technology)

(Consumers

$7.5K PPP)

(Macro indicators

Public Institutions)

(Supporting Infrastructure)

  • Underachieving Country
  • Low Income compared to higher competitiveness index
conclusion
Conclusion
  • Transition from Factor-driven economy to Investment-driven economy has coincided with evolution from developing country to middle-income, developed country
  • New challenge will be to move from Investment-driven to Innovation-driven in order to sustain growth
references
References
  • Porter, Michael E. “Enhancing the Microeconomic Foundations of Prosperity: The Current Competitiveness Index”
  • Hunter, Richard J. and Leo V. Ryan, “A Transitional Analysis of the Polish Economy: After Fifteen Years, Still a ‘Work in Progress,” Global Economic Journal 5:2, 2005.
  • Economist.com, Poland Country Briefing Factsheet,
  • Marageta Drzeniek, “Russia’s Competitiveness at the Crossroads”, Paper presented at World Economic Forum Russia CEO Roundtable, June 2007, http://www.weforum.org/en/events/russia2007/index.htm
  • Economist.com, China Country Briefing Factsheet,
  • Porter, Michael E., World Economic Forum, World Competitiveness Report 2006-2007
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