Transition economies porter model comparisons
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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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Transition Economies: Porter Model Comparisons

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Transition economies porter model comparisons

Transition Economies: Porter Model Comparisons

Maj Ryan Craycraft


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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