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Mgmt 510 International Management Doha, 2011 Class 3. Cluster Competitiveness “Porter Diamond”. Clusters… Allow regional economic base to survive in the face of globalization and technical change.

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Cluster competitiveness porter diamond
Cluster Competitiveness “Porter Diamond”

  • Clusters…

    • Allow regional economic base to survive in the face of globalization and technical change.

    • May extend beyond a single industry, but hold together in varying degrees of mutual interest and geographic proximity.

    • Develop through positive externalities (in part because of agglomeration advantages) that lead to cost savings.

    • Serve to upgrade managerial and labor force skills and advance marketing/customer relations.

    • Enhance local competition, productivity, new business formation, and innovation - leading to a virtuous cycle of development

Woodward, 2005


Cluster competitiveness porter diamond1
Cluster Competitiveness “Porter Diamond”

  • Policy?

    • Support the development of all clusters, not choose among them;

    • Strengthen established and promising clusters rather than attempt to generate entirely new ones;

    • Top-down government strategies should not guide development. Cluster initiatives are advanced by the private sector, with government as facilitator.

Woodward, 2005


Cluster competitiveness porter diamond2
Cluster Competitiveness “Porter Diamond”

  • Pros

    • Fairly comprehensive

    • Interactive

  • Cons

    • Static

    • Misses culture and collaboration


Global competition and external market pressure

Degree of enhancement of competitive innovation

Competitive power of cluster

Motivation for competitive innovation

Competitive level of platform for innovation

Performance of individual firms

Overall performance of all firms in the zone

Intensity of differentiated competitive threat

Extent of shared response to common challenges

Sharing of critical sectoral knowledge

Extent of collaborative initiatives

Type of cultural context

Cluster Dynamics

L3 COLLABORATIVE

ADVANTAGE

LOOP

L4 VENTURE

ATTRACTIVENESS

LOOP

L1 INTER-FIRM RIVALRY LOOP

L2 INTER-FIRM CO-OPERATION

LOOP

L5 DISTINCTIVENESS

GENERATION LOOP

Stimulation and

Acquisition of relevant research and development


Systems dynamics approach
Systems Dynamics Approach

  • Adds dynamism –includes changes in “amount” and “rate”

  • Provides explicit roles for contextual “interventions” to system – culture, collaboration

  • Enhances understanding of “delays” in the system


L1 inter firm rivalry loop

Motivation for competitive innovation

Performance of individual firms

Overall performance of all firms in the zone

Intensity of differentiated competitive threat

L1 Inter-Firm Rivalry Loop


L1 Inter-Firm Rivalry Loop

  • General question: To what extent is the firm motivated to innovate new products, services and/or processes?

    Other indicators…

    • Is there a relatively high (low) number of patents issued by firms in the region?

    • Do firms in the region allocate relative high (low) percentages of sales to R&D?

    • Is there a relatively high (low) number of new product introductions from the regional companies?

    • Are firms organized to maximize (limit) innovations going from ‘lab to market’?

Motivation for competitive innovation


L2 inter firm collaboration loop

Performance of individual firms

Overall performance of all firms in the zone

Intensity of differentiated competitive threat

Extent of shared response to common challenges

Extent of collaborative initiatives

L2 Inter-firm Collaboration Loop


L2 Inter-firm Collaboration Loop

  • General Question: To what extent does the firm respond similarly as other regional firms to challenges (e.g. global competition, policy proposals, activists, etc.) and create collaborative initiatives in response to the challenges?

    • Specific indicators:

      • Is there a high (low) awareness of competitive offerings from ex-regional competitors?

      • Do firms offer joint (independent) responses to ex-regional competitive threats or policy proposals?

Extent of shared response to common challenges

Extent of collaborative initiatives


L3 collaborative advantage loop

Degree of enhancement of competitive innovation

Competitive level of platform for innovation

Performance of individual firms

Overall performance of all firms in the zone

Intensity of differentiated competitive threat

Extent of shared response to common challenges

Sharing of critical sectoral knowledge

Extent of collaborative initiatives

L3 Collaborative Advantage Loop


L3 Collaborative Advantage Loop

  • General Question: To what extent is the firm involved with competitors and related firms in sharing technological, process, policy and other knowledge?

    • Specific indicators

      • Is there high (low) memberships in inter- and intra-industry associations and councils?

      • Is there high (low) participation rates in conferences and related forums?

Sharing of critical sectoral knowledge

Competitive level of platform for innovation


L4 venture attractiveness loop

Motivation for competitive innovation

Performance of individual firms

Overall performance of all firms in the zone

Intensity of differentiated competitive threat

L4 Venture Attractiveness Loop

Degree of enhancement of competitive innovation


L4 Venture Attractiveness Loop

  • General Question: To what extent is the firm continually creating innovations that are commercialized with market success?

    • Specific indicators

      • Is the percent of revenue derived from new product launches high (low) relative to the industry average?

      • Is the firm able to create new market space through innovative product and/or service offerings?

Degree of enhancement of competitive innovation


L5 distinctiveness generation loop

Degree of enhancement of competitive innovation

Competitive level of platform for innovation

Performance of individual firms

Overall performance of all firms in the zone

Intensity of differentiated competitive threat

Extent of shared response to common challenges

Sharing of critical sectoral knowledge

Extent of collaborative initiatives

L5 Distinctiveness Generation Loop

Stimulation and

Acquisition of relevant research and development


L5 Distinctiveness Generation Loop

  • General Question: Is the firm gaining leading edge knowledge – through internal R&D, external acquisitions/licensing, and/or partnerships?

    • Specific indicators:

      • Is the firm acquiring technologies, patents, companies, etc.?

Stimulation and

Acquisition of relevant research and development


Cluster dynamics and economic transitions
Cluster Dynamics and Economic Transitions

  • Qatar Vision 2030

    • “…chosen development path entails a transition from uncontrolled development relying on low-productivity, low-skilled and low-paid expatriate workers, to a diversified post-carbon economy relying on a high-productivity, highly-skilled and highly-educated labour force.” pg. 27.

  • Qatar National Development Strategy 2011-2016

    • “Well beyond 2022, the World Cup may present opportunities to strengthen the structure and performance of Qatar’s nonenergy sectors.” pg. 6.


Cluster dynamics and economic transitions1
Cluster Dynamics and Economic Transitions

“Qatar’s long-term development outcomes, as articulated in the Qatar National Vision 2030 (QNV 2030), are built on the principles of sustainable development. Emphasis is placed on sustaining a careful balance between the interests of the current generation and the interests of future generations.”

“Qatar’s exceptionally rapid development has a potential downside: an adverse impact on the environment that could undermine sustainable development. At risk are the aims of achieving water security, preserving and protecting the marine environment, reducing long-term impacts of climate change (mitigation), and adjusting to the expected consequences of climate change (adaptation).”


Cluster dynamics and economic transitions2
Cluster Dynamics and Economic Transitions

  • Natural resource dependence and long term economic sluggishness

    • Overvaluation of national currency

      • “Dutch disease”

    • Rent-seeking

      • Import protection policies

    • Lack of motivation for economic efficiency

      • Burdensome bureaucracy, High corruption, Poor infrastructure

    • Lack of human capital investment

      • Low-skill labor dependent

Gylfason, 2001


Cluster dynamics and economic transitions3
Cluster Dynamics and Economic Transitions

  • Natural resource dependence and long term economic sluggishness

    • Education

      • 18% increase in the natural capital share of GNP associated with 1% decrease in public expenditure on education of GNP.

      • 5% increase in the natural capital share of GDP associated with

        • 1 year decrease of the schooling that an average girl at the age of school entry can expect to receive.

        • 10% decrease in the secondary-school enrollment rate.

Gylfason, 2001



Clusters dynamics and economic transitions1
Clusters Dynamics and Economic Transitions

  • Qatar Infrastructure

    • broad infrastructure initiative that will use 40% of federal budget between 2011 and 2016.

      • $11 billion towards the completion of new international airport,

      • $5.5 billion on a deep-water seaport,

      • $1 billion on a transportation corridor through the capital,

      • $20 billion on new roads and

      • $25 billion on a rail network

      • $65 billion on tournament-related infrastructure such as stadiums, hotels and transportation.

The PRS Group/International Country Risk Report 2011


Clusters dynamics and economic transitions2
Clusters Dynamics and Economic Transitions

  • Qatar education

Knowledge for Development, The World Bank


Clusters dynamics and economic transitions3
Clusters Dynamics and Economic Transitions

  • Qatar education

Knowledge for Development, The World Bank


Clusters dynamics and economic transitions4
Clusters Dynamics and Economic Transitions

Current Conditions

Potential Evolution

L1 INTER-FIRM RIVALRY LOOP

L2 INTER-FIRM CO-OPERATION LOOP

L3 COLLABORATIVE ADVANTAGELOOP

L4VENTURE ATTRACTIVENESS LOOP

L5 DISTINCTIVENESS GENERATION LOOP


Clusters dynamics and economic transitions5
Clusters Dynamics and Economic Transitions

  • Summary of Qatar Situation

    • Significant portion of GDP dependent on gas and oil hard currency earnings

    • Significant investments in infrastructure and education

    • Strategy includes attempt to limit high exposure to volatile energy prices – diversify to non-energy sectors

    • Committed to environmental stewardship.

    • Processes for engaging multiple stakeholders in policy-making yet remains hierarchical.

    • Some emerging resources and capabilities focused on ‘green building’

    • So, does the potential exist to attract a global PV panel manufacturer?


Example ecuador
Example: Ecuador

  • The Ecuadorian Economy in 2011

    • Ecuador has had a long history of economic and political instability

    • Since 2001, Ecuador has enjoyed relative macroeconomic stability as a result of dollarization

    • High oil prices have allowed the country to increase government spending

    • Ecuador export growth has been driven by commodities prices

      BUT

    • In 2010, the Ecuadorian economic growth was slower than other Latin-American countries

    • Prosperity remains low

    • High poverty levels and inequality persist and large segments of the population lack access to basic needs

    • Ecuador is overly dependent on oil exports.

  • Higher economic growth rates and poverty reduction are possible only if Ecuador can substantially improve competitiveness

Porter, 2011


Example ecuador1
Example: Ecuador

Strengths

  • Infrastructure

    • Significant improvements in transportation infrastructure

    • High mobile phone penetration

  • Competitive Context

    • High levels of entrepreneurship

  • Other

    • A new national agenda for innovation and entrepreneurship

    • Improving sophistication of local buyers

Porter, 2011


Example ecuador2
Example: Ecuador

Weaknesses

Porter, 2011


Example ecuador3
Example: Ecuador

  • State of Cluster Development in Ecuador

    • Ecuador has strengths in resource-related clusters, including cut-flowers, bananas, coffee, cacao, fishing, and tourism

    • Clusters that serve mainly the domestic market include textiles, apparel, automotive, and metalworking

    • Most of the clusters are shallow, with a weak supplier base

    • There are weak supporting institutions with poor coordination between the private and public sectors

  • Ecuador’s clusters have been subject to traditional industrial policy characterized by subsidies and protectionism

Porter, 2011


Building the pitch
Building the pitch

  • Assess Qatar using Porter’s Diamond

    • What conditions in the diamond lend themselves to this opportunity?

    • Which conditions do not?

Current Conditions


Building the pitch1
Building the pitch

  • Understand the dynamics at play – culture, business, policies – and the ‘interventions’ in the system

    • What aspects of the culture, business environment and policies provide a positive environment for this opportunity?

    • Which do not?

Global competition and external market pressure

Type of cultural context

Competitive power of cluster


Building the pitch2
Building the pitch

  • Examine how one or more of the loops provides a basis for the industry to emerge.

L1 INTER-FIRM RIVALRY LOOP

L2 INTER-FIRM CO-OPERATION LOOP

L3 COLLABORATIVE ADVANTAGELOOP

L4VENTURE ATTRACTIVENESS LOOP

L5 DISTINCTIVENESS GENERATION LOOP


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