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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

Transition Economies: Porter Model Comparisons

Maj Ryan Craycraft


  • Thesis

  • Porter Model Explanation

  • Case Studies

    • Russia

    • Poland

    • China

  • Conclusion


  • 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)


(Supply Context)

(Indirect Efficiencies)

  • Business Environment Diamond, aka “The Diamond”


  • 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)


$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)


$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)


$7.5K PPP)

(Macro indicators

Public Institutions)

(Supporting Infrastructure)

  • Underachieving Country

  • Low Income compared to higher competitiveness index


  • 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


  • 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.

  •, Poland Country Briefing Factsheet,

  • Marageta Drzeniek, “Russia’s Competitiveness at the Crossroads”, Paper presented at World Economic Forum Russia CEO Roundtable, June 2007,

  •, China Country Briefing Factsheet,

  • Porter, Michael E., World Economic Forum, World Competitiveness Report 2006-2007