Promoting Competitiveness in Practice - Economic Growth - usaid

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understanding to the next step, the team began to help its clients develop strategies to generate and build upon those synergies through “cluster” development. This was the start of the practice of cluster-based competitiveness as we know it today. For SRI, the practice emerged in direct response to the need for US states and cities to re-think their approach to promoting economic development in the face of diminishing competitiveness. And, as they helped these states and cities develop new strategies for economic development, the concept of the cluster proved to be a powerful and practical tool for spurring collaboration and joint effort between inter-related firms and their supporting organizations. The Development of Competitiveness Theory At the same time SRI was exploring the use of clusters as a mechanism for prompting change, Michael Porter was conducting extensive research around the world to examine the patterns and determinants of competitive success of industries in ten nations. 9 In doing so, he developed a new paradigm for thinking about competitiveness. His seminal book, The Competitive Advantage of Nations, published in 1990 argued that the competitiveness of locations is rooted primarily in the nature of the business environment they offer firms. He used his now famous diamondmetaphor to explain the attributes of an environment in which highly competitive industries and firms emerge. Specifically, as outlined in his September 18, 2002 presentation to USAID, competitive firms are more likely to emerge when: • the local environment encourages efficiency, investment and upgrading, and where there is open and vigorous competition among locally based firms (firm strategy and rivalry). Factor (Input) Conditions Context for for Firm Strategy and Rivalry Demand Conditions • the local environment provides high-quality and specialized inputs to firms, including: human resources; physical infrastructure; Related and Supporting Industries capital resources; scientific and technological infrastructure; information infrastructure; and natural resources (factor conditions). • there is a core of sophisticated and demanding local customers … that might anticipate demand that can be served globally (demand conditions). • there are clusters, instead of isolated industries, including capable, locally-based suppliers and firms in related areas (related and supporting industries). • there is vigorous interaction among these four elements, stimulating constant pressure for innovation and improvements in capabilities. 9 These ten nations include: Denmark, Germany, Italy, Japan, Korea, Singapore, Sweden, Switzerland, the United Kingdom, and the United States. 7
Porter’s theory of competitiveness and the role of clusters emerged from his observation of how successful industries emerged in industrialized countries. Nonetheless, his new paradigm had powerful implications for the way in which governments, organizations and firms would pursue competitiveness in the future in both developed and developing countries. Its message for government leaders was clear: macroeconomic reforms are critical, but not sufficient, to create greater productivity. “Microeconomic” reforms are also important -- that is, reforms that shape and strengthen the four points of the diamond and their interaction. His paradigm had an equally powerful message for business: that is, a firm’s ability to gain competitive advantage is linked, in part, to factors and institutions outside of the firm itself and even the industry and, hence, firms – individually and collectively -- have a stake in strengthening the four points of the diamond and their interaction. Perhaps, most importantly, the implication of the new paradigm was that joint and collaborative action among a broad range of public and private actors in the economy was required to create an environment that fosters competitiveness. Increasingly, cluster-based competitiveness initiatives became the tool for mobilizing the necessary collaborative action. Porter himself introduced the tools and principles of cluster-based competitiveness to a number of countries, including the United States, Portugal, Canada, and New Zealand, among others. However, a number of influential strategy consulting firms also began to introduce the diamond model and related principles through implementation of competitiveness initiatives. Most notably, the Monitor Company tested and adapted the model in the context of a number of developing countries, including El Salvador and Colombia. In 1997, two of the Monitor Company’s senior consultants, Michael Fairbanks and Stace Lindsay, captured many of the lessons they learned from implementing competitiveness initiatives in Colombia and other Latin American countries in Plowing the Sea: Nurturing the Hidden Sources of Growth in the Developing World. Growing Emphasis on Market-Oriented Approaches to Development Yet another development emerging from the 1980s was the growing emphasis on marketoriented approaches to development. In both developed and developing countries, there was growing recognition that the public sector could ill-afford to produce and distribute needed goods and services and that this role was better served by the private sector. As this recognition solidified, many countries sought out strategies for sorting out and defining more effectively the appropriate role of government and the private sector in economic development. Similarly, countries began to actively seek to increase the size and vitality of their local private sector. It was, in large part, this growing receptivity to market-oriented and private sector development approaches that fueled the demand for competitiveness initiatives around the world. Hence, beginning in the early 1990s, the use of cluster-based approaches began to expand not only in U.S. states and cities, but also in other countries and regions around the world. For example: • The state of Chihuahua in Mexico launched Chihuahua Siglo XXI in 1992 to develop and implement a strategy that would enable the state to take advantage of new opportunities emerging from NAFTA. 8
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cluster-based initiative: an econom
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the customer as the focal point. Th
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Mongolia Tourism: The competitivene
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issued a draft resolution to minist
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CONCLUSIONS In our chapter on guidi
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CHAPTER 6 LESSONS LEARNED AND BEST
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itself. In other words, the very fo
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Related Best Practices: • When th
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10. Cluster-based competitiveness i
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Rod Brown, Director, Australian Pro
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Jose Luis Lupo, Senior Advisor, Reg
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Part 1: General References APPENDIX
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Henton, Douglas, John Melville, and
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Rosenfeld, S., et al, A People’s
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PricewaterhouseCoopers and SRI Inte
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PricewaterhouseCoopers, “Workforc
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Munnich Jr, L.W., et al, “Northea
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Azerbaijan Bosnia Bulgaria Country
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Country Project Name Clusters Targe
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