Promoting Competitiveness in Practice - Economic Growth - usaid

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Human Resources CLUSTER STRUCTURE Export-Based Industries Supplier Industries Input materials, distribution, trade and other supporting services Technology Economic Foundations Capital and Finance INTEGRATED CLUSTERS Regulatory Environment Physical Infrastructure According to Porter, the key determinants of a region’s competitiveness are: (i) the sophistication and productivity of its firms; (ii) the quality of the business environment in which they operate; and (iii) the vitality of its clusters. The first two determinants are well-known to USAID. For years, its private sector development programs have included efforts to strengthen businesses through firm-level assistance and training. Similarly, USAID has significant strides in improving the quality of the business environment in developing countries by helping countries to: establish sound and business-friendly policies; privatize state-owned companies; establish intellectual property rights; strengthen financial policies and institutions; reduce red-tape and administrative barriers to firm creation and investment; and carry out many other initiatives that target the “micro-economic” environment. In contrast, the last determinant – strengthening the vitality of clusters – is a relatively new endeavor for USAID and has emerged most prominently in its new wave of competitiveness initiatives. What is meant by “strengthening the vitality of clusters” is explained in further detail through the guiding principles. Geographic proximity is important …. especially in an increasingly global economy. A second principle underlying competitiveness initiatives is the importance of geographic proximity. To reiterate, clusters are defined as “geographic concentrations of interconnected companies, specialized suppliers, service providers, and associated institutions in a particular field.” Hence, in many competitiveness initiatives around the world, we see a focus on “economic regions” as the engine of growth. Such regions have little to do with political or administrative boundaries and more to do with the clustering of firms and institutions that are interconnected ... or, in the case of many developing economies, should be interconnected. One might assume that globalization would minimize the importance of geographic proximity; however, Porter argues to the contrary. With increasing globalization, the inputs to production flow more freely around the world; hence, they also become more readily available to any producer and less of a differentiating factor. Paradoxically, as the world becomes increasingly 23
interconnected, building competitive advantage has more to do with things that are fundamentally local: relationships and interactions (which are easier to build when people are in close proximity and share a common language and culture) and information sharing (which is far more effective in face-to-face situations than through even the most sophisticated communication system). The Importance of Economic Regions Lessons from Mongolian Cashmere In Mongolia, the distances between segments of the value chain are enormous. The producers of raw cashmere are nomadic herders, spread across vast areas of sparsely populated terrain with limited access to communication and transportation. The processors of cashmere are located in Mongolia’s capital city, Ulaanbaatar; and the purchasers of Mongolia’s semi-processed cashmere and finished goods are located primarily in Europe and North America. Before the introduction of USAID’s Competitiveness Initiative, the sheer distances and the lack of communication and direct interaction made it impossible for cashmere producers to understand the requirements of processors; hence, producers continued to gin out large quantities of poor-quality cashmere. Once the initiative was launched, the geographical distances between producers and processors also made it challenging to bring the cluster together – even from a purely logistical perspective. However, more importantly, the geographical distances had translated into deep hostilities and lack of trust, precluding this cluster from even sitting together at the same table. Competitiveness initiatives are fundamentally about building connections and relationships among firms and institutions that have traditionally acted in isolation. While the “paradox of location” may sound theoretical, particularly from a developing country perspective, its implications are a cornerstone of competitiveness practice. That is, competitiveness initiatives are about building connections and relationships among firms and institutions within a cluster. This principle is central to implementation, no matter whether the location is Hollywood or Rwanda. The principle is best illustrated in terms of the life cycle of the cluster (pictured on the following page). 19 The starting point for every cluster-based competitiveness initiative is different. Taking two extremes where cluster initiative have been undertaken, Hollywood and Rwanda start in very different segments of the cluster life-cycle and they will no doubt remain in different segments for a long time. Nonetheless, the fundamental focus for these two cluster initiatives is the same: strengthening the relationships and connections between firms and institutions so that they can more effectively tackle the barriers to increased productivity. Most of the countries in which USAID operates are characterized by “pre-clusters,” where there are very few connections or relationships among firms and institutions; moreover, firms and institutions are often weak in and of themselves. The connections between firms are most often 19 SRI International, “Cluster Competitiveness Initiative: USAID Progress Report,” PowerPoint presentation prepared for USAID Bosnia, October 2002, p. 6. 24
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Page 9 and 10: field.” 1 “Associated instituti
Page 11 and 12: present common obstacles and, conse
Page 13 and 14: policy, legal and regulatory analys
Page 15 and 16: in the future. Rather, our aim was
Page 17 and 18: • • USAID and its contractors m
Page 19 and 20: • In the short term, USAID and it
Page 21 and 22: A Focus on the Practice of Competit
Page 23 and 24: changes and results emerge during d
Page 25 and 26: viability of many key industries in
Page 27 and 28: Porter’s theory of competitivenes
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Page 31 and 32: USAID’s Major and/or Most Mature
Page 33 and 34: project has conducted two rounds of
Page 35 and 36: El Salvador Competitiveness Enhance
Page 37 and 38: measurement ($294,000). At the onse
Page 39 and 40: in areas such as bio-technology (Ed
Page 41: In Mongolia, meat processors are tr
Page 45 and 46: to put into practice than it would
Page 47 and 48: making change happen. This does not
Page 49 and 50: KEY COMPONENTS OF A COMPETITIVENESS
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Page 53 and 54: CHAPTER 4 CLUSTER-BASED COMPETITIVE
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Page 67 and 68: INTRODUCTION CHAPTER 5 RESULTS Meas
Page 69 and 70: the project; rather, we have a tool
Page 71 and 72: These findings beg the question of
Page 73 and 74: 3. Focus on changes that emerged as
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Page 77 and 78: cluster-based initiative: an econom
Page 79 and 80: the customer as the focal point. Th
Page 81 and 82: Mongolia Tourism: The competitivene
Page 83 and 84: issued a draft resolution to minist
Page 85 and 86: CONCLUSIONS In our chapter on guidi
Page 87 and 88: CHAPTER 6 LESSONS LEARNED AND BEST
Page 89 and 90: itself. In other words, the very fo
Page 91 and 92: 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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