Diamond Model Advanced Economies

Microeconomics of Competitiveness
Session 3: Introduction to the Diamond Model
Microeconomics of Competitiveness February 4, 2008

Professor Michael E. Porter
This presentation draws on ideas from Professor Porters articles and books, in particular, The Competitive Advantage of Nations (The Free Press, 1990), The Microeconomic Foundations of Economic Development, in The Global Competitiveness Report 2007-08, (World Economic Forum, 2008), Clusters and the New Competitive Agenda for Companies and Governments in On Competition (Harvard Business School Press, 1998), and the Clusters of Innovation Initiative (www.compete.org), a joint effort of the Council on Competitiveness, Monitor Group, and Professor Porter and ongoing research at the Institute for Strategy and Competitiveness. Additional information may be found at the website of the Institute for Strategy and Competitiveness, www.isc.hbs.edu No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means - electronic, mechanical, photocopying, recording, or otherwise - without the permission of Michael E. Porter. Version: February 4, 2008
Perspectives on Firm Success
Internal
External
Competitive advantage resides solely inside a company or in its industry Competitive success depends primarily on company choices
2
Competitive advantage (or disadvantage) resides partly in the locations at which a companys business units are based Cluster participation is an important contributor to competitiveness
20080204 MOC Session 3
Copyright 2006 Professor Michael E. Porter
What is Competitiveness?
Competitiveness is determined by the productivity with which a nation uses its human, capital, and natural resources.
Productivity sets the standard of living (wages, returns on capital, returns on natural resources) that a country can sustain It is not what industries a nation competes in that matters for prosperity, but how it competes in those industries Productivity in a national economy arises from a combination of domestic and foreign firms The productivity of local or domestic industries is fundamental to competitiveness, not just that of export industries Devaluation and revaluation do not mean that a country is more or less competitive
Nations compete in offering the most productive environment for business The public and private sectors play different but interrelated roles in creating a productive economy
Sources of Prosperity
Inherited Prosperity Inherited Prosperity
Prosperity is derived from selling or Prosperity is derived from selling or exploiting inherited natural resources exploiting inherited natural resources Prosperity is constrained Prosperity is constrained
Created Prosperity Created Prosperity

Prosperity is derived from creating Prosperity is derived from creating valuable products and services valuable products and services Prosperity is unlimited Prosperity is unlimited
Government is the central actor in the Government is the central actor in the economy as the owner and distributor of economy as the owner and distributor of resource wealth resource wealth Resource revenues allow Resource revenues allow unproductive policies and practices unproductive policies and practices to persist to persist Governments role gravitates towards the Governments role gravitates towards the distribution of wealth as interest groups distribution of wealth as interest groups seek a bigger share of the pie seek a bigger share of the pie
Companies are the central actors in the Companies are the central actors in the economy economy Prosperity can only be created by Prosperity can only be created by firms firms
Governments role is to create the Governments role is to create the enabling conditions for productivity enabling conditions for productivity and foster private sector development and foster private sector development
Decomposing Prosperity
Prosperity Prosperity
Standard of living Inequality
Domestic Domestic Purchasing Purchasing Power Power

Local prices Efficiency of local industries Level of local market competition Consumption taxes
Per Capita Income Per Capita Income
Labor Labor Productivity Productivity

Skills Capital stock Total factor productivity
Labor Labor Utilization Utilization

Workforce participation rate Population age profile Unemployment Working hours
Income Inequality
Gini Index
Selected Countries
60
50
40
30
20
10
0
a Af ric a C h C os ile ta R ica C hi n Th a ai U l ni R te and us d si St an Fe ate de s ra tio n G ha na La tv Vi ia et na m Es to ni a Sp ai In do n ne si C a ro a Pa tia kis ta n R wa nd G er a m an Fi y nl an d C ze Nor wa ch Re y pu b Sw lic ed en Ja pa n
6
ol o C
Note: Most recent Gini index data available for each country (1999 2003). Czech Republic data is from 1996. Source: World Bank, World Development Indicators, 2007.
So
ut h
m bi
Labor Force Mobilization

Selected Countries
Employees as % of Population, 2006
0.6
0.5
OECD average: 0.47
0.4
0.3
0.2
0.1
0
C TH HIN AI A LA N N D SI OR N W G AP AY VI OR E E A U TN ST AM RA U LI NI TE JA A D PA ST N A E S TE TO S N KO I A R E LA A TV R IA US FI SIA N LA N G D H AN A C O SPA S O ST IN U AR TH I AF CA RI TA CA IN IW D O AN N M ES AL IA AY SI C A HI L BR E AZ IL SL IND O IA C VAK O LO I A M SA T BIA U UR D I A KEY R AB IA
Note: Use most recent year available, either 2005 or 2006 Source: The Conference Board and Groningen Growth and Development Centre, Total Economy Database, November 2007
Competitiveness Master = 2007-11-14.ppt
Unemployment Performance
Unemployment Rate, 2006
Selected Countries
Croatia Macedonia (35%)
18%
Improving
16% 14% 12% 10% 8% 6% 4% 2%
Deteriorating
Poland (6.2%)
Colombia
Indonesia (7.04%)
Germany Slovakia China Ecuador Egypt Turkey Bulgaria Slovenia Spain France Greece (-10.1%) Czech Republic Finland Philippines Chile Portugal India Hungary Russia Latvia Italy Costa Rica Sri Lanka Canada Estonia Netherlands Sweden UK USA Romania Australia Austria Denmark Ireland Japan Pakistan Vietnam Taiwan New Zealand Norway Switzerland Korea Lithuania Ukraine Singapore Malaysia Thailand Iceland
0% -6%
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
Change of Unemployment Rate in Percentage Points, 1998 - 2006

Source: EIU (2007)
Labor Input Level and Growth

Working Hours, Selected Countries
Hours worked per Employee, 2006
2,200
Taiwan South Korea (-1.3%) Mexico
Singapore (2307 hours)
1,900
Ireland
Chile Czech Republic Colombia Venezuela Latvia Argentina
Poland Greece
Estonia Romania Turkey Lithuania Cyprus
Hungary (1.2%)
Japan
Slovakia
Portugal
US
Australia Finland
Brazil Iceland Spain Canada New Zealand Slovenia UK Belgium
Bulgaria Denmark
1,600
France
Sweden Italy
Switzerland Austria
Germany Norway
Netherlands
1,300 -1.0%
-0.8%
-0.6%
-0.4%
-0.2%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
Change of Hours worked per Employee, CAGR, 1997- 2006

Source: Groningen Growth and Development Centre and The Conference Board, 2008
Labor Productivity Level and Growth

Selected Countries
Real GDP per hour worked, US-$, 2007
55
Belgium Netherlands France Germany Italy Canada
Austria USA Ireland
Norway (70.1)
UK Sweden Finland
Denmark Switzerland Australia
40
Japan
Spain Iceland Greece Slovenia New Zealand Cyprus Slovakia
25
Portugal
Hungary Poland
Czech Republic South Korea Lithuania Estonia Latvia Turkey Romania
Mexico
Bulgaria
10 -1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
Growth of Real GDP per Hour, CAGR, 2002 - 2007

Source: Groningen Growth and Development Centre and The Conference Board, 2008
10
Total Factor Productivity Growth

Japan vs. Selected Countries
8.0%
6.0%
4.0%
2.0%
0.0%
China Germany United Kingdom United States Japan
-2.0%
-4.0%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: Marcel P. Timmer, Gerard Ypma and Bart van Ark (2003), IT in the European Union: Driving Productivity Divergence?, GGDC Research Memorandum GD-67 (October 2003), University of Groningen, Appendix Tables, updated June 2005
11
Decomposing Japans GDP per Capita Growth

Contribution to change in real GDP per Capita (PPP adjusted)
$800
$600
$400
Labor Productivity
$200
$0
Labor Force Participation
-$200
-$400
-$600 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Note: Data before 2001 not available. Source: EIU (2007)

2006 value of $558 represents a 1.8% increase in GDP per capita

12
Comparative Domestic Cost Levels

Selected OECD Countries
Ratio of U.S. to Local Prices, September 2007
180% 160% 140% 120% 100% 80% 60% 40% 20% 0%

M e ze P xico ch ol re and pu Sl ov Hu blic ak ng re ary pu b Tu lic Po rke rtu y g U ni K al te or d e St a a G tes re ec N ew S e Ze pain al an d U ni A Ita te us ly d Ki tral ng ia d C om an ad Ja a p N Bel an et gi he um rla Lu A nds xe us m tria bo u Fr rg G anc er e m Sw an ed y e Sw Fin n la itz n er d la Ire nd D lan en d m N ark or w Ic ay el an d C
13
Lower local prices relative to the United States
Higher local prices relative to the United States
Note: Calculated from comparative price levels, defined as the ratio of PPP factors to exchange rates. Ratio of U.S. to local prices represents the volume of a representative basket of goods that can be purchased for a given amount of U.S. currency. Source: OECD (2007), authors calculations.
20080204 MOC Session 3 Copyright 2006 Professor Michael E. Porter
Indicators and Enablers of Competitiveness
Productivity
Imports
Exports
Domestic investment
Inbound foreign direct investment
Outbound foreign direct investment
Domestic innovation
Competitive Environment
14
Import Shares
Selected Countries
Import Share in GDP, in %, 2006
90%
Malaysia
80%
Singapore (38.7%, 180.6%)
Estonia
70%
Hungary Lithuania Kyrgyzstan Honduras Bahrain Croatia Netherlands Thailand Latvia Macedonia Slovenia Costa Rica
60%
Mauritius
50%
40%
30%
Senegal Cyprus Ireland (-14.1%) Canada
20%
10%
Switzerland Austria Iceland Poland Portugal Korea Turkey Mexico Finland Sweden Germany China New Zealand UK Pakistan France Norway Australia Colombia Indonesia US Japan Russia Brazil
Barbados Ukraine Ghana
Georgia Morocco
South Africa
0% -5%
0%
5%
10%
15%
20%
25%
30%
35%
Change of Import Share in GDP, 1996 to 2006

Source: UN Comtrade (2007), authors analysis
15
Export Intensity
Exports as % GDP (2006)
Selected Countries
Slovakia
80%
70% Netherlands 60% Belarus 50% Ireland (-29.5%) Costa Rica 40% Philippines Ukraine 30% Moldova Indonesia 20% New Zealand Romania Turkey Iceland 10% Sweden Norway Denmark Ghana Russia Italy Macedonia Estonia
Thailand
Hungary
Czech Republic Vietnam Taiwan
Slovenia Austria Bulgaria Lithuania Chile Germany China
Finland Latvia Portugal Japan
Poland Bosnia & Herzegovina
Spain
Pakistan Greece Cyprus
USA
0%
-10% -5% 0%
Colombia Brazil
5% 10% 15% 20%
Change in Growth Exports (as % of GDP), 2001 - 2006

Source: EUI (2007), authors analysis
USD 75M =
16
Inbound Foreign Investment Performance

Inward FDI Stocks as % of GDP, Average 2002 - 2006
Stocks and Flows, Selected Countries

Ireland (114.1%) Netherlands Estonia Jordan Bahrain Vietnam Tunisia Hungary New Zealand Chile Lebanon (63.8%)
80%
70%
60%
Sweden
50%
Czech Republic Slovakia
Cyprus
Cambodia
40%
Australia
Morocco Portugal Spain Thailand Canada Malaysia Poland Egypt Colombia
30%
South Africa
20%
10%
0%
Finland Brazil Ghana Slovenia Russia Norway Germany Turkey Rwanda USA China Taiwan Yemen Saudi Arabia Korea Pakistan India Japan Indonesia Kuwait
Romania
United Arab Emirates
Libya
-5%
Source: UNCTAD (2007)
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
FDI Inflows as % of Gross Fixed Capital Formation, Average 2002 - 2006

17
Innovative Capacity
Innovation Output of Selected Countries
Annual U.S. patents per 1 million population, 2006
350.0 300.0 250.0 200.0

Finland USA
Japan
Taiwan
150.0 100.0 50.0
Switzerland Sweden Germany Canada Netherlands Denmark France UK Norway South Africa New Zealand Italy Hungary Russia Spain Mexico
Israel South Korea Singapore (16.7%) Austria Australia Hong Kong Brazil Poland Ireland China (31.9%) India (24.2%)
0.0 -2%
0%
2%
4%
6%
8%
10%
12%
Compound annual growth rate of US-registered patents, 1998 2006
3,500 patents =
Source: USPTO, 2006
18
Enablers / Indicators of Competitiveness

Comparative Innovation Quality
Share of countrys patents that are highly cited, 1999*
20 18 16 14 12 10 8 6 4 2 0
l s y nd ly d or wa y N om ar k te s en ce er la nd m an Sw ed Fr an an a St a en m Fi nl Ko Ja er la Is r ap gd Au st ria or e da n pa an re a ae Ita
Si ng
G er
Ki n
ni te
* The share of a countrys patents filed between 1994 and 1998 that were highly cited in 1999. Source: CHI Patent, National Science Foundation and Council on Competitiveness data. Authors analysis.
ni te
19
Sw itz
et h
Top Japanese Originators of U.S. Patents, 2002- 2006

PATENTOR
CANON KABUSHIKI KAISHA MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD. HITACHI, LTD TOSHIBA CORPORATION SONY CORPORATION FUJITSU LIMITED NEC CORPORATION MITSUBISHI DENKI KABUSHIKI KAISHA FUJI PHOTO FILM CO., LTD SEIKO EPSON CORPORATION HONDA GIKEN KOGYO KABUSHIKI KAISHA (HONDA MOTOR CO., LTD.) DENSO CORPORATION SHARP KABUSHIKI KAISHA (SHARP CORPORATION) RICOH COMPANY, LTD. RENESAS TECHNOLOGY CORPORATION SANYO ELECTRIC CO., LTD. MURATA MANUFACTURING CO., LTD. OKI ELECTRIC INDUSTRY CO., LTD. SEMICONDUCTOR ENERGY LABORATORY CO., LTD. TOYOTA JIDOSHA K.K. NISSAN MOTOR COMPANY, LIMITED
# of Patents
9372 8760 7848 6473 6158 6143 5105 4534 4166 4110 3285 2954 2600 2257 2100 1980 1664 1556 1552 1475 1376
Japan Total (1454 organizations)

Source: Patenting By Geographic Region (State and Country), Breakout By Organization, USPTO (2008)
166264
20
Determinants of Competitiveness
Macroeconomic, Political, Legal, and Social Context Macroeconomic, Political, Legal, and Social Context
Microeconomic Competitiveness Microeconomic Competitiveness

Sophistication of Company Operations and Strategy Quality of the Business Environment
State of Cluster Development
A sound macroeconomic, political, legal, and social context creates the potential for competitiveness, but is not sufficient Competitiveness ultimately depends on improving the microeconomic capability of the economy and the sophistication of local competition
21
Assessing the Business Environment: The Diamond

Context for Context for Firm Firm Strategy Strategy and Rivalry and Rivalry
Local rules and incentives that encourage investment and productivity

Factor Factor (Input) (Input) Conditions Conditions
e.g. salaries, incentives for capital investments, intellectual property protection
Demand Demand Conditions Conditions
Vigorous local competition

Openness to foreign and local competition
Access to high quality business inputs

Natural endowments Human resources Capital availability Physical infrastructure Administrative infrastructure (e.g. registration, permitting) Information infrastructure (e.g., transparency) Scientific and technological infrastructure
Related and Related and Supporting Supporting Industries Industries
Sophistication of local customers and needs Strict quality, safety, and environmental standards
Availability of suppliers and supporting industries Presence of clusters instead of isolated firms
Successful economic development is a process of successive upgrading, in which the business environment improves to enable increasingly sophisticated ways of competing
22
Issues in Diamond Analysis
Categorizing influences by part of the diamond Arrows in the diamond Understanding cause and effect
23
Levels of Influence on the Diamond

Selected Examples
Context for Context for Firm Firm Strategy Strategy and Rivalry and Rivalry
National E.g., intellectual property legislation; antitrust policy Regional E.g., state tax policy Cluster E.g., number of local competitors

National E.g., capital market conditions Regional E.g., local public education system; university assets Cluster E.g., cluster-specific research institutions
Cross-National E.g., Nordic Mobile Telephone network; character-based Asian languages Related and National Related and E.g., environmental regulation; Supporting Supporting consumer rights legislation Industries Industries Regional Regional E.g., state consumer E.g., breadth of regional economy; IFCs protection laws Related Clusters Cluster E.g., common local suppliers E.g., sophistication of local Cluster customers E.g., existence of supplier industries
24
Measuring Microeconomic Capacity

The Business Competitiveness Index
Measures the overall level of sustainable prosperity that can be supported given a countrys current competitiveness Highlights strengths and weaknesses of a countrys business environment relative to its overall level of current prosperity Reveals patterns of competitive evolution of individual countries Country-level BCI data will be distributed to project teams once countries are selected.
25
Ranking Microeconomic Competitiveness

Business Competitiveness Index, 2007
2006 GDP per Capita (PPP- adjusted)
Norway
45,000
Qatar
United States
40,000 35,000 30,000 25,000 20,000

Hungary Libya Argentina Greece Bahrain
Kuwait Italy Spain
Hong Kong Iceland Australia Ireland Canada France Taiwan Israel New Zealand Korea
Switzerland Denmark Finland Sweden Germany
Japan
Slovenia Portugal Cyprus Czech Republic Estonia Slovakia Lithuania
15,000 10,000 5,000 0

Low
Latvia
Saudi Arabia Chile South Africa Ukraine Costa Rica Brazil Venezuela Thailand Tunisia Colombia China Peru Jordan India Pakistan Philippines Indonesia Kenya Nigeria Tanzania Russia
Poland
Malaysia
Variation in BCI score explains 82% of variation in GDP per capita
Business Competitiveness Index

26
High
Source: Global Competitiveness Report 2007

Company Sophistication
Relative Position of Japanese Companies, 2007
Competitive Advantages Relative to GDP per Capita Degree of customer orientation Production process sophistication Capacity for innovation Company spending on research and development Nature of competitive advantage Breadth of international markets Extent of regional sales Value chain breadth Extent of staff training Control of international distribution 1 2 3 3 4 5 5 5 6 10 Competitive Disadvantages Relative to GDP per Capita Extent of incentive compensation Willingness to delegate authority 46 19
Change up/down of more than 5/10 ranks since 2002
Note: Rank versus 74 countries; overall, Japan ranks 19th in 2006 PPP adjusted GDP per capita and 10h in Business Competitiveness. Source: Institute for Strategy and Competitiveness, Harvard University (2007)
27
Factor (Input) Conditions

Japans Relative Position 2007
Competitive Disadvantages Relative to GDP per Capita 1 2 3 6 7 8 11 13 15 16 17 Quality of management schools Ease of access to loans Low business costs of corruption Financial market sophistication Air transport infrastructure quality Venture capital availability Laws relating to ICT Quality of primary education Quality of math and science education Judicial independence Quality of port infrastructure 52 34 29 29 28 27 24 22 22 19 18
Competitive Advantages Relative to GDP per Capita Availability of scientists and engineers Railroad infrastructure Quality of electricity supply Quality of telephone/fax infrastructure Cooperation in labor-employer relations Local equity market access Quality of scientific research institutions Overall infrastructure quality Efficiency of legal framework University/industry research collaboration Reliability of police services
Decentralization of economic policymaking 51
28
Ease of Doing Business Rankings

Japan, 2007
Ranking, 2007 (of 178 countries)
Favorable
Median Ranking, OECD
Unfavorable
100
80
60
40
20
Japans per capita GDP rank: 10
0
Doing Business Closing a Protecting Business Investors Getting Credit Employing Workers Trading Across Borders Enforcing Contracts Dealing with Licenses Starting a Registering Business Property Paying Taxes
Source: World Bank Report, Doing Business (2008)

29
Innovative Capacity Index

2004 Rankings
Rank Rank 1 1 2 2 3 3 4 4 5 5 6 6 7 7 8 8 9 9 10 10 11 11 12 12 13 13 14 14 15 15 16 16 17 17 18 18 19 19 20 20 Scientists & Engineers Index Finland Iceland Innovation Policy Index Singapore Luxembourg Taiwan Finland Canada United Kingdom United States Malaysia Australia Ireland Cluster Environment Index Linkages Index
Note: This dataset will be made available on course website.
Operations and Strategy Index Germany
Japan
United States Taiwan Finland Hong Kong United Kingdom Korea Singapore Denmark Canada Switzerland Germany Sweden India Italy Norway Malaysia France Austria U.A.E.
Japan
Sweden United States Norway Singapore Switzerland Russia Denmark Australia Germany Canada Belgium Korea France Taiwan United Kingdom Netherlands Georgia
United States Finland Sweden Taiwan
Japan
Denmark Israel Finland Switzerland Sweden United States Netherlands Belgium France United Kingdom Taiwan Singapore Austria Norway Luxembourg Hong Kong Ireland Iceland
Japan
Israel Singapore Germany Switzerland Denmark United Kingdom Hong Kong Iceland Netherlands Australia Canada Austria Norway Ireland New Zealand
Japan
Israel Austria Germany Netherlands Norway Hong Kong Tunisia Denmark France
Source: Unpublished data using the methodology described in Michael E. Porter and Scott Stern, Ranking National Innovative Capacity: Findings from the National Innovative Capacity Index, Global Competitiveness Report 2003-2004.
30
Rate of Competitiveness Improvement

2002 - 2007
BCI Value, 2007 High Germany United States Sweden Finland Switzerland Netherlands Denmark Japan United Kingdom Canada Hong Kong Norway Australia France Taiwan New Zealand Ireland Estonia Spain Chile India Czech Republic Slovenia Thailand Italy Lithuania Slovakia Hungary Costa Rica Latvia Greece Panama Poland China Brazil Kenya Jamaica Trinidad and Tobago Romania Peru Tanzania Pakistan Argentina Dominican Republic Mali Uganda Zambia Low Below average Zimbabwe Mozambique Paraguay Nicaragua Bangladesh Chad Average Dynamism Score, 2002 - 2007
Source: Global Competitiveness Report 2007
Korea Malaysia
Indonesia Turkey Sri Lanka Guatemala Honduras
Ecuador High-income Middle-income Low-income Above average
31
Competitiveness versus Wage Level Across Countries

Hourly Wage in Manufacturing (USD), 2005
45 40 35 30 25 20 15 10
Norway
Netherlands Belgium Austria Sweden Australia Ireland Italy Spain Greece Korea Hungary Mexico Sri Lanka
Low
Denmark Germany Finland
Switzerland UK USA Japan
France
Canada
New Zealand Israel Singapore
Portugal Taiwan Czech Republic Hong Kong
5 0
Poland Brazil
Business Competitiveness Index 2005
High
Source: Global Competitiveness Report 2005-2006 and US Bureau of Labor Statistics

32
Backup
33
Demand Conditions
Competitive Advantages Relative to GDP per Capita Buyer sophistication Stringency of environmental regulations Government procurement of advanced technology products Presence of demanding regulatory standards 5 10 12 12
Competitive Disadvantages Relative to GDP per Capita
34
Related and Related and Supporting Supporting Industries Industries
Related and Supporting Industries

Competitive Disadvantages Relative to GDP per Capita 1 2 3 5
Competitive Advantages Relative to GDP per Capita Local availability of process machinery Local supplier quantity Local supplier quality Local availability of specialized research and training services
35
Context for Firm Context for Firm Strategy Strategy and Rivalry and Rivalry
Context for Strategy and Rivalry

Competitive Disadvantages Relative to GDP per Capita 3 4 12 14 15 Absence of trade barriers Property rights Efficacy of corporate boards 42 32 23
Competitive Advantages Relative to GDP per Capita Extent of market dominance Intensity of local competition Lack of favoritism in decisions of government officials Effectiveness of antitrust policy Intellectual property protection
36

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Microeconomics of Competitiveness

Session 3: Introduction to the Diamond Model

Microeconomics of Competitiveness February 4, 2008

Perspectives on Firm Success

20080204 MOC Session 3

Copyright 2006 Professor Michael E. Porter

Copyright 2006 Professor Michael E. Porter

Created Prosperity Created Prosperity

20080204 MOC Session 3

Copyright 2006 Professor Michael E. Porter

Domestic Domestic Purchasing Purchasing Power Power

Per Capita Income Per Capita Income

Labor Labor Productivity Productivity

Labor Labor Utilization Utilization

Labor Force Mobilization

OECD average: 0.47

Copyright 2007 Professor Michael E. Porter

Change of Unemployment Rate in Percentage Points, 1998 - 2006

Copyright 2006 Professor Michael E. Porter

Labor Input Level and Growth

Singapore (2307 hours)

Chile Czech Republic Colombia Venezuela Latvia Argentina

Estonia Romania Turkey Lithuania Cyprus

Brazil Iceland Spain Canada New Zealand Slovenia UK Belgium

Change of Hours worked per Employee, CAGR, 1997- 2006

Copyright 2006 Professor Michael E. Porter

Labor Productivity Level and Growth

Belgium Netherlands France Germany Italy Canada

Austria USA Ireland

Denmark Switzerland Australia

Czech Republic South Korea Lithuania Estonia Latvia Turkey Romania

Growth of Real GDP per Hour, CAGR, 2002 - 2007

Copyright 2006 Professor Michael E. Porter

Total Factor Productivity Growth

Copyright 2006 Professor Michael E. Porter

Decomposing Japans GDP per Capita Growth

Labor Force Participation

Note: Data before 2001 not available. Source: EIU (2007)

2006 value of $558 represents a 1.8% increase in GDP per capita

Comparative Domestic Cost Levels

180% 160% 140% 120% 100% 80% 60% 40% 20% 0%

Lower local prices relative to the United States

Higher local prices relative to the United States

Indicators and Enablers of Competitiveness

Inbound foreign direct investment

Outbound foreign direct investment

20080204 MOC Session 3

Copyright 2006 Professor Michael E. Porter

Singapore (38.7%, 180.6%)

Senegal Cyprus Ireland (-14.1%) Canada

Barbados Ukraine Ghana

Change of Import Share in GDP, 1996 to 2006

Copyright 2006 Professor Michael E. Porter

Czech Republic Vietnam Taiwan

Slovenia Austria Bulgaria Lithuania Chile Germany China

Finland Latvia Portugal Japan

Poland Bosnia & Herzegovina

Pakistan Greece Cyprus

Change in Growth Exports (as % of GDP), 2001 - 2006

Inbound Foreign Investment Performance

Stocks and Flows, Selected Countries

Czech Republic Slovakia

Morocco Portugal Spain Thailand Canada Malaysia Poland Egypt Colombia