Bulgarian Competitiveness: A Framework and Preliminary ... Files...This presentation draws on ideas from Professor Porter’s articles and books, in particular, The Competitive Advantage

This presentation draws on ideas from Professor Porter’s articles and books, in particular, The Competitive Advantage of Nations (The Free Press, 1990), “Building the

Microeconomic Foundations of Competitiveness,” in The Global Competitiveness Report (World Economic Forum), “Clusters and the New Competitive Agenda for

Companies and Governments” in On Competition (Harvard Business School Press, 2008), and ongoing research on clusters and competitiveness. 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. Further information on Professor Porter’s work and the Institute for Strategy and Competitiveness is available at

www.isc.hbs.edu

Bulgarian Competitiveness:

A Framework and Preliminary Evidence

Professor Michael E. Porter

Harvard Business School

Visit of President of Bulgaria Rosen Plevneliev Boston, MA

September 27, 2012

http://www.isc.hbs.edu/







########(presentation date)—File Name Here—v#—February 27, 2014 Copyright 2012 © Professor Michael E. Porter 2

Agenda

• Bulgaria’s Performance

• Diagnosing Competitiveness


Prosperity Performance EU Countries

Source: EIU (2012); author’s calculations

Austria Belgium

Bulgaria

Cyprus

Czech Republic

Denmark

Estonia

Finland

France

Germany

Greece

Hungary

Ireland

Italy

Latvia

Lithuania

Malta

Netherlands

Poland

Portugal

Romania

Slovakia

Slovenia

Spain

Sweden

United Kingdom

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

$50,000

2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0%

PPP-Adjusted GDP per Capita, 2010 ($USD)

Growth of Real GDP per Capita (PPP-adjusted), CAGR, 2000-2010

Luxembourg

(5.16%, $87.716) EU Average: 4.55%

EU Average: $30,809


Income Inequality Selected Countries

Index of Inequality (2006)*

Note: * latest data available used (in some cases earlier years data used)

Source: World Bank, World Development Indicators, 2008, United Nations University (UNU-WIDER)

20

25

30

35

40

45

50

55

60

-10 -5 0 5 10 15

Change in Inequality, 2006 versus 2002

France

UK

Finland Germany

Italy

Latvia

Sweden

Costa Rica

Lithuania

Ireland

Czech Rep.

Bolivia

Poland

Colombia

Mexico

Slovenia

USA

Austria

Georgia

New Zealand Pakistan

Hungary

Romania

Vietnam

Turkey

Slovakia

Denmark

Bulgaria

Venezuela

Spain

Peru

Bangladesh

Portugal Indonesia

China

Argentina

Philippines Russia

Chile

India

Taiwan

Nicaragua

Malaysia Ukraine

Jordan

Jamaica

Uruguay

Croatia

Bosnia Serbia

El Salvador

Moldova

Paraguay

Brazil

Honduras

Cambodia

Belgium

Tajikistan

Kyrgyz Republic

Kazakhstan

Dominican Republic Ecuador

Panama

Greece

Netherlands

Australia

Egypt

Estonia

Macedonia

Albania

Guatemala

Improving Worsening

High inequality

Low inequality


Workforce Participation EU Countries

Source: EIU (2012), author’s calculations

Austria

Belgium

Bulgaria

Cyprus

Czech Republic Denmark Estonia

Finland

France

Germany

Greece

Hungary

Ireland

Italy

Latvia

Lithuania

Luxembourg

Malta

Netherlands Poland

Portugal

Romania

Slovakia

Slovenia

Spain

Sweden

United Kingdom

32.0%

37.0%

42.0%

47.0%

52.0%

57.0%

-3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0%

Labor Force Participation (2010)

Change in Labor Force Participation Rate, 2000-2010

EU Average: 2.02%

EU Average: 47.57%

Improving Participation Declining Participation


Unemployment Performance EU Countries

Source: EIU (2012), author’s calculations

Austria

Belgium

Bulgaria

Cyprus

Czech Republic

Denmark

Estonia

Finland

France Germany

Greece

Hungary

Ireland

Italy

Latvia

Lithuania

Luxembourg

Malta

Netherlands

Poland

Portugal

Romania

Slovakia

Slovenia

Spain

Sweden

United Kingdom

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

-10.0% -8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%

Unemployment Rate (%), 2010

Change in Unemployment Rate in Percentage Points, 2000-2010

EU Average: 0.99%

EU Average: 9.19%

Worsening Unemployment

Improving

Unemployment


Productivity

Country Competitive Environment

Domestic

investment Imports

Outbound

foreign direct

investment

Domestic

innovation

Inbound

foreign direct

investment

Exports

Intermediate Indicators and Enablers of

Productivity


Domestic Investment Performance EU Countries

Note: Includes inbound FDI

Source: EIU (2012)

Austria Belgium

Bulgaria

Cyprus

Czech Republic

Denmark

Estonia Finland

France

Germany

Greece

Hungary

Ireland

Italy Latvia

Lithuania

Luxembourg Malta Netherlands

Poland

Portugal

Romania Slovakia

Slovenia

Spain

Sweden

United Kingdom

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

22.0%

24.0%

26.0%

-12.0% -10.0% -8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0%

Gross Fixed Investment (% of GDP),

2010

Change in Gross Fixed Investment (% of GDP), 2000-2010

EU Average: -3.06%

EU Average: 19.13%

Increasing Domestic Investment

Decreasing

Domestic Investment


Export Performance EU Countries

Source: EIU (2012), authors calculations

Austria

Belgium

Bulgaria

Cyprus

Czech Republic

Denmark

Estonia

Finland

France

Germany

Greece

Hungary

Ireland

Italy

Latvia

Lithuania

Malta

Netherlands

Poland

Portugal

Romania

Slovakia

Slovenia

Spain

Sweden

United Kingdom

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

-15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%

Exports of Goods and Services (% of GDP),

2010

Change in Exports of Goods and Services (% of GDP), 2000-2010

EU Average: 5.12%

EU Average: 59.34%

Luxembourg

(14.99%, 164.99%)

Increasing Exports Decreasing Exports


Import Performance EU Countries

Source: EIU (2012), authors calculations

Austria

Belgium

Bulgaria

Cyprus

Czech Republic

Denmark

Estonia

Finland

France

Germany

Greece

Hungary

Ireland

Italy

Latvia

Lithuania

Malta

Netherlands

Poland Portugal Romania

Slovakia

Slovenia

Spain

Sweden

United Kingdom

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

-20.0% -15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0%

Imports of Goods and Services (% of GDP),

2010

Change in Imports of Goods and Services (% of GDP), 2000-2010

EU Average: 2.29%

EU Average: 57.11%

Luxembourg

(4.81%, 133.80%)

Increasing Imports Decreasing Imports


Source: USPTO (2010), Groningen Growth and Development Centre, Total Economy Database (2010)

Average U.S. utility patents per 1 million population, 2007-2009

CAGR of US-registered patents, 1999 - 2009

Innovative Output Selected Countries

10,000 patents (avg. 1999 – 2009) =

China

India

Russia

South Africa

Brazil

Malaysia

Argentina

Thailand

Venezuela Ukraine

Saudi Arabia

Philippines

Croatia

Colombia

Bulgaria

Romania

Indonesia

Egypt

Costa Rica

Slovakia

United Arab Emirates

Belarus

Kenya

Lithuania

Ecuador Peru

Uruguay

Chile

Estonia

0

1

2

3

4

5

6

-15% -5% 5% 15% 25% 35% 45%

Increasing Number of Patents

Decreasing Number of

Patents


Inbound Foreign Investment Performance Stocks and Flows, EU Countries

Source: UNCTAD, World Investment Report (2011)

Austria

Bulgaria

Cyprus

Czech Republic

Denmark

Estonia

Finland

France

Germany

Greece

Hungary

Italy

Latvia

Lithuania

Malta Netherlands

Poland

Portugal

Romania

Slovakia

Slovenia

Spain

Sweden

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0%

Inward FDI Stocks as % of GDP, Average 1999-

2009

FDI Inflows as % of Gross Fixed Capital Formation, Average 1999-2009

EU Average: 29.76%

EU Average: 49.00%

United Kingdom


Agenda

• Bulgaria’s Performance

• Diagnosing Competitiveness


• Endowments, i.e. natural resources, geographical location, and size, create a foundation for

prosperity, but true prosperity is created by productivity in the use of endowments

Endowments

What Determines Competitiveness?


• Macroeconomic competitiveness sets the economy-wide context for high productivity to emerge, but is

not sufficient to achieve this outcome



Endowments

Macroeconomic Competitiveness

Human

Development

and Political

Institutions

Monetary and

Fiscal Policies




Monetary and

Fiscal Policies

Endowments

Human

Development

and Political

Institutions

• Fiscal Policy:

Public spending aligned

with revenues over time

• Monetary Policy:

Low levels of inflation

• Economic Stabilization:

Avoiding structural

imbalances and cyclical

overheating

Monetary and Fiscal

Policies



• Human Development:

Basic education, health

care, equal opportunity

• Rule of Law:

Property rights and due

process

• Political Institutions:

Stable and effective

political and governmental

processes and

organizations

Human

Development

and Political

Institutions Macroeconomic Competitiveness

Monetary and

Fiscal Policies

Endowments

Human

Development

and Political

Institutions



• Productivity ultimately depends on improving the microeconomic capability of the economy and the

sophistication of local competition revealed at the level of regions and clusters

• Macroeconomic competitiveness sets the economy-wide context for high productivity to emerge, but is

not sufficient to achieve this outcome




Microeconomic Competitiveness

Sophistication

of Company

Operations and

Strategy

Quality of the

Business

Environment

Human

Development

and Political

Institutions

Monetary and

Fiscal Policies

State of Cluster

Development

Endowments





Sophistication

of Company

Operations and

Strategy

Quality of the

National

Business

Environment

Human

Development

and Political

Institutions

Monetary and

Fiscal Policies

State of Cluster

Development

Endowments

The external business

environment conditions

that enable company

productivity and

innovation





Sophistication

of Company

Operations and

Strategy

Quality of the

National

Business

Environment

Macroeconomic

Policies

Social

Infrastructure

and Political

Institutions

State of Cluster

Development

Endowments

A critical mass of firms

and institutions in each

field to harness

efficiencies and

externalities across

related entities

Human

Development

and Political

Institutions

Monetary and

Fiscal Policies



Internal skills, capabilities,

and management practices

needed for companies to

attain the highest level of

productivity and innovation

possible given external

conditions



Sophistication

of Company

Operations and

Strategy

Quality of the

National

Business

Environment

Macroeconomic

Policies

Social

Infrastructure

and Political

Institutions

State of Cluster

Development

Endowments

Human

Development

and Political

Institutions

Monetary and

Fiscal Policies



Benchmarking Competitiveness Bulgaria’s Competitiveness Profile, 2011

Bulgaria’s GDP per

capita rank is 57th

versus 132 countries

Note: Rank versus 132 countries; overall, Iceland ranks 57th in PPP adjusted GDP per capita and 75th in Global Competitiveness

Source: Institute for Strategy and Competitiveness, Harvard University (2011), based in part on survey data from the World Economic Forum.

Macroeconomic

Competitiveness

75

Political Institutions

105

Rule of Law

96

Human

Development

59

Microeconomic

Competitiveness

82

Macroeconomic

Policy

39

National Business

Environment

78

Company Operations

and Strategy

96

Country Competitiveness

75

Significant

advantage

Moderate

advantage Neutral

Moderate

disadvantage

Significant

disadvantage


Corruption Perception Index, 2010

Note: Ranks only countries available in both years (160 countries total)

Source: Global Corruption Report, 2010

High corruption

Low corruption

Worsening Improving

Change in Rank, Global Corruption Report, 2010 versus 2006

Rank in Global

Corruption Index,

2010

Botswana

Albania

Algeria

Argentina

Armenia

Australia

Austria

Azerbaijan

Bahrain

Bangladesh

Belarus

Benin Bolivia

Brazil Bulgaria

Burundi

Cambodia

Cameroon

Canada

Chad

Chile

China

Colombia

Costa Rica

Côte d´Ivoire

Croatia

Cyprus

Czech Republic

Denmark

Dominica

Dominican Republic

Ecuador

Egypt

El Salvador

Estonia

Ethiopia

Finland

France

Gambia

Georgia

Germany

Greece

Guatemala

Guinea

Guyana

Haiti

Honduras

Hong Kong

Hungary

Iceland

India

Indonesia

Israel

Italy

Jamaica

Jordan

Kazakhstan

Kenya Kyrgyzstan

Laos

Lithuania Macau

Malaysia

Mexico

Morocco

Nepal

New Zealand

Nicaragua

Niger

Nigeria

Oman

Pakistan

Panama

Paraguay

Peru

Philippines

Poland Portugal

Qatar

Romania

Russia

Saudi Arabia

Senegal

Serbia

Slovakia

Slovenia

South Africa

South Korea

Spain

Sudan

Swaziland

Sweden Switzerland

Syria

Taiwan

Thailand Trinidad and

Tobago

Turkey

Uganda

Ukraine

United Kingdom Uruguay

U.S.

Venezuela

Viet Nam

Zambia

Zimbabwe


Microeconomic Competitiveness Indicators Ease of Doing Business Rankings (Bulgaria, 2012)

Ranking, 2010 (vs. 183 countries)

Source: World Bank Report, Doing Business (2012).

Favorable Unfavorable

0

20

40

60

80

100

120

140

Ease of

Doing

Business

Rank

Getting Credit Protecting

Investors

Starting a

Business

Registering

Property

Paying Taxes Enforcing

Contracts

Resolving

Insolvency

Trading

Across

Borders

Dealing with

Construction

Permits

Getting

Electricity

Bulgaria’s GDP per capita rank: 57


Composition of Exports Bulgaria’s Exports By Type of Good

0.00%

0.05%

0.10%

0.15%

0.20%

0.25%

0.30%

0.35%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Processed Goods

Semi-processed Goods

Unprocessed Goods

Services

TOTAL

World Export Market Share (current USD)

Source: Prof. Michael E. Porter, International Cluster Competitiveness Project, Institute for Strategy and Competitiveness, Harvard Business School; Richard Bryden, Project Director.

Underlying data drawn from the UN Commodity Trade Statistics Database and the IMF BOP statistics.


Bulgaria’s National Cluster Export Portfolio 2000-2010

Bulgaria’s Overall

World Export Share: 0.16%

Change in Bulgaria’s Overall

World Export Share: 0.07%

Tobacco

(0.70%, 1.08%)

= $350 million

Metal Mining and Manufacturing

Hospitality and Tourism

Agricultural Products

Oil and Gas Products

Apparel

Transportation and Logistics

Building Fixtures and Equipment

Communications Services

Production Technology

Power and Power Generation Equipment

Lighting and Electrical Equipment

Motor Driven Products

Communications Equipment

Chemical Products

Automotive

0.0%

0.1%

0.2%

0.3%

0.4%

0.5%

-0.05% 0.05% 0.15% 0.25% 0.35% 0.45%

Wo

rld

Ex

po

rt M

ark

et

Sh

are

, 2

01

0

Change in World Export Market Share, 2000-2010


Aerospace

Vehicles &

Defense

Furniture Building

Fixtures,

Equipment &

Services

Fishing &

Fishing

Products

Hospitality

& Tourism Agricultural

Products

Transportation

& Logistics

Cluster Linkages and Economic Diversification Bulgaria, 2010

Plastics

Oil &

Gas

Chemical

Products

Biopharma-

ceuticals

Power

Generation

Lightning &

Electrical

Equipment

Financial

Services

Publishing

& Printing

Aerospace

Engines

Business

Services

Distribution

Services

Forest

Products

Heavy

Construction

Services

Construction

Materials

Prefabricated

Enclosures

Heavy

Machinery

Sporting

& Recreation

Goods

Automotive

Production

Technology Motor Driven

Products

Mining & Metal

Manufacturing

Apparel

Leather &

Related

Products

Jewelry &

Precious

Metals

Textiles

Footwear

Processed

Food

Tobacco

Enter-

tainment

Information

Tech.

Medical

Devices

Analytical

Instruments Education &

Knowledge

Creation Communi-

cations

Equipment

0.04% - 0.15%

0.16% - 0.39%

> 0.40%

World Market Share


Established Bulgarian Export Products Leading Exports by World Share, 2010

Change in Share Export Value

Rank Industry Cluster World Export Share (2000-2010) (in $ thousands)

1 Monofilament of ethylene Plastics 6.43% 5.77% $13,883

2 Carbonates, percarbonates Chemical Products 4.31% 4.25% $184,905

3 Cinematograph film, exposed and developed Entertainment and Reproduction Equipment 3.35% 2.43% $21,200

4 Lead Metal Mining and Manufacturing 3.14% 0.61% $174,510

5 Miscellaneous footwear with leather uppers Footwear 2.74% -0.40% $13,801

6 Pulley tackle and hoists Production Technology 2.60% 1.57% $28,960

7 Wine, cider or similar beverage making machinery Processed Food 2.51% 2.08% $5,614

8 Women’s or girls’ blouses, shirts and shirt-blouses, knitted Apparel 2.41% 1.06% $134,417

9 Copper bars, rods and profiles Metal Mining and Manufacturing 2.41% 2.40% $134,702

10 Copper, copper anodes and alloys Metal Mining and Manufacturing 2.14% -0.18% $1,593,226

11 Copper plates, sheets and strip, 15mm+ thickness Metal Mining and Manufacturing 2.01% 2.01% $194,807

12 Miscellaneous simply shaped wood Building Fixtures and Equipment 1.95% 1.65% $4,616

13 Medicaments containing alkaloid Biopharmaceuticals 1.83% 1.78% $64,370

14 Yarn of wool or animal hair Textiles 1.83% 1.80% $56,282

15 Ceramic plumbing fixtures Construction Materials 1.82% 0.41% $70,998

16 Tobacco, unmanufactured Tobacco 1.77% 0.94% $191,240

17 Copper mattes; cement copper Metal Mining and Manufacturing 1.67% $7,366

18 Zinc Metal Mining and Manufacturing 1.65% 0.17% $189,208

19 Barley, unmilled Agricultural Products 1.61% 1.05% $79,445

20 Tobacco working machinery Production Technology 1.58% 0.81% $9,671

21 Dairy machinery Processed Food 1.57% 1.24% $8,032

22 Fuel wood, wood charcoal Forest Products 1.57% 0.17% $15,702

23 Precious metal waste and scrap Jewelry, Precious Metals and Collectibles 1.54% $192,529

24 Miscellaneous measuring, controlling and scientific instrumentsAnalytical Instruments 1.49% 1.46% $121,428

25 Monofilament of vinyl chloride Plastics 1.42% 1.42% $40,260

26 Men’s or boys’ suits and ensembles Apparel 1.41% 0.33% $61,306

27 Densified, reconstituted wood Building Fixtures and Equipment 1.39% 1.20% $90,637

28 Wheat, meslin, unmilled Agricultural Products 1.39% 1.03% $451,936

29 Parts of footwear; removable in-soles and similar articles Footwear 1.38% 0.19% $94,152

30 Electric current Power and Power Generation Equipment 1.38% $444,712

31 Other cereal meal, flours Processed Food 1.21% 1.19% $12,103

32 Women’s or girls’ jackets Apparel 1.19% 0.43% $69,112

33 Plants for pharmacy, perfumery, or for insecticidal purposes Agricultural Products 1.16% -0.28% $23,955

34 Glass containers Processed Food 1.16% 0.65% $88,658

35 Aluminum tubes and pipes Building Fixtures and Equipment 1.14% 1.13% $22,441

36 Household glassware Building Fixtures and Equipment 1.11% 1.03% $92,815

37 Men’s or boys’ jackets and blazers Apparel 1.05% 0.41% $44,091

38 Oilseed (soft fix vegetable oil) Agricultural Products 1.04% 0.95% $562,108

39 Rice in the husk Agricultural Products 1.02% 0.98% $10,465

40 Cigarettes containing tobacco Tobacco 0.98% 0.81% $167,103

Documents

Bulgarian Competitiveness: A Framework and Preliminary ... Files...This presentation draws on ideas from Professor Porter’s articles and books, in particular, The Competitive Advantage