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This presentation draws on ideas from Professor Porter’s articles and books, in particular, The Competitive Advantage of Nations (The Free Press, 1990), “Building theMicroeconomic Foundations of Competitiveness,” in The Global Competitiveness Report (World Economic Forum), “Clusters and the New Competitive Agenda forCompanies and Governments” in On Competition (Harvard Business School Press, 2008), and ongoing research on clusters and competitiveness. No part of this publicationmay be reproduced, stored in a retrieval system, or transmitted in any form or by any means - electronic, mechanical, photocopying, recording, or otherwise - without thepermission 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
Israel Competitiveness Snapshot
Professor Michael E. PorterHarvard Business School
December 6, 2012
20121206—Israel Competitiveness Snapshot—FINAL Copyright 2012 © Professor Michael E. Porter2
Note: Luxembourg ExcludedSource: EIU (2012), authors calculations
Prosperity PerformanceOECD Countries
AustraliaAustria
BelgiumCanada
Chile
Czech Republic
Denmark
Estonia
FinlandFrance
Germany
Greece
Hungary
Iceland
Ireland
IsraelItaly
Japan
Mexico
Netherlands
New Zealand
Norway
Poland
Portugal Slovakia
SloveniaSouth Korea
Spain
Sweden
Switzerland
Turkey
United Kingdom
United States
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
1.5% 2.5% 3.5% 4.5% 5.5% 6.5% 7.5%
PPP-Adjusted GDP per Capita, 2011 ($USD)
Growth in Real GDP per Capita (PPP-adjusted), CAGR, 2001-2011
OECD Average: 4.06%
OECD Average: $33,432
20121206—Israel Competitiveness Snapshot—FINAL Copyright 2012 © Professor Michael E. Porter3
Labor Productivity Level and GrowthOECD Countries
Note: Luxembourg omitted.Source: Groningen Growth and Development Centre, Total Economy Database (January 2012). GDP calculated using Geary Khamis calculation methodology.
Australia
Austria
Belgium
Canada
Chile
Czech Republic
Denmark
Estonia
FinlandFrance
Germany
Greece
Hungary
Iceland
Ireland
IsraelItaly
Japan
Mexico
Netherlands
New Zealand
Norway
Poland
Portugal
Slovakia
Slovenia
South Korea
Spain
Sweden
Switzerland
Turkey
U.K.
United States
$15,000
$25,000
$35,000
$45,000
$55,000
$65,000
-1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0%
Real GDP per Employee (1990 GK$),
2011
Growth in Real GDP per Employee, CAGR, 2001-2011
OECD Average: 1.20%
OECD Average: $39,773
20121206—Israel Competitiveness Snapshot—FINAL Copyright 2012 © Professor Michael E. Porter4
Labor Productivity Growth vs. GDP GrowthOECD Countries
Note: Luxembourg omitted.Source: Groningen Growth and Development Centre, Total Economy Database (January 2012); EIU Data (2012).
AustraliaAustriaBelgium
Canada
Chile
Czech Republic
Denmark
Estonia
Finland
FranceGermany
Greece
Hungary
Iceland
Ireland
Israel
Italy
Japan
Mexico
Netherlands
New Zealand
Norway
Poland
Portugal
Slovakia
Slovenia
South Korea
Spain
Sweden
Switzerland
Turkey
U.K.
U.S.
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
1.5% 2.5% 3.5% 4.5% 5.5% 6.5% 7.5%
Growth in Real GDP per Employee , CAGR,
2001-2011
Growth in Real GDP per Capita (PPP-adjusted), CAGR, 2001-2011
OECD Average: 4.06%
OECD Average: 1.20%
20121206—Israel Competitiveness Snapshot—FINAL Copyright 2012 © Professor Michael E. Porter5
Note: Luxembourg omitted. Source: EIU (2012), authors calculations
Workforce ParticipationOECD Countries
Australia
Austria
Belgium
Canada
Chile
Czech RepublicDenmark
Estonia
Finland
France
Germany
GreeceHungary
Iceland
Ireland
Israel
Italy
Japan
Mexico
Netherlands
New ZealandNorway
Poland
Portugal
Slovakia
Slovenia
South Korea Spain
Sweden
Switzerland
Turkey
United Kingdom
United States
35.0%
40.0%
45.0%
50.0%
55.0%
60.0%
65.0%
-3.5% -2.5% -1.5% -0.5% 0.5% 1.5% 2.5% 3.5% 4.5% 5.5% 6.5% 7.5%
Labor Force Participation (2011)
Change in Labor Force Participation Rate, 2001-2011
OECD Average: 1.59%
OECD Average: 49.09%
Improving ParticipationDeclining Participation
20121206—Israel Competitiveness Snapshot—FINAL Copyright 2012 © Professor Michael E. Porter6
Unemployment PerformanceOECD Countries
Note: Luxembourg omitted. Source: EIU (2012), authors calculations
Australia Austria
Belgium
Canada
Chile
Czech Republic
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Iceland
Ireland
Israel
Italy
Japan
Mexico
Netherlands
New Zealand
Norway
PolandPortugal
Slovakia
Slovenia
South Korea
Sweden
Switzerland
Turkey
United Kingdom
United States
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
-6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%
Unemployment Rate, 2011 (%)
Change in Unemployment Rate in Percentage Points, 2001-2011
OECD Average: 1.41%
OECD Average: 8.52%
Worsening Unemployment
Improving Unemployment
Spain (11.10%, 21.65%)
20121206—Israel Competitiveness Snapshot—FINAL Copyright 2012 © Professor Michael E. Porter7
Note: Luxembourg omitted.Source: Groningen Growth and Development Centre and The Conference Board, 2012
Working HoursOECD Countries
AustraliaAustria
Belgium
Canada
Chile
Czech Republic
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Iceland
Ireland
Israel
Italy
Japan
Mexico
Netherlands
New Zealand
Norway
Poland
Portugal
Slovakia
SloveniaSpainSweden
Switzerland
Turkey
United Kingdom
United States
1,200
1,300
1,400
1,500
1,600
1,700
1,800
1,900
2,000
2,100
2,200
-0.9% -0.8% -0.7% -0.6% -0.5% -0.4% -0.3% -0.2% -0.1% 0.0% 0.1% 0.2%
Hours Worked per Employee, 2011
Change in Hours Worked per Employee, CAGR, 2001-2011
OECD Average: -0.34%
OECD Average: 1,750
Declining Working Hours
Longer Working Hours
South Korea (-1.28%; 2,204)
20121206—Israel Competitiveness Snapshot—FINAL Copyright 2012 © Professor Michael E. Porter8
Productivity
Country Competitive Environment
Domestic investment Imports
Outboundforeign direct
investment
Domesticinnovation
Inboundforeign direct
investmentExports
Intermediate Indicators and Enablers of Productivity
20121206—Israel Competitiveness Snapshot—FINAL Copyright 2012 © Professor Michael E. Porter9
Domestic Investment PerformanceOECD Countries
Note: Includes inbound FDI; excludes Luxembourg.Source: EIU, 2012
Australia
AustriaBelgium
CanadaChile
Czech Republic
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Iceland
IsraelItaly
Japan
Mexico
NetherlandsNew Zealand
NorwayPoland
Portugal
Slovakia
Slovenia
South Korea
Spain
Sweden
Switzerland
Turkey
United Kingdom
United States
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
22.0%
24.0%
26.0%
28.0%
-10.0% -8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0%
Gross Fixed Investment (% of GDP),
2011
Change in Gross Fixed Investment (% of GDP), 2001-2011
OECD Average: -2.34%
OECD Average: 19.47%
Ireland (-12.27%, 10.09%)
20121206—Israel Competitiveness Snapshot—FINAL Copyright 2012 © Professor Michael E. Porter10
Export PerformanceOECD Countries
Note: Luxembourg omittedSource: EIU (2012), authors calculations
Australia
Austria
Belgium
Canada
Chile
Czech Republic
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Iceland
Ireland
Israel
Italy
Japan
Mexico
Netherlands
New Zealand
NorwayPoland
Portugal
Slovakia
Slovenia
South Korea
Spain
Sweden Switzerland
TurkeyU.K.
United States
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%
Exports of Goods and Services (% of GDP),
2011
Change in Exports of Goods and Services (% of GDP), 2001-2011
OECD Average: 6.81%
OECD Average: 49.10%
20121206—Israel Competitiveness Snapshot—FINAL Copyright 2012 © Professor Michael E. Porter11
Import PerformanceOECD Countries
Note: Luxembourg omittedSource: EIU (2012), authors calculations
Australia
Austria
Belgium
Canada
Chile
Czech Republic
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Iceland
Ireland
Israel
Italy
Japan
Mexico
Netherlands
New Zealand
Norway
PolandPortugal
Slovakia
Slovenia
South Korea
Spain
SwedenSwitzerland
TurkeyU.K.
United States
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
-5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0%
Imports of Goods and Services (% of GDP),
2011
Change in Imports of Goods and Services (% of GDP), 2001-2011
OECD Average: 5.68%
OECD Average: 46.81%
20121206—Israel Competitiveness Snapshot—FINAL Copyright 2012 © Professor Michael E. Porter12Source: USPTO (2010), Groningen Growth and Development Centre, Total Economy Database (2010)
Average U.S. patents per 1 million population, 2007-2009
CAGR of US-registered patents, 1999-2009
Innovative OutputSelected Countries
10,000 patents =
United States
Japan
Germany
UK
France
Taiwan
Canada
South Korea
Italy
Switzerland
Sweden
Netherlands
Australia
IsraelFinland
BelgiumAustria
DenmarkHong Kong
China (30.78%)Spain
Norway
Singapore
IndiaSouth AfricaNew Zealand Ireland
RussiaHungary Brazil
0
50
100
150
200
250
300
350
400
-5% 0% 5% 10% 15% 20% 25%
20121206—Israel Competitiveness Snapshot—FINAL Copyright 2012 © Professor Michael E. Porter13
Inbound Foreign Investment PerformanceStocks and Flows, OECD Countries
Note: Luxembourg omittedSource: UNCTAD, World Investment Report (2012)
Australia
Austria
Canada
Chile
Czech RepublicDenmark
Estonia
Finland
France
GermanyGreece
Hungary
Israel
Italy
Japan
South Korea
Mexico
Netherlands
New Zealand
NorwayPoland
Portugal
Slovakia
Slovenia
Spain
Sweden
Switzerland
Turkey
United Kingdom
United States
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0%
Inward FDI Stocks as % of GDP, Average 2000-
2010
FDI Inflows as % of Gross Fixed Capital Formation, Average 2000-2010
OECD Average: 19.18%
OECD Average: 44.75%
Iceland(32.39%, 134.45%)
Belgium (94.53%, 132.93%)
Ireland(39.24%, 107.90%)
20121206—Israel Competitiveness Snapshot—FINAL Copyright 2012 © Professor Michael E. Porter14
Outbound Foreign Investment PerformanceStocks and Flows, OECD Countries
Note: Luxembourg omitted.Source: UNCTAD, World Investment Report (2012)
Australia
Austria
Canada
Chile
Czech Republic
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Ireland
IsraelItaly
JapanSouth Korea
Mexico
New Zealand
Norway
Poland
Portugal
Slovakia
Slovenia
Spain
Sweden
Turkey
United Kingdom
United States
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0%
Outward FDI Stocks as % of GDP, Average
2000-2010
FDI Outflows as % of Gross Fixed Capital Formation, Average 2000-2010
OECD Average: 18.40%
OECD Average: 39.28%
Belgium (87.81%, 127.83%)Iceland (43.13%, 186.83%)
Netherlands (50.66%, 104.05%)Switzerland (46.33%, 127.16%)
20121206—Israel Competitiveness Snapshot—FINAL Copyright 2012 © Professor Michael E. Porter15
• 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 productivity to emerge, but is not sufficient to ensure productivity
• Endowments, including natural resources, geographical location, population, and country size, create a foundation for prosperity, but true prosperity arises from productivity in the use of endowments
Macroeconomic Competitiveness
Microeconomic Competitiveness
Sophisticationof Company
Operations andStrategy
Quality of the Business
Environment
State of Cluster Development
Endowments
What Determines Competitiveness?
Human Development and Effective
Political Institutions
Sound Monetary and Fiscal Policies
20121206—Israel Competitiveness Snapshot—FINAL Copyright 2012 © Professor Michael E. Porter16
ISC Competitiveness ModelIsrael’s Competitiveness Profile, 2012
Israel’s GDP per capita rank is 25th
versus 128 countries
Note: Rank versus 128 countries; *Color coding based on comparison relative to income; Source: Institute for Strategy and Competitiveness, Harvard University (2012), based in part on survey data from the World Economic Forum; analysis prepared based on research findings by Scott Stern, Mercedes Delgado, and Christian Ketels.
Macroeconomic Competitiveness
30
Political Institutions 48
Rule of Law29
Human Development
26
MicroeconomicCompetitiveness
23
Macroeconomic Policy58
National Business Environment
27
Company Operations and Strategy
13
Country Competitiveness29
Significant advantage
ModerateadvantageNeutral Moderate
disadvantageSignificant
disadvantage
20121206—Israel Competitiveness Snapshot—FINAL Copyright 2012 © Professor Michael E. Porter17
ISC Competitiveness ModelIsrael’s Competitiveness Profile, 2012
Note: Rank versus 128 countries; *Color coding based on comparison relative to income; Source: Institute for Strategy and Competitiveness, Harvard University (2012), based in part on survey data from the World Economic Forum; analysis prepared based on research findings by Scott Stern, Mercedes Delgado, and Christian Ketels.
Macroeconomic Competitiveness 30
Political Institutions 48Effectiveness of law -making bodies 56Public trust of politicians 58(Low ) Wastefulness of government spending 64(Low ) Favoritism in decisions of government off icials 42Government effectiveness in reducing poverty and inequality 89Transparency of government policymaking 67Decentralization of economic policymaking *Freedom of the press 16Voice and Accountability (WB) 42
Rule of Law 29Safety 39Judicial independence 18Efficiency of legal framew ork 50Property rights 29(Low occurrence of) Diversion of public funds 23(Low occurrence of) Irregular payments by f irms 26(Low ) Business costs of corruption *Ethical behavior of f irms 29Control of Corruption (WB) 35Rule of Law (WB) 32
Human Development 26Quality of primary education 67Quality of healthcare services 24Accessibility of healthcare services 36Health expenditure 47Life expectancy 8(Low ) Malaria incidence 1(Low ) Tuberculosis incidence 9(Low ) Infant mortality 19Primary enrollment 38Secondary enrollment 1(Low ) Gender inequality 22
Macroeconomic Policy 58Government surplus/deficit 61Government debt 108Inflation 44
Microeconomic Competitiveness 23
National Business Environment 27Factor (input) conditions 28
- Logistical infrastructure 56- Communications infrastructure 27- Administrative infrastructure 61- Capital market infrastructure 24- Innovation infrastructure 20
Demand conditions 22Supporting and related industries and clusters 28Context for strategy and rivalry 34
Company Operations and Strategy 13Strategy and operational effectiveness 10Organizational practices 29Internationalization of f irms 10
20121206—Israel Competitiveness Snapshot—FINAL Copyright 2012 © Professor Michael E. Porter18
Corruption Perception IndexOECD Countries
Note: Methodology for comparison is based on adjusted rankings only for countries available in both years (161 countries total) Source: Global Corruption Report, 2011
AustraliaAustria
Belgium
Canada
Chile
Czech Republic
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Iceland
Ireland
Israel
Italy
Japan
Mexico
Netherlands
New Zealand
Norway
Poland
Portugal
Slovakia
SloveniaSouth Korea
Spain
SwedenSwitzerland
Turkey
United KingdomUnited States
Rank in Global Corruption Index, 2011
Change in Rank, Global Corruption Report, 2011 versus 2006
High corruption
Low corruption
Worsening Improving
20121206—Israel Competitiveness Snapshot—FINAL Copyright 2012 © Professor Michael E. Porter19
Microeconomic Competitiveness Indicators Ease of Doing Business Rankings (Israel, 2013)
Ranking, 2010 (vs. 183 countries)
Source: World Bank Report, Doing Business (2012).
Favorable Unfavorable
0
20
40
60
80
100
120
140
Ease ofDoing
BusinessRank
ProtectingInvestors
TradingAcrossBorders
Getting Credit Starting aBusiness
ResolvingInsolvency
Paying Taxes GettingElectricity
EnforcingContracts
Dealing withConstruction
Permits
RegisteringProperty
Israel’s GDP per capita rank: 26
20121206—Israel Competitiveness Snapshot—FINAL Copyright 2012 © Professor Michael E. Porter20
Composition of ExportsIsrael’s Exports By Type of Good
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1.40%
1.60%
1.80%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Processed GoodsSemi-processed GoodsUnprocessed GoodsServicesTOTAL
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.
20121206—Israel Competitiveness Snapshot—FINAL Copyright 2012 © Professor Michael E. Porter21
Israel’s National Cluster Export Portfolio2000-2010
= $1.5 billion
Jewelry, Precious Metals and Collectibles
Communications Services
Biopharmaceuticals
Business Services
Chemical Products
Hospitality and Tourism
Analytical Instruments
Production Technology
Communications Equipment
Aerospace Vehicles and Defense
Plastics
Medical Devices
Metal Mining and Manufacturing
Oil and Gas Products
Construction Services
TextilesEntertainment and
Reproduction Equipment
Automotive
Processed FoodMotor Driven
Products
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
-4.00% -3.00% -2.00% -1.00% 0.00% 1.00% 2.00%
Wor
ld E
xpor
t Mar
ket S
hare
, 201
0
Change in World Export Market Share, 2000-2010
Israel’s Overall World Export Share: 0.47%
Change in Israel’s Overall World Export Share: -0.16%
20121206—Israel Competitiveness Snapshot—FINAL Copyright 2012 © Professor Michael E. Porter22
Aerospace Vehicles &
Defense
FurnitureBuilding Fixtures,
Equipment & Services
Fishing & Fishing Products
Hospitality & TourismAgricultural
Products
Transportation & Logistics
Cluster Linkages and Economic DiversificationIsrael, 2010
Plastics
Oil & Gas
Chemical Products
Biopharma-ceuticals
Power Generation
Lightning & ElectricalEquipment
Financial Services
Publishing & Printing
Aerospace Engines
Business Services
DistributionServices
Forest Products
Heavy Construction
Services
ConstructionMaterials
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 InstrumentsEducation &
Knowledge Creation Communi-
cationsServices and
Equipment
0.25% - 0.46%
0.47% - 1.00%
> 1.00%
World Market Share