Michael Porter - Peru

Competitiveness:
A New Economic Strategy for Peru

Professor Michael E. Porter
Harvard Business School

Lima, Peru
November 30, 2009

This presentation draws on ideas from Professor Porter’s books and articles, in particular, Competitive Strategy (The Free Press, 1980); Competitive
Advantage (The Free Press, 1985); “What is Strategy?” (Harvard Business Review, Nov/Dec 1996); “Strategy and the Internet” (Harvard Business
Review, March 2001); and a forthcoming book. 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. Additional information may
be found at the website of the Institute for Strategy and Competitiveness, www.isc.hbs.edu. Version: November 27, 2009

20091130 – Peru.ppt 1 Copyright 2009 © Professor Michael E. Porter

Prosperity Performance
Selected Lower and Middle Income Countries
PPP-adjusted GDP per
Capita, 2008 ($USD)
$30,000 Slovenia
UAE Greece ($30,650)
Israel
New Zealand
South Korea Czech Republic
$25,000 Cyprus Latin American countries
Bahrain Saudi Arabia Oman Other countries
Portugal
Slovakia
Estonia
$20,000 Hungary
Trinidad & Tobago Lithuania
Poland Latvia
Libya Croatia
Russia
$15,000 Panama
Chile Argentina
Mexico Malaysia
Venezuela
Turkey Bulgaria
Uruguay Belarus
Iran Romania
Costa Rica Kazakhstan
Lebanon Brazil South Africa
$10,000 Dominican Republic
Thailand Colombia Peru
Belize Algeria Bosnia
Ecuador Tunisia Ukraine
Guyana Albania
Guatemala Egypt China
Jordan Paraguay Georgia
$5,000 El Salvador Sri Lanka
Bolivia
Honduras Philippines
Nicaragua Pakistan India Vietnam

$0
0% 2% 4% 6% 8% 10% 12% 14%
Source: Peru.ppt Growth of Real GDP per Capita (PPP-adjusted), CAGR, 2004 to 2008
20091130 – EIU (2009), authors calculations 2 Copyright 2009 © Professor Michael E. Porter

Unemployment Performance
Unemployment
Rate, 2008
Selected Countries
Dominican Republic (15.5%) South Africa (22.9%)
14% Improving Tunisia Deteriorating
Croatia

Algeria Jordan Albania Iran
12% Saudi Arabia
Colombia
Turkey
10% Poland (-8.4%)
China
Indonesia Egypt Brazil Peru Syria
8% Uruguay Slovakia Argentina Chile Hungary
Greece Bolivia Portugal
Venezuela Philippines Ecuador Pakistan
Slovenia Kazakhstan India
Bulgaria Lithuania Russia El Salvador
Israel Ireland
6% T&T Estonia
Panama Czech Rep. Paraguay Nicaragua
Latvia Sri Lanka
Costa Rica Vietnam
Romania
4% Cyprus
Mexico
Honduras Malaysia
Korea Ukraine

2%
Latin American countries
Thailand
Other countries

0%
-6% -5% -4% -3% -2% -1% 0% 1% 2%
Change of Unemployment Rate in Percentage Points, 2004 to 2008

Source: EIU (2009)

Poverty Rates
% of Population Under Peru, 2001 to 2007
the Poverty Line
60%

50%

40%

30%

20%

10%

0%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: Informacion Socio Demografica, from El Instituto Nacional de Estadistica e Informatica (INEI), 2009

Export Performance
Exports of Goods and
Selected Countries
Services (% of GDP), 2008
100%
Malaysia (103.5%)

90% Slovakia
Libya
Latin American Countries
Other countries Ireland Malta Czech Republic Panama Hungary
80% Vietnam
Thailand
Estonia Slovenia Saudi Arabia
70%
Trinidad & Tobago
Belarus Paraguay
60% Bulgaria Belize Lithuania
Cambodia Tunisia
Jordan
Honduras Kazakhstan Algeria
50% Cyprus Macedonia
Croatia Chile
Ukraine (-17.5%) Costa Rica Egypt
Latvia
40% Israel Poland Bolivia
Philippines China Morocco South Africa
Uruguay Ecuador Portugal Nicaragua
Syria Venezuela Russia
Romania Georgia Mexico
30% Indonesia Peru Lebanon
Sri Lanka
Iran El Salvador
India
Argentina Greece
20% Albania Colombia Guatemala
Turkey
Brazil
Pakistan
10% Ethiopia

0%
-15% -10% -5% 0% 5% 10% 15% 20%
Change in Exports of Goods and Services (% of GDP), 2004 to 2008

Source: EIU (2008), authors’ analysis

Peru’s Exports By Type of Industry
World Export Market
Share (current USD)

0.80%
Processed Goods
Semi-processed Goods
0.70% Unprocessed Goods
Services
TOTAL
0.60%

0.50%

0.40%

0.30%

0.20%

0.10%

0.00%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Source: UNComTrade, WTO (2009)

Inbound Foreign Investment Performance
Stocks and Flows, Selected Countries
Inward FDI Stocks as % of
GDP, Average 2003 - 2007
80% Estonia
Trinidad & Tobago
Latin American countries Jordan (46.5%, 81.8%)
Other countries Lebanon (6.7%)
70%
Panama (48.2%)
Tunisia
Hungary Chile Cyprus
60% Vietnam
Bulgaria (69%)

Czech Republic Slovakia Belize
50% Bolivia Nicaragua Croatia
Kazakhstan

Portugal Cambodia Georgia
40% Morocco Macedonia
Malaysia
Thailand Latvia Honduras
Venezuela Poland Egypt Israel
South Africa Argentina Lithuania Bosnia
30% Colombia Romania
Mexico
Ecuador Costa Rica
Brazil Russia El Salvador
Slovenia Peru
20% Guatemala Ukraine UAE Uruguay
Paraguay Dominican Republic
Turkey
Malaysia
China Saudi Arabia
10% Indonesia Sri Lanka Pakistan
India Libya
Iran
0%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
FDI Inflows as % of Gross Fixed Capital Formation, Average 2003 - 2007

Source: UNCTAD, World Investment Report (2009)

Innovative Capacity
Innovation Output of Selected Countries
Average U.S. patents per 1
million population, 2004-2008
3.5
Czech Republic

3.0
Croatia

2.5

2.0 South Africa

Greece

1.5
Portugal
Russia
1.0 Chile Saudi Arabia
Argentina
Poland
Venezuela Romania Bulgaria
Brazil Thailand
Mexico
0.5 China
India
Philippines Ukraine
Peru Ecuador Colombia Turkey
0.0
-30% -20% -10% 0% 10% 20% 30% 40% 50% 60%
CAGR of US-registered patents, 2004 – 2008 120 patents =
Source: USPTO (2009), EIU (2009)

The Peruvian Economy in 2009
• Peru has had a long history of instability
• Since 2001, Peru has experienced high rates of economic growth
– Recent surge in FDI and exports has been driven by commodities
• Implementation of sound macroeconomic policies has allowed Peru to weather the
current global crisis
– Peru’s economy has been one of the most resilient in Latin America

BUT

• Prosperity remains low and large segments of the population lack access to basic
needs
• High unemployment and inequality persist
• Peru is overly dependent on commodity exports with limited potential to drive job growth
and economic diversification

• Returning to 8 to 9% growth is possible only if Peru can substantially improve
competitiveness
• Peru will need an ambitious economic and social strategy, building on the country’s
unique competitive advantages

What is Competitiveness?
• Competitiveness depends on the productivity with which a nation uses
its human, capital, and natural resources.
– Productivity sets the sustainable standard of living (wages, returns on
capital, returns on natural resources)
– It is not what industries a nation competes in that matters for prosperity, but
how productively 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

• Only competitive businesses can create wealth and jobs
• Nations compete to offer the most productive environment for business
• The public and private sectors play different but interrelated roles in
creating a productive economy

Comparative Labor Productivity
Real GDP per employee
(PPP adjusted US$), 2008
Selected Countries
Austria
Kuwait Australia
$70,000 Greece
Saudi Arabia
Switzerland Germany
Spain Japan Singapore
Oman
$60,000 Israel
Malta Slovenia

$50,000 New Zealand Korea Slovakia
UAE Cyprus Hungary
Czech Republic
Portugal
$40,000 Croatia
Lithuania Estonia Poland
Turkey
Mexico Malaysia
Russia Chile Latvia
$30,000 Argentina
Macedonia
Romania
Iran Belarus
South Africa Bulgaria Azerbaijan
$20,000 Kazakhstan Peru Albania
Brazil
Peru (Avg. growth 2001to 2008)
Egypt Armenia
Jordan Ukraine Bosnia
Thailand
Georgia
$10,000 Syria Serbia China
Philippines Indonesia
Pakistan India
Vietnam
Cambodia
$0
-3% 0% 3% 6% 9%
Growth of real GDP per employee (PPP-adjusted), 1990 to 2008
Source: authors calculation Groningen Growth and Development Centre (2009), EIU (2009)

Determinants of Competitiveness
Microeconomic Competitiveness

Quality of the Sophistication
National State of Cluster of Company
Business Development Operations and
Environment Strategy

Macroeconomic Competitiveness

Social
Infrastructure Macroeconomic
and Political Policies
Institutions

Natural Endowments

• Macroeconomic competitiveness creates the potential for high productivity, but is not
sufficient
• Productivity ultimately depends on improving the microeconomic capability of the
economy and the sophistication of local competition



Macroeconomic
Policy
Social
and Political Policies • Fiscal policy: public
Institutions
spending aligned with
revenues over time
Natural Endowments • Monetary policy: low
levels of inflation
• Macroeconomic
management: avoiding
structural imbalances
and cyclical
overheating



Social Business Development Operations and
Infrastructure
and Political
Institutions Macroeconomic Competitiveness
Social
• Human Development: Infrastructure
and Political
Macroeconomic
Policies
basic education and Institutions

health care
• Rule of Law: property Natural Endowments
rights and due process
• Political Institutions:
stable and effective
political and
governmental
processes and
organizations



Sophistication
Environment Strategy of Company
Operations and
Macroeconomic Competitiveness Strategy
Social
Infrastructure
and Political
Macroeconomic
Policies
• The internal company
Institutions skills, capabilities,
and management
practices needed to
Natural Endowments
attain the highest level
of productivity and
innovation possible



Quality of the Environment Strategy
National Business
Environment Macroeconomic Competitiveness
Social
• The external business Infrastructure
and Political
Macroeconomic
Policies
environment Institutions

conditions that allow
companies to reach
Natural Endowments
high levels of
productivity and
innovation




Social
State of Cluster and Political Policies
Development Institutions

• A critical mass of firms Natural Endowments
in particular fields,
together with specialized
skills, infrastructure, and
supporting institutions, to
support high productivity
through efficiencies and
synergies


Competitiveness and Poverty Reduction

Economic Social
Development Development

• There is a strong connection between economic and social
development
• Improving competitiveness and decreasing poverty requires
improving the economic and social context simultaneously


Peru’s Competitiveness Profile, 2009
ISC Country Competitiveness Model

Macroeconomic Microeconomic
Competitiveness (82) Competitiveness (73)

Social Infra- Business Company
Macroeconomic
structure and Pol. Environment Quality Sophistication
Policy (69)
Institutions (90) (74) (70)

Peru’s GDP per capita rank is
71st versus 133 countries

Note: Rank versus 133 countries; overall, Peru ranks 71st in 2008 PPP adjusted GDP per capita and 75th in 2009 Global Competitiveness
Source: Country Competitiveness Model (CCM), Institute for Strategy and Competitiveness, Harvard University (2009)

Peru’s Macroeconomic Competitiveness

Macroeconomic Policy

• Conservative fiscal policy


Government Budget Balances
Selected Countries
Budget Balance Ranked by
(% of GDP) Surplus, 2008
10%
Chile
Peru
8%
Argentina
6% Colombia
Mexico
4%
Brazil

2%

0%

-2%

-4%

-6%

-8%

-10%
1996 1998 2000 2002 2004 2006 2008

Source: EIU, 2009


Macroeconomic Policy

• Conservative fiscal policy
• Sound macroeconomic
management
• Stabilization fund

However

• Peru’s macroeconomic position
remains overly dependent on
commodities and commodity prices



Macroeconomic Policy Social Infrastructure and
Political Institutions
• Conservative fiscal policy • Continued problems with corruption
• Sound macroeconomic
management
• Stabilization fund

However

• Peru’s macroeconomic position
remains overly dependent on


Corruption Perception Index, 2007
1 Finland New Zealand
Singapore Sweden
Iceland Switzerland
Worsening Improving
Canada Norway Netherlands
Low UK
corruption Hong Kong Austria Germany
Ireland Japan
United States France
Chile Spain Belgium Uruguay
Portugal Estonia Slovenia
Israel Botswana Taiwan
Hungary South Africa Czech Republic
Italy Malaysia South Korea
Lithuania Costa Rica Slovakia
Rank in Latvia
Jordan Mauritius
Global Namibia Greece
Tunisia Poland
Corruption Croatia Turkey
Index, Colombia El Salvador
Peru Ghana Romania
2007 Brazil Mexico Senegal
China India

Panama Thailand Tanzania
Egypt Argentina Dominican Republic Bolivia
Moldova Guatemala Uganda
Malawi Ukraine
High Vietnam Nicaragua
Philippines Honduras Cameroon
corruption Pakistan
Kazakhstan Russia Indonesia
Zimbabwe Cote d’Ivoire Ecuador Kenya Nigeria

Venezuela Bangladesh
91 Uzbekistan
-20 -15 -10 -5 0 5 10 15 20
Change in Rank, Global Corruption Report, 2007 versus 2001

Note: Ranks only countries available in both years (91 countries total)
Source: Global Corruption Report, 2008


• Conservative fiscal policy • Continued problems with corruption
• Sound macroeconomic • Sharp inequality between indigenous
management groups and other citizens
• Stabilization fund • Weak education system
• Inadequate health care system,
despite some improvements
However
• Weak legal system and effectiveness
of property rights
• Peru’s macroeconomic position • Unstable political processes and
remains overly dependent on institutions
• Government institutions are
inefficient and held in low esteem by
the public


Action Priorities
• Maintain macroeconomic • Modernize political and
stability governmental institutions to improve
policy formulation and execution
• Broaden the tax base and
improve collections • Tackle corruption at every level of
government
• Improve the effectiveness of the legal
system
• Improve property rights
• Improve human development
– Rapid improvements in education,
health, and nutrition are needed
• Create equal opportunity for all
groups

Microeconomic Competitiveness: Quality of the Business
Environment
Context for
Context for
Firm
Firm
Strategy
Strategy
and Rivalry
and Rivalry

 Open and vigorous local
competition
– Openness to foreign competition
Factor – Competition laws
Factor Demand
(Input) • Local rules and incentives that Demand
(Input) Conditions
Conditions encourage investment and Conditions
Conditions
productivity
– e.g. incentives for capital
• Efficient access to high quality investment, intellectual property • Demanding and sophisticated local
business inputs protection, corporate governance
customers and needs
standards
– Human resources – e.g., Strict quality, safety, and
– Capital availability environmental standards
– Physical infrastructure Related and
Related and – Consumer protection laws
– Administrative infrastructure (e.g. Supporting
Supporting
registration, permitting, transparency) Industries
Industries
– Scientific and technological
infrastructure • Availability of suppliers, related industries,
– Efficient utilization of natural and supporting institutions
endowments

• Many things matter for competitiveness
• Successful economic development is a process of successive upgrading, in which the
business environment improves to enable increasingly sophisticated ways of competing

Peru’s Business Environment
Overall Strengths and Weaknesses
STRENGTHS WEAKNESSES
Trade and Investment Liberalization Physical Infrastructure
• Openness to foreign investment • Low quality of air, transport and port
infrastructure
• Low restrictions on capital flows
• Inadequate electricity supply
• Simplification of custom procedures Workforce Development and Training
• Low trade barriers • Poor quality of the higher education system
• Improvements in investor protections • Low skill level of the labor force
Improving Financial Markets • Limited availability of scientists and
engineers
• Soundness of banks
Competitive Context
• Improving financial market • Low intensity of local competition
IT Infrastructure • Difficulty in business formation
• Good quality of telecom infrastructure • Burdensome government regulations
• Sound IT policies • Rigidity of employment
Other • Weak intellectual property protection
• High informality in the economy
• Good management training
Innovation Infrastructure
• Improving sophistication of local buyers
• Limited technological capacity
• Efforts to strengthen competition policy • Weak university-industry research
collaboration
• Low patenting rates

Ease of Doing Business
Peru, 2009
Ranking, 2009
(of 183 countries)
Favorable Unfavorable
120

100

80
Peru’s per capita GDP rank: 72

60

40

20

0
Ease of Getting Protecting Registering Paying Trading Closing a Employing Starting a Enforcing Dealing
Doing Credit Investors Property Taxes Across Business Workers Business Contracts with
Business Borders Licenses

Source: World Bank Report, Doing Business (2009/10)

Peru’s Business Environment
Action Priorities

• Improve physical infrastructure
• Create an effective system for workforce training
• Upgrade higher education
• Encourage entrepreneurship and SME business formation
– Simplify business formation
– Reduce tax burden and labor market rigidities
– Address other causes of informality
– Strengthen financing for SMEs

• Improve environmental standards
• Develop innovation infrastructure
– Upgrade technology standards in key clusters of the economy


Microeconomic Competitiveness: Cluster Development
Tourism Cluster in Cairns, Australia
Public Relations &
Public Relations & Local retail,
Local retail,
Market Research
Market Research Travel agents Tour operators health care, and
health care, and
Travel agents Tour operators
Services
Services other services
other services

Food
Food Local
Local
Suppliers
Suppliers Attractions and
Attractions and Transportation
Transportation
Restaurants Activities
Activities
Restaurants e.g., theme parks,
e.g., theme parks,
casinos, sports
casinos, sports
Property
Property Souvenirs,
Souvenirs,
Services
Services Duty Free
Duty Free

Airlines,
Airlines,
Hotels
Hotels Banks,
Banks,
Maintenance
Maintenance Cruise Ships
Cruise Ships
Foreign
Foreign
Services
Services Exchange
Exchange

Government agencies
Government agencies Educational Institutions
Educational Institutions Industry Groups
Industry Groups
e.g. Australian Tourism Commission,
e.g. Australian Tourism Commission, e.g. James Cook University,
e.g. James Cook University, e.g. Queensland Tourism
e.g. Queensland Tourism
Great Barrier Reef Authority
Great Barrier Reef Authority Cairns College of TAFE
Cairns College of TAFE Industry Council
Industry Council

Sources: HBS student team research (2003) - Peter Tynan, Chai McConnell, Alexandra West, Jean Hayden

Cluster in Developing Countries
Kenya’s Cut Flower Cluster

Sources: Student team research by Kusi Hornberger, Nick Ndiritu, Lalo Ponce-Brito, Melesse Tashu, and Tijan Watt,
Microeconomics of Competitiveness Course, 2007

The Australian Wine Cluster
History
1930 1965 1980 1991 to 1998
First oenology Australian Wine Australian Wine New organizations
course at Bureau and Brandy created for education,
Roseworthy established Corporation research, market
Agricultural established 1990 information, and
College 1955 1970 export promotions
Winemaker’s
Australian Wine Winemaking Federation of
Research school at Charles Australia
Institute founded Sturt University established
founded

1950s 1960s 1970s 1980s 1990s
Import of Recruiting of Continued inflow Creation of Surge in exports
European winery experienced of foreign capital large number of and international
technology foreign investors, and new wineries acquisitions
e.g. Wolf Bass management

Source: Michael E. Porter and Örjan Sölvell, The Australian Wine Cluster – Supplement, Harvard Business School Case Study, 2002

Clusters and Economic Diversification
Linkages Across Clusters
Fishing &
Fishing
Products Textiles
Entertainment
Prefabricated
Hospitality
Agricultural Enclosures
& Tourism
Products
Processed
Food Transportation Furniture
& Logistics Building
Aerospace Fixtures, Construction
Vehicles & Equipment & Materials
Distribution Information Defense Services
Jewelry & Tech.
Precious Services Heavy
Lightning &
Metals Electrical Construction
Business Analytical
Equipment Services
Services Education & Instruments
Knowledge Power Forest
Medical Products
Creation Generation
Devices Communi-
Publishing cations
Financial & Printing Equipment
Biopharma- Heavy
Services ceuticals Machinery
Motor Driven Production
Chemical Products Technology
Products Tobacco
Oil &
Apparel Gas Mining & Metal
Automotive
Plastics Aerospace Manufacturing
Engines
Footwear Leather &
Related Sporting
Products & Recreation
Goods
Note: Clusters with overlapping borders or identical shading have at least 20% overlap
20091130 – Peru.ppt
(by number of industries) in both directions. 34 Copyright 2009 © Professor Michael E. Porter

Clusters as a Tool For Economic Policy

• A forum for collaboration between government, the private sector,
trade associations, educational institutions, and research institutions
• Brings together firms of all sizes, including SME’s
• Creates a mechanism for constructive business-government
dialogue
• A tool to identify problems and concrete action recommendations
• A vehicle for identifying investments that strengthen multiple
firms/institutions simultaneously
• A framework for implementing government polices towards business

• Foster more sophisticated competition rather than distorting the
market


Peru’s Export Portfolio
1997 to 2007
1.4%
Change In Peru’s Overall Jewelry, Precious Metals and Collectibles (0.88%, 1.69%)
World Export Share: +0.07%

1.2%
Metal, Mining and Manufacturing
Peru’s world export market share, 2007

1.0%

0.8%

0.6%
Fishing
Agriculture

0.4% Apparel

Hospitality and Tourism
Peru’s Average World Oil & Gas
Export Share: 0.20%
0.2%
Publishing and Printing
Textiles Construction Materials
Financial Services
Communication Services
0.0%
-0.4% -0.2% 0.0% 0.2% 0.4% 0.6%
Change in Peru’s world export market share, 1997 to 2007 Exports of US$2.4 Billion =
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.

Peru’s Export Portfolio
1997 to 2007
0.20%
Peru’s world export market share, 2007

0.15%

Oil and Gas Construction Materials
Furniture

Textiles
0.10%
Transportation and Logistics
Financial Services
Chemical Products
Processed Foods

Leather and Related Products
Plastics
0.05%

Business Services Heavy Machinery
Motor Driven Products Forest Products
Building Fixtures and Equipment Footwear
Biopharmaceuticals Power and Power Generation Equipment
Sport Communications Equipment
Production Technology Prefabricated Enclosures and Structures
0.00%
-0.06% -0.04% -0.02% 0.00% 0.02% 0.04% 0.06% 0.08% 0.10%
Change in Peru’s world export market share, 1997 to 2007 Exports of US$2.4 Billion =

Malaysia’s Export Portfolio
1997 to 2007
2.5%
Change In Malaysia’s Overall
Entertainment and Reproduction
World Export Share: -0.20% Information Technology (6.46%)
Equipment (2.19%, 3.09%)
Communications Equipment

Furniture
Malaysia’s world export market share, 2007

2.0% Agriculture

Building Fixtures and Equipment Construction Services

Plastics
Lighting and Electrical Equipment
1.5% Construction Materials
Analytical Instruments Oil & Gas
Malaysia’s Average World
Export Share: 1.24%
Motor Driven Products Processed Foods
Transportation and Logistics Publishing and Printing
1.0%
Apparel
Chemical Products
Power and Power Generation Equipment Fishing & Fish Products
Jewelry, Precious Metals and Collectibles Prefabricated Enclosures and Structures
Metal, Mining and Manufacturing Communication Services
Forest Products Textiles Production Technology
Business Services (-2.36%)
0.5%
Aerospace Vehicles and Defense Sport Medical Devices

Marine Equipment Heavy Machinery
Footwear
Financial Services Hospitality and Tourism
Biopharmaceuticals Automotive
0.0%
-1.5% -1.0% -0.5% 0.0% 0.5% 1.0%
Change in Malaysia’s world export market share, 1997 to 2007 Exports of US$9.3 Billion =

Share of World Exports by Cluster
World Market Share Peru, 2007
0.2% - 0.5%

0.5% - 1.0% Fishing & Enter- Textiles
Fishing tainment Prefabricated
> 1.0% Products Hospitality
Enclosures
& Tourism
Agricultural
Products
Transportation Furniture
Processed & Logistics Building
Food Aerospace Fixtures, Construction
Jewelry &
Services Tech.
Precious Lightning & Heavy
Analytical Services
Business Equipment
Education & Instruments
Services Power Forest
Knowledge Medical
Creation Generation Products
Devices Communi-
Publishing cations
& Printing Equipment
Biopharma- Heavy
Financial
ceuticals Machinery
Services
Products Tobacco
Oil & Automotive
Gas Aerospace Mining & Metal
Plastics Engines Manufacturing
Apparel

Leather &
Footwear Related Sporting Marine
Products & Recreation Equipment
Goods
Note: Clusters with overlapping borders have at least 20% overlap (by number of industries) in both directions.

Share of World Exports by Cluster
World Market Share Malaysia, 2007
1.24% - 1.75%

1.75% - 2.25% Fishing & Enter- Textiles
Fishing tainment Prefabricated
> 2.25% Products Hospitality
Enclosures
& Tourism
Agricultural
Products
Transportation Furniture
Processed & Logistics Building
Food Aerospace Fixtures, Construction
Jewelry &
Services Tech.
Precious Lightning & Heavy
Analytical Services
Business Equipment
Education & Instruments
Services Power Forest
Knowledge Medical
Creation Generation Products
Devices Communi-
Publishing cations
& Printing Equipment
Biopharma- Heavy
Financial
ceuticals Machinery
Services
Products Tobacco
Oil & Automotive
Gas Aerospace Mining & Metal
Plastics Engines Manufacturing
Apparel

Leather &
Footwear Related Sporting Marine
Products & Recreation Equipment
Goods
Note: Clusters with overlapping borders have at least 20% overlap (by number of industries) in both directions.

State of Cluster Development in Peru

• Peru has strengths in several clusters, including mining, fishing,
agribusiness, tourism, jewelry and apparel

• Peru’s clusters are based heavily on natural endowments, with limited
further upgrading

• Peru’s clusters are shallow, with weak supplier bases and supporting
institutions

• The limited cluster development efforts underway in Peru suffer from
poor coordination between the private and public sectors

• Clusters are so far an unexploited dimension of economic policy at
the national and regional levels

Cluster Development in Peru
Action Priorities

• Adopt cluster development as a central tool for organizing business
development and implementation of economic policies supporting businesses

• Use cluster development to encourage value-add upgrading within existing
clusters
– Promote spillovers and synergies to upgrade local economies

• Apply a cluster based approach to economic diversification


Clusters and Economic Diversification

Upgrade Existing Export
Upgrade Existing Export
Products and Services
Products and Services

• Local firms
Turn Products Into Clusters
Turn Products Into Clusters • MNCs

Deepen Existing Clusters
Deepen Existing Clusters

Develop Related Clusters
Develop Related Clusters


Cluster Development in Peru
Action Priorities

• Adopt cluster development as a central tool for organizing business
development and implementation of economic policies supporting businesses

• Use cluster development to encourage value-add upgrading within existing
clusters
– Promote spillovers and synergies to upgrade local economies

• Apply a cluster based approach to economic diversification

• Leverage clusters to attract FDI and facilitate integration with the global
economy

• Use cluster initiatives to engage the private sector in more effective
collaboration with government at the national and regional levels
– Cluster development is an effective approach to promote private sector-led
growth
– Create Institutions for Collaboration (e.g., trade associations) to organize cluster
participants


Geographic Influences on Competitiveness

Nation
Nation

Regions and Cities
Regions and Cities


Regions and Competitiveness

• Economic performance varies significantly across sub-national
regions (e.g., provinces, states, metropolitan areas)
• Many essential levers of competitiveness reside at the regional level
• Region’s specialize in different sets of clusters


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