Competitiveness As An Engine For Economic Growth: Implications For Saudi Arabia

Competitiveness as an
Engine for Economic Growth:

Implications for Saudi Arabia
Professor Michael E. Porter

Harvard Business School
The Global Competitiveness Forum 2008

January 21, 2008
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 2006 (World Economic Forum, 2006), “Clusters and
the New Competitive Agenda for Companies and Governments” in On Competition (Harvard Business School Press, 1998), 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 Version: January 18, 2008, 4pm
Competitiveness Master = 2007-11-14.ppt 1 Copyright 2008 © Professor Michael E. Porter
Saudi Arabia’s Competitive Position in 2008
• The dramatic increase in oil prices has created significant resources

and rapid growth for the Saudi economy
• There is a new level of determination to leverage this opportunity to
build a truly competitive economy and diversify beyond natural
resources
• Saudi Arabia can succeed on this path, but only if it is willing to take a
strategic approach, make multiple improvements in its business
environment, truly open up competition and entrepreneurship in the
private sector, and embark on a sustained effort to equip Saudi citizens
with new skills, attitudes and mindsets
• It will be easy to become impatient and distracted by near term

economic growth and the ability to support uncompetitive practices and
policies
Saudi Arabia’s Long-Term Prosperity
Index Values,
1980 = 1.00 GDP per Capita GDP per Capita GDP per Capita
CAGR: -6.1% CAGR: +0.00% CAGR: +1.4%
Source: Groningen Growth and Development Centre and The Conference Board (2007), Swivel (2007)
Prosperity Performance
Selected Countries
PPP-adjusted GDP
per Capita, 2006
$50,000 Norway
$45,000
USA
Qatar Ireland
$40,000 Switzerland Denmark Canada
Netherlands Australia
Iceland Singapore Hong Kong
$35,000 Austria UK Sweden
Belgium Kuwait
Germany Japan Finland
France Taiwan
$30,000 Italy
Spain
Israel New Zealand Bahrain Greece
$25,000 Slovenia
Korea
$20,000 Portugal United Arab Emirates Czech Republic
Hungary Slovakia
SAUDI ARABIA Argentina
$15,000 Libya Oman Poland
Chile South Africa Croatia Russia
$10,000 Mexico Malaysia Iran
Lebanon Brazil Tunisia Turkey
Algeria Thailand China (9.49%)
$5,000 Egypt Jordan
Iraq Syria Indonesia India
Pakistan Vietnam
(-6.2%) Philippines
Yemen
$0
0% 1% 2% 3% 4% 5% 6% 7%
Growth of Real GDP per Capita (PPP-adjusted), CAGR, 2001-2006
Source: EIU (2007), authors calculations
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
• 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
Inherited Prosperity
Prosperity Created
Created Prosperity
Prosperity
•• Prosperity
Prosperity isis derived
derived from
from selling
selling or
or •• Prosperity
Prosperity is
is derived
derived from
from creating
creating
exploiting
exploiting inherited
inherited natural
natural resources
resources valuable
valuable products
products andand services
services
•• Prosperity
Prosperity is
is constrained
constrained •• Prosperity
Prosperity is
is unlimited
unlimited
•• Government
Government is is the
the central
central actor
actor in
in the
the •• Companies
Companies are
are the
the central
central actors
actors in
in the
the
economy
economy as as the
the owner
owner andand distributor
distributor of
of economy
economy
resource
resource wealth
wealth –– Prosperity
Prosperity can
can only
only be
be created
created by by
–– Resource
Resource revenues
revenues allowallow firms
firms
unproductive
unproductive policies
policies andand practices
practices
to
to persist
persist
•• Government’s
Government’s role role gravitates
gravitates towards
towards the
the •• Government’s
Government’s role role is
is to
to create
create the
the
distribution
distribution ofof wealth
wealth as as interest
interest groups
groups enabling
enabling conditions
conditions for for productivity
productivity
seek
seek aa bigger
bigger share
share ofof the
the pie
pie and
and foster
foster private
private sector
sector development
development

Comparative Labor Productivity
Selected Countries
GDP per employee
(PPP adjusted US$),
2006
100,000
Norway USA
90,000
Austria Ireland
80,000 France Netherlands
Italy Israel Greece
Belgium Hong Kong
Qatar UK Finland
70,000 Australia Taiwan Singapore
Denmark Sweden
Canada
Spain Germany Japan
60,000 Slovenia
50,000 New Zealand

Portugal South Africa Hungary
Czech Republic Croatia
40,000 SAUDI ARABIA Slovakia Poland
Iran Chile
30,000 Turkey
Tunisia Malaysia (6.4%)
Mexico Algeria
20,000 Brazil Egypt Thailand
Philippines China (9.0%)
10,000 Pakistan Indonesia
Vietnam
India (5.3%)
0
-1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0%
Compound annual growth rate (CAGR) of real GDP per employee (PPP-
adjusted), 2001-2006
Source: EIU (2007), Saudi Arabia employee data (number persons employed) from ILO LABORSTA (2007)
Labor Force Mobilization
Selected Countries
Employees as % of
Population, 2006)
OECD average: 0.47
Middle East average: 0.40
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
Fixed Investment Rates
Gross Fixed Investment Selected Countries
as % of GDP (2006)
China Qatar
South Korea Iran India
Jordan
Nigeria
Indonesia Morocco
Singapore Syria
Tunisia
Algeria
Turkey
Pakistan UAE
Lebanon Oman
Egypt Kuwait Yemen
Saudi Arabia Bahrain
Brazil US
Libya
Philippines
CAGR Gross Fixed Investment (as % of GDP), 1990 - 2006

Source: EIU, 2007.
Saudi Arabia’s Exports
Types of Goods and Services
Exports
($ Thousands)
Semi-Processed Natural Resources

$36.4 Billion
Value of Exports, 2006 Growth Rate of 20.3% CAGR
Export Type Exports, CAGR

1998-2006
Natural Resources Related $201.2 Billion 24.0%
Non-Natural Resource Related $19.0 Billion 11.3%
Processed Goods
$11.7 Billion
16.9% CAGR
Services
$7.3 Billion
5.6% CAGR
Source: Institute for Strategy and Competitiveness – International Cluster Competitiveness Project; UN Comtrade; IMF BOP statistics.
Inward Foreign Direct Investment Stock
Share of Middle East
Inward FDI stock
Saudi Arabia
Other countries
U.A.E.
Bahrain
Qatar
Source: WIR, 2007.

Determinants of Competitiveness
Macroeconomic, Political, Legal, and Social Context
Microeconomic Competitiveness
Sophistication Quality of the

of Company Microeconomic
Operations and Business
Strategy Environment
State of Cluster
Development
• A sound macroeconomic, political, legal, and social context create 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

Macroeconomic, Political, Legal, and Social Context
• Saudi Arabia has registered sound macroeconomic policies, but

transparency remains limited and inflationary pressures are rising
• There are ongoing debates about direction and speed of political
reforms, which limits predictability and policy stability. Government
processes remain complex and have limited transparency
• The Saudi legal system is in the process of modernization, but
concerns remain about uncertainty in judicial decision making
• Social policies have addressed poverty and basic social needs, but
challenges arise in education, gender relations, and the large
expatriate community

Corruption Perception Index, 2007
1
Deteriorating Improving
Low
corruption
Qatar
United Arab Emirates
Bahrain
Oman Jordan
Tunisia
Turkey
Rank in
Brazil
Global
Corruption
SAUDI ARABIA China India
Index, Trinidad & Tobago
2007
Algeria
Belize
Iran Yemen Libya

Syria Pakistan
Russia Indonesia
Nigeria
High Angola
Ecuador
corruption
Venezuela
124 Iraq
Change in Rank, Global Corruption Report, 2007 versus 2003
Note: Ranks only countries available in both years (124 countries total)
Source: Global Corruption Report, 2007
Improving the Business Environment: The Diamond
Context
Contextforfor
Firm
Firm
Strategy
Strategy
and
andRivalry
Rivalry
z Local rules and incentives
that encourage investment and
productivity
Factor – e.g. salaries, incentives for
Factor capital investments, Demand
(Input) Demand
(Input) intellectual property protection Conditions
Conditions Conditions
Conditions
z Vigorous local competition
z Access to high quality – Openness to foreign and local z Sophistication of local
business inputs competition customers and needs
– Natural endowments – Strict quality, safety, and
– Human resources Related
Relatedand
and environmental standards
– Capital availability Supporting
Supporting
– Physical infrastructure Industries
Industries
– Administrative infrastructure
(e.g. registration, permitting) z Availability of suppliers and
– Information infrastructure supporting industries
(e.g., transparency) z Presence of clusters instead of
– Scientific and technological isolated firms
infrastructure
• Successful economic development is a process of successive upgrading, in which the business

environment improves to enable increasingly sophisticated ways of competing
Ease of Doing Business
Saudi Arabia
Ranking, 2007 (of
178 countries) Favorable Unfavorable
Saudi Arabia per capita GDP rank: 48
Saudi Arabia Doing Business rank: 23
Saudi Arabia 2010 goal: 10
Median Ranking,
Middle East
Source: World Bank Doing Business (2008)
Saudi Arabian Business Environment
Selected Advantages and Disadvantages, 2007
Competitive Advantages Competitive Disadvantages
Relative to GDP per Capita Relative to GDP per Capita
Quality of electricity supply 40 Stringency of environmental regulations 101
Quality of port infrastructure 42 Business costs of corruption 89
Air transport infrastructure quality 43 Buyer sophistication 81

Quality of management schools 73
Reliability of police services 45
Quality of private property rights 72
Absence of trade barriers 69
Decentralization of economic policymaking 69
Local equity market access 65
Quality of math and science education 65
Local availability of specialized research 65
and training services
Quality of primary education 64
Financial market sophistication 63
Availability of scientists and engineers 57
Effectiveness of antitrust policy 57
Intensity of local competition 53
Quality of scientific research institutions 51
Note: Rank versus 127 countries; overall, Saudi Arabia ranks 48th in 2006 PPP adjusted GDP per capita and 51h in Business Competitiveness. Only 2007 data available.
Source: Institute for Strategy and Competitiveness, Harvard University (2007)
Ranking Microeconomic Competitiveness
Business Competitiveness Index, 2007
2006 GDP per Capita
(PPP- adjusted)
Norway
Variation in BCI score United States
45,000
explains 82% of
variation in GDP per Qatar
40,000 capita Hong Kong
Iceland
Switzerland
Australia Denmark
Ireland
35,000 Canada Finland
Kuwait France Sweden
Taiwan Japan
Greece
Italy Germany
30,000
Spain Israel
Bahrain
New Zealand
25,000 Slovenia
Portugal
Cyprus Korea
Czech Republic
20,000 Estonia
Hungary
Slovakia
Libya Argentina Lithuania
Latvia
15,000 Poland SAUDI ARABIA
Chile
Saudi Arabia’s Ranking
Russia South Africa
10,000 Ukraine Costa Rica
Brazil Malaysia Global Business
Venezuela Colombia
Thailand
Competitiveness Competitiveness
Peru China Tunisia Index Index
5,000 Jordan
India 35 51
Pakistan Philippines Indonesia
Kenya
0 Nigeria
Tanzania
Low Business Competitiveness Index High

Source: Global Competitiveness Report 2007
Enhancing Cluster Development
Tourism Cluster in Cairns, Australia
Public
Public Relations
Relations && Local
Local retail,
retail,
Market
Market Research
Research Travel health
health care,
care, and
and
Travel agents
agents Tour
Tour operators
operators
Services
Services other
other services
services
Food
Food Local
Local
Suppliers
Suppliers Attractions
Attractions and
and Transportation
Transportation
Restaurants Activities
Activities
Restaurants e.g.,
e.g., theme
theme parks,
parks,
casinos,
casinos, sports
sports
Property
Property Souvenirs,
Souvenirs,
Services
Services Duty
Duty Free
Free
Airlines,
Airlines,
Hotels
Hotels Banks,
Banks,
Maintenance
Maintenance Cruise
Cruise Ships
Ships
Foreign
Foreign
Services
Services Exchange
Exchange
Government
Government agencies
agencies Educational
Educational Institutions
Institutions Industry
Industry Groups
Groups
e.g.
e.g. Australian
Australian Tourism
Tourism Commission,
Commission, e.g.
e.g. James
James Cook
Cook University,
University, e.g.
e.g. Queensland
Queensland Tourism
Tourism
Great Barrier Reef Authority
Great Barrier Reef Authority Cairns
Cairns College of TAFE
College of TAFE Industry Council
Industry Council
Sources: HBS student team research (2003) - Peter Tynan, Chai McConnell, Alexandra West, Jean Hayden
The Houston Oil and Gas Cluster
Upstream Downstream
Oil Oil Oil

Oil Oil Oil
Trans- Wholesale Retail
Trading Refining Distribution
Oil & Natural Gas Oil & Natural Gas portation Marketing Marketing
Exploration & Completion &
Development Production Gas Gas Gas
Gas Gas Gas
Transmis-
Gathering Processing Trading Distribution Marketing
sion
Oilfield Services/Engineering & Contracting Firms
Equipment Specialized Subcontractors Business

Suppliers Technology Services
Services (e.g. Surveying,
(e.g. Oil Field Mud Logging, (e.g. MIS Services,
Chemicals, (e.g. Drilling Maintenance Technology
Drilling Rigs, Consultants, Services) Licenses,
Drill Tools) Reservoir Services, Risk Management)
Laboratory Analysis)
Specialized Institutions
(e.g. Academic Institutions, Training Centers, Industry Associations)

National Cluster Export Portfolio
Saudi Arabia, 1997-2005
2%
Plastics
Saudi Arabia’s Average
World Export Share: 1.92%
Saudi Arabia’s world export market share, 2005
1.5% Chemical Products

Oil and Gas
Business Services (5.49%, 14.99%)
$162 billions
1%
Prefabricated Enclosures and Structures

Processed Foods
0.5% Construction Materials
Building Fixtures and Equipment

Agricultural Products
Metal Mining and
Manufacturing Textiles Change In Saudi
Jewelry, Precious Metals and Collectibles Arabia’s Overall World
Motor Driven Products Leather and Related Products Export Share: +1.09%
Communications Equipment
0% Automotive / Medical Devices Biopharmaceuticals
Change in Saudi Arabia’s world export market share, 1997 – 2005 Exports of US$1.2 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
Competitiveness Master = 2007-11-14.ppt 21 Database and the IMF BOP statistics. Copyright 2007 © Professor Michael E. Porter
Improving Company Sophistication
Relative Position of Saudi Arabian Companies, 2007
Competitive Advantages Competitive Disadvantages

Relative to GDP per Capita Relative to GDP per Capita
Control of international distribution 19 Extent of staff training 77
Production process sophistication 32 Reliance on professional management 71
Value chain breadth 34 Degree of customer orientation 69
Extent of marketing 68
Prevalence of foreign technology 62
licensing
Extent of regional sales 61
Extent of incentive compensation 56
Breadth of international markets 52
Capacity for innovation 49
Nature of competitive advantage 49
Willingness to delegate authority 47
Note: Rank versus 127 countries; overall, Saudi Arabia ranks 48th in 2006 PPP adjusted GDP per capita and 51h in Business Competitiveness. Only 2007 data available.
Source: Institute for Strategy and Competitiveness, Harvard University (2007)
Geographic Influences on Competitiveness
World
WorldEconomy
Economy
Broad
BroadEconomic
EconomicAreas
Areas
Groups
Groupsof
ofNeighboring
Neighboring
Nations The Neighborhood
Nations
Nation
Nation
States,
States,Provinces
Provinces
Metropolitan Regional Economies

MetropolitanAreas
Areas
Rural
RuralAreas
Areas
Saudi Arabia’s Provinces
% Social Security recipients below/above national average

% Labor force participation above/below national average
Source: Saudi Arabian Monetary Authority (SAMA) report, 2007
The Neighborhood
Middle East
• Economic coordination among neighboring countries can significantly enhance competitiveness

• Integration with neighbors offers greater opportunities than participation in broader economic forums
The Process of Economic Development
Shifting Roles and Responsibilities
Old
Old Model
Model New
New Model
Model
•• Government
Government drives
drives economic
economic •• Economic
Economic development
development is is aa
development
development through
through policy
policy collaborative
collaborative process
process involving
involving
decisions
decisions and
and incentives
incentives government
government at at multiple
multiple levels,
levels,
companies,
companies, teaching
teaching and
and
research
research institutions,
institutions, and
and private
private
sector
sector organizations
organizations
• Competitiveness must become a bottoms-up process in which many individuals,

companies, and institutions take responsibility
• Every community and cluster can take steps to enhance competitiveness
• The private sector must become more engaged in competitiveness to improve
rapidly
Towards a Competitiveness Agenda for Saudi Arabia
• Create a culture of productivity in Saudi Arabia
• Continue improving political and legal stability and transparency
• Pursue a sustained program to upgrade the Saudi business
environment, sequencing priorities based on binding constraints
• Upgrade company sophistication and foster entrepreneurship and
the development of SMEs
• Pursue a comprehensive policy for cluster development
• Expand information, openness, and transparency throughout the
economy
• Develop and implement distinct strategies for each Saudi Arabian
province
• Achieve regional economic coordination and integration with Arab
neighbors
• Achieving competitiveness will require a sustained effort over a

decade or more
Address the Weaknesses and Binding Constraints
in the Business Environment
• Business regulation
• Financial markets
• Stringency of quality, safety and environmental standards
• Openness of competition
• Market information
• Education and skills development
• Innovative capacity

Upgrade Company Sophistication and
Foster Entrepreneurship
• Create a national campaign to foster entrepreneurship and

support SME development
• Expand corporate disclosure
• Strengthen corporate governance
• Introduce best practices in terms of operational efficiency
– Utilization of information technology
– Quality improvement and certification
– A culture of learning and innovation
• Upgrade human resources
• Create more focused Saudi business groups
• Improve private sector institutions and expand the role of the
private sector in economic development

Create a Comprehensive Policy for Cluster Development
• The Industrial Development Strategy has an explicit focus on cluster

development
• Current cluster development policy should extend to the entire
economy, including domestic industries and all the provinces
• Realign government economic development policies around
clusters

Clusters and Economic Policy
Business Attraction Education and Workforce Training
Science and Technology

Investments
Export Promotion (e.g., centers, university
departments, technology
transfer)
Clusters
Market Information Standard setting
and Disclosure
Specialized Physical Environmental Stewardship

Infrastructure
Natural Resource Protection
• Clusters provide a framework for organizing the implementation of public

policy and public investments towards economic development
Create a Comprehensive Policy for Cluster Development
• The Industrial Development Strategy has an explicit focus on cluster

development, a major strength
• Cluster development policy should extend to the entire economy,
including domestic industries and all the provinces
• Realign government economic development policies around
clusters
• The Economic Cities program should be directly tied to the cluster
development program
• Science-based clusters will be slow to develop. The focus should be
on making existing and emerging Saudi clusters more knowledge
intensive

Diversifying the Saudi Arabian Economy
Grow exports in
related clusters
Leverage unique Saudi Arabian strengths and

niche positions
Leverage the large

domestic market
Widen participation in
existing clusters
Upgrade
existing export products

Growth Opportunities within Clusters
Saudi Arabian Chemical Cluster
Strong Export
Share
Organic Chemicals
Chemically Based Ingredients

Packaged Chemicals
Inorganic Chemicals
Synthetic Fibers
Misc. Crude Materials

Explosives
Pesticide and Other Agricultural Chemicals
Dyeing, Tanning and Coloring Materials
Miscellaneous Mineral Products
Weak Export
Share
Losing Market Share Gaining Market Share
Source: International Cluster Competitiveness Project, Institute for Strategy and Competitiveness, Harvard Business School
Grow Current Niche Positions
Leading Saudi Arabian Export Industries outside of Clusters, 2005
Industry (Processed Products) Cluster Market Change in Export

Share Market Volume
Share
Carpets and other textile floor coverings, woven Textiles 5.6% 3.7% 142,479
Sheep, lamb skin leather Leather and Related Products 3.9% 2.6% 42,787
Other forms of unvulcanized rubber Construction Materials 3.0% 2.9% 15,971
Drawn, blown glass in sheets Building Fixtures and Equipment 2.4% 1.6% 7,020
Asbestos-cement and fiber-cement materials Construction Materials 1.9% 0.2% 47,977

Cast, rolled glass in sheets Building Fixtures and Equipment 1.8% -6.3% 14,633
Portland cement, aluminous cement and similar
products Construction Materials 1.7% -0.4% 129,918
Bridges and bridge-sections Prefabricated Enclosures and Structures 1.6% -4.0% 8,387
Towers and lattice masts Prefabricated Enclosures and Structures 1.6% -0.9% 19,143
Miscellaneous articles of pulp, paper and paperboard Forest Products 1.5% 0.4% 218,347
Other metal structures and parts Prefabricated Enclosures and Structures 1.4% 1.0% 266,167
Rubber, textile yarn, cord Textiles 1.3% 1.3% 3,841

Jute, other textile bast fibers Textiles 1.2% 1.2% 105
Preparations for hair Biopharmaceuticals 1.1% 0.3% 86,847
Goat or kid skin leather Leather and Related Products 1.1% 0.8% 6,561
Silk Textiles 1.1% 3,444
Sands, natural not metal bearing Construction Materials 1.0% 0.8% 10,976
Paper and paperboard, corrugated, creped, crinkled Forest Products 1.0% 0.7% 34,473
Gold, non-monetary, excluding ores Jewelry, Precious Metals and Collectibles 0.9% 0.9% 478,006
Prefabricated buildings Prefabricated Enclosures and Structures 0.9% -1.0% 53,163

Growth Through Related Clusters
Fishing & Textiles

Fishing Entertainment
Prefabricated
Products Hospitality
Enclosures
& Tourism
Agricultural
Products
Transportation Furniture
Distribution & Logistics Building
Services Aerospace Fixtures, Construction
Vehicles & Equipment & Materials
Jewelry & Information Defense Services
Precious Tech.
Heavy Processed
Metals Lightning &
Business Construction Food
Services Analytical Electrical
Equipment Services
Education & Instruments
Knowledge Power Forest
Financial Medical Products
Creation Generation
Services Devices Communi-
Publishing cations
& Printing Equipment
Biopharma- Heavy
ceuticals Machinery
Motor Driven Production
Apparel Chemicl Products Technology
Products Tobacco
Leather & Oil &
Related Gas Metal
Automotive
Products Plastics Aerospace Manufacturing
Engines
Footwear
Sporting
& Recreation
Goods
Note: Clusters with overlapping borders or identical shading have at least 20% overlap
(by number of industries) in both directions.
Develop Distinctive Strategies in
each Saudi Arabia Province
• Regional development should follow a hub and spoke model to link

rural areas to the nearest urban center
• Improving social service delivery and physical infrastructure across
all provinces are important preconditions for regional economic
development
• Each region needs a distinctive economic plan that reflects its
location, assets, and existing economic activity
• Economic policy formulation and implementation should be gradually
decentralized
• Government capability in each province needs to be upgrading over
time

Enhancing the Economic Cities Concept
• The economic cities can become an Proposed Locations for

Economic Cities
important tool for Saudi Arabian
development
• However, they also symbolize Al Jowf Northern
the challenges that the Tabuk
Borders
Tabuk
country needs to address Economic City
Prince Abdulaziz bin Musaid
Ha'il Economic City
Qassim
Knowledge
Economic City Eastern Province
Madinah Economic City
• They have been planned centrally, Eastern Province
Riyadh
not by the regions themselves
King Abdullah Makkah
• They focus on infrastructure Economic City
Al-
rather than skills and institutions Baha
Asir
Najran
• Economic cities have an unclear
relation to clusters and the Jizan Economic City
Jizan
surrounding regional economy

• They ask for private sector action but
have been designed by the
government
Note: Exact physical location of Economic Cities still to be determined
Develop a Regional Competitiveness Strategy
with Arab Neighbors
• The Gulf Cooperation Council can be an important complement to

competitiveness efforts at the national level
• Many aspects of the business environment can be enhanced by
coordination and integration with neighboring countries
• The region needs to shift from rhetoric to action
• Due to its size and resources, Saudi Arabia should take a leadership
role

Defining an Economic Strategy for Saudi Arabia
National Value Proposition
• What is the unique competitive position of

Saudi Arabia given its location, legacy, existing
strengths, and potential strengths?
– What roles in the world, the broad economic area,
and the neighborhood?
– What unique value as a business location?
– For what range and types of businesses, activities
in the value chain, and clusters can Saudi Arabia
be competitive?

Towards a Strategic Positioning for Saudi Arabia
Strengths to Build Upon

• Natural resource endowments
• Largest and most populous economy in the Middle East
• Location between Europe, Asia, and Africa
• Distinct cultural traditions
• Significant accumulated capital
• Saudi Arabia has outlined an ambitious action agenda to enhance

competitiveness
• It will be important to set priorities and sequence steps to reflect the
realities of Saudi Arabia’s economy
• Fundamental changes in the capabilities and attitudes of many Saudi
citizens will be needed to achieve the desired transformation of the
Saudi Arabian economy

Competitiveness As An Engine For Economic Growth: Implications For Saudi Arabia

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Competitiveness as an

Engine for Economic Growth:

Professor Michael E. Porter

The Global Competitiveness Forum 2008

• The dramatic increase in oil prices has created significant resources

• It will be easy to become impatient and distracted by near term

• Competitiveness is determined by the productivity with which a nation

• Nations compete in offering the most productive environment for business

Competitiveness Master = 2007-11-14.ppt 5 Copyright 2008 © Professor Michael E. Porter

Competitiveness Master = 2007-11-14.ppt 6 Copyright 2008 © Professor Michael E. Porter

50,000 New Zealand

OECD average: 0.47

Middle East average: 0.40

Note: Use most recent year available, either 2005 or 2006

South Korea Iran India

CAGR Gross Fixed Investment (as % of GDP), 1990 - 2006

Semi-Processed Natural Resources

Export Type Exports, CAGR

Natural Resources Related $201.2 Billion 24.0%

Non-Natural Resource Related $19.0 Billion 11.3%

Source: WIR, 2007.

Sophistication Quality of the

Competitiveness Master = 2007-11-14.ppt 12 Copyright 2008 © Professor Michael E. Porter

• Saudi Arabia has registered sound macroeconomic policies, but

Competitiveness Master = 2007-11-14.ppt 13 Copyright 2008 © Professor Michael E. Porter

Iran Yemen Libya

Change in Rank, Global Corruption Report, 2007 versus 2003

• Successful economic development is a process of successive upgrading, in which the business

Saudi Arabia per capita GDP rank: 48

Saudi Arabia Doing Business rank: 23

Saudi Arabia 2010 goal: 10

Air transport infrastructure quality 43 Buyer sophistication 81

Low Business Competitiveness Index High

Oil Oil Oil

Oilfield Services/Engineering & Contracting Firms

Equipment Specialized Subcontractors Business

Competitiveness Master = 2007-11-14.ppt 20 Copyright 2007 © Professor Michael E. Porter

1.5% Chemical Products

Prefabricated Enclosures and Structures

Building Fixtures and Equipment

Competitive Advantages Competitive Disadvantages

Metropolitan Regional Economies

% Social Security recipients below/above national average

• Economic coordination among neighboring countries can significantly enhance competitiveness

• Competitiveness must become a bottoms-up process in which many individuals,

• Achieving competitiveness will require a sustained effort over a

Competitiveness Master = 2007-11-14.ppt 28 Copyright 2007 © Professor Michael E. Porter

• Create a national campaign to foster entrepreneurship and

Competitiveness Master = 2007-11-14.ppt 29 Copyright 2008 © Professor Michael E. Porter

• The Industrial Development Strategy has an explicit focus on cluster

Competitiveness Master = 2007-11-14.ppt 30 Copyright 2007 © Professor Michael E. Porter

Business Attraction Education and Workforce Training

Science and Technology

Specialized Physical Environmental Stewardship

• Clusters provide a framework for organizing the implementation of public

• The Industrial Development Strategy has an explicit focus on cluster

Competitiveness Master = 2007-11-14.ppt 32 Copyright 2008 © Professor Michael E. Porter

Leverage unique Saudi Arabian strengths and

Leverage the large

Competitiveness Master = 2007-11-14.ppt 33 Copyright 2008 © Professor Michael E. Porter

Chemically Based Ingredients

Misc. Crude Materials