2012-0124 SaudiArabia GCF

Entrepreneurship and Competitiveness:
Implications for Saudi Arabia
Professor Michael E. Porter

Harvard Business School
Global Competitiveness Forum
Riyadh, Saudi Arabia
January 24, 2012
This presentation draws on ideas from Professor Porters 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 Porters work and the Institute for Strategy
and Competitiveness is available at www.isc.hbs.edu
20120124 Saudi Arabia GCF 2012 FINAL Prepared by C. Ketels and J. Hudson
Copyright 2012 Professor Michael E. Porter
The World Economy in Early 2012
A weak macroeconomic environment is constraining growth in the

global economy (e.g., Europe, US, China)
Failures of political leadership
However, sustainable fiscal policies are necessary but not sufficient

to restore healthy growth
The only way to ensure long term job and prosperity growth is through
fundamental improvement in competitiveness, especially for higher
income economies
What is Competitiveness?
Competitiveness is manifested in the ability of companies operating in a country or region

to compete successfully in international markets while simultaneously improving the
living standards of citizens
Competitiveness depends on the long term productivity with which a nation uses its
human, capital, and natural resources
Competitiveness is not achieved through low wages or low currency
Productivity sets sustainable wages and standard of living
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 benefits from a combination of domestic and
foreign firms
Competitive businesses create rising incomes and good jobs
Nations compete to offer the most productive environment for business
Competitiveness is not a zero sum game
What Determines Competitiveness?

Microeconomic Competitiveness
Quality of the
National
Business
Environment
State of Cluster
Development
Sophistication
of Company
Operations and
Strategy
Macroeconomic Competitiveness
Social
Development
and Political
Institutions
Macroeconomic
Policies
Endowments
Productivity ultimately depends on improving the microeconomic capability of the economy and the
sophistication of local competition
Macroeconomic competitiveness sets the potential for high productivity, but is not sufficient
Endowments create a foundation for prosperity, but true prosperity is created by productivity in the use
of endowments
Saudi Arabias Progress on Competitiveness

Competitiveness has become central to Saudi Arabias economic policy agenda
Substantial reforms have been implemented in areas like infrastructure,
market opening, legal reform, business regulation, education, and financial
markets
World Bank Doing Business Indicators

Saudi Arabian Doing Business Ranking, 2005 - 2012
15
13
10
12
2009
2010
2011
2012
23
38
38
2006
2007
118
2005
2008
Note: Rankings include total of 183 countries.

Source: World Bank, SAGIA

markets
Saudi Arabia has established a base of home-grown private sector
businesses, together with state-controlled companies and multinationals that
are operating in the country

markets
However, boosting prosperity growth and job creation remain critical priorities
Prosperity Performance
Selected Middle Income Countries
PPP-adjusted GDP per

Capita, 2010 ($USD)
$30,000
UAE (-0.9%, 56,500)
$28,000
Cyprus
New Zealand
Slovenia
Greece
$26,000
Czech Republic
Portugal
$24,000
South Korea
Average: 5.4%
Bahrain
Oman
$22,000
Saudi Arabia
Slovakia
$20,000
Poland
Hungary
$18,000
Croatia
Mexico
$16,000
Lithuania
Panama
Argentina
Russia
Latvia
Chile
Malaysia
$14,000
Trinidad & Tobago

Turkey
Venezuela
$12,000
Brazil
Costa Rica
$10,000
0.0%
2.0%
Source: EIU (2011), authors calculations
Average: $18,163
Estonia
Uruguay
Lebanon
Bulgaria
Romania
Dominican Republic
South Africa
4.0%
6.0%
8.0%
Belarus
Kazakhstan
10.0%
12.0%
Growth of Real GDP per Capita (PPP-adjusted), CAGR, 2000 - 2010
Saudi Arabias Share of World Exports by Cluster, 2009

World Market Share
> 5.0%
1.27% - 5.0%
0.2% - 1.26%
Fishing &
Fishing
Products
Processed
Food
Hospitality
& Tourism
Agricultural
Products
Transportation
& Logistics
Distribution
Services
Jewelry &
Precious
Metals
Business
Services
Financial
Services
Entertainment
Aerospace
Vehicles &
Information
Defense
Tech.
Building
Fixtures,
Equipment &
Services
Motor Driven
Products
Heavy
Machinery
Production
Technology
Aerospace Mining & Metal

Engines Manufacturing
Plastics
Leather &
Related
Products
Note: Saudi Arabias overall share of world exports is 1.268%.
Forest
Products
Tobacco
Oil &
Gas
Construction
Materials
Power
Generation
ceuticals
Apparel
Furniture
Heavy
Construction
Services
Lightning &
Electrical
Equipment
Analytical
Education &
Instruments
Knowledge
Medical
Creation
Devices
Communications
Publishing
Services
& Printing
Biopharma-
Chemical
Products
Footwear
Textiles
Prefabricated
Enclosures
Sporting
& Recreation
Goods
10
Automotive
Marine
Equipment

markets
However, boosting prosperity growth and job creation remain critical priorities
Stimulating entrepreneurship is central to reap the full benefits of these
competitiveness reforms
11
Competitiveness and Entrepreneurship
Creates the necessary

context for entrepreneurship
to emerge and prosper
Competitiveness
Entrepreneurship
Drives competitiveness
upgrading
Builds out clusters
Enables economic
diversification
Fundamental to large scale

job growth
12
What Drives Entrepreneurship?

Measures to Upgrade the Business Environment for Entrepreneurs
Context for
Firm Strategy
and Rivalry
Availability of funding
Factor
(Input)
Conditions
Entrepreneurship education
Mentorship programs
Entrepreneur networks
Policies to ease new
business formation
Ease of incorporation
Ease of doing business
Corporate and bankruptcy laws
Access to lending
Angel funding
Organized risk capital
Strong incentives
Low taxes on capital gains
Strong IP protection
Public recognition of
entrepreneurial success
Demand
Conditions
Government and private

sector procurement
policies open to SMEs
Related and
Supporting
Industries
Availability of support
services such as legal and
business services
A cluster-based
development model
13
Entrepreneurship in Saudi Arabia

The Opportunity
Stable economy with a prudent financial structure

Large, youthful and growing population
Growing markets with many unserved niches
No income taxes
Emerging venture capital industry
Large and sustained government investments in the economy
Increasing foreign interest in investing in the Middle East
Opportunity to serve the entire region from a base in the largest economy
14

Current Situation
Competitiveness upgrading in the Saudi economy has enabled
entrepreneurship to take root
15
Entrepreneurship Profile in the GCC Region

Findings from the Saudi Fast Growth 100 and the Arabia 500
Academic background often in engineering or business
Worked 3-5 years for a global firm before launching their enterprise at 30,
often in a related industry
Creatively configured products and services that are tailored to local
market conditions
World class operating practices akin to those of multinationals
Persistence and agility in order to compete with large incumbents
International networks of business partners and associates
Source: Arabia 500

16

Current Situation
Competitiveness upgrading in the Saudi economy has enabled
entrepreneurship to take root
Entrepreneurs are making an important contribution to diversifying the

economy (services, non-resource industries)
Entrepreneurs are creating a mechanism for Saudi Nationals to enter the
private sector
However, further efforts to improve the context for entrepreneurs are critical
in order for entrepreneurship to reach its full impact on the Saudi economy
17
Current Efforts to Support Entrepreneurship in

Saudi Arabia
Awareness
Financing
Saudi Industrial
Development Fund
Kafalah Program
Centennial Fund
Bab Rizq Jameel
Incubation
Saudi Fast Growth 100
Prince Salman bin

Abdulaziz - Young
Entrepreneur Awards
Riyadh Technology
Incubation Center
Riyadh Techno Valley
Dhahran Techno Valley
Injaz-Saudi Program
MIT Arab Business Plan

Competition
National
Entrepreneurship
Institute
Many of these efforts are relatively new, and bringing them to scale will be critical for
entrepreneurship in Saudi Arabia
Source: SME and Entrepreneurship Support Services in Saudi Arabia Stakeholder Mapping report by SAGIA.
18
Challenges to Entrepreneurship in Saudi Arabia and

Other Emerging Economies
Limited, but growing entrepreneurial culture
Lack of public visibility and media coverage of emerging companies
Risk aversion and fear of failure
Limited skills in the Saudi workforce
Still cumbersome government regulation and red tape
Limited progress on cluster development, and few cluster collaboration
organizations supporting SMEs
Lack of supplier development programs at large companies
Risk of crowding out by government-linked companies and large MNCs

Source: Arabia 500
19
Entrepreneurship and Saudi Competitiveness

Conclusions
Entrepreneurs are crucial in order to translate Saudi Arabian progress on

competitiveness into broad-based economic growth and employment
Saudi entrepreneurs have begun to establish themselves as an integral

part of the Saudi economy
The future success of Saudi entrepreneurs will depend on sustained

efforts to upgrade the Saudi business environment to meet
entrepreneurs specific needs
20

2012-0124 SaudiArabia GCF

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Entrepreneurship and Competitiveness:

Implications for Saudi Arabia

Professor Michael E. Porter

Copyright 2012 Professor Michael E. Porter

The World Economy in Early 2012

A weak macroeconomic environment is constraining growth in the

However, sustainable fiscal policies are necessary but not sufficient

Copyright 2012 Professor Michael E. Porter

Competitiveness is manifested in the ability of companies operating in a country or region

Competitive businesses create rising incomes and good jobs

Nations compete to offer the most productive environment for business

Competitiveness is not a zero sum game

Copyright 2012 Professor Michael E. Porter

What Determines Competitiveness?

Copyright 2012 Professor Michael E. Porter

Saudi Arabias Progress on Competitiveness

Copyright 2012 Professor Michael E. Porter

World Bank Doing Business Indicators

Note: Rankings include total of 183 countries.

Copyright 2012 Professor Michael E. Porter

Saudi Arabias Progress on Competitiveness

Copyright 2012 Professor Michael E. Porter

Saudi Arabias Progress on Competitiveness

Copyright 2012 Professor Michael E. Porter

PPP-adjusted GDP per

UAE (-0.9%, 56,500)

Trinidad & Tobago

Source: EIU (2011), authors calculations

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

Copyright 2012 Professor Michael E. Porter

Saudi Arabias Share of World Exports by Cluster, 2009

Aerospace Mining & Metal

Note: Saudi Arabias overall share of world exports is 1.268%.

Copyright 2011 Professor Michael E. Porter

Saudi Arabias Progress on Competitiveness

Copyright 2012 Professor Michael E. Porter

Competitiveness and Entrepreneurship

Creates the necessary

Builds out clusters

Fundamental to large scale

Copyright 2012 Professor Michael E. Porter

What Drives Entrepreneurship?

Government and private

Copyright 2012 Professor Michael E. Porter

Entrepreneurship in Saudi Arabia

Stable economy with a prudent financial structure

Copyright 2012 Professor Michael E. Porter

Entrepreneurship in Saudi Arabia

Copyright 2012 Professor Michael E. Porter

Entrepreneurship Profile in the GCC Region

Source: Arabia 500

Copyright 2012 Professor Michael E. Porter

Entrepreneurship in Saudi Arabia

Entrepreneurs are making an important contribution to diversifying the

Copyright 2012 Professor Michael E. Porter

Current Efforts to Support Entrepreneurship in

Bab Rizq Jameel

Saudi Fast Growth 100

Prince Salman bin

Riyadh Techno Valley

Dhahran Techno Valley

MIT Arab Business Plan

Copyright 2012 Professor Michael E. Porter

Challenges to Entrepreneurship in Saudi Arabia and