FOSTERING DIVERSIFICATION & COMPETITIVENESS

Approaches & Strategies For The Kingdom of Saudi Arabia by R.Shyam Khemani

Development Goals
Broaden Economic Base & Opportunities Stable & Sustainable Economic Growth Transform into an Internationally Integrated Dynamic,Competitive,Flexible Economy

PRODUCTIVITY

DIVERSIFICATION, PRODUCTIVITY & COMPETITIVENESS

COMPARATIVE vs. COMPETITIVE ADVANTAGE

Comparative Advantage Determined by Endowed Factor Resources Competitive Advantage Determined Primarily by Productivity Comparative Advantage DOES NOT Necessarily Result in Competitive Advantage.
Productivity -- magnitude and rate of change in value added (per unit input) of firms. Depends on a host of factors that can be firmspecific; industry-specific or country-specific. A function of quality, not just cost.

Competitiveness
Driven by the private sector, supported by public policy and

collective action
Motivated by growth/opportunities in global markets Strengthened by:

domestic and international rivalry, underpinned by policies fostering competition low transactions costs (compared to rivals) investments and incentives for skills development, accessing technology trade facilitation FDI and inter-firm linkages

How Can Diversification Be Deepened & Accelerated, AND In What Areas?

First

and Foremost, Build on Existing Comparative Advantages and Transform These Into Competitive Advantage Focus on Existing Sectors e.g. Oil,Gas & Mining Based Industries, and Tourism BUT Increase Value-Added Activities Consider Adopting a Integrated Industrial Cluster Driven Strategy which is Private Sector Driven But Facilitated by Government Exports: A Primary Driver

Export Performance As A Competitive Bench-Mark

Examining Export Performance of a Nations

Industries--Good First Screen of Relative Competitiveness Firms/Industries in Export Markets PriceTakers (Absent Cartels) Rising Share of Global Exports Relative to Firms/Industries in Other Nations Indicates Price/Quality/Delivery Competitiveness (Absent Subsidies). If Global Markets Are Expanding, Opportunities for Further Growth Decreasing Shares (Absent Quotas and Other Barriers) May Indicate Competitive Weaknesses BUT Can Also Suggest Untapped Opportunities

Fostering Diversification, Productivity & Competitiveness

Multifaceted and Long term Process Entails Measures that Firms,Industries,Regions,Labor,and Government Consciously and Continuously Adopt to Maintain and Increase Productivity on a Sustainable Basis Requires Active Private-Public Partnership, including Labor and Civil Society, with Shared Responsibilities Not Industrial Policy, Selection of Winners, but Creating an Enabling/Facilitating Business Environment

COMPETITIVE ENVIRONMENT

SUPPLIER

PRODUCER

CLIENT

SUPPLIER

PRODUCER

CLIENT

HUMAN RESOURCES INFRASTRUCTURE

= MARKET EXCHANGE RELATIONSHIP
The World Bank

COMPETITIVE ENVIRONMENT

SUPPLIER

PRODUCER Network Institutions

CLIENT

SUPPLIER

PRODUCER

CLIENT

HUMAN RESOURCES

INFRASTRUCTURE
=INFORMATION-SHARING RELATIONSHIP
The World Bank

Cluster Comparisons
Figure 1: The Italian Footwear Cluster
Figure 2: The Moroccan Footwear Cluster
Training Equipment

Prepared parts of footwear

Athletic Footwear Footwear Machinery

Tanneries

Leather Belts Synthetic Footwear

Leather clothes, accessories

Processed Leather Leather Working Machinery

Calf leather

Footwear nes

Leather Clothing

Goat, kid leather

Lasts Leather Footwear Leather Handbags Plastic Working Equipment

Handbags nes Leather Footwear

Patent leather
Design Service Hiking Boots Leather Gloves Footwear CAD-Systems

Satchels and briefcases

Injection Molding Machinery

Ski Boots Textile Fashion Cluster Apres-Ski Boots Models Woodworking Equipment Specialized Machine Tools

Other Travel bags

Molds

Textile Fashion Cluster

Cluster Example: Tourism in Morocco

Domestic and International markets Leading the cluster...
Hotels Accommodation Restaurants and other food services Services: trade fairs, guides, cultural events Artisans, bazaars

Supporting Industries
Travel agencies Transport Services Food processing Distribution Construction

Economic Infrastructure
Museums, Cultural sites Credit and Finances Institutional Environment Physical Infrastructure Human Resources
Source: DRI/McGraw-Hill

Promotion

Cluster experiences
Arizona (USA) - Baden-Wurttemberg (Germany) - Bangalore (India) - Bogota (Colombia) - Chihuahua (Mexico) - El Salvador

Emilia Romana (Italy) - Ireland- Malaysia - Morocco PakistanPortugal - Scotland - Silicon Valley (USA) - S. Africa

What can enterprises do?

Work

to upgrade their own productivity. Associate to collectively provide and finance shared services. Cluster to develop and implement strategies, alone and in cooperation with government. Support cross-cutting initiatives that exceed the capacity of the enterprise or cluster.

What can government do ?

Facilitate private sector-led cluster development and inter-firm linkages without impeding competition. Assist with institutional start-up costs without impeding sustainability.

Why is it a matter of public policy ?

Collective

action problem Information problem Free-riding Need for government commitment Improve use of public funds

Conclusions and Recommendations

Various Past Strategies and Initiatives of the Sixth and

Seventh Plan Conducive to Fostering Diversification, Productivity, and Competitiveness. Among These Are:
Encouragement of Foreign Investment, Development of Human Capital, Export Promotion, SMEs,Changes in Legal-Regulatory Framework. Sector Specific Strategies in Oil,Gas & Minerals and Related Downstream Activities, Tourism.

Adopt Integrated, Comprehensive Approach.

Consideration Should Be Given to:

Establishing (Within Existing Resource & Institutional Structures) a Competitiveness Council as a Focal Point for Increasing Productivity & Competitiveness Encouraging Development of Industrial Clusters/Cross-Cutting Private Sector Driven Action Plans-Initiatives Bench-Marking and Improved Data/Information.