Porter, while delivering his keynote address at the GCF on Tuesday, said that "only competitive businesses with adequate productivity can create jobs and generate income."
Porter, who chairs Harvard Business School's program dedicated to newly appointed CEOs of very large corporations, said that the "reform intensity" is high in Saudi Arabia.
"In fact, the Saudi position in international assessments of competitiveness has improved markedly," said the Harvard professor, while referring to the 11th ranking of the Kingdom in terms of ease of doing business. He also displayed a slide chart, showing the rankings of the Kingdom in terms of the "determinants of competitiveness".
Saudi Arabia’s economy, he said, is forecast to see a 4.5 percent growth in 2011 on the back of strong crude prices, rising business confidence and government cash, as per reports. Both public and private sectors will see growth, despite government spending remaining the key driver behind the Kingdom’s economy. The petroleum sector accounts for roughly 80 percent of budget revenues, 45 percent of GDP, and 90 percent of export earnings.
Hence, there is a need to improve productivity of private businesses, he said. "Saudi Arabia is encouraging the growth of the private sector in order to diversify its economy and to employ more Saudi nationals," he added.
Diversification efforts are focusing on power generation, telecommunications, natural gas exploration, and petrochemical sectors. Roughly 6 million foreign workers play an important role in the Saudi economy, while Riyadh is trying to reduce unemployment among its own nationals.
Referring to the goals to be set by Saudi companies, he said that states and businesses should pursue policies that create high-quality goods and services to sell at high prices in the market. Porter emphasized productivity growth as the focus of national strategies. Competitive advantage rests on the notion that cheap labor is ubiquitous and natural resources are not necessary for a good economy, he added.
On the real sense of competitiveness, Porter said that "competitiveness is a long race." Competitive advantage occurs when an organization acquires or develops an attribute or combination of attributes that allows it to outperform its competitors, he explained. These attributes can include access to natural resources, such as high-grade ores or inexpensive power, or access to highly trained and skilled human resources.
Making his presentation with the help of several slides, which included projections of Saudi economy, Porter said that "productivity emerges from building concentration in efforts." He gave the example of Houston Oil and Gas Cluster, a company that has been paying high wages to its employees because of its high productivity. He said that Houston Oil is an excellent example of a cluster that grew out of a natural resource, oil.
Houston Oil, he said, provides just one example of how a cluster that began from a comparative advantage-driven approach can evolve to be competitive advantage-driven. The Houston example is provided to show that a natural resource-based cluster can create sustainable growth and provide a positive identity to the region. However, it must be noted that the wealth does not come from the resource itself but from the value-added products and services.
