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Patterns of National Competitive Advantage

Post World War II - America

Manufacturing Industries such as Computers,

Software & Biotechnology

Concentration Of
America's
Competitive
Forest & advantage
Agricultural
Products · Entertainment &
Leisure

Defence & Aerospace

Industries
Patterns of National Competitive Advantage

Post World War II - Britain

Consumer Packaged
goods

Concentration Of
Britain's
Competitive
advantage

~1~
Alcohol & Pharmaceuticals
Beverages

Financial products
Such as Insurance & Trading
Role of Government in Eme rg ing Nations
Japan - An Example

• Direction of flow of capital and resources Into particular sectors such as steel,
shipbuilding and sewing having the potential to grow.

• Reduction in government direct intervention

• Government policies have lead to standardization of products.

• High visibility government reports, joint industry, academic and government

committees, highly publicized campaigns, cooperative research projects leading to
emerging technology.

• Limited foreign entry.

• Lower interest rates

• Export Assistance.

• Negotiated licenses for foreign technology.

Role of Government in Emerging Nations

Korea - An Example

• Government made investments in range of industry related R&D institutes.

• Set up industrial centres to encourage clustering of of Industries built around
technical & educational facilities. Electronic centre In Kumi.
• Devaluation to gain competitiveness.

• High involvement of the government to increase exports which was given prime
importance.

• Allocation of capital to the right industry when the nation was short of it and
provision of subsidies and loans to industries.
• Protection of domestic market by limited foreign entry.
Factor Driven Economy

Highlights
Firm Strategy,
Structure &
Rivalry • A nation's Indigenous firms in
this economy compete solely
on basis of price in industries
that require less technology
processing or inexpensive
Factor Demand technology.
Conditions Conditions
• In this stage the economy is
sensitive to world economic
• Basic Factors are cycles and exchange rates.
the essential
source of • It has a poor foundation for
advantage sustained productivity growth.

Relating and • Few nations move ahead of

supporting factor driven stage.
Industries
Investment Driven Economy :___
I

'
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• Motivation of individual & firms is high

• Domestic rivalry is intense
Highlights
Firm Strategy,
Structure &
Rivalry • In this stage natJonal
competitive advantage 1s
based on the willingness and
ability of the nation and Its
firms to invest.
Factor Demand
• Firms invest to construct
Conditions Conditions
large-scale facilities.

• In this stage improving factor

• Basic Factor • Size and growth Of cond1t:Jons and increasing
remain as domestic demand rivalry between domestic
advantage becomes an advantage firms draw advantages

Relating and
supporting
Industries
Innovation Driven Economy

• Firms develop global strategies

Firm Strategy, Highlights

Structure &
Rivalry
• Firms in this stage Improve
technology and methods and
at the same time create
them.
Demand • Firms in this stage compete
Factor
Conditions internationally in different
, Conditions
segments.

• Advance • Domestic demand • Firms continue to compete on

factors are becomes cost but now also compete on
created & internationalizing skill levels and technology.
upgraded through nation's
multinationals
Relating and • Demand
supporting sophistication
Industries becomes advantage

• Related and supporting industries are developed

Wealth Driven Economy

• Motivation falls Rivalry begins

Highlights
Firm Strategy,
Structure &
Rivalry • The wealth driven stage is
the one that leads to decline.

• Firms begin to loose

competitive advantage in
Demand international Industries.
Factor
Conditions • Belief of competition falls not
Conditions
only in companies but also in
unions.
• Past investment " ' - -
~
• Demand advantages
persist as reducer narrow only to • A symptom to wealth driven
advantage present industries stage is widespread mergers
and acquisitions.
Relating and • Employee's loose motivation.
supporting
Industries

• Clusters reduce
Sustaining Competitive Advantage
Five Pronged Approach Strategy

Innovation, Improvement, Change

• Innovation not only lndudes new technologies but also
new methods or ways of doing things. Innovation can be
manifested In a new product design, ne-.v production
process, a new approach lo marketing, or a new way of
training or organising.
Continuous
Improvement Managing the entire value system
Innovation,
Change • Competitive Advantage comes from perceiving new ways
to configure and manage the entire value system. This
process may involve restructuring or lntegratlng activities
Managing with suppllers, modifying the strategies of channels, and
Global recombining or integrating actlvlties With buyers.
the entire
approach to
value
Strategy
Competitive system Relentless Improvement
Advantage • Advantage once gained Is only sustained by a continual
search for different and better ways of doing things and
through ongoing mod1ficatlons In behavior wlthm an
overall strategic context.
Upgradation
of sources in Relentless Upgradation of sources in the value chain
the Value Improvement
Chain • Sources of advantage differ In sustainability. Sustaining
advantage requires to continually move earlier than nvals
to widen the sources of advantage and upgrade them.

Global approach to strategy

• A global approach supplements home - based advantages
and helps nullffy home-based disadvantages.
Improving the Competitive Environment

lndusby or Cluster
Programs for Factor
Creation

Influencing and
Investments in Factor Participating in
Creation Factor Creation Government/Community
Factor Creation

Governments policies in improving competitiveness

• Devaluation, deregulation, privatization, relaxation of product and
environmental standards.
• Promotion of inter firm collaboration and cooperation of various types.
• Encouragement of mergers, tax reforms & regional development.
• Negotiation of voluntary restraint or orderly marketi ng arrangements.
• Efforts to improve the general education system.
• Expansion of government investment in resea rch.
• Government programs to fund new enterprises
• Proactive role for defense and other forms of government procurement.
Choosing Industries and Segments for which the Nation is a
Favourable Home Base

Related and supporting firm Sb'ategy,

Factor Conditions Demand Conditions
industries Structure and Rivalry
I

• Does the nation have • Are the nations buyers for • Does the nation have world • Does the style of
particularly advanced or the industry's products the class supplier industries? For management and
appropriate factors of most sophisticated or what segments? prevailing types of
demanding? In what
production? In what • Are there strong positions tn organisal:Jonal structures
segments?
segments? For what important related industries? in the nation match
strategies? • Does the nation have industry needs?
• Does the nation unusual needs in the • What types of strategies
have superior factor Industry that are significant
exploit national norms of
but will likely be ignored
creation mechanisms in elsewhere? orgarnsatlon?
the industry (for example, • Does the industry attract
specalised university • Do buyer needs m the outstanding talent in the
research programs, nation anticipate those of
other nations? nation?
outstanding educational • Do Investor goals fit the
institutions)? • Are the distribution competitive needs of the
• Are selective factor channels in the nation industry?
disadvantages in the nation sophisticated, and do they • Are there capable
foreshadow international
leading indicators of foreign trends? domestic nvats?
circumstances?
Government Policies to create Competitive Advantage

• Internationalisation
• Goals
• Domestic Rivalry
• Regulation Of Competition
• Interfirm Cooperation
• Trade Policy
• Foreign Investment
Firm strategy,
Structure a Rivalry

Factor Demand
Conditions Conditions

• Education & Training • Government Procurement

• Science & Technology • Defense Procurement
Relating and
• Infrastructure supporting Industries • Regulation of Products & Process
• Capital • Buyer Industry Structure
• Information • Policies towards the • Stimulating Early or Sophisticated
media
• Direct Subsidy Demands
• Cluster Formation • Buyer Information
• Devaluation, wages
workforce growtll • Regional Policy • Technical Standards
• Foreign Aid & Political Ties
Governm ent policy and roles at differen t stages

Governm ent policies at the Factor and Investme nt driven stage:

• Encourage Savings & Accumulation of foreign capital through borrowings.

• Upgrading education and infrastructure.

• Building the technological base and allow Acquisition of foreign technology.

• Allotment of capital in selected capital scarce industries.

• Promote risk taking through explicit or implicit guarantees of assistances.

• Devaluation or appreciation of currency.

Governm ent policies at the Innovatio n driven stage:

• Create an environment In which the firms are able to be dynamic and innovative.

• Change of role from a actor or decision maker to a facilitator.

• Create advanced factors.

• Upgrade demand conditions through stringent standards.

• Deconcentrating economic power.

Me SB6E:S
... Contd.

Government Policy in Developing states:

• Market Versus Planned Economies.

• Development priorities.

• Indigenous companies versus foreign multinbationals.

• OEM supplier versus global competitor.

Role of Government in Developing states:

• Transit and amplify the forces of the "diamond" as well as help upgrade the
determinants themselves.

• Provide tools necessary to compete, through efforts of encouraging factor creation

and at the same time maintain strong competitive pressure.

• Signal companies which are the priorities and challenges they face and identify and
highlight them.

• Create and encourage domestic rivalry.

In Summary
Key Learning's for the Government

Governments must set the appropriate goal, productivity, which

underpins economic prosperity.

They must strive for its true determinants, such as incentive, effort, and
competition, not the tempting but usually counterproductive choices
such as subsidy, extensive collaboration and "temporary" protection
that are often proposed.

Government's proper role is to push and challenge its industry to

advance, not provide "help" so industry can avoid it.

At this time when much of the world is reexamining its economic

structures, the need for proper choices has never be greater.

National Economic prosperity need not come at the expense of other

nations, and many nations can enjoy it in a world of innovation and
open competition.