Dr.Youzhen Zhao FDU

Evolution of International Business

Ch 4 Location factors: National roots of competitive advantage

2011-2012 Global Competitiveness Index Ranking

by World Economic Forum (142economies)

Top ten: Switzerland 1 (1) Singapore 2 (3) Sweden 3 (2) Finland 4 (7) USA 5 (4) Germany 6 (5) Netherlands 7 (8) Denmark 8 (9) Japan 9 (6) UK 10 (12) Norway 16 (14)

Specific countries/areas

(comparison: 1year before) China 26 (27) India 56 (51) Brazil 53 (58) Russia 66 (63) South Africa 50 (54) Hong Kong 11 (11) Taiwan 13 (13) South Korea 24 (22)

Dr.Youzhen Zhao FDU

Dr.Youzhen Zhao FDU

2009-2010 Global Competitiveness Index Ranking

by World Economic Forum (133 economies)

Top ten: Switzerland 1 USA 2 Singapore 3 Sweden 4 Denmark 5 Finland 6 Germany 7 Japan 8 Netherlands 9 Canada 10

Specific countries/areas

(comparison: 1year before) China 29 (30) India 49 (50) Brazil 56 (64) Russia 63 (51) Hong Kong 11 Taiwan 12 South Korea 19

Dr.Youzhen Zhao FDU

World Economic

Forum (134 economies)

(comparison: 1year

before)

China 30 (34 )

India 50 (48)

Brazil 64 (72)

Russia 51 (58)

Dr.Youzhen Zhao FDU

Source：IMD, World

Competitiveness Yearbook

Note：58 economies in 2010, 57 in 2009 & 2008

Dr.Youzhen Zhao FDU

Methodology for ranking

IMD: 4 types of indexes (economic performance,

government efficiency, enterprise efficiency,

infrastructure) , with 323 small indexes, mainly based

on statistics(2/3) and survey among executives (1/3)

World Economic Forum: 12 pillars of economic

competitiveness (next slide), based more on surveys

among executives (more than 2/3) rather than statistics

(less than 1/3)

Dr.Youzhen Zhao FDU

12 Pillars of economic competitiveness measured by

World Economic Forum

Dr.Youzhen Zhao FDU

Competitive Advantage of Nations

The nature of competition and sources of competitive advantage differ widely among industries.

Firms gain and sustain competitive advantage in modern international competition through innovation.

Firms that successfully gain competitive advantage in an industry are those that move early and aggressively to exploit a new market or technology.

Dr.Youzhen Zhao FDU

The Determinants of National

Competitive Advantage Firm strategy,

structure

and rivalry

Related and

supporting

industries

Factor

conditions

Demand

conditions

Government

policies

chances

Dr.Youzhen Zhao FDU

Determinants and external variables:

Determinants: Factor conditions

Demand conditions

Related and supporting industries

Firm strategy, structure, and rivalry

External variables: The role of chance

The role of government

Dr.Youzhen Zhao FDU

Factor Conditions(1) These include:

The quantity, skills, and cost of the personnel

The abundance, quality, accessibility, and cost of the nation’s physical resources such as land, water, mineral deposits, timber, hydroelectric power sources, and fishing grounds

The nation’s stock of knowledge resources, including scientific, technical, and market knowledge that affect the quantity and quality of goods and services

The amount and cost of capital resources that are available to finance industry

The type, quality, and user cost of the infrastructure, including the nation’s transportation system, communications system, health-care system, and other factors that directly affect the quality of life in the country

Dr.Youzhen Zhao FDU

Factor conditions(2) Basic factors, such as labor or raw-material, do not constitute an advantage in knowledge-intensive industries.

The most important factors of production are those that involve sustained and heavy investment and are specialized.

Nations succeed in industries where they are particularly good at factor creation.

Selective disadvantages in the more basic factor can stimulate a company to innovate and upgrade.

Converting disadvantages to advantages

Eg. Japanese auto industry; office equipment industry

Dr.Youzhen Zhao FDU

Demand conditions(1) These include

The composition of demand in the home market as reflected by the various market niches that exist, and buyer sophistication and how well the needs of buyers in the home market precede those of buyers in other markets

The size and growth rate of the home demand

The ways through which domestic demand is internationalized and pulls a nation’s products and

services abroad

Dr.Youzhen Zhao FDU

Demand conditions(2) The composition and character of the home market has an important effect on how companies perceive, interpret and respond to buyer needs.

When a particular industry segment is larger or more visible in domestic market than in foreign markets,home-demand conditions help build competitive advantage.

Sophisticated ,demanding local buyers for products or services help build competitive advantage.

Local buyers help build competitive advantage if their needs anticipate or even shape those of other nations.

Eg. Nokia’s rise

Dr.Youzhen Zhao FDU

Related and supporting industries(1)

These include

The presence of internationally competitive supplier industries that create advantages in downstream industries through efficient, early, or rapid access to cost-effective inputs

Internationally competitive related industries that can coordinate and share activities in the value chain when competing

Dr.Youzhen Zhao FDU

Related and supporting industries(2)

Access to components and machinery

Accelerate innovation and upgrading based on close working relationship

Creates competitive advantage in a range of interconnected industries that are all internationally competitive

Eg. Japanese fax industry

Dr.Youzhen Zhao FDU

Transport

Tourism

Infrastructure and Real

Estate Development

Communications

and Media

Business Services

Hong Kong’s Clusters

Light Manufacturing

and Trading

Dr.Youzhen Zhao FDU

Singapore’s Clusters

Petroleum / Chemical

Logistics / Transport Engineering Business Services

Electronics

Education

Life Sciences

Dr.Youzhen Zhao FDU

Firm strategy, structure, and rivalry(1)

These include The ways in which firms are managed and choose to compete

The goals that companies seek to attain as well as the motivations of their employees and managers

The amount of domestic rivalry and the creation and persistence of competitive advantage in the respective industry

Dr.Youzhen Zhao FDU

Firm strategy,structure and rivalry(2)

Among all the points on the diamond, domestic rivalry is the most important because it’s a final and powerful stimulus to the creation and persistence of competitive advantage.

Domestic rivalry spurs dynamic improvement;

Domestic rivalry creates pressure for constant upgrading of the sources of competitive advantage;

Geographic concentration magnifies the power of domestic rivalry;

Vigorous domestic competition pushes domestic companies to look at global markets and toughens them to succeed in them.

Dr.Youzhen Zhao FDU

LOS ANGELES

Motion Pictures

Military Aerospace

SAN FRANCISCO

Biotechnology

SILICON VALLEY

Semiconductors

Electronics

Multimedia

BOSTON

Medical Services

Medical Devices

Software

Biotechnology

Consulting

Education

NEW YORK

Finance

Advertising

Accounting

Theater

WICHITA

Small Aircraft DETROIT

Autos

MINNEAPOLIS

Supercomputers

OMAHA

Telemarketing

GRAND RAPIDS

Office Furniture

DALTON

Carpets GULF COAST

Chemicals

NEW JERSEY

Pharmaceuticals

CAROLINAS

Textiles

Apparel

HARTFORD

Insurance

Dr.Youzhen Zhao FDU

BIELLA wool textiles

TURIN autos fact. auto. equip.

VALENZA PO jewelry

CARRARA stone stonework

PRATO wool textiles

AREZZO jewelry

BRIANZA furniture

PIACENZA fact. auto. equip.

CASTEL GOFFREDO

MONTEBELLUNA ski boots

knitwear wood working mach.

SASSUOLO ceramic tiles

MODENA sports cars knitwear

BOLOGNA food mach. packaging mach. railroad equip.

PARMA food industries

CARPI

MILAN finance machine tools textile mach.

lighting equip.

Dr.Youzhen Zhao FDU

The role of chance

Chance events can nullify the advantages of some competitors and bring about a shift in overall competitive position because of developments such as:

New inventions Political decisions by foreign governments Wars Significant shifts in world financial markets or exchange rates Discontinuities in input costs such as oil shocks Surges in world or regional demand Major technological breakthroughs

Dr.Youzhen Zhao FDU

The Roles of Government Government can influence all four of the major

determinants through actions such as:

Subsidies

Education policies

The regulation or deregulation of capital markets

Tax laws

Antitrust regulation

The establishment of local product standards or regulations that influence buyer needs

Regulations to influence supporting and related industries

Dr.Youzhen Zhao FDU

Sources of International Competitive

Advantage Firm

Capabilities

Country

Environments

Government

Policies

Dr.Youzhen Zhao FDU

Homework

Every team, please choose an Italian or Chinese industry you’re interested in, do some research and analyze its international competitiveness by using the Diamond Model

Each team , send PPT to the instructor by 9pm Wednesday and prepare a presentation followed by Q&A (maximum 15 minutes) on Thursday---bring your own disks and copy them to the desktop in the classroom