international competitiveness of asian firms: an analytical framework

7/28/2019 International Competitiveness of Asian Firms: An Analytical Framework

1/39

ECONOMICS AND RESEARCH DEPARTMENT

ERD WORKING PAPER SERIES NO. 4

Rajiv KumarDoren Chadee

February 2002

Asian Development Bank

International

Competitiveness of Asian

Firms: An Analytical

Framework


2/39

27

ERD Working Paper No. 4

INTERNATIONAL COMPETITIVENESSOF ASIAN FIRMS:

AN ANALYTICAL FRAMEWORK

Rajiv Kumar

Doren Chadee

February 2002

Rajiv Kuma r is t he P rincipal E conomist of the Operat ions Coordinat ion Divis ion, Ea st a nd C entra l Asia

Regional Department , Asian Development Bank. Doren Chadee is a professor with the Department of

Interna tional B usiness, The U niversity of Aucklan d. This pa per wa s prepared for RETA 5875: In terna tional

Competitiveness of Asian E conomies: A Cross-Country St udy. The aut hors wish to tha nk Cha rissa C ast illo

and Anicia S ay os for ungr udging a nd effective technical a ssistance a nd C orrito Fajardo for competent executive

assista nce. The views expressed are th ose of the a uthors a nd do not n ecessarily reflect t he views or policies

of the ADB. This paper is a work in progress and is not to be quoted without the permission of authors.


3/39

28


INTERNATIONAL COMPETITIVENESSOF ASIAN FIRMS: AN ANALYTICAL FRAMEWORK

Asian Development Bank

P.O. B ox 789

0980 Ma nila

Philippines

2002 by Asian Development B an k

Februa ry 2002

IS S N 1655-5252

The views expressed in this paper

a re those of the a uthor(s) an d do not

necessarily reflect the views or policies

of the Asian Development Bank.


4/39

29

Foreword

The ERD Working Paper Series is a forum for ongoing and recently

completed research and policy studies undertaken in the Asian Development

Bank or on its behalf. The Series is a quick-disseminating, informal publication

mean t t o stimulat e discussion a nd elicit feedba ck. P a pers published under th is

Series could subsequent ly be revised for publication a s a rticles in professiona l

journals or chapters in books.


5/39

31

Contents

Page

Abstract vi i

I . Int roduct ion 1

I I . Theoret ica l Considera t ion a nd Concept ua l Fra mew ork 3

I I I . S ources of Compet it iveness 5A. Technology a s a S ource of C ompet it iveness 5

1. Innova t ion a nd Technology S t ra t egy 6

2. Informa t ion a nd C ommunica t ions Technology 8

B. Import a nce of H uma n Resources 10

1. H uma n Resources Orient a t ion 10

2. E duca t ion , Tra ining, a nd D evelopment 11

C. Orga niza t iona l S t ructure 12

1. Tea m Work a nd C lust ers 13

2. Orga niza tiona l Lea rning a nd In ter firm Rela tionship 14

D. Role of t he G overnment a nd Compet it iveness 15

1. Indust r ia l P olicy 152. P rovision of P ublic G oods 16

3. E xport Ma rket Assist a nce 17

E . Import a nce of Ca pit a l a nd t he F ina ncia l S ect or 18

1. Fina ncia l S ect or S t a bilit y 19

IV. G enera liza t ion of t he Model a nd D a t a 20

V. Conclusion 21

References 22


6/39

30



Abstract

Following the Asian financial crisis of 1997-1998, recovery in the export

sector of crisis-a ffected countries ha s been slow, thereby ra ising importa nt

questions on the interna tional competitiveness of firms in t his region. In order

for policyma kers to restore the dyna mism of Asian firms a nd ensure susta ined

export growth in the long term, it is instructive to, first , identify the sources

of competitiveness of enterprises in t his region. This pa per, w hich provides the

th eoretica l fra mew ork to RE TA 5875, develops a conceptua l model to expla inthe determina nts of interna t ional competit iveness of Asian f irms a nd offers

research propositions. The model posits t ha t interna tiona l competitiveness is

affected by the f irms human resource orientat ion, extent of technological

innovation, organizational structure, government industrial policy, access to

capital , as well as state of the f inancial market .


7/39

1

I. Introduction

The internat iona l competit iveness of Asian f irms ha s a t tr acted renewed world a t tent ion

following the Asian financial crisis of 1997-1998. For over a decade prior to the crisis,

western firms looked toward their Asian counterparts to learn the secrets of their success

in export markets. For example, the first-tier and second-tier newly industrialized economies

(NIEs), East and Southeast Asia, experienced annual double-digit growth in merchandise exports

for more than a decade up to 1996. 1 The so-called Ea st Asian mira cle ha s usua lly been linked

to the un ique Asian model of industria l development consisting of the t rilat eral r elationship am ong

firms, ba nks, a nd t he governm ent (Stiglit z 1996, Wa de 1998). Yet, t oday ma ny of these once

successful firms have either disappeared or are struggling to survive. During the financial crisis,

ma ny of th e crisis-a ffected economies experienced declining export s a nd severe slowdow n in overa ll

economic grow th (see Ta ble 1). Thus, th e a ppar ent loss of competit iveness of th e Asia n corpora te

sector raises several interesting questions regarding the competitive strength of the East and

Southeast Asian model. Were the export success of so many firms based on superficial foundations?

Wha t were t he sources of compet i t iveness of th ese f irms t ha t ma de them so success ful in

in ternat ional markets?

Table 1. Average Annual GDP and Merchandise Export Growth Ratesin Selected Asian Countries

G row t h in P re-crisis G row t h in C r isis G row t h in P ost cr isis

P er iod (1995-1996) P er iod (1997-1998) P er iod (1999-2000)

G D P E xpor t G D P E xpor t G D P E xpor t

E conomy (%) (%) (%) (%) (%) (%)

K orea 7.8 17.8 -0.85 1.0 9.8 15.5

S in ga pore 7.8 13.7 4.8 -6.2 7.9 12.4

Ta ipei,C hin a 6.2 11.8 5.6 -2.0 5.7 16.1

Th a ila n d 7.6 11.4 -6.1 -1.5 4.2 13.5

P h ilippines 5.2 23.6 2.4 19.8 3.6 13.8

Indonesia 8.0 11.9 -4.2 0.8 2.8 15.0

India 7.4 13.0 5.8 0.3 6.2 14.3

P RC 10.0 21.4 8.3 10.7 7.6 17.0

Source: Computed from Asian Development Ou tl ook 2001(ADB 2001).

1 The NIE s are H ong Kong, China ; Republic of Korea (hencefort h Korea ); Sin ga pore; a nd Ta ipei,China . The

Southeast Asian economies are Ca mbodia , In donesia , La o PD R, Malay sia , Mya nma r, Philippines , Thailan d,

and Viet Nam.


8/39

2



The financial crisis has also highlighted the importance of firms to adapt to the rapidly

chan ging domestic and global environment in w hich they opera te in order to compete. It h a s become

evident th at both the interna l a nd external conditions in w hich Asian firms opera te ha ve cha nged

ra pidly not only a s a result of the str uctura l changes and reforms being undertaken in most of

th e Asia n economies in response to the crisis, but a lso to cha nges in globa l condit ions. Domestically,

there is increasing pressure in m a ny crisis-a ffected economies t o cha nge t he governm ents r ole,

making it more transparent and less interventionist. This is because previous collusion among

firms, banks, a nd government s ma y ha ve led to the misa llocation of investment t ha t contr ibuted

to excess ca pa city, rea l esta te bubbles, or both. G lobally, th e renewa l cycle of product a nd process

technologies is shortening, and the impact of information technologies on industries is becoming

more pronounced. Togeth er, th ese cha nges requ ire a n a ppropria te response from Asia n firm s a nd

governments if they are to restore their dynamism and provide the basis for sustaining the

competitiveness of Asian enterprises. Government policies will have to be reviewed to ensure

that these complement the firms efforts to restore their international competitiveness.

In light of the strategic significance of the export sector in most Asian economies, andin the context of sheer growth in exports from Asia over much of the last two decades, one would

expect a lar ge volume of litera tur e on th e export competitiveness of Asian firms. S urprisingly,

the subject rema ins one of th e most understudied a reas of internat iona l business. There are several

plausible explana tions for this neglect. F irst, cross-count ry, firm-level da ta tha t ca n be rea dily

compa red is difficult a nd expensive to obta in. Second, because int erna tiona l competitiveness is

a distributed field of knowledge requiring cross-functional integration of expertise, it has not

become the domain of any a cademic discipline. Third, t he resulting la ck of int ellectua l focus ha s

ha mpered the development of competitiveness theories suit a ble for fostering resear ch, alt hough

recent integration of theories from economics and business has broadened the understanding

of the dyn a mics of the subject. Most exist ing t heories of competit iveness rela te t o the experience

of f i rms in advanced developing countr ies . Theor ies that re la te speci f ica l ly to smal l and

technologically u ndeveloped firms in developing economies, such a s in Asia, r ema in un developed.

Hence, to fill this gap in the literature, the paper draws on existing work from economics and

business to develop an integra ted model reflective of the dyn a mics at work betw een th e interna l

and external environment of Asian firms and their competitiveness.

This pa per add s to the existing th eoretical a nd met hodological litera tur e on competitiveness

by a ddressing t w o main issues rela ted to sma ll underdeveloped Asian enterprises competing in

globa l ma rkets. The paper provides the methodological fra mework to the resear ch being undert a ken

under RE TA 5875: I ntern a tiona l C ompetit iveness of Asia n Economies: A Cross C ountry St udy.

First, the pa per identifies t he ma in determina nts of interna tional competitiveness. Second, research

propositions a re developed to offer insight s for resear chers int erested in furt her exploring t heconceptualization and measurement of competitiveness Five factors are identified as the most

critical for the international competitiveness of enterprises, namely, (i) technology, (ii) human

resources, (iii) organizational structure, (iv) government, and (v) role of capital and finance. Although

the effects of each of these factors on the internat ional competit iveness of f irms have been


9/39

3

Section IITheoretical Consideration and Conceptual Framework

investiga ted individua lly before, no at tempt ha s been ma de to develop a comprehensive model

tha t considers these factors together. Technology a nd hum a n resource alone, for exam ple, ma y

ha ve li t t le effect on a f irms competit iveness but ca n play a much more importa nt role wh en

embedded in an organization structure effectively coordinated both internally and externally.

Thus, there is a strong case for competitiveness researchers to distinguish between the complete

syst emic view of interna tiona l competit iveness a nd th e mere a doption of tra ditional a pproa ches

of a part ial framework.

II. Theoretical Consideration and Conceptual Framework

The concept of interna tiona l competitiveness, a lthough controversial,2 continues to at tra ct

plenty of at tent ion from policyma kers worldw ide. This is perha ps the result of la ck of a better

indicator for countries to benchmark their performance. Most measures of competitiveness so

far ha ve been at the na tional level (see for example Th e Worl d Competi ti veness Report , IMD 1999),and generally refer to the ability of a country to produce goods and services that meet the test

of internat iona l ma rkets, while simulta neously ma inta ining and expanding t he real income of

its citizens (Commission on Ind ustr ial Competitiveness 1985). B eca use competitiveness ultima tely

depends upon the f irms in t he countr y competing successfully in domestic a nd int ernat iona l

ma rkets, a tt ention has r ecently shift ed towa rd competitiveness at the firm level. At t he firm level,

competitiveness is genera lly understood to refer to the a bility of the firm t o reta in a nd, better

still, expand its global market share, increase its profits and expand (OECD 1993, Clark and

G uy 1998). According to tra ditiona l economic theory, a firm can ga in competitive a dva nt a ge through

comparative cost of production by, for example, reducing labor cost. However, recent research from

the management f ie ld suggest that nonprice fac tors are equal ly important de terminants o f

competitiveness. The ra nge of nonprice fa ctors is diverse a nd include hum a n r esource endowm ent,

such as skills; technical factors such as research and development capabilities and the ability

to innovat e; and ma na gerial a nd organizat ional factors, both interna l to the f irm a nd externally

organ ized through relat ionships w ith other bodies, customers, suppliers, public a nd priva te research

instit utes, a nd other firm s (Cla rk a nd G uy 1998). Together, these factors determine t he a bility

of th e firm to compete successfully in intern a tiona l ma rkets in t he face of cha nging t echnological,

economic, and social environments. Export profitability and the ability of the firm to maintain

its ma rket sha re remain the ult ima te indica tors of internat iona l competit iveness.

According to P orter (1990), four conditions t ha t incorporat e both interna l a nd externa l

fa ctors need t o be present t o allow firms compete successfully. These include (i) fa ctor condit ions,

such as t he ava ilability of skilled la bor and infr a str ucture; (ii) dema nd conditions for the products

2 Krugma n (1994) argues t hat nat ional competit iveness is a meaningless concept a nd t he obsession w ith t he

concept is both wr ong an d da ngerous. Port er (1990) also comes close to the position tha t t he term competitiveness

of a nat ion ma kes no sense and a rgues that a country cannot be competit ive in a ll industries.


10/39

4



of the indust ry; (iii) relat ed a nd su pportin g indust ries including competitive suppliers; a nd (4)

firm st ra tegy, str ucture, a nd riva lry. Together, these four fa ctors crea te th e context in w hich firms

a re born a nd compete (Porter 1990). In a ddition, recent research a lso empha size path dependency,

which relates to history and the development of features specific to a particular nation, as also

being an essentia l determina nt of competit iveness. There is a w ell-developed litera tur e tha t a scribes

a strong role to na tional ca pabilities, cha ra cteristics, a nd policies in conferring t echnologica l a nd

competitive a dva nt a ge to firms, pa rt icularly in d eveloping count ries. A cent ra l as pect of this view

involves netw orks and intera ctions a mong firms, universities, research centers, a nd government

organiza tions comprising a n a tional syst em of innovation or NS I (Ba rtholomew 1997) tha t enha nce

their ability to grow (Kaounides 1999). Within this framework, government policies aimed at

strengt hening a countr ys NSI genera lly contribute to the competitive adva nta ge of firms in tha t

country (Aoki et al. 1997). Furthermore, the resource-based perspective of the firm (Barney 1991)

emphasizes the a bility to crea te entry bar riers in order to discoura ge competitors from imita ting

a nd duplicating their successes. Accordingly, a firm can ga in a nd sust a in its competitiveness in

internat iona l ma rkets by its a bili ty t o levera ge on organizat iona l resources a nd skills tha t a reva luab lea nd r a re(Coyne 1985); nonimi tab le(Lippman and Rumelt 1982, Barney 1986); and

nonsubst i tu tab le(Barney 1991) . Thus , whi le micro fac tors are important de terminants o f

competitiveness, the nature of the external environment in which firms operate and the relationship

firms develop wit h outside orga niza tions ar e increasin gly being recognized a s integra l elements

of competitiveness at the firm level.

The different t heoretical explana tions of competitiveness a bove expla in th e competit iveness

of mostly lar ge corpora te firms in a dva nced developing count ries an d th erefore a re not entirely

a ppropria te for firms in Asian developing count ries. For exam ple, th e resource-ba sed view a pproa ch

(Barney 1991) suggest that firms derive their competitiveness by producing unique products and

by creating entry barriers to prevent others from imitating their activities. This is not entirely

relevant for f irms from underdeveloped countries in Asia, which are characterized as being

generally sma ll, technologically underdeveloped with un skilled workers, an d opera te wit hin a n

und erdeveloped fina ncia l sector. To explain h ow th ese firms can enh a nce their competit iveness,

w e borrow elements of the different th eoretical perspectives above in developing a conceptua l

model reflective of the experience of Asian firms. I n pa rticula r, our m odel postula tes t ha t firm s

can enha nce their competitiveness by (i) being flexible an d w orking cooperat ively w ith outside

orga niza tions, (ii) being innova tiv e, and (iii) being hum a n resource-oriented. To th e extent th a t

t he ext e rna l f a ct o r s f ac ing f i rms a r e a l so impor t a n t , w e fu r t her a rgue t ha t u l t ima t e ly t he

competitiveness of firms a lso depends on th e role the government plays in supportin g business

and industrial development. A major constraint facing Asian firms in the postcrisis period has

been access to adequate financial resources. We incorporate this element in our model and arguetha t a ccess to ca pita l in a w ell-developed a nd st a ble fina ncial sector is crucial for firms to grow.

The model in Figure 1 shows the linkages between the internal and external factors

discussed above. The internal factors include technology, human resource, and organizational

structure. The second component of the model includes external factors consisting mainly of the


11/39

5

Internal Factors

Technology

and ICT

Human Resource

Organizational

Structure

Interaction Creates

International Competitiveness(higher export profitability, export market share)

External Factors

Role of Government

Finance and Capital

role of the government and the nature of the financial sector. Although finance constitutes an

internal resource to any enterprise, the present paper considers macro financial issues and as

such includes i t as an ex ternal fac tor . Discuss ion o f these var iables and o f the ir e f fec t on

international competitiveness is the central purpose of this section.

Figure 1.

An Integrated Model of International Competitiveness of Enterprises in Asia

Section IIISources of Competitiveness

III. Sources of Competitiveness

A. Technology as a Source of Competitiveness

Technology is comm only defined a s know-how (Ca pon a nd G la zer, 1987) a nd us ua lly refers

to product a nd process t echnology. P roduct technology r efers t o a set of know ledge or inn ovat ions

embodied in a product, while process technology refers to technology embedded in production

processes. Besides product a nd process t echnologies, the business litera tur e also highlights the

impo r t ance o f management t echno lo gy t ha t t akes t he fo rm o f kno wledge o r sk i l l s w i t h

organizat ional, social , and human aspects . More recently, rapid development of electronics

technology ha s a lso brought a tt ention t o the impact of informa tion a nd commun ica tions technology(IC T) on the competitiveness of firms. F or the pur poses of this st udy w e focus on how t echnology

can contribute t o the competitive adva nta ge to Asian firms. In part icular, we focus on tw o aspects

of technology a s sources of competit iveness to Asia n firm s, na mely: (i) innova tion a nd t echnology

st ra tegy a nd (ii) th e role of ICT.


12/39

6



1. Innovation and Technology Strategy

Innovation is an interactive and dynamic process and refers to the process of learning

and knowledge creation through complex interdependencies among technological, organizational,

and external settings, collectively known as the national system of innovation (Nelson 1993).

Innovat ion has been found to be crit ical in creat ing and sustaining competit ive advantage in

the global markets.3 For exam ple, it ha s been est imat ed tha t a pproximat ely tw o thirds of the

productivity growt h of th e Un ited S ta tes (US) since the 1930s Depression can be direct ly or

indirectly a tt ributed t o innovation. Today technology-ba sed sectors genera te m ore tha n 50 percent

of U S gross na tional product (GNP ), a bout t wice the level just a genera tion ago (Amin a nd H a gen

1998). S imila rly, in indus tr ia lized economies, more t ha n 50 percent of long-term economic growt h

stems from technological innovations through improved productivity or new products, processes,

or industries (G rossman 1991). It is th erefore not surprising tha t industria lized countr ies, which

a ccount for tw o thir ds of globa l ma nufa cturing, spend an enormously large a mount of resources

on resea rch a nd development (R&D) to promote innovat ion a ctivities. J a pan , U S, a nd WesternEurope alone account for about two thirds of worldwide R&D expenditure (Freeman and Hagedoorn

1994).

The do minance o f a f ew w es t e rn indus t r i a l i z ed coun t r ie s in w or ld d i s t r ibu t io n of

technological capabilities implies that most developing countries for instance, remain highly

dependent on technology transfer and interfirm technology cooperation (Freeman and Hagedoorn

1994). It s hould be recognized, how ever, tha t in r ecent y ear s some Asia n count ries (th e NIE s a nd

P eoples Republic of C hina [P RC]) ha ve experienced r a pid increases in R&D a ctivities, an d h a ve

developed indigenous t echnological capa bilities. Nevertheless, the rea lity is tha t only few Asia n

firms have state-of-the-art R&D facilities similar to those found in western industrialized countries.

Thus , the major i ty o f Asian f i rms cont inue to be h ighly dependent on western advanced

indust ria lized count ries for th eir technology a nd ha ve been described as la tecomers a nd q uick

followers (Hobday 1995), whose strategies continually involve catching up and keeping up

(Myt elka 1999; see Ta ble 1). La tecomer firms enter a nd a cquire process technology at ear ly st a ges

and then gradually gain control over process technology through incremental process change

to improve firm productivity a nd product qua lity. At t he next st a ge, the quick-follow er firms a re

in full comma nd of production skills, engage in process innova tion, an d st a rt to a cquire product

design ca pability. Firms a t t he follow ing front runn er sta ge begin R&D a ctivities for process a nd

product a nd develop product innovat ion capa bi l it ies . At the fu l ly m a ture s t age , f i rms wi t h

competitive and leading R&D capability are able to undertake advanced product and process

innovat ion. Thus, a lat ecomer firm tra vels backwa rd a long t he conventional concept of th e product

life cycle.

3 This is mostly ba sed on litera tur e of economics of innovat ion and economics of R&D w ith Neo-Schum petar ian

perspective. S ee Dosi et al. (1988), B est (1990), Lun dva ll (1995), and Fora y a nd Freema n (1993).


13/39


14/39

8



A recent s tudy by t he OEC D, for exa mple, ar gues for close user (buyer)producer relat ion,

a n obligat iona l network mode ra ther th a n hierar chy, an d coopera tion based on tru st a nd honesty

within and between organizations to foster innovation. Most Asian firms, for example, would greatly

benefit from interfirm technology partnering to upgrade their technological capabilities, although

evidence suggest that firms from developing countries are virtually locked out from interfirm

pa rt nersh ips tha t concent ra te on joint R &D a nd/or new core techn ologies such a s IC T. How ever,

some Asia n firms (in P RC; K orea; Sin ga pore; an d Ta ipei,China ) ha ve been successful in a cquiring

new technology through strategic licensing agreements, technology sharing agreements with a

licensing contr a ct, or equity joint ventures in w hich technology t ra nsfer is a ma jor objective. In

the P RC, for exa mple, the promotion of foreign dir ect investment policies wit h focus on t echnology

tra nsfer through joint ventur e agreements ha s been very successful in enhan cing t he f low of

technology from the West (Chadee and Qiu 2000). Thus, firms involved in strategic technology

part nering w ith outside organiza t ions, part icular ly in t he West , can speed up the process of

technology t ra nsfer th rough fa ster a doption a nd diffusion of new technologies. Pr ivileged a ccess

to valuable new technology is likely to lead to enhanced international competitiveness.Our discussion thus far is summarized in the following propositions:

P 1: Fi rms that ar e more innovative (hi gher R& D expendi tu r e, more patent s, more

new produ cts, etc.) ar e gener al ly more competi ti ve in i nt er nat ional mar kets.

P 2: Fi rms that ar e more acti vely i nvolved i n technology part neri ng (thr ough R& D

al li ances, join t ventur e agreement, l icensing, contr actual agreements) are more li kely

to adopt n ew t echnology and th er efore be more competi ti ve th an f ir ms less i nvol ved

in in ter f i r m par tn er i ng.

P 3: Fi rms that ar e at an advanced stage of technological d evelopment (qui ck-fol lower)

ar e mor e competi ti ve th an f ir ms th at ar e less technologicall y devel oped (l atecomer ).

2. Information and Communications Technology

Informa tion a nd communications technology refers t o the collective means of assembling

a nd electronically storing, tra nsmitt ing, processing, and retrieving words, numbers, images, and

sounds . Although the use o f ICT has become more widespread in recent years , empir ica l

investigat ion of how it a ctua lly impacts on the interna tional competitiveness of firms is lacking.

Although it is widely accepted that ICT can enhance a firms overall competitiveness, the fact

tha t it can a lso erode it is not overlooked. ICT can constitute a thr eat to a firms competitivenessby ma king informa tion an d its flows cheaper, easier, an d fa ster, thereby short ening the product

l i fe cycle and lower ing in format ion-re la ted barr iers that consequent ly erode local market

advantages .


15/39

9

The importa nce of IC T a s a source of competitiveness for firms st ems from its potent ial

to permeat e the entire organizat ion. It s successful applica tion in va rious par ts of the firms va lue

chain can r esult in increas ed labor a nd ca pita l efficiency, flexibility, responsiveness, an d enha nced

product quality. The coordination of sourcing, production, and logistics coupled with interfirm

a nd int ra firm coopera tion engendered in a supply chain perspective shifts chan nel arr an gements

from loosely linked business groups to coordina ted enterprises focused on efficiency improvement

a nd increa sed competitiveness thr ough lead t ime reduction (Sta nk et a l. 1999). The use of ICT

also allows the f irm to respond rapidly to market and consumers ( f lex ib i l i ty) by eliminat ing

redundant activities and achieving a seamless flow of information, supply, and finished goods

(Mataet al. 1995).

ICT can also be a source of competitiveness for an enterprise through its potential to deal

directly with end users and respond quickly to market shifts (responsiveness). The da ta ba se of

clients, competitors, and suppliers, a mong others, a re an importa nt informa tion source a nd ma y

be a source o f s igni f icant compet i t ive advantages . Such databases are not s imply a se t o f

unclassif ied data but rather consist of an internal structure of relat ions, which enables fulladvantage to be taken of the information contained within. These databases can be mined to

help pla n fut ure product lines a nd ind ividual product offerings. Thus, I CT ma kes it possible for

firms to shift from a product-focused to a market-driven orientation where firms focus on market

signals by relying on a sophistica ted IC T netw ork.4 The outputs from th ese processes a re enha nced

productivity, more competitive price, and improved quality.

Thus, IC T can be a pow erful source of competitiveness for firms in int erna tiona l ma rkets.

The extent t o which Asian firms ca n use I CT to enha nce their competitiveness depends on t he

follow ing five fa ctors:

(i ) a ccess t o cap i t a l for invest ing ICT a nd for con t inuo us upgrade o f t he s t o ck of

information technology (Freeman 1990, 1994);

(ii) extent to which IC T is applied to tra ditional forms of technology (product, process,

a nd m a na gement) to enha nce their productivity, efficiency, flexibility, a nd cost st ructure

(Stank et al. 1999);

(iii) presence of a clear ly defined ICT str a tegy (Floyd 1997, Abetti 1994, Kash la k a nd

J oshi 1994);

(iv) ava ilability of employees w ith t echnical skills in ICT; a nd

(v) extent to which mana geria l ICT skills ar e developed.

4 For exam ple, the application of e-commerce ena bles firms to find wa ys to be more responsive to chang ing ma rket

trends and to conduct business activities more efficiently and more cost-effectively. Similarly, in the textile industry,

the a pplicat ion of computer-aided design technology w ith a utomat ed linkages t o embroidery a nd screen printing

production equipment is routinely used to lower the cost of custom products.



16/39

10



The capital needed to develop and apply ICT can sometimes be large and becomes an

important constraint for small and medium-size enterprises (SMEs) in particular. In addition,

investm ent in I CT is generally r isky a nd t herefore borrowin g capita l to support IC T development

within the enterprise can be costly. SMEs are also generally faced with lack of in-house skills

necessa ry t o mast er new t echnology a t both t echnica l a nd ma na geria l levels due to the SME s

weakness in competing with larger f irms in recruit ing and retaining IT staff . The following

propositions are made:

P 4: Fi rms in whi ch I CT strat egy is an int egral par t of corporat e str ategy and w hi ch ar e

comm it ted to the effecti ve use of ICT ar e li kely to be more competi ti ve th an fi rm s wi th out

a clear I CT str ategy.

P 5: Fi rm s in wh ich ICT i s used w id ely in the vari ous functional activiti es (mar ketin g, human

r esour ces, plan ni ng, commu ni cati on, etc.) ar e more competi ti ve th an fi rms wher e I CT i s

not used w id ely.

B. Importance of Human Resources

The importance of human resource in enhancing the performance of organizations has

been widely studied. There is lit t le disagreement on the fact that human resources constitute

the most importa nt element of the bundle of resources th at a f irm owns, part icularly with the

increasing importance of innovation and technology as critical sources of competitiveness. Thus,

human resource management (HRM) is valued not only for i ts role in implementing a given

competitive scena rio, but a lso for its role in genera ting st ra tegic ca pability (B a rney 1991). H RM

has the potential to create firms that are more intelligent and flexible than their competitors

in the long run and that exhibit superior levels of coordination and cooperation (Grant 1991).

B y bringing in a nd developing ta lented staff a nd syn erzising their contributions wit hin th e resource

bundle of the firm, H RM can lay the ba sis for susta ined competitive a dvan ta ge (Olia net al. 1998,

P oole an d J enkins 1996). G iven the crucial im porta nce of hum a n r esources, one w ould expect

all organiza t ions to highly va lue their hum an resources. How t hen can H R const itute a source

of international competitiveness to an enterprise? In order to address this question, we focus

on two aspects of HRM in creating competitive adva nta ge: huma n resource orienta tion and h ow

i t l e ads t o speci f ic human cap i t a l a dvan t a ge , and impor t a nce of educa t io n , t r a in ing , a nd

development.

1. Human Resources Orientation

For the purposes of this paper, the HR orientation of a firm is defined as its systematic

effort to a tt ra ct, retain, a nd develop competent a nd committ ed huma n resources (La m a nd White

1998, Wright a nd S nell 1991, Wright a nd McMa ha n 1992). G enerally, firms wit h a great er HR


17/39

11

orienta tion a re likely t o ha ve more competent w orkers (Pfeffer 1994). Consequently they a re more

skilled and are more likely to contribute positively toward the firms performance. The advantage

tha t a f irm derives from ha ving superior H R orienta t ion is known as human resource adva nta ge

a nd can ma nifest i tself in a variety of forms a t a ll levels of the value cha in. For example, HR-

oriented firms enjoy substantial cost savings by reducing employee absenteeism and turnover

rates (Lam and White 1998) as well as benefit ing from higher productivity and quality, and

reductions in defects a nd t urna round time. Em ployee turnover is pa rticularly costly in the sense

tha t for each terminat ion t here are a ddit iona l costs of hiring and tra ining new w orkers (Ca scio

1995), wh ich reduces the price/cost competit iveness of firms. H R a dva nt a ge consist s of generic

and spec i f i c advan t ages . G ener ic advan t age , by t he i r na t ure , a re eas i ly t r ans fe rab le and

appropriated by competing organizat ions and as such do not last long and therefore do not

constit ute a source of susta ined competit iveness. Specific huma n a dva nta ge, on th e other ha nd,

is less transferable and not easily appropriated by competitors. These include advantages that

the f i rm der ives f rom employees who have acquired knowledge and ski l ls speci f ic to one

organization in particular and for a specific activity, including personal contacts, relations, asw ell as other individua l qua lities such a s reputa tion, experience, judgment, intelligence, or loyalt y.

Specific human capital advantage constitutes the most important source of competitiveness to

firms because of their tacit nature. Hence the following proposition:

P 6: Fi rms wi th comp r ehensive human r esour ce ori ent ati on (effecti ve r ecrui tm ent ,

r etent ion, and development ) ar e more competi t i ve than fi rms wi th out them.

2. Education, Training, and Development

The import a nce of va rious forms of educat ion, tr a ining, a nd development t o the performa nce

of firms ha s been extensively investiga ted. The question t ha t usua lly ar ises with r espect t o tra ining

a nd d evelopment r evolves ar ound the issue of the extent t o which th e enterprise should provide

tra ining a nd development t o i ts employees. I t is w ell-established tha t a n educated w orkforce

facilitates the adoption and diffusion of technology, contributes to a more developed national system

of innovat ion, and contributes to the technological capabili ty necessary for R&D. Although

management at t i tudes and capabili t ies are crucial determinants for the introduction of new

technologies an d processes, it ha s been argu ed tha t even unskilled workers in a modern factory

normally need the literacy, numeracy, and discipline required in primary and lower secondary

schools (Wood 1994, Owens and Wood 1995). Thus, in order to be successful and to be able to

access and exploit new technology, firms need an educated and skilled workforce and appropriate

ma na gement ca pabilities. The question tha t a rises is wh ether the educa tion system in man y Asianeconomies a re meeting t he needs of businesses in term s of developing a n entr epreneurial cultur e

an d providing new labor force entra nts w i th t he necessary ma na ger ia l an d technical ski lls .

G enerally, the higher t he level of educat ion of the w orkforce, the higher t he overa ll productivity

of capital (Lucas 1988). Generally, the state provides only basic primary and secondary education



18/39

12



tha t develops generic skills of a public good na ture. H owever, competitive a dva nta ge is not derived

on the basis of generic skills but ra ther from ha ving employees with specific skills tha t a re ra re

and unique. Thus, there is a strong argument for firms to provide in-house training when the

development of specific skills is involved. Hence:

P 7: Fi rms wi th human r esour ce pr ogr ams th at f ocus on t he development of specif ic

human capit al ar e li kely to be mor e competi ti ve th an t hose wi th less focus on t he

devel opment of specifi c human capit al .

C. Organizational Structure

The debat e about organ izat iona l structur e has evolved a round the choice of a n a ppropriat e

design for firms, w hich allows t hem to derive competitive ad va nta ge. The old organiza tional m odel

can be described as one with extended hierarchy, narrowly segmented job design, rule-bound

procedures, a nd lack of employee a utonomy a nd responsibility. In most Asian countr ies, this w a sfurther complicated by the presence of tight family control at the top that led to a high degree

of centralization in decision making and a premium on loyalty. This model worked well in an

environment characterized by stability and certainty (Peters 1988) and where employees performed

routine tasks. Extensive hierarchy characterized by a centralized decision making system is

believed to ha mper effective ma na gement a nd st ifle innovat ion. It h a s been referred to a s being

static, rigid, and unable to adapt readily to change, much less anticipate it (Tiernan 1993).

There has been a general tendency for f i rms to adopt f la t ter and more open and

par t i cipa t ive orga n iz a t ion s t r uct ures w i t h fewer l ay e rs . The l it e r a t ure sugges t s t ha t f l a t

organizations allow for more efficient information flows, faster communication, greater flexibility,

great er a da pta bility, a nd r educed costs, a nd encoura ge innovat ive idea s t o flourish (Tiernan 1993).

Thus, f lat organ izat ional design appear s to ha ve all the dyn am ic elements tha t w ill survive the

turbulent business environment . As a result , a widely a ccepted view ha s emerged th a t f la t

organizat ions are good and hierarchical organizat ions are bad. However, i t has also been

suggested tha t fla t orga niza tional design ma y simply be reflecting a Western bia s (Overholt 1997).

First, t here is ha rdly a ny empirica l evidence tha t proves tha t fla t organ izat ions outperform well-

run hierarchies. Second, the underlying assumptions of f lat structures about relat ionships,

a uthority, a nd creat ivity, including chara cterist ics such a s fa irness a nd equa lity a re a ppealing

to western cultures. But whether they fit the cultural contexts of Asian societies remains to be

tested (Carroll et al. 1990). Third, a flat organization may be better suited for certain types of

economic a ctivity (e.g., knowledge-intensive firms ) but n ot perha ps for a ll indust ries specially

mature industries and those involving routine jobs such as in manufacturing.Regardless of the organizational design issue, researchers appear to agree that flexible

and adaptable organizations are the most successful. Flexible organizations are, by their very

design, orga nic. They a re ma de up of people who understa nd t he need to consta ntly change a nd


19/39

13

adapt to the changing environment in order to mainta in the f i rms compet i t iveness . They

continua lly develop new str at egies and ada pt to new m a rket realit ies, an d then shift a ll aspects

of the organiza tion so tha t t hey a re congruent w ith new stra tegies. Opera tional flexibility, wh ich

permits firms t o move labor a nd other resources across nat iona l bounda ries or business domains,

a llow s them t o exploit profits opportu nities generat ed by var ying count ry or ma rket environments

(Ta ng a nd Tikoo 1999, Kogut 1985). Alth ough opera tiona l flexibility ent a ils significa nt a gency

a nd t ra nsa ction costs, it h a s been found t o be positively relat ed to overa ll firms performa nce (Allen

a nd P a nt za lis 1996, Ta ng a nd Tikoo 1999). Hen ce, th e following pr oposit ion:

P 8: Fi rm s with organi zati onal designs that create greater flexibil it y and adapt abili ty

ar e l i kely t o be more competi t i ve than fir ms wi thout such a str uctur e.

In order to be f lex ible and adaptable , organiza t ions need to be less formal and less

centr a lized (Cha n a nd H eide 1992). Whether flexibility a nd a da pta bility can coexist w ith a high

degree of cent ra lized decision ma king, a s a ppea rs t o be th e ca se in some Asia n economies, areexamined in th is study. The study a lso examines th e extent t o which firms in Asia a re adopting

the western models o f organiza t ional s t ructures whi le re ta in ing some t radi t ional essent ia l

components. Therefore,

P 9: Fi rms wi th less cent r al i zed an d l ess formal stru ctu r es are l i kely t o be more

competi t i ve than th ose wi th more formal and centr al i zed str uctur es.

1. Team Work and Clusters

Another organiza t ional t rend has been to move away f rom segmented and iso la ted

structures with l i t t le communicat ion and interact ion between areas and different levels , to a

structure where interact ion and integrat ion are seen as being essential operat ional pract ices

(Tiernan 1993). This is achieved through team-based operations (Kanter 1983) and networks

(Cha ra n 1991) spann ing across functional a reas a nd hiera rchies a nd netw orks. Another integrat ive

a nd flexible orga niza tional model is one opera ting on the ba sis of clusters (Mills 1992, Dr ucker

1992) consisting of collections of workers undifferentiated by rank or job title who operate together

on a semiperma nent ba sis with no direct report ing relat ionships and only a residual hiera rchy

(Tiernan 1993, Mills 1992, Drucker 1992). By its very nature, cluster-like structures have been

found t o bene f it t he o rgan iz a t io n ma in ly t h r o ugh increased f lex ibi l it y (in ma nufac t ur ing

enterprises) a nd increa sed crea tivity (in knowledge-ba sed enterprises) beca use individua ls a re

freer to be more innovative, and therefore, ideas are less likely to be blocked by overloadedma na gers. Clusters also facil ita te both vert ical and horizonta l information f lows and lead to

faster and more informed decision making.



20/39

14



P10: Fi rm s wit h organi zational str uctur es (such as team-based and clu ster s) that

pr omote greater comm un icati on among emp loyees at al l level s of t he or gani zati on

ar e li kely t o be mor e competi ti ve th an t hose less or iented t owar d t he cr eati on and

exchan ge of inf orm ati on.

2. Organizational Learning and Interfirm Relationship

In the technologically dynamic environment, knowledge often plays a more important role

tha n a firms ta ngible ca pita l. While know ledge a bout products, production techniques, customers,

and suppliers are important, the knowledge and skills required to integrate the different parts

in the value chain have been found to be a highly inimitable skill . Within such knowledge

development system, a distinction is often made between tacit or unarticulated knowledge and

explicit or codified know ledge. Ta cit knowledge is not easily visible and ha rd t o forma lize, making

it difficult to communicate and share with others (Inkpen 1998), and as such can constitute a

major source of competitiveness. Given the importance of knowledge and learning, firms areincrea singly forming allia nces w ith other orga nizat ions (such as suppliers an d R&D inst itutions

such as universities) and participate in networks in order to benefit from innovations derived

from ta cit knowledge. Thus, interorga niza tional r elationship is becoming a n increasingly via ble

opt ion for the creat ion o f a sus ta ined cooperat ive advantage (Ring 1996, E isenhardt and

Schoonhoven 1996, Lorenzoni and Liparini 1999) through idiosyncrat ic yet complementary

resources combination between partnering firms (Kogut 1991). The distinctive competencies of

external players, such as buyers and suppliers, are the main drivers in interfirm relationships

(Teece a nd P isa no 1994; Teece, P isa no, a nd Sh uen 1997). Resea rch sh ows t ha t superior performa nce

is achieved by f i rms that re ly on t iers o f ex ternal suppliers and mobil ize them to reduce

development risk, distribution t ime, defect ra te, an d inventory while at the sa me time enhancing

their ability for innovation and flexibility (Helper 1991, Womack et al. 1990, Nishiguchi 1994).

Thus, interfirm n etworks a nd st ra tegic alliances can provide an effective w ay to organize knowledge

tra nsfer a nd a ccess scat tered,specialized knowledge (Lorenzoni a nd L iparini 1999, Dy er 1996,

Inkpen 1998).

P 11: Th e more conn ecti ons an ent er pr ise has (wit h suppl iers, R& D i nsti t ut ions,

designer s, etc.) and t he more involved it is i n netw orks, the greater th e possibi l i ti es

to lear n fr om other organizat i ons and benefi t fr om id eas that contr ibut e to i ts

competi ti ve advant age.

Although it is generally recognized that interfirm relationship promotes learning throughthe sha ring of ideas, not a ll f irms ha ve the ma na geria l capabili ty to identify a nd successfully

exploit interfirm relational opportunities. Thus, one of the strategic capabilities of the firm is

its ability to integrate knowledge (Grant 1996) from different sources and to transform dispersed,

tacit , and explicit competencies into a wide body of organizational knowledge (Nonaka 1994).


21/39

15

An importa nt fa ctor in determining the extent of lea rning ta king pla ce in networks a nd a lliances

is the amount of trust between partners (Inkpen 1998). Generally, relationships characterized

by arms-length transactions, informal contracts, and a lack of codified and structured contracts

indicate a high level of trust, a feature commonly found in Asian business networks.

P12: Th e hi gher t he amount of tr ust an ent er pr ise has wit h i ts netw or k par tn er s

(supp li er s, subcont r actor s, etc), the gr eater t he possibil it ies to l ear n, an d th er efore

th e mor e competi ti ve th e fi rm i s l ik ely t o be.

D. Role of the Government and Competitiveness

U ntil th e Asian financial crisis, the ra pid growt h a nd success of firms in t he Asian mira cle

economies in int ernat iona l ma rkets ha d been at tr ibuted la rgely to the proact ive role of their

governments. The governments in most high-performing Asian economies are known to have

a ctively supported th eir export sectors t hrough policies aim ed a t crea ting environments conduciveto growth and development o f the expor t sector . However , Eas t Asian governments have

tra ditionally int ervened to supplement a nd st imula te th e ma rket (Aoki et a l. 1997) by coordinat ing

economic a ctivities wh en there is ma rket failure or w hen ma rkets do not exist a t a ll, ra ther th a n

replacing it . This selective a pproa ch to indu stria l development ha s been successful because of

the t r i latera l coalit ion betw een government , inst itut ions, a nd f irms an d ha s been identif ied a s

a ma jor fa ctor in t he ra pid development of Korea (Amsd en 1989) a nd Ta ipei,China (Wa de 1990).

How ever, the Asian fina ncial crisis has ca st doubts on the tr a ditional role of the governm ent in

Asian countries. It has been suggested that collusion among the government, banks, and firms

may have even led to the crisis through the misallocation of investment, which contributed to

excess ca pacity a nd rea l esta te bubbles. Thus, th e controversial na tur e of the role of the government

in Asia r a ises severa l importa nt quest ions w ith rega rd t o the na ture, form, a nd effects of the

role tha t t he government ca n a ssume in restoring th e competit iveness of Asian firms in t he future.

In order t o address t his issue, we dra w from an extensive litera ture (Porter 1990, Dun ning 1999,

Aoki et a l. 1997, Wa de 1990) on th e role of th e government a s it rela tes t o the competit iveness

of Asian firms. In the following subsections w e focus on t hree ma in a reas w here the government

can pla y a constr uctive and critica l role in promoting t he interna tional competit iveness of Asian

firms. S econd, we discuss th e government s role as a provider of public goods. Follow ing th e ma rket-

enhancing view, the role of government in improving market coordination is also discussed.

1. Industrial Policy

Industrial policy is the most direct measure to influence a f irms performance. The

government can directly influence the competitiveness of firms w ithin a n indust ry by finan cia lly

supporting various activities of the firm. However, because financial assistance to enterprises

can be view ed a s subsidies, care should be ta ken not to subject t he firms exports to counterva iling



22/39

16



an d a nt idumping dut ies . Thus , d irect grant s a nd ta x brea ks ar e two t ra de-neutra l forms of

assistance which Asian governments have used to enhance the development of specific technologies

tha t w ould otherwise not be realized because of certa in ma rket fa ilures. For exa mple, direct gra nts

in the form of public funding a nd t a x breaks ha ve been ta rgeted towa rd R&D for the development,

adoption, and diffusion of electronics, information, and communications technology in Korea

(Amsden 1989) a nd Ta ipei,Chin a (Wa de 1990). The pr ovision of direct gra nt s t o support specific

a ctivities involves the difficulties of deciding w hich sector to support a nd t he da nger of crea ting

near monopolies in the process. In this respect, tax breaks, which involve less interference in

the ma rketplace, const itute a more at t ra ct ive a lternat ive mean s of support . Nevertheless, the

experience of several East Asian economies with selective policies suggest that by and large,

governments in these economies have been successful in avoiding the dangers associated with

the selective nature of direct grants by ensuring that the policies were flexible in adapting to

changing market conditions and did not permit rent seeking. Thus, by providing direct grants,

the government can a ss is t f i rms overcome ma rket fa i lures a nd upgra de the ir technologica l

capabilities thereby enhancing their competitiveness.

P13: T he pr ovis ion of gover nm ent gr ant s and t ax in cent iv es to st i mu la te th e

development of specifi c in du stri es is l i kely to enh ance th e over al l competi ti veness

of f i r ms withi n the ind ustr y.

2. Provision of Public Goods

Nat iona l systems of innovat ions a nd sta tes continue to have a n importa nt role to play

in a global economy (Cantwell 1999). Evidence suggest that f irms from countries with well-

developed NSI s a re usua lly more innovative a nd competitive. These countries usua lly spend a

larger proportion of their GNP on both physical and social infrastructure through government

investments in r oa ds, bridges, port facilit ies, tra nsporta tion networks, educa tion, tra ining, R&D,

and heal th fac i l i t ies . The creat ion o f advanced in fras t ructure is an important e lement o f

competitiveness a nd h a s been linked, for exa mple, to the ra pid growth ra tes of selected regions

in the PRC. Conversely, poor infrastructure acts as a deterrent for investments as it generally

is a ssociat ed wit h h igher levels of inefficiency a nd h igher costs stru ctures. Hence, government

investment in public infrastructure helps create an eff icient and low cost transportat ion and

distribution network that in turn contributes positively to the competitive advantage of firms.

The provision of ba sic educat ion (prima ry a nd seconda ry) and of adeq ua te hea lth ca re contribut es

toward a healthy and educated labor force; an important element of competitiveness. Hence, if

the NS I is t o be included, th en indust ria l policy sh ould come under it . It might be useful to includegood infrastructure (public goods) and political stability as variables within that.

P14: Th e greater th e commi tm ent of t he government in developin g the NSI (thr ough

expendi tur e on physical and social in fr astr uctur e), the more competi t i ve fir ms ar e

l ik ely to be.


23/39

17

Other types of public activities where the government can be involved to enhance the

competitiveness of firms include th e promotion of innovat ion-relat ed netw orks such a s regional

systems of innovat ion, universityindustry cooperat ion, and science parks. The benefits to

universityindust ry cooperat ion include a st imulus t o innovat ion by t he exposure of university

research t o indust ry, the encouragement of more industria lly oriented resea rch by universities,

and the encouragement of more industrially relevant training of young scientists and engineers

(Clark and Guy 1998). Science parks at nat ional or local levels comprise various f irms and

institu tions in close proximity for t he encoura gement of innovation-relat ed netw orks (Cla rk a nd

Guy 1998). They provide a mechanism allowing knowledge bases (public research organizations,

universit ies, privat e R&D orga niza tions) to be exploited by firm s th rough int era ctions. The benefits

of science parks a rise ma inly from a gglomera tion (ma ny firm s, customers, a nd suppliers in close

proximity); synergy (different firm s intera cting wit h each other); an d firm expansion (growt h of

individua l members of the cluster). Science parks a lso provide a conducive environment w here

high t echnology firms can benefit from intera ctions w ith n ontechnical firms (i. e., ma rketing a nd

ma na gement firms). Interfirm collabora tion in R&D ca n a lso reduce cost, reduce duplica tion ofeffort, and provide economies of scale (Mowery and Rosenburg 1989). Such collaboration is

particularly beneficial to SMEs when R&D projects are large and expensive.

P15: Gover nment in ter venti on ai med at promotin g int er fir m coll abor ation gener all y,

l ead s to enh anced competi ti veness.

3. Export Market Assistance

The ro le o f government in fac i l i t a t ing expor t market ing ac t iv i t ies is becoming an

increa singly importa nt determina nt of competitiveness for sma ll a nd medium-size firms competing

in the global market place. The types of act ivit ies that the government may support include

interna tional ma rket resea rch, internat iona l ma rket intelligence of a str a tegic na ture, improvement

of the na tional ima ge through brand r ecognition particularly w hen consumers ha ve strong negat ive

prior beliefs about the products of a particular country, and providing assistance with market

a ccess issues. G enerally, small a nd medium-size firms do not ha ve adequ a te resources, skills, an d

capabilities to underta ke such a ctivities. In a ddition, small a nd medium-size firms selling in the

global market place often face competition from well-organized multinationals with far greater

resources to devote to advertising and marketing and to secure preferential access to markets.

Because firms are usually reluctant to undertake market research of a public good type, government

a ssista nce in developing new a nd existing export ma rkets is genera lly beneficial, not only to export

firms but also to input suppliers associated with exporters. Thus, there is a strong case for publicprovision of export a ssista nce such a s th ose provided in Singa pore a nd Ta ipei,China w here the

governments are actively involved in developing foreign markets for their small and medium-

size enterprises.



24/39

18



P 16: Th e pr ovision of mar ketin g assistance (such as mar ket in tel l i gence, mar ket

r esear ch, tr ade pr omoti on, bran d devel opment etc.) aimed at d evel opin g export

mar kets enh ances th e competi ti veness of fi rms.

E. Importance of Capital and the Financial Sector

The fina ncial resources of a n enterprise constit ute one of th e most importa nt determina nts

of competit iveness. The continued growth of f irms depends on their abili ty to f inance their

operat ions adequately as well as on the stabili ty of the f inancial sector from which capital is

sourced. Thus, firms access to capital from a well-developed and stable financial sector comprising

ban king and nonbanking institut ions is a prerequisite for th eir success in interna tional ma rkets.

It is w ell-known tha t most crisis-a ffected Asia n countries do not ha ve well-developed fina ncial

and capital markets. The banking sector in most of these countries is highly regulated and the

nonbanking sector, such a s stock ma rkets or venture capita l ma rkets, either did not exist or were

poorly developed (St iglitz 2000, S tiglit z a nd U y 1996). D espite this, th ese economies w ere successfulin f inan cing ra pid growt h a nd diversif icat ion of their industria l a nd corpora te sectors during

the t hree deca des prior t o the crisis by relying a lmost exclusively either on self-generat ed funds

or borrowing from commercial ba nks w ith w hich they ha ve developed specia l relat ionships over

the years. Malaysia and Singapore also benefited from strong foreign direct investment flows.

In the context of the und erdeveloped na tur e of t he fina ncial sector, th e close relat ionships betw een

the firms a nd th e banks, mediat ed by the government, effectively a ddressed ma rket failure issues.

The result was not only lower costs credit (Kumar and Debroy 1999) to firms but also socializing

the implicit cost of risks ra ther t ha n firms or ba nks bear ing th ese. Thus, governm ent int ervention

tha t implicitly encouraged ba nks to ta ke a longer-term view of the firms prospects a ssumed th e

role of a de facto venture capita l provider thereby providing both a ccess to ca pita l an d ensuring

the stability of the financial sector.

However, despite the success of this m odel, government intervention in t he fina ncial a nd

capital market also created problems of moral hazard and adverse selection (Alm and Buckley

1998). As a result , t he regions government ha s been under increasing pressure for some time

w ell before the crisis to a dopt m ore hand s-off a nd nondiscrimina tory policies towa rd t he corpora te

sector. The crisis, which sa w th e near collapse of man y ba nks, reinforced the need to implement

structural change toward a more western approach to financing business development. As a

result , in the postcrisis period, firms in crisis-a ffected countries experienced n ot only a shorta ge

of ca pita l, but a lso the reluctan ce of ba nks to lend ca pita l wit hout government support to business.

Experience from w estern count ries suggests t ha t unimpeded a ccess to a w ell-developed

financial sector consisting of both banking and nonbanking institutions is generally conduciveto growt h. For exa mple, the growth of venture capita l ma rkets ha s been cited a s a part icularly

effective mecha nism for encoura ging t he sta rt-up of new t echnology-intensive firms in the U S.

Well-organized venture capital markets are generally absent in Asia. The role of government

a gencies l ike development ba nks, specialized sector-specif ic f inancing compa nies, a nd lar ge


25/39

19

corpora tions in finan cing th e sta rt-up of SME s ha ve also been cited a s importa nt sources of ca pital,

particularly in the context of SMEs operating in environments characterized by market failure.

Stock markets are also emerging as significant mechanisms for firms to mobilize financial resources

needed for expansion and diversification. In most developing Asian economies, stock markets

a re relat ively underdeveloped and ha ve only recently benefited from a ctive policy support. B ut

stock markets are by their very nature more suited for mobilization of resources by large and

well-esta blished firms. Sm a ll firms find it either too costly or cumbersome to raise t he relat ively

sma ller a mounts of resources needed by them t hrough the stock markets. Ch a nges in regulation

a nd informa tion disclosure policies could make t hese stock ma rkets a more friendly m echa nism

for SME s w ithout compromising on investors security. Opera tional efficiency of st ock ma rkets

and making them more friendly to SMEs and exporting firms could contribute to making them

internationally competitive.

P17: I ncreased access to a well-d eveloped and stable fi nan cial sector comp r isin g

banks and specia l i zed f i n anc ia l i n st i tu t i ons (such as long- ter m cr ed i t an ddevelopment banks, vent ur e capital and stock m ar kets) contr ibu tes positi vely t o their

over al l competi ti veness.

1. Financial Sector Stability

A sound financial sector that ensures that capital is allocated efficiently to enterprises

is a key determinant of firm competitiveness. Although some Asian countries have attempted

to liberalize and deregulate their financial sectors since the early 1990s, their banking sectors

a re s t i l l wea k a nd f r a g i le (ADB 1998). Th is f r a g i l it y i s a n impo r t a n t imped iment t o t he

competitiveness of firms because ba nks constit ute a ma jor source of fina ncing to business in the

a bsence of well-developed a terna tives. Moreover, t he ba nking sector in m a ny Asian countr ies is

heavily concentra ted an d dominated by a few local banks. I t ha s been a rgued that restrict ions

on the number of banks are important to ensure economies of scale and to avoid unnecessary

competition t ha t ma y be ha rmful to consumers. However, the countera rgument is t ha t by restricting

entry (of foreign ban ks), the ban king sector is highly oligopolistic and beha ves in wa ys th a t a re

not necessa rily in t he best interest of businesses, par ticula rly S MEs. A la ck of competition genera lly

denies businesses access to capital at internationally competitive rates. Hence, the perception

is tha t t here is a n urgent need for s t ructura l ins t i tu t iona l re form t ha t improves prudent ia l

regulation, competition, supervision, and the overall governance of banks in order to enhance

the overall efficiency and stability of this sector.

P18: I ncreased competit ion among banks togeth er w it h stri ct pr udent ial r egulat ion

ensu r es a s tab l e bank i n g system an d con t r i bu tes posi t i v el y t owa r d t he

competi ti veness of fi rms.



26/39

20



IV. Generalization of the Model and Data

From the discussion above, we specify the following econometric model to explain the

competitiveness of firms:

COMP i= ( TE C i, H R i, ORG i, GOVi, CAP i) (1)

Where COMP is a meas ure of competitiveness of the i thfirm a nd TEC , HR, ORG , GOV,

and CAP refer to the five determinants (technology, human resource, organizational structure,

government role, a nd capita l ma rket). The dependent va ria ble COMP can be measured by either

growth in f i rm market share or by growth in expor t pro f i t s and or earnings . S imilar ly , a l l

explanatory variables can be measured at the firm level. Thus, equation (1) can be expanded

and estimated using firm level data to test propositions 1-18 above.

Most difficulties in researching international competitiveness at the enterprise level stem

f r o m d i f f i c u l t i e s i n d e v e l o p i n g s a t i s f a c t o r y d a t a . M o s t i n v e s t i g a t i o n s o f i n t e r n a t i o n a lcompetitiveness so far ha ve focused a t either t he count ry level or t he industr y level in a dva nced

developed na t ions. This is because countr y a nd sector-level da ta a re more readily a va ilable,

part icularly in these countries. Firm-level data is not readily available and primary data are

often costly a nd t ime-consuming t o assemble as it involves methods such as interviews a nd ma il

surveys. For this reason, scholars often find it difficult to assemble comparable cross-country and

cross-sector da ta . Even wh ere resources a re a va ilable, the concepts und er investigat ion a re often

difficult to measure through mail surveys. For example, concepts like innovation and trust are

difficult to conceptualize and measure.

The project RE TA 5875: Int erna tiona l Compet itiv eness of Asia n E conomies: A Cr oss

Country St udy involves invest igat ing th e competit iveness of f irms in three industria l sectors

(textile, automotive, and electronics) in eight Asian countries (PRC; India; Indonesia; Korea;

P hilippines; Singa pore; Ta ipei,China ; and Tha iland ). In order to ensure high-qua lity da ta for

a na lysis , ma il surveys a nd fa ce to face interviews w ill be used. I t is envisaged tha t a na lysis of

cross-section data from different sectors and countries will provide rich insights into regional

competitive nature of firms both within and among sectors and countries.

The model developed in t his pa per is limit ed to t he explora tion of competit iveness of export-

oriented manufacturing enterprises from less developed countries of Asia. This simplification

was necessary to identify salient issues facing firms in Asia, namely their developmental stage,

the sta te of technologica l sophisticat ion, a nd t he ma cro environment w ithin w hich they operat e.

I t is wel l-known, for ins tance , that Asian governments have t radi t ional ly p layed a crucia l

coordination role in business a nd industr ial development, a nd th a t t he stock a nd venture capita lmarkets in this region are generally underdeveloped. In addition, firms tend to be smaller by

western standards and do not have access to adequate capital. The workforce is generally less

skilled while firms have tr a ditionally been hierar chica l in structure. Given these cha ra cteristics,

i t is importa nt t o depart from tr a dit iona l approaches in economics a nd ma na gement l i terat ure


27/39

21

in building a model tha t explains t he interna tional competitiveness of firms u nder considerat ion.

The model developed in this paper should be applicable in other countries and regions (e.g., in

South America) tha t fit t he description above. Furt hermore, the focus on SME s a lso a dds to the

literature in deepening our understanding of the international activities of these firms.

V. Conclusion

The ma in objective of th is paper w a s to identify t he ma in determina nts of competitiveness

of Asian firms in order to construct a comprehensive ana lytical fra mework to empirically a ssess

th e extent t o which d ifferent fa ctors cont ribut e to firm competit iveness. The project RE TA 5875:

Int ernat iona l Competitiveness of Asian Economies: A Cross Country St udy will present the findings

from eight Asian count ries (P RC; I ndia ; Ind onesia; Korea; P hilippines; Singa pore; Ta ipei,China ;

a nd Tha iland). The paper departs from t he notion t ha t t he globaliza tion of ma rkets a nd products

together w ith t he liberalizat ion of domestic markets ha ve creat ed both opportunities and t hreat sto enterprises in Asia. On one hand, competitive pressure in international markets continues

to increase while on the other hand, foreign firms are increasingly challenging the once protected

domestic ma rkets of firms. Not only is th e environment w ithin w hich firms opera te vola tile but

the pa ce of chan ge is also accelera ting w ith ra pid adva nces in technology, part icula rly in I CT.

IC T can fa cilita te innovat ion but can a lso erode it by ma king informa tion an d its flows chea per,

easier, and faster.

In this highly competitive and fast changing environment, only firms that are efficient,

flexible, innovat ive, and responsive to cha nges can su rvive. The paper identifies severa l key interna l

a nd external fa ctors t ha t impa ct on the a bility of enterprises to compete sucessfully in interna tional

ma rkets. These include the role of huma n resource development, t he organiza tiona l stru cture,

a s well as t he technologica l ca pability of firms. We argue tha t genera lly the pursuit of dyna mic

upgrading tha t allows f irms to ma inta in their competit iveness ma y be captured by the notion

of learning. We suggest the need to pay more at tent ion to certa in qua litat ive aspects of f irm

activit ies such a s relat ions with outside agents a nd inst itut iona l set t ings in w hich t hey operate.

Thus, besides the micro determinants of competitiveness, we also put forward the importance

of the role of the government in st imulat ing ma rkets and in building a strong nat iona l system

of innova tion. The role of th e government in promoting competitiveness, in pa rticula r, is emphasized

because of the general misconception of the role of government in Asian countries. We take the

view t ha t the r ole of the governm ent in Asia n economies is pat h-dependent. This is pa rt icula rly

relevant wh en considering t he effects of the Asia n fina ncial crisis on the competitiveness of firms.

A wide collection of empirical studies on East Asian economic development informs usof diverse developmental paths. In the wake of the Asian financial crisis, we observe a general

trend a mong Asian countr ies to underta ke western st yle reforms including ma rket libera lization

a nd instit utional reforms similar to those under wa y in western indust ria lized countries. Although

the extent and pace of such reforms differ among Asian countries, several important questions

Section VConclusion


28/39


29/39

23

Ca scio, W. F., 1995. M anagin g H um an Resour ces, 4t h ed. New York: McGra w -Hill.

Cha dee, D. D . a nd F. Qiu, 2000. Foreign Ownership of Equit y J oint Ventures in C hina : A P ooled

Cross-sectionTime Series Analysis. J ourn al of Bu siness Resear ch51:1-11.

Ch a n, P. S., a nd D . Heide, 1992. Informa tion Technology a nd t he New E nvironment : Developing

an d S usta ining Competit ive Advant a ge. Advan ced M anagement J our nal57(4):4-9.

Cla rk, J . , an d K. G uy, 1998. Innova tion a nd Competitiveness: A Review. Technology Anal ysi s

& Str ategic M anagement10(3):363-95.

Charan, R. , 1991. Networks Reshape Organisat ions for Results . H ar var d Bu sin ess Review

69(5):104-15.

Coyne, K., 1985. Susta inable Competitive Advan ta ge: Wha t I t Is, Wha t I t I snt. Busin ess Horizons

29(1):54-61.

Dosi, G, C . Freema n, R. Nelson, G . Silverberg, an d L. S oete, 1988. Technology and Economic Theory.

London: Pinter Publisher.

Drucker, P., 1992. The Coming of the New Organ izat ion. In G . Sa lam a n, ed., H uman Resour ces

Strategies. London: Sage Publications.Dunning, J . H., 1999. Regaining C ompetitiveness for Asian Ent erprises. P a per presented at the

Investm ent Ma rt, 3 J une 1999, AP EC , Seoul, Korea .

Dy er, J . H., 1996. Specialised S upplier Netw orks as a Source of Competitive Adva nta ge: Evidence

from th e Auto In dustr y. Str ategic M anagement J our nal17(4):271-92.

Eisenha rdt , K. M., a nd C . B . Schoonhoven, 1996. Resource-ba sed View of Str a tegic and Socia l

Effects in Entrepreneurial Firms. Organi zati on Science7:136-50.

Floyd, C., 1997. M anagi ng Techn ology for Corporat e Success. London: G ower.

Fora y, D ., a nd C . Fr eeman (eds.), 1993. Technology and t he Weal th of Nati ons: Th e Dyn am i cs of

Constr ucted Advant age. London: Pinter Publishers.

Freema n, C., 1990. The Economics of Inn ovation. Int erna tiona l Libra ry of Cr itical Writings.

In Economics, Vol. 2. Aldershot: Ed w a rd Elga r.

, 1994. The E conomics of Technical Ch a nge: A Cr itica l S urver y. Cambri dge J our nal of

Economics18:463-514.

Freeman , C. , and J . Ha gedoorn, 1994. Cat ching Up or Fa lling Behind: Pa t terns in Int ernat ional

Int erfirm Technology P a rt nering. Wor l d Devel opment22(5):771-80.

G ra nt, R. M., 1991. The Resource-ba sed Theory of Competit ive Adva nta ge: Implications for S tra tegy

Formulation. Cali forni a M anagement Review33(3):114-35.

, 1996. Pr ospering in Dy na mically-competitive Environments: Orga nisa tional Ca pability

as Knowledge Integrat ion. Organi sati on Science7(4):375-87.

G rossma n, G . M., 1991. I nnovati on and Growth in the Global E conomy. Ca mbridge, MA: MIT P ress.

Helper, S., 1991. How Much ha s Rea lly Cha nged betw een U .S. Automa kers a nd Their Suppliers?Sloan M anagement Review15:15-28.

H obda y, M., 1995. I nn ovati on i n E ast Asia: Th e Chal lenge to Japan. Aldershot : Edw ar d E lgar .

IMD (Institute for Management Development), 1999. The Wor ld Competi ti veness Report . Lausanne,

Switzer land.

References


30/39

24



Inkpen, A. , 1998. Learning , Knowledge , Acquis i t ion , and St ra teg ic All iances . European

M anagement Journ al16(2):223-29.

Kanter, M. R., 1983. The Chan ge M aster s: Corpora te En tr epr eneur s at Wor k. London: U nwin.

Ka ounides , L. C., 1999. Science, Technology, a nd G lobal C ompetitive Adva nt a ge: The St ra tegic

Im plica tions of Emergin g Technologies for C orpora tions a nd Na tions. I ntern ational Studies

of M anagement & Organi zation29(1, Spring):53-79.

Ka shlak, R. , a nd M. J oshi, 1994. Core Business Regulat ion and Dua l Diversif icat ion P at terns

in th e Telecommun icat ions Indu str y. Str ategic M anagement J our nal15(8):603-11.

Kogut , B . , 1985. Designing G lobal St ra tegies: P rofit ing from Operat iona l Flexibili ty. Sloan

M anagement Revi ew26(4):27-38.

, 1991. J oint Ventur es a nd the Option to E xpand a nd Acquire. M anagement Science37:19-33.

Krugm a n, P. R., 1994. Competit iveness: A Da ngerous Obsession. Foreign Affai rs73(2):29-44.

Kum a r, R., an d B . Debroy, 1999. The Asia n C risis: An Alterna te View. ADB Economic St a ff P a per

Number 59, Asian Development Bank, Manila.

La m, L. W., an d L. P. White, 1998. Hum a n Resource Orient a tion a nd C orpora te P erforma nce.H um an Resour ce Development Qu ar ter ly9(4, Win t er):351-64.

Lippman , S., a nd R. Rum elt, 1982. U ncerta in Imit a bility: An Ana lysis of Int erfirm Differences

in E fficiency u nder C ompetition. Bell J our nal of Economics13(2):418-38.

Lorenzoni , G . a nd A. Lipar ini , 1999. The Levera ging of Int er-f irm Relat ionships a s a Dist inct ive

Organisational Capability: A Longitudinal Study. Str ategic M anagement Journ al20:317-38.

Lucas, R. E., 1988. On the Mechanics of Economic Development . Jour nal of M onetar y Economics

22:3-42.

Lund va ll, B., 1995. Nati onal System of Inn ovati on: Towar d a Theory of I nnovati on and I nt eracti ve

Learn ing. London: Pinter Publisher.

Mat a , F. J ., W. L. Fuerst, a nd J . B . B a rney, 1995. Informat ion Technology a nd S usta ined Competitive

Adva nta ge: A Resource-B a sed Ana lysis. M IS Quarter l yDecember:487-505.

Mills, Q. D., 1992. Th e Rebir th of t he Corporat ion. New York: Wiley.

Mowery, D., a nd N . Rosenberg, 1989. Technology and th e Pur sui t of E conomi c Growth. New York:

Cambridge University Press.

Mytelka, L. K., 1999. Competi ti on, I nnovation and Competit iveness in D evelopi ng Coun tr ies. Pa ris:

Organisation for Economic Co-operation and Development.

Nelson, R. R., ed., 1993. Nati onal I nn ovati on Systems: A Compar ati ve Anal ysis. Oxford: Oxford

University Press.

Nish iguch i, T., 1994. Str ategic Ind ustri al Sourcing: The Japanese Advan tage. New York: Oxford

University Press.

Nonaka, I., 1994. A Dynamic Theory of Organizational Knowledge Creation. Organizati on Science5(1):14-37.

OECD, 1993. STI Revi ew 13: Speci al I ssue on Globali zati on. P ar is : Organisat ion for E conomic

Co-opera tion a nd Development.


31/39

25

Olian, J . D. , C. C. Durha m, A. L. Kristof , K. G . Brow n, R. M. P ierce, a nd L. Kunder, 1998.

Designing Ma na gement Tra ining a nd Development for Competitive Adva nt a ge: Lessons

from t he Best . H uman Resour ce Plann in g21(1):20-31.

Overholt, M. H., 1997. Flexible Organisations: Using Organisational Design as a Competitive

Advantage. Human Resour ce Plan ni ng20(1):22-32.

Owens, T., a nd A. Wood, 1995. Export-oriented Ind ustr ialisa tion t hrough P rima ry P rocessing?

IDS Working Paper 19, Institute of Development Studies, University of Sussex, Brighton.

P eters, T., 1988. Restoring American C ompetitiveness: Looking for New Models of Orga niza tions.

Th e Academy of M anagement E xecuti veII(2):103-09.

P feffer, J ., 1994. Competi ti ve Ad vant age th r ough People: U nl eashin g th e Power of th e Workf orce.

Boston: Harvard University Press.

Presidents Commission on Industrial Competitiveness, 1985. Global Competi ti on: The New Reali ty,

Vol. 2. G overnment P rintin g Office, Wa shington, D .C.

P oole, M. E. an d G . J enkins, 1996. Competitiveness and H uma n Resource Ma na gement P olicies.

J our nal of Gener al M anagement22(2):1-19.P orter, M., 1990. Th e Competi t i ve Advan tage of N ati ons. New York: Free Pr ess, Macmillan.

Reich, R. B., 1991. Th e Wor k of Na ti ons: Prepar i ng Our selv es for 21st-Centu r y Capit al i sm. New

York: Knopf.

Ring, P. S ., 1996. Netw orked Orga nisa tion: A Resource B a sed P erspective. Working P a per No. 39,

Acta Univers i t a t is Upsal iensie : S tudia Oeronomiae Negot iorum, Almquis t & Wiskel l

In ternat ional , U ppsala .

St a nk, T., M. Crum , a nd M. Ara ngo, 1999. Benefits of Interfirm Coordina tion in Food In dustr y

Supply Cha ins. J our nal of B usiness Logisti cs20(2):21-41.

St iglitz, J . E., 1996. Some Lessons from th e Ea st Asian Mira cle. The Wor ld Bank Resear ch Observer

11(2):151-77.

, 2000. Ca pita l Mar ket Liberaliza tion, Economic G rowt h, a nd In sta bility. Wor ld Development

28(6):1075-96.

St igli tz , J . E. , a nd M. U y, 1996. Finan cial Ma rkets, Public Policy a nd t he Ea st Asian Miracle.

Th e Worl d Ban k Resear ch Obser ver11(2):249-76.

Ta ng, C . Y. a nd S . Tikoo, 1999. Operat iona l Flexibility a nd Ma rket Va lua tion of Ea rnings. Strategic

M anagement J our nal20:749-61.

Teece, D. J ., a nd G . P isan o, 1994. The Dy na mic Ca pabilities of Firms: An I ntr oduction. Industr ia l

and Cor por ate Change3(3):537-56.

Teece, D. J . , G. P isan o, a nd A. Shuen, 1997. Dyna mic Capa bilities an d St ra tegic Ma na gement.

Str ategic M anagement J our nal18(7):509-33.

Tiernan , S. , 1993. Innovat ions in Orga niza t ional S tru cture. J our nal of I r ish Business andAdm in istr ati on Resear ch14(2):57-68.

Wade, R., 1990. Gover ni ng th e M ark et. P rinceton: P rinceton U niversity P ress.

, 1998. The Asian Debt and Development Crisis of 1997 - ?: Causes and Consequences.

Wor l d Development26(8):1535-53.

References


32/39

26



Woma ck, J . P., D. T. J ones, an d D . Ross, 1990. Th e M achi ne th at Ch anged t he Wor ld. New York:

Rawson Associates.

Wood, A., 1994. North S outh Tra de, Employment a nd I nequa lity: C ha nging F ortune in a Skill-

driven World. In I DS Development Stu di es Ser ies. Oxford: Oxford University Press.

Wright, P. M., a nd G . C. McMah a n, 1992. Theoretical P erspectives for S tra tegic Huma n Resource

Management . J our nal of Man agement18(2):295-320.

Wright, P. M., an d S . A. Sn ell, 1991. Towa rd a n I ntegra tive

international competitiveness of asian firms: an analytical framework

Documents