Country Competitiveness International Business Oded Shenkar and Yadong Luo Chapter 5 Country Competitiveness Chapter 5: Country Competitiveness

Do You Know? Why do countries differ in their overall competitiveness? Why is a country’s competitiveness more salient in some industries? What roles should firms and individuals play in shaping country competitiveness? How does a foreign country’s competitiveness influence the MNEs? Chapter 5: Country Competitiveness

Defining Country Competitiveness Competitiveness is a relative strength necessary to win in competition against industry rivals. Country Competitiveness is the extent to which a country is capable of generating wealth, when measured against other countries, in world markets. To be competitive, governments must create and sustain a domestic and international competitive environment that favors business operations and productivity in one or more industries. Chapter 5: Country Competitiveness

Defining Country Competitiveness Productivity is important to competitiveness. Productivity is the value of the output by a unit of labor or capital. It is the prime determinant of a country’s standard of living, and the main source of national income. Productivity depends on the quality and features of products and the efficiency with which they are produced. Productivity does not come from what a country has, but from how it uses those resources. Chapter 5: Country Competitiveness

Country Competitiveness and MNEs The following contribute to country competitiveness: Government policies, national values, national culture, economic structures, economic and governmental institutions, and national histories Nations have become influential in international business operations. Most governments have institutions that promote economic development by marketing competitiveness factors to Multinational Enterprises. Chapter 5: Country Competitiveness

Country Competitiveness and MNEs Examples of governmental promotion include: Italy’s promotion of resources, histories, and capabilities for shoe and leather production. Japanese promotion of culture, history, and capabilities in semiconductor and electronics production. Swedish promotion of history and culture related to concern for people and product safety. Chapter 5: Country Competitiveness

Country Competitiveness and MNEs Country competitiveness affects selection for operations locations. Competitiveness impacts the industry selection of an MNE. Competitiveness affects MNE innovation capacity and capability production. Competitiveness affects MNE global strategy. Chapter 5: Country Competitiveness

Country-Level Determinants Competitiveness improves when countries enhance their productivity capabilities, driven by the following factors: Country-level Industry-level Firm-level Individual- Country-level fundamentals include: Science, education, and innovation Economic soundness Finance Internationalization Chapter 5: Country Competitiveness

Country-Level Determinants Exhibit 5-1: Determinants of country competitiveness Chapter 5: Country Competitiveness

Country-Level Determinants Exhibit 5-2: Country-level determinants of country competitiveness Chapter 5: Country Competitiveness

Science, Education, and Innovation Countries promote technological innovation through establishing institutions that make tech innovation more likely. This is done by: Developing basic scientific capability and R&D Supporting educational institutions that research, teach and support economic development Supporting technological innovation through economic and governmental policy. Chapter 5: Country Competitiveness

Macroeconomic Soundness Countries try to develop sustainable economic growth potential. They do this through creating policy that promotes: Investment, consumption, growth in real income, service and production sector performance, and infrastructure development. Essentially, they promote consumption, investment, government spending and net exports in order to build economic stability favoring international economic growth. Chapter 5: Country Competitiveness

Macroeconomic Soundness Exhibit 5-3: The strength of macro-level domestic economy (Top 20) Chapter 5: Country Competitiveness

Finance Countries try to develop financial sectors that invite international investment. They do this through: Managing appropriate currency valuation Promoting solvency in the banking systems Managing appropriate levels of short-term external debt Chapter 5: Country Competitiveness

Internationalization Internationalization refers to the extent to which a country participates in international trade and investment. Promoting internationalization is done through: Building positive export balances Establishing workable exchange rate systems Building financial and direct investment Keeping high foreign exchange reserves Promoting economic and cultural openness Chapter 5: Country Competitiveness

Internationalization Openness refers to the ease of which resources, goods, services, people, labor, technology, information and capital flow across boundaries. In order to promote openness Countries seek to negotiate lower trade barriers and protectionism, While promoting cultural acceptance of “global mindsets” among the population Chapter 5: Country Competitiveness

Industry-Level Determinants Four broad attributes constitute national advantage Factor Conditions The nation’s position in factors of production, including labor, capital, land, and natural resources. The nation’s position in more sophisticated factors, such as skilled workforce, scientific base, infrastructure and information Demand Conditions The nature of market demand for the industry’s product or service. Chapter 5: Country Competitiveness

Industry-Level Determinants Four broad attributes constitute national advantage Related and Supporting Industries The presence and support of a nation’s suppliers or other related industries Cluster – when suppliers, manufacturers and distributors are located near each other Rivalry and Business Practice The nature of domestic rivalry in addition to the conditions governing how business are organized, managed and operated in a country Chapter 5: Country Competitiveness

Industry-Level Determinants Exhibit 5-4: Industry-level determinants of country competitiveness Chapter 5: Country Competitiveness

Industry-Level Determinants Exhibit 5-5: The microeconomic competitiveness scoreboard (Top 20) Chapter 5: Country Competitiveness

Firm-Level Determinants These strategies, principles, or approaches differentiate one country’s firms from those of others. Include technological innovation and organizing principles. Inevitably diffused across nations and imitated by foreign rivals. Chapter 5: Country Competitiveness

Firm-Level Determinants Exhibit 5-6: Firm-level determinants of country competitiveness Chapter 5: Country Competitiveness

Individual-Level Determinants People or human resources associated with country competitiveness: Workers Entrepreneurs Managers Engineers Educators Politicians Interplay of the Four-Level Determinants Chapter 5: Country Competitiveness

Individual-Level Determinants Exhibit 5-7: Individual-level determinants of country competitiveness Chapter 5: Country Competitiveness

Government Role Governments can affect country competitiveness Policy making and intervention Trade liberalization and exchange rate adjustment Industrial policies – all forms of coordinated government interventions to promote industrial development: Import protection, financial subsidies, regulatory changes, training and infrastructure policies Chapter 5: Country Competitiveness

Government Role To play a supporting role in national competitiveness, governments should: Emphasize competitiveness infrastructure Enforce strict product, safety, and environmental standards Deregulate competition Adopt strong domestic antitrust policies Boost goal-setting that leads to sustained investment Chapter 5: Country Competitiveness