Chapter Five Copyright, John Wiley and Sons, Inc. Chapter Five three Learning Concepts – Chapter 5 1. Understand why countries differ in their overall competitiveness in the marketplace. 2. Recognize that there are industry specific competitiveness differences on a country by country basis. Know some countries and their competitive advantages. …/… Country Competitiveness.

Chapter Five Copyright, John Wiley and Sons, Inc. Chapter Five three Learning Concepts – Chapter 5 (cont) 3. Understand that persons and business firms play a role in shaping country competitiveness. 4. Understand that competitiveness plays a role in the strategies and decisions of Multinational Enterprises for foreign direct investment, production and marketing. Country Competitiveness.

Chapter Five Copyright, John Wiley and Sons, Inc. Singapore And The Hard Disk Industry Singapore is a good place for business. As a top competitor, Singapore makes 70% of world production in hard disks. It has a world class workforce, strong productivity, excellent work attitude with excellent technical skill, and a legal framework that supports foreign direct investment and international business.

Chapter Five Copyright, John Wiley and Sons, Inc. Country Competitiveness: What is it? 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 Five Copyright, John Wiley and Sons, Inc. Country Competitiveness: Productivity 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 Five Copyright, John Wiley and Sons, Inc. Country Competitiveness and MNEs Government policies, national values, national culture, economic structures, economic and governmental institutions, and national histories all contribute to country competitiveness. Nations have become influential in international business operations. Most governments have institutions that promote economic development by marketing competitiveness factors to Multinational Enterprises.

Chapter Five Copyright, John Wiley and Sons, Inc. 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 Five Copyright, John Wiley and Sons, Inc. Country Competitiveness and Impact for 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 Five Copyright, John Wiley and Sons, Inc. Country Competitiveness: Determinants Competitiveness improves when countries enhance their productivity capabilities. They do this by establishing productivity-enhancing country-level, firm-level, industry-level and individual level factors.

Chapter Five Copyright, John Wiley and Sons, Inc. Country Competitiveness: Country-Level Factors Country-level determinants that raise competitiveness do so through the promotion of economic growth, stability, and productivity. Building cultural, legal, political and social environments is done through promoting economic soundness; world-class financial institutions; international culture and cultural acceptance; and the scientific, educational, and innovativeness systems that help to promote country development.

Chapter Five Copyright, John Wiley and Sons, Inc. Promoting 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; and supporting technological innovation through economic and governmental policy.

Chapter Five Copyright, John Wiley and Sons, Inc. Promoting Economic 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 Five Copyright, John Wiley and Sons, Inc. Promoting 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, and managing appropriate levels of short-term external debt.

Chapter Five Copyright, John Wiley and Sons, Inc. Promoting 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, and promoting economic and cultural openness.

Chapter Five Copyright, John Wiley and Sons, Inc. Promoting Internationalization: Openness 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 Five Copyright, John Wiley and Sons, Inc. Promoting Internationalization: A Question Countries promote finance, openness, economic soundness, and scientific growth. This is harder than it looks. How do countries go about this?

Chapter Five Copyright, John Wiley and Sons, Inc. Country Competitiveness: Industry-Level Factors Country level factors are necessary for international competitiveness, they aren’t sufficient. It is necessary to also promote industry-level factors that promote competitiveness.

Chapter Five Copyright, John Wiley and Sons, Inc. Industry-Level Factors – Porter’s Framework Porter (The Competitive Advantage of Nations) suggests there needs to be:  Factor Conditions that support competitiveness.  Demand Conditions that promotes competitiveness.  Related and supporting industries that promote efficiency and productivity growth.  Rivalry and business practice that promotes development and competition.

Chapter Five Copyright, John Wiley and Sons, Inc. Porter’s Framework: Factor Conditions Factor Conditions are a nation’s position in terms of basic factors of land, labor, capital, and natural resources. Drawn from Ricardo. Examples include:  Hungary – skilled labor.  China – land and low- skill labor.  Mexico – Cheap labor.  Singapore – educated people, technology, transportation.

Chapter Five Copyright, John Wiley and Sons, Inc. Porter’s Framework: Demand Conditions Demand Conditions: strong market demand that promotes efficiency, productivity, and innovations. It also promotes discriminating, sophisticated consumers. Examples include:  United States – multi- target markets.  Japan – consumer sophistication

Chapter Five Copyright, John Wiley and Sons, Inc. Porter’s Framework: Related and Supporting Industries Related and Supporting Industries: the presence and support of complementary upstream and downstream, and related, firms. Examples include:  Suppliers  Distributors  Service firms  Operations services

Chapter Five Copyright, John Wiley and Sons, Inc. Porter’s Framework: Rivalry and Business Practice Rivalry and Business Practice promotes the establishment of business strategy and structure that engages in international operations.

Chapter Five Copyright, John Wiley and Sons, Inc. Porter’s Framework: All together The concept of Porter’s Framework promotes the facets of trade developments. All the factors need to be present to some degree. When they are:  There is economic growth  There is better product development  There is better information  There is pressure to innovate and invest

Chapter Five Copyright, John Wiley and Sons, Inc. Country Competitiveness: Firm-Level Factors Country level and industrial level factors exist to promote competitiveness. Firm-level factors must also exist.

Chapter Five Copyright, John Wiley and Sons, Inc. Country Competitiveness: Firm-Level Factors  Process Innovations  Quality Control Systems  Motivation  Superior Management  Resources

Chapter Five Copyright, John Wiley and Sons, Inc. Country Competitiveness: Individual-Level Factors Country level, industrial level, and firm-level factors exist to promote competitiveness. Individual level factors must also exist.

Chapter Five Copyright, John Wiley and Sons, Inc. Country Competitiveness: Individual-Level Factors  Entrepreneurial Skill  Worker Talent  Engineering Ability  Managerial Ability  Political Will  Educational Backgrounds

Chapter Five Copyright, John Wiley and Sons, Inc. Country Competitiveness: Government Factors Finally, Government plays an important role in shaping competitiveness through policy.  Import Protection  Financial Subsidy  Regulation  Investment Promotion  Development In Capital, Labor, Natural Resources, And Technology La Paz, Bolivia

Chapter Five Copyright, John Wiley and Sons, Inc. Country Competitiveness: Putting it Together This chapter is cumulative. To establish superior country competitiveness, one must promote all of the following:  Country Level Competitiveness  Industry Level Competitiveness  Firm Level Competitiveness  Individual Level Competitiveness  Government Policy That Supports The Above, And Is Acceptable To The Population.

Chapter Five Copyright, John Wiley and Sons, Inc. Country Competitiveness: Putting it Together THIS IS ALL TOUGHER THAN IT LOOKS!! Can you imagine why??