Competitive Advantage - What is competitive advantage? »Porter’s diamond model ......

CompetitiveAdvantage

References Griffin and Pustay, Chapters 6Rugman and Collinson, Chapter 15

National Competitive Advantage, MBA | 2

FundamentalIssues

» Whatiscompetitiveadvantage?» Porter’sdiamondmodel» Stagesofeconomicdevelopmentinrelationtocompetitiveness» Realworldapplication:TheWorldEconomicForum’sCompetitiveIndex


What is Competitiveness?

Competitiveness

» Competitivenessdependsontheproductivity withwhichanationusesitshumanresources,capitalresources,andnaturalresources

» Thepublicandprivatesectorsplaydifferentbutinterrelatedrolesincreatingaproductiveeconomy

Internationalcompetitiveness

» Intoday’sglobaleconomy,virtuallyeverynationseekstomaketheireconomy‘businessfriendly’andcompetitive…

a.…becausethiswillhelpdomesticbusinessesgrowandbecomemorecompetitiveinternationally

b.…becausethiswillhelpattractforeignbusinesses


What Determines Competitiveness?

MichaelPorterdefinedanation’scompetitiveadvantageas:

“itscapacitytoattractbusinesses,bothlocalandforeign,touse

thecountryasaplatformfromwhichtoconductbusiness”

» Porterintroducedwhathasbecomeknownasthe‘diamondofnationalcompetitiveness’

» Thediamondmodelhasfourdeterminantsinfluencingthecompetitivestrengthsandweaknessesofdifferentnationsandtheirmajorsectorsaswellastwoexternalfactors


Porter’s Diamond Model

Firm strategy, structure

and rivalry

Related and supporting

industries

Factorconditions

Demandconditions

Government

Chance


Porter’s Diamond Model


and rivalry


industries

Factorconditions

Demandconditions

Government

Chance

Anexternalfactorwhichisbeyondthecontrolofanynationstate

Anexternalfactoristheroleofgovernmentandpublicpolicy

Thewaysinwhichfirmsaremanagedandcompete,competitioninthedomesticmarketdrivesbusinessinnovation

Theexistenceofalargesophisticateddomesticconsumerbaseoftenstimulatesinnovativebusinessesasfirmscompetedomestically

Theexistenceandqualityofresources,suchashumanresources,knowledge,skills,capital,commoditiesandinfrastructure

Theseindustriesarepartofthesupplychain,iftheyprovidecosteffectiveinputstheycanhelpdrivecompetitivenessandinnovation


The Role of Government

Theroleofgovernmentisofcriticalimportanceininfluencinganation’scompetitiveadvantage,considerhow…

» Subsidies– financialassistancetocompanies

» Educationpolicies,particularlyhighereducationandresearch

» Creationoffreetradezonesorindustrialclusters

» Lawsregulatingforeigninvestment

» Thepurchaseofgoodsandservices– governmentprocurement

» Corporatetaxlaws

» Antitrustregulation– promotionofcompetition

…mightimpactoncompetitivenessandattractingFDI


The Role of ‘Chance’

Thelastofthediamondmodel’scriteria– theroleofchance – isbeyondthecontrolofanyonenationstate.Chanceincludes:

» Geographicalposition(nearorfarfromlargemarkets/areasofconflict?)

» Environmentalnaturaldisasters

» Conflictandwar

» Significantshiftsinworldfinancialmarketsorexchangerates

» Changesininputcostssuchas‘oil‐priceshocks’

» Changesinglobalorregionaldemand


Diamond Model: Example the UK


and rivalry


industries

Factorconditions

Demandconditions

Government

Chance

ProximitytoEU,stablepoliticalenvironment,notpronetonaturaldisasters

Publicallyaccountablegovernment.Freemarket,althoughtaxationishigh

Verycompetitivemarket,virtuallynostateownedcompanies,lawpreventsprice‐fixing,veryeasytostartnewcompanies

Largeconsumermarket,whoshoponlineandoffline,customersareveryquicktopickuponnewtrends

Highlyeducatedworkforce,accesstoawiderangeofhumanresources,comprehensiveinfrastructureandeasyaccesstocapital

Lotsofcompetitioninalmosteverysector,lotsofadvertisingandbusinessparks,lawandregulationtosupportindustryandinnovation


Pros and Cons of the Diamond Model

Somepros include:» Themodelhelpstounderstandthedynamicinterplaybetweenafirm’scorporatestrategyandthecompetitiveadvantagesofacountry– the‘habitat’inwhichorganisations operate

» Themodelprovidesanexplanationofhowgovernmentscanplayanactiveroleinimprovingcompetitiveadvantage

Somecons include:» Theabsenceofanyofthefourconditionsfromthediamonddomestically,maynotinhibitcompaniesandindustriesfrombecominggloballycompetitive

» Canitbeappliedtocountriesthathavefollowedanexportleddevelopmentstrategy,suchasChina?

» Canitaccountforthesuccessofsmall,resourcebasedeconomiessuchastheUAEandQatar?


Stages of Economic Development

Porteralsoidentifiedthree stagesofeconomicdevelopment

» Thesestagesinfluencethewayinwhichanation’scompetitiveadvantageisassessed:

3. Innovation driven

2.Investment driven

1. Factor driven Lowincomecountries,dependentonfactorsofproduction,land,commoditiesandunskilledlabour.

Middleincomecountries,importingtechnologythroughforeigninvestment.

Highincomecountries,technologygeneratinginsomesectors,highratesofsciencelearningandR&D.


How‘businessfriendly’istheUAE?


‘The Global Competitiveness Report’

» TheWorldEconomicForumproducesaregular‘GlobalCompetitivenessreport,whichmeasuresnationalcompetitivenessbasedontheideasoutlinedinPorter’sdiamondmodel.

» Thereare12pillar’sofcompetitivenessagainstwhicheachcountry/economyisassessed.

» Eachcountryisrankedaccordingtotheircompetitiveness.

» TheWEFalsoassessesthestageofdevelopmentwhicheachcountryhasachievedintermsoftheircompetitiveadvantage.


‘Real-world’ Application

PILLARS STAGES

Source: PORTER AND SCHWAB (WORLD ECONOMIC FORUM), 2008

Basic requirements» Institutions» Infrastructure» Macroeconomicstability» Healthandprimaryeducation

Efficiency enhancers» Highereducationandtraining» Goodmarketefficiency» Labourmarketefficiency»Financialmarketsophistication» Technologicalreadiness» Marketsize

Innovation and sophistication factors» Businesssophistication» Innovation

Keyforfactor-driveneconomies

Keyforefficiency-driven

economies

Keyforinnovation-driven

economies

TheWorldEconomicForum’sGlobalCompetitiveIndex

Stage1

Stage2

Stage3


Global Competitiveness Index

TheGCC Rank Score

2013 2012 (2013)

Qatar 13 (11) 5.24

UAE 19 (24) 5.11

SaudiArabia 20 (18) 5.10

Oman 33 (32) 4.64

Kuwait 36 (37) 4.56

Bahrain 43 (35) 4.45

Thetopten Rank Score

2013 2012 (2013)

Switzerland 1 (1) 5.67

Singapore 2 (2) 5.61

Finland 3 (3) 5.54

Germany 4 (6) 5.51

UnitedStates 5 (7) 5.48

Sweden 6 (4) 5.48

HongKong 7 (9) 5.47

Netherlands 8 (5) 5.42

Japan 9 (10) 5.40

UnitedKingdom 10 (8) 5.37

Source:TheGlobalCompetitivenessIndex2013‐2014,WorldEconomicForum


Doing Business in the UAE

The most problematic factors for doing business

Source:TheGlobalCompetitivenessIndex2013‐2014,WorldEconomicForum


‘Ease of Doing Business’ Index

TheWorldBankproducean‘EaseofDoingBusinessIndex’

Itisconsideredtobeabenchmarkformeasuringtheattractivenessofalocationforinternationalbusiness:

» Countriesarerankedonhoweasyitisforbusinesstooperatewithintheireconomy,from1st – 183rd

» Ahighrankmeanstheregulatoryenvironmentis‘businessfriendly’

» Theindexaveragesthecountry'srankingsontentopics.Theseinclude:(1)startingabusiness;(2)employingworkers;(3)registeringproperty;(4)accesstocreditand(5)taxregimes


‘Ease of doing business’: UAE compared

Country Rank Startingabusiness

GettingCredit

Protectinginvestors

Payingtaxes

Tradingacrossborders

Enforcingcontracts

Singapore 1 3 3 2 5 1 12

Hong Kong 2 5 3 3 4 2 9

NewZealand 3 1 3 1 23 21 18

USA 4 20 3 6 64 22 11

Denmark 5 40 28 34 12 8 32

UAE 23 37 86 98 1 4 100

Saudi Arabia 26 84 55 22 3 69 127

Bahrain 46 99 130 115 7 81 122

Oman 47 77 86 98 9 47 107

Qatar 48 112 130 128 2 67 93

Kuwait 105 152 130 80 11 112 119

Source:DoingBusiness2014WorldBank

Competitive Advantage - What is competitive advantage? »Porter’s diamond model ......

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