Competitive Advantage

of

Nations

Factors of Advantageinheritance

• As per traditional economic theory following are the factors of comparative advantage for a region or a country:

1. Land2. Location3. Natural resources (minerals, energy etc.)4. Labor5. Local population (size)

Are They ?

• Land : A disadvantage can be an advantage as Japan has shown with the paucity of land and

natural resources through innovation (miniaturization and

productivity).

• Labour : It is not the number but the quality that matters. Quality has to be created. Besides it is now a mobile factor.

• Capital : Has no nationality. Moves to locations of competitive advantage such as FDI.

Competitive Advantage

• According to Porter sustained industrial growth has hardly been built on the basic inherited factors.

• The competitive advantage of a nation is the outcome of 4 interlinked advanced factors and activities in and between companies within clusters*

* Geographic concentration of interconnected businesses, suppliers, and associated institutions in a particular field

Competitive Advantage

• PORTER argued that a nation can create new advanced factor endowments such as skilled labor, strong technology and knowledge base, government support, and culture.

• He used a diamond shaped diagram as the basis of a framework to illustrate the determinants of national advantage. The diamond represents the national playing field that the countries establish for their industries.

In search of competitiveness

Q. How does a nation become the home base for a successful industry such as

- Sweden for heavy trucks - America for personal computers - Italy for ceramic tiles and - Japan for consumer electronics - Switzerland for pharmaceutical and dairy

products

Paradoxes#1. Strong currency and high wages are detriments to competitive advantages.

Germany and Switzerland suffer from the disadvantages of high wages and strong currency. Yet they enjoys enviable competitiveness in automobile and pharmaceutical.

#2. Negative balance of payment is a deterrent.

The US has negative balance of payment. So has some west European countries that enjoy competitive advantage in many manufacturing industries while the US rules the software.

#3. Unstable politics is a deterrent.

Italy in spite of unstable politics and high wages has many competitive industries in small machinery, luxury automobiles and fashions.

Porter’s Diamond

The Diamond

#1. FACTOR CONDITIONS

-a country creates its own important factors such as skilledresources and technological base.

-these factors are upgraded / deployed over time to meetthe demand.

-local disadvantages force innovations, new methods and hence comparative advantage.

The Diamond

#2. DEMAND CONDITIONS

-a more demanding local market leads to national advantage.

-a strong trend setting local market helps local firms anticipateglobal trends.

#3. RELATED AND SUPPORTING INDUSTRIES.

-local competition creates innovations and cost effectiveness.

-this also puts pressure on local suppliers to lift their game.

Diamond

#4. FIRM STRATEGY , STRUCTURE AND RIVALRY- local conditions affect firm strategy.- local rivalry forces firm to move beyond basic

advantages.

• THE GOVERNMENT

- to encourage- to stimulate - to help to create growth in industries

CompetitivenessRanking

• Bangladesh ranks # 106 among 133 world economies as per WEF Global Competitiveness Report 2009.

• The rank is compiled from an aggregate of 12 parameters divided into 3 broad categories;

- Basic requirements- Efficiency enhancers- Innovation factors

RankingGCI

• The global competitive index measures how productively a country uses available resources.

• Overall rank of Bangladesh is #106 against In- #49, Sl- #79,

P- #101, N- #125.

A. Basic Requirements

- Institution - Infrastructure - Macro-economy- Health & education

• Overall : B- #108, N- #119, P- #114, S- #89

• Health & Education :B- #105, N- #106, P- #113, S- #38

B. Efficiency Enhancers

- Higher education and training- Goods market efficiency- Labor market efficiency- Financial market sophistication- Technological readiness- Market size

• Overall :B- # 97, N- #125, Pak- # 92, S- #74

• Higher Education & Training :B- #129, N- #124, Pak- #118, S- #64

C. Innovation & Sophistication Enhancers

- Business sophistication - Innovation

• Overall :

B- #114, N- 129, P- #84, S- #44• Innovation :

B- #122, N- 130, P- #79, S- #46

SummaryGCI

• Income thresholds for stages of development in terms of GDP per capita (US$)

- Stage 1: Factor driven < $ 2,000 Transition from Stage 1 to Stage 2 : 2,000–3,000

- Stage 2 : Efficiency driven $ 3,000– 9,000 Transition from Stage 2 to Stage 3 : 9,000–17,000

- Stage 3 : Innovation driven > $ 17,000

HRD Redirection

• As we get closer to the Vision 2021 goal of a middle income country it is necessary to re-examine the relevance of each of the three stages of development.

• Performance in many of the areas are primarily dependent on the quality of human resources e.g. higher education, technological readiness and business sophistication where Bangladesh position is weak.

• Investment in these areas take time for fruition.

HRD Redirection

• The government has now revived the 5-year plans with the 6th five-year plan for 2010-2015 (5th five-year plan 1997-2002).

• This is a welcome intervention to go beyond the obsession with poverty (PRSP).

• A strategic plan at times has to forego short-term gains in favour of long-term position.

HRD Redirection

• Our present inability to meet the current needs in almost all sectors of economy, is an outcome of hesitance in planning.

• “Health services in bad shape, 33000 posts of public health professionals vacant” (Star, 27 February 2010).

HRDQuotes

• “… we need allocation of 8% of GDP for bringing qualitative change in the education sector” ..Education Minister (Star, 1 Mar 2010).

• Beyond everything else, we must tame the population growth that now stands at 164.4 million, up from 156 million a decade back, as per UN Population Fund (UNFPA) report 2010,

• The population growth “has gone up from the still publicized 1.4% per annum to well above 2%” (Star, 1 Mar 2010).