Sustaining Competitive Advantage: The Challenge .Sustaining Competitive Advantage: The Challenge

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Transcript of Sustaining Competitive Advantage: The Challenge .Sustaining Competitive Advantage: The Challenge

  • Sustaining Competitive Advantage: The Challenge for Belgiums

    Chocolate Cluster

    DAVID CHAN SABINE PRINZ

    CARLOS RIVERA HELENE SOW

    HARVARD BUSINESS SCHOOL MICROECONOMICS OF COMPETITIVENESS

    PROFESSORS LAURA ALFARO, CHRISTIAN KETELS, AND JORGE RAMIREZ-VALLEJO

  • Sustaining Competitive Advantage: The Challenge for Belgiums Chocolate Cluster

    Introduction

    National competitiveness is created, not inherited. It does not grow out of a countrys natural endowments, its labor pool, its interest rates, or its currencys value, as classical economists insists. A nations competitive advantage depends on the capacity of its industry to innovate and upgrade. Companies gain advantage against the worlds best competitors because of pressure and challenge. They benefit from having strong domestic rivals, aggressive home-based suppliers, and demanding local customers. In a world of increasingly global competition, nations have become more, not less, important. As the basis of competition has shifted more and more to the creation and assimilation of knowledge, the role of the nation has grown.

    - Michael Porter, On Competitioni

    As Michael Porter notes in the above quote, nations have become increasingly more

    important in an era of global competition. Given that the basis of competition has evolved to the

    amalgamation of knowledge, nations play a pivotal role in facilitating both the creation and sharing of

    knowledge between market participants in an economy. Indeed, such is the genesis for the

    development of competitive clusters after all, clusters are geographic concentrations of

    interconnected companies, specialized suppliers, service provides, firms in related industries, and

    associated institutionsii, and cluster knowledge and expertise serve as the interstitial glue that

    connects the different cluster pieces together to compete effectively.

    Such has been the story of Belgiums chocolate cluster to date since 1635 when chocolate

    was first brought into the country by the Abbot of Baudeloo in Ghent, the development of the Belgian

    chocolate cluster has been one of knowledge creation and sharing over generations, which has

    allowed the country to not only gain a competitive advantage in chocolate manufacturing, but more

    importantly become synonymous with chocolate itself. Coupled with a favorable location at the heart

    of Europe which led to the development of quality ports and transportation infrastructure, strong

    domestic and regional demand, and favorable policies, Belgium has not only been able to establish

    itself as a market leader, but also prevent new entrants from eroding its competitive position. Its

    colonial legacy and close relationships with Africa have also proven beneficial, and continuous

    restructuring of Belgian chocolate companies have allowed the country to gain a competitive

    advantage at each step of the value chain unlike its competitors. More importantly, given the

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  • Sustaining Competitive Advantage: The Challenge for Belgiums Chocolate Cluster

    commodity-like nature of its primary raw product, Belgiums chocolate cluster has benefitted from

    the rise of institutes for collaboration on multiple levels local, regional, and global.

    However, this paper is worried about a few trends first, the cluster has been stagnant in

    recent years, and has been overly focused on producing only chocolate rather than considering a

    diversification into other by-products. Moreover, there are questions over the sustainability of

    chocolate production given the availability and quality of cocoa beans, as well as the sustainability of

    domestic and regional demand should Belgium lag expansion into new markets. In addition, given

    consumers demand for healthier food options, Belgium chocolate manufacturers are facing a

    fundamental secular challenge to their hitherto manufacturing processes while these processes

    have been handed down and improved on over generations, changing consumer patterns imply that

    the the company may have to alter their current methods and innovate further. More importantly,

    Belgium faces a fundamental constitutional question about its polity it has been held together by an

    unnatural alliance between Brussels, Wallonia, and Flanders, and questions around the sustainability

    of this political structure remain unanswered. Indeed, these differences are not only accentuated

    through the economic performances of these regions, but also in the type of policies each region has

    implemented this lack of harmony is disconcerting, and limits the potential of Belgium to enhance

    its position further.

    In analyzing Belgiums economy, the development of the chocolate cluster, and the global

    chocolate value chain, this paper thus argues that Belgiums primary challenge moving forward is in

    sustaining and improving its competitive advantage. It cannot rely purely on its legacy or historical

    competitive advantage to ensure future competitive advantage, and needs to formulate a concerted

    cluster policy to address these issues to maintain a clear value proposition.

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  • Sustaining Competitive Advantage: The Challenge for Belgiums Chocolate Cluster

    Overview of Belgium

    Located in Western Europe, Belgium is a federal constitutional monarchy with a

    parliamentary system of governance, consisting of a Senate and a Chamber of Representatives.

    Divided into three separate regions, Brussels, Wallonia, and Flanders, Belgium straddles Germanic

    and Latin Europe, and is home to two major language groups, the Dutch-Speaking Flemish

    community in the north, and the French-speaking Wallonia community in the south. It gained its

    independence from Netherlands in 1830, and during the 20th century occupied a number of African

    colonies, including parts of Rwanda and Burundi, and the modern-day Democratic Republic of Congo.

    It had also been occupied by Germany in both World Wars, and has played a major role in the post-

    war reconstruction of Europe, not only as the founding member of the Eurozone, European Union,

    and NATO, but also the headquarters of the latter two organizations in addition to many other

    international institutionsiii.

    In terms of geography, Belgium is approximately 30,528 square kilometers large,

    approximately the size of Maryland. It is located in between Netherlands and France, and borders the

    North Sea, allowing for easy access to major European shipping routes which have led to the

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  • Sustaining Competitive Advantage: The Challenge for Belgiums Chocolate Cluster

    1.40%

    27%

    71%

    0.70%

    22.30%

    77%

    0%

    10%

    20%

    30%

    40%

    50%

    60%

    70%

    80%

    90%

    Agriculture Industry Services

    GDP@Composition@ by@ Sector

    2000 2015

    development of Antwerp as a major port in the region. It has a population of 11.3 million, with a

    0.76% growth rate, a median age of 41.4 years, and a dependency ratio of 54.2%iv.

    Belgiums Economy

    Given its central location, developed transportation network, and diversified consumer and

    industrial base, Belgium has managed to achieve solid economic performance over the past thirty

    years GDP per capita has increased nearly 4.5 times from $10,491 in 1980 to $44,706 in 2015, and

    higher than the Eurozone and OECD averages as seen in the chart belowv. In 2015, Nominal GDP was

    $494 billion, and the economy grew by 1.3%. In terms of GDP composition, Belgium also has had a

    heavy dependence on the financial services sector since 2000, the share of services as a % of total

    GDP has increased from 71% to 77%, industry has declined from 27% to 22%, and agriculture as a

    proportion of GDP has also halved. In the context of chocolate manufacturing, it is also worth noting

    that manufacturing only accounts for 13.1% of GDP, and employs 13% of the current Belgian

    workforce.

    $20,000

    $25,000

    $30,000

    $35,000

    $40,000

    $45,000

    $50,000

    1995

    1996

    1997

    1998

    1999

    2000

    2001

    2002

    2003

    2004

    2005

    2006

    2007

    2008

    2009

    2010

    2011

    2012

    2013

    2014

    GDP0Per0Capita0(PPP,0USD$)

    Belgium OECD Eurozone France Netherlands

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  • Sustaining Competitive Advantage: The Challenge for Belgiums Chocolate Cluster

    However, Belgiums economy has revealed cracks in recent years. As noted in the following

    chart, Belgiums nominal GDP growth rate has been lagging the OECD average. Moreover,

    unemployment has been persistently high at 8.6% for the past 15 years, suggesting broader anemic

    growth and weak job creation. Inflation stands at 0.5% in line with broader Eurozone deflationary

    pressures. While the Economic Intelligence Unit suggests that inflation in 2019 could r