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

Chapter 5: Country Competitiveness

Chapter 5

Country Competitiveness

International Business

Oded Shenkar and Yadong Luo


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?


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.


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.


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.



• 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.



• 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.


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



Exhibit 5-1: Determinants of country competitiveness



Exhibit 5-2: Country-level determinants of 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.


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.


Macroeconomic Soundness

Exhibit 5-3: The strength of macro-level domestic economy (Top 20)


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


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


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


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.



• 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



Exhibit 5-4: Industry-level determinants of country competitiveness



Exhibit 5-5: The microeconomic competitiveness scoreboard (Top 20)


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.


Firm-Level Determinants

Exhibit 5-6: Firm-level determinants of 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


Individual-Level Determinants

Exhibit 5-7: Individual-level determinants of 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


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

Documents

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