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Firm-specific, National or Regional competitive advantage: The case

of emerging market MNEs – Thailand

Abstract

This study contributes to the debate on the sources of competitive advantage for

emerging markets MNEs, namely do EMNEs have FSAs that enable their international

competitiveness or their international competitiveness is mostly driven by their home

country advantages. The study advances a novel approach in studying the drivers of

competitiveness by investigating FSAs of an emerging market MNEs, namely

Thailand, in the context of both their home CSAs and the broader context of an

economic integration, the ASEAN regional trading bloc. Due to the limitations of the

available models, the study recommends the “regional” dual double diamond model,

which is extended from the dual double diamond model. The data was collected from

both secondary and primary sources. At country level, IPS National Competitiveness

Research, which measures the competitiveness of 67 countries using the dual double

diamond model, is used with focus on 7 out of 10 ASEAN member countries. At firm

level, secondary data was collected from annual reports and financial disclosure

reports. Primary data was collected from 73 Thai MNEs via a questionnaire soliciting

managers’ perceptions on FSAs, CSAs and RSAs.

The findings endorse prior findings that EMNEs do not have strong FSAs and that

they derive their international competitiveness from the home CSAs. Furthermore, the

results imply that Thai firms benefit and will continue to benefit from the regional

competitiveness due to the ASEAN increasing economic integration.

Keywords: Emerging market MNEs, FSAs, CSAs, RSAs, dual double diamond,

Thailand, ASEAN

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Firm-specific, National or Regional competitive advantage: The case of emerging

market MNEs – Thailand

INTRODUCTION

There is a large volume of research on the key drivers of a firm’s competitive

advantage in international markets. This paper focuses on Thai international firms and

how they create, deploy, combine, and exploit firm-specific advantages (FSAs),

country-specific advantages (CSAs) and region-specific advantages (RSAs) (Rugman,

1981; Rugman, Verbeke, & Nguyen, 2011). The novel approach in this paper is the

consideration of the role of the RSAs as a source of competitive advantage for

emerging market MNEs (EMNEs), based on a country’s membership in a regional

economic integration, ASEAN.

The fundamental question in the field of strategic management is how firms achieve

and sustain competitive advantages. According to the resource-based view a firm can

achieve superior returns compared to its competitors if it posses proprietary assets that

yield superior returns. However, achieving superior returns does not only depend on a

firm’s specific resources but also on a firm’s competence and capability to utilise these

resources (Rugman & Verbeke, 2002). A different resource endowment can lead a

firm to pursue alternative international strategies to attain competitive advantage in

foreign locations and develop its international operations. FSAs are a set of firm-

specific factors that determine the competitive advantages of an organisation. They

stem from the firm’s proprietary assets. FSAs may be built on technology, marketing,

brand name, capital, size, or managerial expertise.

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CSAs are sources through which firms can sustain or enhance its competitive

advantage in a particular country based on that country’s national competitiveness

(Rugman & Verbeke, 1992). When assessing national competitiveness, it must be

acknowledged that countries are different from one another and, therefore, country-

specific characteristics must be recognised. The CSAs or location advantages can be

based on the home country’s natural resource endowments, labour force, government

regulations, associated cultural factors, etc. (Collinson & Rugman 2007; Rugman &

Collinson, 2009). Most research in competitiveness mainly evaluates the sources of

competitiveness at firm and country level.

CSAs can be analysed with various characteristics using the single diamond model

(Porter, 1990) or the generalised double diamond model (Moon, Rugman , & Verbeke,

1998), whereas there is very limited empirical research which applies the dual double

diamond model (Cho, Moon, & Kim, 2008b) to measure and to analyse the

competitiveness of a nation (CSAs). The dual double diamond model extends the

previous diamond models in both scope (domestic/international conditions) and

sources (physical/human factors) of national competitiveness.

Furthermore, although the country level has been extended to analyse home and host/

neighbouring country competitiveness and international competitiveness, there has

been virtually no research analysing the CSAs of a country based on a regional

economic integration such as the ASEAN.

ASEAN is a group of ten countries in Southeast Asia that includes Brunei, Cambodia,

Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Vietnam, and

Thailand and which was formed in 1967 as a free trade agreement between the

member countries. The aims and purposes of ASEAN in terms of trade and economy

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are to accelerate economic growth, to promote active collaboration and mutual

assistance in economic fields, and to collaborate for the greater utilisation of the

members’ agriculture and industries and for the expansion of their trade (Association

of Southeast Asian Nations, 2014a). In short, ASEAN is a free trade market for all ten

member countries.

The ASEAN member countries agreed to increase the level of economic cooperation

by creating the ASEAN Economic Community (AEC) in 2015. It aims to create a

single market and production base, a highly competitive economic region, a region of

equitable economic development, and a region fully integrated into the global

economy (Association of Southeast Asian Nations, 2014b). As a result of the AEC, not

only trade but also investment, services, capital, and production factors can move

freely among member countries.

Thailand is a good example of a previously protected economy that had to remove the

trade barriers and will have to eliminate additional trade and investment barriers as a

result of the AEC, which will be fully enforced in 2015. Hence, the Thailand’s CSAs

should be extended to include the ASEAN RSAs, since firms can take advantage of

other member countries’ competitiveness within the ASEAN. Therefore, Thai firms

should not only consider Thai CSAs but should also analyse RSAs and apply regional

conditions as their home conditions. Thai firms will benefit from this economic

integration by exploiting and developing FSAs, utilising economies of scale, and

accessing resources from other ASEAN member countries.

The RSAs could potentially be a particularly import source of competitive advantage

for firms from the emerging markets. Research evidence implies that emerging

markets MNEs (EMNEs) do not have strong ownership advantages (FSAs) but derive

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their competitiveness from their home country national competitiveness, i.e.

efficiencies due to cheap labour, natural resources, economies of scale due to large

domestic markets, etc.

In conclusion, this study attempts to investigate the FSAs, CSAs and RSAs as sources

of competitive advantage for EMNEs. The “regional” dual double diamond model is

proposed to analyse regional competitiveness. Thus, this study provides new insights

into regional competitiveness as a source of firm and national competitiveness.

CONCEPTUAL CONTEXT

Firm Resources (FSAs)

The concept of firm resources is about internal resources of firms and how these

resources are developed and acquired by firms. However, the importance of all firm

resources is not equal. It depends on how difficult will be that those resources are

duplicated by others (Fahy, 2002). The resource-based view focuses on a firm’s

unique assets which can generate a firm’s competitive advantages (Barney, 1991;

Dhanaraj & Beamish, 2003). Internalisation theory extends a firm’s possession of

assets which are the source of advantages so that a firm can transfer FSAs to

subsidiaries in host country without access from other firms (Delios & Beamish,

1999).

Delios and Beamish (2005) suggest that firm resources, such as brand equity,

patents, or unique processes, can generate higher returns when firms are able to exploit

their FSAs abroad. Moreover, firms can increase market power and access to a source

of lower input cost, and can also spread the risk to host countries by exploiting FSAs

across a greater number of foreign markets.

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The study also found that firms with a greater level of either FDI or exporting

activities have a higher level of R&D and advertising expenses. If expenditure to

develop R&D and advertising activities can build up global FSAs which are required

for firms to succeed in international markets, firms with R&D and advertising FSAs

can implement a bi-regional and global strategy rather than focusing on a home- and

host-oriented strategy. The results show that firms with global FSAs focus on the

global market instead of a regional market (Delios & Beamish, 2005).

Rugman (1981) states that firms can achieve higher returns from exploiting

FSAs in international markets. Although firms may be faced with market

imperfections, firms are able to cope with this problem through internalisation.

However, firms involved in international activities may also be faced with liability of

foreignness, which can create costs in relation to doing business abroad. Therefore,

firms with weaker FSAs may intend to follow a regional strategy not a global strategy

in order to reduce the liability of foreignness since the region offers similar

environment to the home country.

Interaction between FSAs and CSAs affects foreign expansion. Firms develope

their FSAs in their home market and intend to expand abroad in order to exploit FSAs

or tend to develop FSAs through their foreign subsidiaries to gain knowledge and

technology. Firms with strong home country CSAs, such as China and other emerging

markets, develop FSAs that are predominantly based on their access to cheap factors

of production cost of resources and tend to focus primarily on their home-region, the

Asia-Pacific region (Rugman, 2010).

Hence, we advance the following proposition:

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Proposition 1a: Thai MNEs do not have strong FSAs.

Country Resources (CSAs)

Country resources are external factors which can be exploited only in the

country where they are located and are available to all firms located in that country.

Moreover, country factors are imperfectly moved across borders or may create high

cost in relation to resource mobility (Fahy, 2002). Enright (2005) suggests that

countries have different environments, for example in terms of politics and policy,

quality of infrastructure, customers, quality of life, and skills and capabilities of the

local work force. All of these country characteristics are important and can influence

firms’ decision-making process in relation to location.

Fahy (2002) has divided country-specific advantages (CSAs) into two broad

groups, which are basic and advanced CSAs. Basic CSAs are inherited resources

which easily duplicate, such as location, natural resources, quantity of customers, and

quality and quantity of unskilled workers. Competitors can gain access to these similar

resources by investing in a country which has similar resources or locating in the same

country. Therefore, basic CSAs cannot completely generate a unique benefit to firms.

On the other hand, advanced CSAs, include country capabilities, advanced

production factors, education system, research institutions, technology capabilities,

communication infrastructure, sophisticated customers, and skilled worker (Fahy,

2002; Kogut, 1991; Porter, 1990), are more relevant when choosing location. Since

firms can develop FSAs from advanced CSAs, CSAs can play an important role in

FSAs.

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Porter (1990) introduces four sets of CSAs which have an influence on

competitive advantages. These CSAs include both basic and advanced factors and

operate interdependently among four determinants. Porter’s four determinants of

national competitive advantages combine both physical factors and human factors.

However, Cho (1994) argues that it is necessary to separate human factors from those

original four determinants, for example unskilled labour, skilled labour, and the ability

of government since the four physical determinants can be generated, appropriated and

controlled by human factors.

Firms from countries that have strong basic CSAs tend to build their

international competitiveness based on their ability to leverage these basic CSAs.

Hence we advance the following proposition:

Proposition 2: Thai MNEs’ competitiveness is based on the Thai CSAs.

Regional Competitiveness (RSAs)

Economic integration enhances trade and cooperation among member

countries. The scale and scope of cooperation depends on the degree of economic

integration. The member countries can benefit from being a member of economic

integration through a free trade agreement (FTA), which means that member countries

can export their goods to other member countries without paying tariffs. However, it

can also incur problems for some countries which still want to protect some of their

industries.

The benefits of economic integration are the creation and stimulus of trade,

which encourage leveraging the member countries’ advantages. Trade creation occurs

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when member countries pay more attention to and put their effort into the goods and

services for which they have comparative advantages and start to trade with other

members of the economic integration group. This can result in efficient trade since

business activities will shift to the countries which have better resources and can

produce goods at a lower cost. Therefore, regional competitiveness will offer a benefit

to firms that are located in a country which has lower costs of production and has a

higher quality of goods rather than to competitors who are from non-member

countries. Moreover, the enlarged free trade market provides an opportunity to

develop economies of scale which in return would make the firms more competitive

outside of the economic integration.

Rugman and Oh (2008) study the FSAs and CSAs of Korean MNEs in the

regional context. The successful MNEs from large countries, for example the U.S. and

Europe, develop their FSAs in their large home markets. However, the smaller open

economies may not develop their FSAs in their home markets. Since Korea is a

relatively small country, Korean firms are encouraged to exploit host countries’

resources and markets. In order to achieve this benefit, Korean firms are motivated to

develop international capabilities. In the past, Korean firms’ FSAs built upon a set of

Korean CSAs, but now the FSAs are being build also on the neighbouring countries’

CSAs, for example the ASEAN countries and China, which provide cheap labour and

natural resources, and Japan, which provides advanced technology. Delios and

Beamish (2005), Oh and Rugman (2006), Rugman and Girod (2003) and Rugman and

Verbeke (2004) also support that the large MNEs have developed FSAs and CSAs in

their home region. Economic integration allows member countries to take advantage

of other member countries’ CSAs.

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Hence, we advance the following proposition:

Proposition 3: Thai national competitiveness is enhanced by the ASEAN regional

competitiveness.

Dual Double Diamond Model

According to Porter (1990) the competitive advantages of a firm depend on one

or more of the four broad attributes of a nation: Factor conditions, Demand conditions,

Related and supporting industries, and Firm strategy, structure, and rivalry, and two

external variables: Government and Chance.

According to Porter’s theory, the sources of competitive advantage are created

within the home based industries of a country. The home-based resources are the main

sources to improve competitiveness in international markets by exploiting the

competitive advantage, and therefore successful domestic firms need to create and

sustain competitive advantage based on one or more of the determinants of their home

country’s diamond (Bulcke, 1995; O'Malley & Egeraat, 2000; Cartwright, 1993). The

nation plays an important role for domestic firms within a particular industry, so the

firms will develop their performance within a domestic context prior to expanding

internationally (Grant, 1991).

There is lots of criticism in the literature of the Porter’s single model. Narula

(1993) argues that it cannot be applied to developing countries due to the model being

tested on a few industrialised countries and being focused mainly on successful

industries, and ignored non-exporting or uncompetitive industries. Bellak and Weiss

(1993) argue that the nation with small domestic market can emphasise foreign

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demand as being the main market for domestic supply. Export can be a source of

national competitiveness since it can create greater competitive advantages for nation.

The international business dimension is missing from the diamond model

because Porter underestimates the importance of MNEs and fails to incorporate the

effects of multinational activities. Therefore, the link between the components of the

national diamond model in international competitiveness is unclear (Dunning, 1991;

Moon, Rugman, & Verbeke, 1995). Porter ignores industries that compete through

offshore production or export from the home country to offshore, value-adding

subsidiaries (Cartwright, 1993). Dunning (1993) states that MNEs have increased

interaction between the cross-border value added activities which influences each of

the components of the nation’s competitive advantage.

Porter also fails to explain the effect of multinational activities; O’Malley and Egeraat

(2000) argue that foreign direct investment plays a direct role in the single diamond

model (O'Malley & Egeraat, 2000). Dunning (1993) suggests that foreign direct

investment can affect the home and host country’s diamonds and therefore it should be

added as exogenous variable, the same as the role of government and the role of

chance in Porter’s diamond. Dunning (1991) and Rugman (1991) also maintain that

the two-way foreign direct investment influences the competitiveness over trade and

investment.

Porter is also criticized for misunderstanding the nature of two-way foreign

direct investment (Rugman & D'Cruz, 1991). Rugman and D’Cruz (1993) suggest that

both outward foreign direct investment and inward foreign direct investment can have

a beneficial impact on a nation. Especially for less-developed countries, inward

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investment can improve their country-specific advantages and allow them to obtain a

competitive advantage in specific industries, for example Singapore’s success is

derived from a combination of two or more country diamonds, which arise from

Singapore’s natural country-specific advantage and foreign-owned MNEs’ firm-

specific advantages (Moon et al., 1995). This is also true in other countries, such as

Canada (Rugman, 1990) and Ireland (O'Malley & Egeraat, 2000); the results show that

the role of a foreign-owned firm is as important as that of a domestic-owned firm and

that it is a potential contributor to the competitive advantage of a host-nation industry.

Given the apparent shortcomings of the Porter’s diamond a number of

subsequent models have been advanced in attempt to overcome the criticism, i.e.,

double diamond (Rugman & D'Cruz, 1993), generalized double diamond (Moon et al.

1995; 1998), nine-factor model (Cho, 1994; Cho and Moon, 2000; Cho et al., 2008b),

and the dual double diamond model (Moon, 2006). In this study we advance the dual

double diamond model to analyse Thailand’s national competitiveness and ASEAN’s

regional competitiveness.

The generalised double diamond model and the nine-factor model enhance the

explanation of Porter’s single diamond model in two directions: scope (physical and

human factors) and source (domestic and international contexts) of national

competitiveness. However, these two models need to be integrated into a single model

because both scope and source are interacting and provide a better understanding of

national competitiveness.

Moon (2006) introduces the dual double diamond model, which is more

comprehensive than the generalised double diamond model and the nine-factor model

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in explaining the national competitiveness of countries with heterogeneous attributes

(Cho et al., 2008b). National competitiveness should be analysed from both

perspectives. The dual double diamond model is the first model that analyses the role

of international human factors. It is very important to consider international human

factors separately since they can move relatively freely in this globalisation era and

they are very important to enhance national competitiveness. The dual double diamond

model consists of four dimensions of physical and human factors in domestic and

international contexts. The physical factors are measured by factor conditions, demand

conditions, related and supporting industries, and business context. For the human

factors, it is analysed by studying workers, professionals, entrepreneurs, and

politicians and bureaucrats (Cho, Moon, & Kim, 2008a; Cho et al., 2008b; Moon,

2006).

RESEARCH METHODOLOGY

This study uses both primary and secondary data in the analysis. There are

three levels of analysis: firm, country, and regional levels. The sample criteria of this

research are 1) firms registered on The Stock Exchange Market of Thailand (SET) –

there were 503 listed firms in 2006 – and 2) firms involved in international activities.

Due to the availability and accessibility of the data, only registered firms were

examined. Since 2006, there are 503 registered manufacturing and service firms in

SET. However, this study focused on the competitive advantage of international firms;

therefore only firms having engaged in international activities were included. The

firms that registered after 2006 and/or withdrew from the SET during 2006– 2010

were not included.

Professionals

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The data was gathered from annual reports and financial disclosure reports.

These two reports include general information, top management team information,

financial information, and sales revenue. Moreover, the questionnaire was used to

collect data to seek more information on firms’ international activities, sales by

geographical segments, technology intensity, marketing intensity, and top

management ability, which was used to analyse the source of FSAs and

multinationality.

Prior studies of CSAs have used data from the IPS National Competitiveness

Research published by IPS, Korea. The IPS data measures the competitiveness of 67

countries using the dual double diamond model (Cho et al., 2008). Although, there are

ten member countries in ASEAN, the IPS data only provides information for seven

member countries; it excludes Brunei Darussalam, Lao PDR, and Myanmar. This

information shows the level of national competitiveness in each country. We chose to

employ the IPS as it has a strong theoretical basis with minimum multicollinearity and

has carried out consistent surveys through Korea Trade-Investment Promotion Agency

(KOTRA) offices abroad (Cho & Moon, 2005). IPS is supported by the Institute for

Industrial Policy Studies in South Korea and collects data from 67 countries. There are

nine factors, including four physical factors (factor conditions, demand conditions,

related and supporting industries, and business context), four human factors (workers,

professionals, entrepreneurs, and politicians and bureaucrats), and chance events. The

data is from both soft and hard data with equal weight between both sources of data.

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The survey questions relating to the eight components are based on the dual

double diamond model, and the firms indicated the availability of Thailand’s and the

ASEAN’s resources in each factor for their firm. In this part of questionnaire, the

answers were used to identify managers’ perception of the level of CSAs of each firm

and the regional resources, which can increase Thai firms’ competitiveness. Moreover,

top managers were asked to confirm the information that was provided in the annual

reports and to double check the correctness of the database.

A pilot study was conducted with ten firms to ensure that managers had no

difficulty in understanding the questionnaire, and it also sought comments to improve

the content and clarity of the questionnaire. The final survey was conducted by e-mail

between April 2012 and November 2012. There were 503 firms in the SET; however,

only 284 could be contacted due to unavailability of e-mail addresses of managers.

Since the SET does not require firms to separate domestic and foreign sales, both

domestic and international firms were included.

In total 140 questionnaires were returned. There were 67 responses which said

that the firms only had domestic sales, and therefore these firms were not relevant to

this study. In the end the response sample of this study is 73 firms and the response

rate is 25.70%.

CSAs and RSAs analysis

This study extends the previous four diamond models (the single diamond

model, the generalised double diamond model, the nine-factor model, and the dual

double diamond model) to explore Thai competitiveness in the context of the ASEAN

region. This reflects the originality of this study.

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In this study two methods of analysis of the IPS data are advanced: the

Average Index of the seven ASEAN member countries, and the Strongest Country

Index in each factor. The ASEAN index is an average index of the seven ASEAN

member countries; therefore the level of the ASEAN competitiveness can be

compared with that of non-member countries and it is easier to understand which

country or region is stronger in each factor.

However, this study intentionally extends the diamond concept to understand

the regional competitiveness which can provide benefits to Thailand. The average

number of all seven countries does not show the strongest area of member countries

since the maximum competitiveness in each factor of ASEAN is not shown, while

actually the firms located in ASEAN can achieve this competitiveness; therefore the

average index cannot totally reflect the level of the ASEAN competitiveness.

Hence, in this study we propose an alternative method. This method calculates

the ASEAN index by selecting the strongest ASEAN member countries in each factor

and using those indices to represent the ASEAN’s competitiveness. Therefore, the

ASEAN diamond comprises factors from several countries.

The ASEAN diamond shows the strongest in each factor compared with the

strongest member countries. Therefore, other member countries can benefit or increase

their competitiveness, according to the strongest country, by using the ASEAN

regional competitiveness. In addition, the regional competitiveness of ASEAN can be

compared with that of non-member countries, and all member countries can benefit

from this competitiveness.

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Both, the average index of seven ASEAN member countries and the strongest

country in each factor methods are used to analyse ASEAN regional competitiveness

since they are more applicable to understand the level of regional competitiveness.

ANALYSIS AND FINDINGS

Firm-Specific Advantages

To measure the level of FSAs, Rugman and Oh (2008a) and Almodóvar (2011)

use the observers’ (firms’) average number of each factor in their studies. If firms have

a higher value than the average, those firms are classified as strong FSAs, and weak

FSAs otherwise. This study investigates four aspects of FSAs, including technology

intensity, marketing intensity, managerial expertise, and firm size. It is found that in

terms of the four types of FSAs, Thai firms spend 2.5% on technology intensity, 1%

on marketing intensity, have a score of five on managerial expertise (on the seven-

point Likert scales) and have 2,767 employees. These are the average number of Thai

firms in each factor. Hence Thai firms would have strong FSAs for each aspect when

they spend more than 2.5% on technology, or spend more than 1% on marketing, or

the managerial expertise score is more than five (on the seven-point scale), or the

number of employees is greater than 2,767.

By using such criteria, only one-quarter of the firms are strong in marketing

intensity and technology intensity, one-fifth of the firms are strong in firm size, and

half of the firms are strong in managerial expertise. According to the work of Rugman

and Oh (2008a), the firms will be counted as firms that have strong FSAs when firms

are strong in FSAs in at least one out of two aspects. In this study, four aspects of

FSAs are analysed, so firms that are strong in at least two aspects will be classified as

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firms that are strong in FSAs. The results show that only 33% of firms are strong in at

least two types of FSAs, so it can be concluded that most Thai firms have weak FSAs.

Rugman and Oh (2008a) studied the international competitiveness of Asian

firms. The data was gathered for large Asian firms listed in the Fortune Global 500.

There are 61 firms from Japan, Korea, and China. The FSAs are measured by

technology and marketing intensity. The results show that firms will have strong FSAs

when they spend more than the average on technology or marketing, which is 2.5%

and 15% respectively. So if this measure is applied to Thai firms which also are Asian

firms but are not in the Fortune Global 500, the results will show that only one-quarter

of firms have strong FSAs.

The above findings provide strong support for our first proposition that Thai firms do

not have strong FSAs.

FSAs and CSAs

The FSAs in technology and marketing require the firms to invest substantial

resources, such as capital and skills in order to develop and build their own

technology, to adopt new technology, or to have their own international brand.

However, according to the survey responses, most of Thai firms in our sample mainly

focus on cost strategy (Cho & Moon, 2005). Their competitiveness is created from the

lower cost of production factors and from the availability and low cost of both skilled

and unskilled labours. Thai firms do not really pay attention to their FSAs if their

products can still compete with those of their competitors. That is why most of the

Thai firms have weak FSAs.

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Firms with strong FSAs have better competitive advantage than firms with

weak FSAs due to their proprietary assets. Only the firms owning these assets can

benefit from these unique assets (Collinson & Rugman 2007; Rugman & Collinson,

2009). Moreover, strong FSAs can increase national competitiveness. National

competitiveness depends on the success of the largest or leading firms in a nation

(Rugman & Oh, 2008a). However, firms in a developing country, such as Thailand,

have in general weak FSAs when compared with the world’s largest firms, so the

FSAs can be developed on the basis of country competitiveness (Gugler, Chaisse, &

Pananond, 2011; Rugman & Doh, 2008; Rugman, Oh, & Lim, 2012). Most of the Thai

firms in our sample indicate that they relay on strong CSAs rather than FSAs.

These findings endorse our second proposition that Thai MNEs derive their

international competitiveness from the home CSAs.

Given that CSAs are apparently more important for the firms from emerging

markets, they should than develop their FSAs by taking advantage of CSAs. In

addition, as members of the ASEAN economic integration, Thai firms can not only

benefit from CSAs, but also from regional competitiveness (Rugman & Oh, 2013).

National and Regional Competitiveness

This study is a first attempt to examine the ASEAN regional competitiveness

and use regional competitiveness as an integrated part of home country

competitiveness. Given the shortcomings of the traditional diamond the analysis in this

study is based on the dual double diamond model by using data from IPS.

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Figure 2 shows the diamond shape of Thailand relative to ASEAN when the

average index of the seven ASEAN member countries is utilized. It easily determines

Thailand’s competitiveness against other member countries. It can be concluded

whether Thailand is stronger or weaker than the ASEAN average. Thailand is ranked

in the top three for most factors. Therefore, it can be concluded that Thailand has a

relatively strong national competitiveness relative to most of the other six ASEAN

member countries.

By comparing the Thailand index with the region’s average index, it may be

misleading that Thailand cannot get any benefit from ASEAN. However, Thailand can

still get a benefit from the stronger countries in each individual factor. Thus, Thailand

can gain an advantage from this economic integration.

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Figure 2: Thailand diamond relative to the average index of the ASEAN diamond (average of 2006-2010)

Physical Factors Thailand Average Human Factors Thailand Average

Factor Conditions 2.67 3.76 Workers 60.75 57.60

Demand Conditions 38.38 35.45 Professionals 66.79 57.94

Related & Supporting

Industries 40.49 39.07

Entrepreneurs 62.23 56.82

Business Context 44.59 40.61 Politicians & Bureaucrats 47.90 49.21

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To overcome this shortcoming we supplement the average index method with

the index of the strongest ASEAN member countries method where the strongest

country in each factors is selected to represent the ASEAN’s competitiveness.

Therefore, the ASEAN diamond comprises factors from several countries. For

example, for factor conditions Malaysia is the strongest country among the seven

member countries. The index number for factor conditions from Malaysia represents

the ASEAN index number in factor conditions. Singapore is the strongest country in

demand conditions, and therefore the index number of Singapore in demand

conditions is applied to demand conditions of the ASEAN index. Figure 3 shows the

shape of Thailand’s diamond relative to the ASEAN’s diamond. The ASEAN diamond

shows the strongest in each factor therefore the ASEAN member countries can benefit

or increase their competitiveness by applying the ASEAN regional competitiveness to

their own countries.

However, some factors need to be added up to describe the potential of that

factor for example the quantity of the labour force in the workers factor. The index

calculated by using this method illustrates that Indonesia has the highest population

(225.63 million people in 2010). If using the Indonesia index as the ASEAN index,

this ASEAN index may be less than the index of some countries such as the United

States (301.62 million people in 2010). However, the total number of population of

ASEAN is definitely higher than that of the United States. Hence, this method may not

completely reflect the ASEAN’s competitiveness.

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Figure 3: Thailand diamond relative to the strongest index of the ASEAN diamond (average of 2006-2010)

Physical Factors Thailand ASEAN Human Factors Thailand ASEAN

Factor Conditions 2.67 7.23 (Indonesia) Workers 60.75 63.98 (Philippines)

Demand Conditions 38.38 52.03 (Singapore) Professionals 66.79 79.91 (Singapore)

Related & Supporting

Industries 40.49 60.22

(Singapore) Entrepreneurs 62.23 77.59

(Singapore)

Business Context 44.59 65.53 (Singapore) Politicians & Bureaucrats 47.90 77.26 (Singapore) Note: Countries in parentheses are the strongest countries in ASEAN

It can be seen from the above two methods that the combination of average index of

seven member countries method (Figure 2) and the strongest country in each factor method

(Figure 3) is the most suitable one to use for drawing up an ASEAN diamond. The strongest

level of each factor from different countries is selected to draw the regional diamond, and this

new regional diamond can be compared with the diamonds for non-member countries so that

it can be understood or the position of the ASEAN’s regional competitiveness in the world

can be found. Moreover, this method shows the benefit that Thailand that can get from an

increase in the level of economic integration (from a free trade area to a common market). In

order to understand the level of all ASEAN member countries, the average index method can

be used to analyse as ASEAN competitiveness as a whole. This method does not only look at

the strongest country but also consider the less strong countries in ASEAN.

Within the ASEAN Economic Community (AEC), trade, production factors,

investment, and services would move freely among ASEAN member countries from 2015. In

relation to factors that are costly or that are difficult to move or cannot be moved, for example

natural resources and the political environment, Thai firms can still benefit from the AEC by

moving their business or production base to countries that offer better conditions to firms. In

order to move to other countries, it depends on the firms’ motivation, requirements, and

limitations. As Dunning (0222 ) suggests, firms will engage in FDI on the basis of four types

of motivation: seeking a market, a resource, an efficiency, or a strategic asset. The second

model (Figure 3) can help firms to select a location where firms can benefit from CSAs on the

basis of factors needed for their business.

Figure 2 shows that Thailand has higher competitiveness than the average, except in

relation to factor conditions, and politicians and bureaucrats since Thailand has very low

energy resources and the political situation has been unstable. Therefore, it can be concluded

that Thailand has strong country competitiveness. However, when Thailand is compared to

25

the strongest country in each variable (Figure 3), the results show that Thailand has weak

national competitiveness. Only the workers factor shows that the level of competitiveness of

Thailand is close to that of the strongest country (the Philippines). In short, Thailand has low

country competitiveness but can benefit from other ASEAN member countries’

competitiveness. Figure 3 shows that Thailand can increase its competitiveness based on

other ASEAN member countries that are stronger. For example:

(1) Factor Conditions: Thailand is a small country and there are very few natural

resources, especially in energy production. However, Indonesia is the strongest country in

factor conditions so Thailand can increase its competitiveness in factor conditions by

accessing and using Indonesian competitiveness as Thailand’s conditions. Therefore, Thai

firms can easily decide to locate in or invest more in Indonesia in order to benefit from

natural resources in Indonesia.

(2) Demand Conditions, Related and Supporting Industries, Business Context,

Professionals, Entrepreneurs, and Politicians and Bureaucrats: Singapore is the strongest

country in these six factors. Thailand can benefit from Singapore in relation to demand

conditions, for example, customers in Singapore are more sophisticated and have higher

purchasing power because they are better educated and the GDP per capita is high. Moreover,

the research institutions are good by global standards, and communication and transportation

are well developed. Singapore is very open to foreign investments and professional jobs since

it gives equal treatment to domestic and foreign firms, and therefore the firms easily adapt to

international changes, and the rivalry is severe. This can lead to higher national

competitiveness.

26

(3) Workers: The Philippines is the strongest country, and Thailand can benefit from

cheap labour costs and the availability of the labour force. Moreover the workers also have a

good attitude and are well motivated.

These reasons show clearly why Thailand should utilise regional competitiveness as

apart of its home competitiveness; moreover, the increase of the economic integration level in

2015 (from free trade area to a common market) can make regional competitiveness stronger.

In conclusion, with the increasing economic cooperation, country competitiveness

should not only be based on a single or home country competitiveness. Regional

competitiveness should be used to perform analysis to find out an accurate level of

competitiveness. Due to the limitation of theory that can be used to analyse regional

competitiveness, the “regional” dual double diamond model is proposed, as shown in Figure

3. The new model can be used to evaluate regional competitiveness more systematically and

provides a clear understanding of regional context.

CONCLUSIONS AND IMPLICATIONS

This study provides novel insights into the sources of international competitiveness

for MNEs from emerging markets such as Thailand. Moreover, the regional dual double

diamond model is advanced in order to provide better insights into the role of regional

competitiveness in complimenting the home CSAs and building EMNEs’ FSAs.

The results show that most of the Thai firms have weak FSAs. Namely, a half of the

surveyed firms indicated that they have strong managerial expertise and 25% of firms are

classified as firms that are strong in technology and marketing intensity. Only 20% of firms

have strong FSAs in firm size.

Although Thai firms have weak FSAs, FSAs can be developed on the basis of CSAs.

Most of the surveyed Thai firms indicated that they perceive that Thailand has strong CSAs.

27

Moreover, secondary data (IPS data, 2006-2010) supports the finding that Thailand has strong

CSAs in six variables out of eight variables compared to the rest of the world. Thailand is

strong in demand conditions, related and supporting industries, business context, workers,

professionals, and entrepreneurs. Thailand is ranked in the middle position compared to the

rest of the world for the politicians and bureaucrats variable, but Thailand is very weak in

relation to the factor conditions variable.

Thai firms indicated in the survey that the availability of workers in Thailand is at a

neutral level for their firms. This is because of the increase in labour costs. However, when

comparing Thailand’s labour costs with that of other countries, Thailand still has lower labour

costs and has competitiveness in relation to workers. Another difference between the IPS data

and the survey data relates to factor conditions; Thailand ranks very low for this in the IPS

data, but the firms indicated in the survey that the availability of factor conditions is at a

slightly high level for their firms. This results from the different measurement. The IPS data

mainly puts the emphasis on energy resources, while Thai firms mainly emphasise other

natural resources. The major industries of Thailand are related to cement, food, and

agricultural industries. Although these two sources of data show different results in detail,

overall, both sources of data confirm that Thailand has strong CSAs.

The regional dual double diamond model is introduced in this study, which enhances

the understanding on regional competitiveness. From the IPS data, it is found that Thailand

has better competitiveness than the average of the seven ASEAN member countries in

demand conditions, related and supporting industries, business context, workers,

professionals, and entrepreneurs. It is only in the factor conditions, and politicians and

bureaucrats variables that Thailand is lower than the average of the other ASEAN members.

At the present time, Thailand only benefits from ASEAN’s RSAs through the free trade

28

agreement (FTA). However, in 2015, the ASEAN Economic Community (AEC) will be fully

enforced, allowing for free movement of all factors of production so Thai firms will be able to

benefit from the ASEAN’s RSAs. Thai firms can exploit the ASEAN regional

competitiveness of the strongest member countries. Therefore, ASEAN RSAs can be sources

of competitive advantages for Thai firms.

Contributions

This study makes a major contribution to the research on firm-specific, national and

regional competitiveness of emerging markets MNEs. It advances the regional dual double

diamond model to investigate the potential role of regional advantages due to a regional

economic integration.

Due to the limitation of the theoretical models, the study recommends a new

“regional” dual double diamond model, which extends from the dual double diamond model

by Cho et al., (2008). The traditional single diamond model (Porter, 1990) can only be used to

understand a single country competitiveness by analysing the home conditions of large

countries such as the United States. However, trade liberalisation allows countries, especially

small open economies, to benefit from international competitiveness, therefore the country

competitiveness should not be solely based on their own country competitiveness (Moon et

al., 1998).

The study findings provide empirical evidence that EMNEs base their international

competitiveness mostly on their home CSAs. The survey results clearly indicate that the

sample Thai firms derive their competitiveness from the Thai CSAs, not their FSAs. This is

consistent with previous studies by Rugman and Doh (2008) and Gugler et al. (2011), who

found that most ASEAN firms’ competitiveness are mainly based on CSAs, not FSAs.

However, firms should develop their own proprietary assets in terms of technology and

29

marketing. The main export products of Thailand are automatic data processing machines and

parts, and Thailand is a hub of car manufacturing industries in Asia. This means that Thailand

has ability in these two industries. However, they are under the domination of foreign

investors. Without such investors, the industry benefits cannot be long lasting. Therefore,

Thailand should create its own brand and improve its strategy for competing internationally in

the long run. In addition, the government should pay a major role to encourage and to support

Thai firms to develop and to create their own technology, innovation, and international brand.

The encouragement may be conducted through increasing internal and external competition

(Gugler et al., 2011), since such competition indirectly forces Thai firms to develop their own

technology, innovation, and international brand. Fierce competition also drives firms to

improve their FSAs and apply a differentiated strategy (Porter, 1990).

Moreover, the study findings reveal that ASEAN RSAs can also be treated as home

country CSAs for Thailand because of the regional integration. The FSAs of Thai firms are

mainly built upon CSAs and in the future, Thai firms can access ASEAN RSAs. The ASEAN

economic integration is beneficial for Thailand since ASEAN can increase economic power

for all member countries. In 2015, the AEC will provide a larger market and free movement

of people and investments. This could enable the member countries’ firms to obtain

economies of scale due to the larger regional market, compete on cost as they will have

access to cheap labour in the region, invest in R&D as they will have better access to capital

and more sophisticated customers in the region as well as more skilled labour force. will

become more attractive for production bases. Because of these advantages foreign firms will

also be more interested in investing in the AEC.

The limitation of the study steams from its focus on only one of the ASEAN member

countries. A comparative study with the rest of the region would provide further insights into

30

the linkages between EMNEs FSAs, CSAs and RSAs. Furthermore, a longitudinal study

would offer an opportunity to assess whether the ASEAN AEC would indeed be beneficial

for its members and insights how individual firms and member countries leverage the

opportunities.

31

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