Factor Endowments12,13LO7.2The sources of national advantage; .docxssuser454af01
Factor Endowments12,13
LO7.2
The sources of national advantage; that is, why an industry in a given country is more (or less) successful than the same industry in another country.
Classical economics suggests that factors of production such as land, labor, and capital are the building blocks that create usable consumer goods and services. 14 However, companies in advanced nations seeking competitive advantage over firms in other nations create many of the factors of production. For example, a country or industry dependent on scientific innovation must have a skilled human resource pool to draw upon. This resource pool is not inherited; it is created through investment in industry-specific knowledge and talent. The supporting infrastructure of a country—that is, its transportation and communication systems as well as its banking system—are also critical.
Factors of production must be developed that are industry and firm specific. In addition, the pool of resources is less important than the speed and efficiency with which these resources are deployed. Thus, firm-specific knowledge and skills created within a country that are rare, valuable, difficult to imitate, and rapidly and efficiently deployed are the factors of production that ultimately lead to a nation’s competitive advantage.
For example, the island nation of Japan has little land mass, making the warehouse space needed to store inventory prohibitively expensive. But by pioneering just-in-time inventory management, Japanese companies managed to create a resource from which they gained advantage over companies in other nations that spent large sums to warehouse inventory.
Demand Conditions
Demand conditions refer to the demands that consumers place on an industry for goods and services. Consumers who demand highly specific, sophisticated products and services force firms to create innovative, advanced products and services to meet the demand. This consumer pressure presents challenges to a country’s industries. But in response to these challenges, improvements to existing goods and services often result, creating conditions necessary for competitive advantage over firms in other countries.
Countries with demanding consumers drive firms in that country to meet high standards, upgrade existing products and services, and create innovative products and services. The conditions of consumer demand influence how firms view a market. This, in turn, helps a nation’s industries to better anticipate future global demand conditions and proactively respond to product and service requirements.
Denmark, for instance, is known for its environmental awareness. Demand from consumers for environmentally safe products has spurred Danish manufacturers to become leaders in water pollution control equipment—products it successfully exported.
Related and Supporting Industries
related and supporting industries (national advantage)
the presence, absence, and quality in the nation of supplier industries and othe ...
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2. Patterns of Internationalization Trading Global Industries Industries --aerospace --automobiles --military hardware --oil --diamond mining --semiconductors --agriculture --consumer electronics Domestic Multidomestic Industries Industries --railroads --laundries/dry cleaning --retail banking --hairdressing --hotels - - milk --consulting International Trade Foreign Direct Investment LO W LOW HIGH HIGH
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4. Competitive Advantage within an International Context: The Basic Framework COMPETITIVE ADVANTAGE THE INDUSTRY ENVIRONMENT Key Success Factors FIRM RESOURCES & CAPABILITIES -- Financial resources -- Physical resources -- Technology -- Reputation -- Functional capabilities -- General management capabilities THE NATIONAL ENVIRONMENT -- National resources and capabilities (raw materials; national culture; human resources; transportation, communication , legal infrastructure -- Domestic market conditions -- Government policies -- Exchange rates -- Related and supporting industries
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6. Revealed Comparative Advantage for a Certain Broad Product Categories USA Canada W. Germany Italy Japan Food, drink & tobacco .31 .28 -.36 -.29 -.85 Raw materials .43 .51 -.55 -.30 -.88 Oil & refined products -.64 .34 -.72 -.74 -.99 Chemicals .42 -.16 .20 -.06 -.58 Machinery and trans- .12 -.19 .34 .22 .80 portation equipment Other manufacturers -.68 -.07 .01 .29 .40 Note : Revealed comparative advantage for each product group is measured as: (Exports less Imports)/ Domestic production
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10. Power distance Uncertainty avoidance Korea Israel USA France National cultures: “power difference” & “uncertainty avoidance” Denmark Mexico Malaysia Philippines India Japan
11. Individualist Korea Israel USA France National cultures: individualism/collectivism Denmark Mexico Philippines India Japan Collectivist UK Aust. Germany Malaysia Guatemala Venezuela Italy
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14. Location and the Value Chain Comparative advantage in textiles and apparel by stage of processing Hong Kong 1 -0.96 2 -0.81 3 -0.41 4 +0.75 Italy 1 -0.54 2 +0.18 3 +0.14 4 +0.72 Japan 1 -0.36 2 +0.48 3 +0.48 4 -0.48 U.S.A. 1 +0.96 2 +0.64 3 +0.22 4 -0.73 Country Stage Index of Country Stage Index of of Revealed of Revealed Processing C omp arative Processing Comp arative Advant age Advantage Note : 1 = production of fiber (natural & synthetic) 2 = production of spun yarn 3 = production of textiles 4 = production of clothing
15. The optimal location of activity X considered independently WHERE TO LOCATE ACTIVITY X? The importance of links between activity X and other activities of the firm Where is the optimal location of X in terms of the cost and availability of inputs? What government incentives/ penalties affect the location decision? What internal resources and capabilities does the firm possess in particular locations? What is the firm’s business strategy (e.g. cost vs. differentiation advantage)? How great are the coordination benefits from co-locating activities? Determining the Optimal Location of Value Chain Activities
16. Alternative Modes of Overseas Market Entry Resource commitment TRANSACTIONS DIRECT INVESTMENT Spot sales Exporting Foreign agent / distributor Licensing Franchising Joint venture Marketing & Distribution only Long-term contract Licensing patents & other IP Fully integrated Wholly owned subsidiary Marketing& Distribution only Fully integrated Low High
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18. SUZUKI ISUZU TOYOTA IBC Vehicles Ltd. (U.K.) GM New United Motor Manufacturing Inc. (NUMMI) 10% owned. Co-production 49%owned. Co-production 40% investment 60% owned 50% owned 50% owned (Makes vans in UK) (Makes cars in US) SAAB 50% owned FIAT 20% owned (2000-5). Collaboration on technology and components FUJI 20% owned; joint production DAEWOO 50.9% owned; technical & production collaboration AVTOVAZ Russian JV to produce cars SAIC JV to produce cars in China General Motors ’ Alliances with Competitors
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21. Analyzing benefits/costs of a global strategy Forces for localization / national differentiation MARKET DRIVERS --Different languages --Different customer preferences --Cultural differences COST DRIVERS --Transportation costs --Transaction costs --Economic & political risk --Speed of response GOVERNMENT DRIVERS --Barriers to trade & inward inv. --Regulations Forces for globalization MARKET DRIVERS --Common customer needs --Global customers --Cross-border network effects COST DRIVERS --Global scale economies --Differences in national resource availability --Learning COMPETITIVE DRIVERS --Potential for strategic competition (e.g. cross- subsidization)
22. Benefits of national differentiation Benefits of global integration Cement Telecom equipment Jet engines Consumer electronics Autos Funeral services Retail banking Investment banking Auto repair Restaurant chains Steel Online C2C auctions Beer Dry cleaning
23. Benefits of national differentiation Benefits of global integration Cement Telecom equipment Jet engines Consumer electronics Autos Funeral services Retail banking Investment banking Auto repair Positioning industries in terms of benefits of globalization and national differentiation
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