ip 314 international management
TRANSCRIPT
IP_314
International Management
Central
European
Study
Programme
Ilya Bolotov, Ph.D., MBA
WEEK 3 Measuring National Context – Suggested Indicators
Porter’s diamond as a business-related model
Contemporary ways of measuring competitiveness
Global Competitiveness Report (WEF), Competitiveness Yearbook (IMD)
Economic Complexity (Harvard + MIT), Global Innovation Index (WIPO)
Doing business report (WB)
• Competitiveness as a “measure” of national context
– Concept of competitiveness
– Model: Porter’s diamond of national advantage
– Four development stages
– Approaches to Measurement
• Practical examples
– Purely economic indicators
– IMD’s and WEF’s methodology
– Harvard, MIT, and WIPO
– World Bank’s “Doing Business”
• Task (a graded ”case study”)
Outline
2
„The set of institutions, policies, and factors that determine the
level of productivity of a country.“ (WEF)
➢ Competitiveness deals not only with economic, but also with social,
political, cultural and educational aspects.
➢ More competitive economies tend to be able to produce higher
levels of income for their citizens.
➢ The productivity level also determines the rates of return obtained
by investments (physical, human, and technological) in an economy.
“Competitiveness of nations is a field of economic knowledge, which
analyzes the facts and policies that shape the ability of a nation to
create and maintain an environment that sustains more value
creation for its enterprises and ultimately for its people.” (IMD)
3
“Ability of a country (region, location) to deliver the beyond-GDP
goals for its citizens“ (OECD, WIFO)
There is no single academic definition of
competitiveness
Competitiveness links the firm, region, and
economy
Source: Cvetanović et al. (2015)4
Competitiveness has internal and external
aspects
Source: Kharlamova and Vertelieva (2013)5
Source: WEF, Kharlamova and Vertelieva (2013)7
Summary: Factors influencing competitiveness
Source: Pilinkienė et al. (2016)8
Theoretical approaches to competitiveness
Model: Porter’s Diamond of
National AdvantageFirm strategy. structure and
rivalry
Demand conditions
Related and Supporting Industries
Stock of Factors of production
Role of
government
Role of
chance
Source: Amazon.com
9
URL:https://hbr.org/1990/03/the-competitive-advantage-of-nations
Factor conditions
• BASIC FACTORS – Natural resources, climate, location
and demographics.
• ADVANCED FACTORS – Communication Infrastructure,
skilled labour, Research facilities etc.
• Basic factors can provide only an initial advantage.
• They must be supported by advanced factors
to maintain success.
Examples:
• Switzerland was the first country to experience labor shortages.
They abandoned labor-intensive watches and concentrated
on innovative/high-end watches.
• Japan has high priced land and so its factory space is at a premium.
This lead to just-in-time inventory techniques.
• Sweden has a short building season and high construction costs.
These two things combined created a need for pre-fabricated houses.
Source: [D]
10
Demand factors
• Home country Demand plays an important rolein producing competitiveness.
• It enables better understanding of the needsand desires of the customers.
• It shapes the attributes of domestically made productsand creates pressure for innovation and quality.
Example 1:
• Italian ceramic Industry after the world war II
• There was a postwar housing BOOM !!
• Consumers wanted cool floors because of hot climatic conditions.
Example 2:
• Japan’s knowledgeable buyers of cameras made that industryto innovate and grow tremendously.
Example 3:
• The French wine industry. The French are sophisticated wine consumers. These consumers force and help French wineriesto produce high quality wines.
Source: [D]
11
Related and supporting industries
• Benefits of investment in advanced factorsby Suppliers and related industries can spill over.
• Creates clusters of supporting industries, thereby achieving a strong competitive position internationally.
Example 1:
• The enamel production unit was available.
• The glazes production was also favorable.
• These two were the main composition of producing tiles.
• This reduces the Transportation cost.
Example 2:
• Switzerland success in pharmaceutical industry is closely relatedto its international success in technical dye industry.
Source: [D]
12
Firm strategy, structure and rivalry
• Long term corporate vision (=> Strategy)is a determinant of success.
• Ability of the companies to develop and sustaina competitive advantage requires the 4th attribute.
• Presence of domestic rivalry improves a company’s competitiveness.
Example 1:
• Low entry barriers to market in the tile industry.
• Rivalry became very intense.
• Breakthroughs in both product and process technologies.
Example 2:
• Japan has high priced land and so its factory space is at a premium• This lead to just-in-time inventory techniques.• (Japanese firms can’t have a lot of stock taking up space, so to cope
with the potential of not have goods around when they need it),they innovated traditional inventory techniques.
Source: [D]
13
The role of the government
• Reforming the legal system and economy:
– Focusing on specialized factor creation.
– Non-interfering in factor and currency markets.
– Enforcing strict product, safety and environmental
standards.
– Enforcing anti-trust laws.
– Promoting goals that lead to sustained investment.
– Strengthening competition.
Source: [P]
14
• Based on the diamond and other models,
M. Porter defined four development stages:
– Factor-of-production-based (cheap labour, dual
economy, companies are mainly suppliers
in the domestic market).
– Efficiency-based (skilled, but still cheaper labour, role
of technology, companies are exporters).
– Innovation-based (advanced technologies, global
strategies, optimization strategies).
– Quality-of-life-based (main sector: services, advanced
technology and outsourcing).
• This classification was adopted by the WEF in their
Global Competitiveness Report.16
Two approaches to measurement of
competitiveness
• (Older, External) Purely quantitative approach:– Indicators of input (costs, prices etc.) and output (productivity,
value added etc.).
– Origin: Economic theory (comparative advantages)
– Pros: strictly defined methodology, unambiguous interpretation
– Cons: only selected economic aspects are examined x reality
• (Newer, Aggregate) Multidimensional approach:– Indices built from quantitative and qualitative indicators;
– Origin: reports by WEF, IMD, Harvard, MIT, World Bank etc.
– Pros: all necessary aspects can be included
– Cons: results are methodology-specific and vary across sources
17
• Competitiveness as a “measure” of national context
– Concept of competitiveness
– Model: Porter’s diamond of national advantage
– Four development stages
– Approaches to Measurement
• Practical examples
– Purely economic indicators
– IMD’s and WEF’s methodology
– Harvard, MIT, and WIPO
– World Bank’s “Doing Business”
• Task (a graded ”case study”)
Outline
18
Unit labor costs by persons employed / by hours worked,percentage change, previous period, 2016 – 2020Source: OECD
20
Terms of trade, total, ratio, 2006 – 2020Source: OECD
Terms of trade are defined as the ratio between the index of export prices and the index of
import prices. If the export prices increase more than the import prices, a country has a positive
terms of trade, as for the same amount of exports, it can purchase more imports. 21
Real effective exchange rate index (2010 = 100)Source: WB
Real effective exchange rate is the nominal effective exchange rate (a measure of
the value of a currency against a weighted average of several foreign currencies)
divided by a price deflator or index of costs. 22
=
i j ij
j ij
i ij
ij
X
X
X
XC
C – Coefficient of the relative degree
of specialization,
Xij – Exports of industry „j“ from country „i“,
∑iXij – Total world exports of industry „j“,
Xi – Exports of manufactured goods
from country „i“,
∑i∑jXij – Total world exports of manufactured
goods.
Revealed Export Advantage (RXA):Source: WIFO, Research Report 412
23
URL:https://www.imd.org/centers/world-competitiveness-center/rankings/world-competitiveness/ 25
1. Create a stable and predictable legislative and administrative environment.
2. Ensure speed, transparency and accountability in the administration.
3. Pledge to maintain budget, fiscal and debt discipline.
4. Diversify the economy, from a sectorial and geographical point of view.
5. Invest in traditional and advanced infrastructure, logistics and the linkage of activities.
6. Support medium-sized enterprises, with home grown technology and export orientation.
7. Balance aggressiveness on international markets with attractiveness for added value
activities in order to sustain a current account surplus.
8. Preserve the industrial base of the nation, and the “made in…”
9. Focus on a dual track education system (apprenticeship and higher education) to foster
the employability of the younger generation and reduce youth unemployment.
10. Promote a science and entrepreneurial culture.
11. Maintain social consensus on policies and social mobility upward.
12. Return the tangible signs of competitiveness success to the people (better roads,
hospitals, schools, housing, etc.) as a symbol of achieved prosperity.
Golden rules of competitiveness
according to the IMD
Source: Garelli, S. (2014). The Fundamentals and History of Competitiveness. In IMD World
Competitiveness Yearbook (pp. 488-503). Lausanne: IMD World Competitiveness Center. 27
Top, middle, and bottom countries
URL:
https://www.imd.org/news/updates/singapore-
topples-united-states-as-worlds-most-competitive-
economy/
Source: IMD (2019). World
Competitiveness Yearbook 2019.
28
URL:https://www.weforum.org/reports/global-competitiveness-report-2019/ 29
Case in Point: Visegrád CGI ranks development
(historical data, 2006–2012)
2006–2007 (of 122)
2007–2008 (of 131)
2008–2009 (of 134)
2009–2010 (of 133)
2010–2011 (of 139)
2011–2012 (of 142)
Basis change 0 9 3 -1 6 3
Czech Republic 31 33 33 31 36 38
Slovakia 36 41 46 47 60 69
Poland 45 51 53 46 39 41
Hungary 26 27 62 58 52 48
-2
0
2
4
6
8
100
10
20
30
40
50
60
70
80
Ra
nk
ing
(1–
ca
. 1
40
)
Basis change Czech Republic Slovakia Poland Hungary
Source: WEF
Source: World Economic Forum. GCR 2006-2012
35
Source: World Economic Forum. GCR 2017-2018
Source: WEF36
Country GCI Ranking Country group
Advantages
(against the
average)
Main problems
Czech
Republic
31
(stable)Innovation-driven
Macroeconomic
environment,
Financial market
development
Tax regulations,
Government
bureaucracy,
Tax rates
Policy instability
Slovakia59
(improving)Innovation-driven
Macroeconomic
environment,
Financial market
development
Corruption,
Government
bureaucracy
Tax rates,
Tax regulations
Poland39
(stable)
Transition from
efficiency to
innovation driven
Market size,
Health and primary
education
Tax regulations,
Tax rates,
Labor regulations,
Policy instability
Hungary60
(fluctuating)
Transition from
efficiency to
innovation driven
Market size,
Financial market
development
Workforce
qualification,
Corruption,
Tax rates
Tax regulations
URL:https://www.wipo.int/global_innovation_index/en/2021/ 41
Case in Point: Philippines GII ranking (2021)
Source: BusinessWorld (2021)
43
URL:https://www.doingbusiness.org/en/doingbusiness/ 45
Case in Point: South Asia in DB ranking (2021)
Source: South Asia Time (2019)
48
• Competitiveness as a “measure” of national context
– Concept of competitiveness
– Model: Porter’s diamond of national advantage
– Four development stages
– Approaches to Measurement
• Practical examples
– Purely economic indicators
– IMD’s and WEF’s methodology
– Harvard, MIT, and WIPO
– World Bank’s “Doing Business”
• Task (a graded ”case study”)
Outline
49
• Using available data from the WEF‘s Global
Competitiveness Report (2019) and WB‘s
Doing Business (latest) describe the
differences in the National Context between your
country of origin and any chosen developed
country or an emerging market.
• Based on this information, prepare a short
PEST(EL) table and suggest, in your opinion, the
best entry mode for a MNC from your region.
• Submit the result as PDF with the help of the
InSIS (max 5 points).
• Deadline: October 19, 2021 23:59 CET
50
Thank you for your attention!
Questions?
The slides are available at
http://cesp.vse.cz/academics/materials/
51
Sources:
• CULLEN, J. B. – PARBOTEEAH, P. Multinational management :
a strategic approach. 6th edition. Cincinnati, OH: South-
Western/Cengage Learning, 2014. ISBN 978-1-285-09622-3.
• Porter, M. E. "The Competitive Advantage of Nations." Harvard
Business Review 68, no. 2 (March–April 1990): 73–93. [P]
• Presentations from SlideShare.net:
– Sine autor. Porters Final Presentation. Delhi, India. [D]
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