Chapter 5

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

2. 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? Chapter 5: Country Competitiveness

3. 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. Chapter 5: Country Competitiveness

4. 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. Chapter 5: Country Competitiveness

5. 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. Chapter 5: Country Competitiveness

6. Country Competitiveness and MNEs • 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. Chapter 5: Country Competitiveness

7. Country Competitiveness and MNEs • 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. Chapter 5: Country Competitiveness

8. 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 Chapter 5: Country Competitiveness

9. Country-Level Determinants Exhibit 5-1: Determinants of country competitiveness Chapter 5: Country Competitiveness

10. Country-Level Determinants Exhibit 5-2: Country-level determinants of country competitiveness Chapter 5: Country Competitiveness

11. 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. Chapter 5: Country Competitiveness

12. 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. Chapter 5: Country Competitiveness

13. Macroeconomic Soundness Exhibit 5-3: The strength of macro-level domestic economy (Top 20) Chapter 5: Country Competitiveness

14. 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 Chapter 5: Country Competitiveness

15. 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 Chapter 5: Country Competitiveness

16. 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 Chapter 5: Country Competitiveness

17. 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. Chapter 5: Country Competitiveness

18. Industry-Level Determinants • 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 Chapter 5: Country Competitiveness

19. Industry-Level Determinants Exhibit 5-4: Industry-level determinants of country competitiveness Chapter 5: Country Competitiveness

20. Industry-Level Determinants Exhibit 5-5: The microeconomic competitiveness scoreboard (Top 20) Chapter 5: Country Competitiveness

21. 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. Chapter 5: Country Competitiveness

22. Firm-Level Determinants Exhibit 5-6: Firm-level determinants of country competitiveness Chapter 5: Country Competitiveness

23. Individual-Level Determinants • People or human resources associated with country competitiveness: • Workers • Entrepreneurs • Managers • Engineers • Educators • Politicians • Interplay of the Four-Level Determinants Chapter 5: Country Competitiveness

24. Individual-Level Determinants Exhibit 5-7: Individual-level determinants of country competitiveness Chapter 5: Country Competitiveness

25. 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 Chapter 5: Country Competitiveness

26. 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 Chapter 5: Country Competitiveness