Each student is supposed to choose an industry in Canada or other country and evaluate the international competitiveness of the industry in terms of factor conditions, demand conditions, supporting industries, firm strategy and domestic rivalry. The length of this applied research is 15 pages double spaced. The format of the applied research paper is APA format. All reference must be cited. A one page executive summary must be included in the paper.
Follow the order and title of the ppt to complete the thesis. Papers must contain each title on ppt
Apa 7th Determinants of National Competitive Advantage
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Understanding National Advantage
The nature of competition and the sources of competitive advantage differ widely among industries.
Global competitors often perform some activities outside their home country.
At the core of explaining national advantage in an industry must be the role of home nation in stimulating competitive improvement and innovation.
We must explain why firms from particular nations move early and aggressively to exploit change in particular industries.
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Determinants of National Advantage
Four broad attributes of a nation that provide environment for creation of competitive advantage
Factor Conditions
Demand Conditions
Related and Supporting Industries
Firm Strategy, Structure, and Rivalry
The four determinants as a system are called national diamond.
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Determinants of National Advantage
The effect of one determinant is contingent on the state of other determinants.
Two additional variables can influence the national system in important ways: chance and government.
Chance event are such as pure inventions, breakthrough in basic technologies, war, major shift in foreign market demand.
Government policy such as competition policy, regulation, education can influence determinants of national advantage.
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Factor Conditions
Factors of production are such as labor, arable land, natural resources, capital and infrastructure.
Standard theory of international trade explains that a nation exports those goods which make intensive use of the factors with which it is relatively well endowed with.
The important factors for competitive advantage are not inherited but created within a nation.
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Different Factors
Human Resources: Quantity and Skill of Workers
Physical Resources: Land, Water, Mineral, Climate
Knowledge Resources: The nations stock of scientific, technical, and market knowledge
Capital Resources: Physical capital and cost of capital
Infrastructure: Transportation system, communication system, housing stock and cultural institutions
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Factor Endowment
Mix of factors employed differ widely among industries.
Competitive advantage from factors depends on how efficiently and effectively they are deployed.
Globalization has made local availability of some factors less essential.
Human resources, knowledge, and capital factors can be mobile among nations.
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Types of Factors of Production
Basic Factors and Advanced Factors
Basic Factors: Natural Resources, Climate, Location, Unskilled and Semi-skilled Labor
Advanced Factors: Modern Communication System, Highly Educated Labor
Creation of basic factors require modest investment.
The importance of basic factors has been undermined by diminished necessity, widening availability, ready access by global firm through foreign activities.
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Types of Factors of Production
Basic factors remain important in extractive industry and industries where technology is widely available.
Advanced factors are the most significant for competitive advantage.
Advanced factors are scarcer because their development demands large and sustained investment in both human and physical capital.
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Types of Factors of Production
Advanced factors are integral to the design and development of a firms product and processes as well as its capacity to innovate.
Examples of importance of advanced factors
Denmarks success in enzymes industry
Americas success in software industry
Japanese success in electronics industry
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Types of Factors of Production
Generalized Factors and Specialized Factors
Generalized Factors: Highway system, Well-trained general work force
Specialized Factor: Narrowly skilled workers, Infrastructure with specific properties, knowledge bases in particular field
Advanced factors tend to be specialized.
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Types of Factors of Production
Specialized factors provide more decisive and sustainable bases for competitive advantage than generalized factors.
Specialized factors are integral to innovation.
Specialized factors are necessary at a firms home base and less effective at a foreign site.
The most significant and sustainable competitive advantage results when a nation possesses both advanced and specialized factors in a particular industry.
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Factor Creation
The advanced and specialized factors are created.
Factor-creating mechanism
Public and private education institutions
Apprenticeship program
Government and private research institutes
The factor-creating mechanism is more important to competitive advantage than the nations current factor endowment.
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Factor Creation
Role of private sector in factor creation is necessary to attain factor advantage in many industries.
National differences in investment in factor creation, nature and quality of factor-creating mechanism
Danish hospitals specializing in diabetes treatment and research
German apprenticeship in printing, automobile assembly, and tool-making
Italian factor-creation mechanism through transfer of knowledge within extended family
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Selective Factor Disadvantage
Factor disadvantage could be a source for innovation in dynamic competition.
Italian mini-mill technology in steel industry
Dutch cut flower industrys glass house growing techniques, new strain of flowers, energy conservation in grey climate
Innovation to offset selective weakness is more likely than innovation to exploit strength.
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Demand Conditions
Attributes of Home Demand
Home demand conditions influences on industry are both static and dynamic.
Three broad attributes of home demand that affect the industry:
The composition of home demand
The size and pattern of growth of home demand
The mechanism through which a nations domestic preferences are transmitted to foreign market
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Home Demand Composition
Nations gain competitive advantage in industries where home demand gives local firms clearer or earlier picture of buyer needs than foreign rivals can.
Nations also gain competitive advantage if home buyers pressure local firm to innovate faster and achieve more sophisticated advantages compared to foreign rivals.
Where foreign and home market needs diverge, signals from the home market usually dominate.
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Distribution of Home Demand for Varieties
A nations firms are likely to gain competitive advantage in global segments that represent a large or highly visible share of home demand but accounts for a less significant share in other nations.
High Voltage Distribution Equipment in Sweden
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Distribution of Home Demand for Varieties
The relatively large segments in a nation receive the greatest and earliest attention by the nations firms.
Examples
Airbus Industries entry into a relatively large capacity plane for short hauls
Microwave equipment industry in Japan
Success of Swiss firms in equipment and services for tunneling
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Sophisticated and Demanding Buyers
The nature of home buyer is more important than the composition of home demand.
A nations firms gain competitive advantage if domestic buyers are sophisticated and demanding buyers for the product or services.
Sophisticated and demanding buyers pressure local firms to meet high standards in term of product quality, features, and services.
Example: Audio Equipment in Japan
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Sophisticated and Demanding Buyers
Buyers are demanding where home product needs in an industry are especially challenging because of local circumstances.
Examples:
Large truck engine industry in America
Compact and quiet air-conditioner industry in Japan
American Oil Field Equipment industry
Geography, climate, natural resources availability, taxation, regulatory standards, and social norm could be reasons for challenging home demand.
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Sophisticated and Demanding Buyers
The role of sophisticated and demand buyer can be played by distribution channels as well as by end users.
Sophisticated and demanding home buyers demand could be due to national passion
Japanese passion for recording travel and family events: Camera industry
German passion for high-speed driving on the autobahn: Durable, high-performance car
British passion for gardening: Garden tools
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Anticipatory Buyer Needs
A nations firms gain competitive advantage if home demand provides an early indicator of buyer needs that will become widespread.
Anticipatory buyers need may arise because a nations political or social values foreshadow needs that will ultimately emerge elsewhere.
Swedens concern for handicapped.
American desire for convenience
Factor conditions sometimes play a role in the timing of demand.
Denmark’s early demand for windmills
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Demand Size and Pattern of Growth
Home market size is most important to national competitive advantage in certain industries such as industries with heavy R & D requirement, substantial economies of scale in production, large generational leaps in technology, or high levels of uncertainty.
Large home demand is not an advantage unless other nations demand is similar.
Smaller countries sometimes represent large market for particular product due to local condition.
Home market size is an advantage if it encourages investment and reinvestment.
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Demand Size and Pattern of Growth
The presence of a number of independent buyers creates a better environment for innovation than is the case where one or two customers dominate the home market.
The rate of growth of the market can be important for competitive advantage because the rate of investment is function of the growth rate of the market.
Italian appliance industry
Japanese steel, tires and lift truck industry
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Early Saturation of Home Market
Early saturation forces domestic companies to continue innovating and upgrading.
Home market saturation forces domestic firm to penetrate foreign markets.
Home market saturation is particularly beneficial if it is combined with strong growth in foreign market.
U.S. engineering and construction firms after world war II
Japanese electronics industry
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Mobile Local Buyers
Mobile consumers, who travel extensively to other nations, provide a base of loyal customers in foreign markets.
U.S. hotel, rent car and credit card industry
Multinational companies preference of home grown suppliers provides an early impetus for suppliers to move abroad and a base of foreign demand.
U.S. earth moving equipment industry
Japanese auto parts industry
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Interplay of Demand Conditions
The various home demand conditions can reinforce each other and have their greatest significance at different stages of an industrys evolution.
T.V. set industry
The effect of demand conditions on competitive advantage also depends on other parts of diamond
Without strong domestic rivalry, rapid home market growth may induce complacency rather than stimulate investment.
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Related and Supporting Industries
Competitive Advantage in Supplier Industries
The presence of competitive supplier industries in a nation creates advantages in downstream industries.
Efficient, early, rapid, preferential access to the most cost-effective inputs
Example: Italian Leadership in gold and silver jewelry
The advantage that home-based suppliers provide in terms of ongoing coordination
The advantage that home-base suppliers provide in the process of innovation and upgrading
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Competitive Advantage in Supplier Industries
The presence of competitive domestic suppliers would facilitate free and open information flow and reduce the transaction cost due to the proximity of managerial and technical personnel and cultural similarity.
A nations firms receive the maximum benefit when their suppliers are themselves global competitors.
Captive suppliers will provide less impetus to improve and innovate.
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Competitive Advantage in Supplier Industries
A nation needs not possess national advantage in all suppliers industries to gain competitive advantage in an industry.
Inputs without significant effects on innovation or product performance could be sourced abroad.
Generalized technologies could be sourced abroad.
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Competitive Advantage in Related Industries
Related industries are those where firms can coordinate or share activities in the value chain or those which involve product that are complementary.
Copiers and facsimile machines employ many of the same technologies and components.
Computer and software are complementary
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Competitive Advantage in Related Industries
The presence of internationally competitive related industries in a nation provides opportunities for information flow and technical interchange.
Domestic companies in related industries often shares activities and sometimes forge formal alliances.
International success in one industry can also pull through demand for complementary product or services.
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Competitive Advantage in Related Industries
The link between complementary goods can create first mover advantages that persists for long period of time.
National success in an industry is particularly likely if the nation has competitive advantage in a number of related industries.
The benefits of competitive domestic suppliers and related industries depends on the rest of the diamond.
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Firm Strategy, Structure, and Rivalry
Strategy and Structure of Domestic Firms
No one managerial system is universally appropriate.
Nations will tend to succeed in industries where the management practices and modes of organization favored by national environment are well suited to the industries sources of competitive advantage.
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Strategy and Structure of Domestic Firms
Important national differences in management practices and approaches occur in such areas as the training, background, and orientation of leaders, group versus hierarchical style, the strength of individual initiative, tools for decision making, the nature of the relationship with customers, the ability to coordinate across functions, the attitude toward international activities, and the relationship between labor and management.
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Company Goals
Company goals are most strongly determined by ownership structure, the motivation of owners and holders of debt, the nature of corporate governance, and the incentive process that shapes the motivation of senior managers.
Germany and Switzerland: Management pay attention to the board, but day-to-day stock price movements are not viewed as important.
America: The rate of return standard for evaluating investments are higher in America.
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Company Goals
The goals of privately owned companies are complex.
The private owners tend to have long term perspectives.
Ownership structures, capital market conditions, and the nature of corporate governance in a nation have two broad influences on national advantage.
Difference in industries in terms of appetite for funds, risk profiles, investment time horizon.
The influence of the capital market varies with the need for funds.
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Goals of Individuals
Creating and sustaining competitive advantage in many industries requires ongoing investment to upgrade skills, better understanding of the industry and exchange ideas across functions. This attitudes will be present where a norm of permanent employment is present.
Individuals attitudes toward skill development and toward company activities also stem from professional and technical training and pride.
Attitude toward risk taking is an important aspects of personal goals that influences the ability to achieve success in particular industries.
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Importance of Sustained Commitment
The national industries where employees and shareholders had the most sustained commitment to the firm and the industry were often those with competitive advantage.
Company diversification pattern are an important indicator of commitment to the industry.
Diversification into related industries indicates that firms are committed to the industry.
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Domestic Rivalry
There is strong correlation between vigorous domestic rivalry and the creation and persistence of competitive advantage in an industry.
Domestic rivalry becomes superior to rivalry with foreign competitors when improvement and innovation are recognized as the essential ingredients for competitive advantage.
Domestic rivalry creates pressures on firm to improve and innovate
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Domestic Rivalry
Benefits of Domestic Rivalry
Visible pressure for improvement
Pressures on domestic firms to sell abroad to grow
Pressures on domestic firms to innovate in ways that upgrade the competitive advantage of a nations firms
The presence of domestic rivals nullifies the types of advantage that come simply from being in the nation.
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Domestic Rivalry
The process of domestic rivalry also creates advantages for the entire national industry.
Breadth of industry would increase due to the process of domestic rivalry
Domestic rivalry helps to avoid some disadvantages.
The number of domestic competitors required for effective rivalry rests on the underlying scale of economies in the industry.
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Domestic Rivalry
Intense domestic rivalry depends on new business formation to create new competitors.
The process by which new businesses are created in a nation have important impact on the competitive advantages of national industries.
Two basic mechanisms of new business formation
Spin-off
Internal Diversification
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The Role of Chance
The nation with most favorable determinants of national advantages will be most likely to convert chance events into competitive advantage.
Examples of chance events that influence the competitive advantage
Acts of Pure Invention
Major Technological Discontinuities
Surge of world demand
Political decisions by foreign governments or War
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Role of Chance
Invention and entrepreneurship are at the heart of national advantage.
The determinants play a major role in locating where invention and entrepreneurship are most likely to occur in a particular industry.
Even though the act of invention is decoupled from other national characteristics, the determinants have a major influence on the ability to convert an invention into internationally competitive industry.
Example: Insulin was invented in Canada but the industry became competitive in Denmark.
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Role of Government
Governments real role in international competitiveness is in influencing the four determinants.
Policies toward education, policies toward capital markets affects the factor conditions.
Government procurement affects the home demand.
Government competition policy affects the firm strategy and rivalry.
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Role of Government
Government policy can be influenced by the determinants.
Government help that removes the pressures on firms to innovate and upgrade is counterproductive.
Successful government policies work in those industries where underlying determinants of national competitive advantage are present and where government reinforces them.
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