Competitiveness
Competitive Advantage of Nations
Michael Porter
• Key to high productivity is the development of
leading industries able to compete and
dominate sectors at the international level.
• 4 self-reinforcing necessities for competitive
industries referred to as the diamond model.
• National conditions tend to create multiple
competitive industries.
Four points
1. Factor Conditions: Resources, capital, skilled labor
2. Demand Conditions: A base of demanding
customers eager to buy quality products.
3. Firm Strategy, Structure, & Rivalry: Match between
industry operations and product.
4. Related & Supporting Industries: Producing key
intermediate inputs and supplies.
Link
Ex. Japanese
•Three (Two Domestic) Intensely Competitive Console Makers
Console Games
•Varied Industry of Software Makers
Firm Strategy, Structure,
& Rivalry
Factor
Conditions
• Technically adept
work force
•Creative
animation trad.
Demand
Conditions
Related & Supporting
Firms
• Most intense
customer base
•Unique taste set
•Broadband Network
•Strong Home Electronics Ind.
Clusters and Competitiveness
• Cluster: Concentrated industries w/ similar
companies working in single location - e.g.
Silicon Valley, Hollywood etc.
Stimulates
• Productivity
• Innovation and Business Formation
Link
Competitions vs. Scale
• Advanced production involves complex and
multi-stage processing. This requires a high
degree of coordination and potentially large
scale.
• Knowledge creation requires fixed costs which
might be spread over broader base.
• Competition is necessary to spur performance
and provide good performance.
Value of Clusters: Productivity
•
•
•
•
Better access to Employees and Suppliers
Access to Specialized Information
Personal Relationship and Trust
Complementarities
– Coordination of Standards
– One-stop shopping for customers
• Spirit of Competitiveness.
Value of Clusters:
Innovation & Business Formation
– Low barriers to entry
– Transfers of Information
– Ease of Experimentation
Measuring Competitive Industries
For industry j,
• Share of World Exports
• % Growth in Exports - % Growth in World
Exports
• US$ Value of Trade
Mapping Competitive Industries
World Trade Organization Statistics Database
Competitive Industries
Singapore Net Exports relative to World Exports
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
YEAR:2010
Nitrogen-function compounds
Organo-inorganic, heterocycl. compounds, nucl. acids
Musical instruments, parts; records, tapes & similar
Cathode valves & tubes
Parts, accessories for machines of groups 751, 752
Polymers of ethylene, in primary forms
Residual petroleum products, n.e.s., related mater.
Prepared addit. for miner. oils; lubricat., de-icing
Polymers of styrene, in primary forms
Hydrocarbons, n.e.s., & halogenated, nitr. derivative
Other plastics, in primary forms
Essential oils, perfume & flavour materials
Photographic apparatus & equipment, n.e.s.
Polyethers, epoxide resins; polycarbonat., polyesters
Carboxylic acids, anhydrides, halides, per.; derivati.
% of World Exports
11.61%
7.50%
7.31%
5.97%
4.09%
3.40%
2.88%
2.86%
2.45%
2.42%
2.17%
2.06%
1.98%
1.97%
1.86%
Competitive Industry: Petrochemicals
International Merchandise Trade
Singapore Petrochemical Industry
1. Factor Conditions: Capital intensive, skilled labor
requirements
2. Demand Conditions: Chemicals important for
advanced Asian manufacturing industries, broad
regional demand
3. Related & Supporting Industries: Petroleum byproducts key intermediate inputs and supplies.
4. Firm Strategy, Structure, & Rivalry: Dominated by
large international firms. Fits w/ Singapore’s int’l
orientation & necessary scale economies
Jurong Island: Singapore’s Refining and
Petroleum Hub
Link
Cluster Policy vs. Industrial Policy
• No “desirable” industries, clusters can generate
productivity in any industries.
• Key is not “high-tech”, but innovation and
creation of new products.
• Avoid target subsidies, but reduce impediments
to competition.
• International firms contribute to clusters, not
just domestic champions.
• New clusters build on old clusters through a
process of upgrading, not leap-frogging.
Industry Policies
Link
• McKinsay Global Institute argues
competitiveness policy needs to focus on all
industries, not just on internationally
competitive industries.
– In advanced economies, most people work in
services sector. Service sector productivity is key.
• Industry-specific competitiveness policies must
take account of sector needs.
• Productivity of individual sectors more
important than tilting toward correct sectors.
Taxonomy and Policy
Link
1. Setting the ground rules and direction
– General regulatory environment
– Setting broad directions
2. Building enablers
– Expanding infrastructure, training, and R&D.
3. Tilting the playing field
– Trade protection
– Financial incentives for local production
4. Playing the role of principle actor.
– State owned/subsidized companies.
Industry Policy
• Infrastructure: Utilities, telecoms, railroads –
increasing returns to scale means unregulated
markets do not lead to competitive markets.
Rules of competition need to be set w/
incentives for efficiency and innovation.
• Business Services – Competition plus enabling
(education + R&D).
• Local Services – Characterized by turnover,
ground rules must allow for intense
competition and entry and exit.
JAPANESE PRODUCTIVITY 1997
1.20
1.10
1.00
%of US Level
0.90
0.80
0.70
0.60
0.50
0.40
JAP
Link
ELECTRICAL
MACHINERY
TOTAL
MANUFACTURIN
G, EXCLUDING
ELECTRICAL
Consumer
manufacturing
Investment
goods,including
vehicles
0.98
0.79
0.49
1.07
Electricity, gas
and water
supply
0.61
Construction
0.68
DISTRIBUTION
0.56
PERSONAL
SERVICES
0.53
Link
New business density
New Business per 10000 people
16
14
12
10
8
6
4
2
0
• Manufacturing: Countries have tilted
manufacturing policy (protection from foreign
imports, subsidies for exports, incentives for
FDI) in ways successful and unsuccessful.
• R & D Intensive Manufacturing – Enabling with
R &D and education. Hard to successfully tilt
playing field though many try since these
sectors seldom succeed w/o some gov’t
involvement.
Final Exam
• Saturday, December 13th, LG5201 12:30-3:30.
• Cumulative. Similar to mid-term and practice
exams.
• Bring writing instruments and a calculator.
• Semi-open book – Bring 1 A4 size paper with
handwritten notes on both sides.