competitive advantage - what is competitive advantage? »porter’s diamond model ......
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CompetitiveAdvantage
References Griffin and Pustay, Chapters 6Rugman and Collinson, Chapter 15
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FundamentalIssues
» Whatiscompetitiveadvantage?» Porter’sdiamondmodel» Stagesofeconomicdevelopmentinrelationtocompetitiveness» Realworldapplication:TheWorldEconomicForum’sCompetitiveIndex
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What is Competitiveness?
Competitiveness
» Competitivenessdependsontheproductivity withwhichanationusesitshumanresources,capitalresources,andnaturalresources
» Thepublicandprivatesectorsplaydifferentbutinterrelatedrolesincreatingaproductiveeconomy
Internationalcompetitiveness
» Intoday’sglobaleconomy,virtuallyeverynationseekstomaketheireconomy‘businessfriendly’andcompetitive…
a.…becausethiswillhelpdomesticbusinessesgrowandbecomemorecompetitiveinternationally
b.…becausethiswillhelpattractforeignbusinesses
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What Determines Competitiveness?
MichaelPorterdefinedanation’scompetitiveadvantageas:
“itscapacitytoattractbusinesses,bothlocalandforeign,touse
thecountryasaplatformfromwhichtoconductbusiness”
» Porterintroducedwhathasbecomeknownasthe‘diamondofnationalcompetitiveness’
» Thediamondmodelhasfourdeterminantsinfluencingthecompetitivestrengthsandweaknessesofdifferentnationsandtheirmajorsectorsaswellastwoexternalfactors
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Porter’s Diamond Model
Firm strategy, structure
and rivalry
Related and supporting
industries
Factorconditions
Demandconditions
Government
Chance
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Porter’s Diamond Model
Firm strategy, structure
and rivalry
Related and supporting
industries
Factorconditions
Demandconditions
Government
Chance
Anexternalfactorwhichisbeyondthecontrolofanynationstate
Anexternalfactoristheroleofgovernmentandpublicpolicy
Thewaysinwhichfirmsaremanagedandcompete,competitioninthedomesticmarketdrivesbusinessinnovation
Theexistenceofalargesophisticateddomesticconsumerbaseoftenstimulatesinnovativebusinessesasfirmscompetedomestically
Theexistenceandqualityofresources,suchashumanresources,knowledge,skills,capital,commoditiesandinfrastructure
Theseindustriesarepartofthesupplychain,iftheyprovidecosteffectiveinputstheycanhelpdrivecompetitivenessandinnovation
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The Role of Government
Theroleofgovernmentisofcriticalimportanceininfluencinganation’scompetitiveadvantage,considerhow…
» Subsidies– financialassistancetocompanies
» Educationpolicies,particularlyhighereducationandresearch
» Creationoffreetradezonesorindustrialclusters
» Lawsregulatingforeigninvestment
» Thepurchaseofgoodsandservices– governmentprocurement
» Corporatetaxlaws
» Antitrustregulation– promotionofcompetition
…mightimpactoncompetitivenessandattractingFDI
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The Role of ‘Chance’
Thelastofthediamondmodel’scriteria– theroleofchance – isbeyondthecontrolofanyonenationstate.Chanceincludes:
» Geographicalposition(nearorfarfromlargemarkets/areasofconflict?)
» Environmentalnaturaldisasters
» Conflictandwar
» Significantshiftsinworldfinancialmarketsorexchangerates
» Changesininputcostssuchas‘oil‐priceshocks’
» Changesinglobalorregionaldemand
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Diamond Model: Example the UK
Firm strategy, structure
and rivalry
Related and supporting
industries
Factorconditions
Demandconditions
Government
Chance
ProximitytoEU,stablepoliticalenvironment,notpronetonaturaldisasters
Publicallyaccountablegovernment.Freemarket,althoughtaxationishigh
Verycompetitivemarket,virtuallynostateownedcompanies,lawpreventsprice‐fixing,veryeasytostartnewcompanies
Largeconsumermarket,whoshoponlineandoffline,customersareveryquicktopickuponnewtrends
Highlyeducatedworkforce,accesstoawiderangeofhumanresources,comprehensiveinfrastructureandeasyaccesstocapital
Lotsofcompetitioninalmosteverysector,lotsofadvertisingandbusinessparks,lawandregulationtosupportindustryandinnovation
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Pros and Cons of the Diamond Model
Somepros include:» Themodelhelpstounderstandthedynamicinterplaybetweenafirm’scorporatestrategyandthecompetitiveadvantagesofacountry– the‘habitat’inwhichorganisations operate
» Themodelprovidesanexplanationofhowgovernmentscanplayanactiveroleinimprovingcompetitiveadvantage
Somecons include:» Theabsenceofanyofthefourconditionsfromthediamonddomestically,maynotinhibitcompaniesandindustriesfrombecominggloballycompetitive
» Canitbeappliedtocountriesthathavefollowedanexportleddevelopmentstrategy,suchasChina?
» Canitaccountforthesuccessofsmall,resourcebasedeconomiessuchastheUAEandQatar?
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Stages of Economic Development
Porteralsoidentifiedthree stagesofeconomicdevelopment
» Thesestagesinfluencethewayinwhichanation’scompetitiveadvantageisassessed:
3. Innovation driven
2.Investment driven
1. Factor driven Lowincomecountries,dependentonfactorsofproduction,land,commoditiesandunskilledlabour.
Middleincomecountries,importingtechnologythroughforeigninvestment.
Highincomecountries,technologygeneratinginsomesectors,highratesofsciencelearningandR&D.
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How‘businessfriendly’istheUAE?
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‘The Global Competitiveness Report’
» TheWorldEconomicForumproducesaregular‘GlobalCompetitivenessreport,whichmeasuresnationalcompetitivenessbasedontheideasoutlinedinPorter’sdiamondmodel.
» Thereare12pillar’sofcompetitivenessagainstwhicheachcountry/economyisassessed.
» Eachcountryisrankedaccordingtotheircompetitiveness.
» TheWEFalsoassessesthestageofdevelopmentwhicheachcountryhasachievedintermsoftheircompetitiveadvantage.
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‘Real-world’ Application
PILLARS STAGES
Source: PORTER AND SCHWAB (WORLD ECONOMIC FORUM), 2008
Basic requirements» Institutions» Infrastructure» Macroeconomicstability» Healthandprimaryeducation
Efficiency enhancers» Highereducationandtraining» Goodmarketefficiency» Labourmarketefficiency»Financialmarketsophistication» Technologicalreadiness» Marketsize
Innovation and sophistication factors» Businesssophistication» Innovation
Keyforfactor-driveneconomies
Keyforefficiency-driven
economies
Keyforinnovation-driven
economies
TheWorldEconomicForum’sGlobalCompetitiveIndex
Stage1
Stage2
Stage3
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Global Competitiveness Index
TheGCC Rank Score
2013 2012 (2013)
Qatar 13 (11) 5.24
UAE 19 (24) 5.11
SaudiArabia 20 (18) 5.10
Oman 33 (32) 4.64
Kuwait 36 (37) 4.56
Bahrain 43 (35) 4.45
Thetopten Rank Score
2013 2012 (2013)
Switzerland 1 (1) 5.67
Singapore 2 (2) 5.61
Finland 3 (3) 5.54
Germany 4 (6) 5.51
UnitedStates 5 (7) 5.48
Sweden 6 (4) 5.48
HongKong 7 (9) 5.47
Netherlands 8 (5) 5.42
Japan 9 (10) 5.40
UnitedKingdom 10 (8) 5.37
Source:TheGlobalCompetitivenessIndex2013‐2014,WorldEconomicForum
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Doing Business in the UAE
The most problematic factors for doing business
Source:TheGlobalCompetitivenessIndex2013‐2014,WorldEconomicForum
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‘Ease of Doing Business’ Index
TheWorldBankproducean‘EaseofDoingBusinessIndex’
Itisconsideredtobeabenchmarkformeasuringtheattractivenessofalocationforinternationalbusiness:
» Countriesarerankedonhoweasyitisforbusinesstooperatewithintheireconomy,from1st – 183rd
» Ahighrankmeanstheregulatoryenvironmentis‘businessfriendly’
» Theindexaveragesthecountry'srankingsontentopics.Theseinclude:(1)startingabusiness;(2)employingworkers;(3)registeringproperty;(4)accesstocreditand(5)taxregimes
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‘Ease of doing business’: UAE compared
Country Rank Startingabusiness
GettingCredit
Protectinginvestors
Payingtaxes
Tradingacrossborders
Enforcingcontracts
Singapore 1 3 3 2 5 1 12
Hong Kong 2 5 3 3 4 2 9
NewZealand 3 1 3 1 23 21 18
USA 4 20 3 6 64 22 11
Denmark 5 40 28 34 12 8 32
UAE 23 37 86 98 1 4 100
Saudi Arabia 26 84 55 22 3 69 127
Bahrain 46 99 130 115 7 81 122
Oman 47 77 86 98 9 47 107
Qatar 48 112 130 128 2 67 93
Kuwait 105 152 130 80 11 112 119
Source:DoingBusiness2014WorldBank