Managing Global

Competition
 INTERNATIONAL COMPETITION

d
Why do some Nations succeed and others fail in
International Competition?
RIGHT QUESTION WILL BE
Why does a nation become the home base for successful
international competitor in an industry?
OR
Why are firms based in a particular nation able to create &
sustain competitive advantage against the world’s best
competitors in a particular field?

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Why Germany is the home base for so many of the world’s
leading makers of printing presses, luxury cars & Chemicals?
Why is tiny Switzerland the home base for international leaders in
pharmaceuticals, chocolate & trading.
Why Sweden is the home base for heavy trucks & mining
equipment.
Why America has produced the preeminent international
competitors in personal computers, software, credit cards and
movies?
Why are Italian Firms so strong in Ceramic tiles, Ski boots,
packaging machinery and factory automation equipment?
What makes Japanese Firms so dominant in consumer electronic,
cameras, robotics and facsimile machine?

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 Conflicting Explanations
• Some See National Competitiveness as a Macro Economic
Phenomenon, Driven by such variable as exchange rate,
interest rates and govt. deficits.
• Others argue that competitiveness is a function of cheap &
abundant labor.
• Other view is that competitiveness depends on possessing
bountiful natural resource.
• Others argue that competitiveness is most strongly influenced
by government policy. This view
• identifies Targeting Protection, Export Promotion &
Subsidies as the keys to international success.
• Final Explanation for national competitiveness is
differences in Management practices and including labor
management relations.

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The small private & loosely organized family firms that populate
the Italian footwear, textile and Jewelry Industries for example are
hotbeds of innovation and dynamism. Each industry has produced
a positive trade balance for Italy in excess of $ one billion
annually.
However, these same structure and practices would be a disaster in
a German Chemical or automobile company, a Swiss
pharmaceutical producer or an American commercial aircraft
manufacturer.
American- style management, with all the flaws now attributed to
it, produces highly competitive firms in such industries as
software, medical equipment, consumer packaged goods, and
business services.
 Japanese – style management, for all its strengths, has produced
little international success in large portions of the economy such as
chemicals, consumer packaged goods, or services.

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 A Broader & More Complex set of forces
seem to be at work.
Is ‘Competitive’ Nation one in which every firm or industry
is competitive.
Is ‘Competitive’ Nation one whose exchange rate makes its
good price competitive in international markets?
Is ‘Competitive’ Nation one with a large positive balance of
trade?
Is ‘ Competitive’ Nation one with a rising share of World
Exports?
Is ‘Competitive’ Nation one that can create jobs?
Finally is a competitive nation one whose unit labor costs are
low?
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 Asking the Right Question
The principal Economic goal of a nation is to produce a high & rising
standard of living for its citizen. The ability so depends on the
productivity with which a nations resources (labor and capital) are
employed.
Productivity is the value of the output produced by a unit of labor or
capital. It depends on both the quality and features of products (which
determine the prices, they can command) and the efficiency with which
they are produced.
Productivity is the prime determinant in the long-run of a Nation’s
Standard of living, for it is the root cause of National per Capita Income.
High productivity not only supports high levels of income but allows
citizens the option of choosing more leisure instead of long working
hours.
It also creates the national income i.e. taxed to pay for public services
which again boosts the standard of living.
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 Concept of Competitiveness

The only meaningful concept of ‘Competitiveness’ at the National

level is National productivity.
Nations firms must relentlessly improve productivity in existing
industries by raising product quality, adding desirable features,
improving product technology or boosting production efficiency.
Germany has enjoyed rising productivity for many decades.
International trade allows a nation to raise it productivity by
eliminating the need to produce all goods and services within the
nation itself.
Nation can thereby specialize in those industries and segments in
which its firms are relatively more productive and import those
products/services where its firms are less productivity than foreign
rivals.

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• Establishment of Foreign subsidiaries by a Nation’s firms can also
raise national productivity. For example: less sophisticated
electronics assembly activities by Japanese firms first to Korea,
Taiwan and Hong Kong and now to Malaysia & Thailand.

NO NATION CAN BE COMPETITIVE IN (AND BE

A NET EXPORTER OF) EVERYTHING.

• The export success of those industries with a competitive

advantage will push up the cost of labor, inputs and capital in the
nation, making other industries uncompetitive.
• In Germany, Sweden and Switzerland, for example, this process
has led to a contraction of the apparel industry to those firms in
specialized segments that can support very high wages.

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International competition helps upgrade productivity overtime.
Employing subsidies, protection or other forms of intervention to
maintain such industries only slows down the upgrading of the
economy and limits the nation’s long-term standard of living.
The American automobile industry Vs German and Japanese
automobile industries.
American productivity in automobiles industries Vs Korean
firms.
Ability to expose many goods produced with high productivity,
which allows the nation to import many goods involving lower
productivity, translates into higher national productivity.
Japan, which exports many manufactured goods and imports raw
materials and components, involving less skilled labor a lower
level of technology illustrate a nation where the mix of trade
bolsters productivity.
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We must Focus on specific industries and industry segments and not
on the economy as a whole.
Why firms based in a nation are able to compete successfully against
foreign rivals in particular segments and industries.
To achieve competitive success, firms from the nation must possess
a competitive advantage in the form of either lower costs or
differentiated products that command premium prices.
To sustain advantage, firms must achieve more sophisticated
competitive advantages over time, through providing higher –
quality products/services or producing more efficiently.
German exports of cars are heavily skewed toward high-
performance cars, while Korean exports are all compacts and
subcompacts.

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Denmark’s modest share of world exports in vitamins consists of a
substantial share in vitamins based on natural substances and
virtually no position in synthetic vitamins.

Japan’s strong position in machinery comes mostly from general –

purpose varieties, while Italy’s is derived from often world-leading
positions in highly specialized machine for particular end-user
applications such as leather working or cigarette manufacturing.

Increased trade has led to increased specialization in narrowly

defined industries and in segments within industries.

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 Need for a new Paradigm
Changing Competition.
Canada and Norway are strong in aluminum smelting, for example,
largely because of a geography that allows the generation of cheap
hydroelectric power.
Korea rose to prominence in the international construction of simple
infrastructure projects because of its pool of low-cost, highly
disciplined workers.
Technological Change
Economies of scale are widespread, most products are differentiated,
and buyer needs vary among countries. Technological change is
pervasive and continuous.
Widely applicable technologies such as microelectronics, advanced
materials, and information systems have rendered obsolete the
traditional distinction between high and low technology industries.

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• Access to abundant factors is less important in many industries
than the technology and skills to process them effectively or
efficiently. For example, Sweden’s low phosphorous content iron
ores were an advantage as long as the technology of steelmaking
had difficulty dealing with impurities. As steelmaking technology
improved, however, the phosphorous problem was solved,
nullifying Sweden’s factor advantage.

• Comparable Factor Endowments.

• Globalization
Globalization of industries decouples the firm from the factor
endowment of a single nation. Raw materials, components,
machinery, and many services are available globally on
comparable terms.
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 Threads of a New Explanation
Economies of scale: which give the nation’s firms that are able to
capture them a cost advantage that allows them to export.
Italian firms reaped the economies of scale in appliances, German
firms in chemical, Swedish firms in mining equipment, and Swiss
firms in textile machinery.
In Japan, for example there are numerous competitors in most scale-
sensitive industries (there are nine Japanese automobile producers,
for example), fragmenting the home market. But many of these firms
have reached substantial scale by selling abroad.
Technology: Technological differences are indeed central to
competitive advantage.
Raymond Vermon’s “product cycle” theory.

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 Industry Case Studies
DENMARK GERMANY ITALY
*Agricultural machinery •Automobiles •Ceramic tiles
•Building maintenance •Chemicals •Dance club and theater
services •Cutlery equipment
•Consultancy engineering •Eyeglass frames •Domestic appliances
•Dairy products •Harvesting/threshing •Engineering/construction
•Food additives combines •Factory automation
•Pharmaceuticals •Optical instruments equipment
•Industrial enzymes •Packaging, bottling •Footwear
•Specialty electronics equipment •Ski boots
•Printing presses
•X-ray apparatus

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 Industry Case Studies (Contd…)

JAPAN KOREA SWEDEN

•Air conditioning •Apparel •Car carriers
machinery •Automobiles •Communication products
•Home audio equipment •Construction for handicapped persons
•Car audio •Footwear •Environmental control
•Facsimile •Pianos equipment
•Musical instruments •Semiconductors •Heavy trucks
•Robotics •Shipbuilding •Mining equipments
•Semi-conductors •Steel •Refrigerated shipping
•Sewing machines •Travel goods •Newsprint
•Typewriters

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 Industry Case Studies (Contd…)

SWITZERLAND UNITED KINGDOM UNITED STATES

•Banking •Auctioneering •Advertising
•Chocolate •Biscuits •Agriculture chemicals
•Confectionery •Chemicals •Commercial aircraft
•Dyestuffs •Confectionery •Commercial refrigeration
•Fire protection •Electrical generation and air-conditioning
equipment equipment •Computer software
•Freight forwarding •Pharmaceuticals •Detergents
•Hearing aids •Motion pictures
•Textile machinery •Syringes
•Trading •Patient monitoring
•Watches equipment

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