The Competitive Advantage of Nations

National prosperity is created, not inherited. It depends upon its industries to

innovate and upgrade. No nation can be competitive in every industry and
differences in national values, culture, economic structure, institutions and
history contribute to its competitiveness. Nations succeed in particular industries
because their home environment is the most forward-looking, dynamic and
challenging
The author has done a four-year study of the patterns of competitive success in
ten leading trading nations
How Companies succeed in International Markets?
Acts of innovation both new technology and new way of doing things. They
perceive a new basis for competing as they make their previous competitive
advantage obsolete. Innovation can be new product design, new marketing, new
market segment or a new training approach. Innovation that yield competitive
advantage anticipate both domestic and foreign needs. Sometimes, innovation
peculiar to home market can hinder international competitive success.
Innovation requires pressure, necessity and even adversity. Once you have
innovated, there needs to be a constant improvement and this upgrade faces a
lot of resistance in successful companies
Information plays a role in innovation and improvement. Openness and looking
in the right direction. Challenging convention assumptions. Innovators may be
from outside
Why are certain companies based in certain nations capable of consistent
innovation?
The Diamond of National Advantage
Factor Conditions: It is not land, labour, natural resources that determine the
flow of trade but skilled human resources and scientific base that involve
sustained heavy investments. It also depends upon rate and efficiency with
which you create and deploy and upgrade these resources
Selective disadvantage like labour shortage, high land cost can prod companies
in a nation to innovate and upgrade to compete. It should be such that it leads to
an innovation over their rivals and there should be sufficient domestic-demand
and sufficient domestic rivalry to spur the innovation otherwise the industry will
take an easy way rather than innovate
Japan is an island nation with no natural resources. It lacks space and has
pioneered Just-In-Time. For example US consumer electronics outsourced
production to low labour countries whereas Japanese companies automated,
reduced labour and later penetrated US market and set up manufacturing
facilities there
Demand Conditions: Globalization may give the illusion that domestic
demand/market is not important but in fact the composition, the character of
domestic market can give the company a picture of emerging buyer needs.
Demanding domestic buyers can prod the company to innovate, meet high
standards and improve upon them. Domestic market segments which are more
visible than foreign markets can
Local values and circumstances Japanese air conditioning industry
Political values foreshadow elsewhere

If nations value are spreading

Related and Supporting Industries: Internationally competitive suppliers
delivering efficient inputs. Close working relationship between suppliers and
companies enable communication and transfer of ideas and innovation
accelerating them.
Home based competitiveness in related industries provide benefits
New skills and source of entrants
Firm Strategy, Structure and Rivalry:
Competitiveness in a specific industry results from convergence of management
practices and organizational modes favoured in the country and sources of
competitive advantage in the industry. Countries also differ in the goals that
companies and individuals seek. Individual motivation to work and expand skills
is important to competitive advantage. The goal a nations institutions and
values set for individuals and companies, and the prestige it attaches to certain
industries guide the flow of capital and human resources
Presence of strong local rivals and geographic concentration. The government
should not interfere and should avoid subsidizing these companies for fear of
foreign competition. Assistance can be I the form of opening foreign markets,
investments in focused educational institutes and other specialized factors.
Compete for market share, technological excellence and brand image. Constant
upgrading of sources of competitive advantage. Toughens them to succeed in
international market
The Role of Government
Governments proper role is to encourage companies to move to higher levels of
competitive advantage. Direct support is needed only in nations early in the
development process
Focus on specialized factor creation: Education systems, basic national
infrastructure, and research in areas of national concern and specific industries,
research effort in universities connected with an industry
Avoid intervening in factor and currency markets: Government should pursue
policies that intentionally drive up factor costs or the exchange rate and
government should resist the temptation of pushing down market forces that
creates rising factor costs
Enforce strict product safety and environment standards: Improve quality,
upgrade technology, and provide features that respond to consumer and social
demands
Sharply limit direct cooperation among industry rivals
Promote goals that lead to sustained investments: Tax incentive for long term.
Capital gains restricted to new investments in corporate equity
Deregulate competition
Enforce strong domestic anti-trust policies
Reject managed trade
The Company agenda
Create pressure for innovation
Seek out most capable competitors as motivators

Establish early warning signs

Improve the national diamond
Globalize to tap selective advantages in other nations
Use selective alliances
Locate the home base to support competitive advantage