International Business
Oded Shenkar and Yadong Luo
Chapter 5
Country Competitiveness
Chapter 5: Country Competitiveness
Do You Know?
• Why do countries differ in their overall
competitiveness?
• Why is a country’s competitiveness
more salient in some industries?
• What roles should firms and individuals
play in shaping country
competitiveness?
• How does a foreign country’s
competitiveness influence the MNEs?
Chapter 5: Country Competitiveness
Defining Country Competitiveness
• Competitiveness is a relative strength
necessary to win in competition against
industry rivals.
• Country Competitiveness is the extent to
which a country is capable of generating
wealth, when measured against other
countries, in world markets.
• To be competitive, governments must create
and sustain a domestic and international
competitive environment that favors business
operations and productivity in one or more
industries.
Chapter 5: Country Competitiveness
Defining Country Competitiveness
• Productivity is important to competitiveness.
• Productivity is the value of the output by a
unit of labor or capital.
• It is the prime determinant of a country’s
standard of living, and the main source of
national income.
• Productivity depends on the quality and
features of products and the efficiency with
which they are produced.
• Productivity does not come from what a
country has, but from how it uses those
resources.
Chapter 5: Country Competitiveness
Country Competitiveness and MNEs
• The following contribute to country
competitiveness:
– Government policies, national values, national
culture, economic structures, economic and
governmental institutions, and national histories
• Nations have become influential in
international business operations.
• Most governments have institutions that
promote economic development by marketing
competitiveness factors to Multinational
Enterprises.
Chapter 5: Country Competitiveness
Country Competitiveness and MNEs
• Examples of governmental promotion
include:
– Italy’s promotion of resources, histories,
and capabilities for shoe and leather
production.
– Japanese promotion of culture, history, and
capabilities in semiconductor and
electronics production.
– Swedish promotion of history and culture
related to concern for people and product
safety.
Chapter 5: Country Competitiveness
Country Competitiveness and MNEs
• Country competitiveness affects
selection for operations locations.
• Competitiveness impacts the industry
selection of an MNE.
• Competitiveness affects MNE
innovation capacity and capability
production.
• Competitiveness affects MNE global
strategy.
Chapter 5: Country Competitiveness
Country-Level Determinants
• Competitiveness improves when countries
enhance their productivity capabilities, driven
by the following factors:
–
–
–
–
Country-level
Industry-level
Firm-level
Individual-
• Country-level fundamentals include:
–
–
–
–
Science, education, and innovation
Economic soundness
Finance
Internationalization
Chapter 5: Country Competitiveness
Country-Level Determinants
Exhibit 5-1: Determinants of country competitiveness
Chapter 5: Country Competitiveness
Country-Level Determinants
Exhibit 5-2:
Country-level
determinants of
country
competitiveness
Chapter 5: Country Competitiveness
Science, Education, and Innovation
• Countries promote technological innovation
through establishing institutions that make
tech innovation more likely.
• This is done by:
– Developing basic scientific capability and R&D
– Supporting educational institutions that research,
teach and support economic development
– Supporting technological innovation through
economic and governmental policy.
Chapter 5: Country Competitiveness
Macroeconomic Soundness
• Countries try to develop sustainable
economic growth potential.
• They do this through creating policy that
promotes:
– Investment, consumption, growth in real income,
service and production sector performance, and
infrastructure development.
• Essentially, they promote consumption,
investment, government spending and net
exports in order to build economic stability
favoring international economic growth.
Chapter 5: Country Competitiveness
Macroeconomic Soundness
Exhibit 5-3: The
strength of
macro-level
domestic
economy (Top
20)
Chapter 5: Country Competitiveness
Finance
• Countries try to develop financial
sectors that invite international
investment.
• They do this through:
– Managing appropriate currency valuation
– Promoting solvency in the banking systems
– Managing appropriate levels of short-term
external debt
Chapter 5: Country Competitiveness
Internationalization
• Internationalization refers to the extent to
which a country participates in international
trade and investment.
• Promoting internationalization is done
through:
–
–
–
–
–
Building positive export balances
Establishing workable exchange rate systems
Building financial and direct investment
Keeping high foreign exchange reserves
Promoting economic and cultural openness
Chapter 5: Country Competitiveness
Internationalization
• Openness refers to the ease of which
resources, goods, services, people,
labor, technology, information and
capital flow across boundaries.
• In order to promote openness
– Countries seek to negotiate lower trade
barriers and protectionism,
– While promoting cultural acceptance of
“global mindsets” among the population
Chapter 5: Country Competitiveness
Industry-Level Determinants
• Four broad attributes constitute national
advantage
– Factor Conditions
• The nation’s position in factors of production,
including labor, capital, land, and natural
resources.
• The nation’s position in more sophisticated
factors, such as skilled workforce, scientific
base, infrastructure and information
– Demand Conditions
• The nature of market demand for the industry’s
product or service.
Chapter 5: Country Competitiveness
Industry-Level Determinants
• Four broad attributes constitute national
advantage
– Related and Supporting Industries
• The presence and support of a nation’s
suppliers or other related industries
• Cluster – when suppliers, manufacturers and
distributors are located near each other
– Rivalry and Business Practice
• The nature of domestic rivalry in addition to the
conditions governing how business are
organized, managed and operated in a country
Chapter 5: Country Competitiveness
Industry-Level Determinants
Exhibit 5-4:
Industry-level
determinants of
country
competitiveness
Chapter 5: Country Competitiveness
Industry-Level Determinants
Exhibit 5-5: The
microeconomic
competitiveness
scoreboard (Top
20)
Chapter 5: Country Competitiveness
Firm-Level Determinants
• These strategies, principles, or
approaches differentiate one country’s
firms from those of others.
• Include technological innovation and
organizing principles.
• Inevitably diffused across nations and
imitated by foreign rivals.
Chapter 5: Country Competitiveness
Firm-Level Determinants
Exhibit 5-6: Firm-level determinants of country
competitiveness
Chapter 5: Country Competitiveness
Individual-Level Determinants
• People or human resources associated
with country competitiveness:
– Workers
– Entrepreneurs
– Managers
– Engineers
– Educators
– Politicians
– Interplay of the Four-Level Determinants
Chapter 5: Country Competitiveness
Individual-Level Determinants
Exhibit 5-7:
Individual-level
determinants of
country
competitiveness
Chapter 5: Country Competitiveness
Government Role
• Governments can affect country
competitiveness
– Policy making and intervention
– Trade liberalization and exchange rate
adjustment
• Industrial policies – all forms of
coordinated government interventions to
promote industrial development:
– Import protection, financial subsidies,
regulatory changes, training and
infrastructure policies
Chapter 5: Country Competitiveness
Government Role
• To play a supporting role in national
competitiveness, governments should:
– Emphasize competitiveness infrastructure
– Enforce strict product, safety, and
environmental standards
– Deregulate competition
– Adopt strong domestic antitrust policies
– Boost goal-setting that leads to sustained
investment
Chapter 5: Country Competitiveness