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
Eric Dunaway, John C. Strandholm, Ana Espinola-Arredondo, Felix Munoz-Garcia - Practice Exercises For Intermediate Microeconomic Theory-The MIT Press (2020)