COMPETETIVE ADVANTAGE OF NATION

A nation’s competitiveness depends on the capacity of its industry to innovate

and upgrade. Companies gain advantage against the world’s best competitors
because of pressure and challenge. They benefit from having strong domestic
rivals, aggressive home-based suppliers, and demanding local customers.

In a world of increasingly global competition, nations have become more, not

less, important. As the basis of competition has shifted more and more to the
creation and assimilation of knowledge, the role of the nation has grown.
Competitive advantage is created and sustained through a highly localized
process. Differences in national values, culture, economic structures,
institutions, and histories all contribute to competitive success. There are
striking differences in the patterns of competitiveness in every country; no
nation can or will be competitive in every or even most industries. Ultimately,
nations succeed in particular industries because their home environment is the
most forward-looking, dynamic, and challenging.

These conclusions, the product of a four-year study of the patterns of

competitive success in ten leading trading nations, contradict the conventional
wisdom that guides the thinking of many companies and national governments
—and that is pervasive today in the United States. (For more about the study,
see the insert “Patterns of National Competitive Success.”) According to
prevailing thinking, labor costs, interest rates, exchange rates, and economies of
scale are the most potent determinants of competitiveness. In companies, the
words of the day are merger, alliance, strategic partnerships, collaboration, and
supranational globalization. Managers are pressing for more government
support for particular industries. Among governments, there is a growing
tendency to experiment with various policies intended to promote national
competitiveness—from efforts to manage exchange rates to new measures to
manage trade to policies to relax antitrust—which usually end up only under
mining it. (See the insert “What Is National Competitiveness?”)

These approaches, now much in favor in both companies and governments, are
flawed. They fundamentally misperceive the true sources of competitive
advantage. Pursuing them, with all their short-term appeal, will virtually
guarantee that the United States—or any other advanced nation—never
achieves real and sustainable competitive advantage.

We need a new perspective and new tools—an approach to competitiveness that

grows directly out of an analysis of internationally successful industries,
without regard for traditional ideology or current intellectual fashion. We need
to know, very simply, what works and why. Then we need to apply it.
 EXPORTING
Exporting is defined as the sale of products and services in foreign countries
that are sourced or made in the home country. Importing is the flipside of
exporting. Importing refers to buying goods and services from foreign sources
and bringing them back into the home country. Importing is also known as
global sourcing. Exporting is an effective entry strategy for companies that are
just beginning to enter a new foreign market. It’s a low-cost, low-risk option
compared to the other strategies. These same reasons make exporting a good
strategy for small and midsize companies that can’t or won’t make significant
financial investment in the international market.

Companies can sell into a foreign country either through a local distributor or
through their own salespeople. Many government export-trade offices can help
a company find a local distributor. Increasingly, the Internet has provided a
more efficient way for foreign companies to find local distributors and enter
into commercial transactions.

LICENSING

Licensing is another way to enter a foreign market with a limited

degree of risk. Under international Licensing, a firm in one country
permits a firm in another country to use its intellectual
property( Patents, trade marks etc). Licensing The major drawback of
licensing is the problem of controlling the licensee due to the absence
of direct commitment from the international firm granting the licence.
After few years, once the knowhow is transferred, there is a risk that
the foreign firm may begin to act on its own and the international firm
may therefore lose that market.

Advantages of Licensing

A license allows the licensee to use, make and sell an idea, design,
name or logo for a fee. They are advantageous for licensors because
they allow them to expand their business’ reach without having to
invest in new locations and distribution networks.
 FRANCHISING

Franchising is a business model in which many different owners share

a single brand name. A parent company allows entrepreneurs to use
the company's strategies and trademarks; in exchange, the franchisee
pays an initial fee and royalties based on revenues. The parent
company also provides the franchisee with support, including
advertising and training, as part of the franchising agreement.

Advantages of Franchising

Owning a franchise allows an individual to be selfemployed while

also investing in a proven system with training and support. It brings a
ready-made customer base and often comes with client listings. There
is a reduced risk of failure, on-going research and develop, and a
semiMonopoly in a certain territory.

SIMILARITY BETWEEN LICENSING AND FRANCHISING

Licensing is similar to franchising except that the franchising

organisation tends to be more directly involved in the development
and control of the marketing programme.

COUNTER TRADING
Countertrade is a reciprocal form of international trade in which goods or services
are exchanged for other goods or services rather than for hard currency. This type of
international trade is more common in lesser-developed countries with limited foreign
exchange or credit facilities. Countertrade can be classified into three broad
categories: barter, counterpurchase, and offset.

In any form, countertrade provides a mechanism for countries with limited access to
liquid funds to exchange goods and services with other nations. Countertrade is part
of an overall import and export strategy that ensures a country with limited domestic
resources has access to needed items and raw materials. Additionally, it provides the
exporting nation with an opportunity to offer goods and services in a larger
international market, promoting growth within its industries.
Barter

Bartering is the oldest countertrade arrangement. It is the direct exchange of goods

and services with an equivalent value but with no cash settlement.
 COUNTER PURCHASING

Under a counterpurchase arrangement, the exporter sells goods or services to

an importer and agrees to also purchase other goods from the importer within
a specified period.
Offset

In an offset arrangement, the seller assists in marketing products

manufactured by the buying country or allows part of the exported product's
assembly to be carried out by manufacturers in the buying country.
 CONVERTIBILITY OF INDIAN RUPEE AND ITS

APPLICATIONS

The RBI appointed in 1997 the Committee on Capital Account

Convertibility with Mr. S. S. Tarapore as its Chairperson. The
Tarapore Committee defined CAC as “the freedom to convert local
financial assets into foreign financial assets and vice versa at
market-determined rates of exchange.” CAC would permit anyone
to move freely from local currency into foreign currency and back.

Purpose:

The basic purpose of CAC is to woo foreign investors by sharing an

easy market to move in and move out and to send a strong message
that Indian economy is strong and vibrant enough, and that India has
sufficient forex reserves to meet any flight of capital from the country
—whatever may be its extent.

Applications of CAC:

The potential applications from the scheme are:

1. Availability of large funds to supplement domestic resources and

thereby promote faster economic growth.

2. Improved access to international financial markets and reduction of

the cost of capital.

3. Incentive for Indians to acquire and hold international securities

and assets.

4. Improvement (strengthening) of the financial system in the context

of global competition.