1 Firm-specific, National or Regional competitive advantage: The case of emerging market MNEs – Thailand Abstract This study contributes to the debate on the sources of competitive advantage for emerging markets MNEs, namely do EMNEs have FSAs that enable their international competitiveness or their international competitiveness is mostly driven by their home country advantages. The study advances a novel approach in studying the drivers of competitiveness by investigating FSAs of an emerging market MNEs, namely Thailand, in the context of both their home CSAs and the broader context of an economic integration, the ASEAN regional trading bloc. Due to the limitations of the available models, the study recommends the “regional” dual double diamond model, which is extended from the dual double diamond model. The data was collected from both secondary and primary sources. At country level, IPS National Competitiveness Research, which measures the competitiveness of 67 countries using the dual double diamond model, is used with focus on 7 out of 10 ASEAN member countries. At firm level, secondary data was collected from annual reports and financial disclosure reports. Primary data was collected from 73 Thai MNEs via a questionnaire soliciting managers’ perceptions on FSAs, CSAs and RSAs. The findings endorse prior findings that EMNEs do not have strong FSAs and that they derive their international competitiveness from the home CSAs. Furthermore, the results imply that Thai firms benefit and will continue to benefit from the regional competitiveness due to the ASEAN increasing economic integration. Keywords: Emerging market MNEs, FSAs, CSAs, RSAs, dual double diamond, Thailand, ASEAN
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Firm-specific, National or Regional competitive advantage: The case
of emerging market MNEs – Thailand
Abstract
This study contributes to the debate on the sources of competitive advantage for
emerging markets MNEs, namely do EMNEs have FSAs that enable their international
competitiveness or their international competitiveness is mostly driven by their home
country advantages. The study advances a novel approach in studying the drivers of
competitiveness by investigating FSAs of an emerging market MNEs, namely
Thailand, in the context of both their home CSAs and the broader context of an
economic integration, the ASEAN regional trading bloc. Due to the limitations of the
available models, the study recommends the “regional” dual double diamond model,
which is extended from the dual double diamond model. The data was collected from
both secondary and primary sources. At country level, IPS National Competitiveness
Research, which measures the competitiveness of 67 countries using the dual double
diamond model, is used with focus on 7 out of 10 ASEAN member countries. At firm
level, secondary data was collected from annual reports and financial disclosure
reports. Primary data was collected from 73 Thai MNEs via a questionnaire soliciting
managers’ perceptions on FSAs, CSAs and RSAs.
The findings endorse prior findings that EMNEs do not have strong FSAs and that
they derive their international competitiveness from the home CSAs. Furthermore, the
results imply that Thai firms benefit and will continue to benefit from the regional
competitiveness due to the ASEAN increasing economic integration.
Business Context 44.59 65.53 (Singapore) Politicians & Bureaucrats 47.90 77.26 (Singapore) Note: Countries in parentheses are the strongest countries in ASEAN
It can be seen from the above two methods that the combination of average index of
seven member countries method (Figure 2) and the strongest country in each factor method
(Figure 3) is the most suitable one to use for drawing up an ASEAN diamond. The strongest
level of each factor from different countries is selected to draw the regional diamond, and this
new regional diamond can be compared with the diamonds for non-member countries so that
it can be understood or the position of the ASEAN’s regional competitiveness in the world
can be found. Moreover, this method shows the benefit that Thailand that can get from an
increase in the level of economic integration (from a free trade area to a common market). In
order to understand the level of all ASEAN member countries, the average index method can
be used to analyse as ASEAN competitiveness as a whole. This method does not only look at
the strongest country but also consider the less strong countries in ASEAN.
Within the ASEAN Economic Community (AEC), trade, production factors,
investment, and services would move freely among ASEAN member countries from 2015. In
relation to factors that are costly or that are difficult to move or cannot be moved, for example
natural resources and the political environment, Thai firms can still benefit from the AEC by
moving their business or production base to countries that offer better conditions to firms. In
order to move to other countries, it depends on the firms’ motivation, requirements, and
limitations. As Dunning (0222 ) suggests, firms will engage in FDI on the basis of four types
of motivation: seeking a market, a resource, an efficiency, or a strategic asset. The second
model (Figure 3) can help firms to select a location where firms can benefit from CSAs on the
basis of factors needed for their business.
Figure 2 shows that Thailand has higher competitiveness than the average, except in
relation to factor conditions, and politicians and bureaucrats since Thailand has very low
energy resources and the political situation has been unstable. Therefore, it can be concluded
that Thailand has strong country competitiveness. However, when Thailand is compared to
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the strongest country in each variable (Figure 3), the results show that Thailand has weak
national competitiveness. Only the workers factor shows that the level of competitiveness of
Thailand is close to that of the strongest country (the Philippines). In short, Thailand has low
country competitiveness but can benefit from other ASEAN member countries’
competitiveness. Figure 3 shows that Thailand can increase its competitiveness based on
other ASEAN member countries that are stronger. For example:
(1) Factor Conditions: Thailand is a small country and there are very few natural
resources, especially in energy production. However, Indonesia is the strongest country in
factor conditions so Thailand can increase its competitiveness in factor conditions by
accessing and using Indonesian competitiveness as Thailand’s conditions. Therefore, Thai
firms can easily decide to locate in or invest more in Indonesia in order to benefit from
natural resources in Indonesia.
(2) Demand Conditions, Related and Supporting Industries, Business Context,
Professionals, Entrepreneurs, and Politicians and Bureaucrats: Singapore is the strongest
country in these six factors. Thailand can benefit from Singapore in relation to demand
conditions, for example, customers in Singapore are more sophisticated and have higher
purchasing power because they are better educated and the GDP per capita is high. Moreover,
the research institutions are good by global standards, and communication and transportation
are well developed. Singapore is very open to foreign investments and professional jobs since
it gives equal treatment to domestic and foreign firms, and therefore the firms easily adapt to
international changes, and the rivalry is severe. This can lead to higher national
competitiveness.
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(3) Workers: The Philippines is the strongest country, and Thailand can benefit from
cheap labour costs and the availability of the labour force. Moreover the workers also have a
good attitude and are well motivated.
These reasons show clearly why Thailand should utilise regional competitiveness as
apart of its home competitiveness; moreover, the increase of the economic integration level in
2015 (from free trade area to a common market) can make regional competitiveness stronger.
In conclusion, with the increasing economic cooperation, country competitiveness
should not only be based on a single or home country competitiveness. Regional
competitiveness should be used to perform analysis to find out an accurate level of
competitiveness. Due to the limitation of theory that can be used to analyse regional
competitiveness, the “regional” dual double diamond model is proposed, as shown in Figure
3. The new model can be used to evaluate regional competitiveness more systematically and
provides a clear understanding of regional context.
CONCLUSIONS AND IMPLICATIONS
This study provides novel insights into the sources of international competitiveness
for MNEs from emerging markets such as Thailand. Moreover, the regional dual double
diamond model is advanced in order to provide better insights into the role of regional
competitiveness in complimenting the home CSAs and building EMNEs’ FSAs.
The results show that most of the Thai firms have weak FSAs. Namely, a half of the
surveyed firms indicated that they have strong managerial expertise and 25% of firms are
classified as firms that are strong in technology and marketing intensity. Only 20% of firms
have strong FSAs in firm size.
Although Thai firms have weak FSAs, FSAs can be developed on the basis of CSAs.
Most of the surveyed Thai firms indicated that they perceive that Thailand has strong CSAs.
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Moreover, secondary data (IPS data, 2006-2010) supports the finding that Thailand has strong
CSAs in six variables out of eight variables compared to the rest of the world. Thailand is
strong in demand conditions, related and supporting industries, business context, workers,
professionals, and entrepreneurs. Thailand is ranked in the middle position compared to the
rest of the world for the politicians and bureaucrats variable, but Thailand is very weak in
relation to the factor conditions variable.
Thai firms indicated in the survey that the availability of workers in Thailand is at a
neutral level for their firms. This is because of the increase in labour costs. However, when
comparing Thailand’s labour costs with that of other countries, Thailand still has lower labour
costs and has competitiveness in relation to workers. Another difference between the IPS data
and the survey data relates to factor conditions; Thailand ranks very low for this in the IPS
data, but the firms indicated in the survey that the availability of factor conditions is at a
slightly high level for their firms. This results from the different measurement. The IPS data
mainly puts the emphasis on energy resources, while Thai firms mainly emphasise other
natural resources. The major industries of Thailand are related to cement, food, and
agricultural industries. Although these two sources of data show different results in detail,
overall, both sources of data confirm that Thailand has strong CSAs.
The regional dual double diamond model is introduced in this study, which enhances
the understanding on regional competitiveness. From the IPS data, it is found that Thailand
has better competitiveness than the average of the seven ASEAN member countries in
demand conditions, related and supporting industries, business context, workers,
professionals, and entrepreneurs. It is only in the factor conditions, and politicians and
bureaucrats variables that Thailand is lower than the average of the other ASEAN members.
At the present time, Thailand only benefits from ASEAN’s RSAs through the free trade
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agreement (FTA). However, in 2015, the ASEAN Economic Community (AEC) will be fully
enforced, allowing for free movement of all factors of production so Thai firms will be able to
benefit from the ASEAN’s RSAs. Thai firms can exploit the ASEAN regional
competitiveness of the strongest member countries. Therefore, ASEAN RSAs can be sources
of competitive advantages for Thai firms.
Contributions
This study makes a major contribution to the research on firm-specific, national and
regional competitiveness of emerging markets MNEs. It advances the regional dual double
diamond model to investigate the potential role of regional advantages due to a regional
economic integration.
Due to the limitation of the theoretical models, the study recommends a new
“regional” dual double diamond model, which extends from the dual double diamond model
by Cho et al., (2008). The traditional single diamond model (Porter, 1990) can only be used to
understand a single country competitiveness by analysing the home conditions of large
countries such as the United States. However, trade liberalisation allows countries, especially
small open economies, to benefit from international competitiveness, therefore the country
competitiveness should not be solely based on their own country competitiveness (Moon et
al., 1998).
The study findings provide empirical evidence that EMNEs base their international
competitiveness mostly on their home CSAs. The survey results clearly indicate that the
sample Thai firms derive their competitiveness from the Thai CSAs, not their FSAs. This is
consistent with previous studies by Rugman and Doh (2008) and Gugler et al. (2011), who
found that most ASEAN firms’ competitiveness are mainly based on CSAs, not FSAs.
However, firms should develop their own proprietary assets in terms of technology and
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marketing. The main export products of Thailand are automatic data processing machines and
parts, and Thailand is a hub of car manufacturing industries in Asia. This means that Thailand
has ability in these two industries. However, they are under the domination of foreign
investors. Without such investors, the industry benefits cannot be long lasting. Therefore,
Thailand should create its own brand and improve its strategy for competing internationally in
the long run. In addition, the government should pay a major role to encourage and to support
Thai firms to develop and to create their own technology, innovation, and international brand.
The encouragement may be conducted through increasing internal and external competition
(Gugler et al., 2011), since such competition indirectly forces Thai firms to develop their own
technology, innovation, and international brand. Fierce competition also drives firms to
improve their FSAs and apply a differentiated strategy (Porter, 1990).
Moreover, the study findings reveal that ASEAN RSAs can also be treated as home
country CSAs for Thailand because of the regional integration. The FSAs of Thai firms are
mainly built upon CSAs and in the future, Thai firms can access ASEAN RSAs. The ASEAN
economic integration is beneficial for Thailand since ASEAN can increase economic power
for all member countries. In 2015, the AEC will provide a larger market and free movement
of people and investments. This could enable the member countries’ firms to obtain
economies of scale due to the larger regional market, compete on cost as they will have
access to cheap labour in the region, invest in R&D as they will have better access to capital
and more sophisticated customers in the region as well as more skilled labour force. will
become more attractive for production bases. Because of these advantages foreign firms will
also be more interested in investing in the AEC.
The limitation of the study steams from its focus on only one of the ASEAN member
countries. A comparative study with the rest of the region would provide further insights into
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the linkages between EMNEs FSAs, CSAs and RSAs. Furthermore, a longitudinal study
would offer an opportunity to assess whether the ASEAN AEC would indeed be beneficial
for its members and insights how individual firms and member countries leverage the
opportunities.
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