IP_314 International Management Central European Study Programme Ilya Bolotov, Ph.D., MBA WEEK 3 Measuring National Context – Suggested Indicators Porter’s diamond as a business-related model Contemporary ways of measuring competitiveness Global Competitiveness Report (WEF), Competitiveness Yearbook (IMD) Economic Complexity (Harvard + MIT), Global Innovation Index (WIPO) Doing business report (WB)
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IP_314
International Management
Central
European
Study
Programme
Ilya Bolotov, Ph.D., MBA
WEEK 3 Measuring National Context – Suggested Indicators
Porter’s diamond as a business-related model
Contemporary ways of measuring competitiveness
Global Competitiveness Report (WEF), Competitiveness Yearbook (IMD)
Economic Complexity (Harvard + MIT), Global Innovation Index (WIPO)
Doing business report (WB)
• Competitiveness as a “measure” of national context
– Concept of competitiveness
– Model: Porter’s diamond of national advantage
– Four development stages
– Approaches to Measurement
• Practical examples
– Purely economic indicators
– IMD’s and WEF’s methodology
– Harvard, MIT, and WIPO
– World Bank’s “Doing Business”
• Task (a graded ”case study”)
Outline
2
„The set of institutions, policies, and factors that determine the
level of productivity of a country.“ (WEF)
➢ Competitiveness deals not only with economic, but also with social,
political, cultural and educational aspects.
➢ More competitive economies tend to be able to produce higher
levels of income for their citizens.
➢ The productivity level also determines the rates of return obtained
by investments (physical, human, and technological) in an economy.
“Competitiveness of nations is a field of economic knowledge, which
analyzes the facts and policies that shape the ability of a nation to
create and maintain an environment that sustains more value
creation for its enterprises and ultimately for its people.” (IMD)
3
“Ability of a country (region, location) to deliver the beyond-GDP
• ADVANCED FACTORS – Communication Infrastructure,
skilled labour, Research facilities etc.
• Basic factors can provide only an initial advantage.
• They must be supported by advanced factors
to maintain success.
Examples:
• Switzerland was the first country to experience labor shortages.
They abandoned labor-intensive watches and concentrated
on innovative/high-end watches.
• Japan has high priced land and so its factory space is at a premium.
This lead to just-in-time inventory techniques.
• Sweden has a short building season and high construction costs.
These two things combined created a need for pre-fabricated houses.
Source: [D]
10
Demand factors
• Home country Demand plays an important rolein producing competitiveness.
• It enables better understanding of the needsand desires of the customers.
• It shapes the attributes of domestically made productsand creates pressure for innovation and quality.
Example 1:
• Italian ceramic Industry after the world war II
• There was a postwar housing BOOM !!
• Consumers wanted cool floors because of hot climatic conditions.
Example 2:
• Japan’s knowledgeable buyers of cameras made that industryto innovate and grow tremendously.
Example 3:
• The French wine industry. The French are sophisticated wine consumers. These consumers force and help French wineriesto produce high quality wines.
Source: [D]
11
Related and supporting industries
• Benefits of investment in advanced factorsby Suppliers and related industries can spill over.
• Creates clusters of supporting industries, thereby achieving a strong competitive position internationally.
Example 1:
• The enamel production unit was available.
• The glazes production was also favorable.
• These two were the main composition of producing tiles.
• This reduces the Transportation cost.
Example 2:
• Switzerland success in pharmaceutical industry is closely relatedto its international success in technical dye industry.
Source: [D]
12
Firm strategy, structure and rivalry
• Long term corporate vision (=> Strategy)is a determinant of success.
• Ability of the companies to develop and sustaina competitive advantage requires the 4th attribute.
• Presence of domestic rivalry improves a company’s competitiveness.
Example 1:
• Low entry barriers to market in the tile industry.
• Rivalry became very intense.
• Breakthroughs in both product and process technologies.
Example 2:
• Japan has high priced land and so its factory space is at a premium• This lead to just-in-time inventory techniques.• (Japanese firms can’t have a lot of stock taking up space, so to cope
with the potential of not have goods around when they need it),they innovated traditional inventory techniques.
Source: [D]
13
The role of the government
• Reforming the legal system and economy:
– Focusing on specialized factor creation.
– Non-interfering in factor and currency markets.
– Enforcing strict product, safety and environmental
standards.
– Enforcing anti-trust laws.
– Promoting goals that lead to sustained investment.
– Strengthening competition.
Source: [P]
14
15
• Based on the diamond and other models,
M. Porter defined four development stages:
– Factor-of-production-based (cheap labour, dual
economy, companies are mainly suppliers
in the domestic market).
– Efficiency-based (skilled, but still cheaper labour, role