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INB 410 International

Competitiveness
Summary of Competitive Advantage
 A nation’s competitiveness depends on the industry’s capacity to innovate

and upgrade.

 Firms gain advantage because of pressure and challenges.

 Basis of competition has shifted to the creation and assimilation of knowledge.

 Competitive advantage is sustained only through Relentless improvement to

avoid imitation by competitors.

 Competitive advantage grows fundamentally out of improvement,

innovation and change.

 Sustaining advantage demands that the firm’s sources be constant and

upgraded.

 Competitors will eventually overtake any company that stops innovating and

improving.

 Move towards more sophisticated appearance.

 Information plays a large role in the process of innovation and

improvement. Sometimes it comes from simple investment in research

and development or market research.

 Innovation may occur as a company diversifies, brings new resources, skills

or perspective to another industry. Innovation usually requires pressure,

necessity and even adversity.

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Introduction to Competitive Advantage
Companies achieve competitive advantage through acts of innovation
(unique design, new strategies). It is because of globalization that the world has
become a small place.
Competitive advantage means once we produce something, that we are
good in producing, and to produce it at a cheaper rate, assuring high quality, so that
we have demand in the international market. e.g. exporting shrimps & ready-made
garments. Someone in different market is ready to buy our product thus; we have a
competitive advantage, e.g. Bangladeshis prefer Sony products.
So, as these are high quality products, we take these in the international
market. e.g. sweater factory in Bangladesh produce high quality products at cheaper
rate. Most of the products sold at K-Mart are made in Bangladesh and China. As
there is a demand for the products in the international market, so my country has a
competitive advantage in the international market. e.g. Italian shoes.
Once you have competitive advantage, then it is important to survive. How do
companies sustain the competitive advantage? It is extremely difficult to sustain a
competitive advantage because everyday too many competitors are entering the
market and these competitors are also coming up with their product in the
international market.
Therefore, INNOVATION – pricing strategy should be different and design should be
different too. A competitive price should be provided as to survive in your local
market first and then the international market. Example: Coke and Pepsi are in all
markets. In Bangladesh, they had all of the market share. 60-40 or 51-49%.
Suddenly when RC entered, now Coke and Pepsi are not ruling the market as
competitive advantage has been shared. No one is sure, it can change at any given
point in time. Therefore, we have to come up with new ideas and new technology so
that no one can take our market share. But in the USA, coke is not ruling.
Market share of 60% was Cokes’ & 40% Pepsi but now market share has been
separated. Both have suffered from a Loss of market share because of other
competitors so go for innovation so for INNOVATION so that brand loyalty
exists. Thus, work on being different. If we face difficulty in the local market, so
sustaining in the international market will be more difficult/ tough. Thus, think about
new ideas, pricing policies; upgrade your product every year. Otherwise, customers

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will switch to new products. So improve your product – one way how you can be
different from other products.
Everyone can imitate you especially competitors. Thus, upgrade your product
annually. Thus, do not stop upgrading your product. International companies can
also imitate.
Example: Sony, new version small and user friendly. Spend loads on R&D. if
Korean company Samsung copies Sony’s product, come up with a similar
design, and keeps a competitive price. Thus, Sony must keep a new idea to come
up with in 3 months. Thus, you need to be always aware and come up with your new
ideas. Thus, be INNOVATIVE. New ways of being innovative may include training
personnel to give better service, after sales service etc.
Example: In Bangladesh, we do not give any good service to our customers. In the
USA, customers are very precious but in Bangladesh, they do not pay much
concern. Being the owner I have to say that my customers are assets thus make the
salesperson aware so be competitive.
Older ways should be changed. New ideas must be there, change with the times as
you are thinking about a new country too.
Example: In Bangladesh, sweaters are only made in large, medium, and small
sizes. In Europe, extra large size is also required. So analyze and do a thorough
research, whether the design is acceptable or not.
In K-Mart’s normal products are available but at a much lower price. e.g. $10 jeans.
Thus, based on price thinking about the store. If $50 then design must be exclusive
and separate designs must be there to provide variety. If the product is not
innovative the product can be rejected. It is extremely important to remember who
your customers are.
Bangladeshi sweaters – Large, Medium, and small
USA sweaters – extra Large, Large, Medium, Small.
Innovation, a technology so as to produce at a cheaper rate than your competitors.
New ways of conducting training, assuring high quality etc. all those required such as
own ideas, new design or too many facilities etc. to compete in the international
market.
Example: In Bangladesh, “Fay” tissue, “Kleenex” in the international market were
both successful tissue manufacturers. Initially Fay tissue (Kallal Group) was meant

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for rich people and now everyone uses it. Within 15 years, everything has changed.
No competitors were there as everyone thought no one would use. The concept of
others changed in a few years and a strong competitor “Bashundhara” entered with
a new strategy i.e. BDT 40 220 tissues of Bashundhara & Fay tissue BDT 50. There
is demand for Bashundhara so how will Fay survive? They survived just because of
high quality. Fay is smoother and the quality is better as such they still survived
despite charging BDT 50 for 220 tissues.
*** Market share was lost. So to survive know how to be different from your
competitor so have your own ideas.
Example: “Mineral water”: DUNCAN BROS. before but now MUM and many
others. When the mineral water concept entered, people had a different perception.
But, now things have changed. Before it was very little or no competition, but now
the profit margin is very low as every other day new companies are entering the
market. Example: Attractive bottles of MUM. Imitated by a foreign company. Pastry
shop in Sonargoan. Thus, JIBON lost market share. Bottle’s attractiveness captured
market share fast.
*** Anyone at anytime can take your market share. Thus, always come up with
better quality and new ideas.
Some innovations create competitive advantage by perceiving an entirely new
market opportunity or by serving a new market segment that others have ignored.
e.g. India in I.T. industry. There are skilled labor and educated people in India. So
the base in English. In India all levels of education is English medium. In Sri Lanka,
everyone can speak in English. In I.T. English base has to be strong, as you have
to enter data. One data wrong could mean the whole thing is jumbled up. Bill
Gates in India has investments of $100000 in U.S.A. in India Rs.25000. very
happy, as it is tough to survive in India.
America is investing in India, as it is very cheap. They are very happy to shift plants
to India. Recently China is doing well too, so, India’s competitor is China too.
Example: Japanese automobile companies have competitive advantage in
producing low cost cars and technological products. Korean companies imitate
Japanese products Japanese companies have a competitive advantage in producing
cars, which are low in capacity but are fuel efficient for the Asian market. i.e.
Toyota, Honda, Nissan. For the U.S. market, they produce spacious, luxury, cars

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with A/C’s and heating facilities. They have different design for the U.S. market as
compared to the Asian market. BMW, in Bangladesh sold 80 cars in their first year of
operation, and they were rewarded as target or budget was only 20 cars.
Purchasing power and demand both existed. Toyota and other Korean and
Japanese companies sell reconditioned cars only in Bangladesh. Japanese car
companies knew how to enter. The Korean imitated them i.e. KIA sports cars. The
quality of these cars is very low. They are surviving as they understand their
customers’ needs and send those cars only that meet accordingly the customers’
needs.
The Research and Development department is very important. In the USA market,
cars have to be manufactured for left hand drive. Example: Hummer. In
Bangladesh it is gradually coming. In Bangladesh, the condition of the roads does
not allow to drive such heavy-duty cars. Porche, in Bangladesh. No pleasure in
driving as you cannot drive fast. People have different mind setting.
Information means what my competitors are doing. Example: VCP then VCR then
VCD….. DVD…LD. Why changing? As if Japanese do not change then some one
will take their product. Sony cost BDT 28000. Samsung costs BDT 8000 (the
Korean one). Models keep changing with in six months. Koreans are also imitating.
Koreans produce very low quality products but Japanese high quality and so
upgrading regularly so research and development department important. They pay
thousands to these researchers. I have to understand the target market. NO red
Mont Blanc, classy thing it should be. Traditional thick but recent ones slim. Classy
customers. Economic for every one but Cartier must change the design.
Keya, Lily, Aromatic. Thus, you know your competitors well. What each brand
promotional strategy is providing. Do not want to lose market share. Thus
information plays an important role. How are they ruling, so get information in order
to know what sort of strategy to come up with. You have to know where you stand.
Information is also important because accordingly you change ideas and strategies.
“Without information you cannot know what your competitors are doing.”
Information plays a large role in the process of innovation and improvement.
Sometimes it comes from simple investment in research and development or
market research.”

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More often than not it comes from effort and the openness and looking in the right
place by blending the two.
Innovation may occur as a company diversifies, bringing new resources, skills
or perspective to another industry. Innovation usually requires pressure,
necessity and even adversity.
Talking about international markets thus, they will decide whether they will innovate
or not.
Japanese produce VCD & DVD, so Koreans copy and produce low quality and
low priced goods. Korean companies include: Samsung, LG. thus companies
have to be aware who their competitors are. Chinese cars are not so expensive.
Their target market is different. You have to understand the market that you are
targeting. Come up with your own promotion strategy. Get the information and
change your style and approach to the market accordingly. Not only am I going to
change designs but managers will tell when to change policies. Example: Apex
Food export shrimps since 1975 onwards. They must know that they have to
improve. So, they really wanted to do well. BD foods, was banned in the European
market two years back because, bacteria was found. This became a major
problem. So, Apex Food wanted to be different as too many competitors entered. As
for BD Foods, once one BD food product was rejected so all other food
products will be rejected too.
Apex saw that the Bangladeshi managers are not hard working, rather they chatted
and left early, so productive working hours were lessened. Western culture was very
strict, system closed down during 9-5. They employed this policy to improve
efficiency. The Bangladeshi managers were not so efficient still. Thus, Apex owners
were innovative and recruited employees from Sri Lanka and Philippines. All
managers from PHP rented houses at DOHS. The single young ladies that he hired
to work were very efficient and they were very productive too for the next three
years. Eventually bacteria was not to be found. These managers monitored well.
Now red lobsters are being exported. He did not want to lose the million-dollar
contract. Thus, they became innovative and changed their whole strategy and
approach to conducting their operations. Thai companies are there competitors.
You will always face pressure and challenges because of innovation. You will also
prosper in this way and your company will succeed a lot. Example: Coke losing

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market share to RC Cola and Virgin. Thus, always upgrade your product. Thus, you
have to know how to be the best and beat the rest as they are always thinking of
upgrading and improving. Upgrading is essential.
Once a company gains competitive advantage, you can only sustain it through
RELENTLESS CONTINUOUS IMPROVEMENT. You have to upgrade your product
regularly to more sophisticated types. Any competitive advantages can be imitated.
Example: RCA was an U.S. company that produced electronic home appliances
and the first company in the world to produce T.V. they were forced out of the market
by Japanese companies who have not only adapted the technology but have
improved it so much that they have gained competitive advantage in producing home
appliances and other technological goods. So much so that the RCA Company of
U.S. has not only lost its worldwide dominance but no longer, exist in the
international market. Japanese T.V. –Sony was the best; but now LG and
Samsung have taken its market share. LG offers cheaper prices. Now every
technology is similar, thus, pricing is important. Customers are also changing so
Japanese companies should change the product strategy too. Samsung VCD
players and DVD players cost only around BDT 6000; it is a very competitive
market. You have to know how to improve your product. Example: Italian
shoes have competitive advantage in footwear and it is the best. Chinese shoes
cost USD 20 but the soul comes off two months later. Italian shoes are expensive
but they are high quality and they have longevity. Italian also do latest designs.
Brazilians imitated the Italian shoes; they were of high quality but the price was
lower. Fashionable designs and latest ones they copied. So, they gained competitive
advantage in the market. Italians are wrong thinking that they have a monopoly
market.
Indians are hard working. They have motivation that is why they have captured the
market share. Therefore, you have to have the ambition to sustain the pressure and
competition. Innovation also requires necessity and adversity. You have to
sustain your competitive advantage through regularly upgrading your product.
Overtaking of your product and thus your market share is natural thus; you need to
upgrade your product regularly.
If it becomes a quota free world, Bangladesh will face problems as Bangladesh will
face problems, as they have to compete with countries such as China, Thailand, and

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Indonesia and so on. Then international rules have to be followed thus, in
Bangladesh factories will be moving to Gazipur. They will need to have clean
kitchen, separate toilets and so on. International rules will have to be followed.
Sustaining competitive advantage demands that the firm’s sources be
constant and upgraded. Sources of raw materials need to be from a single supplier
and be constant. They also need to be upgraded.
Without, research and development you cannot modify your product. Upgrading is
essential and is done through research and development department. In Bangladesh
research and development is not done, as resources are not available and is
relatively expensive.
In international business, some countries do well, while others cannot regardless of
how hard they try. They end up being frustrated. How come, the most successful
firms are based in one particular nation? Example: Hyundai, Kia, Honda are all
based in Korea but are not as internationally competitive when compared to Toyota
based in Japan. Similarly, BMW, Poche, Mercedes based in Germany are also
internationally competitive as luxury and high performance cars. Both Germany and
Japan are internationally competitive in the automobile industry. Germany has
competitive advantage because of demanding customers and roads in Germany.
Example: Auto Bahn: You cannot drive below 150 Kmph or 110 mile/hour on this
highway. The maximum speed limit on other roads is 80 miles/hour. Germany has
very large and very smooth roads. Bangladeshi customers were very attracted to
reconditioned cars but because of rising prices and changes in customers /
consumers lifestyle, now people are buying brand new cars. Example: Swiss
Chocolates may be bitter in taste but they are not only internationally competitive
but enjoy a competitive advantage in chocolates. Japan also enjoys a competitive
advantage in consumer electronics. i.e. Toshiba, JVC, Sony etc. U.S.A enjoys a
competitive advantage in the hi-tech industry and computer technology IBM,
Dell, Compaq, Gateway, Hewlett Packard and software. i.e. Microsoft and
Oracle etc. this is because it needs a lot of research funds.

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Goal of a Nation:
(i) To improve the overall standard of living of its citizens. All of its activities
should be centered around this. A country’s policy is always centered
around their citizens’ benefits. Example: The U.S. providing a lot of aid to
Afghanistan because the ultimately are concerned about America and the
American citizens security.
(ii) We can have a high standard of living by being productive, competent
and efficient in all departments.
(iii) Law of Comparative Advantage: No nation can be good in all industries,
because they can not focus on all industries. You need to be focused to
gain comparative advantage. “Jack of all trades, master of none”, will
not enable to survive.
Traditional reasons for the Competitive Advantage of a Nation
There are five traditional reasons that can be identified as reasons for the
competitive advantage of a nation, these are as follows:
(i) Cheap Labor
(ii) Stable Government
(iii) Natural Resources
(iv) Government Incentives
(v) Management Practices
(I) CHEAP LABOR:
You might want to argue that if a country’s labor is cheap then you can manufacture
any product and sell it in the international market. If that was true India and
Bangladesh would have been very successful economically and be internationally
competitive. Despite having higher wages European countries like Germany,
Sweden would not be able to compete internationally but that is not the case. Labor
is cheap in India and Bangladesh because it is unskilled. However, China has
managed to gain competitive advantage. In America, plumbers cost $60 per hour.
So, first world countries are switching to the third world countries for cheap labor.

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(II) STABLE GOVERNMENT:
It is the most thing. If the Government is stable, there are economic ups and downs.
If the Government is stable, there are little ups and downs. The stable government
gives economic success. However, in Italy, the government changes within every
nine or ten months, but the country still has competitive advantage in shoes, bags,
designer wears.
(III) NATURAL RESOURCES:
These are also very important. Iraq, Iran and Saudi Arabia have competitive
advantage in selling oil. In the 1970’s every of the Asian countries were poor, but in
2007 the picture is quite different. Over the years every one did well. Bangkok,
Vietnam did well. Saudi Arabia had a competitive advantage in oil. Bangladesh
has a competitive advantage in shrimps, crabs and other marine life forms. Tea is
also a natural resource. We have the land positioned and seasoned for tea
production. South Africa has gained competitive advantage for coal. Belgian
diamonds are more expensive.
EXCEPTIONS:
Abundance of natural resources they will have strong economy, but countries such
as Japan, Korea, and Germany do not have natural resources but have a very
strong and healthy economy. Nigeria is a country, which is corrupted and bad. We
(Bangladesh) have become 1st in corruption but probably Nigeria deserves to
be first. Nigeria has a big oil reserve but are very weak economy compared to
Korea and Japan.
(IV) GOVERNMENT INCENTIVES:
Many industries have flourished with the help of Government incentives and become
internationally competitive. Example: However, Bangladesh Government has
given incentives in the jute industry. Those that have done well are doing very well,
and others have been forced to shut down. International competition has lead the
industry not to do very well. If the finishing of the products is not good it is not
acceptable. The Government of Bangladesh has also given incentives to the sea
food industry. However, we have lost our market in Europe, to Thailand,
Indonesia and Malaysia. We lack quality in finishing that is why we can not gain
competitive advantage. Example: Aarong has high quality leather products but
they are not internationally competitive.

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(V) MANAGEMENT PRACTICES:
There are many who suggest that good managerial practices will gain/ensure
competitive advantage. Not too long ago Japanese firms were renowned for a life
long employment policy. If that is the case your loyalty will be high, workers will
also be very hard working and motivated because of job security. The lifetime
employment policy for Bangladesh will be different from that of Japan. People in
Bangladesh will not work if there is a lifetime employment policy, and therefore it is
ineffective in Bangladesh. In Japan they felt very secure with their jobs, and as a
result they worked very hard and gained competitive advantage. However, the
companies in Japan are also being forced to abundant the lifetime policy, because
the unemployment rate is high. Management should be strict in handling the
country so that it becomes competitive.

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Competitive Strategy
There are two (2) deciding factors, these are namely:
1. Industry Structure
2. Positioning within the industry
(1) Industry Structure:
This refers to how the industry operates the profitability of the industry etc.
Each industry is unique. There are hundreds of industries in the world and
each industry operates in a different way. Every one follows a different
strategy. How each industry is different and how they have a different
structure. Example: Two companies dominate the global soft drinks
industry; Coke and Pepsi in the automobile industry there are 12
companies that compete globally. i.e. Honda, Nissan, Toyota, Porche, Tata
etc. The industry structure is different. In the international electronics
industry there are only seven to eight companies dominating the market
– National, JVC, Sony, and Samsung to name some. Thus, I have to
understand what kind of strategy they will take.
Porter’s Five Forces:
Porter’s five forces model tells us how the industry operates in that particular
country and also gives an overall profitability idea about the entire industry. The five
forces are as follows:
(a) Rivalry amongst Competitors
(b) Threat of new entrants
(c) Substitutes
(d) Bargaining power of Buyers
(e) Bargaining power of Suppliers

(a) Rivalry amongst Competitors:


Rivalry means competition. The level of competition amongst the competitors is
one factor that determines the industry’s profitability. We know that if the number
of competitors are many in number and equal in size then they will compete very
hard against each other. The profitability will be low as there are too many
competitors and all of them are equal in size. On the other hand, if there are few
competitors and market is large, so, profitability is high and not so fierce.

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Example: Before there was only Coke and Pepsi in the soft drinks industry, and
now there is Virgin, Uro Cola, Royal Crown (RC) and so on. Example: Real-
Estate business in Bangladesh, profitability is low, as too many competitors and
so you have to have an image. So think about the image. Its about where you
stand. Bay Development apartments cost two (2) crore for 4500 square feet
apartments. Even offering full furnished. Example: Toshiba made in Japan, LG,
Samsung and Sony are all as good as the other. The projection T.V. by
Mitsubishi costs only $2500 where as Sony’s projection T.V. costs $4000.
Plasma T.V. at BDT 450000. There are few competitors market is large so
profitability is high.
Thus, I have to understand what strategy I will implement based on these five
forces. Example: Keya, Lily, Kosco are all soap manufacturing companies in
Bangladesh. I can not sell at a loss. My strategy will be based on this, whether
competition is strong or not. It is important for me to decide whether it is the right
time for me to enter the market or not. We always need to think about the
demand in the market.
(b) Threat of new entrants:
When there are too many new comers entering then it is a threat. Profitability will
be low. Example: Video clubs at every corner of Dhaka; requires staring
capital of 2 to 5 lacs only. Example: Shopping malls in Dhaka are at every 100
yards of each other all most. Thus, we have to be different in order to survive.
Example: So many English medium schools in Dhaka; Profitability is low.
Have to be different order to survive. Think about the timing to enter the
market. Profitability is low as barriers to entry into that industry is low.
Example: Private power plants industry: profitability is high. This is because
establishment cost is high; you need BDT 300 crore starting capital. Not too
many companies have access to that kind of amount of money. Therefore, there
are only about two to three firms in the industry. So the threat from new entrants
is no so high at the same time profitability is also high. If the barrier to entry is low
then everybody will enter. If the barrier to entry is high so not many can enter
thus, profitability is high. Example: Restaurants in Bangladesh need 1 crore of
starting capital. Example: Departmental stores in Bangladesh such as PQS,
Stop & Shop. Barrier to entry is low. Example: Private Universities in

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Bangladesh: There are 51 private universities now. Before the barrier to entry
was only one crore now it has been raised to five crore. Example: Libas cannot
charge more now because there are many competitors. Therefore, profitability is
low as entry barrier is low.
(c) Threat of substitutes:
Alternative products can also take away the profitability. Example: The soft
drinks industry. One of the reasons for having a soft drink is because you are
tired. Purpose: Because you are thirsty, the substitute to a soft drink is
mineral water, milk or energy drinks. Energy drinks in Bangladesh contained
higher level of alcohol than the legal limit. Mineral water is a healthy
product. They are not competitors but substitute products. If the substitute is
healthier then you will lose your profitability. Thus, mineral water can effect
profitability of soft drinks industry. In the USA very few people like Coke. Juice is
preferred by them so prices are even higher.
(d) Bargaining Power of Buyers:
If there are too many sellers in an industry and too few buyers in the same
industry, the profitability will be low because the buyers dictate the price. Market
share will be divided. Example: In Bangladesh, there are brand new cars in
show rooms. Not many people can afford to buy brand new cars. Therefore, there
are very few buyers. The companies all compete to get the few buyers of brand
new cars. As a result, they make comparatively low profitability on these cars.
Not many companies buy brand new cars. Only banks and MNC’s buy brand
new cars. Thus, the target market is only the private sector. Nissan cars are
used by Standard Chartered; HSBC uses Mitsubishi. The bargaining power of
buyers are high. Thus, profitability is low. The government officers get Toyota
and Suzuki Liana. Too many competitors so bargaining power of buyers is high.
(e) Bargaining power of suppliers:
Too many buyers and very few sellers: So the sellers set and dictate the price. if
we think about the global software industry profitability is high. Example: For
personal software, we go to Microsoft and for corporate software; we go to IBM or
Oracle. There are thousands of customers but suppliers are very few. Therefore,
whatever they charge you will have to pay. You cannot negotiate the price of the
original Office or Windows XP. They will charge a high price as demand is high

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and suppliers are very few. They will dictate the market and charge whatever
they want to charge. Example: Foreign tiles are comparatively cheap now but
10-15 years back these tiles were very expensive. Thus, profitability low in the
tiles market. So profitability was higher than it is today. Before it was limited,
product demand was high so profitability was high. You have to determine here
you stand in the market. Limited suppliers too many buyers so profitability high.
Porters’ five forces also determine a company’s direction. Example: In
Bangladesh, electronics products profitability was low as bargaining power of
buyers are high. 15 to 20 years back when only Sony was there, profitability
was high. Nowadays, competition is fierce so profitability is low. Soft drinks
profitability is low. Hospitals in Bangladesh are growing like mushrooms. If
profitability high then enter and vice versa.
(2) Positioning within the industry:
While positioning a product in an industry you need to think about two things:
(a) Lower Cost Strategy
(b) Differentiation strategy
(a) Lower Cost Strategy:
It is defined as the ability of the manufacturer to produce the product
efficiently and with high quality. Example: For availability of cheap labor in
China Japanese firms have shifted their plants to china. Nowadays china is
lacking behind because of English but India doing much better. In the local
market, there are limited competitors, in the foreign market there are many
competitors. You have to efficiently produce the product and at the same
time, the quality must be high. You have to produce the product at a lower
cost compared to you competitors. Example: Japanese cars are now being
produced in India to minimize shipping costs. It is because of lower production
costs that you can offer your customers a competitive price. They want to
grab a lot of the market share. Example: Econo pens cost BDT 1 to produce
being sold at BDT 3.

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(b) Differentiation:
You give additional feature because you cannot afford to produce at lower
costs and therefore are charging extra from the customers. Example: Normal
shirt $20, Ralph Lauren shirt costs $60. Just the logo makes the difference.
Paying extra price as brand image is important. At the end of the day, we
want to be different. If we want to get an extra amount, we have to give a high
quality product. We are crazy about mobile phones. Same engine in BMW
and Toyota cars but quality is higher. You have to know the position within the
industry. Example: Mont Blanc
Based on this understand the customers. They are producing an unique
product thus hi quality so thinking about brand image you charge higher
prices. Example: If a shoe firm chooses a low cost strategy chances are that
it will be based in China or Taiwan. On the other hand if it chooses to take up
a differentiation strategy it will be based in Italy.

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Sources of creating Competitive Advantage:
There are five ways of creating competitive advantage. These are:
1. New Technologies
2. New or Shifting buyer needs
3. Emergence of new industry segment
4. Shifting Input cost or availability
5. Changes in government regulations
1. New Technologies
As companies create new technologies, they create competitive advantage for
themselves. Example: RCA in the USA invented T.V. sets and popularized
them in the 1960’s. Therefore, the U.S. had the competitive advantage.
However, Japanese companies created technology by which T.V. sets could
be mass-produced with better quality. Therefore, because of new technology
you can lose your competitive advantage. The competitive advantage in
producing T.V. sets shifted from RCA of U.S.A. to various Japanese
companies. Japanese produced so many T.V. sets together. Sometimes new
ideas are also born because of new technology. They even create a new
market altogether. New technology can create competitive advantage.
Example: Cell phones replacing LAN phones.
2. New or Shifting buyer needs
Sometimes customers change priority. Example: Mc. Donalds’ in South East
Asia: people in South Korea like noodles and not burgers. South East Asian
people have no time to cook breakfast. The lifestyles in Bangkok, Singapore
have change and therefore their needs and preferences have changed.
Therefore, the competitive advantage has been created in Asia because of a
shift in buyer needs the move to south East Asia worked for Mc. Donald’s.
3. Emergence of new industry segment
For many years Lipton tea company tried to market their product in the U.S.A.
however, they were not successful as nobody drinks tea but coffee in the U.S.
Now they are doing business in a new segment. They have successfully
marketed the tea as a healthy drink i.e Ice tea. The consumers in this
segment believe that Coke and Pepsi is not good and that there is too much
sugar in those drinks. If they are health conscious people, they are not going

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to buy unhealthy products. So Ice tea is considered to be a natural drink.
Thus, they sold it as ice tea, i.e. healthy product. It is because of this that they
gained competitive advantage in the U.S. market.
4. Shifting Input cost or availability
The input costs had gone up too much for the U.S. in the garment sector, so
the industry shifted from the U.S. to Bangladesh, China and Taiwan. Hence,
Bangladesh did well in the garments industry and gained a competitive
advantage because of the availability of cheap labor. However, if the U.S. is
able to introduce a new process/machine that needs no labor then the U.S.
will gain competitive advantage.
5. Changes in Government Regulations
There is a trend to reduce government tariff because of the influence of WTO.
Therefore, now every one enters the market. Customers are happy because
of high competition they get low prices and a wider range to choose from.
Example: In Japan, financial companies, which were MNC’s, were not
allowed to make transaction or trade in the international market. This has now
changed because of changes in WTO regulations the U.S. banks have
changed their policies and are able to compete.

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Sustaining Competitive Advantage:
Simply creating a competitive advantage does not guarantee that you will have it
forever. You have to continue to hold or create competitive advantages. Sustaining a
competitive advantage depend on three factors, these are:
(a) Nature of Competitive Advantage
(b) Number of distinct sources of advantage
(c) Constant improvement and upgrading
(a) Nature of Source of Competitive Advantage
(i) Lower Order Advantage
These sources are very easy for the competitors to copy. i.e. cheap labor cost.
Japan shifted many of it car plants from Japan to India. Mercedes also shifted
from Germany to India. Example: All costly electronics goods are available
cheaply because they are made in Malaysia. General A/c U.S. assembled costs
BDT 50000; Malaysian assembled costs BDT 32000. Sony, JVC, Toshiba have
plants in Malaysia, and competitors have followed the same strategy. Finding a
cheaper source of raw materials is also a lower order advantage. Example: Oil –
All major oil companies have offices in the Middle East.
(ii) Higher Order Advantage
These are advantages that are hard to replicate. Example: Trademarks, patents,
goodwill Example: Gucci has a particular design. You cannot copy that particular
logo. Example: P&G has taken 60 to 70 years to develop brand name.
Conclusion: Advantages that are purely based on reducing costs are easy to
replicate.
(b) Number of Distinct Sources of Advantage
If you just have one source of competitive advantage and someone copies it, it is
hard to survive. However, if you have multiple sources of advantage then you have
several other sources to fall back upon. Example: Japanese photocopy machines.
Lower order advantages are very easy to copy. Take from one source and copy it
then quality is similar. If a strong brand name is my competitive advantage and my
competitor has the same as in the case of Versace and Gucci then both are doing
well and it becomes difficult to survive. There may be loss of market share. We
need to have multiple advantages so that competitors can imitate only one or two but
not all of them. Thus in order to copy the competitor has to copy everything. Thus, it

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becomes tough as a multiple number of advantages becomes difficult to copy. They
will need more time to copy. Thus, multiple advantages cannot be copied as
more time will be required. Example: Germany copied Japan’s strategy of entering
India. Guess (BDT 100 per bag) was for students, Gucci was for earning people.
Guess needs a lot of time if they want to take advantage away from Gucci. Thus,
accordingly set prices.
*** One particular advantage can be copied but multiple advantages cannot be
copied.
Example: Japanese photocopy machines – Fujitsu and Minolta. There number one
advantage is that
(a) They make low cost copier as and when compared to big and expensive
Xerox. However, Japanese copiers also have several other advantages:
(b) An extensive dealer network system: They sell their copiers via worldwide
copier dealer network. Xerox sells its copier through mainly personal selling. This
process is much more expensive.
(c) Through dealer networks Japanese companies have been able to develop a
strong brand name and image in Asia as well as the western countries. Whereas,
Xerox is only doing well in western countries.
(d) It has individual sales people going from company to company. A dealer
network system is not that expensive. More extensive customer service and after
sales service is provided by Minolta and Fujitsu.
If Xerox wants to imitate this strategy of distribution network services then they will
need time. Minolta and Fujitsu doing well, Xerox cannot copy all advantages
together. Easy to imitate but they need time.
Japanese products do well in Asia and other western countries. Xerox is
trying to create an advantage in western countries. Western countries always look
for high quality products, they do not believe in the pricing. Thus, Xerox as facing
difficulties in the Asian market but Japanese photocopiers recently did well.
Xerox was doing well but Minolta and Fujitsu provided more after sales
service as they have worldwide dealer network system. But personal selling
becomes more tough. After sales service cannot be provided by Xerox as too many
individuals required to sell product personally.

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Summary:
Minolta and Fujitsu have several competitive advantages:
 Low cost small copier
 After sales service
 Distribution network system
 Strong brand image in Asia.
It will become extremely difficult for Xerox to copy all the four advantages. If you
have a particular advantage then competitors can copy but 4-5 advantages will mean
more time required. Thus surviving may become difficult.
(c) Constant Improvement & upgrading
This is the most important. Without upgrading, you will not be able to survive. It is
easy to become a star but hard to survive, it is difficult. In the international market,
we have several competitors. However, my major competitors and I is the most
important one. If you are the market leader, you cannot and should not rest
peacefully. Example: Coke and Pepsi anyone can take advantage at anytime.
Example: Microsoft in PC and monitors. They are the only one but still they are
continuously upgrading their products even if they are the market leader. Windows
2000 to Windows XP – after they are upgrading. If relaxed for a while then small
companies and players might come up with some other product. Example: RC and
Virgin, they are sustaining and continuing their competitive advantage.

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Competing Internationally
There are two broad strategies one might undertake when competing internationally:
 Multi – Domestic Strategy
 Global Strategy
Multi- Domestic Strategy: This is changing the whole strategy for a specific
country. The parent of a multi domestic may reside in a particular country. However,
the domestic company may not follow the home country strategy so if necessary
modify your strategy. If the customers are different then strategies should be
different too. If customers do not prefer your product than how will you sell?
Example: Changes in Barbie in the middle east because of social values. Her
boyfriend Ken was sold separately in the Middle East. As culture does not support
having a boyfriend as kids picture themselves as Barbie. It is socially unacceptable
in Middle Eastern countries to have boyfriends so they could not sell Ken and Barbie
together. Example: Singer in North America is well known as a manufacturer and
seller of ready to assemble furniture. Recently, the North American operations were
bankrupt. However, they have adopted a multi domestic strategy to enter the
Bangladesh market. Singer in Bangladesh started with sewing machines in the
1970’s. Singer is doing well in Bangladesh. Singer out sources or buys their
products from china with their own brand name. They sell economic products. They
targeted the poor people of Bangladesh. Therefore, Singer is a multi-domestic
strategic country. They will never gain competitive advantage as they are not an
internationally competitive company. Thus, singer could not gain international
competitive advantage. Sometimes this strategy is not successful worldwide.
Example: Ikea is selling furniture worldwide. They sell at very cheap prices for
students. Their products need to be assembled by the consumers. If you take a multi
domestic strategy, you will not succeed worldwide.
Global Strategy: You will be more successful worldwide if you adapt a global
strategy. The objective is to sell product in many nations and takes an integrated
approach in doing so. Example: Pepsi uses a global strategic approach to sell their
products. It has:
 One brand name
 One target market : Youngsters
 One formula that no country can change

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 Promotion style: every where theme is similar
Example: Mc Donald’s: Only for India and Israel they have taken a multi-domestic
approach. Otherwise, in other countries they adapt a global strategy. They changed
for India and Israel because if they did not they could not enter the market. so they
have changed their strategy according to customers needs. The market is different
because the culture is different. Example: If you sell French wine you can not sell it
openly in a Muslim country. You can only sell to diplomats in Muslim countries. In
Iran there are frequent raids in houses for alcohol.

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Determinants of National Competitive Advantage
Porter’s Diamond model:

1. Factor Conditions

2. Demand 3. Related and


Conditions Supporting
Industries

4. Firm Strategy,
Structure & Rivalry

Fig: Porter’s Diamond Model

1. Factor Conditions:
This refers to land, labor, capital, natural resources and infrastructure. A
product has to be made internationally competitive. Therefore, it has to meet all
requirements. If all the important elements are present, you will have a competitive
advantage. A knowledge intensive industry must have skilled labor to have a
competitive advantage. Example: Denmark has two hospitals in treating diabetes.
This is there only focus. Now they are the world leader in exporting insulin. The
factor conditions required to gain such competitive advantage may include:
 Hospital
 Patients with diabetes
 Doctors
 Research centers
Example: Holland has a competitive advantage in producing /cultivating flowers.
The factor conditions required are:
(i) Land
(ii) Weather and climate
(iii) Farmers – skilled labor

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(iv) Researchers – highly specialized and educated personnel
They are also good in packaging flowers so that it would last longer.
The U.S. electronics companies are not internationally competitive because of their
high labor cost. So they have shifted to South East Asian countries. Still they could
not gain competitive advantage because they did not have a mature market. To
establish basic companies we need to have:
(i) land
(ii) labor
(iii) capital
However, Porter goes beyond those factors:
(a) Human Resources
(b) Physical Resources
(c) Knowledge Resources
(d) Capital Resources
(e) Infrastructure
(a) Human Resources
A country could have a large pool of human resources. They are of poor quality
if they are unskilled cheap labor. European countries have qualified skilled but
expensive labor. Which is important quality or quantity? Keep your human
resources happy then they will stay with you. Knowledge based industries
require skilled labor.
(b) Physical Resources
Physical resources are the most common resources that you have. Land and
natural resources are classified as physical resources. A time zone can also be
considered as a physical resource. London is the largest financial center
because of its time zone. This is because they communicate with Japan and
America at the same time. This is made possible because of a favorable time
zone. Banks in London can transact with Japan in the morning when it is
afternoon in Japan. Again, when it is afternoon in London it is morning in the
U.S. this is why they have the largest volume of foreign exchange transaction in
their financial markets.

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(c) Knowledge Resources
These are the various institutions i.e. universities, research centers etc. from
where you can provide specialized knowledge. Example: U.S. research centers
providing research in space, weapons etc. international competitiveness has to
come from specialized knowledge. Example: MIT and Texas University are
considered as good engineering schools. Kellogg or Harvard Business
School; Harvard Law and Harvard Medicine. People from all over the world
like china, U.K. go there to study and they stay there because they have good
research centers. Those that do research get the citizenship of the country by
pursue of the Universities. The centers have a lot of funding. Research
centers are knowledge resources.
(d) Capital Resources
These include the amount and cost of capital available in a country. The
amount refers to the amount of money available. Since financial capital can be
bought from another country due to globalization, the cost of capital has to be
considered. Capital is not a big deal because of globalization. The cost of
capital is the rate of interest charged on a loan. Example: Banks in Bangladesh
charge 16%, which is one of the highest in the world. This restricts
industrialization. Although people still take it but they can not repay it thus
making it risky.
(e) Infrastructure
These are the communication system. Roads, bridges, funds transfer system.
Without infrastructure, country cannot be internationally competitive. Example:
In California, it takes 2 minutes to transfer funds. In Bangladesh, it would take
about 2 to 5 days to clear a cheque from Bogra to Dhaka.
Hierarchy among Factors
1. Basic Factors
 These include things such as natural resources, climate, locations,
semi-skilled and unskilled labor etc.
 Diminished importance: Wood (man made materials), petrol (solar
power) etc.
 Wide availability: Unskilled and semi-skilled labor.

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2. Advanced Factors
 These include highly specialized and educated personnel. i.e. Software
programmers, engineers, research institutes, engineers, doctors etc. in
Bangladesh there are a lot of human resources, but we can not think about
developing doctors and engineers in a day. It is difficult. That is why these are
scarcely available and are advanced factors. Example: Japan has a
competitive advantage in automobile industry. America could not buy out
the Japanese engineers because they are interested to work for well-reputed
Japanese companies. Thus they can not take their competitive advantage.
Education institutions who produce these people make it sure that they have a
competitive advantage in training these students. We will not be able to copy
their strategy. Example: Yale and Harvard have spent hundreds of years to
build their strategy and competitive advantage. You need at least a hundred
years to copy their strategy. Proctor & Gamble you cannot copy their
reputation. Time is an essential factor. You cannot easily attract talented
researchers and students to come to a new University.
Example: Brunei has extremely modern universities where all the top
American professors may go but they can not copy the reputation, that is why
people are still interested to go to the U.S.A. so, advanced factors are difficult
to copy. Even if you try to imitate you have to wait a long time. Time is an
essential factor.
 Selective factor disadvantages:
This means that competitive advantage can grow out of factor disadvantages.
A factor disadvantage is a lack of factor conditions. Example: To manufacture
textile dyes we need certain ingredients from natural raw materials. England,
because it has a lot of colonies also has access to a lot of natural raw
materials. However, Germany was not a colonial country and therefore it
was dependent on England for its raw materials. Despite its dependence
on England due to the lack of factor conditions, it still had a competitive
advantage in producing natural textile dyes. As a result, the companies
Hoechst, BASF was forced to innovate and produce textile chemical dyes to
sustain its competitive advantage in textile dyes. They were forced to
innovate because they thought that England would loose its colonies one

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day. Now because of innovation Germans are the worldwide leader in
producing textile chemical dyes.
Example: Americans are looking for alternative sources of energy, such as,
solar energy, gas and others.
2. Demand Conditions:
Demand refers to home demand. If there is demand for the product in the
home market then everybody will be interested to produce that product and
thus invest in that industry. Then the competition intensifies and the
companies need to produce high quality product to survive in the market.
Thus, they become internationally competitive Germany did well in automobile
segment. Germany has competitive advantage in that segment. So, the
company tries to satisfy the home buyer customers. They are very modern
people. They have a need to drive very fast. They have a highway called
“Auto Bahn”. The minimum speed limit on this highway is 80 miles per hour.
The average speed there is 110 miles/hour. To drive at such fast speeds you
need extremely well engineered engines. As a result, Mercedes, Porche
have responded to the home demand and thus they have manufactured such
cars. You have to understand the culture – they have to drive a good car.
Because, their home demand is different they will work day and night to get it
right.
The several issues that effect Home Demand conditions include:
(a) Segment structure of demand
(b) Sophisticated and demanding buyers
(c) Anticipatory buyer needs
(d) Size of home demand
(e) Rate of growth of home demand
(f) Early Saturation

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(a) Segment Structure of Demand
There must be a segment targeted you cannot manufacture for every one. If I
were to segment the commercial aircraft industry, it would be in three
categories:
(a) Large aircrafts for long hauls i.e. U.S.A.
(b) Large aircraft for short hauls i.e. Europe
(c) Small aircrafts for short hauls
Boeing 777 you can travel from Hong Kong to England in 24 hours. This is a
long haul aircraft. Example: USA has large aircrafts for long haul. The flight
time from New York to Los Angles, California is 5 hours. This is because the
U.S.A. is a large country. In the U.S.A., they need large aircraft for long hauls.
This is because U.S.A. is a large country, the time difference is three hours
between California and New York, within their country. Therefore, since a lot
of people travel by air, so Boeing has a competitive advantage in
manufacturing big aircrafts for long hauls, i.e. Boeing 777 and 747. Example:
Europe also did well in producing Airbuses. Each country is smaller than the
U.S. and the distance between them is very near, but a large number of
people need to travel. Large airbuses for shorter hauls for European countries
that are relatively short distance. Therefore, Europeans came up with
airbuses for shorter hauls but large aircrafts. Airbus Inc. an Anglo-French firm
that produces commercial aero planes came up with planes that are very
efficient for flights that were for 3 to 4 hours. Therefore, European culture is
different. The Boeing 747 and Boeing 777 are particularly used for 13 to 24
hour flights: Hong Kong to Los Angles by Cathay Pacific is 24 hours flight
time; whereas, airbuses are used for shorter distances. They did so as home
demand is different. Both companies gained competitive advantage.

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(b) Sophisticated and Demanding Buyers
The type of high-class buyers will also affect the demand conditions. Bangladesh
has a market for reconditioned cars. What if some countries have very demanding
buyers. Example: Audio and music systems in Japan: people use very
sophisticated audio and video equipment. It is a status symbol for them. Nakamichi
– world’s best audio sound equipment. Japanese people are very sophisticated
and thus they prefer to buy Nakamichi. In Japan small space, so new machines are
sleek size but price is BDT 84000. Just a CD player. People want to have the best
audio system with the best features. Sony, Samsung are producing state of the art
audio systems. New plasma T.V. is very sophisticated. Probably the best quality in
the world is Nakamichi and it is situated in Japan.
The Japanese were the first to produce the first smaller sized A/c’s which
were quiet. Hitachi did well and they were the pioneer in the small air conditioners.
(c) Anticipatory Buyer Needs
Demand from home market can also mean that all the buyers in the world might
one day might have similar demands like home demand. Example: U.S.A. credit
card concept. Americans are very much accustomed to charging their credit cards.
They charge their credit card today but pay monthly or yearly. VISA and
MasterCard anticipated that gradually all the customers in the world will act like
American customers. American Express (Amex) service gives facilities, so they
could anticipate the demand earlier and there anticipation was right. They did
succeed in using the concept everywhere. The concept that you anticipate earlier
that will be able to run this concept all over the world. They took the credit card
concept to every part of the world when it became such a big success in the U.S.A.
it was a new concept to make life easier. Standing in the queue; Sending money
through the machine; gaining competitive advantage in other parts of the world.
Singapore has competitive advantage in the medical service line. $20000, but in
the U.S.A. 65 lacs. We think about competitive price as well as good efficient
doctors. Example: In Bangladesh, good doctors are here but uneducated nurses.
In USA, PA (physician’s assistant).
Segments have been formed. Example: ISD, Australia competitive advantage in
education segment. Example: Schools in India. No domestic rivalry in Bangladesh.
If rivalry there, then easy to gain competitive advantage, as pressure will be there

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so more competition. Example: Shikdar hospitals, Apollo Hospital: They push each
other to lower costs and upgrade quality. The more the competition in the local
market, the more happy the customers will be. So the customers are the gainers as
more competition. Example: City cell ruled in the beginning. Now Grameen Phone
and other cell phone companies came so we are being benefited. As our customer
is our motivation, always welcome domestic rivalry.
 Create pressure for innovation
 Seek out the most capable competitors as your motivation.
 Targeting emerging market as production cost is lower, profit
margin is higher. Example: China: high quality, labor cheap and pricing
strategy very cheap.
 In Bangladesh, the strength of the market matters not the size
of the market. Example: BMW cars
 Always welcome domestic rivalry
 Create pressure for innovation
 Seek out the most capable competitors as your motivation.
(d) Size of Home Demand
The total size of the home market is not very important. Let us assume that the
demand for shoes in china is 1000 units and in Italy it is only 100 units. The Italian
market is different. It has been observed that the nature of the home demand
create international competitive advantage. Example: Chinese shoes are not high
quality shoes. The Italian home demand is very exclusive and thus they have
competitive advantage in designer shoes. The quality of the product is very
important. They charge high prices as Italian shoes have good quality. If the size of
the home demand is small they are thinking about quality product.
(e) Rate of growth of Home Demand
The rate of growth of home demand implies how it is increasing or decreasing. If
increasing than positive if decreasing than negative. If home demand is increasing
very fast then companies become very innovative and become internationally
competitive. Example: U.S.A. and Japan both have demand for cars. After World
War II the Japanese car industry was badly destroyed. However, the Japanese
people are very hard working and so they have overcome their problem; and are
now doing well. So Japanese customers needed a lot of cars within a short period

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of time. The U.S. customers were inapt. So, its customers did not need a large
number of cars in a short period of time. As a result the Japanese growth rate for
cars was higher than the U.S. these rapid growth rate enabled the Japanese car
companies to make a lot of technological changes so that they could resolve the
problem. The manufacturers made cars in a very short period of time. They were
forced to come up with efficient cars within as short period of time. Growth rate was
high so demand was high. The greater the growth rate of home demand, the
greater the technological change and the greater the innovation.
(f) Early Saturation
It happens when local competition gets tough and everyone tries to increase
efficiency. Saturation means whether the market is saturated or not. If the market is
saturated then too much competitiveness exists. We have to survive in a difficult
way. If the home customers get product from local manufacturers and then stop
buying there is threat from home customers. During saturation of the domestic
market there is fierce competition and that is why you know how to solve the
problem. In order to compete with each other they cut production costs, improve
the quality and so on. If my market is saturated then only I feel the pressure of
going to a foreign market. As a result, players in the foreign market cannot
compete with the new entrant. Foreign companies will not be able to compete with
us. Example: Construction firms in Korea had to come to under developed
counties such as Bangladesh, because the markets in developed countries were
saturated. Foreign construction firms have built many bridges, roads and so on.
For the last 20 years, they have been expert in this segment, because they have
done significant construction work in Korea and that has given them experience.
However, in Korea there is no such scope. They had to think about the
international market. After 1997 most of the Korean companies were shut down –
there was nothing to do. As a result, they had to work overseas. Scopes were there
in the international market. You will see that the Korean companies develop some
of the bridges in Bangladesh. Korean company, Hyundai Construction constructed
the Jamuna Bridge. Look for countries where there are scopes. There is a scope in
a different market but not in there home market.

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 Internationalization of Domestic Demand:


 Mobile or Multinational Buyer
We have learned that domestic buyers can make the company internationally
competitive. If they have both a home and international subsidiary, they will use the
same products both home and abroad. Example: CATERPILLAR INC makes
heavy-duty machines such as cairns and other construction equipment. Because
the American engineer has used the CAT machines in his home market, he will
continue to use it in the overseas markets as well. This way, the other construction
firms all over the world also got to know about Caterpillar Inc. products. Caterpillar
Inc therefore became internationally competitive in the world market because of its
increase in popularity in other countries. The supervisors trained their subordinates
in the overseas market to use Caterpillar Inc. products and thus Caterpillar Inc.
became internationally competitive because of its mobile or international buyers.
 Influences on foreign needs
When you go outside and stay in a foreign country for a long time, you start to use
the products that are available there. You use these products for the time that you
stay there and become familiar with them. When you come back home you want to
use those products at home, thus creating the demand for them. Example:
Pringles Chips were not available in Bangladesh a few years ago. They are now
because there is a demand for them that has come from people going to U.S.A.
and bringing them back with them. Example: Flex Shampoo was never available in
Bangladesh a few years a go as well. Now it is not only available but at reasonable
prices as well. The availability has come to being because people who have gone
abroad and used the product found that it is good for them and has asked the
shops to import them because there is demand for such products. Thus, the
products have gained international competitiveness through the customers’ foreign
needs. Example: Similac baby milk is a product that is healthy milk, which does
not allow the baby to get fat. This product is not available in Bangladesh but is
widely available in the U.S. a lot of mothers give birth to their children in the U.S.
and then come back to Bangladesh. The doctors in the U.S. also suggest that the
mothers feed their new born this product, because if you make your baby too
healthy after birth it has adverse effects afterwards as the cells in their bodies get

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fat and no matter how hard they try afterwards they can not slim down. Example:
You go to America for training, and go back to your country and import that product
for your use. Foreign students that went to study in the U.S. used Microsoft
products and found them to be user friendly. When they came back, they forced
the offices to use Microsoft products. These are small products and individual
buyers.
3. Related and Supporting industries:
 Competitive Advantage in Supplier Industries:
These are those industries that help you to produce the final products. Both Japan
and Germany are very good in the automotive industry. Nothing is imported so the
related and supporting industries are also located in that country. However, Toyota
is not producing everything but contracting out to its related and supporting
industries. Toyota designs the engines and gives it to its supplier to make and
supply to Toyota. It helps Toyota become internationally competitive as everything
becomes cheaper. Example: The garments industry of Bangladesh is another
such example: other smaller companies other than the main manufacturer
manufacture the buttons, collars and other small parts. Japanese electronics
companies have become internationally competitive and successful. The motor
belts and other small parts required to produce a CD player, are made in Japan.
Without these firms producing the small parts, the Japanese companies could
never become so successful and internationally competitive. When these
supporting industries exist not only will you be thinking about your product but the
supporting industries will also innovate and upgrade their products thus upgrading
yours. Thus both the main industry and the supporting industries need to work
together to make it better so that it remains internationally competitive.
If the raw materials are not good, the final product will not be good either. So the
related and supporting can make the company internationally competitive. They
can innovate and upgrade their own product thus making the final product better.

 Close Relationships: Japanese firms have extremely close relationship with


their supplier. They maintain minimum JIT inventory system. JIT allows you to
keep minimum inventory because suppliers will ask whenever you ask. As a
result, your factory never shuts down. Your factory becomes internationally
competitive.

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 Joint Innovation: Not only will you innovate but the suppliers will also
upgrade their products. Joint innovation helps the products become
internationally competitive. Example: Toyota provided the design and
specification for their engine to the supporting firms. If the engine is bad, they
will lose their international competitiveness. They i.e. the supporting firm
does a lot of experiments to determine for example the type of metal used to
manufacture the engines. It is the supporting firms and not Toyota carry out all
the experiments required. Thus the supplier i.e. The supporting industry
decides how much innovation can be provided.
 Competitive Advantage in Related Industries:
 Complementary Products
Complementary products required by the computer industries are software.
Therefore, the complementary products by IBM, and Apple i.e. software are
supplied by Microsoft. IBM gave birth to Microsoft. They made MS DOS for
IBM. Thus, IBM needed Microsoft and Microsoft needed IBM. Apple gave
Microsoft to produce Word, Excel etc. Microsoft also gave contracts to Compaq
and Dell to produce high quality PC. Therefore, they need each other to
survive. They have made each other internationally competitive. Related
industries can share similar technologies. Example: Camera, Photocopy
machines in Japan use similar technology. Some of the best and internationally
most competitive companies that produce Cameras and Photocopy machines
are in Japan. They are sharing the same technology and that is why they are
both internationally competitive.
4. Firm Strategy, Structure & Rivalry:
The way the firms are created and born and the way they run in the
international market depend on structure. Which structure is better or more
preferred a family structure or a hierarchical structure? Japanese firms do not
promote very frequently but it does not mean that junior associates do not
have the opportunity to reach the top.
Italian companies are family owned structured. Italians prefer family owned
business. They have become successful. The leadership lies with in the family
heads or the children. What type of market the fashion industry operates in:
Niche Market. The buyers of Gucci and Versace are not for general buyers.

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They are targeted toward small market Italian shoes and designer wear.
These are high quality products.
 Firm Structure
The firm structure that is popular in a country. In Italy, the companies are family
owned and are internationally competitive in producing shoes. On the other
hand, companies in Germany are hierarchical and bureaucratic. They produce
complicate machines. They need to be from technical background. In addition to
cars in Germany, they also produce industrial machinery. Family ownership does
not work. Technical background is required. This is not a family owned business.
They have to be professional, bureaucratic and hierarchical. Without a technical
background, you cannot become competitive. Example: Battenfeld and Krauss
Maffei are very efficient in producing plastic products.
 Goals:
How a company is run depends on its strategy goals and structure.
 Company Goals
The company goals depend on the country. Example: Switzerland became
popular in banking. Swiss Bank has a competitive advantage because it does not
disclose the money that account holder has and moreover, the accounts can not
be frozen.
 In Switzerland
 Shareholders of companies are institutional investors i.e. bank,
insurance companies etc.
 Shareholders do not care about short term gains in investment/stock
prices.
 Hence the Swiss are good at stable industries i.e. Banking
 In U.S.A.
 Shareholders of companies are institutional investors i.e. bank,
insurance companies etc.
 Shareholders care about short term gains in investment/stock prices.
 Hence, the Americans are good at fast changing industries. i.e. IT,
Software etc.

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Competitiveness
 The reason for start up companies doing well in the U.S. is that they
recruit the best with high salaries and do well.

 Goals of individuals
People who work and manage companies are also an influencing factor.
(a) Reward as a motivational Issue: Example: American are financial
gain driven, hence they join start ups. Brilliant people join start-ups if pay is
right. Example: In Sweden, most brilliant people want to join large
companies. i.e. Volvo, Nokia etc. they do not think about incentives that much
they think about what company they work for and the prestige and status the
company gives them because of that,
(b) Relationship with companies: Some industries require more
co-ordination. When you are working in the automobile segment all
departments, need to and have to work together. You need the finance,
marketing and engineering departments to make the product a successful
one. You will notice that you need cooperation between finance, marketing
and engineering departments. As a result of the relationship, the coordination
is very good and thus they have achieved competitiveness in the segment.
The Japanese companies have a lifetime working policy. Hence, the
companies work for a company for life. Thus, it is relationship based.
On the other hand, some industries require and depend on a few brilliant
individuals. In such cases, the success of the industry depends on a few
people. If you have Sanjay Lila Bansali, and cast Shahruk Khan and
Ashwaria Rai in a movie, you have a hit movie. That is why talented directors
move from studio to studio.
In the car industry, small mistakes cost a lot, but editing a movie is not
so difficult. The slightest mechanical in a model can cost a lot as the model
will be rejected as a whole because you cannot understand where you made
the mistake. The success of the movie industry depends on the hero, heroine,
director etc. as individuals, but; the success of a car depends on each and
every individual from your foreman to the top engineer for the success of your
model.
(c) Skill Development:

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INB 410 International
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There are some industries where an individual requires certain skill to be
successful. The person will need time to develop these technical skills. You
need to develop the technical skills required to survive in the industry; and the
development of such skills requires a lot of time and training. Only when a
person has received the proper training and spent time in developing the skills
will he become successful. Example: The Germans are good at engineering
related industries they need a lot of time to be specialized and trained.
Do you think that success depends on a lot of formal education and training?
Not everything requires formal training. In some industries such as the movie
industry, creative talent is more important than training. Steven Spielberg was
given a PhD. Degree by Yale but he has no formal training, yet he is very
successful.
Hence, you see the Germany you need a lot of formal training and education
to be competitive and successful, but such is not the case in Hollywood
U.S.A. Example: Matt Damond who wrote the Oscar winning movie “Good
Will Hunting” is a Harvard University drop out. So is Bill Gates the CEO of
Microsoft.
(d) Attitude towards Risk:
In countries such as Switzerland, failure is not acceptable. In Norway, it is a
societal shame. That is why very few companies emerge out of these
countries. On the other hand, the U.S., a few failures are acceptable.
Example: Bush failed in several businesses and lost a total of around $17
million before he stood for the elections as a candidate for the governor of
Texas and failed that too. After that, the second time round he not only
became the governor of Texas but the president of the U.S. too. If you fail,
you can identify where you went wrong. People who immigrate from one
country to another are ultimate risk takers. America is a country of immigrants.
 The Influence of National Prestige in Goals:
This is about trying to increase their national prestige. An attempt to preserve
or increase a nation’s national prestige can also make them internationally
competitive. Example: The U.S. has gained competitive advantage in producing
missiles and space ships etc.

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Competitiveness
Russia launched “Sputnik” – their first space ship. After this, the American
prestige was hurt. So, the American aerospace firms thought that they needed to
beat Russia at any cost. As a result, the U.S. hired the best engineering
students from all over the world and became the world leader in the
aerospace industry.
In Japan, it is considered to be very prestigious to be working with or for the
companies in their world-renowned electronics industry. As a result, they have
gained competitive advantage, the national prestige increased, and people want
to work for the industry.
The admiration of the local population can also gain national prestige.
Admiration for football in Bangladesh has decreased and for cricket, it has
increased because it has done well on the world stage. The admiration for
Basketball players in America is also great. In America, the biggest professional
basketball players exist because the local people admire the game and people are
willing to pay. Also, notice that both India and Pakistan have good national
cricket teams because people admire them. This allows them to create a
competitive advantage on the international stage. If it does not exist competitive
advantage cannot be gained.
 New Business Formation
The process through which firms are created also has an influence on international
competitiveness. In the U.S.A., you will notice that most of the new products come
from the Universities, research centers etc. Michael Dell started his new
business while in University. Bill gates thought about software while in Harvard.
They thought about small products and the market was very small. When Gates
thought about software, hardly anybody knew about software. When Michael Dell
thought about selling computers through the internet, hardly anybody knew about
the internet. Their Universities helped them to create the market. They gave sells
and developed the market through the internet. They gradually developed the
segment for internet shopping.
In Japan ideas are created within large companies not in Universities or large
research centers, they are not so rich. All the big co-operations have funding for
their new inventions. Toyota, JVC, Sony developed LD players and DVD players
by themselves.

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INB 410 International
Competitiveness
These products were targeted towards existing large markets. In Japan, the large
companies are putting up the research funds not the Universities and research
institutes/centers. They have to continuously innovate and upgrade their existing
products. Japan has big co-operations with large funds and a large existing
market. In contrast, in the U.S. there are small companies, small markets which
are gradually developed over time.

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INB 410 International
Competitiveness
The Dynamics of National Advantage
Influences on Factor Conditions
(1) Domestic Rivalry
Domestic rivalry creates skilled human resources, research institutes etc. If home
demand is greater so is competition. Example: New York is popular for its banking
segment. In New York, you will study something where it is very easy to find a job
so study something related to banking, because of the scope of opportunity
present in New York. Similarly, California is popular for its winery. In California, you
will study something related to the winery industry; so that you can find a job in the
sector. Individuals feel inclined to become skilled because it is less risky to find a
job. They may find the job more prestigious. Doctors, lawyers and investment
bankers in New York are considered very high status. Morgan Chase, Goldman
Sacks and ABN Amro are just some of the big names in the investment-banking
sector in New York. In India, you study hotel management because hotels are on
the rise in India.
(2) Related and Supporting Industry
The rate of factor creation becomes higher. Skills are transferable. Example:
Denmark has a competitive advantage in the food industry. Sometimes your skills
are transferable. Suppose that you were working for an alcohol industry. So you
have preservation skills and thus you can work for the food industry and other
related industries. You can also get work in supporting industries.
(3) Demand Conditions
The presence pf an excessive level of demand influences factor conditions.
Example: The Swedish and Norwegian economies are both dependent on sea
transport because they are surrounded by sea. They have very good educational
institutes for marine science and oceanography. Example: America is popular for
military supremacy. Therefore, the American government gives a lot
money/funding to Universities and research centers for military and defense related
research. Universities such as MIT and Caltech are producing cutting edge
technology for missiles and remote control planes and weapons. The people at
CALTECH are experts in producing missile technology. They have become

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INB 410 International
Competitiveness
competitive because of excessive demand conditions. The demand gives money
and therefore they become competitive.
Influences on Related & Supporting Industries
 Domestic Rivalry
This is the most important influence on the related and supporting industries of an
industry. Example: There is fierce domestic rivalry in the Japanese electronics
industry. They get support from the supporting industries. They manufacture semi-
conductors and the growth of the related industry has resulted in fierce competition
amongst them. That is why they are continuously upgrading their products.
Example: In Hollywood, studios such as Paramount and many others have done
very well internationally. This is because they are competing with each other. It is
very hard to make movies without their help. To make the best movies you need a
lot of support. Thus, there is a lot of demand for sound systems, animations, and
special effects. Example: THX Sound. Customs are also supporting industries.
These are supporting industries i.e. THX sound and animation that help to make a
movie a hit. Thus, with out the help of these related and supporting industries you
will not be able to make the final product let alone a hit movie.

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The Loss of National Advantage
1. Factor Conditions Deteriorate:
You always have to think about improving. Sometimes factor conditions
deteriorate. Factor conditions will decline if up gradation of Human resources
does not take place. Upgrading means; giving them the latest education.
Example: In both the garments sector and the automobile sector there is
need for up gradation of human resources and technology. Otherwise,
somebody else will make the same product at a cheaper rate and more
efficiently if you do not upgrade. Example: Germany is very good in
producing high precision machinery. Now Taiwan has taken over because
Germany concentrated on high quality not on producing cost effective i.e.
cheaper machinery. If you cannot produce machines with a balance between
high quality and cheaper prices, competitors are going to take away your
market and your competitiveness.
2. Local Needs Fall Out of Sync:
If your local needs do not match global needs, you may loose your
competitive advantage. Example: Ershad introduced Bangla at all levels. This
was the local demand but not the international demand. Example: Previously
American automobile companies were very popular. The American local
demand was high fuel consumption, big, luxurious cars. They lost there
competitive advantage in the 1950’s and 1960’s because international
consumers demanded small fuel-efficient cars. Therefore, the world demand
was changing towards fuel-efficient cars. The Japanese automobile
companies fulfilled that international demand because the local demand in
Japan matched the international demand.
3. Domestic Rivalry Ebbs:
This means a decreasing domestic rivalry. Sometimes there are mergers and
acquisitions and therefore the competitors decline. Mergers and acquisitions
take place and thus domestic rivalry decreases. If competitions decrease, it is
a bad sign. The big companies are so big that no new firm wants to enter.
Example: German camera companies were the best in the world in the
1950’s and 1960’s. but there were so many mergers and acquisitions that
they had very few firms. They had little competition so they stop innovating.

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INB 410 International
Competitiveness
The Japanese firms took advantage of this situation because there were a lot
more Japanese firms and they were continuously innovating, improving and
upgrading.
4. Home buyers Loose Sophistication:
This occurs when the international buyers have become more competitive
than the home or domestic buyers. If such is the case, you will loose your
competitive advantage in the international market. Example: Demand for Iris
Soap and Dove Soap. Both the companies gained competitive advantage
because of international demand. Example: the Americans were the world
leaders in producing factory equipment in the 1950’s. Japanese customers
wanted machines that are more sophisticated and therefore they needed
more hi-tech machines, started producing it themselves, and gained
competitive advantage in the international market.
The American buyers’ demands were not sophisticated demands and
therefore they cannot be internationally competitive any longer.

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Case Study: Japanese Robotics Industry
 Japan has a competitive advantage in producing industrial robots.
 There are 300 Japanese firms selling industrial robots and the export is worth
over $ 4 billion.
Industry History:
 1950’s: The U.S.A started to produce industrial robots and export them to
Japan.
 1969: Kawasaki made robots with license from Unimation.
 1971: Hitachi, Toshiba also made robots and got into the industry.
 1972: Hitachi Toshiba also made robots and got into the industry. In 1972 the
Japanese Industrial Robotics Association was formed.
Early and Sophisticated Home Market Demand:
 The early users of these industrial robots were the automotive and consumer
electronics manufacturers.
 Nissan is an auto motive industry. They ordered from Kawasaki and tolerated
mistakes. The demand for industrial robots increased in Japan because of the
great number of lives lost in the World War II.
 They wanted an engineer from the manufacturers to be posted at the plant for
the whole day so that he/she can sort out the technical difficulties with the
robots when they arise.
 In 1965, rapid industrialization and shortage of labor encouraged the use of
industrial robots because of the shortage of labor.
 In 1986, 300 competitors were in the industrial robots market. There was
fierce competition and it fueled innovation. Innovation created a factor
condition and thus they were able to gain competitive advantage.

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National Competitive Advantage in Services
Types of International Service Competition:
 Mobile buyers travel abroad to another nation to have their services
performed. Example: Mount Elizabeth Hospital: people from Bangladesh go
there so that they can have open heart surgeries performed on them.
 Firms from one nation provide services in another nations using domestically
based personnel and facilities. It is usually time bound. They come for 3 to 4
years only. Example: Drilling engineers at Bibiana gas field.
 A nation’s firm provides services via foreign services location staffed with local
expatriates or local employees. Example: FDI in Audit, fast food, hotels, Car
Rentals etc. In Chevron Bangladeshis, work but expatriates are controlling the
top management. Other examples may include the management structures of
Sonargoan Hotel, Radisson Hotel, Sheraton Hotel.

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