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







innovation and change.

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

 Competitors will eventually overtake any company that stops innovating and

 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.


INB 410 International Competitiveness 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


INB 410 Competitiveness
different from other products.


will switch to new products. So improve your product – one way how you can be 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


INB 410 Competitiveness


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


INB 410 Competitiveness


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.”


INB 410 Competitiveness
place by blending the two.


More often than not it comes from effort and the openness and looking in the right 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


INB 410 Competitiveness


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


INB 410 Competitiveness


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.


INB 410 Competitiveness
Goal of a Nation:


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) (iii)

We can have a high standard of living by being productive, competent and efficient in all departments. 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) (ii) (iii) (iv) (v) Cheap Labor Stable Government Natural Resources Government Incentives 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.


INB 410 Competitiveness


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.

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. 10

INB 410 Competitiveness


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.


INB 410 International Competitiveness 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 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 particular country and also gives an overall profitability idea about the entire industry. The five

(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. 12

INB 410 Competitiveness


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: RealEstate 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


INB 410 Competitiveness


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


INB 410 Competitiveness


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) (a) (b) (a)

Positioning within the industry:
Lower Cost Strategy Differentiation strategy

While positioning a product in an industry you need to think about two things:

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.


INB 410 Competitiveness
(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.


INB 410 Competitiveness
Sources of creating Competitive Advantage:


There are five ways of creating competitive advantage. These are: 1. 2. 3. 4. 5. New Technologies New or Shifting buyer needs Emergence of new industry segment Shifting Input cost or availability 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 17

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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.


INB 410 Competitiveness
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.


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.


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 19

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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) (b) They make low cost copier as and when compared to big and expensive Xerox. However, Japanese copiers also have several other advantages: 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.


INB 410 Competitiveness
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.


INB 410 Competitiveness
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 22

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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.


INB 410 International Competitiveness Determinants of National Competitive Advantage
Porter’s Diamond model:

1. Factor Conditions

2. Demand Conditions

3. Related and Supporting Industries

4. Firm Strategy, Structure & Rivalry
Fig: Porter’s Diamond Model


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) (ii) (iii) land labor 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


INB 410 Competitiveness
producing textile chemical dyes.


day. Now because of innovation Germans are the worldwide leader in Example: Americans are looking for alternative sources of energy, such as, solar energy, gas and others.


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


INB 410 Competitiveness
(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.


INB 410 Competitiveness
(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


INB 410 Competitiveness


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 Always welcome domestic rivalry Create pressure for innovation Seek out the most capable competitors as your motivation. of the market. Example: BMW cars   

(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 31

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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.


INB 410 Competitiveness
 


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 33

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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.


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.


INB 410 Competitiveness  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.


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. 35

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These are high quality products.


They are targeted toward small market Italian shoes and designer wear.

 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. 

Company Goals

How a company is run depends on its strategy goals and structure. 

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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recruit the best with high salaries and do well.


 The reason for start up companies doing well in the U.S. is that they

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.


Skill Development:


INB 410 Competitiveness


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.


INB 410 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.


INB 410 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.


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


INB 410 Competitiveness
and therefore they become competitive.


competitive because of excessive demand conditions. The demand gives money

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 semiconductors 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.


INB 410 International Competitiveness The Loss of National Advantage

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.


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.


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. 43

INB 410 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.


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.


INB 410 International Competitiveness 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.


INB 410 International Competitiveness 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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