Competitiveness

Competitive Advantage of Nations Michael Porter Key to high productivity is the development of leading industries able to compete and dominate sectors at the international level. 4 self-reinforcing necessities for competitive industries referred to as the diamond model. National conditions tend to create multiple competitive industries.

Four points 1.Factor Conditions: Resources, capital, skilled labor 2.Demand Conditions: A base of demanding customers eager to buy quality products. 3.Firm Strategy, Structure, & Rivalry: Match between industry operations and product. 4. Related & Supporting Industries: Producing key intermediate inputs and supplies.

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Firm Strategy, Structure, & Rivalry Ex. Japanese Console Games Related & Supporting Firms Broadband Network Strong Home Electronics Ind. Three (Two Domestic) Intensely Competitive Console Makers Varied Industry of Software Makers Demand Conditions Most intense customer base Unique taste set Factor Conditions Technically adept work force Creative animation trad.

Clusters and Competitiveness Cluster: Concentrated industries w/ similar companies working in single location - e.g. Silicon Valley, Hollywood etc. Stimulates Productivity Innovation and Business Formation Link

Competitions vs. Scale Advanced production involves complex and multi-stage processing. This requires a high degree of coordination and potentially large scale. Knowledge creation requires fixed costs which might be spread over broader base. Competition is necessary to spur performance and provide good performance.

Value of Clusters: Productivity Better access to Employees and Suppliers Access to Specialized Information Personal Relationship and Trust Complementarities – Coordination of Standards – One-stop shopping for customers Spirit of Competitiveness.

Value of Clusters: Innovation & Business Formation – Low barriers to entry – Transfers of Information – Ease of Experimentation

Measuring Competitive Industries For industry j, Share of World Exports % Growth in Exports - % Growth in World Exports US$ Value of Trade

Mapping Competitive Industries World Trade Organization Statistics Database

Competitive Industries International Merchandise Trade Singapore Net Exports relative to World Exports Competitive Industry: Petrochemicals

Singapore Petrochemical Industry 1.Factor Conditions: Capital intensive, skilled labor requirements 2.Demand Conditions: Chemicals important for advanced Asian manufacturing industries, broad regional demand 3.Related & Supporting Industries: Petroleum by- products key intermediate inputs and supplies. 4.Firm Strategy, Structure, & Rivalry: Dominated by large international firms. Fits w/ Singapore’s int’l orientation & necessary scale economies

Jurong Island: Singapore’s Refining and Petroleum Hub Link

Cluster Policy vs. Industrial Policy No “desirable” industries, clusters can generate productivity in any industries. Key is not “high-tech”, but innovation and creation of new products. Avoid target subsidies, but reduce impediments to competition. International firms contribute to clusters, not just domestic champions. New clusters build on old clusters through a process of upgrading, not leap-frogging.

Industry Policies McKinsay Global Institute argues competitiveness policy needs to focus on all industries, not just on internationally competitive industries. – In advanced economies, most people work in services sector. Service sector productivity is key. Industry-specific competitiveness policies must take account of sector needs. Productivity of individual sectors more important than tilting toward correct sectors. Link

Taxonomy and Policy 1.Setting the ground rules and direction – General regulatory environment – Setting broad directions 2.Building enablers – Expanding infrastructure, training, and R&D. 3.Tilting the playing field – Trade protection – Financial incentives for local production 4.Playing the role of principle actor. – State owned/subsidized companies. Link

Industry Policy Infrastructure: Utilities, telecoms, railroads – increasing returns to scale means unregulated markets do not lead to competitive markets. Rules of competition need to be set w/ incentives for efficiency and innovation. Business Services – Competition plus enabling (education + R&D). Local Services – Characterized by turnover, ground rules must allow for intense competition and entry and exit.

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Manufacturing: Countries have tilted manufacturing policy (protection from foreign imports, subsidies for exports, incentives for FDI) in ways successful and unsuccessful. R & D Intensive Manufacturing – Enabling with R &D and education. Hard to successfully tilt playing field though many try since these sectors seldom succeed w/o some gov’t involvement.

Final Exam Saturday, December 13 th, LG :30-3:30. Cumulative. Similar to mid-term and practice exams. Bring writing instruments and a calculator. Semi-open book – Bring 1 A4 size paper with handwritten notes on both sides.