International competitiveness and the challenges of internationalisation for the SMEs Prof. A.Sinatra a.a. 2011/2012

A sector is competitive if it contributes to the national welfare through the optimum use (i.e. more productive) of capital and available resources. The concept of international competitiveness You must carefully consider certain indicators, e.g.: High trade balance or export share They may result from a low-cost transfer of national resources Low related prices It should mean the absence of competitive advantages and a poor profitability Job creation It should mean the inability to innovate the manufacturing processes

The sigle Co., not the industry, compete in the international markets; Although some of them develop an international organisation, they all have a "national basis“, that is defined as: The country where the strategy is developed; The place where we can find the crucial phases of the value chain ; The “physical space" that hosts the distinctive skills. International competitiveness: the enterprises and their "National Base" The characteristics of the "national base", along with the specific skills and strategies of the companies, explain the international success of a sector. The country basis is a complex system, hard to imitate for foreign competitors The characteristics of the "national base", along with the specific skills and strategies of the companies, explain the international success of a sector. The country basis is a complex system, hard to imitate for foreign competitors

The determinants of international competitiveness of an industry These factors create a dynamic system in evolution: in the advanced sectors, competitiveness depends on the degree of consistency between the variables and the rate of innovation. strategy, structure and competition between companies inputs and production factors (labour, capital) Demand The related industries characteristics The role of Government and of the external factors

production factors Availability, cost and quality of human resources Availability, cost and quality of raw materials Availability of scientific, technological and market knowledge Availability, accessibility and cost of financial capital Kind, quality and cost of available infrastructures (e.g. transport, communications) A sector can create a strong and sustainable competitive advantage if advanced and specific factors are available in the national basis The competitive advantage that is based on basic factors is temporary and not sustainable Disadvantaged situations related to the basic factors can stimulate innovation if the other elements of the system allow it (selective disadvantages) The availability of advanced and specific factors is not given but it is the result of a process of long-term creating

Demand Very sophisticated and demanding customers and distribution channels Customers and distribution channels that anticipate the needs that will rise in other Nations High number of independent buyers with high variety of needs Fast saturation of domestic market Fast internal market growth International mobility and cultural influence of the national consumers National demand strongly shape the skills and strategies of companies!

Related industries Qualified suppliers are key for a joint development of innovations “Non captive” suppliers that develope knowledge in the sector Global suppliers that exchange the information collected on foreign markets Complementary industries developing segments of the value chain (research promotion, distribution channels, etc…) The international success of many Nations, especially Italy, is based on clusters of related sectors!

Strategy, Structure and Competition Presence of a strong and free competition among local companies Culture and proprietary structures that promote long-term strategies Long-term oriented financial institutions Low entry bariers for new competitors (spin-off, non traditional competitors) The competition drives firms: to improve themselves and to go beyond the benefits deriving from the national resources to saturate the internal market more quickly to experiment with a variety of strategies and solutions not to compete for government aid and favors This is the most important element for the success of the industry

Evolution of the national competitive advantage The transition from a stage of growth to the next one is not automatic but assumes a "leap" of strategy and the appropriate boundary conditions Acquisition and enrichment of foreign technologies Expansion of the productive basis Still unsophisticated demand but growing quantitatively, very fast Increased internal competition Strong direct support of the Government Investments driven Selective disadvantage factors are emerging Companies are forced to create innovative technologies and strategies Development of the related industries The domestic demand is becoming sophisticated and internationalising Innovation driven Less entrepreneurship Under-investment in the sector Tendency to acquire (more than to conquer) new market share Tendency to seek for the protection of the Government Success based on the cumulation of past investments (image, technology) Wealth driven

How to avoid the «richness syndrom»? FROM STATIC DEFENSIVE GAMES TO DYNAMIC PROACTIVE STRATEGIES

Focusing on the "non price" factors  The shrink of the margins (price competition) shows the difficulty to benefit from the traditional geographical mobility (opportunistic strategy) Competitive conditions on "non-price” factors require an increasing attention to the long-term strategies:  Non occasional cultivation of the markets  Stable relationships with customers and local distributors

12 LONG TERM STRATEGIES The short-term orientation produces the typical "vicious circle" which leads to failure We think in terms of Italy + export (as a “tank market”) automatic translation of the national model Replicate the successfull strategy limited resources harvest immediately Short time orientation & Unacceptance of the "rules of the game" of the new market Limted success and failures Disappointed from the foreign market

13 SMEs critical issues  growing importance for the export of factors linked to:  Distribution  Marketing  Logistics  Promotion  Certification  Quality after-sales service  There are still entry barriers to large-scale distribution

14 + High rate of development of new competitors (eg. BRIC)  Investment in R & D, grown in absolute terms, does not reduce the distances for the main competitors  Delays in product innovation  Continued dependence on imported technologies  Poor critical mass  Little external economies  Few "competitive assets" for agreements-mergers-acquisitions  Few opportunities to use the European public support Sme’s critical issues 2

15 SMEs Opportunities The traditional flexibility, creativity, adaptability of italian SMEs continue to be a valuable and irreplaceable heritage but it is inadequate to meet the competitive challenges of the coming years. It’s necessary to use the opportunities offered by a negative cycle to develop and consolidate the SMEs export position, especially working on the downstream of the production process (distribution, marketing, quality assurance, logistics, promotion and after-sales service).

16 The challenge is to move... … from “export”... … to internationalization

It requires deep changes How to go international: Export managed by the national structures Export managed locally Licenses Agents Representatives Joint-venture Direct investments Low High

18 Deep Change... 1/4 CULTURE  Legitimization of diversity  Create commitment towards different contexts  Competitive game concept (Dynamic vs. static)

19 Deep Change... 2/4 CHOOSING A SUSTAINABLE STRATEGY  of business portfolio  geographical presence  strategies differentiation  alliances (with allies and opponents)

20 Deep Change... 3/4 THE ABILITY OF MANAGING COMPLEXITY  Computerization  Under-optimization of the micro projects and optimization of the macro-project  Multi-cultural learning

21 Complexity of strategic management Complexity of operational management Strategic Vs Operational Management

22 … MANAGEMENT  No news in structural landforms  Significant innovations in operating mode  Resource management  Decision-making processes  metamanagement Deep Change... 4/4

23 The challenges for the SMEs  To develop a true entrepreneurial culture to foreign markets  To use the flexibility of enterprises and their creativity to meet more effectively the needs of users  Exceed the limits of the small size by collaborating with others Learning how to invest Learning how to change their business model Learning how to create and manage networks and business systems The challenge for the management of the small and medium-sized enterprise is:

Prof. Alessandro Sinatraa.a. 2011/2012 Questions ? Strategic Issues of Made in Italy