1. Country Competitiveness
International Business
Oded Shenkar and Yadong Luo
Chapter 5
Country Competitiveness
Chapter 5: Country Competitiveness

2. Do You Know? Why do countries differ in their overall competitiveness?
Why is a country’s competitiveness more salient in some industries?
What roles should firms and individuals play in shaping country competitiveness?
How does a foreign country’s competitiveness influence the MNEs?
Chapter 5: Country Competitiveness

3. Defining Country Competitiveness
Competitiveness is a relative strength necessary to win in competition against industry rivals.
Country Competitiveness is the extent to which a country is capable of generating wealth, when measured against other countries, in world markets.
To be competitive, governments must create and sustain a domestic and international competitive environment that favors business operations and productivity in one or more industries.
Chapter 5: Country Competitiveness

4. Defining Country Competitiveness
Productivity is important to competitiveness.
Productivity is the value of the output by a unit of labor or capital.
It is the prime determinant of a country’s standard of living, and the main source of national income.
Productivity depends on the quality and features of products and the efficiency with which they are produced.
Productivity does not come from what a country has, but from how it uses those resources.
Chapter 5: Country Competitiveness

5. Country Competitiveness and MNEs
The following contribute to country competitiveness:
Government policies, national values, national culture, economic structures, economic and governmental institutions, and national histories
Nations have become influential in international business operations.
Most governments have institutions that promote economic development by marketing competitiveness factors to Multinational Enterprises.
Chapter 5: Country Competitiveness

6. Country Competitiveness and MNEs
Examples of governmental promotion include:
Italy’s promotion of resources, histories, and capabilities for shoe and leather production.
Japanese promotion of culture, history, and capabilities in semiconductor and electronics production.
Swedish promotion of history and culture related to concern for people and product safety.
Chapter 5: Country Competitiveness

7. Country Competitiveness and MNEs
Country competitiveness affects selection for operations locations.
Competitiveness impacts the industry selection of an MNE.
Competitiveness affects MNE innovation capacity and capability production.
Competitiveness affects MNE global strategy.
Chapter 5: Country Competitiveness

8. Country-Level Determinants
Competitiveness improves when countries enhance their productivity capabilities, driven by the following factors:
Country-level
Industry-level
Firm-level
Individual-
Country-level fundamentals include:
Science, education, and innovation
Economic soundness
Finance
Internationalization
Chapter 5: Country Competitiveness

9. Country-Level Determinants
Exhibit 5-1: Determinants of country competitiveness
Chapter 5: Country Competitiveness

10. Country-Level Determinants
Exhibit 5-2: Country-level determinants of country competitiveness
Chapter 5: Country Competitiveness

11. Science, Education, and Innovation
Countries promote technological innovation through establishing institutions that make tech innovation more likely.
This is done by:
Developing basic scientific capability and R&D
Supporting educational institutions that research, teach and support economic development
Supporting technological innovation through economic and governmental policy.
Chapter 5: Country Competitiveness

12. Macroeconomic Soundness
Countries try to develop sustainable economic growth potential.
They do this through creating policy that promotes:
Investment, consumption, growth in real income, service and production sector performance, and infrastructure development.
Essentially, they promote consumption, investment, government spending and net exports in order to build economic stability favoring international economic growth.
Chapter 5: Country Competitiveness

13. Macroeconomic Soundness
Exhibit 5-3: The strength of macro-level domestic economy (Top 20)
Chapter 5: Country Competitiveness

14. Finance
Countries try to develop financial sectors that invite international investment.
They do this through:
Managing appropriate currency valuation
Promoting solvency in the banking systems
Managing appropriate levels of short-term external debt
Chapter 5: Country Competitiveness

15. Internationalization
Internationalization refers to the extent to which a country participates in international trade and investment.
Promoting internationalization is done through:
Building positive export balances
Establishing workable exchange rate systems
Building financial and direct investment
Keeping high foreign exchange reserves
Promoting economic and cultural openness
Chapter 5: Country Competitiveness

16. Internationalization
Openness refers to the ease of which resources, goods, services, people, labor, technology, information and capital flow across boundaries.
In order to promote openness
Countries seek to negotiate lower trade barriers and protectionism,
While promoting cultural acceptance of “global mindsets” among the population
Chapter 5: Country Competitiveness

17. Industry-Level Determinants
Four broad attributes constitute national advantage
Factor Conditions
The nation’s position in factors of production, including labor, capital, land, and natural resources.
The nation’s position in more sophisticated factors, such as skilled workforce, scientific base, infrastructure and information
Demand Conditions
The nature of market demand for the industry’s product or service.
Chapter 5: Country Competitiveness

18. Industry-Level Determinants
Four broad attributes constitute national advantage
Related and Supporting Industries
The presence and support of a nation’s suppliers or other related industries
Cluster – when suppliers, manufacturers and distributors are located near each other
Rivalry and Business Practice
The nature of domestic rivalry in addition to the conditions governing how business are organized, managed and operated in a country
Chapter 5: Country Competitiveness

19. Industry-Level Determinants
Exhibit 5-4: Industry-level determinants of country competitiveness
Chapter 5: Country Competitiveness

20. Industry-Level Determinants
Exhibit 5-5: The microeconomic competitiveness scoreboard (Top 20)
Chapter 5: Country Competitiveness

21. Firm-Level Determinants
These strategies, principles, or approaches differentiate one country’s firms from those of others.
Include technological innovation and organizing principles.
Inevitably diffused across nations and imitated by foreign rivals.
Chapter 5: Country Competitiveness

22. Firm-Level Determinants
Exhibit 5-6: Firm-level determinants of country competitiveness
Chapter 5: Country Competitiveness

23. Individual-Level Determinants
People or human resources associated with country competitiveness:
Workers
Entrepreneurs
Managers
Engineers
Educators
Politicians
Interplay of the Four-Level Determinants
Chapter 5: Country Competitiveness

24. Individual-Level Determinants
Exhibit 5-7: Individual-level determinants of country competitiveness
Chapter 5: Country Competitiveness

25. Government Role Governments can affect country competitiveness
Policy making and intervention
Trade liberalization and exchange rate adjustment
Industrial policies – all forms of coordinated government interventions to promote industrial development:
Import protection, financial subsidies, regulatory changes, training and infrastructure policies
Chapter 5: Country Competitiveness

26. Government Role
To play a supporting role in national competitiveness, governments should:
Emphasize competitiveness infrastructure
Enforce strict product, safety, and environmental standards
Deregulate competition
Adopt strong domestic antitrust policies
Boost goal-setting that leads to sustained investment
Chapter 5: Country Competitiveness