INTERNATIONAL COMPETITIVENESS

The diagram above comes from the site of Prof. Keith Head, Associate Professor , Strategy and Business Economics Division, at UBC and is reproduced here with his permission given in a Jan 18th 2001 email. Copies of emails are kept in the permissions binder
see http://pacific.commerce.ubc.ca/keith/Lectures/diamond.html
.
 

KEY POINTS

The point of discussing Prof. Porter's "diamond", is that once you understand some theories of why countries trade - it is reasonable to discuss the point that  - "countries do not trade - companies do"; therefore Porter's theory is useful in order to look at why companies trade and what are the conditions that allow for a company to have competitive superiority. WTGR

.

Porter's theory has been widely adopted and there are many examples of where people use it to speculate how an entire country should be planned.   Example - Nepal

 http://www.nepalnews.com.np/contents/englishmonthly/businessage/2000/aug/economy.htm
ht

In this article from Nepal News, Navin Dahal explains how Nepal could benefit from adopting some of the principles that Porter theorizes. "Asking "How can Nepal be competitive?" will lead us nowhere as countries do not compete, companies do. The very notion of a country being competitive is misleading. No country in the world, even Japan and the USA, is competitive in all industries. A country can be globally competitive only in a few industries. Thus the right question to ask would be "In which industry or industries can Nepal be competitive?" Answering this will require an understanding of what makes a country competitive in a particular industry. Why are the Japanese doing so well in the electronics industry and the Americans in the IT industry?  What is it that a particular country has, but others do not, making its industry globally competitive?  "Are sound macroeconomic policies and political stability enough? The answer, according to Prof. Michael E. Porter of Harvard Business School, is a big no. Political stability and sound macroeconomic policies are necessary but not sufficient. ... The central issue in becoming globally competitive is how to create the conditions for rapid and sustained productivity growth in a particular industry. The microeconomic foundations of productivity rest on two interrelated areas: First the sophistication with which companies compete, and second, the quality of the microeconomic business environment. Companies, not governments, ultimately set the level of national productivity, and their ability to upgrade depends on the national business environment. Once companies move to more sophisticated ways of competing at the national level, their chance of becoming globally competitive increases. " Go here www.nepalnews.com....../2000/aug/economy.htm  to read the entire article

.
 

KEY POINTS

Porter is saying great government policy can't help companies of the country be competitive. Companies have to be competitive by striving for things beyond that which their host government can effect. This does not "release" governments from responsibility to help companies - it simply recognizes that government is not the total answer. Understanding this point is critical for students of international business in Canada since it should be recognized that Canadian companies (in the opinion of many observers) are much more coddled than U.S. companies. WTGR

.
While studying the theory of international competitiveness is interesting, let's have a look at what it means to Canada in reality. A newspaper story in the spring of 2001 reported Canada as having slipped to 9th on a list of competitive nations.

Whenever you read a statement that broadcasts so loudly some claim, it is always wise to consider the source, author, and how they in turn obtained their information. If you read the article, you'll note that it is based on a survey done by the International Institute of Management Development in Lausanne Switzerland.
 

	The web site of International Institute of Management Development in Lausanne
	On this page of the IMD web site, you can read the Executive Summary of the 2001 Report, written by Prof. Stephane Garelli  http://www.imd.ch/wcy/esummary/

Prof. Garelli's summary of the 2001 Report contains the following points

"fear of an economic recession ...

"The world is worried about the threat of a period of economic slowdown, if not recession. This concern has been triggered by the rapid deterioration of the American economy, which, as of March 2001, appears to be reaching the end of a 10-year period of continuous economic expansion....To complicate matters further, the economic outlook for Japan, which has its own structural problems, is  grim for 2001. Together, the US and Japan, the world's two largest economies, represent 46% of the world GDP. Thus, when almost half of the world economy loses momentum, one can reasonably expect that it will have a depressive impact on the performance of Europe, Asia and Latin America."
 

KEY POINTS

What is the credibility of the survey, that led to this point about Canada. Was it based on a large number of people? The IIMD survey was based on 3,200 executives - which is not a small number, but neither is it a large number compared to the total "population" of executives around the world involved in international business. Regardless of the survey numbers, some of the points in the report, such as the economic recession potential discussed by Prof. Garelli, appear to have a solid foundation in fact and we will consider this an important resource for MGTC44 for the Sept-Dec 2001 term. WTGR

.
One of the interesting points about this report is their treatment of the concept of "competitiveness". As Prof. Garelli notes "The development of technological infrastructure, the efficiency of government administration, the quality of education or the productivity of the workforce are competitive factors that  cannot be altered overnight"
 

KEY POINTS

Later in this course we will talk about the IMF and the World Bank as large NGO's involved in helping struggling economies. It will be worthwhile to remember this point about how competitiveness is something that changes slowly over time, because the IMF has been quite "firm" with some countries about how they have to change quickly. WTGR

.
For those of you who are interested, Prof. Garelli also makes some interesting comments about the "brain drain" into the U.S. in the Executive Summary "Between 1994 and 1999, the US 'imported' 124'000 Indians, 68'000 Chinese, 57'000 Filipinos, 49'000  Canadians and 42'000 British holders of higher education degrees. Of the 5 million people employed in the  US by the Information Technology sector, 1 million are foreign born."
.

Canada's Competitiveness 2001

Several Canadian newspaper, including the National Post carried an article in the beginning of August 2001, which referred to a study released by the national trade association Canadian Manufacturers & Exporters .  the National Post article begins by saying "Canada is at the bottom of the list of major industrial countries in terms of competitiveness,  according to a new ranking by the Canadian Manufacturers and Exporters."  "This is the third consecutive year Canada has pulled up the rear among the G7 countries..."  "Canada has some excellent companies and examples of world leaders, but overall the competitiveness of Canadian business is simply not adequate to ensure continued growth in today's international marketplace," Perrin Beatty, the CME's president    KEY POINTS So that we may be able to form our own opinion, and make some judgements by reviewing the original source, you are encouraged to go to the CME web site and read the original report, on which the National Post article is based. WTGR

.

Canada's Competitiveness 2001

The report is in a PDF document on the CME web site . "Canada has not reduced the gap in the past two years and the danger is ... we might sink even lower and never catch up,"  Perrin Beatty, the CME's president, said in a commentary on the results. "The report says Canada, instead of competing with other countries on the basis of new products, processes and other  innovations, has relied on a low Canadian dollar, low labour costs and a booming U.S. economy to maintain its industrial performance." "Jay Myers, CME economist, said that while Canadian business has been improving its performance in investment in  technology, R&D and other areas, other countries have done more.  "The problem is our competitors are doing it better and faster than we are. So what is happening is that Canada's relative performance against the rest of the G7 is slipping. The U.S. has had a major improvement in their competitive position and Canada has been slipping behind," Mr. Myers said." National Post

.

Canada's Competitiveness 2001

.  KEY POINTS The Canadian Manufacturers and Exporters association is one of the top industry associations in the country. In commenting publically about Canada's competitiveness, they have the opportunity to be positive or negative - both have consequences. What are the consequences of  talking publically about Canada's difficulty in being a competitive economy? WTGR .  People that take the time (and everyone should) to read the doc on the CME web site (its only 4 1/2 pages) will note at the end, interestingly, that the CME calls for government support to make "... Canada the home of manufacturing excellence"    KEY POINTS This statement might meet with some opposition from governments which have been touting services, not manufacturing - since they are under the impression that the world wide economy has been growing faster in services and that services are environmentally  friendly whereas manufacturing and industry is dirty.  WTGR .

.

Canada's Competitiveness better ?? Oct 2001

David Crane - who has long been writing great articles on business and trade topics for the Star - put together a great piece in Oct 2001 discussing Canada's competitiveness with some fresh input from Michael Porter .  "CANADA IS a ``current overachiever,'' says U.S. competitiveness expert Michael Porter in the latest edition of the World Economic Forum's Global Competitiveness Report" Crane writes "But this is bad news, not good. Porter means that our per capita income, or level of prosperity, is high relative to  our current level of competitiveness and may not be sustainable. One reason, he  argues, is that our natural resource wealth may be hiding our competitive   weaknesses in the knowledge - or innovation-driven economy."

.

KEY POINTS

One of the things that is important for students to deal with: if they plan to personally become involved in international business; is to consider the big picture of what Canada is good at, so they can successfully target career hunting in that area. Traditionally we would talk about the resource extraction and processing industries as the best chances for employment because that is where the greatest number of jobs are, and the greatest volume and dollar amount of our int'l business.  But in the future - it would be prudent to consider int'l business career opportunities in more innovation-driven situations, if, you believe Porter's points noted below. WTGR

.

Canada's Competitiveness better ??                     Canada's Competitiveness better ??

Crane quotes Porter as saying "Canada's big challenge is to make the transition from an investment-driven  economy to an innovation-driven economy.  In an investment-driven economy, efficiency in producing standard products and services is the dominant source of competitive advantage, with technology largely imported. That's Canada up to 20 years ago.  In an innovation-driven economy ``the ability to produce innovative products and  services at the global technology frontier using the most advanced methods   becomes the dominant source of competitive advantage,'' Porter says.   KEY POINTS One of the reasons why David Crane's selection of the Michael Porter points - is useful, is because; it gives us a better explanation of what competitiveness should mean in the context of Canadian international business.  WTGR . Crane writes - "It's important, as Porter emphasizes, to understand what is meant by  competitiveness in an innovation-driven economy.  It's not about increasing export sales through lower wages and a weak currency. For much of the past 20 years, Canada has relied on a weak dollar to sustain its exports. But this dependence, Porter suggests, reveals a lack of competitiveness. The goal of economic development is a rising standard of living, and that is  determined by the productivity of the economy. ``Productivity allows a nation to  support a strong currency, and with it a high standard of living. Productivity is  the goal, not exports per se,'' Porter argues." David Crane is The Star's economics editor.

.
 

Canada's Competitiveness 2003                       Canada's Competitiveness 2003

The Toronto Star carried a David Crane article 2003 Nov 1st in which Mr. Crane discussed the Global Competitiveness Report and Canada's fall from 9th place to 16th .  KEY POINTS The reason why we would care about this report, and the opinion it can shape, is due to how it may effect large international investors that hold Canadian government bonds. If confidence in Canadian government bonds falls, this will negatively effect the economy in this country - interest rates will rise and the government will be increasingly stressed for revenue sources.  WTGR .  Crane explains "The report, from the World Economic Forum, is one of a number of reports each year that attempt to assess how well economies are doing. The World Economic Forum report, while not perfect, is one of the better attempts to  provide such an assessment. It combines a lot of statistics along with information based on surveys of decision-makers in each country. It combines all this material into two indexes. The first is the Growth Competitiveness Index, which examines the macroeconomic conditions in each economy along with its institutions and its capacity for technological innovation. This index is designed to show each economy's capacity to sustain growth over the medium to long term. This is the index where Canada this year ranks 16th. The second index is the Business Competitiveness Index, which shows the  potential for productivity growth in each economy, based on the strengths and weaknesses of businesses in each economy and the quality of the microeconomic environment, which includes the availability of skilled workers, the quality of infrastructure, the existence of advanced research institutions,  efficient government processes and the level of competition in the economy. In this measure, Canada ranks 12th, compared to 10th last year.

.

International Institute of Management Development in Lausanne

Crane's article is based on the report of the IMD - International Institute of Management Development in Lausanne On this page of the IMD web site, you can read the Executive Summary of the 2003 Report,  www01.imd.ch/documents/wcy/content/eSummary.pdf written by Prof. Stephane Garelli (who also did the 2001 report)  www.imd.ch/wcy/esummary/

Canada's Competitiveness better ?? Feb 2004                         Canada's Competitiveness better ?? Feb 2004

David Crane Feb 2004 commenting on a KPMG report ranking Canada's competitiveness as # 1 .  Crane explains that "KPMG has produced a report suggesting  Canada is the cheapest country among 11 industrial nations in which to locate a new small or mid-size business. This finding will no doubt be used by the Canadian government, a client for the report, to promote investment in Canada by foreign corporations. Yet, its findings should be treated with caution." says Crane Crane contends "The KPMG study assumes productivity levels in the 11 countries are equal. Yet, there are great differences. For example, in business-sector services and manufacturing, productivity levels are 15 per cent or more lower in Canada  than in the United States." .  Crane says "... the study finds that setting up a software design facility in Sherbrooke, Que., is about 30 per cent cheaper than setting up in San Jose in California's Silicon Valley. But software investments are more likely to go to Silicon Valley despite its higher costs." This is a good example of having to interpret findings by adding in other considerations.

.

KEY POINTS

One of the things that is important for students to cultivate is the ability to be discriminating when they read reports and try to ascertain the truth by questioning who wrote a report and what are they trying to gain by the conclusions being public - or questioning what methods they used and if any significant factors are missing from the analysis. Crane explains that the KPMG study makes assumptions that are in error, which means that maybe the conclusions are not something we can take for certain. It would be nice to argue that Canada is # 1 in competitiveness, but if this is a conclusion based on some errors, than we have no right to evangelize the report. WTGR

.
 

Mr. David Crane has been the Economics Editor at the Star for many years. he is well known in Canada, and overseas, as a conscientious business journalist and highly regarded for his writings on business and marketing and economics in an international context. Mr. Crane's contribution to this section on Competitiveness is much appreciated. WTGR

.
 

witiger.com	CONTACT I MAIN PAGE I NEWS GALLERY I E-BIZ SHORTCUTS I INT'L BIZ SHORTCUTS I MKTG&BUSINESS SHORTCUTS I TEACHING SCHEDULE
	.
	MISTAKES ITEXTS USED I IMAGES I RANK IDISCLAIMER I STUDENT CONTRIBUTORS I FORMER STUDENTS I
	.

.