A Country's Competitive Advantage

By Kirchbach, Friedrich Von | International Trade Forum, January 2003 | Go to article overview

A Country's Competitive Advantage


Kirchbach, Friedrich Von, International Trade Forum


A business environment that fosters national competitiveness pays dividends across the board. Whatever its stage of development, expo strategies that support innovation and use of technology will help a country move forward.

Recent studies of national competitiveness have two messages for strategy makers:

* Competitive advantage can be created or, at the very least, raised significantly.

* The improvement of competitiveness within an economy should be a key element of national export strategy.

This means strategic initiatives should address competitiveness issues not only at the level of the individual product and service sector but at the national level as well.

Why national rather than simply sectoral? First, what makes a nation more competitive on the international scene are factors that are cross-sectoral rather than simply industry-specific. Second, the measures needed to increase competitiveness will vary with the stage of a country's economic development and the opportunities for exporters.

As Michael Porter, Director of the Institute for Strategy and Competitiveness at the Harvard Business School, noted, regarding the concept of the competitive advantage of nations: "National prosperity is created, not inherited." The lesson for the strategy-maker, as agreed by participants in the Executive Forum 2002, is that in a world of increasingly liberalized trade, strategy must concentrate on generating and maintaining competitive advantage.

Competitiveness 'diamond'

In looking at national competitiveness, Porter defined the competitive advantage of a nation as its capacity to entice firms (both local and foreign) to use the country as a platform from which to conduct business. He introduced what has become known as the 'diamond of national competitiveness with four 'facets' determining the competitive strengths and weaknesses of countries and their major sectors.

They are:

* the existence of resources (e.g. human resources and research and information infrastructures);

* a business environment that invests in innovation;

* a demanding local market; and the presence of supporting industries.

In many developing countries, resources may be the only part of the 'diamond' where strategy-makers see an opportunity to raise competitiveness, and thereby improve performance, in the short term. This should not deter the strategy-maker from taking action in a concerted manner to improve the overall business environment.

Different challenges at different stages

There are three broad stages of economic development. The national competitiveness strategy should have a different orientation at each stage.

Resource-driven stage

At the most basic level of economic development, competitive advantage is determined by resources, such as low-cost labour and access to natural resources.

Many developing countries, and most least developed countries, are mired in this stage. The export mix is extremely narrow and typically limited to low value-added products. Dependence on international business intermediaries is high, and margins are low and susceptible to swings in prices and terms of trade. Technology is assimilated through imports, imitation and foreign direct investment (FDI).

In this stage, strategy-makers should design strategies to attract capital investment and to invest the proceeds of economic growth into the wider determinants of national competitiveness, specifically health, education and infrastructure.

Investment-driven stage

One level up is the investment-driven stage, where countries begin to develop competitive advantage by improving their efficiencies and developing increasingly sophisticated products. Improvements are made to imported technologies; there is extensive joint venturing and heavy investment in trade-related infrastructure (roads, telecommunications and ports).

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