Executive
Forum 2002
25-28 September
Montreux, Switzerland
Managing Competitive Advantage: The Values of National Strategy
Thursday, 26 September
Session 1: Creating
Value: Moving from Comparative to Competitive
Advantage
The issue:
Comparative advantage identifies those sectors in
which a given country specializes in international trade in view of its
resource endowment. The latter may refer
to primary resources and factor endowment in terms of land, labour and
capital. Comparative advantage is a
useful static approach, which explains, at any given moment, the international
division of labour.
In contrast, competitive advantage is a dynamic
concept relating to “the set of institutions and economic policies
supportive of high rates of economic growth in the medium term” (J. Sachs
et al, Global competitiveness report 2001-2002:16). It is based on the principle that “national prosperity is created,
not inherited” (M. Porter, HBR: March April 1990:185) and focuses on the
question of how to sustain a country’s and a sector’s capacity to maintain high
growth. It is a concept that has its roots in micro-economic theory and that –
in spite of a controversial discussion – can be transposed to nations.
Moving from
comparative to competitive advantage may thus be translated as moving from a
traditional export portfolio towards trade-led economic development or, in the
words of the recent World Bank publication, how to make trade work for the
poor.
The
proposition:
- Specialization
matters: countries need to focus
on sectors with high value-added growth potential. Hence, creating competitive advantage
in growth sectors should be one of the overriding concerns not only of
companies, but also of governments.
It requires a strong public-private partnership.
- Loosening
the brakes is the first step:
Removing trade obstacles and economic distortions (getting prices
right) to enable countries to benefit from their comparative advantage is
a prerequisite for competing in international markets on the basis of
competitive primary production factors.
At this stage, the role of Government and TSIs is primarily to eliminate
biases against outward-looking development.
- There
are three major transitions: (i)
from a traditional specialization to factor-driven competitive advantage,
(ii) from factor-driven competitive advantage to investment-related
competitive advantage, and (iii) from investment-related competitive
advantage to innovation-driven competitive advantage. Each of these transitions requires a
different set of policies and strategies from the public and the private
sector. What may have been a
strength at one stage may turn into a liability at the next.
- Moving
from comparative to competitive advantage requires a strategy in terms of
a consensus on the right sequencing of trade facilitating measures and
priorities for the allocation of resources to finance trade support
services, infrastructure and competitiveness-enhancing measures.
- Such a
strategy should focus on cross-cutting or horizontal elements such as
trade finance, customs, logistics, IT infrastructure etc., but the
priorities among these elements should be determined in a demand-driven manner
on the basis of the specific requirements of key growth sectors, types of
actors (SMEs, FDI, etc) and partner countries.