Executive Forum 2002
Managing Competitive Advantage:
The Values of National Strategy

SESSION 1 SUMMARY

Thursday, 26 September 2002

Session 1: Creating value: moving from comparative to competitive advantage 

Session Manager Friedrich von Kirchbach, Chief of the Market Analysis Section of ITC, said a growing number of indicators for assessment of competitive advantage at the country and sector level are becoming available, but many are quite new. The challenge is to encourage decision-makers to use these indicators more actively.

There are a number of approaches for the development of scenarios and for priority setting concerning the areas in which to build competitive advantage. However, they are not widely used. The challenge is to introduce more explicit scenario-building and priority-setting. 

How to get there? How to develop strategies for building competitive advantage? A small but growing number of countries have gone through the process of developing strategies. The challenge is to ensure that more countries embark on this process and can benefit from positive and negative experiences of other nations, he added. 

Peter Cornelius. Director of the Global Competitiveness Programme of the World Economic Forum, noted: "At a firm level competitiveness is a zero-sum game. At a country level it is different," Cornelius pointed out. "A country that is more competitive grows faster and because of that other countries benefit. Take the example of the United States in the 1990s: it enjoyed very rapid economic growth but the Japanese, the Europeans and other countries benefited from this." 

In his paper prepared for the meeting (and available on the website) Cornelius noted: "Thus far, four emerging market economies have reached the [most advanced] Innovation-driven stage, namely Hong Kong, Korea, Singapore and Taiwan. Although a significant gap still remains, there exist a number of potential candidates (Slovenia, Hungary and Estonia). How fast these 'runners-up' will actually become core innovators is a function of a complex set of factors which form the national environment for innovation. These factors not only determine the innovative capacity of a country but also the speed of technological diffusion and the way competitive advantage changes." 

The competitiveness environment can also be captured in Michael Porter's 'diamond' framework consisting with four distinct attributes, Cornelius told participants: 

• Factor (input) conditions: high quality human resources, especially scientific, technical and managerial personnel. Strong basic research infrastructure in universities and a high-quality information infrastructure, plus ample supply of risk capital.
• Demand conditions: sophisticated and demanding customers, and home customer needs that anticipate those elsewhere.
• The context for firm strategy and rivalry: a local competitive context that encourages investment in innovation related capacity.
• Related and supporting industries: Presence of capable local suppliers and related companies, and presence of clusters instead of isolated industries.

In assessing trade-related competitive strength and weaknesses, countries with high incomes or low incomes can achieve widely differing growth rates, Cornelius noted.  Ireland and Italy have roughly the same income in terms of purchasing power but Ireland records much higher growth of GDP (7.1% as against 1.6%). China, by contrast, is a low-income country but its growth rate has been 10.3%, while other countries at the same level report even negative growth. 

Von Kirchbach noted that the range of indicators include ITC's national competitiveness balance sheet, with estimates for all sectors, accessible through the web site. 

He then looked at ways to address drawbacks to competitiveness, but stressed: "One cannot address all bottlenecks at the same time. It is a question of resourcing and sequencing. There can also be conflicts in priorities."

He outlined a number of approaches for building scenarios: 

• Addressing competitive disadvantages. For example, Egypt is reducing the red tape involved in international trade. Jordan is taking steps to introduce computer technologies in all schools. Germany is focusing on education issues: this was one of the key issues in the September election. 
• Reacting to changes in the external environment. Lesotho had made efforts to immediately take advantage of the Africa Growth Opportunity Act in the USA and had "hit the ground running", earning some US$200 million in exports under AGOA. Bangladesh is taking steps to prepare for the end of the Multifibre Arrangement that has encouraged its garment industry, and Central Europe is preparing its economies for entry into the European Union. 
• Identifying priority sectors for building competitive advantage. Bangladesh, Bulgaria and China have all taken steps to improve comeptitiveness on this basis. He suggested countries can base their analyses on supply-side factors (export potential), on international demand, or on competitor profiles. Guatemala has taken active steps to establish customers. Sri Lanka, by contrast, has abandoned this approach.
• Identifying priority markets. Singapore, for example, had launched a policy to become what could be described as "the 51st state of the US in terms in market access, the 24th province of China and the 16th member of the EU". To help countries scan opportunities for market diversification, ITC offers a TradeMap service and South-South promotion support. Countries could also seek to coordinate their trade policy initiatives. 

Ganeshan Wignaraja of Maxwell Stamp PLC compared Tanzania and Mauritius to identify the core elements of good practice strategies. Strategy is not the only factor in national competitiveness. Size and location are also important, he noted. "But strategy is the only factor we can affect as policy makers." Mauritius has been described as a possible African trade Tiger. It has achieved "an amazing performance in 30 years", and manufacture exports are worth US$1000 per head. The reasons Wignaraja identified:

• Export-oriented FDI. Mauritius started early, opening its doors for foreign investment, although it maintained an important substitution programme.
• Quite competitive incentives such as corporate taxes that could go as low as 10%.
• An organization set up in 1985 for image-building.
• A one-stop shop to deal with red tape. 
• The lessons he drew from the comparison were:
• Combine incentives and supply-side policies.
• Strong investment investments and infrastructure needed, and a body to coordinate policies of "liberalization plus" supply-side measures.
• Even least-developed countries have to think about sectoral promotion, he added.
• "Don't try to go for long-term comparative advantage for industries, be guided by the 'near future'," he argued. "Ghana should not try to specialize in auto production. Interventions should be time-bound, with clearly defined performance measurements."
• "Today strategy must be inclusive, and the most important actor is the private sector," he added. The private sector is useful to plug information gaps, augment government capabilities with its managerial skills and marketing professionals (e.g. through secondment programmes), and help weak firms to help themselves through industry associations and mentoring by large firms. 

Von Kirchbach offered to build a bibliography of sources of indicators and their costs in the next few weeks, to be posted on the ITC website, for possible incorporation into the Template on the Strategy-making Process now being prepared by ITC. 

"Policymakers can learn from others but strategies must be country-specific," Wignaraja noted. "The best strategies are nationally done, by local policy makers and institutions, but with external inputs (providing objectivity and new ideas). And you need policy learning: strategy itself must be adaptable and change. That is what makes strategy-making so difficult. Finally, luck matters. You can have the best advice and the best strategy, but you have to have the right circumstances." 

See the website for country reports from Bulgaria, China, Guatemala and Sri Lanka.