The need for a new paradigm.ppt

7/29/2019 The need for a new paradigm.ppt

1/16

The need for a new paradigm


2/16

Why do some nations succed and

otehrs fail in international

competition?


3/16

Why does a nation become the

home base for succesfullinternational competitors in an

industry


4/16

National competitiveness

A nations standard of living in the long

term depends on its ability to attain a high

and raising level of productivity in the

industries in which its firms compete

In international environment firms compete

not nations


5/16

Explanations of national

competitiveness

Some see it as macroeconomic phenomenondriven by: exchange rates, interest rates,government deficits

Others see as cheap and abundant labor Next view lays on natural resources

Many argue recently that government policy hascrucial impact on it (protection, export promotion

etc.) and consequently foreign trade surpluses Final explanation gives credit to management

practices and labor-management relations


6/16

Asking the right question

The principal economic goal of a nation is

to produce a nigh and rising standard of

living for its citizens.

The ability to do so depends on

productivity with which nations resources

(labor and capital) are employed.

Productivity is the value of the output

produced by the unit of labor or capital


7/16

Productivity

Productivity is the root cause for nationalper capita income

The productivity of human resource

determines their wages, while theproductivity of capital determines returnsfor the holders of it

Productivity increases the basis for taxes,and provides assumption for meetingsocial standards such as health and safety


8/16

Productivity

The only meaningful concept of competitivenessat the national level is national productivity

A rising standard of living depends on achievingand sustaining high productivity over long term

Productivity is achieved by nations firms throughraising product quality, adding new features,improving technology

All this may set labor sufficiency, therefore

productivity also means being able to competein new industries and in that way attract laborforce freed in old technologically improvedindustries


9/16

Productivity

Establishing foreign subsidiaries by a nations firms canalso add to national productivity though it shifts lessproductive activities else where

No nation can be competitive (a net exporter of)

everything. A nations pool of resources is limited. Theidea is to deploy these resources in most productive way

International trade and investment can lead to majorimprovements in national productivity, but can be threatto it as well

Determining national competitiveness in terms of jobsper se is misleading, because only high productivity jobslead nation to competitiveness


10/16

Theories for industrys success

Adam Smith: theory of comparative advantage-a nation will export goods in which it is a worldslow-cost producer

David Ricardo- extended theory by saying thatmarket forces will allocate nations resources tothose industries where it is relatively mostproductive

Heckscher-Ohlin theory says that nations allhave equivalent technology but differ in theirendowments of so-called factors of productionsuch as land, labor, natural resources.


11/16

Pitfalls of comparative advantage

theories

Assumptions:

- No economies of scale

- Technology everywhere is the same- The products are undifferentiated

- The pool of national factors is fixed

This theory at best can explain patterns oftrade (labor or capital intensive)


12/16

New paradigm

The assumptions leading previous theories were in placein 18th and 19th century, when production was morelabor than skill intensive, and trade was based on naturalresources

Today we face:

Technological change that provides space for circumventscarce factors. Technology becomes more importantthan low wages. Furthermore companies are locatingfactories around areas with high wages.

Comparable factor endowments, most world tradehappens between nations with similar factor endowment

Globalization that among other things leads toeconomies of scale and scope


13/16

Fleeting advantages

Today's low labor cost country is rapidlyreplaced by tomorrows, low-cost resources maybe shifted due to technology development

Industries with lo-cost wages and resources are

accessible to many nations seeking economicdevelopment are prone to many competitorsbecause of low entry barriers. New competitorsmay bid down the profits and hold down thewages

Industries following thi9s pattern are usuallytrapped ,as they tend to compete on price andtie the economy to factor endowment


14/16

New explanations are based on

Economies of scale that gives nations firms a cost advantage thatleads to export growth

Technology gap theory- nations will export in industries in whichtheir firms gain a lead (gap) in technology. It is important forcompetitiveness, But what makes this technology gap?

Raymond Vernons product cycle theory: early home demandcreates pioneering new products, and their exporting in early phasesand aggregate demand is rising fostering opening of foreignsubsidiaries. As technology gap diffuses foreign firms enter theindustry and both foreign and local firms become import to domesticmarkets

Multinational status is a reflection of a company's ability to exploit

strengths gained in one nation in order to establish a position inother nation


15/16

New theory

The key question is why do firms based inparticular nations achieve success in distinctsegments and industries. What arecharacteristics of those nations?

Competitive advantage is created through highlylocalized process, and differences in nationaleconomic structure, values, culture, history,institutions contribute to economiccompetitiveness.

Despite globalization the role of a nation isstronger than ever


16/16

New theory

Premises:

1. Firms differ in their strategies. Why firms from certain nations choosebetter strategies than others

2. Successful competitors are competing with global strategies integratingforeign trade and investment while so far theories have tried to explaineither of these.

So what makes a nation a home base for successful and competingcompanies.

Home base is the nation in which essential competitive advantage iscreated and sustained

Where the strategy is set, and the core technologies and skills made.

The ownership of the firm is concentrated in the home nation whilestakeholders are scattered

New theory finally has to take into account that competition is dynamicand evolving

The role of government in the new theory is also changed: it needs topush and challenge its industry to advance, not provide help so industrycan avoid it.

Documents

The need for a new paradigm.ppt