>Top 0. A nation's competitiveness
- National prosperity is created, not inherited. A nation's competitiveness depends on the capacity of its industry to innovate and upgrade.
- As the basis of competition has shifted to the creation of knowledge, the role of the nation has grown.
- According to prevailing thinking, labor costs, interest rates, exchange rates, and economies of scale are the most potent determinants of competitiveness.
- >Top Innovation can be manifested in 1) a new product design, 2) a new production process, 3) a new marketing approach, 4) or a new way of conducting training.
- Much innovation is mundane and incremental than on a single, major breakthrough.
- When competitors are slow in respond, such innovation yields competitive advantage.
- Japanese companies gained initial advantage by emphasizing smaller, more compact, lower capacity models that foreign competitors disdained as less profitable, less important, and less attractive.
- The lure of the huge US defense market has diverted the attention of US materials and machine-tool companies form attractive, global commercial markets.
- Information plays a large role in the process of innovation and improvement:;
- it comes often from effort and from openness and from looking in the right place unencumbered by blinding assumptions or conventional wisdom.
- innovation usually requires pressure, necessity, and even adversity; the fear of loss often proves more powerful than the hope of gain.
- Sustaining competitive advantage: innovation and change are inextricably tied together.
- adopt a global approach to strategy; to locate production or R&D facilities in other nations to take advantage of lower wage rates, to gain or improve market access, or to take advantage of foreign technology.
- make its existing advantage obsolete; or a competitor would do it for them.
- but change is an unnatural act; past approached become institutionalized in standard operation procedures and management controls.
>Top 1. National competitive diamond:
- US, Germany, Japan as the world's leading industrial powers.
- also UK, Denmark, Sweden, Switzerland, Italy, Korea, & Singapore
- 10 nations accounted for 50% of total world exports in 1985.
- each nation was successful in 1971, 1978, and 1985.
- Selected over 100 industries:
- a large share of total exports in each nation;
- 20% of Japan, Germany and Switzerland;
- and more than 40% in Korea.
- International success stories:
- Germany; auto, chemical
- Japan; semiconductors, VCR
- Swiss; banking and pharmaceutical
- Italy; footwear, textile, ski boots
- US; commercial aircraft and motion pictures
- Korea; piano
- UK; biscuits
- >Top National diamond: Determinants of national competitive advantage:
- Factor conditions: Geographic concentration:
- the nation's position in factors of production, such as skilled labor or infrastructure, necessary to compete in a given industry
- a factor must be highly socialized to an industry's particular needs (world-class institutions)
- such as diabetes studying in Denmark, cultivation of flower in Holland.
- when companies face a selective disadvantage, like high land costs, labor shortages, or the lack of local raw materials, they must innovate and upgrade to compete (Japan, Italy, Swiss with labor shortage)
- Demanding buyers: demand conditions:
- the nature of home-market demand for the industry's product or service
- Japan: light, thin, short, small products)
- Sweden; for handicapped people
- Denmark; water-pollution control equipment and windmills
- US: fast food and credit cards
- Supporting industries:
- The presence or absence in the nation of supplier industries that are internationally competitive.
- Internationally competitive home-based supplier crate advantages in downstream industries.
- Italian gold and silver jewelry companies (2/3 of the world jewelry making)
- Italian footwear cluster
- Swiss pharmaceuticals
- Japanese electronic musical keyboards
- Suppliers and end-users located near can take advantage of short lines os communication.
- Domestic Rivalry: self-reinforcing system
- The conditions in the nation governing how companies are create, organized, and managed
- They compete not only for market share but also for people , for technical excellence, for bragging rights
- Individual motivation to work and expand skills.
- Demanding buyers in the domestic market:
- they pressure companies to meed high standards; they prod them to improve, to innovate; to respond to ought challenges.
- Once a cluster forms, the whole group of industries becomes mutually supporting.
- Aggressive rivalry in one industry spreads to others in the cluster, through spin-offs, through the exercise of bargaining power, and through diversification by established companies.
- <National Diamond>:
National Competitive Advantage:
the diamond promotes industry clusters.
>Top 2. International trade and investment
- International trade and foreign investment can both improve a nation's productivity as well as threaten it.
- No nation can be competitive in everything.
- The ideal is to deploy the nation's limited pool of human and other resources into the most productive uses.
- The expansion of exports because of low wages and a weak currency may bring trade into balance or surplus but lowers the nation's standard of living.
- Competitiveness is the type of jobs, nut just the ability to employ citizens at low wages, that is decisive for economic prosperity.
- >Top Home base:
- why a nation provides a favorable home base for companies that compete internationally.
- the home base is the nation in which the essential competitive advantages of the enterprise are created and sustained.
>Top 3. The role of government:
- Advocates of government help for industry frequently propose policies that would actually hurt companies in the long run and only create the demand for more helping.
- Advocates of a diminished government presence ignore the legitimate role that government plays in shaping the context and institutional structure surrounding companies.
- Government cannot create competitive industries; only companies can do that.
- Competitive time for companies and political time for governments are fundamentally at odds. It often takes more than a decade for an industry to create competitive advantage; human skills, investment; building cluster, penetrating foreign markets
- But in politics, a decade is an eternity; subsidies, protection, and arranged mergers.
- >Top Avoid intervening currency markets:
- Japan has been rocked by the sudden Nixon currency devaluation shock, tow oil shocks, and the yen shock - all of which forced Japanese companies to upgrade their competitive advantages.
- Enforce strict product, safety, and environmental standards
- Strict government regulations can promote competitive advantage by stimulating and upgrading domestic demand.
- Rasing the rate of sustained investment:
- Tax incentive for long-term (5 years more) capital gains restricted to new investment in corporate equity.
- Enforce strong domestic antitrust policies:
- R&D projects should be in areas of basic product and process research, not in subjects closely connected to a company's proprietary sources of advantage.
- especially for horizontal mergers, alliances, and collusive behavior.
- Deregulate competition:
- Regulation of competition stifles rivalry and innovation as companies become preoccupied with dealing with regulators and protecting what they already have.
- Better than managed trade; pursue open market access:
- rather than promoting innovation in a nation's industries, managed trade guarantees a market for inefficient companies.
>Top 4. Pressures for innovation:
- A company should seek out pressure and challenge, not avoid them.
- Seek out the most capable competitors as motivators.
- The best managers always run a little scared; they respect and study competitors.
- Establish early-warning systems.
- companies can take actions that help them see the signals of change and act on them, thereby getting a jump on the competition
- bring some outsiders into the management team.
- Improve the national diamond:
- play an active role in forming clusters and to work with its home-nation buyers, suppliers, and channels to help them upgrade and extend their own competitive advantages.
- the health and strength of the national cluster will only enhance the company's own rate of innovation and upgrading.
- Welcome domestic rivalry:
- vigorous domestic rivalry creates sustainable competitive advantage.
- >Top Globalize to tap selective advantages in other nations:
- innovating to offset local factor disadvantages is better than outsourcing; developing domestic suppliers and buyers is better than relying solely on foreign ones.
- the correct approach to globalization is to tap selectively into sources of advantage in other nations' diamonds.
- recognizing that competitive advantage comes from continuous improvement, not from protecting today's secrets.
- use alliances only selectively.
- Locate the home base to support competitive advantage:
- ultimately, competitive advantage is created at home; the core product and process technology is created.
- The role of leadership
- Misperceive the nature of competition: focusing on improving financial performance, soliciting government assistance, seeking stability, and reducing risk through alliances and mergers.
- they energize their organizations to innovate continuously; leaders recognize the need for pressure and challenge.
- they are prepared to sacrifice the easy life for difficulty and sustained competitive advantage.