The competitive development of nationa economies

The competitive development of national economies

By: Amal Abu Raslan

Agenda

1. Introduction

2. General Theory

3. Porter’s Framework ( Ex: MEA)

4. Case Study: KSA

5. Other Authors Frameworks

6. Strategic Planning for Economic Development

7. Case Study: Nokia

8. Planning stages of economic development

9. Case Study: Lebanon

Introduction

• Like industries, national economies evolve and develop and change the countries conditions

• With this economic upgrade comes the more complicated competitive advantages which leads to more investments and evolution of the industries too.

• Porter tends to divide the economies of nations into four stages that we will be discussing

The Theory

• The primary role of a nation is to provide ‘home base’ to a firm.

• Home base is the nation in which the essential competitive advantages are created and sustained.

• Usually home base will be the location of most productive jobs, core technologies and the most advanced skills.

The Theory cont’d

• Michael Porter* describes four keys to a nation’s competitive advantage in relation to other countries

• Factor Endowments

• Demand conditions

• Related and supporting industries

• Firm Strategy, Structure and Rivalry.

* Popularly referred to as “Porter’s Diamond”

Porter’s DiamondDeterminants of National Competitive Advantage

Factor Endowments

Firm Strategy,Structure and

Rivalry

Demand Conditions

Related and Supporting Industries

Government

Chance

Combined Impact

Combined Impact

Porter Competitive Model: MEA Lebanon

Intra-Industry RivalrySBU: MEANetwork (traditional) Rivals: MEALow-cost Rivals: MenaJet, NAS, etc..)

BargainingPower of Buyers

Bargaining Power

of Suppliers

Substitute Products

and Services

PotentialNew Entrants

Airline Industry Analysis- Middle East Market

•Travel Agents •Business Travelers•Pleasure Travelers•Government•Cargo and Mail•Charter flights ( cheaper such as NAS, SAMA, Menajet, etc..)

•Alternate Travel Services•Boats•Road

•Private Transportation•Videoconferencing•Groupware•Other Airlines

•Aircraft Manufacturers•Aircraft Leasing Companies•Labor Unions•Food Service Companies•Fuel Companies•Airports•Local Transportation Service •Hotels

•Foreign Carriers•Regional Carrier Start ups•Cargo Carrier Business Strategy Change•Charter Flight ( similar to Menajet)

Suppliers

Services Passengers

Travel & Tourism

Airline IndustryCarriers, General Aviation, Airports

• Aircraft

• Engines

• Electronics

• Computers

• Chemicals

• Insurance• Financing• Distribution• Telecom• Maintenance• Fuel

• Business Travelers

• Leisure Travelers

• Travel Agents• Tourist Attractions• Conferences and Conventions• Hotels• Restaurants• Retailers

Lower Sales

Lower Sales

Decreased Productivity & Weaker

Relationships

Lost Revenue

Impacts of a Weakened link in the MEA Diamond

Induced Costs

The Theory cont’dWhat is Economic Development?

• Local economic development involves the allocation of limited resources - land, labor, capitol and entrepreneurship in a way that has a positive effect on the level of business activity, employment, income distribution patterns, and fiscal solvency.

• Economic development is purely and simply the creation of wealth in which community benefits are created. There are only three approaches used to enhance local economic development. They are:

Business Retention and Expansion - enhancing existing businesses Business Expansion - attracting new business Business Start-ups - encouraging the growth of new businesses

• For Porter economic development depends on the productivity with which national sources are employed i.e. by upgrading their competitive advantages in their existing industries or by creating new ones in new industries.

Porter’s Framework: Stages of National Competitive Development

Porter’s Framework Cont’d

• Porter defines a dynamic process of four stages of national competitive development: factor-driven, investment-driven, innovation-driven and wealth-driven.

• The first three involve “successive upgrading of a nation’s competitive advantages and will normally be associated with progressively rising economic prosperity”. The fourth stage “is one of drift and ultimately decline” (Competitive Advantages of Nations, p.546).

Driver of Development Source of competitive advantage

Examples

Factor Condition •Basic factors of production i.e., Natural Resources, Geographic Locations, Unskilled Labour

CANADA,AUSTRALIA,SINGAPORE,SOUTH KOREA before 1980

Investment •Investment in Capital equipment.•Transfer of technology.•Presence of national consensus in favour of investment over consumption

JAPAN during 1960’s

SOUTH KOREA during 1980’s

Innovation All four determinants of national advantage interact to drive the creation of new technology

JAPAN since late 1970’s

ITALY since early 1970’s

Wealth Emphasis on managing existing wealthCompetitive Advantage

UK during post war periodUSASwitzerland since 1980

Competitive Advantage of Some Countries

SWEDENcar carrierscommunication products for handicapped personsenvironmental control equipmentheavy trucksmining equipment

teller-operated cash dispensersnewsprintrefrigerated shippingrock drillssemihard wood flooring

UNITED STATESadvertisingagricultural chemicalscommercial aircraft*commercial refrigeration and air-conditioningcomputer software

construction equipmentdetergentsengineering/constructionmotion picturespatient monitoring equipmentsyringeswaste management services

KOREAapparelautomobilesconstructionfootwearpianos

semiconductorsshipbuildingsteeltravel goodsvideo and audio recording tapewigs

SINGAPOREairlinesapparelbeveragesship repairtrading

SWITZERLANDbankingchocolateconfectionerydyestuffsfire protection equipment

freight forwardinghearing aidsheating controlsinsurancemarine enginespaper product manufacturing machinerypharmaceuticals

surveying equipmenttextile machinery

tradingwatches

DENMARKagricultural machinerybuilding maintenance servicesconsultancy engineeringdairy productsfood additives

furnitureindustrial enzymespharmaceuticalsspecialty electronicstelecommunications equipmentwaste treatment equipment

ITALYceramic tilesdance club and theater equipmentdomestic appliancesengineering/constructionfactory automation equipment

footwearpackaging and filling equipmentski bootswool fabrics

GERMANYautomobileschemicalscutleryeyeglass framesharvesting/threshing combines

optical instrumentspackaging, bottling equipmentpens and pencilsprinting pressesrubber, plastic working machineryX-ray apparatus

JAPANair-conditioningmachineryhome audio equipmentcar audiocarbon fibers

continuous synthetic weavesfacsimileforklift trucksmicrowave and satellite communications equipmentmusical instrumentsoptical elements and instrumentsrobotics

semiconductorssewing machinesshipbuildingtires for trucks and buses

truckstypewritersvideocassette recorderswatches

Case Study: KSA

• Saudi Arabia is currently at the investment-driven stage of economic development:

Some pockets of the economy remain in the factor-driven stage and others are pushing forward into the innovation-driven stage.

The Kingdom is investing in its infrastructure, encouraging and capitalizing on foreign economic participation, and producing basic goods and services.

The economy remains heavily reliant on natural resources (indicative of a factor-driven economy), but this is offset by strong economic activity in other value-adding areas such as manufacturing, banking and health care services.

The oil and gas sector itself, traditionally factor-driven, is evolving to reflect the Kingdom’s movement into more advanced stages of economic development.

Increasingly, oil and gas activities are being developed downstream which have, for example, spawned important industry players in the petrochemical sector.

Furthermore, new technologies are being applied in oil extraction and recovery, suggesting emergent, innovation-driven activity.

KSA: Stages of Economic Development

Research and Other Authors Contribution

Categories of Countries according to Level of Economic Development

Four ( Five) Stages of Competitiveness in A Country.

Categories of Countries according to Level of Economic Development Cont’d

Public Policies During the different stages

NIC - Newly industrializing countries

• Export-oriented economic development• Early: focus on low-priced, labor-intensive goods• Late: focus on large scale industrialized mass

production

Examples: TaiwanBrazilMalaysia


Former CPE (centrally planned economies)

• Large but outdated industrial base• Educated workforce• Poor marketing systems• Immediate problems:

PrivatizationDevelopment of legal system

Examples: RomaniaUkraineRussia China


OECD - Organization for Economic Cooperation and

Development

• Industrial and post-industrial economies• High technology production, services

Examples: USA, EU, Japan, Australia and New Zealandplus some advanced NICS (Mexico, South Korea, Turkey) plus some former CPEs (Poland, Hungary, Czech

Republic)


LDC - Less developed countries

• Economy is still largely agricultural• Most technology controlled by multinational

corporations• High level of international debt• Frequently have problems of political stability

Examples: El SalvadorZaireBangladesh

It is a matter of Quality not only Quantity

Sustaining Competitive Advantage

• Owning intellectual property rights• Investing in research and development• Achieving economies of scale or scope• Exploiting the experience curve

Other Contributions: The 6-stages Framework

Strategic Planning for Economic Development

Competitive Strategies

Primary Strategies

• Differentiation Strategy

• Low-Cost Strategy

Supporting Strategies

• Innovation• Growth• Alliance

Strategic Planning Helps You

• Understand your local economy• Evaluate possible approaches• Target your limited resources• Set performance objectives• Tell your board and the public what you are

going to do• Manage your career

Local Economies Are Volatile

Strategic planning deals with change

A Strategy Identifies Your Competitive Advantages

Economic Development Is Not An End In Itself

Some companies Create Competitive Economy in the Country (Ex: Nokia)

Nokia (Finland): Creating the World’s Most Competitive

Economy

Situation in the beginning of the 21st century

• Finland is a leading competitive nation• Increased unemployment among the low skilled

labors• Telecommunications cluster accounts for 6.9% of

GDP

• Nokia is the leader of the Telecom industry• Motorola lost mobile phone leadership to Nokia• Severe downturn in the Telecom• Shortage of skilled Finnish workers• Finnish suppliers produce highly customized

inputs

Porter’s Diamond: Finland/Nokia

• Factor Conditions

One of the world’s most homogenous, united and stable societiesNational competitive strategyTradition of innovative engineering and telecom industrySophisticated education and university system

• Related and supportive industries

Local supply for highly customized inputsTelecom cluster with around 4,000 firmsHighest public R&D spending in EuropeVenture capital forum

• Demand Conditions

Nokia created the world’s largest single mobile marketFirst to have severe competitionA market of early adopters with very high standardsFinland amongst the world leaders in mobile penetration ( Mobile phone

is a national symbol)

• Firm Strategy, Structure and Rivalry

Finnish telephone network is never monopolized by stateOperators engage actively with equipment manufacturesA national industrial message for national competitivenessOpen market as there are no restrictions for foreign ownershipServe distinct customer needs with out constraints on standards


• Government• Very stable with a long-term view • Initiatives to improve national innovative capacity• Open socialist economy• A policy of minimum interference

• What else should the government do?• Remove centralized wage settings mechanisms• Encourage young and low-skilled to join the work force• Encourage more global firms to open R&D centers in Finland


Economic Transformation in Finland

• The emergence of Finland as a telecom powerhouse• Traditional expertise not monopolized

• Telecommunication cluster creation:Cluster goal: Strengthen Finnish competitiveness

World-wide competitive advantage through private-public partnerships

Operators, content providers and equipment manufacturers

Equity capital: new important source of funding

R&D focused on technology and telecommunications

Nokia’s worldwide leadership after the clustering

• International operations in various field

• Worldwide joint ventures

• Highly skilled work-force

• Nordic identity through the “Nokia way”

• Low production cost and short product development cycle

• Broad market: serves distinct customer segments with different needs

• Focus on R&D (15 countries, 9% of its revenue)

• Nokia is always ahead of its competitors (design, internet, software, …)

Finland Basic Strategic Choices

• Innovation activity in a world without borders

• It should be demand and user oriented

• Create an innovative environment: individual and community.

• Should create a system where the activities of development are clear and defined.

Focal Points of the basic choices

Planning Stages of Economic Development

Economic Development Components of Planning (1 of 3)

• Understanding the economy

• Creating an open and transparent planning process

• Bringing leaders together

• Creating leadership buy-in

• Getting community input

• Looking at economic forces


• Taking ownership of the strategy

• Creating a vision

• Defining priorities

• Setting long-term goals

• Choosing approaches

• Setting measurable objectives


• Gaining agreements by implementation partnersPersonnelMoneyDeadlines

• Creating the short-term implementation plan

• Establishing the oversight group

• Setting the review schedule

Few Economic Development Approaches

• Retaining revenue within the community

• Infrastructure development

• Improving the workforce

• New basic employer recruitment

• Retention & expansion

• Small business development

• Tourism

Case Study: Lebanon

Purpose:To do a strategic plan for Economic Development in Lebanon.

Activities:Identify progresses made and issues present in the areas of:

• Culture & Recreation• Education & Human Development• Industry & Services• Urban and Community Development

General Vision Plan• The purpose of the proposed project is to develop a Strategic Plan for

Lebanon’ Economic development ( Vision plan).

• The proposed Vision Plan will function as a “road map” to help the government to combine the capabilities and the possibilities of Lebanon in order to achieve a higher Economical level.

• The proposed Plan will improve Lebanon’s status as a regional magnet, enhance the quality of life for the residents, increase Lebanon’s competitive advantages, and assist its planned regional and global integration.

• The Plan preparation should go through three (3) phases: ( we will not focus on the current state as these already known)

1) Present State of Lebanon

2) the Challenges

3) Vision Planning

Challenges

Purpose:Identify areas needing additional development

Activities:

Undertake the following activities:

• Capacity & Constraint Analysis

• Competitive Advantage Analysis

• Futuristic & Predictive Analysis

Plan DevelopmentLebanon 2020 Vision Plan will be conceptualized at three (3) scales:• National• Regional• Global

Each with four (4) dimensions:• Economic• Social/Cultural• Institutional• Spatial and physical

And each from three (3) perspectives:• Macro, involving Scenario Building & Selection• Meso, involving Strategy Development• Micro, involving Policy Formulation

Other Development Strategies

• Export-oriented development• Import rather than invent technology when it is

expensive• Deemphasize traditional agriculture• Use multinational corporations (MNCs) to provide

Marketing and management expertiseTechnology transferFinance

• Improve wages and social services• Improve environmental standards

Vision Planning: Model of Development Scenarios

GlobalDevelopmentPerspective

Regional DevelopmentPerspective

National Capabilities &

Constraints

NationalTrends & Patterns

of Development

NationalNeeds & Demands

NationalValues &

Principles

Scenariosfor

Lebanon’sRole &Place in the

Region &Beyond

ScenariosFor

EconomicDevelop-

ment

Social & Cultural Development

Images

Spatial Development

Images

Political Development

Images

NATIONAL SECTORAL / SPATIAL

RE

GIO

NA

L

N

AT

ION

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G

LO

BA

L

Vision Planning: Model of Development Scenarios

Global Integration Regional Integration National Isolation

Role & Place

in the World

• Export promotion• Free trade policy/privatization• Reliance on world markets• Joint foreign investments• Multi-sectoral development (comparative & competitive)• Technological alliances

• Export promotion• Free trade policy/privatization• Reliance on world markets• Joint foreign investments• Multi-sectoral development (comparative & competitive)• Technological alliances

EconomicDevelopmentFramework

EconomicDevelopmentFramework

• Selective trade policy• Reliance on regional markets• Regional economic cooperation• Targeted sectoral development• Regional infrastructure• Mixed-sectoral development (comparative & competitive)

• Selective trade policy• Reliance on regional markets• Regional economic cooperation• Targeted sectoral development• Regional infrastructure• Mixed-sectoral development (comparative & competitive)

• Import substitution• Economic protectionism• Strategic self-sufficiency • Reliance on domestic market • Local resource dependency• Mono-sectoral development (comparative advantage)

• Import substitution• Economic protectionism• Strategic self-sufficiency • Reliance on domestic market • Local resource dependency• Mono-sectoral development (comparative advantage)

• Globalism • Modernization • Mass culture

• Globalism • Modernization • Mass culture

Tradition &Modernity

Tradition &Modernity

• Nationalism• Localism • Traditionalism

• Nationalism• Localism • Traditionalism

• Regionalism• Nationalism• Culturalism

• Regionalism• Nationalism• Culturalism

• Government as coordinator• Decentralization• Private Sector as leader

• Government as coordinator• Decentralization• Private Sector as leader

State &People

State &People

• Government as controller• Centralization • Private Sector as follower

• Government as controller• Centralization • Private Sector as follower

• Government as leader• Controlled decentralization• Private Sector as actor

• Government as leader• Controlled decentralization• Private Sector as actor

Alternative Paths of National Development

Vision Planning: Model of Goal, Strategy, Objective and Policy Formulation

Prosperity &Unity

Growth &Competitiveness

SpatialObjectives

GoalMaximization of

National Interest & Public

Participation

Social Strategies

EconomicStrategies

SpatialStrategies

Strategy

PoliticalStrategies

Sp

ati

al

SocialObjectives

EconomicObjectives

Integrationof Space

Objective PoliticalObjectives

Social Policies

EconomicPolicies

SpatialPolicies

PoliticalPolicies

Policy

Po

liti

ca

l

So

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l &

C

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Ec

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Take into consideration

To plan for a more competitive future, these issues need to be immediately addressed:

• Time Management (CPM)• Internal Preparation Summary• Team Demographic Summary• Budget Summary• Logistics Summary

General Conclusions

• For strategic economic development planning to be effective, the active involvement of the private and nonprofit sectors and all levels of government is critical.

• Performance measures have to be broadly defined• Economic development is inextricably linked to

issues of social equity and environmental protection• Economic development is quantitative and

qualitative.• Sustainable development should be a core mission,

not an optional extra.

References• Interviews MEA:

Mr. Hassan Sabra Head of communication department Mr. Yassine Sabbagh Director of MASCO Mrs. Sahar Sabra Director of IT department

• Ministry of information • National Education Strategy in Lebanon; Strategic Plan Document; December

2006• The Lebanese Economy in 2008-09, Chamber of Commerce, Industry and

Agriculture of Beirut and Mount Lebanon• Competitive advantages of Nations, Micheal Porter• KSA economic development, By Rodney Wilson, with Abdullah Al Salamah,

Monica Malik, Ahmed Al Rajhi• Saudi Arabia - Country history and economic development:

http://www.nationsencyclopedia.com/economies/Asia-and-the-Pacific/Saudi-Arabia-COUNTRY-HISTORY-AND-ECONOMIC-DEVELOPMENT.html

• Finland and Nokia: Creating the World's Most Competitive Economy Michael E. Porter, Orjan Solvell

• Measuring sustainable economic growth and development by Peter Bartelmus• http://www.adb.org/Documents/Books/Tech_Educ_Voc_Training/economic-

development.pdf

THE END

Thank you

The competitive development of nationa economies

Education

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