The Determinants of National Competitive advantages of One Belt One Road from a managerial perspective
- Dina Alshimbayeva, PhD student, Satbayev University, Almaty, Kazakhstan
- Ainabekova Aisulu, Masters Degree Student at Al- Farabi Kazkah National University (KazNU)
- Turkeyeva Kulyash Amirkulovna, PhD in Economics, Leading Researcher of the Institute of Economics of the Ministry of Education of the Republic of Kazakhstan
ISSN: 1555-1983 (Online)
The globalisation of markets has reshaped the way of businesses’ conduction. Indeed, the globalisation has been defined by Rugman and Collinson (2012) as the increased integration of the economic system world-widely, which involves a high mobility in term of financial capital, workforce, products and services, achieving likewise an enhanced homogenisation of world tastes and values. The Belt and Road Initiative is a global development strategy adopted by the Chinese government involving infrastructure development and investments in 152 countries and international organizations in Asia, Europe, Africa, the Middle East, and the Americas.Consequently, due to globalisation, domestic markets undergo an increasing international competition, which appealed several business specialists to investigate the drivers and sources of national competitive advantage (Porter, 1990; Davies and Ellis, 2000; Johnson 1995; Thomas and Waring 1999). This interest carried toward nations competitiveness has inducted to a wide literature incorporated between theories which highlight the importance of international trade for the specification of nations’ core competences (Helpman and Krugman, 1985; Krugman, 1992); those which explore the prominence of economic and industrial decision-makers in relation to different institutional governance structures, split between followers of the political economy perspective (Amsden, 2001; Best, 2001) and those of the strategic management one (Porter, 1990; Chandler, 1990; Teece, 2010); and other assumptions and frameworks that guide international managers in their strategic decision of expansion by allowing them to set a clear perception of the targeted market in term of factor endowments (Porter, 1990; Hill, 2014), the demand conditions, and the managerial structure of the industry related to partners availability, the correspondence to the nation strategic priorities and the rivalry patterns (Porter, 1990; Davies and Ellis, 2000; Hill 2014; Griffiths and Zammuto, 2005).
Therefore, pursuing a managerial perspective, the purpose of this literature study would be to flow within those different theories and frameworks in order to take cognizance of the intervening measures and sources in the assessment of nations’ competitive advantage and then determine the key factors to take into consideration by managers willing to expand internationally before setting their decisions, as there is an obvious interlink between firms directions and the shape of the markets where they operate (Chandler, 1990; Teece, 2010; Griffiths and Zammuto, 2005).
The determinants of nations’ competitive advantage:
As stated before, there are several determinants of nations competitiveness highlighted in the literature. For instance, the national governments involvement in the generation of their nations’ competitiveness basis was undeniably considered, but emphasized in different ways (Davies and Ellis, 2000; Hill, 2014; Porter, 1990).
In fact, some would argue that owing to the globalization of the markets, the industrial competition is continually arising within an international scope (Rugman and Collison, 2012), which values further the different measures undertaken by national governments to put forward the competitive advantage of their countries (Hill, 2014; Rugman and Collison, 2012; Lasserre, 2012). In that sense, one of the common aims of governments around the world is to enable their national markets to attain the economies of scale, which are defined by Hill (2014) as the association of outputs’ large scale to the reduction of unit cost.
Therefore, governments, in their initiatives aiming to enhance their nations’ competitiveness, generally engage in international trade, which, according to Krugman (1992), enables countries to increase goods’ availability and variety, giving likewise more satisfaction to the national consumers. Furthermore, by engaging in international trade, governments draw thereby the direction of their internal industries’ specialisations which is mainly led by the disruptive innovations or the first move advantage of firms belonging to those nations (Christensen, 2013; Hill, 2014).
The importance of international trade for the founding of national competitive advantages:
In fact, Hill (2014), in its description of the new trade theory introduced by Paul Krugman, pointed the importance of international trade in the access to economies of scale as well as in the specialisation of nations related to first movers advantage, innovations and the endowment factors. For instance, as an illustration of the importance of first movers’ advantage within nations, Boeing in US and Airbus in Europe benefited from their pioneering to the aircraft industry to be the first to arrive to economies of scale which provide them with much more resources, and by dint made it difficult for new entrants to compete in the market. Therefore, not only firms took advantage from their first move to the market but also their nations did by imposing themselves as the exclusive exporter of aircrafts, reshaping likewise their proper infrastructures in order to meet with this industry requirements (Hill, 2014; Griffiths and Zammuto, 2005).
Pursuing the same aim, other business specialists, in different ways, brought into the spotlight the importance of international trade for the establishment of competitive advantage within nations. For instance, the Mercantilism, as the first trade theory, praised the government strategies in term of imports limitations by mean of quotas and tariff regulations as a way to assert exports against imports, and establish likewise a surplus in the trade’s balance which would enable the nation to accumulate wealth and power (Spiegel, 1991; Solis, 2003). However, this theory had several opponents who argued that an imbalance in trade would create inflation in the rich nations and costs reduction in disadvantaged ones which, over time, would rebalance the trading relations (Hill, 2014).
Therefore, because of criticism toward Mercantilism perspective, other theories emerged to differently assess the importance of international trade, neglecting this time the aspect of surplus creating in trade, but focusing on the efficiency perceived from international trade in term of goods availability and costs’ reduction within the trade partners (Hill, 2014; Neary, 2003; Gupta, 2009). Thereby, the absolute advantage theory was created by Adam Smith in order to set some specific rules of international trade, which stipulate that countries should export goods or dominate an industry where it has the highest efficiency of production among the trade partners, likewise France had with wine production, UK in quality of textile and services, Switzerland in banking and pharmaceutic products or USA in picturing and aerospace industry (Gupta, 2009; Neary, 2003). Therefore, nations should export goods where they have absolute advantage and never produce goods that they can import in less costs, and that would create specialisation within nations and lead them to attain economies of scale (Hill, 2014; Rugman and Collinson, 2012).
Otherwise, in more rational approach, David Ricardo shaped the comparative advantage theory as a way to evaluate nations in term of labour productivity, and therefore, this theory presents a similarity with the absolute advantage one in term of ranking the industrial competitiveness of nations in relation to their efficiency perceived in production (Gupta, 2009). However, in contrariwise to the absolute advantage theory, the comparative advantage one conserves some relativity in the determinants that rules the trade between nations (Ibid). Indeed, for example, it could be argued that in a bilateral trade, one country may have an absolute advantage in all fields and industries among the other country, still letting the less strong nation to specialise in one field would lead to a better synergic productivity for the both nations in comparison with the case of the absolute export of the strong nation and the absolute import of the weak one (Hill, 2014; Gupta, 2009). Furthermore,
another case would be that a nation would have an absolute disadvantage in all industries comparing to a highly developed country, but in comparison with less developed countries, it may have some absolute advantage (Ibid). Indeed, Morocco, for instance, would be an illustration for that case, as it is a country totally disadvantaged in comparison with France in the sectors of telecommunication, building and banking, still, it is highly advantaged in these fields in comparison with Sub-Saharan African countries, which leaded Morocco to trade with these countries in the listed fields instead of being an absolute consumer of an economically stronger nation (Wippel, 2015).
Against the flow of argument, and in opposite to the absolute and comparative advantage theory which rely on the productivity of nations as a determinant of the international trade patterns and the competitiveness of nations, Heckscher-Ohlin theory rely this time on the factor endowments of the countries as a determinant of the trade outlines, still it is in phase with the Ricardian perception about the high benefits of free trade on the competitiveness of nations (Neary, 2003). Thus, Heckscher and Ohlin claimed that countries should export goods which are produced on the basis of factors likewise abundant natural resources, skilled and experienced labours and well established infrastructures in regard to the related industry, those factors which would facilitate the productions of goods, and in the same time those countries should import goods which suffer of the lack of factors endowments (Hill, 2014; Neary, 2003).
All in all, until this point, the only theories which have been cited are those concerning the inter- relation between international trade and the creation of nations’ competitive advantage. However, other assumptions would rather relate the national competitive advantage creation to the degree of commitment of either the national firms or the governments (Davis and Ellis, 2000; Thomas and Waring, 1999; Johnson, 1995; Griffiths and Zammuto, 2005).
One belt, one road: China’s plan to connect the world
Today, it already links more than 120 countries and about 4½ billion of the world’s population. Its development platform is multilateral in nature; aimed at boosting inclusive global growth as well as strengthening cooperation between China and international organisations to enhance multilateral cooperation, serving as China’s contribution to the world economy and global governance, through dialogue and collaboration.
In fact, the two major bodies of assumption in regard to systems of governance are either the firms- centric one which praise the strategic management of firms as source of national competitive advantage, or the nations-centric one which attributes the role of enhancing nations’ competitiveness to governments (Griffiths and Zammuto, 2005).
For the firm-centric adepts, the extent to which integration between the firms’ value chain and their industries’ structure is the main determinant of the competitiveness of firms and thereby for the nations to whom they belong (Porter, 1990; Chandler, 1990; Teece, 2010). In fact, Teece (2010) claimed that there is a mutual influence between the firms’ performance and their environments’ shape which refer to their nations’ competitiveness, likewise, the performances of Boeing are affecting the US competitiveness, or those of Toyota are influencing the Japanese automobile industry competitiveness, which refer to the influence of firms first mover advantage on their countries as stated in the new trade theory assessment (Hill, 2014). Besides, Chandler (1992) claimed that the industrial success, either in the firm or the nation level, is closely related to the investment in the amenities of production, systems of distribution and skilful managers which refer to the factor endowments claimed in Heckscher-Ohlin theory, but also to the investment in the specification of produced goods in order to achieve economies of scale as stated in the new trade theory.
Oppositely, the state-centric proponents would rather allocate the creation of competitive advantage within nations to the strategic directions of their governments (Weiss, 1998, Hill, 2014), especially in term of establishing the adequate factor endowments to the development of their internal industries, and their political decisions in term of regulations likewise anti-trust ones or those related to trade agreements, added to their strategic investments in specific industries to give an absolute or
a comparative advantage to their nations among trade partners (Griffiths and Zammuto, 2005; Gupta, 2009; Amsden, 2001; Best, 2001). As an illustration, the success perceived within East-Asian Countries in the knowledge intensive industries is rather owing to their governments’ directions to encourage technology diffusion in order to enhance the collective competences, than a first move advantage perceived in a firm-level (Mathews, 2001).
Therefore, as Griffiths and Zammuto (2005) explained, the firm-centric or the strategic management adepts believe that the industrial specialization and nations’ competitive advantage occur through value chain integration or market forces (Chandler, 1990; Teece, 2010), while the state-centric or the political economy proponents claim that nations’ specialization and competitiveness depend rather on the state commitment or market forces (Amsden, 2001; Best, 2001).
Therefore, the volume of literature appear to suggest that the competitive advantage of nations depend on several determinants. Thus, Porter (1990), in his initiative to identify the key factors of nations’ competitiveness, suggested a summative framework appointed as Porter’s Diamond which ascertain for international managers four features to evaluate before taking their expansion decisions.
The key determinants to take into consideration by managers in their expanding decisions:
Thereby, the first factor to take into consideration, and presented in the Porter framework, is the factor endowments, likewise reported in Heckscher-Ohlin theory, which gauge the industrial capability of a nation in term of the infrastructures’ availability related to a given industry, a well- trained and skilful workforce mastering the technological know-how and the disposal of research facilities which could be allocated as advanced endowments factors. Furthermore, a nation could be also gauged in term of basic endowments factors likewise the naturel richness of the country (Lasserre, 2012).
Moreover, the second determinant identified by Porter is the demand conditions which evaluates the consistency and the matching of the suggested goods from a company to the home demand tastes, expectations and the standards that depend on the degree of sophistication of a specific market’s costumers (Lasserre, 2012; Hill, 2014). Then, the third determinant suggested by Porter is the firm strategy, structure and its related competitors’ position, which is similar to what the firm- centric adepts suggested in term of the integration between the supply-chain of a given company with the state industrial direction, added to the importance of successful managerial perspective and strategy which should give differentiation among competitors by bringing an added value for customers (Lasserre, 2012; Johnson et al, 2008; Rugman and Collinson, 2012).
And finally, the fourth determinant suggested by Porter for managers to take into consideration is the availability of related and supporting industries which depend on the government industrial directions that condition the presence of the adequate suppliers, distributors, factor endowments and related industrial network likewise clusters that might contain complementary companies to the one aiming to expand in that market (Lasserre, 2012; Porter, 1990).
Therefore, the Porter’s Diamond framework could be presented as an interaction between the four cited determinants as follows:
To conclude, as claimed by Lasserre (2012), the attractiveness of a country for foreign companies is determined by the relative comparison between the returns which might be generated by these firms, the cost of capital and the risk degree while investing there. Furthermore, the proportionality between these aspects becomes favorable for the investing firms when the factor endowments, the governmental economic direction, the demand conditions, and the existing industries in this given market, are in phase and adjusted to the companies’ needs and strategic direction (Hill, 2014; Lasserre, 2012; Christmann et al., 1999; Murtha et al., 1994). Therefore, in backward to their decision of international expansion, managers should take all these factors into consideration and weigh the pros and cons of this expansion, especially that due to globalization, markets became increasingly inter-connected which enhances the level of competitiveness word-widely, and therefore, the success of international companies became conditioned by the ability of their managers to correctly analyze the key environmental factors surrounding their organisations (Johnson et al, 2008; Porter, 1990).
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