competitiveness presentation

International Competitiveness of Asian Firms: A Conceptual and Research Framework

by

Rajiv Kumar and Doren Chadee

Asian Development Bank

December 2001


I. INTRODUCTION

• Renewed interest on the international competitiveness of Asian firms following the Asian financial crisis of 1997-1998.

• Significance of the export sector in most Asian economies in the last two decades.


II. THEORETICAL CONSIDERATION AND CONCEPTUAL FRAMEWORK

Issues:

Indicators and benchmark of international competitiveness.


Figure 1. An Integrated Model of International Competitiveness of Enterprises in Asia

Interaction CreatesInternational Competitiveness

(higher export profitability, export market share)

Technology & ICT

Human Resource

Organizational Structure

Internal FactorsExternal Factors

Role of Government

Finance & Capital


III. SOURCES OF COMPETITIVENESS

• Technology

• Human Resource

• Organizational Structure

• Government Industrial Policy

• Role of Capital Finance



• A. Technology

Defined as know-how usually refers to product and process technology. Product technology refers to a set of knowledge or innovations embodied in a product, while process technology refers to technology embedded in production process


Table 1: Innovation Technology Strategies and their Characteristics

Strategies: Characteristics

a. Capabilities a. Catch-up (latecomer)

b. Critical knowledge inputs b. Keep-up (quick follower)

c. Policy objectives c. Get-ahead (front runner)

d. Useful partnership linkages



• A. Technology

a. Innovation and Technology Strategy

• P1: Firms that are more innovative (higher (R&D expenditure, more patents, more new

products, etc.) are generally more competitive in international market.



• P2: Firms that are more actively involved in technology partnering (through R&D alliances, joint venture agreements, licensing contractual agreements) are more likely to adopt new technology and therefore be more competitive than firms less involved in interfirm partnering.



• P3: Firms that are at an advanced stage of technological development (quick follower) are more competitive than firms that are less technologically developed (latecomer).



b. Information and Communications Technology (ICT)

• P4: Firms in which ICT strategy is an integral part of corporate strategy and which are committed to the effective use of ICT are likely to be more competitive than firms without a clear ICT strategy.


a. Information and Communications Technology (ICT)

• P5: Firms in which ICT is used widely in the various functional activities (marketing, human resources, planning, communication, etc.) are more competitive than firms where ICT is not used widely.


III. Determinants of International Competitiveness of Asian Firms

• B. Human Resource

The importance of human resource management is valued not only for its role in implementing a given competitive scenario but also in generating strategic capability. Human resource orientation and education, training and development are sources of competitiveness.



• B. Human Resources

a. Human Resources Orientation

b. Education, Training, and Development


a. Human Resources Orientation

• P6: Firms with comprehensive human resource orientation (effective recruitment, retention, and development) are more competitive than firms without them.


b. Education, Training, and Development

• P7: Firms with human resource programs that focus on the development of specific human capital are likely to be more competitive than those with less focus on the development of specific human capital.



C. Organizational Structure

P8: Firms with organizational designs that create greater flexibility and adaptability are likely to be more competitive than firms without such structure.



C. Organizational Structure

P9: Firms with less centralized and less formal structures are likely to be more competitive than those with more formal and centralized structures.



a. Teamwork and Clusters

P10: Firms with organizational structures(such as team-based and clusters) that promote greater communication among employees at all levels of the organization are likely to be more competitive than those less oriented toward the creation and exchange of information.


III. SOURCES OF COMPETITIVENESSb. Organizational Learning & Interfirm Relationship

P11: The more connections an enterprise has (with suppliers, R&D institutions, designers, etc.) and the more involved it is in networks, the greater the possibilities to learn from other organizations and benefit from ideas that contribute to its competitive advantage.


III. SOURCES OF COMPETITIVENESSb. Organizational Learning & Interfirm Relationship

P12: The higher the amount of trust an enterprise has with its network partners (suppliers, subcontractors, etc.), the greater the possibilities to learn, and therefore the more competitive the firm is likely to be.



• D. Role of Government

a. Industrial Policy

b. Provision of Public Goods

c. Export Market Assistance



• a. Industrial Policy

P13: The provision of government grants and tax incentives to stimulate the development of specific industries is likely to enhance the overall competitiveness of firms within the industry.



• b. Provision of Public Good

P14: The greater the commitment of the government in developing the NSI (through expenditure on physical and social infrastructure), the more competitive firms are likely to be.



• b. Provision of Public Good

P15: Government incentives aimed at promoting interfirm collaboration generally, leads to enhanced competitiveness.



• c. Export Market Assistance

P16: The provision of marketing assistance (such as market intelligence, market research, trade promotion, brand development, etc.) aimed at developing export markets enhances the competitiveness of firms.



• E. Importance of Capital and Financial Sector

The ability to finance operations adequately and the stability of the financial sector from which capital is sourced determine a firm’s continued growth.




P17: Increased access to a well-developed and stable financial sector comprising banks and specialized financial institutions (such as long-term credit and development banks, venture capital and stock markets) contributes positively to their overall competitiveness.




a. Financial Sector Stability

P18: Increased competition among banks together with strict prudential regulation ensures a stable banking system and contributes positively toward the competitiveness of firms.

• IV. GENERALIZATION OF THE MODEL

COMPi = f(TECi, HRi, ORGi, GOVi, CAPi)where:

COMP = measure of competitiveness

TECH = technology

HR = human resource

ORG = organizational structure

GOV = government role

CAP = capital market



Concluding Remarks:

• Aside from the micro determinants of competitiveness, the paper encourages researchers to pay more attention to certain qualitative aspects of firms’ activities, i.e. relations with outside agents and institutional settings in which they operate.

COUNTRY EXPERIENCE

• Thailand

• Philippines

COUNTRY EXPERIENCE -

Sectors Covered:

• auto parts

• garments• pc/microelectronics

COUNTRY EXPERIENCE

No. of Firms SurveyedCountries Auto Parts Garments

Microelect.

Thailand 10 14 26

Philippines 18 51 27

COUNTRY EXPERIENCE - Thailand

• Profile of Surveyed Firms - Auto Parts Firms

COUNTRY EXPERIENCEThailand

• Profile of Surveyed Firms - Garments Firms

COUNTRY EXPERIENCE - Thailand

• Profile of Surveyed Firms - Thailand Microelectronics

COUNTRY EXPERIENCE - Thailand Auto Parts Firms

• Eight of the firms are component manufacturers. Half of the surveyed firms are direct suppliers to a final assembler.

• Eight of the firms are joint ventures with a combined average of 69 percent foreign ownership. Four firms are part of the larger group, and five indicated they have overseas affiliates that conduct production and marketing activities.

COUNTRY EXPERIENCE Thailand - Garments

• Thirteen out 14 of the firms are private limited incorporated companies. Nine of the 14 are 100 percent locally-owned companies, the rest are joint ventures.

• The five joint ventures are 40:60 domestic to foreign ownership.

COUNTRY EXPERIENCE - Thailand Microelectronics Firms

• Out of 25 firms surveyed 10 firms are public limited companies and 15 firms are private limited companies, with 36 percent of them wholly foreign owned, 32 percent locally owned, and 32 percent joint-venture.

COUNTRY EXPERIENCE - Thailand Microelectronics Firms

• The proportion of foreign ownership is between 12-90 percent. Sixty percent of the firms are part of a larger group and have overseas affiliates, and these firms generally have more than five affiliates whose main activity is production (36 percent).

COUNTRY EXPERIENCE - Government’s Role

• The following section shows how the industrial policies of each respective countries responded to the sector’s need i.e., infrastructure, logistics, industry location, incentives, etc.

COUNTRY EXPERIENCE - Government’s Role - Thailand

1. Factors Benefiting Global Competitiveness - ThailandRank (5=extremely important)

AutoParts Garments

Micro-electronics

3.5 3.57 3.64 Export credit programs3.5 3.21 3.56 Testing and quality evaluation

facilities in the public domain3.2 3.64 3.36 Public support for overseas

markets promotion3.2 3.43 3.08 The role of government in

promoting inter-firm collaboration3.1 3.36 3.12 Public sector market research and

intelligence3.0 3.21 2.00 Government incentives in

promoting clusters/scientific parks2.8 3.21 3.4 Public sector science and

technology systems


• Among the surveyed firms in Thailand in all three (3) sectors, export credit programs and public testing and quality evaluation facilities ranked first when asked what they consider to have helped built their competitiveness.

• Low end of the rankings were government incentives for cluster information and science parks.

COUNTRY EXPERIENCE -Government’s Role - Thailand

2. Factors Affecting Firms’ Competitiveness- ThailandRank (5=extremely importantAutoParts Garments4.1 4.6 Quality of domestic suppliers4.0 3.8 Power supply3.7 4.0 Telecommunication network3.5 3.3 Access to capital/credit3.4 3.4 Water supply3.3 3.5 Transport services3.2 3.4 Legal systems and institutions3.0 3.3 Public health facilities


• Firm’s competitiveness in Thailand has been affected the most by the quality of domestic suppliers, power supply and telecommunications network.

COUNTRY EXPERIENCEGovernment’s Role - Thailand

3. Factors Constraining Firms’ Competitiveness-Thailand

Rank (5=very serious)AutoParts Garments

Micro-electronics

4.1 3.9 3.83 Customs procedures4.1 3.0 2.79 Municipal regulations4.0 3.7 3.24 Official corruption3.4 3.5 3.76 Local duties and levies3.3 3.7 3.5 Licensing arrangements3.0 3.1 3.0 Regulation on hiring foreign

workers/managers2.8 2.8 2.96 Access to land


• Top 3 source of constraints of competitiveness for Thailand firms are customs procedures, municipal regulation, and official corruption.

• Access to land was the least source of constraint.

COUNTRY EXPERIENCEGovernment’s Role - Thailand

4. Value of Firms’ Relationships with Public Institutions and thePrivate Sector-Thailand

Rank (5=extremelyvaluable)

AutoParts Garments4.3 4.64 Customers/end users4.1 4.57 Suppliers of materials and components3.9 3.64 Financial services institutions3.5 3.36 Government agencies3.3 3.43 Business service providers3.2 3.86 Technical service providers2.3 3.29 Research and development organizations2.1 3.07 Distributors


• Firms in the three sectors value relationships with customers/end user, suppliers of materials and components, and financial services institutions, respectively more than their relationships with government agencies.

COUNTRY EXPERIENCESource of Capital Finance & Company Strategy -

Thailand

7. Perceived Threats to Competitiveness(Rank: 5 = most likely threat)

Auto PartsGarments

Micro-electronics

4.4 4.1 4.12 Market instability4.3 4.0 3.63 Technological obsolescence4.2 3.9 2.88 Protectionism by other countries3.8 4.4 4.00 Availability of qualified manager3.7 4.4 3.88 Availability of skilled workers3.7 3.1 2.84 Adoption of internet and e-commerce by

competitors3.6 4.3 4.00 Rising wages3.6 3.4 3.68 Financial constraint3.5 3.4 3.92 Government policies3.4 3.4 3.56 State of domestic infrastructure and logistics3.1 3.8 3.76 Availability of skilled information technology

personnel

COUNTRY EXPERIENCESource of Capital Finance & Company Strategy-

Thailand

8. Strategies to Deal with Perceived Threats to Competitiveness- ThailandRank (5=most likely strategy)

Auto PartsGarments

Micro-electronics

4.5 4.9 4.72 Improving efficiency and productivity per worker4.4 4.8 4.80 Focus on product quality upgrading3.8 4.2 3.92 Improve corporate governance3.3 3.8 3.40 Diversification into other products3.2 3.4 2.96 Develop own brand name3.0 2.6 3.12 Form joint ventures and strategic alliances2.7 3.6 2.96 Diversify R&D activities2.7 2.2 2.44 Growth through mergers and acquisitions1.9 2.1 2.76 Relocation to lower wage cost countries


Thailand

• Equity markets and government grants were not used by any of the firms in 1995 and 2000.

• Despite the rise in foreign companies and partners entering the local auto parts market, the firms in this survey have not drawn much working capital from partners.


Thailand

• The sources of working capital for the 10 auto parts firms have not changed much between 1995 and 2000. Half relied on domestic banks for part of their working capital needs.

• By 2000 the average working capital derived from banks increased to more than 60%.


Thailand

• For capital investments banks appear to remain the preferred option of the firms.

• Thai Auto parts firms believed their international competitiveness increased over the past three years.


Thailand

• Speed of delivery, reliability and quality ranked as the most important sources of competitive strength of Thai auto parts firms. Price and flexibility ranked the lowest.

• Market instability, technological obsolescence and protectionism by other countries were considered threat to competitiveness.

COUNTRY EXPERIENCEThailand

• Overall, surveyed firms in all three sectors in Thailand experienced increases in export sales.

• Regarding ownership and FDI, auto parts industry faced more structural changes than the other two sectors.

COUNTRY EXPERIENCE - Government’s Role - Philippines

• The Philippines grants very attractive incentives for electronic firms locating in designated economic zones (allowed 100% foreign ownership).

• Aside from income tax holidays (ITH), electronics firms pay a special tax of only 5% of gross income.


• Firms in the electronics sector also enjoy additional 50% deduction of the total cost of development and training for labor and management, and permanent resident status for foreign investors and their immediate family members.


• In the garments sector, incentives granted include:

1. Tax credit for use or import-substitution

of non-traditional products.

2. Tax credit for increase in current year’s export revenue.


• Over the years, most producers (garments) have not perceived public infrastructure (i.e. public sector market research and intelligence, science and technology system, and support for overseas markets promotions such as trade fairs) as extremely important in overall firm competitiveness


• Garment exporters (like Thai firms) consider the following as very serious constraints to their competitiveness:

1. customs procedures

2. local duties and levies

3. corruption


• Garment exporters in the Philippines consider power and water supply, and telecommunication network as extremely important in their firm’s competitiveness.

• The same is observed in Thai firms (see previous slide)

competitiveness presentation

Documents

competitivethan firms

research frameworkiii

international market

research frameworka

research frameworkfigure

product technology

process technology

involvedin technology