International competitiveness and the challenges of internationalisation for the SMEs

Prof. A.Sinatra a.a. 2011/2012

• A sector is competitive if it contributes to the national welfare through the optimum use (i.e. more productive) of capital and available resources.

The concept of international competitiveness

You must carefully consider certain indicators, e.g.:You must carefully consider certain indicators, e.g.:

High trade balance or export

share

They may result from a low-cost

transfer of national resources

Low related prices

It should mean the absence of competitive

advantages and a poor profitability

Job creation

It should mean the inability to innovate the manufacturing

processes

• The sigle Co. , not the industry, compete in the international markets;

• Although some of them develop an international organisation, they all have a "national basis“, that is defined as:

• The country where the strategy is developed;

• The place where we can find the crucial phases of the value chain ;

• The “physical space" that hosts the distinctive skills.

International competitiveness: the enterprises and their "National Base"

The characteristics of the "national base", along with the specific skills and strategies of the companies, explain the international success of a

sector.

The country basis is a complex system, hard to imitate for foreign competitors

The characteristics of the "national base", along with the specific skills and strategies of the companies, explain the international success of a

sector.

The country basis is a complex system, hard to imitate for foreign competitors

The determinants of international competitiveness of an industry

These factors create a dynamic system in evolution: in the advanced sectors, competitiveness depends on the degree of consistency between the variables and the rate of innovation.

These factors create a dynamic system in evolution: in the advanced sectors, competitiveness depends on the degree of consistency between the variables and the rate of innovation.

strategy, structure and competition

between companies

inputs and production factors (labour,

capital)

Demand

The related industries

characteristics

The role of

Government and of

the external factors

production factors

• Availability, cost and quality of human resources

• Availability, cost and quality of raw materials

• Availability of scientific, technological and market knowledge

• Availability, accessibility and cost of financial capital

• Kind, quality and cost of available infrastructures (e.g. transport, communications)

A sector can create a strong and sustainable competitive advantage if advanced and specific factors are available in the national basis The competitive advantage that is based on basic factors is temporary and not sustainable

Disadvantaged situations related to the basic factors can stimulate innovation if the other elements of the system allow it (selective disadvantages)

The availability of advanced and specific factors is not given but it is the result of a process of long-term creating

Demand

• Very sophisticated and demanding customers and distribution channels

• Customers and distribution channels that anticipate the needs that will rise in other Nations

• High number of independent buyers with high variety of needs

• Fast saturation of domestic market

• Fast internal market growth

• International mobility and cultural influence of the national consumers

National demand strongly shape the

skills and strategies of companies!

Related industries

• Qualified suppliers are key for a joint development of innovations

• “Non captive” suppliers that develope knowledge in the sector

• Global suppliers that exchange the information collected on foreign markets

• Complementary industries developing segments of the value chain (research promotion, distribution channels, etc…)

The international success of many

Nations, especially Italy, is based on clusters of related

sectors!

Strategy, Structure and Competition

• Presence of a strong and free competition among local companies

• Culture and proprietary structures that promote long-term strategies

• Long-term oriented financial institutions

• Low entry bariers for new competitors (spin-off, non traditional competitors)

The competition drives firms:

to improve themselves and to go beyond the benefits deriving from the national resources

to saturate the internal market more quickly

to experiment with a variety of strategies and solutions

not to compete for government aid and favorsThis is the most important

element for the success of the industry

Evolution of the national competitive advantage

The transition from a stage of growth to the next one is not automatic but assumes a "leap" of strategy and the appropriate boundary conditions

• Acquisition and enrichment of foreign technologies

• Expansion of the productive basis

• Still unsophisticated demand but growing quantitatively, very fast

• Increased internal competition

• Strong direct support of the Government

Investments driven

Investments driven • Selective

disadvantage factors are emerging

• Companies are forced to create innovative technologies and strategies

• Development of the related industries

• The domestic demand is becoming sophisticated and internationalising

Innovation drivenInnovation driven

• Less entrepreneurship

• Under-investment in the sector

• Tendency to acquire (more than to conquer) new market share

• Tendency to seek for the protection of the Government

• Success based on the cumulation of past investments (image, technology)

Wealth drivenWealth driven

How to avoid the «richness syndrom»?

FROM STATIC DEFENSIVE GAMES

TO DYNAMIC PROACTIVE STRATEGIES

Focusing on the "non price" factors

The shrink of the margins (price competition) shows the difficulty to benefit from the traditional geographical mobility (opportunistic strategy)

Competitive conditions on "non-price” factors require an increasing attention to the long-term strategies:

Non occasional cultivation of the markets Stable relationships with customers and local

distributors

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LONG TERM STRATEGIESThe short-term orientation produces the typical "vicious circle" which leads to

failure

We think in terms of Italy + export

(as a “tank market”)

automatic translation of the national model

Replicate the

successfull strategy

limited resources

harvest immediately

Short time orientation &

Unacceptance of the "rules of the

game" of the new market

Limted success and failures

Disappointed from the foreign

market

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SMEs critical issues

growing importance for the export of factors linked to:

Distribution Marketing Logistics Promotion Certification Quality after-sales service

There are still entry barriers to large-scale distribution

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+ High rate of development of new competitors (eg. BRIC)

Investment in R & D, grown in absolute terms, does not reduce the distances for the main competitors

Delays in product innovation Continued dependence on imported technologies Poor critical mass Little external economies Few "competitive assets" for agreements-mergers-

acquisitions Few opportunities to use the European public support

Sme’s critical issues 2

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SMEs Opportunities

The traditional flexibility, creativity, adaptability of italian SMEs continue to be a valuable and irreplaceable heritage but it is inadequate to meet the competitive challenges of the coming years. It’s necessary ...

... to use the opportunities offered by a negative cycle to develop and consolidate the SMEs export position, especially working on the downstream of the production process (distribution, marketing, quality assurance, logistics, promotion and after-sales service).

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The challenge is to move ...

… from “export” ...

… to internationalization

It requires deep changes

How to go international:

Export managed by the national structures

Export managed locally

Licenses

Agents

Representatives

Joint-venture

Direct investments

Low

High

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Deep Change ... 1/4

CULTURE

Legitimization of diversity

Create commitment towards different contexts

Competitive game concept (Dynamic vs. static)

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Deep Change ... 2/4

CHOOSING A SUSTAINABLE STRATEGY

of business portfolio

geographical presence

strategies differentiation

alliances (with allies and opponents)

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Deep Change ... 3/4

THE ABILITY OF MANAGING COMPLEXITY

Computerization Under-optimization of the micro projects and

optimization of the macro-project Multi-cultural learning

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Complexity of strategic

management

Complexity of operational

management

Strategic Vs Operational Management

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… MANAGEMENT

No news in structural landforms

Significant innovations in operating mode Resource management

Decision-making processes

metamanagement

Deep Change ... 4/4

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The challenges for the SMEs

To develop a true entrepreneurial culture to foreign markets

To use the flexibility of enterprises and their creativity to meet more effectively the needs of users

Exceed the limits of the small size by collaborating with others

Learning how to invest

Learning how to change their business model

Learning how to create and manage networks and business systems

The challenge for the management of the small and medium-sized enterprise is:

Prof. Alessandro Sinatra

a.a. 2011/2012

Questions ?

Strategic Issues of Made in Italy