Competitive Advantage of Nations and Regional Clusters

This Chapter gives an overview of the main sources of national competitive advantages, based on Porter's diamond model, and discusses the role of regional clusters of industries. In this context, it is explained, how MNCs can benefit from locating their operations in country markets with a high level of national competitive advantage or in regional industry clusters.

National Competitive Advantage

Multinational corporations can benefit from favourable environmental conditions by locating their operations in countries with certain market conditions. As the globalisation of international markets increases and the liberalisation of markets simplifies cross-border transactions, MNCs have a broad selection of potential locations from which to select. Most attractive for MNCs are locations with a high level of national (or regional) competitive advantage. The level of a country's competitiveness reflects the extent to which it is able to provide rising prosperity to its citizens. A nation's prosperity is intimately linked to the productivity of the economy. If a nation is able to improve its productivity, it can improve prosperity.

In this context, Porter (1990b, p. 73) argues that: “National prosperity is created, not inherited”. Thus, not only firms compete internationally, but, as global competition increases, countries also need to position themselves as attractive places to invest and do business. Following this view, each country needs to explore its potential sources of competitive advantage to achieve the sustainable growth, which is the basis for long-term economic wealth and prosperity of the nation.

Each year, the World Economic Forum publishes a Global Competitiveness Report in which countries are ranked according to their competitiveness (see Table 8.1). The ranking builds on the Global Competitiveness Index (GCI) which is developed from the “12 pillars of competitiveness” that are regarded as sources of national competitive advantage. In this regard, factors such as the institutional environment in a country, its macroeconomic stability, the educational system or infrastructure are analysed, as well as a country's market size or its level of (technical) innovation (World Economic Forum 2013, pp. 4- 9). Thus, the determinants of competitiveness are manifold and countries need to explore which dimensions are important for to building on in order to improve national competitiveness.

Table 8.1

Country/ Economy

Rank

Score

Country/ Economy

Rank

Score

Switzerland

1

5.67

Austria

16

5.15

Singapore

2

5.61

Belgium

17

5.13

Finland

3

5.54

New Zealand

18

5.11

Germany

4

5.51

U. Arab Emirates

19

5.11

United States

5

5.48

Saudi Arabia

20

5.10

Sweden

6

5.48

Australia

21

5.09

Hong Kong SAR

7

5.47

Luxembourg

22

5.09

Netherlands

8

5.42

France

23

5.05

Japan

9

5.40

Malaysia

24

5.03

United Kingdom

10

5.37

Korea, Rep.

25

5.01

Norway

11

5.33

Brunei

26

4.95

Taiwan

12

5.29

Israel

27

4.94

Qatar

13

5.24

Ireland

28

4.92

Canada

14

5.20

China

29

4.84

Denmark

15

5.18

Puerto Rico

30

4.67

Source: World Economic Forum 2013, p. 15.

 
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