The concept of competitive Advantage of Nations

Competitive advantage of nations is not a vague idea. Nations do demonstrate in concrete terms their superiority in select industries. As in the case of enterprises, nations too build competitive advantage through a planned effort over time. Different countries have competitive advantage in different industries. National competitive advantage often occurs in a cluster of industries rather than in an economy per se. For example, Germany is always spotted for high-performance autos, Japan for consumer electronics, Switzerland for banking, Italy for footwear and the US for commercial aircraft. Their competitive advantage in the respective industries is transparent; they are better than their best worldwide competitors. In other words, no single nation can be competitive in every industry. When a particular industry in a country operates on a higher plane of performance the country acquires a competitive advantage in that field. This position is normally acquired through the capacity of all the players in the given industry for innovation and technology up-gradation. Again, in several cases, nations acquire competitive advantage in particular industries because it is in those industries that their home environment is strong in terms of industry competitiveness and innovation.

Attributes that decide a Nation’s Competitive Advantage:

Probing into the mechanics of building a nation’s competitive advantage, certain specific attributes account for it. Endowment of natural resources by it self, does not confer any significant competitive advantage, though they are facilitating factors in the process. Four broad attributes of a nation shape its competitive advantage.

These attributes create the national environment in which domestic companies learn to compete. How are firms created, organized and managed? And what are the terms of domestic rivalry? Competitive advantage of nations will depend on them. Similarly when a national environment permits and supports the accumulation of specialized assets ad skills, companies in that country, and the nation as a whole, gain a competitive advantage in the concerned field. Also, when a national environment encourages flow of information about products and processes, and also puts pressure on companies to innovate and invest, the country gains a competitive advantage. Domestic rivalry usually creates such pressures on companies to innovate and improve. The rivals push each other to lower costs, improve quality and service, and create new products and processes taking the country as a whole to higher planes of competitive advantage in the respective areas.

In short, a favorable and supportive home environment created by the government, people and institutions of the country add strength to the process of competitive advantage building in the particular industry. All these attributes also impinge upon each other. These attributes are like the corners of a diamond reinforcing system. Nations, are most likely to succeed in industries where the national diamond is the most favorable.

Viewed against the above mentioned ideas of competitive advantage of nations, where does India as a nation stand?

In most of the important determinants of national competitive advantage, India lags behind. Though in the availability of skilled manpower, India is better off, her rating in the area of infrastructure is at rock bottom. When we consider the attribute of demand, in most sectors, it was never given free play; it was artificially pegged at given levels by the government policies governing overall investment. The result is that in many industries, India does not have business firms with world-scale operations. Indian enterprises are far too small. But things are changing fast and many Indian companies are fast climbing to world scale.

High class supporting industries and supply sources are also minimal due to the same policies on investment and regulation of demand and supply. When it came to the issue of strategy, structures and intensity of domestic competition and healthy inter-firm rivalry too, India’s situation till recently was disappointing.

Today, India’s industry and her products lack competitiveness not only in comparison with the developed countries, but even with some of the newly industrialized countries. Wrong policies, paucity of foreign exchange resources, poor technology base and lack of international marketing competence had left India for year as an exporter of mere commodities, leaving the benefits of value addition to other countries. And, India’s potential to become a global shop floor for many products did not get exploited at all. Indian products today rank low in the global market; Indian brand names are not recognized; and in terms of overall international orientation too, India is rated low. A reversal of this had already taken place post liberalization.