Local Scrimmaging For the Global Game
WHAT makes a world-class company, industry, or country? The United States, Canada, Mexico, and other whole blocs of nations are taking stock of their economic positions. Recession, staff cuts, the Persian Gulf standoff, Japan's buying of properties abroad, German preoccupation with its restored eastern section, Britain's wariness toward the European Community - all heighten interest in economic advantage. The common explanations for competitiveness - economic conditions, labor costs, government policy, and management practices - are important but do not lie at the core of national advantage, says the Harvard Business School's Michael Porter.
Porter looked at several ``world class'' industries in each of nine countries. Among them: aircraft and construction equipment in the US; trucks and facsimile equipment in Japan; printing presses and chemicals in Germany; chocolate and pharmaceuticals in Switzerland; factory automation equipment in Italy; steel in Korea; mining equipment in Sweden; auctioneering in Britain; and dairy products in Denmark.
Italy is second only to Japan in its manufacturing equipment. But Italy has high labor costs and its macroeconomic conditions, government policies, and managerial practices are hardly exceptional. So the usual explanations have limits.
The classical theory of comparative advantage has to do with certain factors. If the US has arable land, it will export grain, the theory holds. But factor advantages can be fleeting. Globalization makes it possible to offset comparative disadvantage: Materials can be imported into resource-poor countries and work can be exported to labor-rich countries. Technology enables companies to do tasks without people and offsets the high cost of space.
National conditions do matter. How else can one explain why all the major exporters of computer software are based near Boston? But a nation must be viewed as a platform for a global strategy, Porter says. The home base is where a world strategy is set.
Competitive advantage results from rapid innovation and improvement in all areas from technology to marketing. Innovation must anticipate international and not just domestic needs. The US TV industry in the 1960s focused on large, cabinet-enclosed sets, while the Japanese focused on portable units. These approaches reflected national lifestyles. Japan's approach, designed for tight household space, better fit the global market.
Sustaining advantage requires constant upgrading. Again, Japan in automobiles progressed from cost advantage in the '70s to higher quality standards in the '80s and is now going after the upscale market with cars like the Lexus in the '90s.
Local rivalry is definitely a factor in international success. The three pharmaceutical companies in Switzerland, the two truck companies in France, reflect a pressure that forces rivals to improve. Localized infrastructures emerge: The Netherlands has four major research firms that specialize in cut flowers; Sweden has a special port for handling newsprint.
Having local rivals appears more important than having international rivals in creating world-class companies. Local rivalry fosters company pride. Competitors are covered in the local and national press. Geographic concentration occurs within countries. All the major printing press companies in Germany are located within 50 miles of one another. Computer chip development is concentrated in California's Silicon Valley. Geographic concentration supercharges the environment. Nearby schools set up worker training programs. Supplier and equipment networks get built.
Devaluing currencies makes countries poorer the minute they devalue and reduces the pressure to automate and improve. Easing product, safety, and environmental standards is no solution; countries with the strictest standards often do best: Japan responded to tight energy controls by making highly energy-efficient products. Better general education and special skills training would help - how much we don't yet know.
Of the usual competitiveness nostrums, Porter clearly favors only deregulation and the capital gains incentives. In guiding public policy, global success should be seen as, above all, a factor of the dynamism that results from local competition.