Competitiveness presentation

International Competitiveness of Asian Firms:
A Conceptual and Research Framework

by

Rajiv Kumar and Doren Chadee

Asian Development Bank
December 2001

International Competitiveness of Asian Firms: A
Conceptual and Research Framework

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
Internal Factors
External Factors

Technology & ICT Role of Government

Finance & Capital

Human Resource

Interaction Creates
International Competitiveness
Organizational Structure
(higher export profitability, export market share)


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.


b. 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.


b. 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.


• E. Importance of Capital and Financial Sector
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.


• E. Importance of Capital and Financial Sector
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 Surveyed
Countries Auto Parts Garments Microelect.

Thailand 10 14 26
Philippines 18 51 27

Thailand

• Profile of Surveyed Firms - Auto Parts Firms

COUNTRY EXPERIENCE
Thailand

• Profile of Surveyed Firms - Garments Firms

Thailand

• Profile of Surveyed Firms - Thailand
Microelectronics

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.

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.

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).

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.

Government’s Role - Thailand

1. Factors Benefiting Global Competitiveness - Thailand
Rank (5=extremely important)
Auto Micro-
Parts Garments electronics
3.5 3.57 3.64 Export credit programs
3.5 3.21 3.56 Testing and quality evaluation
facilities in the public domain
3.2 3.64 3.36 Public support for overseas
markets promotion
3.2 3.43 3.08 The role of government in
promoting inter-firm collaboration
3.1 3.36 3.12 Public sector market research and
intelligence
3.0 3.21 2.00 Government incentives in
promoting clusters/scientific parks
2.8 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.


2. Factors Affecting Firms’ Competitiveness- Thailand
Rank (5=extremely important
Auto
Parts Garments
4.1 4.6 Quality of domestic suppliers
4.0 3.8 Power supply
3.7 4.0 Telecommunication network
3.5 3.3 Access to capital/credit
3.4 3.4 Water supply
3.3 3.5 Transport services
3.2 3.4 Legal systems and institutions
3.0 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 EXPERIENCE

3. Factors Constraining Firms’ Competitiveness-Thailand

Rank (5=very serious)
Auto Micro-
Parts Garments electronics
4.1 3.9 3.83 Customs procedures
4.1 3.0 2.79 Municipal regulations
4.0 3.7 3.24 Official corruption
3.4 3.5 3.76 Local duties and levies
3.3 3.7 3.5 Licensing arrangements
3.0 3.1 3.0 Regulation on hiring foreign
workers/managers
2.8 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 EXPERIENCE

4. Value of Firms’ Relationships with Public Institutions and the
Private Sector-Thailand
Rank (5=extremely
valuable)
Auto
Parts Garments
4.3 4.64 Customers/end users
4.1 4.57 Suppliers of materials and components
3.9 3.64 Financial services institutions
3.5 3.36 Government agencies
3.3 3.43 Business service providers
3.2 3.86 Technical service providers
2.3 3.29 Research and development organizations
2.1 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 EXPERIENCE
Source of Capital Finance & Company Strategy -
Thailand

7. Perceived Threats to Competitiveness
(Rank: 5 = most likely threat)
Auto Parts Micro-
Garments electronics
4.4 4.1 4.12 Market instability
4.3 4.0 3.63 Technological obsolescence
4.2 3.9 2.88 Protectionism by other countries
3.8 4.4 4.00 Availability of qualified manager
3.7 4.4 3.88 Availability of skilled workers
3.7 3.1 2.84 Adoption of internet and e-commerce by
competitors
3.6 4.3 4.00 Rising wages
3.6 3.4 3.68 Financial constraint
3.5 3.4 3.92 Government policies
3.4 3.4 3.56 State of domestic infrastructure and logistics
3.1 3.8 3.76 Availability of skilled information technology
personnel

COUNTRY EXPERIENCE
Source of Capital Finance & Company Strategy-
Thailand

8. Strategies to Deal with Perceived Threats to Competitiveness- Thailand
Rank (5=most likely strategy)
Auto Parts Micro-
Garments electronics
4.5 4.9 4.72 Improving efficiency and productivity per worke
4.4 4.8 4.80 Focus on product quality upgrading
3.8 4.2 3.92 Improve corporate governance
3.3 3.8 3.40 Diversification into other products
3.2 3.4 2.96 Develop own brand name
3.0 2.6 3.12 Form joint ventures and strategic alliances
2.7 3.6 2.96 Diversify R&D activities
2.7 2.2 2.44 Growth through mergers and acquisitions
1.9 2.1 2.76 Relocation to lower wage cost countries

COUNTRY EXPERIENCE
Source of Capital Finance & Company Strategy
-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.

COUNTRY EXPERIENCE
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%.

COUNTRY EXPERIENCE
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.

COUNTRY EXPERIENCE
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 EXPERIENCE
Thailand

• 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.

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)

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