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| Sunday, 26 September 2004 |
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Features |  |
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The competitiveness strategy poser By Lloyd F Yapa Besides social, political and economic stability, nations must build competitive advantage as well to succeed in achieving prosperity. A part of this all important advantage is being cost effective to succeed against competitors. This ability emanates either from cheap factors of production such as labour, land or capital or superior production technology or integration of backward and forward linkages or economies of scale or a combination of several of these variables . The other part of competitive advantage is derived from the ability to offer products or services, which are considered by customers as being functionally better than those made available by competitors and therefore are able to earn premium prices. The competitive advantage, that Sri Lanka possesses at present is primarily due to low wages. However, wages in countries such as China and Bangladesh are lower. Productivity too is on the rise in China. The great poser is, if that is so, is not there a great danger, that the nation will price itself out of international trade, which is considered as the 'engine of growth'of the economy? Then the other poser is what the determinants of competitive advantage are? The purpose of this article is to deal with some of them and indicate how the main players involved ie the government and the firms should create it.They are as follows: Factor conditions The factors a nation possesses include human resources, the stock of knowledge with regard to science, technology, markets for products and services etc, natural (physical) resources, capital and infrastructure facilities/services. Firms gain comparative advantage, if a nation can produce goods and services at a lower factor (opportunity) cost, (ie alternatives foregone), than other countries due to abundance of such factors. Sri Lanka has an abundance of only one factor ie human resources. A comparative advantage built only on the basis of abundant cheap labour, highly literate though it be, will not guarantee success in the international market place.It is fragile. Countries such as Japan, S. Korea and Singapore have created competitive (not comparative) advantage, mainly by emphasizing heavily on tertiary education and training, in collaboration with business and industry to provide on- the- job experience, to be able to differentiate their products and services, which cannot be copied easily by competitors . That being so, the strategy of Sri Lankan authorities, desirous of achieving prosperity, should be to develop it to a level comparable to those of developed countries, mainly in relevant subject areas as well as in languages such as English used in international trade and communications. The countries mentioned above have in addition built assiduously on other determinants such as the stock of scientific, technical and market knowledge with regard to goods and services, in which they have decided to specialize, especially by investing heavily in research and development (R&D). This has also enabled them to add value to and differentiate their wares, on the basis of consumer needs, thereby becoming able to command premium prices. In stark contrast is the low priority attached to such Activities in this country. It is true, that some funds are diverted by government to specialized research organizations. Such funds could, however, be considered wasteful, as these institutes are not involved in training of scientists and technologists and their efforts at diffusion of research findings has been rather weak. The better alternative therefore is to support research and training activities of the universities, especially if they are conducted in association with business and industries concerned. There is also much potential for promotion of R&D by firms themselves by providing tax incentives and matching funds. World class infrastructure facilities and services connected with power/water supply, advanced transportation, logistics and ICT and easy access to cheap capital (bank loans, government bonds, equity-stocks/ shares and venture capital) are well known determinants of competitive advantage and therefore need no elaboration . Demand conditions Authorities in these high performing nations have also raised competitive advantage to a higher level by improving the quality of domestic demand through various means as setting stringent product specifications, (in their procurement policies) preferably in line with those desired by discerning customers and introducing an element of competition, instead of giving preferences to local suppliers of lower quality goods. This way they have been able to push their suppliers to produce goods and services, the specifications of which anticipate needs in international markets. This has also been done in the process of regulation of standards of various products. Firms, which develop such skills have found no difficulty in penetrating export markets. Authorities here could emulate such efforts Supporting industries Geographic clusters preferably of like industries promote economies of scale, sharing of information, innovation/specialization/ efficiencies (due to concentration of rivals), joint projects for research/training/purchasing/ marketing, entry of new industries as well as talent. Cluster formation is, however, a natural phenomenon. East Asian Governments have exploited this tendency to enhance competitiveness by providing infrastructure, locating or affiliating research and training institutions and inviting multinationals to establish ventures in them. Development of geographic clusters is thus a measure, which should be considered seriously by the relevant agencies in this country. Firm strategy and rivalry It is the firms in these countries, which have taken direct action to raise competitive advantage to a higher level by sustained investment in R&D, training and superior processes, machinery/ equipment and market promotion. Governments have supported these activities to the hilt by extending tax incentives. It is preferable to do so without identifying areas for special treatment, as it avoids distortion of incentives for others. Above all authorities in these countries have promoted rivalry among firms by anti trust/ cartel policies, privatization of government monopolies, removal of entry barriers.; they have also upped the ante by gradually and prudently reducing protection through tariffs, subsidies, preferences and other measures . This is the simplest and most inexpensive way of encouraging sustained innovation to heighten competitive advantage. Battered by the oil crisis, threatened by the phase out of the MFA and the danger of being crushed by the supercompetitive Chinese juggernaut, Sri Lanka has no other way to go as a trading nation but adopt immediate measures to improve competitive advantage, while going on an investment binge. |
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