International Competitiveness of Asian Firms: A Conceptual and Research Framework

1
International Competitiveness of Asian Firms A
Conceptual and Research Framework

• by
• Rajiv Kumar and Doren Chadee
• Asian Development Bank
• December 2001

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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.

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International Competitiveness of Asian Firms A
Conceptual and Research Framework

• II. THEORETICAL CONSIDERATION AND CONCEPTUAL
  FRAMEWORK
• Issues
• Indicators and benchmark of international
  competitiveness.

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International Competitiveness of Asian Firms A
Conceptual and Research Framework

• 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 (higher export profitability,
export market share)
Organizational Structure
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International Competitiveness of Asian Firms A
Conceptual and Research Framework

• III. SOURCES OF COMPETITIVENESS
• Technology
• Human Resource
• Organizational Structure
• Government Industrial Policy
• Role of Capital Finance

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International Competitiveness of Asian Firms A
Conceptual and Research Framework

• III. SOURCES OF COMPETITIVENESS
• 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

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International Competitiveness of Asian Firms A
Conceptual and Research Framework

• 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

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International Competitiveness of Asian Firms A
Conceptual and Research Framework

• III. SOURCES OF COMPETITIVENESS
• A. Technology
• a. Innovation and Technology Strategy
• P1 Firms that are more innovative (higher (RD
  expenditure, more patents, more new
• products, etc.) are generally more competitive
  in international market.

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International Competitiveness of Asian Firms A
Conceptual and Research Framework

• a. Innovation and Technology Strategy
• P2 Firms that are more actively involved in
  technology partnering (through RD 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.

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International Competitiveness of Asian Firms A
Conceptual and Research Framework

• a. Innovation and Technology Strategy
• P3 Firms that are at an advanced stage of
  technological development (quick follower) are
  more competitive than firms that are less
  technologically developed (latecomer).

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International Competitiveness of Asian Firms A
Conceptual and Research Framework

• III. SOURCES OF COMPETITIVENESS
• 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.

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International Competitiveness of Asian Firms A
Conceptual and Research Framework

• 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.

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International Competitiveness of Asian Firms A
Conceptual and Research Framework

• 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.

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International Competitiveness of Asian Firms A
Conceptual and Research Framework

• III. SOURCES OF COMPETITIVENESS
• B. Human Resources
• a. Human Resources Orientation
• b. Education, Training, and Development

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International Competitiveness of Asian Firms A
Conceptual and Research Framework

• a. Human Resources Orientation
• P6 Firms with comprehensive human resource
  orientation (effective recruitment, retention,
  and development) are more competitive than firms
  without them.

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International Competitiveness of Asian Firms A
Conceptual and Research Framework

• 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.

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International Competitiveness of Asian Firms A
Conceptual and Research Framework

• III. SOURCES OF COMPETITIVENESS
• 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.

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International Competitiveness of Asian Firms A
Conceptual and Research Framework

• III. SOURCES OF COMPETITIVENESS
• 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.

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International Competitiveness of Asian Firms A
Conceptual and Research Framework

• III. SOURCES OF COMPETITIVENESS
• 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.

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International Competitiveness of Asian Firms A
Conceptual and Research Framework

• III. SOURCES OF COMPETITIVENESS
• b. Organizational Learning Interfirm
  Relationship
• P11 The more connections an enterprise has
  (with suppliers, RD 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.

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International Competitiveness of Asian Firms A
Conceptual and Research Framework

• III. SOURCES OF COMPETITIVENESS
• 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.

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International Competitiveness of Asian Firms A
Conceptual and Research Framework

• III. SOURCES OF COMPETITIVENESS
• D. Role of Government
• a. Industrial Policy
• b. Provision of Public Goods
• c. Export Market Assistance

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International Competitiveness of Asian Firms A
Conceptual and Research Framework

• III. SOURCES OF COMPETITIVENESS
• 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.

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International Competitiveness of Asian Firms A
Conceptual and Research Framework

• III. SOURCES OF COMPETITIVENESS
• 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.

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International Competitiveness of Asian Firms A
Conceptual and Research Framework

• III. SOURCES OF COMPETITIVENESS
• b. Provision of Public Good
• P15 Government incentives aimed at promoting
  interfirm collaboration generally, leads to
  enhanced competitiveness.

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International Competitiveness of Asian Firms A
Conceptual and Research Framework

• III. SOURCES OF 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.

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International Competitiveness of Asian Firms A
Conceptual and Research Framework

• III. SOURCES OF COMPETITIVENESS
• 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 firms
  continued growth.

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International Competitiveness of Asian Firms A
Conceptual and Research Framework

• III. SOURCES OF COMPETITIVENESS
• 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.

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International Competitiveness of Asian Firms A
Conceptual and Research Framework

• III. SOURCES OF 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.

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International Competitiveness of Asian Firms A
Conceptual and Research Framework

• 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

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International Competitiveness of Asian Firms A
Conceptual and Research Framework

• 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.

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COUNTRY EXPERIENCE

• Thailand
• Philippines

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COUNTRY EXPERIENCE -

• Sectors Covered
• auto parts
• garments
• pc/microelectronics

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COUNTRY EXPERIENCE

• No. of Firms Surveyed Countries Auto
  Parts Garments Microelect.
• Thailand 10 14 26
• Philippines 18 51 27

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COUNTRY EXPERIENCE - Thailand

• Profile of Surveyed Firms - Auto Parts Firms

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COUNTRY EXPERIENCEThailand

• Profile of Surveyed Firms - Garments Firms

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COUNTRY EXPERIENCE - Thailand

• Profile of Surveyed Firms - Thailand
  Microelectronics

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COUNTRY EXPERIENCE - 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.
  

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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 4060 domestic to
  foreign ownership.

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COUNTRY EXPERIENCE - 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.

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COUNTRY EXPERIENCE - 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).

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COUNTRY EXPERIENCE - Governments Role

• The following section shows how the industrial
  policies of each respective countries responded
  to the sectors need i.e., infrastructure,
  logistics, industry location, incentives, etc.

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COUNTRY EXPERIENCE - Governments Role - Thailand

1. Factors Benefiting Global Competitiveness -
Thailand
Rank (5extremely 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
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COUNTRY EXPERIENCE - Governments Role - Thailand

• 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.

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COUNTRY EXPERIENCE -Governments Role - Thailand

2. Factors Affecting Firms Competitiveness-
Thailand
Rank (5extremely 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
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COUNTRY EXPERIENCE - Governments Role - Thailand

• Firms competitiveness in Thailand has been
  affected the most by the quality of domestic
  suppliers, power supply and telecommunications
  network.

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COUNTRY EXPERIENCEGovernments Role - Thailand

3. Factors Constraining Firms
Competitiveness-Thailand
Rank (5very 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
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COUNTRY EXPERIENCE - Governments Role - Thailand

• 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.

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COUNTRY EXPERIENCEGovernments Role - Thailand

4. Value of Firms Relationships with Public
Institutions and the
Private Sector-Thailand
Rank (5extremely
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
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COUNTRY EXPERIENCE - Governments Role - Thailand

• 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.

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COUNTRY EXPERIENCESource 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
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COUNTRY EXPERIENCESource of Capital Finance
Company Strategy-Thailand
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COUNTRY EXPERIENCESource 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.

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COUNTRY EXPERIENCESource of Capital Finance
Company Strategy - 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.

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COUNTRY EXPERIENCESource of Capital Finance
Company Strategy - 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.

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COUNTRY EXPERIENCESource of Capital Finance
Company Strategy - 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.

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COUNTRY EXPERIENCEThailand

• 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.

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COUNTRY EXPERIENCE - Governments 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.

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COUNTRY EXPERIENCE - Governments Role -
Philippines

• 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.

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COUNTRY EXPERIENCE - Governments Role -
Philippines

• 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 years
  export revenue.

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COUNTRY EXPERIENCE - Governments Role -
Philippines

• 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

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COUNTRY EXPERIENCE - Governments Role -
Philippines

• 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

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COUNTRY EXPERIENCE - Governments Role -
Philippines

• Garment exporters in the Philippines consider
  power and water supply, and telecommunication
  network as extremely important in their firms
  competitiveness.
• The same is observed in Thai firms (see previous
  slide)