Modern Business of Different Economies - Essay Example

? Modern Business Table of Contents Table of Contents 2 Introduction 3 Theoretical Background 4 Key Point Early–Late Industrialization versus Late-Late Industrialization) 9 Key Point 2 (Early Industrialization versus Late Industrialization) 10 Key Point 3 (Early-Early Industrialization versus Late- Early Industrialization) 12 More on National Competitiveness 13 Reference 15 Introduction There is no doubt that the topic of this essay is a pertinent issue for both modern day business and national perspective of countries. Evolution of industrialization in different countries was quite asymmetric and non-linear in nature. For example, industrialization in western countries was at full swing during first half of 20th century but concept of industrialization was unknown to many Asian countries during that time. Research scholars have classified industrializations as ‘early’ and ‘late’ in accordance to their origin. It has been observed that, industrial progress of particular country has simultaneously influenced companies to improve organizational and business performance. The concept of competitive advantage for national business system of different countries has an underlying linkage with ‘early’ and ‘late’ industrialization process. It is evident from the above example that time period for evolution of industrialisation is different for every country and each of the country followed a distinctive pathway to bring industrialization. Chronologically, the United Kingdom was the birthplace for industrialization during nineteenth century and then followed the USA. Industrialization in other European countries took place during the twentieth century, while in countries like China and Japan; industrialization took place after the Second World War. Objective of this essay is to explain how organizational and institutional characteristics of national business systems in different countries have affected by ‘early’ and ‘late’ industrialization process. Porter diamond model for national business system of different countries and theories regarding industrialization process will be discussed in order to build theoretical background for this essay. The study will cite examples of countries and industries in order to compare national business system of different economies. In the last section, the essay will try to throw some light on issues like sustainability of national competitiveness of various countries, in order to understand effectiveness of industrialization. Theoretical Background Early Industrialization & Late Industrialization Research scholars have stated that late industrialization process in various nations is deeply influenced by resource mobilization and intergenerational concept mobility. Late industrialized nations have already achieved significant feet in terms of resource mobilization and national capability development. Therefore, it can be said that, economic development of late industrialized nations started late but the growth rate of these countries can surpass the growth rate of those countries where industrialization took place early. Theoretically, late industrialization took place in those countries, which were economically backward due to over dependence on agriculture and lack of industrial output during early years of twentieth century. In 1979, OECD had published a report about countries which were industrialized at later half of twentieth century. According to this report, countries like Portugal, Hong Kong, Greece, Taiwan, Mexico, Brazil, Spain and South Korea have experienced industrial growth at later half of twentieth century and these countries are called as NICs or "newly industrializing countries" (Balassa, 1981). Industry experts have stated that economic growth in late industrialized countries is different in comparison to countries which are industrialized in early point of time. According to Balassa (1981), three factors, such as contribution of the industrial sector in labour force employment, rise in per capita income and percentage rise in exporting activities decide whether the economy is late industrialized or early industrialized. Researchers generally use gross domestic product and labour force employment as key differentiators between early and late industrialized countries. To draw a fine line between early and late industrialization, the study will use example Japan as the benchmark economy. Although industrialization in Japan took place after industrialisation of countries like the UK, the USA, Germany and other European countries, it is the first nation where late industrialization took place. Balassa (1981) has stated that, ratio between industrial labour force and total labour force can be used in order to identify nature of industrialization for a particular nation in particular time horizon. According to OECE (1979), as of 1975, a country must have industrial labour force of more than 15 percent in order to be called as late industrialized nation while Japan had fulfilled the criteria specified by OECD and became the first nation where late industrialization took place. Yaish (2000) has raised doubt over effectiveness of generalization of early industrialization and late industrialization. According to the scholar, relying on farm labour-force indicator and gross domestic product growth can explain industrial condition in countries which are prone to rapid economic change. The study will now cite example of industrialization in Israel, which is subject to argument among various research scholars. According to OECD (1979), early industrialization took place in Israel before 1975, but farm labour-force indicator for the country was less than 7% in late 1970’s. Such discrepancies in the measurement were caused by abrupt economic development in Israel in late 1960’s. Next the study will cite example of Italy which is another early industrialized nation; however, its industrialization norms are subject to controversies. According to OECD (1979), industry labour force index for Italy was more than 18 percent during initial years of 1960s but labour force index was decreased during 1970s due to turbulent economic condition. Now if any economist observes industrial output of Italy during 1970s then he/she will definitely reckon Italy as late industrialized nation. Gershenkron (1962) in his seminal work has coined the term “backwardness” in order to define economic benefit of late industrialization process. According to the scholar, Italy, Germany, Russia and Bulgaria are the late arrivals in early industrialization process and these latecomers have the advantage of adopting technological innovations which are associated with industrial revolution in the UK and the USA. According to Gershenkron (1962), it takes less time for national business systems which have experience late industrialization to develop by assimilating technological advantage in countries which have experienced early industrialization. Economic development of late industrialized countries can move in a fast and discontinuous pathway whereas economic developments in early industrialized nations move in a slow and gradual development pathway. Beyond Porter’s Diamond Model Porter (1990) has proposed national “diamond” in order to identify industrial competitiveness associated with various national business systems. The model emphasizes on elaborating the reasons behind competitive advantage of some nations. Shape of the diamond model is dependent on issues like demand condition in the economy, strategy of the firm, competitive rivalry and existence of supporting industries. According to the diamond model, competitive advantage for various national business systems is dependent on stages like wealth-driven, innovation-driven, factor-driven and investment-driven. Diamond model for various national business systems can be depicted in the following manner, (Source: Chobanyan and Leigh, 2006) It is evident from the above mentioned diamond model, that organizational and institutional requirement for nations with early industrialization and late industrialization is quite different. For example, early industrialised nations such as the UK, the USA, Norway, Germany etc., have the capability to provide infrastructural, capital and technological support to industries due to availability of resources; whereas late resource constrained countries such as China, Brazil, Japan, Singapore and India have the advantage of low cost human resources to industries. Factor Conditions Lack of availability of capital resources such as globalized banking and financial services which can finance industrial activities; lack of physical resources and infrastructure such as lands, transportation, roads which can take care of industrial and logistic activities and lack of availability of human resources such as educated and qualified labour force have delayed the industrialization process in countries like China, Singapore and Brazil. Availability of such factors has influenced the industrialization process in developed economies such as the UK and the USA. Demand Conditions Low purchasing power of people, small market size and weak demand situation were obstacles for late industrialized countries prior to the industrialization while low income level of people caused by unequal distribution of wealth in developing countries was also responsible for late industrialization. Key Point 1 (Early–Late Industrialization versus Late-Late Industrialization) In this section the study will cite the example of South Korea and Armenia in order to understand how long term competitiveness of national business system of these late industrialized countries is dependent on institutional and organizational factors. There is no doubt that Armenia is relatively a late entrant in industrialization process in comparison to South Korea, hence the study has the scope to analyze business competitiveness of two countries, which recline in the same quadrant of late industrialization process. Cheap labour cost, availability of skilled labours, demand for quality product have influenced the industrialization in Korea. According to Chung et al (1997), demand of Korean population to live lifestyle which is at par with any developed economies, has created the scope for industrialization process. National competitiveness of South Korea was improved by rapid development of fashion retailing industry in the country; for example, Dong Dae Mun market place in the country consist more than 26,000 retail outlets and the market was renovated by the South Korean government in late 1990’s. Now the market has become major tourist attraction in the country. Geographic concentrations of fashion retailers and demand for retail products have increased the scope for retail industrialization in South Korea during 1970s. The interesting fact is that reasons behind the national competitiveness of Armenia from late industrialization were different from reasons which caused industrialization in South Korea. Armenia went through its most difficult period during the early 1990s; total GDP growth and export was haltered due to absence of large industries. Such economic turmoil forced the government to take “Big Bang” approach in order to increase scope for industrialization process by liberalizing the market. The government had decided to take some solid steps in order to curb down the hyperinflation caused by low economic output. Late industrialization in Armenia took place during 1996 to 2004; economists have stated that privatization of state owned enterprises, liberalization of trade policies, reduction in intervention of government in industrial activities were the key reasons behind late industrialization in Armenia (World Bank, 2002). Competitiveness of national business system in Armenia can be clarified by the fact that annual growth rate of labour productivity in the country is more than 9% which is higher than most of the countries in the globe, while private investment contribute to more than 20% of GDP of the country. It is evident from this fact that, although Armenia is still moving through a transition phase in industrialization process but, the future looks bright for the country in terms of creating a competitive national business system. Key Point 2 (Early Industrialization versus Late Industrialization) In this section, the study will cite examples of energy sector of Germany, India and China in order to compare competitive advantage of national business system of one early industrialized nation versus two late industrialized nations. According to Kohler (2008), industrialization of renewable energy sector in Germany was fostered by availability of intellectual capital, government’s financial capacity (to spend huge amount of money in research and development) and technological leadership of the nation. Germany has achieved competitive advantage by decontrolling the activity of renewable energy firms and liberalizing the economy. Currently, German firms have achieved market position in not only developed nations but also in emerging economies. By taking help of the porter’s diamond model, it can be said the late industrialization took place in the field of renewable energy sector due to difference in factor conditions. Poor quality of education, lack of renewable energy infrastructure, lack of awareness about biomass resources, shenanigan political process, nepotism etc., delayed the industrialization process in China and India. Economists have showed doubt over long term competitiveness of renewable energy sector in China and India despite the fact that these countries have the advantage in basic factor conditions, such as large number of sun hours, abundance of biomass resources, availability of low cost labours etc. Research report prepared by Dogl, Holtbrugge and Schuster (2010) can be used in order to support the argument presented by this essay. (Source: Dogl, Holtbrugge and Schuster, 2010) Key Point 3 (Early-Early Industrialization versus Late- Early Industrialization) The study will cite the example of the United States and Sweden in order to do the comparison. Sweden is relatively a newer entrant in industrialization process in comparison to the USA. The USA was colonized by the UK during the eighteenth century and hence the USA assimilated the advantages of industrial revolution in the UK very readily in comparison to Sweden. Reasons behind industrialization in the USA were availability of multi-cultural human resources, technological advancement, democratization of government, whereas lack of availability of such reasons have delayed the industrialization process in Sweden. According to economic analysts, early industrialization in the USA has not only increased its tangible and intangible resource base, but also increased sustainability of competitive advantage of their national business system. The study is not saying that competitive advantage of Sweden is temporary but it is trying to point out that vulnerability of Sweden to external “chance” factors is more in comparison to the USA due to their small resource capability. More on National Competitiveness It is evident from the above analysis that national competitiveness is significantly dependent on issues like early and late industrialization. The essay will suggest a grid matrix in order to measure sustainability of the competitiveness of national business system. Technology factors (ri) Qualification factors (rj) Effective factors (rk) Market factors (rl) Criteria Technological advantage which can’t be easily copied. Infrastructure and Human resource. Creation of job opportunity. Customer surplus value. Index Increase in number of intellectual property right. Increase in industrial funding. Rise in per capita income. Increase in customer life-time value. Now total competitiveness of national business system can be explained in the following manner, R= ri + rj + rk + rl A country will get long term competitiveness if it satisfies the following conditions, ri + rj + rk + rl= 1, i, j, k, l= 1,2,3,4.....i ? j ? k ? l. Reference Balassa, B., 1981. Trade Between Developed and Developing Countries: The Decade Ahead. [pdf] Available at: [Accessed 21 February 2013]. Chobanyan, A. and Leigh, L., 2006. The competitive advantages of nations Applying the “Diamond” model to Armenia. International Journal of Emerging Markets, 1(2), pp. 147-164. Chung, H. K., Yi, H-C., Jung, K. H. and Lee, H. C., 1997. Korean Management: Global Strategy and Cultural Transformation. New York, NY: Walter de Gruyter, Inc. Dogl, C., Holtbrugge, D. and Schuster, T., 2010. Competitive advantage of German renewable energy firms in India and China. International Journal of Emerging Markets, 7(2), pp. 191-214. Gershenkron, A., 1962. Economic Backwardness in Historical Perspective. Cambridge, Mass: Harvard University Press. Kohler, S., 2008. Renewables in Germany: A success story. Made in Germany, 3, pp. 6-7. OECD., 1979. The Impact of the Newly Industrializing Countries. Paris: OECD. Porter, M. E., 1990. The Competitive Advantage of Nations. New York, NY: Free Press. World Bank., 2002. Growth challenges and government policies in Armenia. World Bank Country Study, Document No. 23786, World Bank, Washington, DC. Yaish, M., 2000. Old Debate, New Evidence: Class Mobility in Israeli Society. European Sociological Review, 16, pp. 159-183. Read More