Globalization, Locality and National Advantage as the Key Determinants of Competitiveness - Research Paper Example

Globalization, locality and national advantage as the key determinants of competitiveness Introduction: There are several perspectives presented by various thinkers of different disciplines regarding competitiveness. The notion of competitiveness can be associated with three major groups of thought. These are: (1) Comparative advantage and/or price competitiveness perspective (2) A strategy and management perspective (3) A historical and socio-cultural perspective (Dwyer & Kim, 2003) Although globalisation has transformed the world into a single market but still a disparity in the economic condition of different countries is evident. The above mentioned three categories are still an important source of differentiation among the economies of the world. The paper will discuss how these notions play important role in providing different benefits to countries as compare to others? Discussion: The following figure shows exports as a percentage of total output or gross national product (GNP) for a variety of countries, and further shows how the importance of trade has grown over time. Export/national output (per cent) for a range of countries: When countries cannot produce particularly desirable goods at all, the advantages of foreign trade are obvious. For example, the British climate is too cold to grow coffee trees, and Jamaica has no petroleum. But large resources of petroleum exist in the North Sea and coffee trees can easily be grown in Jamaica. Britons and Jamaicans could clearly benefit by exchanging oil for coffee. Theory of absolute advantage: Smith's theory of absolute advantage – or absolute productivity differences – remains useful in explaining present-day trade between similar countries such as France and Germany. The average cost of employing a worker in Germany is about the same as it is in France, and capital moves freely between the two countries; and so returns are roughly equals. Therefore, to compete successfully with a cost advantage in the French market, any particular German export must use absolutely less labour and capital when produced in Germany than if the identical item were produced in France. Trade between similar countries can occur so long as the tastes and incomes of individuals within each country differ and so long as there are absolute cost differences in producing various goods. Thus, people in France and Germany who have modest incomes and require basic transportation, and whose hearts are not set on a high-powered sports car, might purchase Citroens made in France. Wealthy individuals in both countries with an appreciation of high-performance automobiles might purchase Porsches made in Germany. The taste and income differences among individuals within each country interact with specific absolute cost advantages across countries and provide a mutually advantageous basis for international trade. Clearly, if all Frenchmen wanted only to drive Citroens, and if all Germans desired Porsches and had the means to buy them, the scope for trade would be restricted. Cross-country differences in endowments of minerals, or in climate-affecting agriculture, often provide an obvious basis for international trade. But it is not obvious why similarly situated nations such as France and Germany have differing absolute advantages in various manufactured products. The fact that one special combination of entrepreneurial and engineering skills encouraged the production of Porsches in Germany, and a second such combination led to the production of Citroëns in France, is more or less historical accident. Similarly, in Switzerland the craftsmanship required to manufacture watches and clocks could not be predicted from a general knowledge of Switzerland's capital stock and labour force. The Theory of Comparative Advantage: Like the theory of absolute advantage, the theory of comparative advantage assumes that resources are fully mobile within a country so that returns to equivalent labour and capital are equalised on a national basis. However, formal demonstrations of comparative advantage assume that these same resources are not mobile internationally. Thus, any randomly chosen pair of trading countries need not have – and is unlikely to have – similar standards of living or the same general level of technical proficiency (Wikipedia, 2007). Just 50 years ago, the fashion industry of Italy was not so worth noticing. Most of the country’s elite got their couture clothes from tiny ateliers in Rome. After the First World War opportunities arose new developments in shape of factories was undertaken which attracted professionals to the towns from the decrepit villages. The technical updation and the skilled work force played an important part in creating a monopoly in garment manufacturing industry. In this era many talented designers firm all over the Italy created their own identification and gave rise to Italian fever in the fashion industry. Many designers who played an important part in the establishment of well-known fashion centres also embraced marketing techniques. Another trend, which played an important part, was the transformation of women in working force. These women presented clothes, which had ease and luxury, combined in them. These two characteristics of the clothes attracted the American customers to the Italian manufacturers. The designer-name ready to wear revolution stated in 1950s. During the 1970’s Gianfranco Ferre, Gianni Versace and the Giorgio Armani became the big names recognised all over the world. Since 1970 to the last three decades the fashion industry in Italy kept on rediscovering the old fashion brands. Following a period of rapid growth in the '90s, during which major Italian fashion companies acquired new brands and boutiques like they were going out of style, the current business climate is strictly focused on cost control and improving internal efficiency. (CSC, 2006) The problems facing the Italian textile industry are due to the posed by China. Most of the firms are affected by the low labour costs in the Chinese market. The conditions became worse after January 2005 when because of WTO the textile industry became free of restriction. Since then the whole world market has been glutted with the Chinese products. Italian textile manufacturers are eager regarding the market condition. The competition posed by China is not only reducing the profit margins of the Italian textile industry but also effecting the employment conditions in the industry. Over the past decade, China’s textile industry has undergone rapid growth. The total export volume of Chinese industry has increased by approximately 30% per year. China is also going through the updating process in fields of technology and innovation it is importing modernised textile machines. China can get benefited through the advancement and experience of the Italian industry on the other hand. The Italian industry can get benefit through the cheap labour and market in China. (Xinhua, 2004) With a population of over 1.2 billion, China has exploded into a huge potential marketplace for the world’s production of goods and services. The international policy makers and business executives alike have realised a powerful long-term trend in Southeast Asia: the rise of the great China economy. Paced by a rapid rate of investment and given the abundance of trained human capital, the Asian rim, of which China is a leading nation, has become the fastest growing region of the world. Many observers expect this trend to continue for at least the rest of the decade-and most likely into the next century. (U.S. Commercial Service) The Chinese low cost products are flooding the world textile market, which is adversely effecting the cloth manufacturing Companies in the world. Different countries and trade unions are taking remedial measures in order to keep their market share and profit stable. It is getting difficult for them to keep their position stable rather than earning more profits. The increase in imports is devastating for the domestic suppliers. In this context the EU and China came to a voluntary agreement that placed annual growth limits of 8-12.5% in 10 categories of textile exports. Europe and China agreed on the limit 69m cardigans and pullovers to be imported by retailers. (Prime Source, 2006) The rise of the Chinese textile industry is a major driver of change in the textile industry scenario at international market level. There are many pros and cons of the trend. There are many factors that create a global environment for the textiles sector, such as efficient and low cost of transportation, efficient logistics from production to the counter, new and changing consumer patterns, and harmonisation of trade legislation. All these developments are supported by the penetration of information and communication technologies (ICT) across the entire business chain from design to production, logistics, sales, branding, and market research. (emcc, 2005) Textiles and clothing are among the oldest manufacturing sectors in Italy but China has made a tremendous effort in the sector, which has made her to stand at the position of no. 1 exporter in the sector. Italy is a highly regulated economy facing competition from countries like China with low labour costs and much lower levels of workplace regulation. Hence China has gained competitive advantage in the textile industry due to its human resource capital, flexible labour policies and very low wage rate. Government regulations and policies also play an important part in creating disparities in the GDPs of different countries by restricting the mobility of factors of production, which can move in any part of the world. For example per capita income in India is very low compared with that of the United States. In every major industry, output per worker and per unit of capital is less than in the USA. Compared with the United States, therefore, India has no obvious absolute advantage in manufacturing or agriculture. Although Indian workers' wages are correspondingly lower, significant numbers of them cannot migrate to the United States because of American immigration restrictions. And, despite low yields, capital cannot flow from India to the United States because of the stringent exchange controls imposed by the Indian government. At present, owners of economic resources in India are not free to follow the mode of Adam Smith and seek employment internationally in areas of their greatest absolute advantage. Nevertheless, gains from foreign trade in commodities are still possible. The theory of comparative advantage, put forth by the English economist David Ricardo in the early nineteenth century, demonstrated that a poor country (such as India) without any absolute industrial advantage could still trade to mutual benefit with a wealthy one (such as the United States). Conclusion: Although the world has transformed into a single global market but national advantage in shape of human capital, minerals, climatic conditions, research and development, geographical location etc. remain the key determinants of competitiveness of nations. The Global market has only provided the nations with the facility to exchange goods but the terms and conditions of this exchange are determined according to the nation which has relatively more economic strength. References CSC, (2006). CSC Helps Restyle Italian Fashion IT, retrieved as on February 20, 2006 from http://www.csc.com/features/2006/4.shtml L. Dwyer & C. Kim, Destination Competitiveness: Determinants and Indicators, Current Issues in Tourism, Vol. 6, No 5, 2003. Emcc, (2005). Case studies in the textiles and leather sector, 17 Jan 2005, retrieved as on February 20, 2006 from http://www.emcc.eurofound.eu.int/content/source/eu04013a.html?p1=ef_publication&p2=null U.S. Commercial Service, Look Before You Leap, Essential Advice for Doing Business in China, Beijing and Rosemary Gallant U.S. Commercial Service, Export America, from http://www.export.gov/exportamerica/NewOpportunities/no_ch nabusiness_03 Wikipedia, (2007). Comparative Advantage, page last modified 7 December 2007, available at http://en.wikipedia.org/wiki/Comparative_advantage Wikipedia, (2007). Absolute Advantage, page last modified 7 December 2007, available at http://en.wikipedia.org/wiki/Absolute_advantage Xinhua, (2004). Italian textile machinery manufacturers expect further co-operation with Chinese partner: trade commissioner, People's Daily Online, retrieved from Read More