Lesson 2 Export Administration PDF

PAHS 054: EXPORT ADMINISTRATION SESSION TWO: COMPETITIVENESS OF GHANAIAN FIRMS I LECTURER: EBENEZER ODAME DARKWAH [email protected] College of Education School of Continuing and Distance Education 2023/2024 ...

PAHS 054: EXPORT ADMINISTRATION SESSION TWO: COMPETITIVENESS OF GHANAIAN FIRMS I LECTURER: EBENEZER ODAME DARKWAH [email protected] College of Education School of Continuing and Distance Education 2023/2024  Outline Introduction Definition of competitiveness Determinants of National Competitiveness Theory of competitive Advantage – The Diamond of National Competitive Advantage Factor Conditions Demand Conditions Related Supporting Industries Firm Strategy, Structure and Rivalry Absolute, Comparative and Competitive Advantage Challenges to the Competitiveness of Ghanaian Firms Determinants of Competitiveness in the Industrial Sector How to Achieve Competitiveness of the Industrial Sector  KEY QUESTIONS Can a nation’s natural endowments like land and labour give it a competitive advantage over other nations in the international market? What determines a nation’s competitiveness in the international market? How can Ghanaian firms and industries increase their competitiveness on the international market?  INTRODUCTION Globalization has created competitions among nations ranging from – social standards, −work ethics, −consumerism, – clothing, −to the industry. Thus, to ensure gains in the international market, a country ought to attain a competitive advantage in its key industries. It is also becoming clearer that national prosperity is created through innovation and specialization but not inherited (natural resources, land, labour etc.). (Using the developed and developing world dichotomy) It does not grow out of a country’s national endowments, its labour pool, its interest rates or its currency value, government interventions or management practices. It is therefore binding on nations to innovate to be competitive. However, what determines a nation’s competitiveness?  DEFINITION OF COMPETITIVENESS NB: A competitive nation is not a nation that can compete internationally in all industries. Ideally, a nation can be competitive in one or two industries. – Eg. Italy (Footwear), Switzerland (Pharmaceuticals), America (Aircraft), Japan (Automobiles) Competitiveness is the ability of a nation to excel in a particular industry than other such industries in other countries. Competitiveness simply means productivity in a well-defined and coordinated area. D’Cruz (1992) refers to competitiveness as the ability of a firm to design, produce and/or market products superior to those offered by competitors, considering the price and non-price qualities.  DETERMINANTS OF NATIONAL COMPETITIVENESS The capacity of the country’s industries to innovate and upgrade; (Scaling up) Strong domestic rivals – that exert pressure on firms to produce quality goods Aggressive home-based suppliers. Demanding differences in culture, values, economic structures, institutions and histories. – National competitiveness does not happen as a result of; Cheap Labour Low interest rates management practices favourable exchange rate government interventions Abundance of natural resources  THE THEORY OF COMPETITIVE ADVANTAGE It was propounded by Michael Porter to help companies create sustainable competitive advantage The focus is on individual industries, or clusters of industries, and builds up to the economy, since firms, not nations, compete in international markets. Though the home nation (which offers the economic environment, institutions and policies) influences the ability of its firms to succeed in particular industries, the basic unit of analysis for understanding competition is the industry  THE THEORY OF COMPETITIVE ADVANTAGE According to Porter, firms develop a competitive advantage if domestic buyers are among the world’s most sophisticated and demanding buyers of the product. He further argues that the size of the home market is only of secondary importance, and that, large size is more valuable in the presence of large research and development costs and large uncertainty, as well as economies of scale in production.  THE THEORY OF COMPETITIVE ADVANTAGE The theory is based on the system of determinants called ‘diamond.’ These include Factor conditions such as labour, capital, land or raw materials (- a specialized, sustained and heavy investments are the most important factors of production. Example Denmark (insulin), Netherlands (Flowers) Demand conditions such as the features of the internal market - knowing the needs of the locals (demand for high quality products of international standards). Firms needs to constantly innovate and upgrade to be competitive Related and supporting industries: Having competitive home-based suppliers who also needs to innovate and upgrade to gain competitive advantage. Firm’s strategy, structure and rivalry (home-based): Firms with a global strategy and strong local rivals or competition would innovate and specialize to gain competitive advantage. THE DIAMOND OF NATIONAL COMPETITIVE ADVANTAGE Other equally important elements – The role of government – The role of chance  CONCEPTS IN INTERNATIONAL TRADE ABSOLUTE ADVANTAGE This is the advantage that one region is said to have over another in the production of some commodity when an equal quantity of resources can produce more of that commodity in the first region than the second. – Samuelson and Nordhaus (2009) define absolute advantage in international trade as the ability of Country A to produce a commodity more efficiently (i.e., with greater output per unit of input) than Country B. – It doesn’t suggest that country A can export his commodity to B  CONCEPTS IN INTERNATIONAL TRADE COMPETITIVE ADVANTAGE Competitive advantage is whatever a firm does best to give it an edge over its competitors. In this era of globalization, competitive advantage makes a firm unique and puts it ahead of its competitors It is important to compete in an area in which a firm has a lot of superiority than its competitors  CONCEPTS IN INTERNATIONAL TRADE COMPARATIVE ADVANTAGE It holds that each country should specialize in the production and export of those goods that it can produce at relatively lower costs. Conversely, each country should import those goods which it produces at relatively high cost. Comparative advantage is also defined as the ability of one nation (or region or individual) to produce a commodity at a lesser opportunity cost in terms of other products foregone, than another nation/country. Comparative advantage dictates trade patterns  CHALLENGES TO THE COMPETITIVENESS OF GHANAIAN FIRMS Packaging Cost of production Access to markets Taste Restrictions on the international market Language Barrier  EFFORTS AT MAKING GHANAIAN FIRMS COMPETITIVE IN THE ECOWAS SUB-REGION Organizing a Made-In-Ghana solo exhibition in Burkina Faso as far back as August 2003. A close collaboration between the Association of Ghana Industries with the Ministry of Trade and Industry and the Ministry of Foreign Affairs to get clearance for passage. AGI’s export promotion drive for its member companies in the area of health and wood products  DETERMINANTS OF COMPETITIVENESS IN THE INDUSTRIAL SECTOR Efficient use of the factors of production which include the productivity of workers and the natural resource endowment of the country Good government policies Conversion of domestic resources into goods and services at prices that are either below or equal to the world market price.  HOW TO ACHIEVE COMPETITIVENESS OF THE INDUSTRIAL SECTOR Introduction of measures which will increase capacity utilization of firms to meet the competition from imported products. Availability of adequate sources of finance at low interest rates for industries Additionally, government should facilitate the conduct of research and development by industry and research institutions.  TRIAL QUESTIONS 1. What is competitiveness? Examine the four determinants of national competitiveness. 2. Write notes on the following concepts of international trade. a. Absolute Advantage b. Comparative Advantage c. Competitive Advantage 3. Discuss the challenges of competitiveness to Ghanaian firms and how to achieve competitiveness in the industrial sector. 4. Critically appreciate Porter’s Diamond of National Competitive Advantage.