The Sustainable Competitive Advantage and Catching-Up of Nations: Fdi, Clusters and the Liability (Asset) of Smallness

Zusammenfassung

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The researchers explore the role of foreign direct investment and (its relationship to) clusters for the competitiveness (and catching-up) of small(er) developing countries. They suggest that while size per se need not matter, small(er) developing countries need to explicitly account for any liabilities of smallness when devising and implementing strategies for competitiveness and catching-up. They claim that international strategic management scholarship can add insights on this important issue, by complementing extant literature and contributions by international trade and economic development scholarship.

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Auszug

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The Sustainable Competitive Advantage and Catching-Up of Nations: Fdi, Clusters and the Liability (Asset) of Smallness

Introduction

In this paper, we explore the role of foreign direct investment (FDI) and (its relationship to) clusters, on the competitiveness of small(er) developing countries and their catchingup. We claim that when it comes to FDI, clusters and competitiveness, similar considerations apply to small(er) countries as to large ones, and that size per se need not be a constraint to competitiveness (and catching-up). However, size is an important variable that needs to be taken into account when devising and implementing strategies for competitiveness and catching-up in general and under the present phase of globalisation in particular.

We structure the paper as follows. Following this Introduction (Section I), in Section II, we assess briefly and critically extant perspectives on competitiveness and catching-up theory and policy and the role of FDI in this context. Section III sets off from limitations of extant scholarship identified in the previous section to develop a novel framework for competitiveness and catching-up and discuss the role of FDI, clusters and government (policy) in its context. Section IV addresses the issue of size in the context of the framework proposed in Section III and discusses some policy implications for small(er) developing countries. The last section (V) offers concluding remarks, discusses limitations and the scope for future research.

Competitiveness, Catching-up and FDI

The concept of "competitiveness" is both elusive and controversial, especially when applied to nations. For example, Krugman (1994) lamented the "obsession" of policy makers with the issue of "national competitiveness", claiming that this obsession can be dangerous. One of Krugman's critiques refers to competition between firms and nations. Firms do compete, in his view, for example for market shares, and this competition is zero-sum. Instead, nations do not compete in a comparable way, and the outcome is positive-sum: When one benefits, the others do too. For Krugman, the best measure of national economic performance is total factor productivity (TFP) - a proposition also supported by Porter (1990).

Krugman's views have been subjected to a battery of criticisms, see Aiginger (2006a, 2006b) for a recent account, albeit not so much on his views on competition. These, we believe, are not immune to criticism. Following, for example, Allyn Young's (1928) work on increasing returns, we appreciate that competition between firms is one fundamental way through which markets are created and expanded, suggesting that inter-firm competition need not always be a zero-sum game. On the other hand, when nations compete through strategic trade policies, Krugman's own work shows that the outcome need not be positive-sum, (Krugman 1986, 1989). Fundamentally, however, competition and competitiveness are not synonymous. In its more generic sense competitiveness refers to the ability of an ec...

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