« Getting to know your customers | Main | Separating the brand from the product »
June 20, 2006
Countries moving up the value chain
Steven Pearlstein's column in Friday's Washington Post - “In West Cork, an Economy Made of Stout Stuff” - has a great line about the Irish economic “miracle”:
The thing you notice here is everyone seems to have gotten the economic strategy memo about “moving up the value chain” and decided to take it seriously. I don't just mean business executives and economists. I'm talking about undergraduates, call-center operators, cab drivers, bartenders, civil servants, union officials and university presidents. All of them realize that an economic boom based largely on cheap labor, tax breaks, knowledge of English and a backdoor into European markets can take you only so far. Now, with labor and land costs approaching Western European levels, tax incentives limited by new European Union rules, and India and Eastern Europe coming on fast, they know they need a second act.
The problem is that lots of other people have read the same memo. For example, the very next day, the Post ran a front page story about “In China, Dreams of Bright Ideas”:
Instead of millions of Chinese youths assembling somebody else's inventions, the party leadership has concluded, the time is right for China to come up with its own ideas and sell them to everyone else. The question of whether China can pull off this transformation -- from workshop of the world to cradle of invention -- is key to the giant country's future.
In a world where comparative advantage is created, not reliant on natural endowments that create advantage in wool versus wine (see Gomory-Baumol and Samuelson), everyone wants to move up the value chain.
But if everyone one does, no one does. As Michael Porter taught us a long time ago, you compete on either price or difference. It is just as important to differentiate where on the value chain a company or country can be competitive. The broad strategy of “innovation” on the national level is the same as every region wanting to be the next Silicon Valley. That leads to a strategy of flitting from semiconductors to biotech to nanotech to the next big thing.
A better alternative to this hyperactivity is to build on your jurisdictional advantage - to use Mary Ann Feldman's term (see her paper on the Athena Alliance website). Jurisdictional advantage (akin to Porter’s corporate competitive advantage) is build on existing local strengths. But just as companies refine, improve, expand and adapt their competencies, so must localities and countries.
This is what Ireland appears to be doing – not simply moving up the value chain in a generic fashion. They began by leveraging a well-educated, low-cost English-speaking workforce in an EU country to become the American platform for entry into Europe. Now they are looking to build on the competencies that they have created. As the Enterprise Ireland strategy for 2005-2007 states, part of their vision is:
Being strongly positioned in key niches both in the emerging technology-driven sectors such as applied software and life sciences, and in knowledge-intensive segments of longer established sectors such as consumer foods, where significant opportunities for growth exist.
For China, the game is different. They are so large that their jurisdictional advantage will shift from region to region (as it does in the US). It remains to be seen, however, whether the central government will allow the localities the autonomy and flexibility to pursue their unique advantages under a general national innovation and economic development rubric. If China tries to force feed all regions to follow the same exact strategy, their drive to innovation will falter. They will need to craft a strategy for hot spots in certain localities in certain areas.
After all, while “the world is flat” is a great metaphor for increased global competition, Richard Florida has shown that the world is actually spiky. Creating your own unique spike is what a locality's comparative advantage is all about.
Posted by Ken Jarboe at June 20, 2006 8:05 AM
Trackback Pings
TrackBack URL for this entry:
http://www.athenaalliance.org/mt/mt-tb.cgi/751