An Analysis of five Caribbean nations using Michael Porter’s Competitive Advantage of Nations

An Analysis of five Caribbean nations using Michael Porter’s Competitive Advantage of Nations

Research conducted by

William Wresch, MIS professor, University of Wisconsin Oshkosh, and Simon Fraser, MIS lecturer, University of West Indies

Introduction

In his book, The Competitive Advantage of Nations, Michael Porter presents four significant determinants of national advantage:

Factor conditions. The nation’s position in factors of production, such as skilled labor or infrastructure, necessary to compete in a given industry.
Demand conditions. The nature of home demand for the industry’s product or service.
Related and supporting industries. The presence or absence in the nation of supplier industries and related industries that are internationally competitive.
Firm strategy, structure, and rivalry. The conditions in the nation governing how companies are created, organized, and managed, and the nature of domestic rivalry. (Porter, 1990, 71)

To these four, he adds two additional variables which may influence the success of nations: luck and government policy. Examples of luck include inventions, wars, external political developments, and major shifts in foreign market demand. Government policy might include regulations, investments in education, government purchases, and monetary policies. Governments have the ability to aid competitiveness or retard it, or to have conflicting policies that do both.

Porter’s competitive factors have been used to help understand development efforts in developing nations (Chen, 2002) since they have the advantage of being grounded in substantial research and being remarkably comprehensive.

To apply Porter’s factors to the competitive situation of companies in the Caribbean, the investigators interviewed executives at 21 firms in five English-speaking Caribbean countries who were publicly acknowledged to be ecommerce “success stories.” Our research focused on how well these successful firms had adapted their ecommerce initiatives to each of Porter’s competitive factors.

Background

The English speaking Caribbean is made up of former and remaining colonies of the United Kingdom. Geographically the region stretches from the Bahamas in the northwest to Guyana, located on the South American mainland. While many Caribbean nations are categorized as developing states, per capita incomes, access to healthcare, education and technology are significantly greater than some regions of Africa, Asia and Latin America.

Another critical characteristic of the English speaking Caribbean is the close proximity of most of the territories to the United States – the leading adopter of electronic commerce technologies and processes. Miami is a major international trade hub for the region. The flying time from Miami to any of the islands ranges between 30 minutes to the Bahamas and 4.5 hours to Guyana. Each country is served by daily flights to the United States. Several shipping lines offer scheduled service between the United States’ eastern seaboard and each country.

Further analysis of Caribbean nations can be achieved using Porter’s competitive advantage model.

Factor Conditions

Traditionally, countries have been differentiated competitively by such factors as wage rates, worker educational levels, and natural resources. High quality workers willing to work for lower wages provide a distinct advantage as we are currently seeing, for instance, with the growth of the Indian ICT industry. Porter expands these traditional factors to include human resources (skills and costs), physical resources (abundance, quality, access, and cost, plus geographic location of the nation and its climate), knowledge resources (scientific, technical, and market knowledge bearing on goods and services), capital resources (amount and cost of capital), and infrastructure (transportation systems, communication systems, funds transfer, mail and parcel delivery).

But Porter points out that these traditional advantages carry less weight than they may have in centuries past. “…Most advance and even newly industrialized nations today have comparable factor endowments in terms of infrastructure; many also have similar pools of high school – and even university educated workers.” (1990,76) He also notes “human resources, knowledge, and capital factors can be mobile among nations. Skilled people move among nations, as does scientific and technical knowledge. This mobility has been enhanced by greater international communication and easier movement.” (1990, 76)

Table 1 provides a summary of factor conditions for Caribbean nations and a sampling of their competitors. As can be seen, Caribbean nations are moderately advantaged over Latin American and Asian peers in motor vehicles, telephones, and internet access, and substantially better off than African nations.

Table 1 – Selected Development Indicators.[i]

Caribbean	Population 2002 (Millions)[ii]	GDP Per Capita PPP US$ (2002)[iii]	Infant Mortality (per 1000 live births (2002)[iv]	Net Enrolment Ratio (Secondary Level) 2001/02[v]	Motor Vehicles (per 1000 inhabitants)[vi]	Telephone mainlines (per 1000 people (2002)[vii]	Internet Users per 1000 people (2002)[viii]
Barbados	0.3	15,290	12	87	268	494	111.5
Guyana	0.8	4,260	54	75	100.8	92	142.2
Jamaica	2.6	3,980	17	75	74	169	228.4
Trinidad and Tobago	1.3	9,430	17	68	219	250	106.0

Africa
Nigeria	120.9	860	110	..	.6	5	3.5
Ghana	20.5	2,130	57	32	10.5	13	7.8
Kenya	31.5	1,020	78	24	16.7	10	12.5

Latin America
Brazil	176.3	7,770	30	72	111.9	223	82.2
Argentina	38.0	10,880	16	81	197.7	219	112.0
Chile	15.6	9,820	10	75	135	230	237.5
Venezuela	25.2	5,380	19	57	100.2	113	50.6

Asian Counties
Philippines	78.6	4,170	29	56	34.3	42	44.0
Indonesia	217.1	3,230	33	47	27.6	37	37.7
Malaysia	24.0	9,120	8	69	18.8	190	319.7
Thailand	62.2	7,010	24	..	126.1	105	77.6
Vietnam	80.3	2,300	30	65	.7	48	18.5

Demand Conditions

Local customers not only provide firms with a source of income, but they educate firms about customer needs and perceptions. Understanding customers is never easy, and is even more difficult when the customer may be many time zones distant. So the local customer has much more influence over how products are designed, supported, and sold.

If the local customer is atypical – vastly different education levels, income levels, or values than potential global customers – then the local firm may actually be misled about which goods or services have international potential.

Table 2 presents comparative income and educational levels for Caribbean nations and potential customer nations. The Caribbean nations visited have substantially lower per capita income than their potential customers, but have high school enrolment rates similar to their customers.

Table 2 - Comparative Income and Education Statistics[ix]

Country	Population 2002 (millions)[x] [xi]	GDP Per Capita 2002 (PPP US$)[xii]	Net Secondary Enrolment Ratio (2001-2002)[xiii] [xiv]	Tertiary Students in Science, Math and Engineering 1994-1997 (% of all tertiary students)[xv]	Internet Users per 1000 people (2002)[xvi]
Caribbean
Barbados	0.3	15,290	87	21	111.5
Guyana	0.8	4,260	75	25	142.2
Jamaica	2.8	3,980	75	20	228.4
Trinidad and Tobago	1.3	9,430	68	41	105.0

Export Markets
Canada	31.3	29,480	98	..	512.8
United Kingdom	59.1	26,150	95	29	423.1
United States	291.0	35,750	85	..	551.4

Related and Supporting Industries

We recognize that successful companies and industries do not work in isolation. Companies whose suppliers and distributors meet international standards have distinct advantages over companies forced to work with inadequate supply or distribution chains. And while much supply and distribution is now global, home-based suppliers and distributors are crucial for innovations – for competitive advantage. It is through direct and personal connections with supporting companies that firms learn about the latest innovations and adopt them before competing firms. Porter uses Italian shoe makers as an example here, with their close ties to leather manufacturers giving them advanced insights into new textures and colors, insights that allow the shoe manufacturers to stay well ahead of competitors in other nations.

While one presumes that supporting relationships do not necessary require very large populations, the miniscule size of many Caribbean nations would appear to inhibit significant development of industry clusters. Table 2 highlights population sizes for Caribbean nations. While there have been efforts in the past to unify the islands into a larger nation, those efforts were all unsuccessful. Limited inter-island institutions such as The University of West Indies still survive from the era of British colonial administration, but there is little support for new efforts in that direction, and in fact UWI now faces increasing competition from newly founded national universities.

Firm Strategy, Structure and Rivalry

We all recognize that firms have a variety of structures and strategies to use, and that some will be more effective than others. Porter asserts that national culture plays a significant role in which structures and strategies are selected by management, noting that technically trained German managers tend to adopt hierarchical business models, while Italian managers are more comfortable with smaller-family dominated business models. He notes that the relative success of these business models varies with each industry. The German model works well with larger industries, especially manufacturing, while the Italian model seems perfect for more rapidly changing industries like fashion.

National attributes that impact the global thinking of management include such things as language training and general attitudes towards travel. In nations where travel is commonplace, managers have often lived abroad in their youth, and so are far more comfortable opening business divisions or export units in those countries.

Porter also emphasizes local rivalries and the benefits they have for managers. With a significant number of competitors, managers see a variety of strategies attempted in similar businesses, and learn quickly what is working and what is not. And having survived significant local competition, firms are more ready to compete globally. They have not only improved their internal processes enough to be internationally competitive, but they may be driven to international competition in order to achieve economies of scale that may be unavailable in a fractured local market.

The Caribbean situation seems mixed in the area of national strategy and rivalry. Since the islands are small and relatively close to each other, transportation off the islands is common, especially amongst managerial classes. It has also become increasingly common for people to emigrate to the U.S. or other destinations, so many residents have family members living abroad whom they visit with some regularity. Many managers have also received training at highly regarded universities in the United, States, Canada and United Kingdom. In short, managers have extensive international exposure.

Business rivalries, however, tend to be less common. Give the size of island populations, and the size of village populations, many businesses operate in isolation. The one industry that has multiple firms in direct competition is tourism.

The Role of Chance

Porter should be congratulated for recognizing that not all business success is based on careful planning and brilliant strategies. Some events are just chance. Inventions arrive and whole new industries are launched. Wars come and substantial markets disappear or competitors disappear. Some chance events, like inventions, create opportunities for all, while other chance events like war or natural disasters, create problems for some nations and opportunities for others. The differentiator for nations is the ability to respond more quickly when the opportunities arrive.

For Caribbean nations the most common chance event is weather – hurricanes that periodically destroy property and claim lives. A more singular chance event was the September 11^th terrorist attack on the U.S. This not only impacted international travel as many Americans became afraid to venture outside the U.S., but it also impacted trade as the U.S. began significantly different (and more burdensome) customs procedures. Trade with the U.S. became more difficult and more expensive.

On a more positive note, having seen one business center destroyed in a single morning, U.S. businesses began looking for multiple suppliers and service providers so that if one center’s work were disrupted, work could be shifted to other centers. This created new opportunities for service providers, especially in the Caribbean which shares the same language and time zone as the business centers in the Eastern U.S.

The Role of Government

Porter asserts that the government can have a role in all determinants of national competitiveness, but that the role can be negative as well as positive and that its role will always be partial – not sufficient in itself to make a national industry competitive. The government can help by raising educational levels, or by purchasing local goods and by creating a regulatory environment that supports business development. But it can also hurt by raising tariff barriers to protect businesses, a process that also makes local products uncompetitive internationally. In general we should recognize that there is a limit to what we can expect from government, and we should be aware that governments can hurt business even when they try to help.

The governments in the Caribbean have limited budgets and limited public support, and so are very restricted in the role they can play in promoting national competitiveness. The governments of Jamaica and Guyana may be the least able. With few funds for street repairs or garbage removal, public services are in bad shape and crime is so bad the U.S. State Department warns of travel there. Trinidad has sufficient funds for basic public services, but crime is getting worse with robberies, killings, and kidnappings seeming to be beyond the control of local law enforcement. Nevertheless Trinidad and Tobago have embarked on an ambitious programme to become a developed country by 2020. Barbados is frequently acknowledged to be the best governed territory in the English speaking Caribbean. However, it too faces challenges when confronted by variable tourist arrivals, falling international sugar prices and rising unemployment.

All the nations visited had government agencies or NGOs that were tasked to support business development, but the support they provided was minimal, and insufficient to offset other shortcomings in government services such as crime prevention.