A new publication on Routledge Westeren, K.I., Cader, H., Sales, M.F., Similä, J.O. & Staduto, J.A.R. Competitiveness and Knowledge: An International Comparison of Traditional Firms. London: Routledge, 2018. Th The rese search questio ion dealt lt with ith th throughout our r book is: is: How do local firms use knowledge to compete in an increasingly globalized world?
Routledge Advances in Regional Economics, Science and Policy Hanas Cader Maria de Fátima Sales Knut Ingar Westeren Nord University American Univ. of Kuwait Univ. of Londrina Jan Ole Similä Jefferson Staduto Nord University Univ. of the West of Paraná
Chapter 1 Introduction Knut Ingar Westeren
Point of departure • In the 21st century the technology has become global but firms compete with knowledge, their customized technology/capital solutions and innovative initiatives based on prevailing wage structure. • Our aim has been to provide a discussion about competitiveness based on the following main question: How do local firms use knowledge to compete in an increasingly globalized world?
Why Competitiveness? • Competitiveness is a prerequisite for relatively high wages and thereby a high standard of living in the country. • this recognition was the leading line of thought for the discussion of competitiveness in the EU starting with the Lisbon agenda. • Competitiveness is also what every firm must have in mind to survive.
Short about the knowledge economy • When we look at the literature we can find a large number of definitions of the knowledge economy concept, most of them including: • Knowledge linked to labor as a factor of production. • Knowledge as a prerequisite for effective use of capital and ICT. • Knowledge as a creator of innovativeness. • Our main concern is to shed light on the question how “The knowledge economy” can be an understandable concept at the same time for the business manager and the economic scientist.
Our focus on ‘Traditional Firms’ 1. Production based on reasonably stable routines. 2. Labor cost played an important role. 3. The production technology was available on the world market but the adaption of the technology in production was unique to the firm. 4. All firms had a need for innovations to improve productivity. 5. All firms were dependent on efficient knowledge management to improve productivity. 6. All firms had to efficiently manage the procurements of inputs. 7. All firms faced market competition in one way or another.
Firms included in the study Firm Danpo LAR Cupco Crysbro Ytterøy (Denmark) (Brazil) (Kuwait) (Sri Lanka) (Norway) Percentage of total 38.7% 1.7 % 33.0 % 10.1 % 5.1 % production in the country Daily production of 184.000 340.000 50.000 25.000 17.200 chickens Export share 50% 40 % 0 - 5 % Mostly a producer Mostly a producer for the local for the national market. market. Domestic competitors 1 30 (2 big companies (Mostly a producer (3 bigger on the export market in the country, for the local companies. Only Cupco and Naif.) market. 4 big marginal export)- producers in Sri- Lanka, including Crysbro.) Number of employees 550 4451 180 120 96
Chapter 2 Cost Structure and the Competitive Situation Hanas Cader
Why do we look into the cost structures of the firms? • Firm level productivity is an important factor in determining competitive advantage. • Technological advancements and organizational learning are the key sources for improving productivity and competitiveness. • In today’s globalized world, poultry processing technology is readily available worldwide without limitations and in general all countries have improved their productivity by acquiring the new technology (Narrod, Pray, & Tiongco, 2008). • Even if processing technology is universally available, best practices may vary from region to region, nations to nations and culture to culture. These best practices can have an immense impact on productivity as technology adaptation and innovation take place in different regions in the world.
Cost Share for Different Inputs – indicates comparative advantages Country Kuwait Sri Lanka Norway Denmark Brasil Firm Kupco Crysbro Ytterøy Danpo LAR Cost Share of Live Chicken 57.45 51.61 53.61 42.21 46.25 Total Labor Cost Share 4.23 7.69 24.93 19.40 10.60 Capital Cost Share 0.89 3.24 2.14 3.97 3.39 Other cost share 37.43 37.46 19.32 34.42 39.76 Total 100.00 100.00 100.00 100.00 100.00 Labor in direct production 4.00(*) 5.45 19.97 15.38 9.50 Cost Share Labor in Administrative Jobs 0.23 2.24 4.96 4.02 1.10 Cost Share Cost of Borrowing Capital 4% 10% 5% 5% 10% (interest rate)
Comparative advantage alone is not sufficient for the firm to be able to maximize profits. The firms also need to have market power. • Using a modified Lerner Index, we estimate the potential for market strength where the firm’s ability to sell their products either at a premium price or their ability to buy live chicken at a cheaper price. The Lerner Index and Total Cost Shares of Price for the Firms Country Kuwait Sri Lanka Norway Denmark Brasil Firm Kupco Crysbro Ytterøy Danpo LAR Modified Lerner Index 0.426 0.484 0.464 0.578 0.537 Degree of market strength (The Learner index value can range from 0 to 1. A zero value would indicate no market power at all (competitive market) and a value of one would indicate full market power.)
Conclusions • The analysis provided a comparison between the firms and their relative cost structure • Through the analysis we can see the advantages/disadvantages of the firms • The analysis also provide a good indication on which costs to focus on in order to improve the firms competitiveness
Chapter 3 Vertical Integration and the Management of Inputs to Production Jan Ole Similä
Why this interest in the vertical structure of the firms? • Vertical integration might be “ a way of increasing a firm’s value - added margins for a particular chain of processing from ultra- raw materials to ultimate consumers ” ( Harrigan, 1985, p. 396). • Another reason might be to gain better control of the production: • Production stability • The quality of the products
Different solutions to the question of vertical integration means different managerial challenges Distinguishing Attributes of Market, Hybrid, and Hierarchy Governance Structures * Governance structure Attributes Market Hybrid Hierarchy Instruments: Incentive intensity ++ + 0 Administrative controls 0 + ++ Performance attributes: Adaption (A) ++ + 0 Adaption (C) 0 + ++ Contract law ++ + 0 * ++ = strong; + = semi-strong; 0 = weak (Source: Williamson, 1991: 281).
The literature suggest vertical integration to be the standard. Our findings differs. Company Bencmark (USA) Danpo (Denmark) LAR (Brasil) Kupco (Kuwait) Crysbro (Sri-Lanka) Ytterøy (Norway) Vertical integration Most parts are No integration. Most parts are Total vertical From parent stock No integration. vertically Everything is integrated, except integration. to distribution, Everything is integrated, except market and/or broiler growing except feed mill market and/or broiler growing contract based. which is 100 % and 40 % of the contract based. which is contract based on contracts. broiler growing based. (60% in-house). Plans for building their own feed mill. Vertical control Medium/ strong Low/medium Medium/ strong Strong Strong Low/medium Breeders will be Cultural attribute in Ownership Collateral in Cultural attribute in dependent on the agribusiness to Cultural farmer’s property the agribusiness to having a contract be part of a attribute be part of a to finance cooperative, so toward keeping cooperative, so investments. Few loyalty is normally business within loyalty is normally integrators and strong the ‘family’ strong many breeders increases the control.
Conclusions • We included cultural variables in our study, and working toward an understanding of different approaches to vertical integration we used this knowledge in order to explain some of the differences. • We are certain that societal culture is of importance when explaining the choice of governance structure. • The cost structure differs between firms (see Ch 2), and so does the view on what is considered important transaction costs
Chapter 4 Knowledge and Competitiveness Knut Ingar Westeren & Jefferson Staduto
Knowledge must be positive for a firms competitiveness – but how? • There are different positions: • “ There are still a lot of questions and fields of analysis that have to be studied to better understand the link between knowledge and competitiveness ” (Walter, 2005, p. 6). • “ The link between knowledge and competitiveness is undisputed ” (Signorini, 2008, p. 259) • Huggins & Izushi (2007) argue more generally that this question needs to be looked at from different scientific standpoints like sociology, organizational science, human geography and economics, and taking into consideration different contexts and cultures.
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