Economics

Conventional economic growth and development processes have emphasized the existence of location advantage that equips the region with the competitive advantage to engage in the production of some goods and commodities. The increasing focus on developing a global trading and commercial arena for entrepreneurs seeking maximized profits has developed the interest of economists in explaining the role of origin and composition of the resource and capabilities of nations to engage in the production of specific goods (Dunning, 1994). The global economic growth in the past few years has been phenomenal. The international trade and output of goods and services have been vastly influenced by the globalization of economies and liberalization of international markets. The de-regulated trade environment has encouraged increased production of goods and services to cater to the needs of expanded global markets and increased consumerism within nations. Some of the key features that have spurted the growth of industries and commerce are the steady growth in levels of foreign direct investment between countries, expanded market opportunities, and advanced technology impacting the way goods and services are produced.

The growing competition between global economies has resulted in a new restlessness where nations are striving to gain competitive advantage through increased productivity, efficient and optimal use of existing resources and leveraging its core competencies. Core competencies refer to the skills and expertise possessed by the region that helps in the optimal use of existing resources. However, nations have developed core competencies in specific areas of economic activity. Germany specializes in the manufacturing of textiles and machinery, while Japan is more famous for its range of digital electronic goods and automobiles. What are the factors that have led to the development of competitive advantage in certain economic sectors and is it possible for Japan to develop its competencies in the area of automobiles These are some of the questions that focus on economic growth within different countries and the answer to this might provide an insight into a balanced economic growth and development within nations. The paper starts with a discussion and analysis of the existing theoretical framework in this context followed by an insight into various factorial perspectives that define the global competitive environment. The paper focuses on various issues of global economic growth and how countries across the globe can leverage their strengths towards a self sustained economic position.

International trade and theoretical framework
International trade liberalization has been viewed as a key factor behind economic growth and development in the developing economies. The key objective behind the opening of markets was to pursue a strategy of equal economic growth opportunities and enable countries to utilize the competitive advantages possessed by each nation for increased efficiency of global trade (Globalization Issues, 2005). The Monterrey Consensus report (2002) identified international trade as one of the leading drivers of economic growth. A review of the Monterrey Consensus report (2008) observes Economic growth occurs at the producer level, and perhaps the most powerful incentive for producers to raise productivity is competition. Global trade is the result of acquired specialization of nations in specific products or industry. This specialization provides the nations with a competitive edge and drives global market demands. United Kingdom has a global competitive advantage in the area of pharmaceuticals patents. What are reasons behind the countrys specialization in this field and why the other countries have not succeeded in this sector The combination of factors of production that have favoured the competitive advantage have been identified as increased resource allocation of governments to research and development activities, the skills and abilities of the human resource, technical efficiency and improved marketing capabilities (Dunning, 1994). However, these advantages are not unique to UK and can be harnessed by any other country. Numerous theoretical frameworks have evolved to explain the reasons behind why each country has a distinctive advantage in producing some goods while it lags behind in the production of others.

Theory of absolute advantage
The theory of absolute advantage postulated by Adam Smith in the year 1776 focuses on the absolute cost advantage of a country in production of certain goods and commodities that provides it with the required competitive advantage in international trade. The easy availability of required resources to produce the goods, in addition to the low cost of production provides the nation an advantage in procurement of raw materials at lower cost, cheap labour and expertise to manufacture the specific commodity. This creates a competitive advantage for the nation since the production of the same commodity in other countries might involve higher costs of operation owing to lack of required resources, skills or costly labour. Hence countries will focus on importing such items in which they do not have absolute advantage and exporting items in which they have (Grimwade, 2005).

Theory of comparative advantage
The theory of comparative advantage put forward by David Ricardo that a country will focus on producing more of a commodity in which it has comparative cost advantage in comparison to other countries. In this model the comparative costs are determined by the relative efficiency of labour (Grimwade, 2005). Labour productivity and acquired skills in fabricating, designing and processing the finished goods and the relative cost of labour used to produce that commodity is a vital factor determining the competitive advantage of the country in producing the goods. International trade will hence focus on acquiring commodities from countries that have a relative cost advantage in production of the goods.

Neo-classical theories of trade
The classical theories discussed above do not explain adequately why certain regions have absolute or relative cost advantage in the production of some goods and commodities. The Neo-classical theories provided an explanation to the existence of comparative or absolute advantage. The factor proportions theory of trade was propounded by two economists, Eli Heckscher and Bertil Ohlin in the early 20th century. They explained differences in comparative costs in terms of differences in amounts of different factors with which the countries were endowed and differences in the factor proportions required for the production of different goods (Grimwade, 2005). The production of various goods and commodities require different proportions of the primary factors used in production process (land, labour, and capital). Each country is driven by its own limitations in terms of access to each of these factors and hence accounts for different prices of accessing the required factors in required proportions. Hence the cost of producing similar goods in two countries will differ based on the factor prices and ease of accessibility to these inputs. A labour intensive country will have access to cheaper labour while a capital intensive country will have cheaper access to funds required for producing goods. This creates a comparative advantage between nations.

The theoretical studies are based on few assumptions that do not exist in real market environment. These assumptions include full employment of resources, exclusive pursuit of economic efficiency objectives, equitable division of gains from specialization, the existence of only two countries and two commodities, exclusion of transport costs, a static view of situations, exclusion of services, and unrestricted factor mobility (IB, 2007). However, such markets do not exist in reality and the national productivity and trade volumes are governed to a great extent by increased influence of global markets and economic forces.

Cluster Theory
Cluster Theory symbolises the need and importance of developing micro economic policy where companies and institutions come together in a geographical boundary  region to promote business prosperity with innovative technologies leading to advanced productivity. Michael E. Porter has emphasized in his publication Clusters and the New Economics of Competition the importance of clusters in todays economic environment where there is a distinct advantage of location where cluster companies get the benefit of linked institutions  organizations mainly suppliers, technology knowhow, government agencies, universities providing research information. Porter has argued that the approach of an open ended fast global environment with fast portability and high speed communication is good in theory but practically location remains an integral part to competition. Porter has emphasized three ways in which clusters have an effect on competition. Firstly it increases production among companies in the cluster, secondly it gives way to innovative practices and thirdly it leads to enhanced business in the cluster which further strengthens the cluster. Silicon Valley, wine cluster in California and Hollywood are some good examples of the cluster theory.

Competition is an important phenomenon where clusters provide the much needed synergies where productivity increases manifold with the increase in technological advances of the sector. Logistics also play a big hand due to which customers benefit from the clusters where they get high quality products which gives them a good return on investment.

The location advantage of production relates to the level and composition of the regions natural resources, local market demand, technology and labour skills and competencies (Porter, 1998). The subsequent sections provide an insight into how these factors combine to provide competitive advantage to countries in the production of certain goods and commodities.

Natural resources and its economic impact
Michael M. Porter (1998) in his work Competitive Advantage of Nations observes that the strength, the composition and the sustenance of competitive advantage of nations lies in the value of its national reserves and resources. A country possesses two distinct types of advantages  natural and acquired. Natural advantage relates to climatic conditions, availability of resources, and availability of labour. These kinds of advantages exist within the national boundaries and economic environment must provide enabling conditions to promote exploitation of these factors. Acquired advantage relates to labour skills, technology superiority, and improved capital assets that are harnessed by the nation through judicious utilization of existing resources and strategic moves (IB, 2007).

Since ancient times, traders and businessmen have focused on earning profits through the trade of easily available natural resources in their countries. Ancient Egypt traded in cinnamon and other local spices that were available in abundance within their local surroundings. Similarly, Indians traded in various spices that were produced extensively in the tropical country. Items like silk, gold, rice and other commodities were traded between countries on the basis of natural resources found in the regions. Trade has been the mode of facilitating people to buy goods and services that are not produced in their own countries (Globalization Issues, 2005).

The ancient trade and production of goods and services in specific locations were vastly influenced by the existence of natural resources and the ability of the people of the country to harness these resources for competitive gains. The trend evolved through the passage of time to result in the new era of trade and development that characterizes the new economic growth and development.
The significance of natural resource availability and its economic impact is illustrated in the study of the economic growth and development of Middle East countries. The existence of large reserves of crude oil and petroleum in these countries has spurred the economic growth and development in the region. The present economic growth is largely focused on the trade of oil with other countries across the globe. The availability of resources in specific locations hence forms a critical factor in determining the competitive advantage of nations (Porter, 1998).

Market demand and needs
Competitive pressures emerge from local markets and regions that equip the nation to move forward. The presence of natural resources alone is not sufficient to gain competitive advantage  the country should have an internal demand and developed markets to initiate the process of specialization in the production of the goods and commodities.

Porter (1998) suggests that the variations in regional values, culture, economic infrastructures, social frameworks and historical legacy add to the competitive advantage of nations. Production processes and manufacturing units in the present era focus on increasing specialization to gain market competitive advantage. Competitive advantage refers to the advantage gained by business enterprises or countries competing with each other for a share of the economic gains. The pressure and challenges provided by the business or operating environment creates the need to excel in the field through increased efficiency, innovation and up gradation to new levels of performance. The global economies today have become intensely competitive with each nation trying to surpass the other in terms of international trade, rate of economic development, and amount of foreign direct investment. Competitive advantage is created and sustained through a highly localized process (Porter, 1998).

Till the 1950s most of the national markets focused on local markets and regional industry development since entry to global markets was limited due to the existence of many barriers to international trade and investment. Entrepreneurs were more focused on how to promote their products and services in the local markets that presented few challenges in the form of less complex market structure, known environment, and regulatory frameworks that guided the process of production and distribution logistics. Competition during this period was low and hence businesses enjoyed a strategic advantage of having to deal with few competitors in the region. However, all this changed with the decisions of national governments to open their economies to global trade and investment. Entry of firms was now easier and this led to an increase in competitive forces that heightened marketing challenges. The opening of markets to global economies and de-regulation of trade and investment has led to increased number of firms and business corporations setting up their presence in global market environment. Operations in global economies are driven by increased level of market complexities that need an in-depth understanding of the market forces and improved insight on existing market cultures, potential market trends and dominant influences that drive market demand and consumer behaviour. Hence industrial growth and economic development has to be supported by market research activities, innovation and technology infrastructure, strong local market presence and expanded knowledge systems for improved decision making and increasing strategic alternatives for successful global ventures.

Nations across the globe are now striving to move forward and establish their control and supremacy over few economic activities but not all countries are able to succeed in gaining competitive advantage in all industries. The focus of most governments is to increase the competitive advantage of their country and nature of economic reforms is driven by the needs and demands of the global markets and industries. Increasing the level of national productivity is the primary emphasis of national economic policies and industry strategies. As Porter (1998) points out in his work The Competitive Advantage of Nations, no single nation can be competitive in everything. A country can gain competitive advantage in certain sectors of the economy through the deployment of its limited pool of human and other resources into most productive uses (Porter, 1998).

Global markets provide businesses with expanded opportunities to grow and develop beyond the scope of local and regional markets. This provides the organizations with increased competitive advantage through possible strategies like market expansion, diversification, integration and exploiting of resources in new regions. The resource allocation of each country and region varies and the venturing of firms into new grounds opens numerous possibilities of exploiting the available resources for gaining competitive advantage. Iron ore rich countries provide the iron and ore manufacturing companies or related industries with expanded business opportunities and resource advantage that provides the necessary competitive edge. But an important factor in gaining global competitive advantage is the presence of strong local markets that support the industrys move into foreign markets. A nations companies gain competitive advantage if their domestic customers are sophisticated and demanding and pressure local companies to meet high standards of product quality and produce innovative products (Hill  Jones, 2008). Efficiency in local markets and enabling infrastructures play a significant role in gaining global competitive advantage.

The opening of trade relations between countries has led to increased competition within the market in accordance with the increased market opportunities for goods and services. However, the success of a product or goods in a particular region does not imply that similar success stories will be realized in other market regions. Pepsi soft drinks have done well in most of the developed markets and there is increased demand for the soft drinks segment for the past few decades (Hargroves  Smith, 2005). The shift in market movements and trends defining consumer behaviour and pattern is a complex area of study and requires extensive research and in-depth analysis of target markets and population demographics to arrive at suitable strategies for market expansion and diversification plans.

Technology and competitive advantage
Technology is a vital link impacting the level of economic development in countries. New technologies and advances in the field of biotechnology and information communication technology are the primary driving forces of competition between different countries and people in the age of global knowledge economy. Innovation is seen as the product of creativity and individual motivation that facilitates the development of new ideas and strategies at workplace. The new economic development phase is marked by an increasing emphasis on innovation and technology that promotes creativity and new product ideas. Michael Porter (1998) in his work The Comparative Advantage of Nations observes that globalization, the reducing timeframe of technical innovation application, and the growing multinational corporations are the key factors that reflect the ability of nations to innovate work processes and remain a step in advance of the competitors in order to increase productivity and competitive advantage. Hence technology and innovation has a direct impact on the trade of goods and commodities.

Technology advances have created a sense of urgency among nations to apply the latest technical breakthroughs and apply innovative practices to gain competitive advantage in global market environments. The nations in the past few decades have focused increasingly on acquiring and investing in new technological breakthrough to gain competitive advantage. Technology can be used as a key differentiating lever to promote optimal utilization of national resources and production capabilities to gain increased competitive edge (Mayo  Nohria, 2005). Technology provides the production process with increased efficiency, speed of operations, productivity and cost control.

Significant advances in economics are showing that new designs, new ideas, and innovations are very important to achieving lasting economic growth (Hargroves  Smith, 2005). Japan introduced the world to range of small but highly effective electronic goods that were compact and provided a range of functions to the users. The country focused its innovative capabilities on serving a market need that was not perceived by other nations across the globe. The use of convergence technology has led to the design of numerous products and devices that have become popular with consumers across the globe. This level of technology and application of innovative ideas in Japan has provided the country with unparalleled success in global markets.

Labour skills and competencies
Industry competencies as discussed in the previous sections are driven by the factorial advantage possessed by countries. However, the shift of economies towards knowledge based industries and economic growth has changed the perspectives to accommodate a wider view of increasing competitive advantage.  Globalization of supply chains, rapid technology advances, superior returns on intellectual capital, growing importance of knowledge-intensive industries make knowledge management a strategic tool in the growth and success of businesses (Chandrak, 2006). The operational excellence and quality of goods and services produced in the present economy are to a large extent guided by increased knowledge on improved and cost effective production techniques, application of innovative solutions to ensure timely delivery, accuracy and precision that minimizes costs and risks involved. National competitive advantage is strongly related to workforce skills, knowledge related to operational procedures, and the ability to implement a degree of innovation and creativity to present more effective work solutions. The quality and level of skills and competencies possessed by the labour force in any country defines its ability to produce certain goods and commodities that is valued by the global consumer community.

All sectors of industry are impacted by the knowledge diffusion process and countries as well as organizations are realizing the necessity of harnessing this resource for developing and strengthening their existing capabilities. Countries like India and China have pushed their economic growth and leveraged its competencies through increased focus on improving their workforce skills and aptly utilizing knowledge management systems to re-define their competitive strengths and abilities. The increasing number of multinational companies outsourcing their work processes to these economies bear testimony to this fact.

Overall economic prosperity and growth is governed by an efficient and productive labour market that drives market forces and encourages a competitive business environment. The globalisation of economies have removed geographical boundaries to expose economies to a liberated and open market forum where information and communications technology, unrestricted flow of data and information play a vital role in promoting cross-cultural work environment. A decade ago business enterprises were largely concentrated in domestic markets and labour markets were strongly regulated by government policies and internal organizational policies that provided the workers with a stable work environment. But with the advent of globalisation and market liberalisation concepts the labour markets have shifted to a more unstable and insecure grounds since changing market demographics and economic driving forces are bringing in new work culture and pattern. This includes offshoring and outsourcing of work processes as part of their business strategies.

Conclusion
The paper discussed the various factors that lend a competitive advantage to nations in the trade of certain goods and commodities. However, it should be noted that these factors are liable to change in the long run and emerging nations can gain competitive advantage in the production of goods and services that they lagged behind in the past. India had never been reckoned for its technology strengths and capabilities, but over the past few years, the country has pushed itself to become the IT hub for software services and outsourcing industry owing to its increasing expertise and skills in IT. The number of IT professionals and the quality of education delivered by the IT institutions have created a large pool of talent within the country that has contributed immensely to its economic growth and development. Hence, competitive strengths can be built or acquired over years in one area to create production advantage for the country and guide it new heights in the global trade and commerce sector. But it is difficult to predict the shape of things to come in the future. Factorial advantage in the production sector is a debatable issue in present context since the economy is shifting radically towards knowledge intensive industries that equip the organizations with increased capabilities and competencies to leverage its products and services in the global market.