244 Part 2: Strategic Actions: Strategy Formulation
The first determinant of national advantage is factors of production. This determi-
nant refers to the inputs necessary for a firm to compete in any industry. Labor, land,
natural resources, capital, and infrastructure (transportation, delivery, and communica-
tion systems) represent such inputs. There are basic factors (natural and labor resources)
and advanced factors (digital communication systems and a highly educated workforce).
Other factors of production are generalized (highway systems and the supply of debt
capital) and specialized (skilled personnel in a specific industry, such as the workers in
a port that specialize in handling bulk chemicals). If a country possesses advanced and
specialized production factors, it is likely to serve an industry well by spawning strong
home-country competitors that also can be successful global competitors.
Ironically, countries often develop advanced and specialized factors because they
lack critical basic resources. For example, South Korea lacks abundant natural resources
but has a workforce with a strong work ethic, a large number of engineers, and systems
of large firms to create an expertise in manufacturing. Similarly, Germany developed a
strong chemical industry, partly because Hoechst and BASF spent years creating a syn-
thetic indigo dye to reduce their dependence on imports, unlike the United Kingdom,
whose colonies provided large supplies of natural indigo.^29
The second factor or determinant of national advantage, demand conditions, is char-
acterized by the nature and size of customers’ needs in the home market for the prod-
ucts firms competing in an industry produce. Meeting the demand generated by a large
number of customers creates conditions through which a firm can develop scale-efficient
facilities and enhance the capabilities, and perhaps core competencies, required to use
those facilities. Once enhancements are in place, the probability that the capabilities and
core competencies will benefit the firm as it diversifies geographically increases.
This is the case for Chiquita Brands International, which spent years building its
businesses and developing economies of scale and scale efficient facilities, however, it
diversified into too many different product lines. In recent years it has refocused the firmFigure 8.3 Determinants of National AdvantageInformal
institutions:
cultureFormal
institutions:
regulatoryPoliticalFactors of
productionDemand
conditionsFirm
strategy,
structure,
and rivalryRelated
and
supporting
industries