Handbook on Small Nations in the Global Economy
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Handbook on Small Nations in the Global Economy

The Contribution of Multinational Enterprises to National Economic Success

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Edited by Daniel Van Den Bulcke, Alain Verbeke and Wenlong Yuan

This unique, extensive Handbook illustrates that multinational enterprises can contribute substantially to the competitive advantage of small countries. It advances the notion that small nations increasingly need to rely on both home-grown and foreign multinational enterprises to achieve domestic economic success in industries characterized by international competition.
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Chapter 1: Small Nations in the Global Economy: An Overview

Daniel Van Den Bulcke, Alain Verbeke and Wenlong Yuan

Extract

1 Small nations in the global economy: an overview Daniel Van Den Bulcke, Alain Verbeke and Wenlong Yuan Professor Michael Porter (Harvard Business School) published The Competitive Advantage of Nations in 1990. This path-breaking book conveyed the message that the success (and international competitiveness) of specific industries in a nation critically depends on the configuration of – and interplay among – four sets of parameters: factor conditions; demand conditions; related and supporting industries; and strategy, structure and rivalry. The outcome of a favourable configuration and interplay, according to Porter, then leads to a strong national ‘diamond’ and, therefore, to an internationally competitive industry, as measured by exports or outward foreign direct investment (FDI). In Porter’s work, success in international markets follows prior domestic success in terms of innovation, productivity improvements, clustering etc. However, in the case of small open economies, favourable diamond conditions are unlikely to exist for each of the four sets of parameters simultaneously if only domestic elements are taken into account. Here, linkages with other nations, whether on the sourcing side or the demand side, are often critical from the outset to create strong industries. More specifically, both inward and outward FDI may be important tools to gain access to external resources that can complement national diamond determinants, and lead to high, sustainable domestic production and employment per capita vis-àvis other nations (sustainability implies the absence of government shelter as a critical factor explaining observed success). FDI should therefore be viewed not simply as an outcome of domestic...

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