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

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 7: The Competitive Advantage of Canada: A Firm-level Analysis

Wenlong Yuan and Alain Verbeke


Wenlong Yuan and Alain Verbeke International business is very important for Canada. With a population of approximately 33 million people, Canada exports between 40 and 50 per cent of its GDP, while gross imports represent 30 to 40 per cent of GDP. However, Canada’s potential to attract FDI has been falling. For example, its share of inward FDI as a percentage of total global flows fell from 7.1 per cent in 1985 to 3.1 per cent in 2002 (Sanford, 2005). Opinions have varied widely as to what impact international linkages have on the Canadian economy and Canada’s international competitiveness. Researchers have investigated the competitiveness of the Canadian economy from a macroeconomic perspective, based on either Michael Porter’s ‘national diamond’ framework or the revised ‘double diamond’ framework (Rugman and D’Cruz, 1993; Rugman and Verbeke, 1993). For example, in 1991, Michael Porter published a report entitled ‘Canada at the Crossroads’ that analysed Canada’s international competitiveness, based on his ‘national diamond’ model of competitiveness. According to Porter, a country’s standard of living is based on its productivity and international competitiveness, which in turn are determined by the quality of the macro-level and microeconomic business environments within the country. The macroeconomic environment encompasses such factors as government budget deficits or surpluses, government debt, tax rates, and the regulation of trade and investment policies. At the microeconomic level, a combination of four interrelated components comprises Porter’s diamond of competitiveness, namely factor conditions, demand conditions, related and supporting industries, and firm strategy and rivalry. Porter concluded...

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