Can Entrepreneurs Cultivate a Competitive Advantage?

0
21

By Nahas Angula

Reflections

Jack Welch, the former Chief Executive Officer of General Electric Company, wrote in his seminal book, Winning, as follows:

“Winning in business is great because when companies win, people thrive and grow. There are more jobs and more opportunities everywhere, and for everyone. People feel upbeat about the future; they have resources to send their kids to college, get better health care, buy vacation homes and secure a comfortable retirement. And winning affords them the opportunity to give back to society in hugely important ways beyond just paying taxes … Winning lifts everyone it touches – it just makes the world a better place”.

This Business Summit is about entrepreneurship and economic growth. It is about making the Namibian economy a winning economy.

I believe you have chosen a pertinent theme for your Summit. I have no doubt that your Summit will generate innovative ideas to transform the Namibian business culture into vibrant, innovative and competitive trajectory. I therefore felt honoured to have been invited to share some thoughts with you on this critical theme.

My contribution will centre around the notion of competitive advantage. Classical economic theory of David Ricardo type emphasized comparative advantage of nations. The comparative advantage theory postulates that nations differ in their endowments of production factors, such as land, labour, natural resources and capital. Nations gain advantage by processing those factors intensively and more efficiently than other nations. In other words, the productivity with which nations can mobilize and use their stock of natural endowments gives nations an advantage over others.

The Namibian context
Put in the Namibian context, our economy has relied on our natural endowment. The Annual Report of Bank of Namibia 2006, singled out the primary industries, comprising mining and quarrying, agricultural and fishing, as drivers of economic growth. In other words, Namibia’s comparative advantage is in agriculture, fishing and mining. Our economy is dependent on the exploitation of our natural endowment. Can this dependence on factor conditions promote entrepreneurship and economic growth?

Studies worldwide have demonstrated that dependence on factor conditions or natural endowment has not helped countries to improve the general welfare of the majority of citizens. Michael Fairbanks and Stace Lindsay in their book, Plowing the Sea, concluded that the comparative advantage thinking has outlived its usefulness. Such type of economic theory has engendered old thinking which does not fit in today’s global economic integration.

They concluded:
“The old way of thinking … combined with the firm-level strategies and government-steering mechanisms it engenders, has not resulted in greater rates of wealth-creation and distribution in the developing world. As the trend toward economic liberalization continues and global competition pressures mount, this old way of thinking will become even less adequate to improve the quality of life for the majority of people in the developing world.”

Namibia is a case in point. Our natural endowment has not translated into employment, poverty-reduction or wealth-redistribution. Namibia is a typical example of economic growth without equity. The reason for this unsatisfactory state of affairs is two-fold: family-owned businesses and multinational foreign-owned businesses. Wealth created in Namibia is either exported to benefit shareholders outside Namibia or is concentrated in few hands. The challenge of creating a robust, shared and diversified economic growth is a challenge of developing a new economic thinking. The new thinking is embedded in the concept of competitive advantage.

Toward a culture of competitive advantage
Globalization has redefined terms of competition. Globalization has ushered in “an era of total competition.” In such an era, ICT dominates. ICT makes communication and computing cheap. Factors inputs are lesser percentages of product cost because global access to raw materials is improving.

Moreover, social capital that is trust, justice and sophisticated human resources, are sources of advantage in global competitiveness.

Business is now focused on markets, and governments should invest in the promotion of the innovation processes, by developing specialized infrastructure, stable macro-economic environment and investment in education and training. The private sector should be further focused on finding attractive industry segments based on customer preferences. In other words, the new economic thinking should be dynamic and integrative.

Michael Fairbanks and Stace Lindsay correctly advised as follows:

“For the leaders in the developing world, the challenge is to create the conditions where both operational productivity and better choices about the allocation of resources can be made”.

They further observed:
“Knowledge is the key ingredient in improving allocative efficiency. The goal is to rely less on basic raw materials and the hard work of inexpensive human capital, and to rely more on superior forms of capital, such as how efficiently the institution learns and disseminates knowledge.”

The culture of competitive advantage embraces this new thinking. Such an approach will unlock hidden sources of growth. According to Fairbanks et al, the hidden sources of growth include the following:

– export complex products;

– invest in knowledge of more demanding and sophisticated customers;

– understand and improve relative competitive position;

– study the opportunities for forward integration;

– engage in productive reasoning; and

– avoid paternalism.

The export of complex products requires technological licensing; transfer of non-proprietary technologies; investment in new equipment; and attracting FDI. Most importantly, capital markets should be developed to provide affordable investment capital.

Knowledge of customers will enable firms to design upmarked products which can fetch premium prices. The importance of understanding customers’ desires and preferences cannot be overemphasized. Market research is therefore a must. In the new economic thinking, the focus is more on the customer rather than on the product.

Moreover, businesses should establish competitive positions in relation to rivals and determine the uniqueness of the products in relation to similar products on offer by competitors.

Forward integration, on the other hand, requires the entrepreneur to understand where most of the value chain is created. This means that the entrepreneur should endeavour to access the end-user of his or her products.

In the same breath, avoid the blame game. More often than not the government blames the “greedy” private sector. Or the private sector blames the “incompetent” government. The best thing to do is for both sides to engage in non-defensive learning and reasoning. Business should develop an attitude of productive reasoning.

Finally, in order to create conditions for a health competition, government should not interfere with business decisions. Protectionism should be avoided at all costs. Subsidies should be at a minimum or be wholly discouraged.

New opportunities
This new economic thinking opens up new opportunities to new entrepreneurs. I want to give just two examples to illustrate the power of competitive advantage: the Otjiua Game Farm developed a premium hunting product for upmarket hunters; the Witvlei Abattoir is developing a product for the Norwegian market in the form of veal designed exclusively for the Norwegian market; and the Sun Hotels Group has announced the establishment of three new upmarket accommodation establishments. I believe there are many opportunities in sectors such as tourism, minerals beneficiation, fish products, table grapes, to mention just a few.

If NCCI is serious in promoting entrepreneurship, it should embrace this new economic thinking. In concrete terms, it should promote market research, product development, transfer of non-proprietary technologies and technology licensing, among other initiatives. Government on its part should create a stable macro-economic environment, invest in people, invest in research and development, and embrace public-private partnerships.

The current EPA negotiations with the European Union, the expansion of regional markets through SADC integration, the opportunities given by the opening of China and other Asian markets, as well as AGOA, should be exploited to the fullest. In this way, we should be able to improve the quality of life for all our people. This economic approach will make Namibia a winning nation. At the same time, Namibia will find what William Easterly described in his book, The White Man’s Burden, a “homegrown development” strategy.

I thank you!

Notes:

1. Easterly Williams, 2006, The White Man’s Burden, Penguin Books.

2. Fairbanks Michael and Lindsay Stace, 1997, Plowing the Sea, Harvard Business School Press.

3. Welch Jack, 2005, Winning, Harper Collins Publishers.

4. Annual Report-2006, Bank of Namibia.

Prime Minister Nahas Angula made this presentation at the NCCI Business Summit on June 15 in Windhoek.

LEAVE A REPLY

Please enter your comment!
Please enter your name here