Double diamonds, real diamonds: Botswana's national competitiveness.

Author:van Wyk, Jay
Position:Report
 
FREE EXCERPT

Diamonds do not make engines run faster or planes fly further or higher. Unique among major raw materials, the gem diamond has no material use to man

--Nicky Oppenheimer, Chairman, De Beers

INTRODUCTION

Mining, particularly for diamonds, has played a dominant role in the impressive economic development of Botswana since this southern African country became independent four decades ago. In 2004 and 2005, Botswana was the World's leading producer by value of rough diamonds, producing approximately 25% of the World's output (Kimberley Process, 2007). Seventy-five percent of Botswana's current export earnings come from diamond sales (Baxter, 2006). The diamond industry contributes a third of the country's GDP and approximately half of government revenues (EIU, June 20, 2006). It is therefore not surprising that Botswana has had one of the fastest economic growth rates in the World, averaging over 9% per year from 1967 to 1997 (Government of Botswana, 2007; US Dept of State, 2006).

According to Jin and Moon (2006), diversity among nations reflects different environmental conditions which, in turn, affect the strategies, directions and challenges of a specific industry. Therefore, it is essential to understand competitiveness, both domestic and international, for a particular country. In the case of Botswana, the diamond industry is an integral part of the global diamond cartel dominated by De Beers. The De Beers cartel has received extensive attention in the literature (Bergenstock, 2005; Gregory, 1962). This analysis, however, will focus on Debswana, the firm that dominates the Botswana diamond industry and which is jointly owned by the Botswana government and De Beers. The fusion of governmental interest and firm strategy presents an opportunity to understand how Debswana operates both domestically and globally, as part of a cartel, to pursue the national competitiveness of Botswana.

This paper is important for a number of reasons. First, the national competitiveness of Botswana is largely determined by the diamond industry which dominates the country's economy. Second, the "resource curse", i.e. national economies dominated by a single commodity, has plagued many developing countries. However, Botswana has used its resource wealth prudently for socio-economic development while maintaining political-economic stability by adhering to democracy and free market principles. Third, national competitiveness must be viewed in a globalized context where determinants of national competitiveness have increasingly involved cross-border activities and processes.

This article is organized into five parts. It addresses relevant theories, the supporting literature and an application to Botswana's unique situation. Part I discusses definitions and theories of competitiveness. Part II outlines Porter's (1990) Diamond Model of National Competitiveness. Part III introduces the generalized "Double Diamond" framework which emphasizes that national competitiveness is shaped by both domestic and international environments. Part IV analyzes the four determinants of competitiveness as applied to Botswana within the changing dynamics of the global diamond cartel and of domestic political economic issues. Finally, Part V outlines thoughts on the future competitiveness of Botswana.

THEORIES OF NATIONAL COMPETITIVENESS

In management literature, different usages of competitiveness are influenced by the level of analysis. McFetridge (1995) identified competitiveness at three levels: firm, industry and national. One usage is to view competitiveness at the level of the individual firm (Porter, 1990) and of individual sectors within a country (Toyne, Arpan, Barnett, Ricks and Shimp, 1984). According to Kurdrle (1996), "(I)f a firm is holding or expanding its share while maintaining satisfactory profits, the firm can be considered competitive". A second usage is that of industry competitiveness. Porter (1990) simply defines an industry as competitive if its trade balance is positive and if the industry's export share exceeds the national average. Kurdrle (1996) regards an industry as competitive if it maintains a steady or growing market share and satisfactory profits for all firms in the industry. He, however, indicates that the definition of an industry is problematic due to heterogeneity (e.g. product line diversity, national ownership) and generalizations about industry performance based upon firm data. Others, notably Rugman (1987) and Porter (1990), appear to equate the competitiveness of entire countries to that of firms or industries.

A growing body of literature has emerged that views national competitiveness as distinguishable from competitiveness at the industry or firm level. (Boltho, 1996; Strange, 1998) National competitiveness may be viewed from a narrow or a broad perspective. The narrow definition views relative factor costs (e.g. exchange rates, relative unit costs, land costs) as the determinants of national competitiveness. (Manzur, Wong and Chee, 1999; Carlin, Glyn and Van Reenen, 2001) An example of this approach is Porter's (1998) definition of national competitiveness as the value of output produced by a unit of labor (e.g. productivity).

For many business scholars, national competitiveness tends to be more broadly conceived as a complex of institutional and political-economic issues and the ways in which these affect the microeconomic activities of firms within their competitive environments. For instances, Luo (2001) argues that both currency crises and abrupt institutional changes affect the competitive environment in emerging economies. Zinnes, Eilat and Sachs (2001) regard national competitiveness as an input into a country's production process that generates the wealth of a nation. Their definition stresses the importance of synergies among firms and among firms, markets and governments, and above all, the crucial role of well functioning institutions. In similar vein, Kao, et al. (2008), describe national competitiveness as a measure of the relative ability of a nation to create and to maintain an environment in which enterprises may compete so that the level of prosperity may be improved. The broader definition of national competitiveness weds standard growth theory (i.e. growth results from changes in production factor accumulation and in total factor productivity) and new institutional economics theory (i.e. the role of institutions and "rules of the game"). (North, 1994; Picciotto, 1997) The definition of national competitiveness as used in the Global Competitiveness Report may be regarded as a benchmark of this broader definition, i.e. the ability of a national economy to achieve sustained high rates of economic growth based upon sustainable policies, institutions and other economic characteristics that promote such growth. (World Economic Forum, 1997, p.12) As a benchmark of national competitiveness, Thompson (2004) found that indices of four annual rankings of countries, i.e. World Competitiveness Yearbook compiled by the International Institute for Management, Global Competitiveness Report of the World Economic Forum, Economic Freedom of the World by the Fraser Institute, and An Index of Economic Freedom by the Heritage Foundation and the Wall Street Journal, are closely correlated. All these rankings use political-economic and institutional indices in line with the broader definition of competitiveness.

THE SINGLE DIAMOND FRAMEWORK

Porter's (1990) study of a hundred industries in ten nations challenged existing theories of international trade by explaining why a nation achieves international success in a particular industry. (Davies and Ellis, 2000) Porter's (1990) Diamond Model of National Competitiveness consists of four country specific determinants and two external variables. The first category of determinants is factor conditions which include human, capital and physical resources as well as the physical and knowledge infrastructure of a country. Category two is demand conditions such as the structure of demand in the home market; the size and growth rate of home demand; and the processes through which domestic demand is internationalized, e.g. "pull" factors which avail a nation's products and services in foreign markets. Factor three refers to related and supporting industries. This entails the clustering of suppliers, knowledge-input institutions and end-users in close proximity which stimulate innovation and competitiveness. The fourth category is firm strategy, structure and rivalry. This includes the ways in which firms are managed and choose to compete as well as the ways national and firm cultures shape education and the pool of employer talent.

Porter (1990) also identifies two exogenous forces that, although not direct determinants, may influence the competitiveness of nations: chance and government. The role of chance, which may impact on competitiveness, includes macro-political, macro-economic and technological factors. Examples are political decisions by foreign governments, technological breakthroughs, significant shifts in international financial markets and exchange rates, wars and oil shocks. The second exogenous force includes the various roles of government in the competitiveness arena. Examples are protectionist measures, competitive regulations, procurements of goods and services, and tax laws.

Grant (1991) correctly assessed that Porter's "Diamond" ".. .encouraged a surge of further theoretical and empirical research into the role of national environments in determining international competitive advantage." Broadly speaking, the application of Porter's "Diamond" falls into two categories. There are studies that replicate Porter's single "Diamond": Jasimuddin's (2001) analysis of competitive advantage in Saudi Arabia; Turner's (1994) study of Japanese financial services organizations; Chobanyan and Leigh's (2006) case study of Armenia; and Chen and Ning's (2002)...

To continue reading

FREE SIGN UP