Development of international competitiveness in industries and individual firms in developing countries: The case of the Chilean forest-based industry and the Chilean engineering firm Arze, Reciné and Asociados

Abstract

The report, which is based on case studies of the Chilean forest-based industry and the Chilean engineering firm Arze, Reciné and Asociados (ARA), discusses and analyzes the interdependence over time between technology and knowledge of foreign origin and in-house innovative capability in connection with development of international competitiveness in a developing country environment. The case studies illustrate the important role that foreign technology and know-how have played for the development of the Chilean forest-based industry as well as for ARA. A common denominator of the two cases, however, is that the acquisition of foreign technology and knowledge has often been initiated from the Chilean side which has made possible a successful assimilation and “internalization” of the acquired technology, resulting in increased self-sufficiency. An analysis of the “productivity status” of various factors of production for selected sectors of the Chilean forest-based industry points out the pulp sector as the most competitive in the international context. However, as this competitiveness is primarily based on natural cost advantages and low wages, sustained international competitiveness for the pulp sector as well as for other sectors will, increasingly depend on the ability to replace basic factor advantages with advantages based on more sophisticated capabilities and competences. This will allow for a gradual shift from the vulnerable cost-based strategies presently applied, to more stable and long-lived strategies based on differentiation. A similar analysis of ARA reveals that the firm, in order to become competitive in the international market, needs to improve in all respects related to operating internationally, including international marketing, language skills and representation abroad. The internationalization of ARA could be implemented either in-house or in partnership with other domestic firms or with foreign firms. The strategic alliances with foreign firm that the firm has experienced in the past have contributed significantly to improve ARA's competitiveness in the domestic market, but yielded very little in terms of participation in international assignments. This is due to, among other things, low confidence in the foreign market in the qualities and capabilities of Chilean products and firms and protectionistic behavior of foreign partners and governments. In case foreign partnership would be chosen as internationalization strategy, the ideal partner would be a small or medium-sized firm whose specific know-how within a certain field of technology is complementary to that of ARA.