Originally published on 10/30/2007
An issue often raised is that some countries, like China, may have more lenient environmental and labor regulations than other countries. That could mean lower overall costs which could give them an advantage in international competition. Here’s a couple of thoughts.
1) We could think of government regulations like actions by a coach to get its team prepared for competition. Some coaches may require two-a-day practices or may pay for a trainer to come in and teach special skills. While that may give the team a competitive advantage it’s also true that all teams are free to use these tactics or not.
2) Second, if in a sports competition we required that all teams have players of the same size, strength and speed. If we required that practice times be exactly equal. If we required that coaches had the same level of experience and had precisely the same resources for team development, then there probably wouldn’t be much competition since every team would be equal in all respects. The same applies to international business. If every country paid the same wage rates, had the same internal laws and regulations, had the same resource bases, then there would be no advantage to trade. Trade allows both countries to take advantage of “differences,” so if we demanded that all differences be eliminated first, then trade disappears.
3) Third, to evaluate competition completely, one must consider all the conditions a country’s firms face, both positive and negative. Thus, although China and other developing countries may have lower environmental and labor costs, they also have primitive legal systems, poor contract enforcement, inexperienced workers, lack of access to capital, higher chances of labor unrest, etc. In other words, businesses face tremendous hurdles in developing countries that firms in the West do not face to the same degree. Many firms in developing countries can reasonably complain about all the “advantages” that developed country firms enjoy. Indeed these advantages account for the higher levels of productivity in the West. This is the reason developing countries give for needing higher tariffs, i.e., they believe they can’t compete with the more productive firms in the rest of the world.
Differences among sports teams are also a reality and this contributes to making competition more interesting. Sports analysts will spend hours discussing whether team A’s speed and agility will win out over team B’s power and strength. Every team has strengths and weaknesses. The secret of success in sports is to promote your team’s strengths and exploit your opponent’s weaknesses. In other words, figure out a way to win despite the obvious differences that exist. I suggest we do much the same in international business; firms should figure out how to compete and win against foreign competitors despite the obvious differences and stop crying foul so often.
