Question/Answers from cases:

Chile and Estonia cases (Айша, Света):

1. What was the competitive position of Estonia when it regained independence in 1991?
What were its assets and liabilities?

New leaders were orientated towards the West, and believed in free market policies. The newly
elected Estonian government quickly took steps to transform the country into a Western
market economy.
By establishing a currency board that pegged the Estonian Kroon (EEK), the country's new
currency, the government aimed to make trades and investments between currency areas
more predictable and easier which sooner or later would help to determine its competitive
position in the market.
Estonia adopted a policy of no restrictions on foreign investment or exchange controls. Foreign
companies were granted equal rights with local ones, and there were no restrictions on capital
flows back to the investing country. This step took by the government also increased its
competitiveness by helping to boost the country’s economic growth as well as swelling on
production level, obtaining economies of scale, possessing higher quality of products and
services provided by the local and foreign suppliers inside the country.

2. Analyze the national diamond over time. What allowed Estonia to upgrade
competitiveness faster than many other transition countries?

Estonia had established modern government institutions and an open market economy.
Growth had been rapid, outpacing most peers in the region. Skype, a Voice-over-IP platform
developed by a team of software designers based in Tallinn, had become a proud symbol of “e-
stonia.” Moreover, huge role was on geographical position and trade relationships with Finland
and Sweden.

3. Why was Estonia able to achieve such rapid progress?

Particular relative strengths were seen in administrative infrastructure, information and

communication technology infrastructure, and the openness of markets. Weaknesses remained
in some dimensions of physical infrastructure and the access to advanced workforce skills.
Taxation was based largely on indirect taxes and social contributions, significantly more so than
in the EU average. Estonia’s education system was well developed. In international assessments
of educational attainment, Estonian secondary-school students outperformed their peers in
most advanced European countries, including Germany and Sweden. All schools were equipped
with Internet-connected computers. Higher education was expanding, building on four public
universities, especially the University of Tartu and the Technical University of Tallinn, which had
a long tradition as regional education and research hubs. The high quality of programmers, in
particular, had been instrumental in the development of Skype’s research and development
activities in Tallinn.
Estonia had made significant steps to build strong communications technology infrastructure.
Estonians, both young and old, seemed to have an infatuation with the Internet. By 2014
internet penetration was at 84%. Neighbors in Northern Europe registered penetration rates
above 90%; the other Baltic countries stood at 82%. Physical infrastructure was solid, but not a
particular advantage. The biggest focus had been on upgrading seaports. The country’s five
airports (of which only Tallinn had international flights) were below western standards.
Estonian Air, the government-owned airline, had in late 2015 ceased operations. Riga, the
Latvian capital, increasingly established itself as the Baltic hub for flight connections. The road
system was being gradually upgraded, drawing on EU funds.
Estonia offered a wide range of policies to support R&D, focused on the most advanced and
science-driven industries.

4. Compare Estonia’s success with that of Chile. What are the similarities? What are the
differences? Which country faced greater challenges?

Chile faced greater challenges, since Estonia initially had highly developed strategy to integrate
to Europe standards and due to geographic location had more possibilities to enter global
market. For Chile joining any regional trade block as NAFTA and Mercosur involved ceding a
great deal of sovereignty over economic policy. Few countries could match Chile’s record of
unilateral liberalization, and subsequent export growth.

5. What are Estonia's competitiveness issues in 2007? What recommendations would you
make to Estonia’s leaders?

During the course of 2007 signs were growing that the pace of growth achieved since the early
2000s was becoming unsustainable. Inward investment dropped significantly after the strong
inflows around the time of EU accession. Construction, retail, banking, and real estate
accounted for about 2/3s of growth. Public expenditures rose by a cumulative 60% between
2004 and 2008. Wage growth accelerated, reaching 20% during 2007. Productivity growth (GDP
per hour worked) had slowed to between 5% and 6%.
Year-on-year credit growth had peaked in the second quarter 2006 at an annual rate of 70%;
the banks aimed to slow the expansion to around 30% in 2007/08. Housing prices reached their
peak in the third quarter of 2007 after having more than doubled in the previous 2 1⁄2 years.
GDP growth rate started to drop below 10%.

Remaking Singapore (Рита):

1. What was Singapore’s economic strategy between independence and the 1980's? Outline
the critical policy choices to realize this strategy. What caused the modification of the
strategy in the late 1970's and early 1980's

First of all Lee Kuan Yew, as the first prime minister desired to create strong Singaporean
society model, which can be the part of the further economy development. (Teaching 4
languages at schools,creating jobs, provide housing)
Faced with an unemployment rate estimated at 13.5% in 1959, the EDB sought to support job
creation by attracting investment. One of its first projects was the Jurong Industrial Estate, an
industrial park created on filled land at the western end of the island that was designed to
attract companies.
Lee’s government pursued an import substitution strategy, the policy most often recommended
for less-developed countries by the International Monetary Fund (IMF)
Foreign investment inflows, export-oriented manufacturing, and external trade all grew rapidly.
Monetary policy since independence had emphasized maintenance of very low inflation.
Singapore pursued a strategy of deliberately keeping its foreign exchange rate somewhat below
what the IMF saw as the long-term equilibrium level.
The first international oil shock in 1973 brought about the end of two-digit growth in Singapore.
Economic conditions in developed countries, on which Singapore was dependent, worsened. In
the tightening labor market, real wages began rising more rapidly than labor productivity. Other
less-developed Asian countries with cheaper labor, such as Malaysia and Thailand, emerged as
important manufacturers of labor-intensive products. The Lee government responded by
initiating a large wage increase in 1979, with the total impact on wages ranged between 14%
and 20%.35 The government hoped the policy would encourage Singapore’s factories to shift to
higher-technology, higher-productivity products.
Deep recession accompanied by low external demand, low profits, rise in unemployment,
reduced investment in manufacturing and depressed oil market made Economic Committee
reassess and change the economic strategy.

2. Why did prime Minister Goh put forward the Next Lap plan in 1991?

Prime Minister Goh emphasized the insecurity of small Singaporean nation in a big hostile
world. He was concerned of possibility of another recession that can be devastating. That’s why
he developed long term economic and social plan for improving infrastructure, expanding
educational opportunities, creating an advisory body of Singaporeans living abroad, and
building research institutes to support companies expanding to world markets. The plan set the
goal of achieving a U.S.-level per-capita standard of living by 2030.

3. What led the Committee on Singapore's Competitiveness (1997) and the Economic
Review Committee (2003) to modify the Next Lap strategy? How was Singapore able to
continue its success during the 1990's and 2000's?

As Singaporean’s economy worsened in 1992, Singaporeans wondered if the 1985 recession

was about to repeat. They were not going to blame external factors, but recognized that there
is a problem in economic structure at home. Some thought oversaving, served to depress
private consumption and ROI. CPF relaxed it’s rules allowing to use Singaporean their savings.
Following the Next Lap plan there was a decision to pay more attention on the attraction of
new investment in high-value added industries like IT, petrochemicals. Manufacturing firms
were given financial incentives to engage in activities beyond manufacturing. Government also
improved conditions for local companies. A big amount of new programs were launched to
transform educational system and foster creativity. Research institutions and new training
programs for workers were also created for the purpose of remaining competitive.

ERC helped Singapore to continue its success by its recommendations including expanding
economic ties with India, Japan, China and Australia to enhance Singapore’s hub status. Also
among recommendations were promotion of entrepreneurship, attraction of global talents,
economic restructuring, skills retraining. In 2003 Singapore signed Free trade agreement with
US. By 2007 Singapore signed FTA with 13 countries. By 2010 an ambitious plan of turning the
entire downtown of Marina Bay into a business and tourist center have become the symbol of
economic transformation.
4. Analyze Singapore's competitive position in 2009. What recommendations would you
make to the new Economic Strategy Committee?

In 2009 Singapore’s economic fundamentals were still strong. They were opened to trade and
investments. Dynamic and business friendly environment. Good and improving education
system. Efficient public services. Trustworthy political system. Labour productivity has become
much more volatile over 15 years. Strategy towards innovations is based on US example and
patent model.

Recommendations: No need for drastic changes in Singapore’s economic strategy. Continue

with policy to support market-driven process towards tighter integration into Asian economy.
Review policy approach in knowledge-driven sectors. Have a closer alignment between
developing and commercializing knowledge in publicly-funded research labs.

Productivity growth has become more volatile. Singapore’s high level of competitiveness
suggests that higher level of productivity should be possible. So, it’s better to focus on
productivity growth in existing and emerging sectors, rather than grabbing “new opportunities”
in new sectors.

Volvo case (Рита):

5).Why has Volvo spread its value chain for heavy trucks around the world? How can you
explain why certain activities are performed in certain locations? (You may want to begin
with Exhibit
After 1970 Volvo decided to become global player, Volvo desired to have competitive
advantage. Beginning in 1975, Volvo had been attempting to penetrate the U.S. heavy truck
market. After unsuccessful efforts to enter through alliance, Volvo acquired the bankrupt U.S.
truck manufacturer White Motor Corporation in May 1981, and the heavy truck division of
General Motors in 1988. Acquisition was their dominant strategy o the way to global market. In
spite of these efforts, Volvo had never achieved more than a 12% market share.
To efficiently respond market needs Volvo spread operations among countries to gain economy
of scale. Some activities could be performed by external parties, such the production of non-
driven components could be made by external suppliers.

Why have European-based truck manufacturers become the global leaders and not American
or Asian companies?

We all know that in US conventional type of trucks were preferred, in Europe cub-over ones.
So, in Europe demand for this type of trucks were pretty much higher and competition among
truck manufacturers lead to become them leaders. European produced cars generated much
higher target audience than this of American. European manufacturers know about their
customers` needs and wants. They strongly operate to satisfy them. Also in US there was
energy crisis.
Why is Volvo (as well as other European companies) so committed to entering the U.S.
market?
In the early 1970s the Volvo Truck decided to become a global player, leading to the decision to
enter the U.S. market in 1975. Volvo set out to sell trucks using the existing dealer network for
the distribution of Volvo passenger cars. Western Europe and North America each accounted
for about one-third of the total world market for trucks. In the class 8 segment, total market
size had fluctuated significantly in recent years.
What steps has Volvo taken towards establishing itself in the United States? Why has the
company had so much difficulty?
Difficulties:
- The U.S. market was dominated by conventional trucks whereas Europe favored the cab-
over design.
- Regulatory differences. In all markets, there were restrictions on truck length for safety
reasons. Regulations also differed in regard to the maximum acceptable weight of trucks.
- The traditional small buyers in the United States tended to favor U.S.-built products and
often wanted customization of products and features

What should Volvo do in 2000?

In 2000 Volvo continued its strategy of acquisitions. (Acquired Renault’s heavy truck operations
(RVI)). The company increased its market share to 28% in Western Europe and to 24% in North
America. Volvo Global Trucks had a presence in more than 180 countries. As a result of the
acquisition, Volvo had doubled its total volume of diesel engines to about 200,000 units
annually, making Volvo the world’s fourth largest manufacturer of heavy diesel engines. The
company expected to spend some SEK 4 billion in total restructuring costs over 2001 to 2003 to
integrate its operations worldwide. Their strategy was always successful for the penetration to
any market.

What are the implications of the Volvo Truck case for how countries should attract foreign
investment?

California and Australia wine clusters (Акбота):

What explains the emergence of California as the dominant wine cluster location in the U.S.,
and one of the world’s leaders?
Applying a diamond model to answer this question, we can say that Endowments, Micro and
Macroeconomic decisions helped to create wine cluster within California and to sustain against
competitors keeping a leading position worldwide.
* Factor Conditions
Endowments - Location: border along the Pacific ocean
- Topography climate
- Qualified human resources
- Scientific and technological infrastructure

* Context for Firm Strategy and Rivalry

Ø California growers had a special strategy of planting vines: «8x12» spacing, which had
maximized productive capacity.
Ø Vineyard operators sought to rehire the same migrant workers every year in order to
minimize training costs.
Ø Wine makers transferred wines in special concrete, steel or oak tanks for fermentation in
order to keep high quality of the product.
* Context for Firm Strategy and Rivalry
Science & Technology, Restaurants, Publishing Centres played an important role:
Ø U.C. Davis introduced new technologies: mechanical harvesting, drip irrigation, field grafting.
Ø «California Cuisine», large restaurants, hotels
Ø «The Wine Spectator» listed world`s best wines by doing this demand increased, 8 million
visitors came to California each year, spending $300 mln.
Ø Even alcohol consumption was prohibited, TV program «60 minutes» promoted that red
wine is beneficial for the health.
Ø The California Association of Winegrape Growers (CAWG) played an active role in state and
federal lobbying of wine products.
Ø The Bureau of Alcohol, Tobacco and Firearms (ATF) was the federal regulatory body, dictated
all labeling requirements in the U.S.
Ø The Wine Market Council was brought together wineries, retailers, wholesalers and
restaurants to promote wines.
Ø 2 major companies Owens Illinois, Ball-Foster Glass were the suppliers of wine bottles.
Ø Southern Wine & Spirits was a main distributor of Californian wines, generating $1 bln for
them.
Ø Club stores (Wal-Mart, Sam) were also the main direct distributors.
Ø Wineries used San-Francisco based advertising firms.
Ø U.C. Davis, U.C. Berkeley, U.C. Riverside were the leading wine research universities.
Ø California winemakers financed by Bank of America which offered long term loans with
lowest interest rates.

Government was a TRIGGER to develop wine cluster:

Ø Excise tax for California was $0,04 per bottle, while in other states it was quite higher - $0,45.
Ø During WW2, the U.S. cut off all import from Europe, then they started to consume
domestically made low quality sweet and fortified wines.
* Chance:
Ø In 1860, phylloxera, an insect destroyed all Californian vineyards ® To withhold this problem
there was opened «the Viticulture and Enology Department» at the University of California at
Davis.
Ø European wine producers started to cultivate wines in Ohio state, making state the country`s
leading wine producing center.

2. Why have exports of France’s wine cluster stagnated relative to the U.S., Chile, and
Australia?
Even France had been a leader in producing wines and exporting them abroad, it stagnated,
because:
1. Labour cost in France was higher than in California.
2. The French apprenticeship programs weren`t modern, they couldn`t catch the time and new
changes in consumer market.
3. Wine production went to distillation.
4. EU had a tight control over yields and wine production which reduced the incentives to
experiment with new varietals and wine types.
5. Demand range was quite small, because UK was importing from AU and California.
 3. What explains Australia’s emergence as a leading wine-exporting nation?

There was a huge support from government to cultivate and develop wine cluster in a
country, small and medium, even international companies started investing in R&D. For
example, there was established Wine Overseas Marketing Board, the Australian Wine Research
Institute, the Australian Wine Bureau by the government to promote vineyards and local
producers globally. New technologies were being adopted:
Ø Drip irrigation;
Ø Mechanical harvesting;
Ø Heat exchangers;
Ø Refrigeration, etc.
· New technology, «Potter Fermenter» was sourced from abroad. Government provided
funds for export promotion totaling $4 mln per year spent on wine tastings in target markets.
R&D expenditures.
· A 30-year strategic plan: «Strategy 2025» wanted to achieve $3,5 billion in annual sales by
being world`s most influential and profitable wine supplier of branded wines.
So, all those supporting actions and creating a networking among wine industry, government,
universities, banking sectors, and other business related industries made to be AU in a leading
position for producing wines.

4. How important is government to wine cluster development? In what ways does

government help? Hurt?

When we talk about California, its government served both as a hinder and trigger of the wine
cluster development. For example:
Government was a HINDER to develop wine cluster:
Ø Prohibition of alcohol drinks lasted during 1920-1934, but wine making wasn`t stopped. ®
Vintners made grape juice and sacramental, medical wines.
Ø In 1986, increasing attention to exercise and health, rising concerns for public intoxication
and drunk driving ® decreased wine consumption
Ø Because government scared about vineries would sell to underage drinkers and they would
avoid paying excise tax ® government prohibited all direct sales.
Ø California wineries faced higher tariffs and retail sales taxes abroad.
Government was a TRIGGER to develop wine cluster:
Ø Excise tax for California was $0,04 per bottle, while in other states it was quite higher - $0,45.
Ø During WW2, the U.S. cut off all import from Europe, then they started to consume
domestically made low quality sweet and fortified wines.
And talking about Australia, government served as a trigger to development. For example,
government established wine trade associations to support the production and delivering of
the products, made !oenology! course mandatory for university students, to increase
awareness and interest of young specialists to prosper this field. Government provided funds
for export promotion totaling $4 mln per year spent on wine tastings in target markets. R&D
expenditures.
· A 30-year strategic plan: «Strategy 2025» wanted to achieve $3,5 billion in annual sales by
being world`s most influential and profitable wine supplier of branded wines.

Japanese cluster (Айгерим):

1) Why did companies based in Japan come to dominate the world facsimile machine
industry, and sustain their leadership?
· High quality of the products manufactured in Japan
· Progressive technology
· Various manufacturers in Japan = high competitiveness
· Due to the fact that 98% of documents were written by hand, the demand for facsimile
machine was low
· Saturation in the market in 1990s lead to export facsimile machines
· Statistically 8 out of 10 facsimile machines were from Japan
· Developing new technology, for example: calculator (Canon), color-photo printing
(Matsushita)
2) Why did US firms, where the key technology was invented, lose in this industry?
· The main reason was the recession in 1974-1975 that lead to dab production
· It was not the goal cluster
· There were not many companies who produced facsimile machine in comparison with
Japan. That is why according to the low competitiveness, development of new technology was
too slow
· The price difference
3) Why did France fail to get out of the starting block in this industry?
· Due to the fact that 1st transmission was invented in Europe in 1840s, the situation in
these countries was tense. As clear examples can be two World Wars, which did not give an
opportunity to invest in R&D in this sector
· In the current time, Europe buys facsimile machine from Japan, US and particularly from
South Korea
4) What threats lie ahead for Japan`s leadership in facsimile machines in the new century?
Is Korea going to take over this industry in the new century?
· Penetration to the market abroad productions
· Main competitor – South Korea
· Korea facsimile machines cluster developed comparatively fast, because of their language
“han-gul” which adapted to the keyboards and this situation in Japan was harder due to the
fact that they have hieroglyphs.
· Probably Korea will take over this industry in the new century. The reason is that labor
force in this country is comparatively cheaper nevertheless Korea has high technology to create
and develop facsimile machines with modern features.
· Anyway, Japan has a strong brand all over the world, and for Korea it will be quiet
complicated to overtake in this exact century.
5) What should the Japanese government do to enhance Japan`s leadership in facsimile
machines?
· Develop new features
· Make collaborations with local companies
· Provide global marketing
· Develop digital technologies
· Make more functionally in facsimile machines

Rwanda: National Economic Transformation (Айгерим):

1) Assess Rwanda`s situation (assets and liabilities) as of the end of the genocide in
1994/1995. What kind of economic system did the Government National Unity inherit?
· Assets: gold, tin, tungsten, beryllium, natural gas, coffee, tea, bananas, cattle
· Liabilities: foreign investments
· Government National Unity supported private sector federation
· Wage and price controls were largely dismantled
· New tax regulations
· Rwanda began to open its economy
· Joined the World Trade Organization
· Inherited a number of SOEs including utilities, banks and agricultural enterprises
· Law on Privatization
· English became an official national language

2) Identify the steps that the Government of National Unity took between 1994 and 2000
to restore the economy? How would you evaluate the initial economic development
strategy?
· On 6 April 1994, with the world's media focused on the election of Nelson Mandela, a
plane was shot down in Kigali, the capital of Rwanda. It had been carrying Rwanda's president,
Juvénal Habyarimana and Cyprien Ntaryamira, the Hutu president of Burundi. The double
assassination triggered the state-sponsored genocide of approximately 800,000 of Rwanda's
minority Tutsi population and moderate Hutus. The mass slaughter was carried out in 100 days
by government-backed perpetrators in the army, police, militias and by thousands of Hutu
civilians across the country
· Rwanda's drive to rebuild its economy since the genocide has been driven by three main
sources: the export of tea and coffee; foreign aid, which constituted 20% of gross annual
income in 2011; and the tourism trade. Most of this plays out in the rainforests, which are
home to a 1,000-strong population of mountain gorillas, some of the last surviving on the
planet.
· Since the genocide, Rwanda's government has been led by Paul Kagame. A Tutsi growing
up as a refugee in neighbouring Uganda, Kagame led the Rwandan Patriotic army in its
resistance against the Hutu militias wreaking carnage on the country. After the genocide ended
in July 1994, he became vice-president and in 2000 was elected president
3) Identify and evaluate President Kagame`s economic strategy for the country from 2000
through 2011.
· Reducing the number of provinces
· Reducing corruption, in 2016 Transparency International ranked Rwanda as the 50th
“cleanest” out of 176 countries, and the 3rd least corrupt country in Africa
· Requiring high quality human resources
· Free education in schools till 9th grade
· The National Educational strategy focused on building new schools, improving teachers’
standards
· Increasing vocational and academic higher education
· Hundreds of community health centers had been rehabilitated
· Introduced a mutual health insurance system in 2007
· For foreign investors easy to access obtaining license, visas, work permits and tax
incentives
· In 2008 government agencies involved in investment promotions, export, tourism,
privatization
· International trade was developed since 1996 after entering WTO
· The Kigali International Airport had a capacity to serve 1,5 million passengers per year
· Developing infrastructure, electricity, watering
· All commercial banks had been audited between 1999 and 2002
· Agribusiness: coffee and tea experienced significant investment and growth
· Mining: Rwanda had deposits of tantalum, tin, Colton, tungsten, wolframite, and gold
· Tourism: Virunga National Park is the most unique tourist attraction
· Eco-tourism destination

4) What is the situation facing the Rwandan economy in 2011?

· One of the fastest growing economies in Central Africa, Rwanda notched up GDP growth
of around 8% per year between 2001 and 2014
· The International Monetary Fund expects the economy to slow down this year and pick
up in 2018, forecasting around 6% growth in 2016 compared with 6.9% last year.
· The country reduced the percentage of people living below the poverty line from 57% in
2005 to 45% in 2010. Despite this, 63% of the population still live in extreme poverty, defined
by the World Bank as less than $1.25 a day
· Rwanda has also made big strides towards gender equality – almost 64% of
parliamentarians are women, compared to just 22% worldwide – which has enabled women in
the country to make economic advances. Women are now able to own land and girls can inherit
from their parents
· Foreign aid to Rwanda increased significantly as the country began rebuilding itself after
the genocide. A large chunk of government revenues – 30-40% of the budget – still comes from
aid.

Finland and Nokia case (Дамир):

How was Finland as a nation able to move from a sleepy economy to one of the most
competitive nations in the world by the end of the 1990s?

Reasons:
Country's natural resource endowment and its long coastline. Ex. Forests cover 76% of the
country’s total land area
Public spending on education relative to GDP was traditionally above the level of many other
European countries, and had increased at a steady rate. The quality of education was
considered good. Finland also was home to 20 universities and other institutions of higher
education, with a student population of approximately 270,000
R&D expenditure as a share of GDP was increased continuously beginning in the early 1980s.
Public R&D spending was increased at an annual rate of about 10%, soon making Finland one of
the leading OECD countries in public R&D spending relative to GDP.
Fast growing Finnish telecommunication equipment industry. Finnish operators, who were
quite advanced technologically, engaged actively in R&D cooperation with equipment
manufacturers.
What allowed Finland to become a world-leading nation in the mobile communications
cluster? Why did this cluster develop in Finland rather than other fields?

Reasons:
The Center of Expertise Program focused on “strengthening regional competitiveness by
increasing innovation, renewing the regional production structure, and creating new jobs in
selected expertise areas.” The Cluster Program focused on developing the innovative capacity
of industrial clusters by supporting cluster-specific R&D efforts.
EU membership (1995) brought further integration into the European Common Market, and the
harmonization of many laws and regulations with the other EU countries. With the opening
towards the west, the Finnish economy attracted significant amounts of inward FDI. Large
mergers, as electronics (Nokia) created larger and more focused Finnish firms with global reach.
Finland became an important supplier of manufactured products to the Soviet Union. The
country’s technical base was one of the best among USSR countries, which provides with a
relative advantage in technical progress and also contributed in developing
manufacturing/other clusters.
The third company, Suomen Kaapelitehdas founded in 1917, was a producer of
telecommunications cables. It merged with Nokia in 1967. By the 1970s, Televa and Nokia,
viewing the Finnish market as too small, combined their R&D and marketing efforts in digital
exchange technology in a joint venture, Telefenno.

How did the Finnish firm Nokia become the world leader in mobile handsets? How did its
home base in Finland influence Nokia’s success?

Nokia had R&D units located in 14 different countries, although somewhat over half of total
R&D activities were located in Finland. R&D facilities were typically located close to leading
universities and research centers. At the end of the 1990s, Nokia spent close to 9% of its
revenues on R&D, up from 6% in the first half of the 1990s.
NMT pioneered roaming technology that made it possible for the system to know where a
telephone was located, so that the user could travel across national borders using the same
phone. NMT was also an open standard that could be implemented by any company. The
introduction of the NMT made the Nordic region the world’s largest single mobile market at the
time.
With the NMT under way, Nokia and Salora created a 50-50 owned joint venture in 1979
named Mobira to market and develop radio technology. Before 1980 Nokia had sold
approximately half of its production in the domestic market, with the rest exported mostly to
neighboring countries. During the 1980s, Mobira allied itself with distributors and mobile
operators around the world, and the company began to build a global consumer brand.

What are the most important challenges for Finland in the early 2000s? For participants in
the Finnish mobile communications cluster? For Nokia?

Evolution of standards. New standards for 3rd generation systems were being developed in
mobile Internet services as well as software and hardware for phones and infrastructure. A
large number of firms and standards were competing, many of which sought enhanced
mobility.
Overall growth rates were declining, and major export markets appeared weak. The
telecommunications cluster especially was experiencing a severe downturn, and Nokia had
seen its revenue and profits fall. Given the large role of Nokia and the cluster in Finland’s
economy, concerns about the level of exposure to one company and one cluster were
becoming louder.
Finland was also facing shortages of skilled engineers and scientists.

What economic policy priorities would you recommend to the government? What steps
should the private sector take?

Costa-Rica cluster:

Why has President Figueres embarked on a new economic development strategy upon taking
office? How does his thinking differ from past approaches? Evaluate this new approach.

When Figures took office, he embarked on a new strategy that required shifting the focus from
traditional labor-intensive and raw-material agricultural activities to more technological
competition. Figures wanted to incorporate Costa Rica in the global economy. Therefore, a
national strategy was needed that went beyond cheap labor and exploitation of natural
resources. Figures wanted to compete based on performance, efficiency, and technology. The
strategy was aimed at attracting an industry with a higher cost, which would allow Costa Ricans
to improve their standard of living.
Due to the rising cost of labor, many textile companies began to leave the country. Therefore,
in order to attract an industry with a higher cost, which would allow Costa Ricans to improve
their standard of living, Figures adopted the concept of clusters.
This approach was the best solution, as Costa Rica has successfully developed a tourism cluster
based on ecotourism. In addition, the analysis showed that Costa Rica has strengths that can
help promote the development of high-tech clusters.
Does electronics/information technology represent a realistic potential cluster for Costa Rica?
What conditions are necessary for a viable cluster?

Why is Intel interested in a Latin American plant as part of its global strategy?
Important factors influenced Intel`s decision to select Costa Rica were:
1. Costa Rica`s highest GDP per capita.
2. A history of democracy and respect for the rule of law (political stability in the region).
3. A relatively well developed infrastructure in communications, transporatation, roads,
education and other services. Costa Rica had the largest electricity generating capacity in
Central America.
4. A well-educated workforce.
5. A central location for shipping in any direction, with access to coastline on both the
eastern and western shores (Pacific and Atlantic oceans).
6. Low cost structure for land, human resources and services.
7. A transparent economy.
8. A free trade zone, an industrial park launched by the government.
Why would Intel choose Costa Rica?
Intel choose Costa Rica, because this place, from which it could compete globally, where they
weren’t making too much of a sacrifice on the operating environment to get the cost structure
they were looking for.
Given Intel’s decision, what steps should the Costa Rican government take to further develop
the cluster?

What should Intel do to improve Costa Rica as a business location now that it has chosen the
country?
Since Intel brings a lot of knowledge into the country it would be a possibility to have well-
trained employees from the company teaching and training at schools and universities to
spread their knowledge. Another important factor that Intel should consider is the
development of infrastructure. It would be beneficial if the company invests into the expansion
and improvement to ensure sufficient and stable infrastructure also in the future. One aspect is
electricity.