Chapter 4

Comparative Advantage, Factor

Endowments, and Competitive Advantage
Also: Michel Porter & his Five Forces
Model
 Chapter 4:
Research Agenda

Gerber, Chapter 4:
• “Innumerable factors determine comparative advantage between countries”
• “The reasons why one country might be more productive than another in a
particular line of production merit analysis” OK…where to start?
• What defines productivity and what is the role of the state in altering
productivity and economic outcomes? In other words…
• How does the state – given factor endowments of that country – change the
comparative and competitive advantage of a country?

4-2
 Heckscher-Ohlin (HO) Trade Model
Factor Endowment Theory

The HO model states that a country’s factors of production (a country’s

endowments of inputs) that are used to make each good give rise to productivity
differences between countries

– Factor abundance versus factor scarcity: When a country enjoys a relative abundance of a factor, the
factor’s relative cost is less than in countries where the factor is relatively scarce
– A country’s comparative advantage lies in the production of goods that use relatively
abundant factors.
Factors: Land, labor, capital and entrepreneurship. e.g. When producing wheat, a
farmer uses inputs like soil, tractor, tools, seeds, water and his/her own services, the
machinery, tools and buildings, used to produce goods and services – depending on the
goods & services produced. Those inputs determine productivity of the farm/firm.

4-3
 Four Primary Factors of Production

Economic resources are the goods or services available to individuals and businesses used to
produce valuable consumer products. The classic economic resources include land, labor
and capital.

Entrepreneurship is also considered an economic resource because individuals are

responsible for creating businesses and moving economic resources in the business
environment. These economic resources are also called the factors of production.

An additional factor that I would add is technology – undeniable massive, transformative,

disruptive impact on the economy. For me, it was the Internet; for you it is AI.

4-4
 Four Primary Factors of Production

Land is the economic resource encompassing natural resources found within a nation’s economy. This
resource includes timber, land, fisheries, farms and other similar natural resources. Land is usually a
limited resource for many economies. Although some natural resources, such as timber, food and animals, are
renewable, the physical land is usually a fixed resource. Nations must carefully use their land resource by
creating a mix of natural and industrial uses. Using land for industrial purposes allows nations to improve the
production processes for turning natural resources into consumer goods.

Labor represents the human capital available to transform raw or national resources into consumer
goods. Human capital includes all able-bodied individuals capable of working in the nation’s economy and
providing various services to other individuals or businesses. This factor of production is a flexible resource
as workers can be allocated to different areas of the economy for producing consumer goods or
services. Human capital can also be improved through training or educating workers to complete technical
functions or business tasks when working with other economic resources.
.

4-5
 Four Factors of Production

Capital has two economic definitions as a factor of production. Capital can represent the monetary resources
companies use to purchase natural resources, land and other capital goods. Monetary resources flow
through a nation’s economy as individuals buy and sell resources to individuals and businesses.

Capital also represents the major physical assets individuals and companies use when producing goods or
services. These assets include buildings, production facilities, equipment, vehicles and other similar items.
Individuals may create their own capital production resources, purchase them from another individual or
business or lease them for a specific amount of time from individuals or other businesses.

Entrepreneurship is considered a factor of production because economic resources can exist in an economy
and not be transformed into consumer goods. Entrepreneurs usually have an idea for creating a valuable good
or service and assume the risk involved with transforming economic resources into consumer products.
Someone must complete the managerial functions of gathering, allocating and distributing economic
resources or consumer products to individuals and other businesses in the economy.

4-6
 Heckscher-Ohlin (HO)
Trade Model

Gerber: “The exports of a capital-

abundant country will be from capital-
intensive industries, and labor-abundant
countries will import such goods,
exporting labor intensive goods in return.”

Gerber: “Competitive pressures within

the H–O model produce this prediction
fairly straightforwardly.”

4-7
 TABLE 4.1 An Example of Factor Abundance

• Canadian capital-labor ratio: Kcan / L can is 2/10 or 1/5

• U.S. capital-labor ratio: Kus / L us is 50/150 or 1/3

• Since the U.S.’s capital-labor ratio is higher, it is the relatively capital abundant
country: (KU.S. / L U.S. > KCan. / LCan. or 1/3 > 1/5 )

4-8
 The Stolper-Samuelson Theorem
(cont.)

• An increase in the price of a good raises the

income earned by factors that are used
intensively in its production
• Conversely, a fall in the price of a good lowers
the income of the factors used intensively in its
production

→ Textbook omits key word: cheap factor

4-9
Heckscher-Ohlin (HO) Trade Model
(Assuming AUTARKY = No trade.)

4-10
Heckscher-Ohlin (HO) Trade Model
(TRADE)

4-11
Heckscher-Ohlin (HO) Trade Model
(TRADE)

4-12
 Heckscher-Ohlin (HO) Trade Model
(cont.)

U.S. is richly endowed with a wide variety of factors: Abundant natural resources,
skilled labor, physical capital, entrepreneurial diversity, etc.
– Expectation: The U.S. will export agricultural products (particularly those requiring
skilled labor & physical capital) and machinery & industrial goods (requiring physical
capital and scientific and engineering skills)
– Result: Major U.S. exports include grain products made with small labor and large capital
inputs; commercial aircraft made with physical capital and skilled labor

→ HO model says that countries export the products which use their abundant and
cheap factors of production and import the products which use the countries'
scarce factors.

4-13
 Trade and Income Distribution
The HO model provides a more sophisticated way to analyze gains and losses
from trade because it drops unrealistic assumptions
– Labor can be divided into categories of different skill levels
– Other types of inputs can be included
– Industries can require different mixes of various inputs

Builds on Ricardo's theory of comparative advantage by predicting patterns of

commerce and production based on the factor endowments of a trading region.

** There is a systematic relationship between the factor endowments of a

country and the winners and losers from trade **
4-14
 Income Distribution Effects of Trade in the
HO Model vs Ricardian model

Ricardian Model: Every individual benefits from trade.

One input, labor.
Labor is homogeneous and moves without friction between sectors.
(Reality: it is not and does not, both unrealistic assumptions)

HO Model: Not every factor of production benefits.

Two inputs, labor and capital
Owners of labor or capital may be harmed, depending on which output declines
once trade begins.

4-15
 Income Distribution Effects of Trade
in the HO Model vs Ricardian
The demand for their services depends on what is produced.
In the bread and steel example, the US increased output of steel which uses more capital, less labor.
The incomes of both factors will be affected.
In our example, the price of steel increased in the US, bread fell. The opposite was true in Canada.

The Stolper-Samuelson Theorem states:

An increase in the price of a good raises the income of the factor used intensively in its production.
A decrease in the price of a good lowers the income of the factor used intensively in its production.

US: Returns on capital increase, wages fall.

Canada: Returns on capital fall, wages rise.
Remember: this is only two goods and generalizing about labor as if it was homogeneous.

4-16
 The Stolper-Samuelson Theorem
(Refinement of HO model)

• An increase in the price of a good raises the income earned by

factors that are used intensively in its production
• Conversely, a fall in the price of a good lowers the income of the
factors used intensively in its production

4-17
 Production possibility frontier (PPF)

The production possibility frontier (PPF) is a curve on a graph that illustrates the possible
quantities that can be produced of two products if both depend upon the same finite resource
for their manufacture. The PPF is also referred to as the production possibility curve.
PPF also plays a crucial role in economics. For example, it can demonstrate that a nation's
economy has reached the highest level of efficiency possible.

4-18
 The Stolper-Samuelson Theorem
(PPC: production possibilities curve)

• An increase in the price of a good raises the

income earned by factors that are used
intensively in its production
• Conversely, a fall in the price of a good lowers
the income of the factors used intensively in its
production

4-19
 The Stolper-Samuelson Theorem

Stolper-Samuelson Theorem: An increase in the price of a good raises the

income earned by factors that are used intensively in its production
• Conversely, a fall in the price of a good lowers the income of the factors used
intensively in its production
• That’s them, below:

4-20
 The Stolper-Samuelson Theorem
(cont.)

Ultimately, the effects on income of an opening of trade depends on the flexibility

of the affected factors e.g. labor
If labor is stuck in bread production and unable to move to making steel, it will be hurt
much worse than when it is flexible and free to move
NAFTA: U.S. avocado producers might not oppose Mexican avocado imports as fiercely as
they do, if they could easily move to growing other goods [Can avocado farmers shift to
papayas or another crop?] (how flexible is the market, the labor force, economies of scale)
– Mexican avocados: $0.25 US: $1.25 But what if US land used to grow avocados was
dedicated to housing developments or industry instead?
– 87% of avocados sold in US come from Mexico --- makes sense.
4-21
 Super Bowl Consumption

• 80 million lbs of avocado shipped Mexico to US in the past two weeks before Super Bowl.
• That is more than California’s annual harvest – image of a “large” avocado from California
next to an “extra large” avocado from Mexico
What cultivar? Haas

4-22
 “Teach a man his avocado varieties and he’ll make
fresh guacamole for a lifetime.” - Confucius

• 140 million pounds of avocado shipped from Mexico to US in the past two
weeks prior to Super Bowl.
• That is more than California’s annual harvest – image of a “large” avocado from
California next to an “extra large” avocado from Mexico

4-23
 How did Mexico come to dominate avocados?
Hecksher Olin : Abundant cheap factors in Mexico

4-24
 How did Mexico come to dominate avocados?
Hecksher Olin → Michoacán factor endowments
Mexican mafia/organized crime intensive

Michoacán in central Mexico. One of the main

reasons for this geographic concentration is the
fruit’s “Goldilocks” attitude: Avocado, an
evergreen tree does not like climate that is too
wet, too dry, too hot, nor too cold; it does not
tolerate cold wind or freezing temperatures.

Michoacán has the best combination of climate

and soil conditions for commercially successful
production and currently accounts for more
than 85% of Mexican avocado production.

4-25
 What food does Mexico export to US?
What about vice-versa, US to Mexico?
Food imports and exports reflect the HO model.

Avocados were not nearly as popular nor widespread as

they are now. Blue line shows the threefold surge in
consumption… because of cheap avocados from
Mexico

4-26
 Review: Resource Curse
Case Study: Comparative Advantage in a
Single Natural Resource (1 of 2)

4-27
 Review: Resource Curse
Comparative Advantage in a Single Natural Resource

• The resource curse: The abundant endowment of a single valuable resource can
crowd out other economic activities.

– Labor and capital become concentrated in the production of the resource because it is so
valuable. Less incentive and harder to develop alternative industries.
– In countries with weak institutions, competition and fighting over the gains from the
resource often hinders economic development.

• The resource curse is not inevitable: see Canada.

• Key determinant: Nature of the state and form of government, cf. Russia, Iran, Saudi
Arabia, autocratic and authoritarian states ensure that control of that resource is in
the hands of a few – the 1%

4-28
 The Stolper-Samuelson Theorem
(cont.)

So what? What are the real-world trade implications of Stolper Samuelson?

Why do certain social groups oppose the opening and liberalization of trade while
other groups strongly lobby for it? NAFTA, TPP – the origins, the debate, and
the reality of these agreements: Which individuals, companies, governments
benefit from the opening of trade, and which do not? Winners & losers.
Which political party initiated and negotiated NAFTA? Who signed and ratified
it? What about USMCA?
Trade unions vs. multi-national corporations (MNCs) in developed countries like
the US – naturally feel differently about trade.
4-29
 Specific Factors Model

• A country’s endowment of a specific factor plays a more critical role than a

factor in the HO model in determining comparative advantage

– When trade opens, incomes rise for the owners of the abundant specific factor – make
sense.
– The income distribution effect on labor is indeterminate, as workers can easily move to
the expanding sector… yet there are many, many others who cannot move. Is the labor
market really flexible?

4-30
 Specific Factors Model
(cont.)

• A country’s endowment of a specific factor plays a more critical role than a

factor in the HO model in determining comparative advantage

– When trade opens, incomes rise for the owners of the abundant specific
factor, intuitive. [ If resource curse, only the 1% benefit. ]

– The income distribution effect on labor is indeterminate, as workers can

move to the expanding sector. Yet there are many, many others who cannot
move. Is the labor market ever truly “flexible”?

4-31
Table 4.3 Major Products in U.S.-Mexico Trade
(ancient 1994 -2008)

4-32
Table 4.3 (cont) Major Products in U.S.-Mexico Trade
billions of dollars and percent growth 1994-2008

4-33
US Trade Partners: Overwhelmingly China, Canada, Mexico
– but look at the imports vs exports

4-34
Table 4.4 Top Ten Chinese Exports to the USA 2008
Ten Years Ago

4-35
 US – PRC Commodity Trade, 2021

•What are the factor endowments of the US? What about for China or India? How do these
endowments give rise to differences in economic growth in each country? How does factor
scarcity impact or limit economic growth?
•Trade: What groups in society benefit from expanded international trade and which do
not? What is the point in discussing HO theory?
•US-China Trade pp. 80-81 – woefully outdated as is the case study on iPhone 3 – I will
update and correct these.
•Migration and trade: What are the demand-pull factors, what are the supply push factors?
How do these determine migration, particularly to the United States, and why is that important?

4-36
 Top Ten PRC Exports to the USA 2023, 2024

Also: percentage of each export category represents of overall exports from China

1. Electronic equipment: US$600.3 bil (26.3% total exports)

2. Machines, engines, pumps: $364.5 billion (16%)
3. Furniture, lighting, signs: $98.7 billion (4.3%)
4. Knit or crochet clothing: $83.8 billion (3.7%)
5. Clothing (not knit or crochet): $78.5 billion (3.4%)
6. Medical, technical equipment: $73.8 billion (3.2%)
7. Plastics: $65.8 billion (2.9%)
8. Vehicles: $62.7 billion (2.7%)
9. Iron or steel products: $60.6 billion (2.7%)
10. Footwear: $53.6 billion (2.3%)

Furniture, lighting and signs were the fastest-growing among the top 10 export categories, up 66.4% for the 5-
year period starting in 2011.

4-37
 Top Ten PRC Exports to the USA 2023

Also: percentage of each export category represents of overall exports from China

1. Electronic equipment: US$600.3 bil (26.3% total exports)

2. Machines, engines, pumps: $364.5 billion (16%)
3. Furniture, lighting, signs: $98.7 billion (4.3%)
4. Knit or crochet clothing: $83.8 billion (3.7%)
5. Clothing (not knit or crochet): $78.5 billion (3.4%)
6. Medical, technical equipment: $73.8 billion (3.2%)
7. Plastics: $65.8 billion (2.9%)
8. Vehicles: $62.7 billion (2.7%)
9. Iron or steel products: $60.6 billion (2.7%)
10. Footwear: $53.6 billion (2.3%)

Furniture, lighting and signs were the fastest-growing among the top 10 export categories, up 66.4% for the 5-
year period starting in 2011.

4-38
 Top Ten USA Exports to the PRC, 2023, 2024

1. Soybeans: $15 billion United States Exports to China Value Year

2. Civilian aircraft: $8.4 billion Mineral fuels, oils, distillation products $19.74B 2023
Oil seed, oleagic fruits, grain, seed, fruits $15.85B 2023
3. Cotton: $3.4 billion
Machinery, nuclear reactors, boilers $13.72B 2023
4. Copper materials: $3 billion Electrical, electronic equipment $11.64B 2023
5. Passenger vehicles (small engines): $3 billion Optical, photo, technical, medical apparatus $11.31B 2023
6. Aluminum materials: $2.4 billion Pharmaceutical products $9.90B 2023
Vehicles other than railway, tramway $8.14B 2023
7. Passenger vehicles (large engines): $2.2 billion
Plastics $7.45B 2023
8. Electronic integrated circuits: $1.7 billion Aircraft, spacecraft $6.81B 2023
9. Corn: $1.3 billion Organic chemicals $4.21B 2023

About one-fifth of US exports to China consist of agricultural products, including soybeans, which are by far
the United States’ largest single export to China. US soybean exports to China totaled almost $15 billion in 2012—
up $4.5 billion from a year earlier. Soybeans are used in a range of products including cooking oil and as animal
feed. In addition, the United States also exports a large amount of cotton ($3.4 billion), corn ($1.3 billion), and
animal hides and skins ($827 million).

4-39
 Top Ten USA Exports to the PRC, 2022

1. Soybeans: $15 billion

2. Civilian aircraft: $8.4 billion
3. Cotton: $3.4 billion
4. Copper materials: $3 billion
5. Passenger vehicles (small engines): $3 billion
6. Aluminum materials: $2.4 billion
7. Passenger vehicles (large engines): $2.2 billion
8. Electronic integrated circuits: $1.7 billion
9. Corn: $1.3 billion

About one-fifth of US exports to China consist of agricultural products, including soybeans, which are by far
the United States’ largest single export to China. US soybean exports to China totaled almost $15 billion in 2012—
up $4.5 billion from a year earlier. Soybeans are used in a range of products including cooking oil and as animal
feed. In addition, the United States also exports a large amount of cotton ($3.4 billion), corn ($1.3 billion), and
animal hides and skins ($827 million).

4-40
 PRC-US Trade
2024

•What are the factor endowments of the US? What about for China or India? How do these
endowments give rise to differences in economic growth in each country? How does factor
scarcity impact or limit economic growth?
•Trade: What groups in society benefit from expanded international trade and which do
not? What is the point in discussing HO theory?
•US-China Trade pp. 80-81 – woefully outdated as is the case study on iPhone 3 – I will
update and correct these.
•Migration and trade: What are the demand-pull factors, what are the supply push factors?
How do these determine migration, particularly to the United States, and why is that important?

4-41
 PRC-US Trade: 2020-2024

US goods exports to China hit an all-time high in 2021: Three largest

categories : oilseeds and grains, semiconductors, and oil and gas.

In 2020, US services exports to China were crushed by the COVID-19

pandemic = COVID-19 in 2020 caused international travel to
plummet, hammering the largest US services export to China, education

China remains an important market for US exporters. As in years past,

China remained the United States’ third-largest goods export
market in 2021, outsized only by USMCA partners Canada and Mexico.

US businesses and farmers across the US benefit from exporting to PRC,

including agricultural goods, semiconductors, oil & gas, education—
supporting US jobs across the country.

4-42
 U.S. – PRC Export Report 2022

In 2021, as global trade continued recovering from the pandemic,

goods exports to China grew by 21 percent to an all-time high of
$149.2 billion.

On the other hand, in 2020, the latest year of services data

available, services exports to China contracted by 33 percent to
$37 billion. This was the lowest amount since 2013, reflecting the
devastating impact of the pandemic on travel and education.

The number of US jobs supported by both goods and services

exports to China stood at just over 858,000 in 2020, roughly 44,000
fewer than in 2019, a 5% drop
4-43
 China still dominates global textiles market
Value of textile exports ($bn, 2023)

As China no longer has its

comparative advantage in
“cheap labor” and countries
diversify away from PRC
manufacturing, which countries
will benefit, which are most
impacted?

Massive increases in output

from India, Vietnam, Cambodia
and Bangladesh.

4-44
 China still dominates global textiles market
Value of textile exports ($bn, 2022)

The world’s manufacturing giant PRC concluded 2022 with

US$175.39 billion revenue in its apparel and accessory exports.

As per official statistics released by General Administration of

Customs, China (GACC), the country upped its exports by 3.20
per cent on Y-o-Y basis.

However, massive demand in the global apparel markets in the

first half of 2022 kept Chinese factories on their toes that
churned out garments day in and day out to serve their clients.

Particularly in December 2022, China clocked US$ 14.29 billion,

as compared to US$ 11.59 billion in November ’22.

4-45
 Case Study: China’s Top 10 Exports to the U.S.

• The product cycle and China’s factor endowment (labor) explain many of PRC’s top exports to
the U.S.

– Standardized production: Smart phones, computers, tablets, telecommunications equipment.

– Labor intensive production: Toys, games, sporting goods, furniture, apparel, footwear, glasses,
backpacks, shoes, think of what Walmart, Target, Costco sells.

Over time, China moves up the ladder of comparative advantage, producing more capital intensive and
skilled labor-intensive goods.
PRC: transformed labor force: – Changing population structure and dynamics → impacts China’s
shift in exported manufactured goods. NO LONGER CHEAP LABOR – but still can find cheap labor

4-46
 Factor Endowment Case Study:
PRC’s most important factor: Labor Force

• India: Most populous nation 1.454 billion (we have .34 billion), PRC next with 1.41 billion.
After US, #3? Indonesia, Nigeria.
• Until 1978: PRC virtually closed to GPE. Initial economic reforms in agriculture, then SEZs
along coast; Chinese diaspora is a source of FDI, particularly to coastal regions
• Resource endowment: Captive labor market of unskilled & semiskilled workers.
Hukou a.k.a. household registration system. (Gerber, p. 79) On that note… a word about
PRC population and labor force
• Labor depends on population thus the demographic structure of the labor force is critical:
Is the population young or aging? How is the labor force changing its impact on economic
growth? Examining populations of US, PRC, India and Japan reveals a great deal.

4-47
 Extensions of the HO Model: The Product Cycle
(Especially relevant to technology)

• The product cycle describes how production migrates from high income,
advanced economies to middle income developing economies.

• Early stage of production: Locate in high income country.

– Need science and engineering skills to develop new product.
– Need high income consumers to try it out, provide feedback.
– R & D, initial production take place in industrial countries
 Extensions of the HO Model: The Product Cycle
Think of Apple – shifting production to PRC

Middle stage of production: Location begins to shift.

– Design and production processes beginning to be standardized.
– Mass production beginning.
– Labor costs matter more.
Late stage of Production: Production moves where labor costs are low. (e.g. PRC – Foxconn)
– The product is completely standardized.
– Presently an increasing share of global output has moved to developing countries where
abundant factor of unskilled/semiskilled labor keeps labor cost low.
Opportunity cost: As manufacturing processes becomes standardized and automated, it can
be performed by unskilled labor – opportunity cost of production in developing countries
lower than in high-income countries
 Extensions of the HO Model: The Product Cycle
in High Income Countries

innovation, stabilization, standardization

Newton 1993 introduced: Guess where it was manufactured?
 Extensions of the HO Model: The Product Cycle
in High Income Countries

Fremont
California

1984

innovation, stabilization, standardization

Newton 1993 introduced: Guess where it was manufactured?
 Extensions of the HO Model: The Product Cycle
in High Income Countries

Apple Newton MessagePad, manufactured by Sharp for Apple, Japan, 1993.

The Apple Newton MessagePad Portable Communications system was released in 1993.
Extensions of the HO Model: The Product Cycle
in High Income Countries
Extensions of the HO Model: The Product Cycle
in High Income Countries
 Extensions of the HO Model: The Product Cycle
in Low Income Countries

“When I started my career, all my flights

were to Japan,” said Tony Fadell, one of the
hardware designers of the iPod and iPhone
at Apple. “Then all my flights went Korea,
then Taiwan, then China.”

(Middle Stage when product design and production techniques begin to stabilize)
 Review: China’s Top 10 Exports to the U.S.

Item Millions of $U.S.

Cell phones and other household goods 64,074
Computers 46,091
Computer accessories 31,181
Toys, games, and sporting goods 25,608
Apparel, textiles, nonwool or cotton 22,957
Telecommunications equipment 22,454
Furniture, household goods, etc. 16,705
Apparel, household goods—cotton 14,413
Footwear 14,294
Other parts and accessories of vehicles 13,392
 Case Study: China’s Top 10 Exports to the U.S.

• The product cycle and China’s labor endowment explain many of

China’s top exports to the U.S.
– Standardized production: Mobile phones, computers, telecommunications
equipment.
– Labor intensive production: toys, games, sporting goods, furniture, apparel,
footwear.

• Over time, China moves up the ladder of comparative advantage,

producing more capital intensive and skilled labor-intensive goods.
 Case Study: China’s Top 10 Exports to the U.S.

• The product cycle and China’s labor endowment explain many of

China’s top exports to the U.S.
– Standardized production: Mobile phones, computers, telecommunications
equipment.
– Labor intensive production: toys, games, sporting goods, furniture, apparel,
footwear.

• Over time, China moves up the ladder of comparative advantage,

producing more capital intensive and skilled labor-intensive goods.
 PRC is a Planned Economy: 14FYP

• Remember: PRC is a planned

economy, and if the plan comes in
under 14th FYP targets, then what?

• Over time, China moves up the

ladder of comparative advantage,
producing more capital intensive
and skilled labor-intensive goods.
 USA Population

• The population of the USA is 345,426,571 as of 2024, US Census Bureau

• The U.S. population is 4.23% of total world population.
• The U.S. ranks number 3 of countries by population.
• Population density in U.S. is 37 per Km2 (93 people per mi2).
• The total land area is 9,147,420 Km2 (3,531,837 sq. miles)
• 82.9 % of the population is urban (281 mil. people in 2017)
• The median age in the United States is 38.1 years.
• http://www.worldometers.info/world-population/us-population/

10-61
 PRC Population

The current population of China is 1,419,321,278,* as of Sept 26, 2024, based on

UNPF (UN Population Fund) 0.23% decrease from 2023 *Larger than the entire population of
China’s population is 17.72% of the total world population. Europe (744 million) and the Americas
China ranks number 2 of all countries by population as of 2023. (1.04 billion), also roughly equivalent
to the population of all the nations in
Population density in China is 152 per Km2 (393 people per mi2). Africa (1.427 billion).
The total land area is 9,388,784 Km2 (3,624,807 sq. miles)
65.1 % of the population is urban (926,375,811 people in 2023)
The median age in China is 39 years.
http://www.worldometers.info/world-population/china-population/

10-62
 India Population

The current population of India is 1,454,109,862 as of Sept 26, 2024, UNPF.

India’s population is 17.76% of total world population. http://www.worldometers.info/world-population/india-population/
India ranks number 1 in the list of countries by population.
Population density in India is 481 per Km2 (1,244 people/mi2).
The total land area is 2,972,892 Km2 (1,147,839 sq. miles)
36.3 % of the population is urban (518,239,122 people in 2023) Which means 66% of
population is non-urban – not necessarily agrarian. India has a huge demographic dividend, still
undergoing its demographic transition.
The median age in India is 28.2 years – birth rates

10-63
 PRC Population

China’s Historical Population: Rapid Growth

Characterized by crises and upheaval, high infant mortality rates, agrarian-based society dependent
upon family as basic unit of society.
China’s Population in 1650: 125 million
China’s Population in 1750: 225 million
China’s Population in 1850: 410 million
China’s Population in 2017: 1.38 billion
China’s Population in 2023: 1.425 billion …with ~17-18 million
Chinese added every year, roughly the population of Netherlands – each year.

10-64
 PRC Meteoric Population Growth

• .

10-65
PRC Population Distribution: Coastal

10-66
 Planned Economy, Planned Births
计划经济，计划生育

State Family Planning Commission: now known as China National Population and Family Planning
Commission under State Council

1979 adoption of One Child Policy following “Wan Xi Shao” “晚、稀、少”政策 Later-Longer-Fewer
Strong enforcement in urban areas, actual implementation varies by location; numerical quotas; demonstrates
the long reach of the state, into the bedroom from Beijing.
“Birth Planning” / One-Child policy: Enforced at provincial level, enforcement varies; some provinces
have relaxed restrictions. Some provinces and cities such as Beijing permit two "only child" parents to
have two children; 55 minority groups exempt in most cases; Rural areas: Families allowed to have two
children if the first child is female or disabled (earthquake victims)

Overall PRC fertility rate (definition: average number of children a woman has over a lifetime) vary from 1.3
to 1.9. (reliability of official metrics always a problem)
KEY POINT: Well below replacement rate of 2.1
10-67
Planned Economy, Planned Births
计划经济，计划生育

10-68
 Planned Birth Policy:
Three impacts

Human rights violations: Reported abuses in its enforcement

include bribery of officials, quotas/planned birth targets →
coercion, forced sterilization, forced abortion, abandoned
children, infanticide, eugenics. (Early stage of one child policy)

Gender ratio imbalance: Patriarchal society, preference for

males; 108:100 in 1981 (close to natural baseline) to 111:100 in
1990 and 121:100 2008. In 2020, China's sex ratio at birth was
118 boys to 100 girls (ultrasound used to determine gender
banned); imbalance remains. Unmarried young men – guang
gun, bare branches – will reach 30 million by 2020.
“Little Emperors”: a generation of 90 million only-children

10-69
 Planned Birth Policy:
Most serious impact = Aging population, higher
dependency ratio, gender ratio imbalance

Aging: "Four-Two-One" Skewed Population

Pyramid: One adult child having to support his/her
two parents & four grandparents. Should personal
savings, pensions, or state welfare fail, senior citizens
would be entirely dependent upon small family for
support; Confucian values.

Dependency Ratio - review

Aging workforce: 2050 roughly one-third of China’s

citizens will be over 60 years old

10-70
Skewed Population Pyramid

10-71
 Below Replacement: PRC 1.6 in 2017 to 1.18 in 2022 1.0 in 2024
India 1950: 5.9 to 2022 2.1 USA: 1.7 (2023)

Calculations from Professor Wei Chen at the

Renmin University of China, based on the data
released by the National Bureau of Statistics data
on Tuesday, put 2022 fertility rate at just 1.08
10-72
 Japan’s Aging Population: 1.3 TFR in 2023
Grave Economic Implications

Half a century ago, India and China stood at a similar point. Their fertility rates – at 5.6 and 5.5 children per
woman – were neck and neck and way more than what is regarded as replacement level fertility of 2.1, at which
the population stabilises. They also faced similar social and developmental challenges as they sought to build their
nations after suffering the devastation of long colonial and imperial humiliations and war.
India’s population growth rate began to decline from 1981, a trend that continues. By 1991, India’s total fertility
rate had declined to 4, falling to 3.3 by 2001 and 2.5 in 2011. Finally, in 2020, India achieved replacement-level
fertility, a significant milestone in its demographic transition.
China, 1979: One-child policy, fining couples who gave birth to two or more children. Additionally, forced
sterilizations and abortions were also carried out in the zeal to achieve lower fertility. The 1980s witnessed
fluctuating fertility rates, mostly hovering slightly above the replacement level of 2.1 births per woman. However,
the early 1990s marked a turning point when fertility dropped below replacement level, and it has continued to
decline since then. In 2022, for the first time in 60 years, China’s population shrunk — and by nearly a
million people.

4-73
 Japan’s Aging Population: 1.3 TFR in 2023
Grave Economic Implications

In 2022: Falling birthrates 1.368, rising mortality rate so ~25% of Japan’s population is over
65, oldest society in the developed/industrialized world, impacting national workforce; 40
percent of the population will be over retirement age by 2050.
Savings Rates Drop Precipitously: Frugal older generation taps into savings 22% of which are
low-yield postal accounts; younger generation (born in 1960s and 1970s) save less, spend
more: Savings rates of 35 year-olds are ~6% whereas current retirees saved 26% when they
were 35. (Older generation: Distrust of stock market, real estate; need to diversify household
assets or else less capital available to fuel domestic economy.)

→ Japan will become net borrower as savings pool shrinks.

4-74
 Japan’s Aging Population: 1.3 TFR in 2023
Grave Economic Implications

In 2022: Falling birthrates 1.368, rising mortality rate so ~25% of Japan’s population is over
65, oldest society in the developed/industrialized world, impacting national workforce; 40
percent of the population will be over retirement age by 2050.
Savings Rates Drop Precipitously: Frugal older generation taps into savings 22% of which are
low-yield postal accounts; younger generation (born in 1960s and 1970s) save less, spend
more: Savings rates of 35 year-olds are ~6% whereas current retirees saved 26% when they
were 35. (Older generation: Distrust of stock market, real estate; need to diversify household
assets or else less capital available to fuel domestic economy.)

→ Japan will become net borrower as savings pool shrinks.

4-75
 Japan’s Aging Population:
Grave Economic Implications

10-76
Population pyramid over time: Japan
Savings rate and Investment Rate

77
Population Pyramid
2022: Aging Japan

78
Population pyramid over time:
China vs. India, Nigeria, USA

79
 U.S. Population and Labor Force

The baby boomers were the largest generation of

Americans, with 76 million children born between
1946 and 1964. They currently range in age from
58 to 77. By the end of 2028, even the youngest
living baby boomers will have reached the
average retirement age of approximately 64.
The next largest generation, millennials,
numbered 62 million births in the U.S. from 1981
to 1996, per the Pew Research Center, but has
grown because of immigration.
Baby boomers, who had been on a steady trend of
working more years, pulled back during the
pandemic. Many retired and haven’t returned.
The U.S. birthrate—the number of births per
1,000 people—has been falling for decades,
declining by about half since the 1960s.
4-80
 U.S. Population and
Labor Force: 67%

The share of people living in the U.S.

who are in the labor force peaked at
67.3% in the first three months of
2000, when the oldest baby boomers
were 54 years old and the youngest
were 35.
It helped that the U.S. was in the
midst of an economic expansion, the
first dot-com boom.

4-81
 U.S. Population and Labor Force Participation Rate

The share of people living in the U.S. who are in

the labor force peaked at 67.3% in the first three
months of 2000, when the oldest baby boomers
were 54 years old and the youngest were 35. It
helped that the U.S. was in the midst of an
economic expansion, the first dot-com boom.
Wages reflect supply and demand. They shot
up during the pandemic recovery and have
recently outpaced inflation, which gives workers
more spending power. Long-term labor
shortages could lead to a faster pace of wage
growth for the foreseeable future.
John Fish, chairman and CEO of
construction contractor Suffolk, said an
aging workforce and fewer young people
entering the industry are a combustible
combination. 4-82
 PRC Population and Labor Force Participation Rate
Demographic Impact of One Child Policy

China labor force participation rate 2000 - 2022

China labor force participation rate for
2022 was 48.33%, a 0.01% increase
from 2021.
China labor force participation rate for
2021 was 48.32%, a 1.58% increase
from 2020.
The drop reflects factors such as higher
youth unemployment (25% - probably
more) due to the pandemic as well as a
shrinking number of people in the
“classic age group of the working-age
population,
4-83
 PRC Population and Labor Force Participation Rate

China labor force participation rate for 2022

was 48.33%, a 0.01% increase from 2021.
China labor force participation rate for 2021
was 48.32%, a 1.58% increase from 2020.
The drop reflects factors such as higher youth
unemployment due to the pandemic as well as
a shrinking number of people in the “classic
age group of the working-age population,

4-84
 PRC Population and
Labor Force Gender Gap

Peterson: China’s rise as a global

economic power over the last few
decades has put women at a
disadvantage and worsened
gender inequality in its
workforce.
It contrasts with other major
economies — such as the U.S.,
Japan and the European Union —
which have made progress over
the years in reducing the gender
gap in their respective labor
markets

4-85
Population pyramid over time:
China vs. India, Nigeria, USA

86
 Factor Endowment case study: PRC Labor Market
One that migrates more than any other

Most extensive internal migration in human history:

First, migrants leave their farmlands for urban areas and/or for non-agricultural
activities;
Second, labor flows are basically directed from the interior to coastal areas,
and/or from central and western regions to eastern areas.
These two features overlap, closely interrelated with PRC’s macro socio-
economic structure

4-87
 PRC Factor Endowment: Labor Market, cont

2022 official estimate of the population of rural migrant workers in China is 295.62
million, comprising more than one-third of the entire working population. Among them,
195.3 million rural migrant workers worked outside of their hometowns for a period over six
months and almost 84.5 million worked within their hometowns for a period over six months.
70 per cent of migrant workers are employed in China’s eastern areas with two thirds of
them working in large or medium cities and half of them moving between different provinces.
Approximately 60 per cent of migrant workers are mainly concentrated in manufacturing
and construction.

Many workers returning home: A slowing economy, trade war, pandemic,

overcapacity. China’s labor force – and factor endowment – is changing.

4-88
 PRC Endowment: Labor Market, cont

2022 official estimate of the population of rural migrant workers in China is

295.62 million, comprising more than one-third of the entire working
population. Among them, 195.3 million rural migrant workers worked outside
of their hometowns for a period over six months and almost 84.5 million
worked within their hometowns for a period over six months.
70 per cent of migrant workers are employed in China’s eastern areas with two thirds of
them working in large or medium cities and half of them moving between different provinces.
Approximately 60 per cent of migrant workers are mainly concentrated in manufacturing
and construction.

Many workers returning home. A slowing economy, trade war, pandemic,

overcapacity. China’s labor force – and factor endowment – is changing.
4-89
 PRC Labor Endowment & Migration:
Labor, China’s factor endowment, changing with massive
political & economic impact

4-90
 Shifting Internal Migration Patterns

• Migrant workers have traditionally gone to

Beijing, Shanghai, Shenzhen and coastal cities.
• In recent years, increasingly more workers head
to the interior: New opportunities opening up
with less competition. In some cities, migrants
nearly outnumber the residents. (cf. Shenzhen,
we will examine as a cluster, SEZ)

4-91
Labor Migration, PRC: Focus on three
macroregions (also top three markets)

4-92
 Hukou 户口(Household Registration): Case study in state
managing labor endowment: Economic apartheid?

• Household registration system called "hukou" divided PRC population into rural and urban
residents – difficult to change one’s hukou; that is precisely the point of the system.
• Under the hukou system, migrant workers can secure temporary residence certificates, a
lengthy process; their employers are obligated to pay large fees to the city government
• When a migrant worker leaves her/his village, s/he also leaves his social benefits behind:
Without an urban hukou permit, a migrant is denied access to subsidized healthcare,
housing, and education that city dwellers enjoy. The workers find jobs in factories,
construction sites, public infrastructure projects, restaurants and households but cannot enjoy
the same privileges as urbanites.
• This attempt at controlling internal migration has changed – higher degree of social mobility
than in the past – but the PRC still stubbornly adheres to it
4-93
 Shifting Internal
Migration Patterns

• Migrant workers have

traditionally gone to Beijing,
Shanghai, Shenzhen and
coastal cities.
• In recent years, increasingly
more workers head to the
interior: New opportunities
opening up with less
competition. In some cities,
migrants nearly outnumber the
residents. (cf. Shenzhen, we
will examine as a cluster, SEZ)
4-94
 Extension of the HO Model:
Offshoring vs Outsourcing: Impact on US and US workers
Outsourcing refers to moving some part of production to another firm, either inside the
home country or outside. (e.g. Villanova outsources payroll, bookstore, etc. to an external entity.

Off-shoring refers to moving some or all of production abroad.

If a firm off-shores but does not outsource, it is working with a foreign affiliate.
All combinations of off-shoring and outsourcing are possible. (e.g. if Villanova outsourced
payroll to an accounting firm in Bangalore, India)

Modern telecommunications and transportation make off-shoring easier today.

Heightens worries about the effects of off-shoring → The loss of U.S. manufacturing jobs.
Technology or IPR theft (non-enforcement of patents, etc.)
Services is next: Medical services, accounting, IT, etc, delivered over the Internet.

4-95
 Extension of the HO Model:
Internationally mobile labor

The HO Model assumes that workers cannot move across international borders.

• In 2019, there were an estimated 231 million international migrants.

– 20 percent were in the U.S.
– Two-thirds were in high income countries.

• In theory, labor inflows can influence comparative advantage by changing the country’s
labor endowment.
– In the U.S. in the 1980s, the inflow of low skilled immigrants from Central America caused
growth in California’s apparel sector.
– U.S. agriculture relies on immigrant workers.
– Immigrants in some countries work mainly in sectors producing non-traded goods—construction,
nursing, etc.

4-96
 Extension of HO Model: Why do people migrate?
Internationally mobile labor factors

• Economic analysis of migration relies on three dominant factors:

• Demand pull factors: Pull migrants in (jobs, higher wages, promises of a
better life, etc.)
• Supply push factors: Push migrants out of their home country (poverty, wars,
persecution, etc.)
• Social networks: Determine where they settle in the receiving country (where
there are family, friends, community members from home).

4-97
Extension of the HO Model:
Internationally mobile labor

4-98
 Extension of the HO Model:
Internationally mobile labor

The industry and location of jobs (kinds of jobs) may be affected by trade.
• Movement along a PPC.
• There may be short run effects on jobs in particular industries.

The overall number of jobs is not necessarily determined by trade; other factors
are far more important. #Role of the State looms large here
• Fiscal and monetary policies.
• Labor market policies.

4-99
 Extension of the HO Model:
Internationally mobile labor
• Manufacturing is the most discussed case.
• Productivity increases reduce the need for labor.
• Services and manufactured goods production expand with income, but more
and more labor ends up in services because its productivity does not rise as fast
as in manufacturing.

• Much more manufacturing production today is exposed to international

competition.
• Growth of China and other emerging economies.
• Transportation and telecommunications revolutions.

4-100
 State management of China’s labor endowment:
HO Model is about factor abundance, labor is critical; see how
the type of manufactured goods for export has shifted in PRC
• The poin

4-101
 Review: Comparative Advantage
and “Competitiveness”
Competitive advantage : HBS Professor Michael Porter
→ Competitive advantage addresses criticisms of comparative advantage theory.
In 1985 M. Porter proposed competitive advantage theory: Both government and businesses
should pursue policies that create high-quality goods to sell at high prices in the market.

Porter contends that productivity growth should be the focus of national strategy. Competitive
advantage: Ubiquitous and natural resources are not necessary for a good economy.

Comparative advantage can lead countries to specialize in exporting primary goods and raw
materials that trap them in low-wage economies. Competitive advantage attempts to
correct for this issue by stressing maximizing scale economies in goods and services that
garner premium prices.
3-102
 Review: Comparative Advantage and
“Competitiveness”

• Competitive advantage : Globalization critics contend that all major developed

countries, including the US and UK, used interventionist, protectionist economic policies in
order to get rich and after doing so, forbid other countries from doing the same.

Porter, Michael E. (1985). Competitive Advantage. Free Press. ISBN 0-684-84146-0.

“The term competitive advantage is the ability gained through attributes and resources to
perform at a higher level than others in the same industry or market”

3-103
 Michael Porter &
Competitive Advantage Theory
• Competitive advantage is defined as the strategic advantage one business entity has over its
rival entities within its competitive industry.
• Porter lists two kinds: cost advantage and differentiation advantage. Cost advantage is
when a business provides the same products and services as its competitors, albeit at a lesser
cost; Differentiation advantage is when a business provides better products and services as
its competitors.
• Theoretically, achieving competitive advantage strengthens and positions a business better
within a given business environment.
• Includes access to natural resources, such as raw materials or a power source, highly skilled
labor, geographic location, access to new technology, etc.

3-104
 Michael Porter’s Five Forces

▪ Developed by HBS professor, Michael Porter:

“Competitive Advantage: Creating and Sustaining
superior Performance”
▪ Extensive framework utilized to assess an industry’s
competitive environment
▪ Useful in determining a company’s positioning and
evaluating its strategy

4-105
 Porter’s Five Critical Factors

▪ Threat of Potential Entrants

▪ Bargaining Power of Buyers
▪ Bargaining Power of Suppliers
▪ Threat of Substitutes
▪ Rivalry Among Competitors
▪ Apply this to: fast food industry, consumer
electronics, retail hypermarts, etc.

4-106
What strategies lead to competitive advantage?

4-107
Porter’s “Five Forces Model”
(as applied to discount retail industry)

4-108
 More Strategic Implications of Five Forces Analysis

• A given industry is ideal when:

– Rivalry is moderate
– Barriers to entry are high
– Good substitutes don’t exist
– Suppliers and customers are in a weak bargaining position (relative to
you)

4-109
 Strategic Implications of
Five Forces Analysis

A given industry is unattractive when:

– Rivalry is strong
– Barriers to entry are low
– Competition from substitutes is strong
– Suppliers and customers have strong bargaining power
(relative to you)

4-110
 Porter’s Value Chain
(well suited for analyzing product/manufacturing firms)

4-111
 Examples of Competitive Advantage

• Skills: Advantage for both a firm or a country; skill set is usually in

the form of manufacturing ability, coding, innovation
• IPR (Trade secrets, Trademarks, Patents Copyrights)
• Strategic Alliances or Partnerships
• First Mover Advantage
• Location, location

4-112
 Examples of Competitive Advantage, continued

First, competitive advantage is, of course, cost.

Many, many companies compete with their competition by lowering their costs
and consequently lowering the price, giving them a huge competitive
advantage. (WalMart sourcing strategy → lower prices of same goods)

4-113
 Examples of Competitive Advantage, cont

Flexibility: Ability of your product to adjust the customers needs.

e.g. Apple’s ability to alter the iPhone to satisfy the market’s needs; product
differentiation, market segmentation, etc.

4-114
 Examples of Competitive Advantage, continued

Last but not least of our competitive advantage examples is delivery. This one is
also separated into different fields.

First one is speed or in other words time of delivery and second one is
reliability of the delivery.

4-115
 Competitive Advantage, continued

Business Plan 101:

Always be prepared to state your competitive advantage succinctly, both in

your strategic plan and when talking to others about your business plan:
What is your value proposition, what you are best at, and why?

4-116
 Competitive Advantage, continued

Competitive advantage theory suggests that states and businesses should pursue
policies that create high-quality goods to sell at high prices in the market.
Porter emphasizes productivity growth as the focus of national strategies.

4-117
Competitive Advantage, continued

Competitive advantage attempts to correct for comparative

advantage by stressing maximizing scale economies in goods and
services that garner premium prices

4-118
 Chapter 4: Review below.
Now please read Chapter 5 – close connection

•What are the factor endowments of the US? What about for China or India? How do these endowments give rise
to differences in economic growth in each country? How does factor scarcity impact or limit economic growth?
•Trade: What groups in society benefit from expanded international trade and which do not? What is the point in
discussing HO theory?
•US-China Trade pp. 80-81 – woefully outdated as is the case study on iPhone 3 –•Migration and trade: What
are the demand-pull factors, what are the supply push factors? How do these determine migration, particularly to
the United States, and why is that important? cf. Biden’s immigration overhaul, its impact on the U.S. economy.
•HO trade theory and SS theorem: I will go over these in class – with examples.
•Demography and political economy: Demographic impact on a crucial economic resource endowment, labor:
Recall aging discussion for ROK, Japan, EU countries. Know what replacement rate is, and why demographic
transition and dependency ratio are critical to understanding political economy for all countries. Nb.: This is not in
your textbook, but it is critical to understanding political economy
• Competitive advantage: Apple’s competitive advantages over Dell, or vice-versa?

4-119
4-120
 Apple & Dell

Apple vs. Dell: What competitive advantages does Apple have over Dell?
Dell gained market share by cost control, controlling the “customer experience”
and was the first company to get direct-PC purchasing right. But: Dell PCs &
laptops are utilitarian, dull boxes, they sure are not Apple.

4-121
 Apple Competitive Advantage

(1) Hardware design: Elegant, ergonomic, aesthetically pleasing - the whole

hand rest on laptops is from Apple.
(2) Good Quality/Rare Recalls: No “version three” nonsense – Apple always
gets it right the first time around, it doesn’t take three tries
(3) Solid, durable hardware: The hinges are functional, robust, practical…like
doors on a Porsche

4-122
 Apple Competitive Advantage
(4) Marketing: They know how to make people excited about their products –
ads don’t discuss features or tech, but instead show how the product is going
to make you life easier and better
(5) Logo is right side up when the top is open – and it even lights up = cool.

4-123
 Apple Competitive Advantage

(6) Brand: According to Forbes, Apple is the World’s most valuable brand
valued at $151B, grew 6% last year. Why?
Sexy: Apples appear in movies, TV : The cool and sexy ones, always an
Apple, nobody on CSI ever uses a Dell nor does Carrie.
(7) Steve Jobs – knew that Apple had to outspend competitors in terms of
innovation, R & D, marketing, MacWorld, vision.

4-124
 Examples of Competitive Advantage, cont

Disruptive Technology: Ability of Apple’s product to predict or forecast

customers’ future needs. (True?)
e.g. Apple’s ability to alter the iPhone to change it up: (1) MacOSX – Unix based,
requires major upgrade; (2) MacBook Air – no CD/DVD drive; (3) 30 pin in
iPhone 5/iPads dropped for Lightning Port; (4) Retina MacBook only one
interface port, USB-C (5) Apple kills the headphone jack on the iPhone
Faster, better, stronger, thinner…meanwhile everyone grumbles until…. they stop
grumbling and suck it up. The outcry fizzles, and in hindsight
is cited as a great idea, a smart move. Agree?

4-125
 Apple: Competitive Advantage: Plan

(8) Strategic Plan: Apple has a truly sustainable business plan which is the
strategic and tactical way by which it uses resources to manufacture and offer
loyal customers premium higher end products than competitors. Like
Samsung, Apple invests heavily in innovation, R & D: 3-4% of net sales

4-126
 Apple : Competitive Advantage, R&D

Apple R&D spend breaks $10B barrier in 2016 after $350M increase in Q4
Apple spent nearly $2.6 billion on research and development operations
during the fourth fiscal quarter of 2016, bringing the company's yearly total
to more than $10 billion for the first time ever, regulatory filings show.
25% increase from 2015 ($8 billion)

4-127
 Apple Competitive Advantage

(9) A protected software ecosystem: Only

Apple devices run iOS. By comparison,
multiple manufacturers produce devices
that use Google Android.
This means that if customers want to remain
within Apple's ecosystem and keep their
digital purchases, they must continue
buying iOS devices. Last year, a survey
found that 78% of iPhone owners "couldn't
imagine" owning a different phone.

4-128
 Apple Competitive Advantage

(10) Money: The company is sitting on $75 billion in cash and, today, is still a
money printing machine, generating over $10B in profits per quarter
(11) Loyalty: Apple Fans. Millions of people will buy whatever Apple sells. A
bigger phone? that’s great innovation, they’ll buy it. A smaller phone? genius.
sold.
(12) Lock-In: Apple virtually forces uses to use iTunes and AppStore. This has
created a very high switching cost. Many users fear they will lose their
music/TV/movie library and purchased applications if they go to another
platform.

4-129
 Apple
weakness?

Apple: Slowly becoming a mobile

smartphone manufacturer, not a
computer company.
All eggs in one basket.
Good and bad – what comes next?

12-130
 iPhone assembly :
PRC still important

Low sales in China would impact Foxconn Technology

Group complex in Zhengzhou where the iPhone is
primarily assembled. The factory employs an estimated
300,000 people—and is the world’s largest contract
manufacturer of electronics. (+1 million working for
Foxconn in China)
Apple still a factor in China despite having less than 7% of
its smartphone market, down from more than 9% a year
ago. But it is a Taiwanese company in PRC – now what?

12-131
 China Smartphone Sales in 2022 Reach Lowest Level in
a Decade; Apple Becomes #2 Brand for First Time

• China’s smartphone sales declined 14%

YoY in 2022 to record their fifth
consecutive year of decline.
• Apple’s sales outperformed the country’s
market in 2022, falling by only 3% YoY.
• Major Android OEMs such as OPPO (-
27% YoY), vivo (-23% YoY) and Xiaomi
(-19% YoY) saw big YoY declines.
• China’s Q4 2022 smartphone sales
declined 15% YoY. All quarters in 2022
saw double-digit YoY sales declines.

In 2022, vivo retained the first spot with a 19.2% market share, followed by
Apple at 18.0% and OPPO at 17.5%. Apple declined 3% YoY in 2022 but
was able to outperform the market to become the #2 brand in China for the
first time for a full year. It also reached its highest-ever quarterly share,
capturing 23.7% of the sales in Q4 2022.
12-132
 iPhone struggling against
PRC manufacturers

Chinese rivals have also been faster to bring some technical

innovations to market, introducing the dual-camera system and
handsets without headphone jacks
Huawei, Oppo, Vivo, Xiaomi – heard of these?

12-133
 iPhone struggling against
PRC manufacturers

Chinese rivals have also been faster to bring some technical

innovations to market, introducing the dual-camera system and
handsets without headphone jacks
Huawei, Oppo, Vivo, Xiaomi – heard of these?

12-134
 iPhone struggling against
PRC manufacturers

Chinese rivals have also been faster to bring some technical

innovations to market, introducing the dual-camera system and
handsets without headphone jacks
Huawei, Oppo, Vivo, Xiaomi – heard of these?

12-135
4-136
 iPhone struggling against
PRC manufacturers

Chinese rivals have also been faster to bring some technical

innovations to market, introducing the dual-camera system and
handsets without headphone jacks
Huawei, Oppo, Vivo, Xiaomi – heard of these?

12-137
4-138
Rwanda 20 Years Later

12-139
 Rwanda Genocide – April-July 1994

• 1994 Rwandan Genocide: Mass murder of an ~800,000 people in Rwanda.

Took place over roughly 100 days (from the assassination of Rwandan
President Juvénal Habyarimana and Burundi (Hutu) President Cyprien
Ntaryamira on April 6 through mid-July).
• As much as 20% of the country's total population perished…including a friend.
How and why did that happen? Genocide in this time should never have
happened.
• 1992-1995: Bosnian War and “ethnic cleansing”

4-140
Rwanda Genocide 29 Years Later:
Tribalism Still Source of Conflict

12-141
 Rwanda 29 Years Later
Also: Armenia, Bosnia, Cambodia

Rwandan Genocide: a genocidal mass slaughter of Tutsi and moderate Hutu in

Rwanda by members of the Hutu majority. During the approximate 100-day
period from April 7, 1994, to mid-July, an estimated 800,000–1,000,000
Rwandans were killed, constituting 20% of the country's total population
and 70% of the Tutsi then living in Rwanda.
• The world watched, the world knew, and the world did nothing. A friend was
lost, a tragedy in and of itself. How could this happen in this day and age?
Compare with Bosnia, Cambodia,…other interventions. Burundi?
• Mercedes Nshimirimana

12-142
 Rwanda 29 Years Later:
Nyarubuye massacre

5,000 people seeking refuge in this church were killed by grenade, machete, rifle, and were burned alive. Most
moved into another building, but among the pews remains jawbones, leg bones, children’s shoes, hairpicks,
scarves and more. Nyarubuye massacre is the name which is given to the killing of an estimated 20,000 civilians
on April 15, 1994 at the Nyarubuye Roman Catholic Churchin Kibungo Province

12-143
 Rwanda 29 Years Later

About 85% of Rwandans are Hutus but the Tutsi minority has long
dominated the country. In 1959, the Hutus overthrew the Tutsi monarchy and
tens of thousands of Tutsis fled to neighboring countries, including Uganda.
A group of Tutsi exiles formed a rebel group, the Rwandan Patriotic Front
(RPF), which invaded Rwanda in 1990 and fighting continued until a 1993-94
peace deal was agreed.

12-144
Rwanda 29 Years Later
“Plus jamais”

12-145
 Now Burundi…another genocide?
Late 2016 - present

Risk of genocide, crimes against humanity in Burundi: UN probe

Burundi's government is behind systematic human rights violations, including executions
and torture, UN investigators said Tuesday, warning of possible crimes against humanity and
the looming risk of "genocide".
Burundi descended into violence in April 2015, over President Pierre Nkurunziza's
controversial decision to run for a third term -- a vote he won in July 2016. Anti-government
protests were brutally quashed and killings and attacks have become a regular feature in the
troubled country as the political crisis grinds on.

12-146
 Burundi versus Rwanda: 2022 Index of
Economic Freedom – Heritage Foundation

Economic Freedom Index is one of many measures – should we believe it? These charts tell us
Rwanda is 20 points above Burundi.
Always be careful with what index, poll, stats, data, etc you use – at all times

12-147
 Impact of genocide on Rwanda GDP
Accuracy and Transparency of Rwandan economic statistics?

12-148
 Protest against Burundi President Pierre
Nkurunziza and his bid for a third term in
Bujumbura, Burundi 2016 - 2019

12-149
Burundi now… is another genocide likely?
September 2016 came close

12-150
Burundi: Political unrest often an ethnic or tribal dispute
Sept 2016 → but by 2024 things have calmed down

12-151
Burundi vs Rwanda
2016-2026

12-152
Burundi now…another genocide?
September 2016

12-153
Rwanda

12-154
 Rwanda 29 Years Later

United Nations Secretary General Ban Ki-Moon said the ceremony was a chance
to remind the world to do all it could to ensure such crimes never happened again.
The UN was heavily criticized in 1994 for not doing more to stop the killings.

"The scale of the brutality in Rwanda still shocks, many years later: an average of
10,000 deaths per day, day after day, for three months," Ban said in a
statement ahead of commemorations.

Complete Failure of the international system; European, US, UN response was

both slow and inadequate and resulted in tragedy. And a friend was lost.

12-155
 Burundi & Rwanda comparison

United Nations Secretary General Ban Ki-Moon said the ceremony was a chance
to remind the world to do all it could to ensure such crimes never happened again.
The UN was heavily criticized in 1994 for not doing more to stop the killings.

"The scale of the brutality in Rwanda still shocks, many years later: an average of
10,000 deaths per day, day after day, for three months," Ban said in a
statement ahead of commemorations.

Complete Failure of the international system; European, US, UN response was

both slow and inadequate and resulted in tragedy. And a friend was lost.

12-156
 Burundi & Rwanda comparison

United Nations Secretary General Ban Ki-Moon said the ceremony was a chance
to remind the world to do all it could to ensure such crimes never happened again.
The UN was heavily criticized in 1994 for not doing more to stop the killings.

"The scale of the brutality in Rwanda still shocks, many years later: an average of
10,000 deaths per day, day after day, for three months," Ban said in a
statement ahead of commemorations.

Complete Failure of the international system; European, US, UN response was

both slow and inadequate and resulted in tragedy. And a friend was lost.

12-157
 Burundi & Rwanda comparison

United Nations Secretary General Ban Ki-Moon said the ceremony was a chance
to remind the world to do all it could to ensure such crimes never happened again.
The UN was heavily criticized in 1994 for not doing more to stop the killings.

"The scale of the brutality in Rwanda still shocks, many years later: an average of
10,000 deaths per day, day after day, for three months," Ban said in a
statement ahead of commemorations.

Complete Failure of the international system; European, US, UN response was

both slow and inadequate and resulted in tragedy. And a friend was lost.

12-158
 Burundi & Rwanda comparison

United Nations Secretary General Ban Ki-Moon said the ceremony was a chance
to remind the world to do all it could to ensure such crimes never happened again.
The UN was heavily criticized in 1994 for not doing more to stop the killings.

"The scale of the brutality in Rwanda still shocks, many years later: an average of
10,000 deaths per day, day after day, for three months," Ban said in a
statement ahead of commemorations.

Complete Failure of the international system; European, US, UN response was

both slow and inadequate and resulted in tragedy. And a friend was lost.

12-159
Rwanda 29 Years Later

12-160
 Rwanda 29 Years Later

United Nations Secretary General Ban Ki-Moon said it was a chance to remind the
world to do all it could to ensure such crimes never happened again. The UN was
heavily criticized in 1994 for not doing more to stop the killings.

"The scale of the brutality in Rwanda still shocks, many years later: an average of
10,000 deaths per day, day after day, for three months," Ban said in a
statement ahead of commemorations.

Complete Failure of the international system; European, US, UN response was

both slow and inadequate and resulted in tragedy. And a dear friend was lost.

12-161
 Rwanda 29 Years Later
No democracy. But the economy…

Solution: Paul Kagame, leader of Rwandan Patriotic Front (RPF),

established control; still in power - increasingly despotic yet the economy .

Where does it go from here? Succession?

One authoritarian swapped for another authoritarian?
2020 Update: Paul Rusesabagina arrest

How does peaceful transition take place?

Does democracy have a role in Africa?
Are there alternative economic / political models?
How economic growth correlate with governance?

12-162
 Hotel Rwanda
29 Years Later
Paul Rusesabagina is a Rwandan humanitarian and activist
who, while working as a manager at the Hôtel des Mille
Collines in Kigali, hid and protected 1,268 Hutu and
Tutsi refugees during the Rwandan genocide. None of
these refugees were hurt or killed during the attacks.

Paul Rusesabagina has homes in Brussels, Belgium and

San Antonio, Texas. Rusesabagina is Belgian citizen and
has US green card. On 31 August 2020, he was arrested
in Kigali after a trip to Dubai on "terrorism charges",
being accused of supporting opposition parties.
Rusesabagina and his family deny all charges.

12-163
 Reuters, 15 March 2023: “Kagame looking at 'resolving' detention
of 'Hotel Rwanda' hero Rusesabagina”

NAIROBI, March 13 (Reuters) - Rwandan President Paul

Kagame on Monday said there were discussions about
"resolving" the fate of Paul Rusesabagina, who was portrayed
as a hero in the Hollywood film "Hotel Rwanda" and is serving
a 25-year sentence in Rwanda on terrorism charges.

Rusesabagina was sentenced in September 2021 over his ties to

an organization opposed to Kagame's rule. He denied all the
charges and refused to take part in the trial that he and his
supporters called a political sham.

12-164
 cf. Michael Porter PDF:
Competitive Advantage in Rwanda

• Singapore =a role model for Rwanda and its Vision 2020 drive is to
emulate Singapore; Rwanda refers to itself as “the Singapore of
Africa” and considers himself as the Lee Kwan Yew of Rwanda

• After the passing of LKY, when President Paul Kagame of Rwanda

was asked whether he regarded the former as a role model, he said:
“Evidently an inspiration. A great man, driven by great principles
and who achieved great things with a small country. Lee Kuan Yew
has transformed Singapore and the lives of his people. This is also
what we are doing in Rwanda.”

• The “Development first, Democracy later” Singapore model has

served as a governance standard for a number of African countries
including Nigeria, Rwanda and Ethiopia.

4-165
 Please read: Michael Porter PDF:
Competitive Advantage in Rwanda, Singapore.

Lee has argued that Western-style democracy might not be suitable for all nations, and that “young” countries
need stability and economic development before they can afford the luxuries of (liberal) democracy and (Western-
style) personal liberties.

This authoritarian, yet economically successful, style of governance appeals to African leaders. Singapore has
successfully managed its stability and economic development with the gradual relaxation on (liberal) democracy
and (responsible) freedom of speech.

Rwanda seems to have little in common with Singapore. Rwanda is a land-locked state in the mountains of Central
Africa, while Singapore is an island situated on a busy sea lane, naturally predisposed to trading. Entrepot

Rwanda embraced English (in place of French) and the government officials and entrepreneurs display a distinctly
Singaporean attitude and vigour as they tout their country’s business-friendly philosophy. Rwanda has been
successful in curbing corruption and cultivating the rule of law.
4-166
 cf. Michael Porter PDF:
Competitive Advantage in Rwanda, Singapore.

Yet Kagame’s remark also begs a larger question: Why would an African leader seize upon a Singaporean as his model? The
peculiar combination of rigid autocracy and free-market capitalism that Lee crafted for his country is often regarded as
something deeply specific to East Asia. Lee himself sometimes alluded to the centrality of what he liked to call “Asian Values,”
a Confucian-inflected mindset based on respect for education, entrepreneurship, and authority. Leaders from the region, ranging
from China’s Deng Xiaoping to Malaysia’s Mahathir Mohamad, have been among his diehard fans.

Kagame doesn’t seem like a natural member of the club. Nestled in the mountains of Central Africa, on the surface Rwanda
has little in common with the country that Lee turned into one of the world’s great business powerhouses. Singapore is an island
on one of the world’s busiest sea lanes, its economy naturally predisposed to trade; Rwanda is a remote, land-locked state
with little in the way of obvious natural advantages.
Lee enjoyed an exceptionally long tenure as his country’s top politician — first as prime minister (1959-1990), then as senior
minister (1990-2004), and finally as minister mentor (2004-2011). Kagame’s fulsome praise for the Singaporean offers a
highly suggestive hint about his own intentions.

4-167
Michael E. Porter - Lee
Kuan Yew
School of Public Policy,
NUS - Singapore

4-168
 cf. Michael Porter PDF:
Competitive Advantage in
Rwanda

4-169