Competitiveness


Competitiveness

Competitiveness is a comparative concept of the ability and performance of a firm, sub-sector or country to sell and supply goods and/or services in a given market. Although widely used in economics and business management, the usefulness of the concept, particularly in the context of national competitiveness, is vigorously disputed by economists, such as Paul Krugman.[1]

The term may also be applied to markets, where it is used to refer to the extent to which the market structure may be regarded as perfectly competitive. This usage has nothing to do with the extent to which individual firms are "competitive'.

Contents

Firm competitiveness

Empirical observation confirms that resources (capital, labor, technology) and talent tend to concentrate geographically (Easterly and Levine 2002). This result reflects the fact that firms are embedded in inter-firm relationships with networks of suppliers, buyers and even competitors that help them to gain competitive advantages in the sale of its products and services. While arms-length market relationships do provide these benefits, at times there are externalities that arise from linkages among firms in a geographic area or in a specific industry (textiles, leather goods, silicon chips) that cannot be captured or fostered by markets alone. The process of “clusterization,” the creation of “value chains,” or “industrial districts” are models that highlight the advantages of networks.

Within capitalist economic systems, the drive of enterprises is to maintain and improve their own competitiveness, this practically pertains to business sectors.

National Competitiveness

Global Competitiveness Index (2008-2009): competitiveness is an important determinant for the well-being of states in an international trade environment.

In recent years, the concept of competitiveness has emerged as a new paradigm in economic development. Competitiveness captures the awareness of both the limitations and challenges posed by global competition, at a time when effective government action is constrained by budgetary constraints and the private sector faces significant barriers to competing in domestic and international markets. The Global Competitiveness Report of the World Economic Forum defines competitiveness as "the set of institutions, policies, and factors that determine the level of productivity of a country".[2]

The term is also used to refer in a broader sense to the economic competitiveness of countries, regions or cities. Recently, countries are increasingly looking at their competitiveness on global markets. Ireland (1997), Saudi Arabia (2000), Greece (2003), Croatia (2004), Bahrain (2005), the Philippines (2006), Guyana and the Dominican Republic are just some examples of countries that have advisory bodies or special government agencies that tackle competitiveness issues. Even regions or cities, such as Dubai or the Basque Country, are considering the establishment of such a body.

The institutional model applied in the case of National Competitiveness Programs (NCP) varies from country to country, however, there are some common features. The leadership structure of NCPs relies on strong support from the highest level of political authority. High-level support provides credibility with the appropriate actors in the private sector. Usually, the council or governing body will have a designated public sector leader (president, vice-president or minister) and a co-president drawn from the private sector. Notwithstanding the public sector’s role in strategy formulation, oversight, and implementation, national competitiveness programs should have strong, dynamic leadership from the private sector at all levels – national, local and firm. From the outset, the program must provide a clear diagnostic of the problems facing the economy and a compelling vision that appeals to a broad set of actors who are willing to seek change and implement an outward-oriented growth strategy. Finally, most programs share a common view on the importance of networks of firms or “clusters” as an organizing principal for collective action. Based on a bottom-up approach, programs that support the association among private business leadership, civil society organizations, public institutions and political leadership can better identify barriers to competitiveness; develop joint-decisions on strategic policies and investments; and yield better results in implementation.

National competitiveness is said to be particularly important for small open economies, which rely on trade, and typically foreign direct investment, to provide the scale necessary for productivity increases to drive increases in living standards. The Irish National Competitiveness Council uses a Competitiveness Pyramid structure to simplify the factors that affect national competitiveness. It distinguishes in particular between policy inputs in relation to the business environment, the physical infrastructure and the knowledge infrastructure and the essential conditions of competitiveness that good policy inputs create, including business performance metrics, productivity, labour supply and prices/costs for business.

Competitiveness is important for any economy that must rely on international trade to balance import of energy and raw materials. The European Union (EU) has enshrined industrial research and technological development (R&D) in her Treaty in order to become more competitive. In 2009, €12 billion of the EU budget [3](totalling €133.8 billion) will go on projects to boost Europe's competitiveness. The way for the EU to face competitiveness is to invest in education, research, innovation and technological infrastructures.[4][5]

The International Economic Development Council (IEDC) [6] in Washington, D.C. published the "Innovation Agenda: A Policy Statement on American Competitiveness". This paper summarizes the ideas expressed at the 2007 IEDC Federal Forum and provides policy recommendations for both economic developers and federal policy makers that aim to ensure America remains globally competitive in light of current domestic and international challenges.[7]

International comparisons of national competitiveness are conducted by the World Economic Forum, in its Global Competitiveness Report, and the Institute for Management Development,[8] in its World Competitiveness Yearbook.[9]

Scholarly analyses of national competitiveness have largely been qualitatively descriptive.[10] Systematic efforts by academics to define meaningfully and to quantitatively analyze national competitiveness have been made,[11] with the determinants of national competitiveness econometrically modeled.[12]

A US government sponsored program under the Reagan administration called Project Socrates, was initiatied to, 1) determine why US competitiveness was declinning, 2) create a solution to restore US competitiveness. The Socrates Team headed by Michael Sekora, a physicist, built an all-source intelligence system to research all competitiveness of mankind from the beginning of time. The research resulted in ten findings which served as the framework for the "Socrates Competitive Strategy System". Among the ten finding on competitiveness was that 'the source of all competitive advantage is the ability to access and utilize technology to satisfy one or more customer needs better than competitors, where technology is defined as any use of science to achieve a function". [13]

Criticism

Krugman (1994) argues that "As a practical matter, however, the doctrine of 'competitiveness' is flatly wrong. The world's leading nations are not, to any important degree, in economic competition with each other." As Krugman notes, national economic welfare is determined primarily by productivity in both traded and non-traded sectors of the economy.[1]

If the concept of national competitiveness has any substantive meaning it must reside in the factors about a nation that facilitate productivity, and alongside criticism of nebulous and erroneous conceptions of national competitiveness systematic and rigorous attempts like Thompson’s [11] need to be elaborated.

See also

References

  1. ^ a b http://www.foreignaffairs.org/19940301faessay5094/paul-krugman/competitiveness-a-dangerous-obsession.html
  2. ^ World Economic Forum, The Global Competitiveness Report 2009-2010, p. 3
  3. ^ EU Budget 2009: gearing up for economic recovery
  4. ^ Muldur, U., et al., “A New Deal for an Effective European Research Policy,” Springer 2006 ISBN 978-1-4020-5550-8 [1]
  5. ^ Stajano, A. "Research, Quality, Competitiveness. EU Technology Policy fro the Knowledge-based Society," Springer 2009 ISBN 978-0-387-79264-4 [2]
  6. ^ http://www.iedconline.org
  7. ^ http://www.iedconline.org/Downloads/IEDC_Innovation_Agenda.pdf
  8. ^ http://www.imd.ch
  9. ^ http://www.imd.ch/wcy
  10. ^ Porter M E, 1990, The Competitive Advantage of Nations London: Macmillan
  11. ^ a b Thompson, E R, 2003. A grounded approach to identifying national competitive advantage, Environment and Planning A, 35, 631-657.
  12. ^ Thompson, E. R. 2004. National competitiveness: A question of cost conditions or institutional circumstances? British Journal of Management, 15(3): 197-218.
  13. ^ Smith, Esther (1988-05). "DoD Unveils Competitive Tool: Project Socrates Offers Valuable Analysis". Washington Technology. 

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