Competitiveness: Its Advantages and Disadvantages

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Introduction

The world economy has entered an era of total competition. Traditional barriers have

begun to fall, new-sophisticated competitors have emerged, and global rivalry increased.

There are many examples around the world where the traditional sources of comparative

advantage are less valuable than initially perceived for the development of a strong,

competitive economy.

The new type of development is one that involves the whole market and all institutions in

the economy. Productivity is that component which creates a competitive advantage rather

than a comparative advantage; the latter only addresses only the supply side of the market

system and ignores demand, historical chance and the role of government. Indeed, the

model of competitive advantage addresses the question of development today.

A nations standard of living is increasingly dependent on the competitiveness of its

economy. Competitiveness is vital if the nations firms are to take advantage of the

opportunities opened up for them in the international arena. World trade and foreign

investment have grown faster than world output in the last several decades.

This paper is essentially divided into three main chapters. The first chapter defines

competitiveness and characterizes the main factors that influence it. The end of the chapter

describes the main stages of the development of competitiveness, proposed by Michael E.

Porter. The second chapter analyses competitiveness from a global perspective. It starts

with explaining the methodology used in international competitiveness rankings, as well as

presenting the main two institutions, which deal with this classification. It then analyzes

the principles of global competitiveness and ends up with a presentation of the methods of

creating competitive advantages, which are based on Stephane Garellis ten golden rules of

competitiveness. The third chapter presents the situation of competitiveness in Moldova. It

describes the main competitive products that Moldova can use in order to enter the orbit of

prosperous countries, as well as presents actions to be taken in order to increase the

productivity at all it levels.

Chapter 1. Competitiveness the Motor of Global Economy

1.1 Defining Competitiveness

Scholars and institutions have been very fruitful in proposing their own definition of

competitiveness. This diversity of opinions is an indicator of the popularity of the subject

but also of its contradicting nature. The US National Competitiveness Council has adapted

the following list of definitions for “competitiveness”: [3, 7]

1.”A field of Economic knowledge, which analyses the facts and policies that shape the

ability of a nation to create and maintain an environment that sustains more value creation

for its enterprises and more prosperity for its people ” (IMDs Competitiveness Yearbook,

2003);

2. “The ability of a country to achieve sustained high rates of growth in GDP per capita”

(World Economic Forum, Global Competitiveness Report, 1996 p.. 19);

3. “Competitiveness is a relative and not absolute. It depends on shareholder and customer

values, financial strength which determines the ability to act and react within the

competitive environment and the potential of people and technology in implementing the

necessary strategic changes. Competitiveness can only be sustained if an appropriate

balance is maintained between these factors which can be of conflicting nature” (Feurer, R.

and Chaharbaghi, K., “Management Decision “, 1994, Vol.32, No.2, pg.49);

4. “A firm is competitive if it can produce products and services of superior quality and

lower costs than its domestic and international competitors. Competitiveness is

synonymous with a firms long-run profit performance and its ability to compensate its

employees and provide superior returns to its owners.” (Report of the Select Committee of

the House of Lords on Overseas Trade, 1985.)

5. “Competitiveness implies elements of productivity, efficiency and profitability. But it is

not an end in itself or a target. It is a powerful means to achieve rising living standards and

increasing social welfare a tool for achieving targets. Globally, by increasing productivity

and efficiency in the context of international specialization, competitiveness provides the

basis for raising peoples earnings in a non-inflationary way” (“Enhancing European

Competitiveness”. First Report to the President of the Commission, the Prime Ministers

and the Heads of State, June 1995);

6. “Competitiveness is the degree to which a nation can, under free trade and fair market

conditions, produce goods and services which meet the test of international markets, while

simultaneously maintaining and expanding the real incomes of its people over the

long-term” (OECD).

As it can be easily observed, there is no consensus concerning the concept of

“competitiveness”. That is why the approach to studying competitiveness is divided into

several levels [1]:

1. National Competitiveness, which is used when the competitiveness of a company and its

performances are compared to firms of the same type from the national economy;

2. Branch Competitiveness, which is analyzed at 2 levels:

a) Branch competitiveness on the internal market, which is higher if firms from one branch

obtain competitive advantages and performances comparing to firms from other branches

of the national economy;

b)Branch competitiveness on the external market, that is considered higher if there exists a

massive and permanent export, including capital, in a big number of countries;

3. Firm competitiveness, represents the capacity of a firm to offer to its customers,

comparing to its competitors, goods and services of a better quality at equal prices or lower

prices that would permit it to realize superior economic performances on a long-run;

4. Product Competitiveness represents the totality of features that assures a product some

advantages in comparison to similar competitors products. When determining the product

competitiveness, there should be a reference to cost, quality and demand for that product.

The main determinant of national competitiveness and branch competitiveness is the

competitive capacity of the enterprises that form the economic branch and countrys

economy. In this way, the levels of competitiveness may be presented as a pyramid. At the

base of this pyramid there will be found the products competitiveness, at the top of the

pyramid national competitiveness [1, p. 141]

For evaluating the national competitiveness there can be used the same methods as

international institutions and organizations, making some adjustments, depending on the

peculiarities of every country and which refers to the following [1]:

1. Determining the evaluation criteria of the factors that influence the economic

environment of a country and establishment of their value in the global appreciation of

competitiveness;

2. Evaluating the established indicators for every country;

3. Ranking the countries according to their position for every group of factors and

estimating the world ranking, for the newly industrialized countries, the assessment is done

aside from the developed ones;

4. Analyzing of competitive advantages and disadvantages for every country, depending on

2 general criteria:

a) The attractiveness of competitive environment;

b) Aggressiveness of the business.

1.2 How is competitiveness of a country influenced?

Competitiveness of a nation depends on the degree of receptivity of its industry to

innovations. There appears a benefit for companies from the existence of a rough internal

competitiveness, as well as from an increase in demand for qualitative products.

Classical economists considered that the economic welfare of a nation results from its

endowment with factors of production. However, in nowadays it is considered that not

only factors of production influence the welfare of a country, but also the ability of the

country to continually create and consolidate welfare.

Nowadays, when the global competitiveness is growing perpetually, the “basis” of

competitiveness is considered to be the creation and assimilation of knowledge. Another

factor that brings its contribution to the increase of competitiveness is represented by the

differences in systems of values, cultures, structure of economic institutions of different

countries.

No nation in the world can be completely competitive in all areas of economy.

The main factors of competitive advantage of a country in a given industry that fructifies

the best of all the system of social determinant of competitiveness are [1]:

1. Endowment with factors of production:

– human resources;

– natural resources;

– technical and market knowledge, capital, infrastructure.

2. Conditions of demand:

– the level and structure of demand;

– the level of complexity of demand;

– the capacity of demand to satisfy needs with anticipative character.

3. Supplying industries and those adjacent by the level of their development and

competitiveness;

4. Strategies and organizational structures of the firms;

5. Competitive environment.

Aside from factors mentioned above, there exist also a lot of effects that governmental

policies exercises on the level of competitiveness, which contribute to the creation and

sustain of competitive advantage by influencing the following categories:

o The qualification of labor force;

o The creation of infrastructure;

o The demand and supply for capital;

o The creation of a competitive framework, etc.

There appeared a lot of problems among the countries of the world concerning the role of

state in economic development, which also implies the competitiveness of a country.

However, the main problem does not consist detaining or not of a role by the state, but in

the content of the attribution of the state. It is important for the state to define and propose

laws and regulations adequate concerning competitiveness, as well as directing the public

investments and economic welfare. The role of the state is determined by choosing

directions and passing economic policies. These directions would mention, as decisive

factors of economic development and insurance of competitiveness, the following:

o The mechanism of creation factors of production;

o Motivation;

o Competition on internal market;

o The improvement of demand;

o The possibility of creating a new business, etc.