During the period of economic crisis, the issue of national competitiveness is a viral topic for many businesses. The Economist discusses this topic in details paying attention to current economic conditions and prospects. The reporters see competitiveness as an activity greatly supplied of cheap labor. Among defective arguments are those that claim that competitiveness is determent by government policies, such as targeting, protection, import promotion and subsidies. Another popular explanation of national competitiveness lies in dissimilarity of management practice. Problem with this definition is distinctive approach applied in specific industries, still another thing that may not be left behind in debate that plays significant role is size of the companies. Since all definitions are odd and disproved by conflicting evidences of countries whose national competitiveness is referred to, there is question that needed to be answered.
The emerging need for more meaningful concept of competitiveness enforced Michael E. Porter to define it in more genuine way. Purposeful concept according to Porter would be national level of productivity. He claims that valid definition on the “competitiveness” on the national level cannot be done when we observe the whole economy; instead he urges that we must focus on specific industry and interpret determents of productivity and productivity growth rate. Main reason for his stand point lies in fact that it is hard for nations to be competitive on national level, or to say that no state can compete in all industries Competitiveness has to be created and sustained on local level before elevating it on national level (Porter 25).
It must be emphasized that focus on national level does not entail that government at any level has supreme role for creating competitive environment. It is companies that throughout competition in local market enforce one another to innovate and find new ways for satisfying costumer’s needs. Role of the government may not be neglected since elementary role is to provide business enabling environment, thus hereafter more will be discussed about governmental impact on business environment and competitiveness (Porter 43). Role of the productivity is to define living standard, where nations that can produce high level of goods and services can enjoy high living standard. Physical capital represents all nonhuman asset made by humans, tools and equipments, and infrastructure which are used to produce goods and services. Quality and advancement physical capital, or just capita, stipulates quality of products and services, thus nations with higher living standard tend to have sophisticated equipment which allows them to produce at higher volume requesting better price.
Natural resources can take two forms: renewable and nonrenewable. Forest would be most obvious example of renewable natural resources where they regenerate after exploitation. On the other hand gas and oil resources are nonrenewable since limited supply. Although natural resources are important for high living standard, Japanese case present’s role of natural resources is not substantial, since their high living standard rely on trade of manufactured goods, in spite the fact that all inputs are imported. Technological knowledge is a fourth determinant of productivity and entails realizing best possible ways to produce goods and services. It is closely related to human capital but there is chief difference. Technological knowledge refers to application of knowledge to the practical reason of human life, thus quality of education facilitates societies understanding for most beneficial output. On the other hand, human capital is quantity of affordable knowledge absorbed by the population (Porter 76). Eventually, as international market opportunities expand, foreign investments increase, profits expand, and the rate of growth of international markets becomes greater than domestic market opportunities, so the competitive focus changes. In this case, international markets are seen as an integral part of the business system, since they affect fundamental strategies, plans, and organizations, and generate a large proportion of total profits.
Determinates of national competitiveness advantage are presented in Porters diamonds system, theory that emerged as a consequence of the research done by Porter and his associates in ten important trading states. They conducted a four-year study in order to investigate why nations gain the competitive advantage in particular industries. Porter foundation of competitiveness is based on productivity of national economy and it is underlying source of national prosperity (Porter 87). What defines national environment in which companies are born and learn how to compete are four attributes:
- Factor conditions: The situation in the country regarding production factors, such as skilful labor, infrastructure and all necessary for competition in domestic industry.
- Demand conditions: The conditions in a country that determine how companies are established, coordinated, administrated and that determine the characteristics of domestic competition (Porter 87).
If home environment is not dynamic and does not force companies to innovate and invest, it cannot be expected that firms’ performance internationally be successful. Four determinants stimulate international firms to enter or stay away from market (Porter 191). To be effective, international marketing requires more than a consideration of corporate effort alone. It needs an integrated plan that takes into account both government policy and the competitive position of participating American businesses. Common markets achieve economies in the social, economic, and even political policies of member countries by pooling resources, technology and markets. In Europe, the development of homogeneous conditions within the Common Market is said to spring from the harmonization of objectives. Yet many problems exist, and common markets do not necessarily result in homogeneous product needs.
In sum, international economic factors determinate the flow of trade, so national export depends on how well they are used. This standpoint is vital since countries despite referred forces enjoy growing living standard. This premise is refutable since great number of states prospered with high labor wages. Goal of competitiveness on the national level is creating the right rules for business environment so the productivity can grow. Growing rate of productivity shifts national prosperity as well living standard. Government create business environment, but companies create prosperity; this is the essence of the government, they are not direct players, firms are and they create productivity and rise productivity which means that they create nations wealth, not government. Competitiveness is not position of the country in the global market, but the position of the economy on the global scale. This is the biggest concern for every state, how to provide higher living standard for its citizens, how to attract and support business development. Everything matters, but as stated before microeconomics environment carry the biggest burden, if situation on domestic market is not as should be, nation cannot expect to gain share of the world market. If government is not creating and supporting healthy competition among rivals, it is not to be expected that development of private enterprises to grow and prosper.
Porter, Michael. Competitive Advantage of nations. Free Press; 1 edition, 1998.