Fundamentals of Competitiveness - Proposed updated definition
Countries shape the environment in which enterprises create value. Governments influence competitiveness through legislation and institutional frameworks. At the same time, contextual elements such as technological infrastructure can limit competitiveness. Business efficiency greatly contributes to competitiveness, and economic performance also plays a determinant role. While there may be no linear causality among these elements, they can create a "virtuous cycle" in which one factor feeds into – and strengthens – others. The task then is to identify an effective outcome of these interactions in order to offer a more concrete way to measure competitiveness.
We thus propose an updated definition of competitiveness – "the ability of a country to facilitate an environment in which enterprises can generate sustainable value" – which meets that need. In applying the definition, we propose to measure sustainable, or long-term, value creation in terms of two elements: the long-term profitability of enterprises and their job-creation levels during the same period.
Economic activity and environmental performance are interconnected. Long-term profitability requires that the environment suffer as little as possible from economic activities, otherwise achieving profitability could be detrimental to competitiveness. Job-creation levels could lead to the job satisfaction of the workforce if employment conditions are favorable, by providing, for example, access to continuous training. Those levels then feed into long-term profitability by increasing performance and ultimately the quality of life of employees.
This definition approaches the sustainability of competitiveness through its outcome: sustainable value creation. Sustainable value creation is "the capacity of enterprises to remain profitable over time while minimizing the environmental impact of their activities and providing an organizational context in which their workforce thrives".