Defining International Competitiveness

International CompetitivenessInternational competitiveness can be defined as a process in which higher levels of competitiveness are achieved at different levels, that is, at firm, regional and national levels. As such, competitiveness becomes international when it pertains to two or more countries. Such process is captured by definitions of competitiveness which move from a general perspective to more specific understandings at the firm and country levels. There are several definitions of competitiveness that must be considered before one can build a particular understanding of international competitiveness.

Efficiency and Effectiveness

Buckley et al (1988) develop a general perspective about the strategic choices that underline international competitiveness and thus argue that competitiveness includes "efficiency (reaching goals at the lowest possible cost) and effectiveness (having the right goals). It is this choice of industrial goals which is crucial. Competitiveness includes both the ends and the means toward those ends."International competitiveness, thus, can be understood as the balance between efficiency and effectiveness in the economic realm. This raises the questions about the different levels of competitiveness, which level—firm, region, country—is the basis of international competitiveness?

Competitiveness of an enterprise

Others build an understanding of competitiveness at the firm-level. For example, the Report of the Select Committee of the House of Lords on Overseas Trade (Low, 1985) focuses on the competitiveness of enterprises. According to the Committee "competitiveness is synonymous with a firm's long-run profit performance and its ability to compensate its employees and provide superior returns to its owners." For Feurer and Chaharbaghi (1994), competitiveness "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." Feurer and Chaharbaghi go on to state that "competitiveness can only be sustained if an appropriate balance is maintained between these factors which can be of conflicting nature."

National Competitiveness

International CompetitivenessScott and Lodge (1985), move the focus of competitiveness to the country level proposing that competitiveness is a "country's ability to create, produce, distribute and/or service products in international trade while earning rising returns on its resources." Others put more emphasis on the economic structure of countries. For the OECD (1992), "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 income of its people over the long-term." Such understanding brings to the fore a proposition that competitiveness is embedded in the type of economic system, in this case, a free-market economy. The US Competitiveness Policy Council (1992) adopt the same line of thought and defines competitiveness as "the ability to produce goods and services that meet the test of international markets while citizens earn a standard of living that is both rising and sustainable over the long-run."

What is the outcome?

The competitiveness Advisory Group (1995) proposes that competitiveness entails "elements of productivity, efficiency, and profitability." Competitiveness, however, "is not an end in itself or a target... [but] a powerful means to achieve rising living standards and increasing social welfare- a tool for achieving targets."Accordingly, international competitiveness is achieved, "by increasing productivity and efficiency in the context of international specialization, [this is so because] competitiveness provides the basis for raising peoples' earnings in a non-inflationary way." In short, as the World Competitiveness Yearbook (IMD World Competitiveness Center, 2014) highlights, prosperity is the fundamental outcome of international competitiveness.

Considering the above definitions, and at the risks of oversimplifying the concept, one can argue that as each "micro" unit of competitiveness (e.g., firms) reaches advanced levels of competitiveness, the process moves to higher or more "macro" units (e.g., countries) which eventually becomes international competitiveness.

Recommended reading

Buckley, P. J., Pass, C. L., & Prescott, K. (1988). Measures of international competitiveness: A critical survey. Journal of marketing management, 4(2), 175-200.

Competitiveness Advisory Group—Ciampi Group (1995). "Enhancing European Competitiveness". First report to the President of the Commission, the Prime Ministers and the Heads of State.

Feurer, R., & Chaharbaghi, K. (1994). Defining competitiveness: a holistic approach. Management Decision, 32(2), 49-58.

IMD World Competitiveness Center (2014). IMD World Competitiveness Yearbook 2014. Lausanne: IMD World Competitiveness Center.

Low, T. (1985). Report of the Select Committee of the House of Lords on Overseas Trade. London: H.M.S.O.

OECD (1992). Technology and the Economy: The Key Relationships. Paris: OECD.

Scott, B. R., & Lodge, G. C. (1985).US competitiveness in the world economy. The International Executive, 27(1), 26-26.

US Competitiveness Policy Council. (1992). "Building a competitive America."The First Report to the President and Congress, Competitiveness Policy Council, Washington, D.C.

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