Question

What is meant by international competitiveness? How does this concept apply to a firm, an industry, and a nation?

Short answer

International competitiveness is a country, industry, or firm's ability to effectively compete in the global market. For firms, this involves efficiency, quality or uniqueness in services and goods. For industries, it is about collective competitiveness, shaped by industry structures, infrastructure, workforce skill, etc. For a nation, it involves creating a supportive environment for its firms and industries with macroeconomic stability, quality institutions, advanced technology, and trade openness.

Step-by-step solution

Defining International Competitiveness

International competitiveness refers to the ability of a country, industry, or a firm to produce goods and services which meet the test of international markets, while simultaneously maintaining and expanding the real incomes of its people over the longer-term.

Applying the concept to a firm

For a firm, this means being able to produce goods or services at lower costs, superior quality, or through offering something unique to the market compared to international competitors. This can involve aspects such as research and development, efficiency, managerial expertise, or brand reputation.

Applying the concept to an industry

For an industry, competitiveness involves the collective ability of its firms to compete internationally. This can be driven by factors like industry systems, infrastructure, collective investment in research, skills of the workforce, and access to suppliers and resources.

Applying the concept to a nation

For a nation, competitiveness is about how the country supports its firms and industries to compete on the global stage. This involves macroeconomic stability, the state of its institutions and infrastructure, technological advancement, quality of education, labour market efficiency, and openness to trade and investment.

Key concepts

Global Markets

Global markets refer to international arenas where goods and services from different countries are bought and sold. Companies or countries participating in these markets aim to provide competitive, high-quality products that can satisfy the diverse needs of consumers worldwide.
In global markets, firms must consider cultural preferences, regulatory standards, and economic conditions across different regions. Being successful in these markets often requires:

• Adapting products to meet local tastes and requirements
• Building strong distribution networks
• Understanding international pricing strategies

Companies that excel at navigating these factors can enhance their international competitiveness, serving more customers and achieving higher profits.

Economic Growth

Economic growth is the increase in the production and consumption of goods and services in an economy over time. It's crucial for improving living standards and creating jobs. Economic growth is measured by the rise in a country's Gross Domestic Product (GDP).
Key drivers of economic growth include:

• Investment in physical capital such as machinery and infrastructure
• Advancement in technology, which improves efficiency and productivity


• Enhancing human capital through education and training

Consistent economic growth allows a country or firm to maintain or increase its international competitiveness by ensuring resources are optimally used to produce and offer superior products.

Competitive Advantage

Competitive advantage is what sets a business apart from its rivals, making it more appealing to consumers. This advantage can come from various factors and doesn't necessarily require the product or service to be the lowest in price.
Here are some common sources of competitive advantage:

• Cost Leadership: Offering products at a lower price point through efficient operations.


• Product Differentiation: Unique product features or higher quality that attract consumers.
• Brand Reputation: Strong brand identity often generates customer loyalty.
• Innovative Technology: Superior technology can quicken processes and enhance product features.

For firms and nations to maintain international competitiveness, leveraging these advantages is crucial, as it directly influences their performance in global markets.

Macroeconomic Stability

Macroeconomic stability refers to the overall health of an economy, characterized by the steady growth of GDP, low inflation, and manageable levels of unemployment. A stable macroeconomic environment allows businesses and consumers to make long-term plans since they are less worried about economic volatility. To achieve macroeconomic stability, several aspects need attention:

• Fiscal Policy: Government use of revenue collection and expenditure to influence the economy.
• Monetary Policy: Central banks manage the supply of money, often targeting inflation or interest rates.
• Sound Financial System: Ensures banks and financial institutions operate smoothly.
• Trade Policies: Impact how easily goods cross borders and can stabilize or destabilize local markets.

A stable economy is attractive to foreign investors, and supports infrastructure and education systems, enhancing a nation's international competitiveness.