Competitiveness

Competitiveness pertains to the ability and performance of a firm, sub-sector or country to sell and supply goods and services in a given market, in relation to the ability and performance of other firms, sub-sectors or countries in the same market.

Empirical observation confirms that resources (capital, labor, technology) and talent tend to concentrate geographically (Easterly and Levine 2002). This result reflects the fact that firms are embedded in inter-firm relationships with networks of suppliers, buyers and even competitors that help them to gain competitive advantages in the sale of its products and services. While arms-length market relationships do provide these benefits, at times there are externalities that arise from linkages among firms in a geographic area or in a specific industry (textiles, leather goods, silicon chips) that cannot be captured or fostered by markets alone. The process of “clusterization,” the creation of “value chains,” or “industrial districts” are models that highlight the advantages of networks.

Within capitalist economic systems, the drive of enterprises is to maintain and improve their own competitiveness, this practically pertains to business sectors.

Economic Competitiveness is a political-economic concept that emerged in trade and policy discussions in the last decades of the 20th century. Competitiveness theory posits that while protectionist measures may provide short-term remedies to economic problems caused by imports, firms and nations must adapt their production processes in the long term to produce the best products at the lowest price. In this way, even without protectionism, their manufactured goods are able to compete successfully against foreign products both in domestic markets and in foreign markets. Competitiveness emphasizes the use of comparative advantage to decrease trade deficits by exporting larger quantities of goods that a particular nation excels at producing, while simultaneously importing minimal amounts of goods that are relatively difficult or expensive to manufacture. Trade Policy can be used to establish unilaterally and multilaterally negotiated rule of law agreements protecting fair and open global markets. While trade policy is important to the economic success of nations, competitiveness embodies the need to address all aspects affecting the production of goods that will be successful in the global market, including but not limited to managerial decision making, labor, capital, and transportation costs, reinvestment decisions, the acquisition and availability of human capital, export promotion and financing, and increasing labor productivity.

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