Competitiveness - Its Advantages and Disadvantages

Introduction

The world economy has entered an era of total competition. Traditional barriers have begun to fall, new-sophisticated competitors have emerged, and global rivalry increased. There are many examples around the world where the traditional sources of comparative advantage are less valuable than initially perceived for the development of a strong, competitive economy.

The new type of development is one that involves the whole market and all institutions in the economy. Productivity is that component which creates a competitive advantage rather than a comparative advantage; the latter only addresses only the supply side of the market system and ignores demand, historical chance and the role of government. Indeed, the model of competitive advantage addresses the question of development today.

A nation's standard of living is increasingly dependent on the competitiveness of its economy. Competitiveness is vital if the nation's firms are to take advantage of the opportunities opened up for them in the international arena. World trade and foreign investment have grown faster than world output in the last several decades.

This paper is essentially divided into three main chapters. The first chapter defines competitiveness and characterizes the main factors that influence it. The end of the chapter describes the main stages of the development of competitiveness, proposed by Michael E. Porter. The second chapter analyses competitiveness from a global perspective. It starts with explaining the methodology used in international competitiveness rankings, as well as presenting the main two institutions, which deal with this classification. It then analyzes the principles of global competitiveness and ends up with a presentation of the methods of creating competitive advantages, which are based on Stephane Garelli's ten golden rules of competitiveness. The third chapter presents the situation of competitiveness in Moldova. It describes the main competitive products that Moldova can use in order to enter the orbit of prosperous countries, as well as presents actions to be taken in order to increase the productivity at all it levels.

Chapter 1. Competitiveness - the Motor of Global Economy

1.1 Defining Competitiveness

Scholars and institutions have been very fruitful in proposing their own definition of competitiveness. This diversity of opinions is an indicator of the popularity of the subject but also of its contradicting nature. The US National Competitiveness Council has adapted the following list of definitions for "competitiveness": [3, 7]

1."A field of Economic knowledge, which analyses the facts and policies that shape the ability of a nation to create and maintain an environment that sustains more value creation for its enterprises and more prosperity for its people " (IMD's Competitiveness Yearbook, 2003);

2. "The ability of a country to achieve sustained high rates of growth in GDP per capita" (World Economic Forum, Global Competitiveness Report, 1996 p.. 19);

3. "Competitiveness is a relative and not absolute. It 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. Competitiveness can only be sustained if an appropriate balance is maintained between these factors which can be of conflicting nature" (Feurer, R. and Chaharbaghi, K., "Management Decision ", 1994, Vol.32, No.2, pg.49);

4. "A firm is competitive if it can produce products and services of superior quality and lower costs than its domestic and international competitors. 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." (Report of the Select Committee of the House of Lords on Overseas Trade, 1985.)

5. "Competitiveness implies elements of productivity, efficiency and profitability. But it is not an end in itself or a target. It is a powerful means to achieve rising living standards and increasing social welfare - a tool for achieving targets. Globally, by increasing productivity and efficiency in the context of international specialization, competitiveness provides the basis for raising peoples' earnings in a non-inflationary way" ("Enhancing European Competitiveness". First Report to the President of the Commission, the Prime Ministers and the Heads of State, June 1995);

6. "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 incomes of its people over the long-term" (OECD).

As it can be easily observed, there is no consensus concerning the concept of "competitiveness". That is why the approach to studying competitiveness is divided into several levels [1]:

1. National Competitiveness, which is used when the competitiveness of a company and its performances are compared to firms of the same type from the national economy;

2. Branch Competitiveness, which is analyzed at 2 levels:

a) Branch competitiveness on the internal market, which is higher if firms from one branch obtain competitive advantages and performances comparing to firms from other branches of the national economy;

b)Branch competitiveness on the external market, that is considered higher if there exists a massive and permanent export, including capital, in a big number of countries;

3. Firm competitiveness, represents the capacity of a firm to offer to its customers, comparing to its competitors, goods and services of a better quality at equal prices or lower prices that would permit it to realize superior economic performances on a long-run;

4. Product Competitiveness represents the totality of features that assures a product some advantages in comparison to similar competitor's products. When determining the product competitiveness, there should be a reference to cost, quality and demand for that product.

The main determinant of national competitiveness and branch competitiveness is the competitive