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Published:  12:57 AM, 08 October 2017

Meaning of competitiveness

Meaning of competitiveness

Bangladesh has cheapest labor and tries inviting investors to come with the capital but investors are reluctant to come here. Dhaka is the costliest city to live among cities of Bangladesh and city planners trying to push industrial establishment to other part of the country. Interestingly, in contrast, the business conglomerates from Chittagong, Jessore, Kushtia are shifting their production plants and offices to Dhaka. Historically, some multinationals started business in Chittagong from British period and recently shifted their office and factory to Dhaka. This contradiction lies in fact that Dhaka is cheapest city in Bangladesh for doing business. The cost of living and cost of doing business is two different dimensions of a city.

The term competitiveness is a broad concept. So for, there is no universal agreement on the definition of competitiveness. Competitiveness depends on various parameters. The European Commission defines competitiveness as the ability of an economy to provide its people with high and rising standards of living and high rates of employment on a sustainable basis. The Organization for Economic Co-operation and Development (OECD) countries defined, the degree free trade and free 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.

The determinants of competitiveness are many and complex. For hundreds of years, economists have tried to understand what determines the wealth of nations. This attempt has ranged from Adam Smith's focus on specialization and the division of labor to neoclassical economists' emphasis on investment in physical capital and infrastructure, and, more recently, to interest in other mechanisms such as education and training, technological progress, macroeconomic stability, good governance, the rule of law, transparent and well-functioning institutions, firm sophistication, demand conditions, market size, and many others.

The World Economic Forum (GEF) calculated the Global Competitiveness Index (GCI) for measuring national competitiveness, which captures the microeconomic and macroeconomic foundations of national competitiveness. GEF defines competitiveness as the set of institutions, policies, and factors that determine the level of productivity of a country. The level of productivity, in turn, sets the sustainable level of prosperity that can be earned by an economy. The GEF group all these components into 12 pillars of economic competitiveness. These are as Institutions, Infrastructure, Macroeconomic stability, Health and primary education, Higher education and training, Goods market efficiency, Labor market efficiency, Financial market sophistication, Technological readiness, Market size, Business sophistication, and Innovation.

Competitiveness shifted its focus toward competitive advantage, which emphasizes efficiencies in the means of production, particularly in so-called value factors that have to do with performance and quality. Business need economic planning to achieve comparative advantage by keeping production costs like labor, materials, energy, taxes, and infrastructure at low relative to those of competitors.   The value factors pertain to resource, capital, and labor efficiencies and the use of advanced technologies to increase productivity. Recent thinking views quality of life, human capital, and social capital as also important to workforce productivity, innovation, and competencies.

In many respects, such as technology and human capital, competitive advantage relates to endogenous growth theory and others Developing economies began opening up their national economies to foreign direct investment (FDI) in the 1980s to stimulate national development. Some grew in the 1990s by using competitive advantage asa policy for economic development. Foreign manufacturers, seeing theirmargins fall in comparison, turned to quality assurance to become moreproductive. Many private companies in the region also began to makeimprovements in the workplace and in skills, in the process shaping localeconomies and transforming urban areas.

There are three advantageous approaches to competitiveness are comparative, competitive, and collaborative advantage give rise to an investment and economic development.  Comparative advantage:  Land costs, Infrastructure, Taxation, Labor costs, Proximity to raw materials, Transport, Cost of capital, Location of markets, Economies of scale.   The principle of comparative advantage, developed out of trade theory, assumes that individuals and regions will produce those goods or services for which they have a relative advantage, usually because of infrastructure, natural resources, labor, or capital. Comparative advantage tends to induce specialization.

Economic planning sought to achieve comparative advantage by keeping production costs (labor, materials, energy, taxes, and infrastructure) low relative to those of competitors. The full costs of production were often not accounted for, but tariffs, incentives, and infrastructure subsidies were lowered to increase comparative advantage.

In the 1980s, competitiveness shifted its focus toward competitive advantage, which emphasizes efficiencies in the means of production, particularly in so-called value factors that have to do with performance and quality, value factors pertain to resource, capital, and labor efficiencies and the use of advanced technologies to increase productivity. Recent thinking views quality of life, human capital, and social capital as also important to workforce productivity, innovation, and competencies. In many respects, such as technology and human capital, competitive advantage relates to endogenous growth theory as developed by.

For companies that crave success in business or governments that hope to entice investors, especially from abroad, to invest in local economies, comparative or competitive advantage is no longer enough. Their profit margins squeezed by global competition, companies are forced to change the way they do business. Former rivals are seeking to collaborate through alliances, partnerships, and other forms of cooperation to win and expand their business. The new theory of collaborative advantage has thus emerged.

Collaboration in the context of competitiveness is centered on strategy and on the factor costs of production, such as the improvements to be gained in resource efficiency and organizational effectiveness.  Competitiveness has two broader dimensions: surface-level and deep-level competitiveness. Surface-level competitiveness reflects the competitive performance of a firm or industry that is directly observable to consumers. Deep-level competitiveness reflects the capability of a firm or industry that is not directly observable to consumers.

An improvement in the deep-level performance enhances the performance at the surface level. The long-term sustainability of the industry demands enhancement of deep-level competitiveness. Therefore, the future development of the industry will depend on how much importance will be given to which factors, and how the individual firms will respond and how government policies will influence the industry.
 (To be continued)


The writer is a Legal Economist.  E-mail: mssiddiqui2035@gmail.com

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