Saturday, December 23, 2017

https://dailyasianage.com/news/99607/firm-level-competitiveness

Firm level competitiveness

M S Siddiqui

In general sense, a good financial performance suggests that the firm is doing better in terms of
competitiveness since profitable opportunities result in higher production and sales. The advantage
of employing financial measures is their agreed-upon definitions and the easiness of calculations.

According to the study results reported by an authors, industry concentration, growth, market share,
geographic dispersion of production, research and development expenditures and size measured by
sales have a positive impact on the financial performance of the companies.

In the academic literature, the term "firm competitiveness" has been defined in several ways.
According to Michael Porter in a Harvard Business Review articledefines competitiveness as the
ability of a given firm to successfully compete in a given business environment. Lall, S. defines firm
competitiveness as the ability of a firm to do better than benchmark companies in terms of
profitability, sales, or market share. Similarly, some other scholars Buckley, Pass, and Prescott
consider competitiveness to be synonymous with a firm's long-run profit performance, its ability to
compensate employees and generate superior returns for shareholders.

Firm/industry level competitiveness focuses on the capacity of a firm to increase profit and grow on a
sustainable basis. This is understandable for two reasons: effect of policy on industry and firm based
factors in competitiveness.

Competitiveness is a multidimensional concept that is composite in nature, and attempts to capture

the process of fit between the firm and its dynamically evolving environment. In this rapid changing
globalized environment firms are facing the heat of competition from the twin effects of global
integration and advancements in technology. Sustainability, success and indeed survival of the firms
increasingly depend on the strategies adopted by them to increase their competitiveness.

Competitiveness of nation shaped by the development strategy of the nation and the outcome is
normally reflected in the performance of the firm/industry level competitiveness. World Economic
Forum (WEF) studies deals with country level competitiveness and some authors concurs with the
view that competitiveness is created at the firm level, but that it is partly derived from a systemic
context and emerges from complex patterns of interactions between government, enterprises and
other actors, and will therefore exhibit different forms in each society. Put differently a firm/industry
may be or become competitive in an otherwise less competitive national environment. Porter says "it
is the firms, not nations, which compete in international markets".

Firm level competitiveness can be defined as the ability of firm to design, produce and or market
products superior to those offered by competitors, considering the price and non-price qualities
(D'Cruz, 1992). Competitiveness is synonymous to a firm's sustainable performance and its ability to
compensate its employees while generating superior returns to its shareholders.

Competitiveness of firm is in the ability of a firm to produce products and services of superior quality
and at lower costs than its domestic and international competitors. Porter's model"Diamond of
Competitiveness" states that competitiveness of a firm depends on some factors: input supply
factors, market demand, firm structure, strategy and rivalry, and finally firms that are related and
provide support, as well as supporting associations. From this model, several developments grew
and other models were developed. The most important contribution of these factors and models is
their operation on the microeconomic level.

The competitiveness of firms is based on a societal arrangement in which the interplay of

competition-relevant factors, actors, and policies at different levels plus a frame of reference in which
these levels can interact lead to competitive advantages. Metcalf, Ramlogan and Uyarra (2003)
argue that competitiveness is embodied in the characteristics of the firm; namely, (1) The current
efficiency and effectiveness of the use of resources, (2) The willingness and the ability to relate
profitability to growth of capacity (i.e. the willingness to invest), and (3) The ability to innovate to
improve technology and organization and thus improve efficiency and effectiveness.

Firm level competitiveness therefore entails heterogeneity not only at the internal resource level, but
also at the linkages it fosters, to exchange factor inputs and outputs with its environment. The
idiosyncrasy and robustness of these linkages hold promise for the long term sustainability of the
firm's competitiveness.

The competitive advantages based on inherited factor endowments are losing their significance a
new pattern of competition is marked by knowledge- and technology-based competitive advantages.
The companies are changing to new organizational structures characterized by less hierarchic
organizational concepts i.e. team work, decentralization of decision-making processes, split-ups of
large enterprises to form strategic business units. There are close technological and productive
networks through industrial clusters, industrial districts, business alliances, long-term contractual
arrangements with partners.

Competitiveness is obtained when an organization develops or acquires a set of attributes or

executes actions that allow it to outperform its competitors. Competitiveness creates competitive
advantage.There is a close relationship between competitive advantage and firm performance.
Competitive advantage isperhaps the most widely used term in strategic management. Strategic
management is concerned with defining organizational performance, variables of strategic choice
and competitive advantage.

The strategic management deals with the major intended and emergent initiatives taken by general
managers on behalf of owners, involving utilization of resources to enhance the performance of firms
in their external environments' (Nag et al. 2007). There are many theories about competitiveness
and related inter-disciplinary fields of strategy, operations, resource-based view, and economics.

The hyper-competitive era in the last few decades has created the need for an explicit management
of competitiveness. Survival and success in such turbulent times increasingly depend on
competitiveness. It is necessary for a firm to define competitiveness as part of its strategy.
Competitiveness is a multi-dimensional concept with dynamic weightages of different factors. Use of
the competitiveness process as a key coordinating process among key management processes
such as strategic management, human resources management, technology management, and
operations management may provide a powerful tool. A systematic evaluation of competitiveness
will be of great help to firms.

Other researchers (Kleynhans & Swart, 2012) have given importance on effort to enhance
competitiveness will then be to produce more with lower cost structures. The firm structure and
production efficiency should be organized in such a way that firms could produce goods of the same
or better quality at lower prices. This would increase sales and profits, leading to industrial growth.
This would lead to industrial growth and the creation of employment, which countries in less
developed regions need.

Competitive advantage involves managing the entire value system, encompassing the value chains
of the firm, suppliers, channels and buyers. There are some strategies to attain competitiveness. A
cooperation of exchange of information between firms yield higher returns on innovation efforts.
Where firms are in close proximity, such as in the same industrial district, province or region, there is
a greater possibility that they might collaborate in innovative activities.

Agglomeration also offers a pool of skilled labor that benefits firms. Workers come into contact with
each other and learn from one another, leading to information, knowledge and technological
spillovers. Regional spillovers increase local innovation and eventually promote local and regional
economic growth. Firms in industrial districts, networks or clusters benefit more from knowledge
sharing spillovers than those operating in isolation.

The key issue at the microlevel is an effective management of technical and organizational learning
processes at the firm level, effective technology management being the necessary condition of
continuous product and process innovation. Moreover, management of this sort must be geared to
optimizing the inter-firm division of labor by encouraging close interaction between industrial firms,
suppliers, service firms, and specialized R&D institutions and to intensifying producer user contacts.

The location of firms in dealing with similar products share customers and suppliers among firms,
production efficiency is higher due to agglomeration advantages, such as the availability of skilled
labor and emanating technology spillovers from advanced firms can support each other to become
competitive. The promotion of the human capital base deserves special attention because it offers
productive workers able to innovate and promote the competitiveness of firms.

Competitive advantage is sustained only through relentless innovation, improvements of firm's

product, production process and organization, co-operation and development. The firm level or micro
competitiveness all firms resulted in competitiveness of a country.

The writer is a legal economist. Email: mssiddiqui2035@gmail.com