Firm level competitiveness

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