National competitiveness is one of the most important economic concepts as it outlines as to how a nation can grow and succeed by utilizing its competitiveness. Competitiveness, therefore refers to the concept of how a nation produces its goods and services- the relative efficiency of producing them defines the overall competitiveness of a nation. It is also termed as a nation's ability to create sustainable value which results into overall improvements in the standards of living of people of the nation. As such, the competitiveness itself is a much bigger concept which embodies many socio-political as well as socio-economic factors into it.
With the increase in globalization trends, economy is largely being viewed as a collection of states, individuals and firm and as such the collective competitiveness of all the entities of a nation give rise to its competitiveness and increased ability to compete in an international market. Michael Porter's theories on international competitiveness of the countries are largely based on the strategic perspective and lack the solid economic foundations. As such from the perspective of economics- in the words of Paul Krugman that Competitiveness is meaningless word when applied to national economies. However, despite such criticism, the theories of national competitiveness, especially of Michael Porter's are considered as one of the cornerstones of research on the subject. Porter's ideas attempt to define the means through which the sustainable competitive advantage can be achieved by an economy.
This research paper will focus on the ideas of Michael Porter on how to achieve national competitiveness and whether his ideas have actually provided the means to achieve the competitive advantage by which specific nations have achieved success.
[...] The establishment of export processing zones in developing countries is a very ample example of how despite not having favorable home demand conditions, nations can achieve sustainable competitive advantage based on their ability to offer cheap labor. As such it is also not important that all the factors may work together to create that advantage as one seems to compensate other. Supporting Industries Supporting industries are considered as necessary for achieving the international competitiveness whereas firm strategy describes how the firms are organized and compete with each other and in an international market. [...]
[...] National Competitiveness National Competitiveness is one of the controversial issues as it has failed to gain the proper appreciation from the academic circles specially economists seem to have rejected the idea out rightly. However, despite this the concept has been able to gain widespread support as well as criticism from different quarters. Porter's studies were based on the research conducted on 10 nations in order to understand the factors behind the success of a nation. The basic assumption behind this study was the growing dissatisfaction with the existing theories of comparative advantage as Porter believed that they are either inadequate to meet the demands of current wave of revolution into the industrial world, or they were wrong at all because they failed to predict what actually derives the competitiveness of a nation. [...]
[...] Porter's ideas may be successful in providing means to achieve sustainable competitive advantage in short run but in long run the complacency as well as lack of innovativeness may shift that competitive advantage. Firm Strategy & Rivalry Porter is of the view that the national tendencies as well as circumstances create the way how the companies for their strategies and compete with each other. The firm level strategy is therefore, shaped by the overall modes of competition within the country and the convergence of management practices to such modes of competition. [...]
[...] The Porter's Diamond model is based on four broader determinants of the competitiveness of a nation. However, the studies of Porter are just based on few firms and only in selected countries. Therefore, the empirical relevance of Porter's ideas on national competitiveness is always questioned. Further, not all the ideas of Porter seem to provide a comprehensive understanding of the means by which specific nations have been able to achieve success, but rather they were multitude of factors which collectively contributed to the success as [...]
[...] Criticism of Porter's ideas It has been argued that behind Porter's ideas on national competitiveness, there is a lot of implicit theory which needs to be made explicit in order to fully understand and test empirical validity of his ideas. (Yetton, Craig, Davis, & Hilmer, 1992). Most of the ideas are based on the innovation as well as ability of the firms to keep pace with the rapid changes both in managerial perspective as well as in technological perspective too. [...]
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