Competitiveness: Review,Reflections and Directions

Abstract

Competitiveness has now become a buzzword like globalization. It has received attention from researchers, governments and business organizations because of its close association with the success of an entity. In the past decades, many works on competitiveness with different perspectives have been published. But competitiveness is yet an elusive concept, the relevance of which is changing with time. There is a need for a comprehensive review of extant literature on the subject. This review article presents the state-of-the-art development of competitiveness research. To begin with, the article lays the foundation for basic understanding on competitiveness at various levels, such as nation, industry and the firm. After elaborating on the theories of competitiveness that have evolved over the years, it gives insight on the measurement models. The plethora of studies that signify different approaches to measure competitiveness are discussed at length. The future direction of competitiveness research is also suggested.

Keywords

Competitiveness comparative advantage competitive advantage diamond model

Introduction

Competitiveness today is as prominent as globalization. A google search on ‘competitiveness’ generates more than 30 million results. It encompasses all the elements that can explain the success of a nation. Competitiveness originates from a Latin word, competer, that means involvement in business rivalry for markets. It is after Porter’s (1990) seminal work, The Competitive Advantage of Nations, that the concept of competition and competitiveness was bolstered. Historically, the roots of competitiveness study lie in the international economic theories of Adam Smith and his followers. It is during early 1980s, when the American economic dominance was emulated by European and Asian nations, that the apprehension about international competitiveness gained strong momentum (Banwet et al., 2002; Waheeduzzaman, 2011). The two other reasons behind the increased focus towards competitiveness are: globalization, which has changed the role of nations in influencing competition and business competition that is becoming fiercer both nationally and internationally (Chikan, 2008).

Competitiveness is a multifaceted concept whose understanding comes from economics, management, history, politics and culture (Waheeduzzaman and Ryans Jr, 1996). It has been described as a complex, multidimensional and relative concept, the relevance of which changes with time and context (Chaudhuri and Ray, 1997; Flanagan et al., 2007). Researchers with different backgrounds have attempted to study competitiveness, adding a different perspective in it. Despite abundance of literature, the concept of competitiveness has remained elusive. Though Chaudhuri and Ray (1997), followed by Banwet et al. (2002), provided a critical review of literature; however, after a decade, there seems a need to re-look and synthesize the literature to incorporate further developments. Within our limitations, in this article, an attempt has been made to synthesize various significant themes in the competitiveness literature.

Competitiveness has become synonymous with economic strength of nation, industry or individual firm (Srivastava et al., 2006). The existence and success in turbulent times increasingly depends on competitiveness (Ambastha and Momaya, 2004). As the competition becomes arduous, competitiveness becomes the strength to deal with it. Gaining competitive edge has become the new goal of nations (Mondal, 2012). In today’s prospect, competitiveness has become a rudimentary force in economics, like gravity in physics (Dutta, 2007). It is linked with affluence because of its evident relationship with the economic potential of a nation (Momaya, 1998). A definition of competitiveness, as given by Garelli (2012), holistically includes the four levels of articulation, namely, efficiency, choice, resources and objective: ‘Competitiveness analyzes how nations and enterprises manage the totality of their competencies to achieve prosperity or profit.’

Competitiveness is a complex subject that covers a range of studies at various levels. It has been conceptualized and measured at country, industry, firm and product levels. Though not regularly, it has been also measured at regional level (Dhingra et al., 2009; Peng et al., 2001). According to Moon and Peery (1995), the depth of the concept can be understood by the fact that Porter in his book titled The Competitive Advantage of Nations utilized ‘industry’ for understanding competition, and in the same book, he emphasizes that firms, not nations, compete in international markets. The concept has two dimensions—micro and macro (Siggel, 2007; Waheeduzzaman, 2011). Macro dimension deals with the competition among nations, while micro dimension primarily involves competition among the firms within a nation. Garelli (2012) clarifies the link between nations and enterprises in the conceptualization and measurement of competitiveness. He emphasizes that firms are responsible for creating economic value, while nations establish an environment to encourage/discourage firms to achieve that economic value.

Conceptualization of Competitiveness at Various Levels

National-level Competitiveness

A popular definition given by President’s Commission on Industrial Competitiveness (1985) says:

Competitiveness is the degree to which a nation under free and fair market conditions, produce goods and services that meet the test of international markets while simultaneously maintaining or expanding the real incomes of its citizen. (cited in Krugman, 1994; Waheeduzzaman, 2011; Waheeduzzaman and Ryans Jr, 1996)

Porter (1990) argues that ‘the only meaningful definition of competitiveness at national level is national productivity’. Krugman (1994, 1996) criticizes the notion of national competitiveness. He argues that competitiveness is rhetoric and a poetic way of saying productivity. In his perspective, competitiveness has nothing to do with the competition of nations. He stresses that firms compete for market share, not the nations. According to Moon and Peery (1995), competitiveness should not be confused with productivity as it is the relative position against competitors, while productivity is the internal capability of an organization.

Moon, Rugman and Verbeke (1998) define national competitiveness as ‘the capability of firms engaged in value added activities in a specific industry in a particular country to sustain this value added over long periods of time in spite of international competition’. It is defined as the set of institutions, policies and factors that determine the level of productivity of a country (Global Competitiveness Report [GCR], World Economic Forum, 2013). From the definitions given by various researchers, it can be inferred that national competitiveness is the ability of a nation to provide conducive environment to its firms, and hence industries, to prosper. The objective is to help in value creation, profit generation and to raise the national prosperity at the same time.

Industry-level Competitiveness

According to McFetridge (1995), ‘A competitive industry can be defined as comprising inter-regionally or internationally competitive firms…a firm is inter-regionally or internationally competitive if it is consistently profitable in an open market.’ Momaya (1998) proposes an extended definition of industry competitiveness by including stakeholders. According to him, it is the degree to which an industry gratifies the needs of customers, with the peculiar combination of products/services, price, quality and innovation, and the needs of various stakeholders, like providing safe workplace to workers. It can be inferred that an industry can be considered competitive if it comprises firms that yield lucrative returns on investment.

Firm-level Competitiveness

Chikan (2008) defines ‘firm competitiveness is the capability of a firm to sustainably fulfil its double purpose i.e. meeting customer requirements at profit’. This capability can be realized by offering goods and services which customers value higher than those offered by competitors. According to Cetindamar and Kilitcioglu (2013), ‘competitiveness is a capability and its potency has to be realised in firm’s everyday operations’. It can be inferred from the above-mentioned definitions that a firm’s competitiveness rests in its adaptability and its ability to realize long-run profit. An examination of the extant literature reveals that a wide variety of notions has been used for the three levels of competitiveness. There exists a paucity of all-encompassing conceptualization.

Evolving Theories of Competitiveness

Although the concept of competitiveness is an independent area of study that emerged in the recent past, its root lies in the economic theories of past, beginning from Smith’s (1776) ‘absolute advantage theory’. Smith’s theory projects a two-country, two-product model that stresses on the specialization of labour. The emphasis is on the trade of goods in which a nation has an absolute cost advantage. It rests on certain assumptions, the most prominent being labour as the only factor of production.

Fixing the flaw in Smith’s theory, Ricardo (1817), in ‘comparative advantage theory’, provides answer to the question that rose in absolute advantage theory, that is, what if one of the two countries has absolute advantage in both goods. Ricardo illustrated the theory by means of a two-country, two-product model. As per this theory, mutually beneficial trade is still possible if the advantageous nation trades in the good where it has a greater comparative advantage. The country having absolute disadvantage in both products should trade in a product in which its comparative disadvantage is lesser. Like Smith, Ricardo’s theory is also based on a number of restrictive assumptions.

Ricardo’s theory was inadequate in explaining the reason for difference in labour productivity between nations. The answer was offered by Heckscher (1919) and Ohlin (1933) through their works which later on became popular as the Heckscher-Ohlin theory. In accordance with this theory, comparative advantage is the result of differences in factor endowment. Nations differ in natural endowment and factor endowment. The theory advises that a nation should export that product for which it uses large amount of the relatively abundant factor. But this theory failed to stand the empirical test conducted by Leontief (1953) for the United States (US), which is known as Leontief paradox. In subsequent studies (Baldwin, 1971; Kravis, 1956) when capital was viewed separately as human capital (skilled labour) and physical capital, Leontief paradox has been alleviated. The ‘product life cycle theory’ by Vernon (1966) was also significant in reconciling Leontief paradox. This theory explains the diffusion of technology from developed nations to developing nations. The underlying objective is to project the shift in comparative advantage with the flow of technology over time. Finally, in a study conducted by Stern and Maskus (1981) on US’ foreign trade data for the years 1958–1976, Leontief paradox was found no more evident.

Comparative cost theory has its limitation in explaining intra-industry trade. A model proposed by Krugman (1980) uncovers the reason behind trade between economies blessed with similar factor endowments. The model projects imperfect competition and relies on the assumption that consumers love product varieties. Thus, two imperfectly competitive economies can trade, each specializing in its variant of product. A country thus can be a net exporter in the product whose production has economies of scale. Melitz (2003) extended Krugman’s model by bringing in firm productivity heterogeneity under perfect competition. The model suggests that only the firms with higher productivity supply to both domestic and export markets, while the rest exit from the market.

Ricardo’s comparative advantage theory ruled for more than a century. But when it was observed that countries like Singapore and Hong Kong, which were devoid of natural resources, have succeeded in excelling international trade, transition of the notion of comparative advantage to competitive advantage took place. Porter was the one who brought this issue to the forefront. It has been observed that at the national level, comparative advantage and competitive advantage has been used interchangeably. The two concepts, although related, are distinct.

Comparative advantage is the outcome of differences in cost of inputs such as labour or capital (Mondal, 2012). Comparative advantage is at the heart of theory of specialization; it can be considered a microeconomic concept, with focus on industry-specific trade. It is an equilibrium concept that takes into account only prices and trade flows. It lacks various other macroeconomic factors necessary to make a nation successful. With the advancement of economies around the globe, various other factors like infrastructure, technology, etc., have come into play in determining the competitiveness of nations. The ‘diamond model’ developed by Porter (1990) and various models developed by his followers bring into account diverse new factors that contribute to economic competitiveness of nations.

Porter’s (1990) Diamond Model provides an explanation behind a nation’s global success in a particular industry. The model illustrates the interaction of four country-specific factors and two external factors in making a nation successful home base for a particular industry. The competitive advantage of the nation is the result of the quality of the interaction within the diamond. The four endogenous variables of the diamond are: factor conditions; demand conditions; related and supporting industries; and firm strategy, structure and rivalry. The two exogenous factors affecting the competitive advantage of a nation are role of chance and government.

Rugman and D’Cruz (1993) criticized Porter’s diamond model for it being not applicable to small, open trading economies. Unlike Porter, in their ‘double diamond model’, they brought into account the role of trade agreements and foreign subsidiary. The model portrays that a country like Canada can integrate itself with developed countries like the US for a more relevant diamond. This model incorporates international context of national competitiveness.

Proposed by Moon et al. (1998), ‘generalized double diamond model’ incorporates both domestic and international diamond to analyze a country’s international competitiveness. A nation’s competitiveness depends partly on both the diamonds. The outer diamond represents the global diamond, while the inside domestic diamond depends on the country’s size and its competitiveness. The difference between the two diamonds is represented by outbound and inbound foreign direct investment (FDI) of the nation.

Moon and Cho (2000) proposed ‘nine-factor model’, which, like previous mentioned models, is an extension of the diamond model. In addition to four endogenous variables of the diamond model, this model incorporates the role of four human resource variables, namely, workers, politicians and bureaucrats, entrepreneurs and professionals, and one external variable, chance/events. This model emphasizes the role of human resource for achieving international competitiveness.

Cho, Moon and Kim (2009) introduced a more comprehensive model, ‘dual double diamond’, to explain the competitiveness of countries with heterogeneous attributes. This model integrates international context of the generalized double diamond model and human factors of the nine-factor model. The model covers four dimensions: domestic physical factors; domestic human factors; international human factors and international physical factors.

The extended diamond models consider the role of FDI, human resources and international factors that have applicability at national and industry levels. At the firm level, the concept of core competence that is central to the resource-based view of firm is an emerging theory in the field of competitiveness (Grant, 1991; Hamel and Prahalad, 1989; Prahalad and Hamel, 1990).

Hamel and Prahalad (1989) view competitiveness with competency approach. As per this view, resource endowment creates competitive advantage for a firm. Prahalad and Hamel (1990) emphasize that in the short run, a firm’s competitiveness is the outcome of price/performance attributes of its existing products, while in the long run, it is in the firm’s ability to build products at lower cost and more speedily than competitors. Core competence is the consolidation of ‘corporate wise technologies’ and ‘production skills’. This theory considers organization as a bundle of resources and capabilities.

Grant (1991) proposed a framework for a resource-based approach to strategy formulation for gaining competitive advantage. In a model, Ambastha and Momaya (2004) bring out the importance of strategic processes in enhancing competitiveness of firms. While the resource-based view is restricted to resources (assets) and capabilities, the asset, process and performance (APP) model considers the importance of core processes like strategic, human resources and operations. Some researchers (Frain, 1992; Porter, 1998) considered mutual interdependence and networking among firms and related organizations, including government, educational and training institutions, etc., significant for competitiveness at the regional level.

Measurement of Competitiveness

The theoretical approaches become significant when paired with the suitable framework for measurement. Similar to the complication in agreement on conceptualization, the measurement of competitiveness also suffers from predicament because of involvement of diverse disciplines and approaches. The measurement technique varies with the unit of analysis, for example, firm, industry or country. Researchers have widely selected productivity, product quality, balance of trade, technology indicators, market share, profitability and growth rate, etc., as the broad measures of competitiveness.

Buckley, Christopher and Prescott (1988) have categorized various measures into three groups—competitive performance, competitive potential and competitive process—termed as ‘3P Framework’. The integration of the 3P measures can only complete the measurement of competitiveness. Indicators of measurement advised by McFetridge (1995), at country level, are per capita income, export composition and current account balance. At the industry level, the suggested measures are total factor productivity and productivity growth. Cost, profitability, productivity and market share are the measures suggested at firm level (see Table 1).

The GCR is an important source for benchmarking country competitiveness. World Economic Forum (WEF) has been publishing GCR since 1979. The report uses global competitiveness index (GCI) that captures both microeconomic and macroeconomic foundations of national competitiveness. The GCI has 12 pillars categorized in three main sub-indices. International Institute of Management Development (IMD) publishes World Competitiveness Yearbook (WCY), which ranks nations on various criteria that involve 20 sub-factors grouped into four major factors.

Table 1.

Classification of Competitiveness Literature

Level	Definition	Theory	Measurement	Major Contributors
National	Is the ability of a nation to provide conducive environment to its firms and industries in order to raise the prosperity of the nation.	Absolute advantage theory; comparative advantage theory; factor endowment theory; diamond model;* double diamond model;* generalized double diamond model;* nine-factor model; dual double diamond.	National productivity; balance of trade; labour productivity; foreign exchange rate; FDI.	Smith (1776); Ricardo (1817); Heckscher (1919) and Ohlin (1933); Porter (1990); Rugman and D’Cruz (1993); Moon et al. (1998); Moon and Cho (2000); Cho et al. (2009).
Industry	The extent to which a business sector offers potential for growth and attractive returns on investment.	APP model*	Productivity; cost competitiveness; export market share; balance of trade; export growth; profitability; technology indicators.	Momaya (1998); Abastha and Momaya (2004) and Fetscherin and Pillania (2012).
Firm	Ability of the firm to offer better products than competitors.	Strategic intent, core competence, resource-based theory	Cost; quality; deliverability of products and services; core competencies; market share; information technology applications; human resources; technology.	Hamel and Prahalad (1989); Prahalad and Hamel (1990); Grant (1991).

Source: Authors’ compilation.

Note: * used at more than one level of analysis.

Although WEF and IMD reports have gained popularity over the years, they have been criticized on several grounds. Lall (2001) found a few theoretical and conceptual deficiencies in the methodologies used in the reports. Both WEF and IMD reports assume markets being efficient; and deliberately avoid the role of government in favouring certain activities. Unlike WEF, IMD does not consider gross domestic product (GDP) as the measure of country competiveness. The reports consider multiple variables from various disciplines, ignore non-linearity in relationship and have never attempted to test for the performance of the guidelines suggested in the previous reports.

Approaches to Competitiveness

Studies on National-level Competitiveness

The studies on national-level competitiveness attempt to suggest various policies and reforms. Several strategies for enhancing national competitiveness include financial programmes to increase savings, managed exchange rates, tax policies and macroeconomic policies. Besides financial strategies, programmes to enhance workers’ skill, quality management, establishment of educational standards and moral standards also figure prominently in a nation’s endeavour to boost competitiveness.

In the category of studies on competitiveness of advanced nations, Amin and Hagen (1998) investigated the reasons behind the worsening competitiveness of the US. The identified major barriers behind loss of US’ competitiveness in international market are: challenged productivity; ineffective investment pattern in research and development (R&D); widening trade deficit; technological development being caught by other nations; losing ground in product quality; and lack of strong political and legal environment. In a report for the Economics and Social Research Council, Porter and Ketels (2003) addressed the status of the United Kingdom’s (UK’s) competitiveness. The country’s economic status was assessed by measures like prosperity, productivity, internationalization, innovation and productivity growth. Kiggundu and Uruthirapathy (2010) compared Canada’s competitiveness with its two, strong traditional economic partners, the US and the UK, and two emerging nations, India and China. The comparison was based on three broad factors consisting of nine pillars of growth competitiveness index (later became GCI), on business competitiveness and on domestic competition and cluster development for the years 1998–2006.

In emerging nation’s category, Pillania (2008) studied the competitiveness of India with both macro and micro aspects for the period 1999–2006. In the study, heavy emphasis was given to the manufacturing sector in shaping the competitiveness of the country. Adams, Gangnes and Shachmurove (2004) investigated the factors responsible for rising competitiveness of China relative to its East Asian rivals. Export performance was used as an empirical indicator of the Chinese competitiveness. The four determinants of Chinese competitiveness identified in the study are: revealed comparative advantage (RCA); exchange rate; labour cost and FDI. Liu and Hsu (2009) compared Taiwan and Korea’s national competitiveness using generalized double diamond model for the period 2000–2004. Bhaumik and Banik (2006) investigated the reasons behind the failure of Caribbean economies, unlike East Asian economies, in exploiting the opportunity of being geographically close to the highly developed economies of the world. Lack of FDI, limitation in the availability of skilled labours and the imbalance in domestic savings to the investment were reported as the primary reasons behind competitive disadvantages of the Caribbean economies.

In a comparative study of group of emerging versus advanced nations, Waheeduzzaman (2011) explored the competitiveness and convergence of G7¹ nations with big emerging markets (BEM)² nations, using longitudinal data and cross-sectional popular comparative indices. The comparative performance of the nations was measured using several economic, demographic, trade, investment and freedom and governance criteria. Though BEM was found growing at a faster pace, they still lag behind G7 nations in competitiveness performance. Fagerberg, Srholec and Knell (2005) studied the reasons behind the difference in trade performance between countries. An econometric model illustrating competitiveness of a nation being dependent on the country’s ability to compete in technology, capacity (delivery), price and demand was presented in the study. Country competitiveness was measured by growth of market share and GDP. The result underscores technology and capacity as the two major factors behind good growth performance of countries and undermines the importance of price and demand.

Studies on Industry-level Competitiveness

Competitiveness has been widely studied at firm and country levels, but at industry level, it has not received sufficient attention. Public policies, trade agreements, etc., are all dependent on industry-level competitiveness, making it pivotal in a country’s competitiveness (Momaya, 1998). According to Porter (1990), the basic unit of analysis for understanding competition is ‘industry’. In the following paragraphs, competitiveness of industries in manufacturing and service sectors has been discussed.

In a study on the transition of industries in US from local to global, Mitchell, Shaver and Yeung (1993) examined relationship between firm performances with the change in its international presence during the period 1978–1989. International expansion was found necessary for survival when foreign firms begin to capture domestic market, but firms with experience and considerable market share can only become successful.

Chandra and Sastry (1998) studied the status, strategies, strength and weaknesses of firms in Indian manufacturing sector. The objective was to help firms benchmark their performance by disseminating best practices in industry. The sample consisted of 56 medium and large firms in India. In comparison to world-class manufacturers, concern was raised that Indian firms are not giving any importance to practices like just in time (JIT), strategic outsourcing, customer and supplier partnership, use of statistical process control, value engineering, computer-aided design and product redesign. Chattopadhyay (2010) raised concern regarding lagging contribution of India’s manufacturing sector in country’s competitiveness. Various reasons such as protection to domestic units, higher duties, low labour productivity and infrastructural bottlenecks, etc., were found crippling the manufacturing sector competitiveness in the study. It is also worth mentioning that unlike developed countries, emerging nations lack commercial activities by small and medium enterprises (SMEs). In the developing countries, SMEs may be significant in numbers, but in terms of industrial competitiveness, their contribution is rather low. This can be attributed to two major reasons: restricted business environment and the lack of access to finance by these SMEs. This has now become a major concern in the world economy and is termed as ‘missing middle’.³

Momaya (1998) attempted to explore new approaches to evaluate international competitiveness at the industry level. He realized the drawback of Porter’s theory being applicable only to high-tech industries and not to service industries like construction. The study involved evaluation of the competitiveness of construction industry of Canada, Japan and the US between years 1990 and 1993. Construction export was used as the criterion for competitiveness evaluation. APP framework was employed for the generation of criteria. Overall, Japan’s construction industry was found to be the most competitive among the three nations because of better processes.

Sardy and Fetscherin (2009) compared automotive industry of China, India and South Korea using double diamond model. Competitiveness index of Chinese automobile industry was found to be better in both domestic and international conditions as compared to that of South Korea and India. Narayanan (1997) analyzed the impact of deregulation policy in India during mid-1980s on the technology acquisition of automobile firms. The study concluded that the difference in technological acquisition is the prime cause of variance in competitiveness of Indian automobile firms.

Shafaei and Shahriari (2009) investigated the competitive performance of leather value chain (LVC) of Iran and compared it with that of nine other major exporting countries. RCA was used to investigate the competitive performance. The result revealed that Iran’s competitive performance is significantly low as compared to other nine countries.

Sun, Fan, Zhou and Shi (2010) analyzed the regional real estate industry competitiveness by taking Beijing and Tianjin, two cities of China. Diamond model was utilized for analyzing the competitiveness. The empirical evidence supports that related industries followed by the demand factors have significant influence on competitiveness of real estate industry.

Alon, Fetscherin and Johnson (2010) attempted to measure export competitiveness of alcoholic beverage industry across countries for the period 2001–2005. A two-by-two framework using export growth rate and industry specialization was developed. On the basis of comparison, the sample exporting firms were grouped into four categories: global dynamic, domestic dynamic, global static and domestic static. Using the same framework, Fetscherin and Pillania (2012) analyzed the export competitiveness of 97 Indian industries during 2001–2006 and found majority of Indian industries shifting to global dynamic category.

Studies on Firm-level Competitiveness

The destiny of both firms and nations is intertwined because a nation provides the environment for firms to grow (or hinder), while a firm creates economic value for the nation (Garelli, 2012). A model to connect macro and micro-level research on competitiveness using diamond model has been developed by Chikan (2008). Literature has been enriched with the studies on various factors contributing to firm-level competitiveness, ranging from activities in the Porter’s (1985) value chain to various independent diverse factors like leadership, learning, R&D, quality and labour productivity.

Chacko, Wacker and Asar (1997) found that cost, quality, delivery and flexibility are the goals a firm should strive for in order to achieve competitiveness. To meet these goals, enterprises should create techno-managerial practices, like automation, total quality management, benchmarking and JIT, etc., and human resource practices, like employee empowerment and training, etc.

Shee, van Gramberg and Foley (2010) examined the role of leadership in enabling organizational values, capabilities and practices of firms to deliver exceptional value to customers that lead to firm competitiveness. Salazar, Vilchez and Pozo (2012) analyzed the effectiveness of coaching, an extensively used technique for training and personal development, in enhancing business competitiveness. Similarly, Gronhaug and Stone (2012) found the influence of process of learning on firm competitiveness.

In today’s globalized world driven by technological advancements, role of technology is the most prominent in delivering competitive advantage to a firm. Lollar, Bheshti and Whitlow (2010) reported that use of integrative technologies reduces cost of doing business and enhances speed to respond to marketplace changes.

To compete successfully, integration of firm’s internal function is required with the external functions. Thus, supply chain management (SCM) practices influence competitiveness of firms. In a study conducted by Agus (2011), the impact of critical variables of SCM on product quality and business performance was measured. Results revealed that variables of SCM, that is, lean production, new technology and innovation, strategic supplier partnership and postponement conformance, impact competitiveness of product and firm.

The role of product is significant in boosting a firm’s competitiveness. Akroush (2012) proposed a model examining the effect exerted by organization capabilities, namely, technological, marketing mix and customer relational capabilities, over new product competitive advantage (NPCA) and the effect exerted by NPCA on customers and financial performance. The result revealed that among the three types of organizational capabilities, marketing mix capability affects both dimensions of NPCA, that is, new product quality and new product speed.

Cetindamar and Kilitcioglu (2013) developed a comprehensive generic measurement model for firm competitiveness. Growth, exports, profits, and customer and society, together were used as outcome indicators. Under managerial process and system, leadership, ability to develop processes and systems and sustainability of strategies were measured. Technology, human resource and finance were the major resources used in the model.

Directions for Future Research

As competition lies at the heart of competitiveness, most of the research efforts have been on analyzing competitiveness with respect to competition. Assessment of competitiveness at national level (Adams et al., 2004; Amin and Hagen, 1998; Kiggundu and Uruthirapathy, 2010; Liu and Hsu, 2009; Porter and Ketels, 2003; Waheeduzzaman, 2011), at industry level (Alon et al., 2010; Momaya, 1998, 2008; Sardy and Fetscherin, 2009; Shafaei and Shahriari, 2010; Sun et al., 2010) and at firm level has been made with focus on competition. With the changing dynamics of global competition, competitive advantage can be short lived. Therefore, firms and organizations must always look for new sources of competitive advantage. For an entity to remain competitive in a number of areas, it must think and act lean (Milgate, 2001). In order to compete, individual entities must cooperate by means of partnership. At national level, partnership between nations may work through trading agreements like Free Trade Agreements (FTAs) or Preferential Trade Agreements (PTAs). FTAs or PTAs are more observed between countries that have complementary economic structures. In case of business organizations, both cooperation and competition can coexist, and hence emerged the term ‘co-opetition’ that combines both competition and cooperation. Co-opetition involves two or more competitive firms belonging to the same industry working together towards a mutual goal of achieving higher competitive advantage. Quite a few studies (Bengtsson and Kock, 1999; Brandenburger and Nalebuff, 1996; Gueguen et al., 2006; Osarenkhoe, 2010) have explored co-opetition via means of case studies. What is required in the competitiveness research is further exploration of the impact of co-opetition on the competitiveness of partnering firms.

According to Hongphisavivat (2011), only ‘market-based view’ that focuses on customers to create competitive advantage and ‘resource-based view’ that focuses on the strategic use of firms resources are not sufficient. There is an ‘emergent view’ that looks for new ways to generate competitive advantages through means of cooperation among stakeholders. The stakeholders can range from investors, employees, customers to the society at large. The cooperation can range from intra-organizational network to partnership in the external business environment. The integration of the three views can only lead to the foundation of a sustainable competitive advantage. As networks influence firm level competitiveness, there is a need for undertaking more exhaustive studies incorporating various network partners (Centidamar and Kilitchioglu, 2013). Similarly, according to Feurer and Chaharbaghi (1994), shareholders are of extreme significance because of their financial contribution and influence over business decisions. A balance between shareholders, customers, along with the people and technology, is required for maintaining sustainable competitive advantage. These three together constitute the three dimensions of sustainable competitiveness. Flanagan et al. (2007) report lack of empirical evidence indicating linkages between competitiveness and stakeholders’ perspective. Although there could be difficulties associated with the quantification of stakeholders’ preferences, there is a need to define indicators in this direction and link them with measurement of competitiveness at firm and/or industry level. Future studies on competitiveness may attempt this.

In the studies on firm-level competitiveness, multiple factors have been considered as the source of competitive advantage. These diverse factors include Porter’s value chain elements (Cetindamar and Kilitcioglu, 2013; Chacko et al., 1997; Lollar et al., 2010) as well as various intangible dimensions like leadership (Shee et al., 2010) and learning (Gronhaug and Stone, 2012; Salazar et al., 2012). There is still enough space left for undertaking studies that highlight the role of less tangible factors, like culture and freedom, that impact competitiveness of nations and also firms operating in such nations.

Changing environment has shortened product life cycles, thus role of increased flexibility can be considered as a new source of maintaining competitive advantage. Flexibility lies in an organization’s ability to adapt to changing environmental dynamics with minimum effort, time and cost. It seems necessary to examine whether flexibility can lead to competitive advantage or it is an expensive solution to deal with environmental uncertainty (Beach, Muhlemann, Price, Paterson and Sharp, 2000).

The studies reviewed reveal that research in competitiveness is more inclined towards the manufacturing sector. Presently, many services like tourism, health care, financial services and commercial services, besides information technology services, are among the upcoming sectors that can be considered significant for a nation’s competitiveness. However, only a few studies on competitivenessrelated issues have been undertaken covering the important service sectors. The only exception may the tourism sector. Therefore, further initiatives are required in undertaking competitiveness research in other service sectors.

Previous studies on competitiveness have considered only economic aspects, but economic growth can be an outcome of ignoring environmental and social aspects. Thus, besides economic aspects, there is a need to incorporate social dimensions like freedom and equal opportunities, etc., and environmental aspects like natural capital and resources. Starting from the year 2011, WEF has also adjusted GCI for sustainability to look into these two dimensions. There is a need for further research considering these dimensions of competitiveness.

Conclusion

Competitiveness has existed inevitably since the inception of international trade among nations. As a concept, competitiveness has travelled a long distance from its birth by the classical economist, Adam Smith, to Michael Porter and others, who presented the extended versions of the Diamond model. However, the credit of stimulating a large-scale debate on ‘competitiveness’ goes to Michael Porter. With changing times, the notion of competitiveness kept on varying, while the basic purpose of studying it remained more or less unchanged. The prime objective of achieving competitiveness is to strengthen a nation’s economy and to make it prosperous. As the world is undergoing rapid transformation, none of the existing models can be a perfect fit forever, but each model/theory has uncovered interesting insights in explaining a nation’s success in the international economic scene. It can be inferred that incessant globalization is leading to blossoming of newer theories on competitiveness. The horizon of competitiveness is expanding from economic to social aspects.

The length and breadth of competitiveness analysis is not restricted to nations alone. It spans across industries, firms and occasionally, to smaller geographic regions. Scholars from various disciplines have added different perspectives in understanding the concept and have used heterogeneous indicators to measure it. Competitiveness as a subject is still perplexing and on many occasions becomes a topic for intense debate because of its different interpretations ranging from productivity to exports, market shares, technological capability, etc.

The reviewed studies indicate that the three levels of competiveness are closely interlinked. The nation is responsible for providing a conducive environment. Industries are the targets for directing policies and other means to get benefited by the favourable environment. But it is the firms where the root or source of competitiveness lies. Ultimately, economic values created by the firms make industries competitive, which, in turn, contribute to national competitiveness.

Competitiveness is a hot topic of interest for all, including academia, government and the business. Its implication, however, can be different for each of the interest groups. As globalization has ushered in an era of incessant competition, the competitiveness has become topical. At the macro level, it has its implications for policymakers, but its significance is critical at micro level. The business managers should attach due importance to competitiveness and apply it in their day-to-day operations for achieving higher levels of performance. Competitiveness is vital because it is the lifeline of a nation’s economy.

Footnotes

Acknowledgements

We are grateful to the anonymous reviewers for their valuable suggestions to improve the quality of the article.

Notes

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