Category: Competitiveness

Executive Summary

Human resource management plays a crucial role in an organisations quest to achieve competitiveness with regard to human capital. This report evaluates people management as one of the core elements in human resource management. The report focuses on British Petroleum [BP], which operates in the oil and gas industry.

In the course of its operation, BP is facing challenges arising from changes in the business environment. Some of the changes that the firm is currently experiencing relate to labour force trends, workplace communication, technological forces, and changes in the employment law.

In a bid to survive in such an environment, it is imperative for the BPs management team to be proactive in adjusting its HRM strategies in line with the prevailing internal and external environmental changes. The report illustrates some of the aspects that the firm should consider in its people management practices in order to achieve the desired competitiveness in the labour market.

Introduction

British Petroleum is one of the leading public limited companies in the UKs oil and gas industry. The firm was established in 1909 and it has penetrated the global market successfully. By the end of 2013, BP had established operations in 80 countries. BP ranks fifth amongst the largest companies in the world with regard to total sales revenue and sixth with regard to market capitalisation.

An evaluation of previous studies and reports show that firms in the oil and gas industry are facing diverse macro and micro-environmental forces. Some of the macro-environmental forces include legal and technological forces.

For example, oil and gas producing companies are experiencing tight environmental regulations due to the high rate of global warming, which is leading to climate change. Additionally, these companies are experiencing a threat arising from the high rate of technological changes.

These macro-environmental forces are beyond the organisational managers capacity to influence or control. On the other hand, micro environmental forces originate from an organisations internal operations, and thus they are within the organisational managers capacity to control. An example of an internal force includes employee resistance to change and conflicts.

Additionally, the emergence of information age has led to growth in the level of knowledge within the labour market, as evidenced by diverse institutional forces on aspects related to employment standards, employee safety, and health and labour relations amongst others.

The macro and micro-environmental forces have significant impact on internal stakeholders such as employees. Aguilera and Dencker (2004) assert that organisations are comprised of people, who are allocated diverse duties and responsibilities. Therefore, people are considered as one of the environment inputs in an organisations success.

Individuals in the different levels of management have diverse powers and responsibilities according to their job description. However, the success with which an organisation achieves its desired goals is subject to the extent to which individuals in the different levels of management interact with each other, hence leading to the creation of synergy (Aguilera & Dencker 2004).

In a bid to achieve the desired synergy, it is imperative for organisational managers to integrate effective power relationship and people management strategies and policies. This report evaluates the major changes taking place in BPs internal and external environments with specific reference to labour force trends, employment relationship, technological changes, workplace communication, and developments in employment law.

Discussion and analysis

Labour force trends

Developing effective people management skills is a fundamental aspect in managers quest to execute their duties effectively. People management skills increases the productivity of an organisations workforce, hence the firms long-term performance.

One of the issues currently facing BP is the high rate at which employees are seeking employment opportunities that align with their career path of development. Moreover, BP is facing a challenge emanating from the change in the employees perception and demand with regard to job satisfaction.

Currently, employees are increasingly focusing on the overall job environment and not solely on monetary gains in making the decision to stay in the organisation. One of the issues that employees are focusing on entails the concept of work-life balance.

Employees are demanding a high level of flexibility in their job. McNall, Masuda, and Nicklin (2010, p.63) assert that many organisations have begun to offer flexible work arrangements to help employees balance work and family demands. This trend has arisen from the high rate of globalisation and information explosion because of development in information communication technology. These trends have greatly opened up the labour market.

Currently, the labour market is characterised by a high degree of mobility. Subsequently, employees are seeking for good employment opportunities even in organisations that are beyond their national boundaries. McNall, Masuda, and Nicklin (2010) argue that employees are increasingly basing their decision to stay in a particular organisation on the likelihood of progressing through their desired career path.

Competing firms are increasingly exploiting this market trend by adopting the concept of poaching in their human resource management practices. This scenario presents a challenge in BPs quest to survive in an industry characterised by intense competition.

Previous studies have identified human capital as one of the greatest sources of competitive advantage in organisations. In its quest to achieve competitiveness with regard to human capital, BPs management team has an obligation to adopt effective people management strategies and skills in their strategic human resource management practices.

Some of the practices that the firm can integrate include effective human resource planning, employee development, effective job analysis, implementing effective reward management strategies, and nurturing optimal employee relations.

McNall, Masuda and Nicklin (2010, p.1359) further emphasise these sentiments by asserting that managerial practices need to be aligned with environmental demands so that desired work behaviours arise. Failure to adjust the organisations human resource strategies with the prevailing employee needs will affect the BPs competitiveness in the labour market.

Workplace communication

Effective communication is a fundamental element in an organisations efforts to develop a collaborative working environment. Baines (2009) emphasises that workplace communication should be considered as an investment rather than a cost item.

Ryan, Windsor, Ibragimova, and Prybutok (2010) assert that organisational performance is subject to the degree of collaboration amongst the various internal stakeholders such as employees.

Moreover, Turner, Qvarfordt, Biehl, Golovchinsky, and Back (2010, p.1) argue that workplace communication enables collaborators to foster ideas, build a common round, and develop complex interpersonal relationships. Subsequently, the level of information and knowledge sharing increases significantly. The diagram below illustrates the relationship between workplace communication and knowledge sharing.

Source: (McNall, Masuda & Nicklin 2010)

Incorporating effective workplace communication is not an option. Therefore, it is imperative for organisational leaders to foster effective information flow in order to improve their firms performance. One of the ways through which this goal can be achieved is by adopting open communication channels.

Abram, Cross, Lesser, and Levin (2003) contend that workplace communication is essential in nurturing a high level of employee involvement.

However, it is imperative for organisational managers to monitor the open communication channels in order to improve the level of trust, which is critical in organisational growth. The model below illustrates how an organisation can nurture a high degree of employee involvement through workplace communication.

Source: (Thomas, Zolin & Hartman 2009)

Workplace communication in BP is undergoing significant changes arising from a number of factors such as the emergence of diverse communication platforms and global issues. These changes have had significant impact on BPs workplace communication strategy.

In order to create the desired level of synergy, organisations have an obligation to nurture a high level of trust amongst employees in different departments in order to sustain workplace communication. Moreover, the significance of effective knowledge management has improved the need to effective workplace communication.

In addition to the above changes, workplace communication is affected by the high rate of diversity in the workplace. Organisations are increasingly becoming culturally diverse due to changes in the labour market. For example, in its quest to nurture a strong workforce, BP sources for its human capital from the global labour market.

Furthermore, the firm has adopted the policy of non-discrimination of employee based on their demographic characteristics. Subsequently, the firm has experienced a significant increment in the level of diversity in its workforce, which has led to remarkable communication challenges in its internal communication climate.

Some of the communication challenges that the firm is experiencing relate to language barriers coupled with social and cultural differences. These challenges have significant effects on the firms efforts to nurture effective interpersonal connection amongst the top management and lower level employees.

Employment relationship

The relationship between employees and employers is fundamental in organisations operation. Lack of such relationship may affect the employees morale and productivity adversely. This assertion arises from the view that the success of the organisation is dependent on the contribution between employees and employers.

Cornelissen (2011) asserts that the employment relationship is characterised by the concept of psychological contract between the two parties. Upon joining a particular organisation, employees assume that they will be treated honestly and fairly.

Additionally, employees expect employers to observe justice and equity, and thus communicate effectively regarding possible changes and developments. Moreover, employees are of the perception that their loyalty will be reciprocated through various avenues such as assurance of job security and recognition.

Organisations in the oil and gas industry are increasingly focusing on improving their performance in order to survive in the turbulent business environment. Subsequently, the firms are increasingly adopting project-based approach in their quest to achieve the desired level of growth.

For example, the intensity of competition in the oil and gas industry is pressurising BP to increase its investment in offshore oil and gas exploration. However, the firms success in such projects will be influenced by the relationship developed between the firm and its employees. This assertion underscores the importance of integrating effective employee relations strategies.

Employee engagement

The firms success in a competitive business environment will be subject to the level of employee engagement developed. It is imperative for BP to develop a high level of employee involvement in the decision making process. This move will play a fundamental role in minimising the likelihood of the firm experiencing a high degree of resistance from employees in its quest to implement diverse organisational changes.

One of the ways through which the firm can achieve this goal is by eliminating bureaucracy with regard to internal communication. For example, the firm should ensure that employees and supervisors interact freely. Nurturing effective employee involvement will aid in developing positive perception regarding the firms policies and decisions (Leat 2011).

Employee motivation

The effectiveness and efficiency with which employees execute their duties is affected by their morale. Subsequently, it is imperative for organisational managers to nurture the level of motivation. One of the ways through which this goal can be achieved is by assigning employees challenging tasks to give them an opportunity to grow. Moreover, delegating tasks will develop a sense of relevance in the firms operations.

BP should consider adopting the concept of delegation in its HR management practices in order to provide employees with an opportunity to progress through their career, which can be achieved by assigning some of the managerial activities to low-level employees.

Subsequently, employees will feel trusted, which leads to an increment in the level of their commitment towards the organisation. Moreover, employee motivation can be achieved by incorporating an effective reward system that integrates both monetary and non-monetary gains and benefits as illustrated by the diagram below.

Source: (Leat 2011)

Conflict management

The existence of conflicts between an organisations employees and top-level managers cannot be eliminated. Such conflicts may affect employee relations adversely. Currently, employees in different economic sectors are demanding higher levels of remuneration in order to enable them meet their financial obligations.

On the other hand, organisations are facing financial constraints arising from the changes in the economic environment. Failure to balance the employees needs and organisational constraints may dent a firms image. Subsequently, HR managers have an obligation to manage such conflicts through a win-win strategy (Leat 2011).

Technological changes

Innovations in information communication technology have led to significant changes in organisations human resource management practices. For example, development in information technology has led to the emergence of diverse web-based communication platforms such as social networks [Facebook, Twitter, blogs, and wikis].

Turner et al. (2010) assert that different communication platforms and mediums support specific information context and expressiveness. Additionally, the various internal communication tool adopted is characterised by unique strengths and weaknesses.

In an effort to develop a strong workforce, it is imperative for a firm to adopt an effective employee recruitment and selection strategy. Currently, organisations are increasingly using social networks in recruiting employees by posting job description and job analysis on social media platforms.

This trend has arisen from the efficiency of communicating through social networks in reaching a large number of potential job candidates. Moreover, advertising job vacancies on social media is relatively cost effective compared to using conventional mediums such as newspapers.

Additionally, social networks have remarkably improved the effectiveness with which organisations undertake workplace communication. Thus, in its quest to transform itself into a competitive firm in the oil and gas industry, it is essential for BPs management team to select a mix of the most effective communication tools.

Development in employment law

The employment environment is undergoing significant developments with regard to the legal aspect. Currently, organisations are facing an increment in the level of diversity within the labour market. In an effort to ensure equality in the workplace, different legislations are adopting strict regulations in an effort to eliminate discriminative practices amongst employers.

For example, governments are formulating legislations such as the Disabilities Act, the Race Relations Act, and the Faire Employment Act in an effort to protect job candidates with diverse physical challenges (Inagami 2008).

Employers are required to provide equal employment opportunities to all job candidates irrespective of their demographic characteristics such as race, nationality, gender, sexual orientation, and religious beliefs amongst other variables.

Therefore, firms are required to eliminate any form of discrimination in their recruitment practices. Failure to adhere to the set employment laws may lead to huge legal costs in addition to damaging an organisations image.

Conclusion and recommendations

Developing effective people management skills is fundamental in organisations quest to develop sufficient competitive advantage. This analysis shows that BP is facing diverse challenges emanating from the business environment. Some of the challenges that the organisation is currently facing relate to technological changes, new labour force trends, workplace communication, employment laws, and significance of employee relations.

Despite these changes, firms have an obligation to survive in the long term. This analysis shows that the effectiveness with which a firm survives in the long term is dependent on the success with which it formulates and implements effective people management strategies and practices.

The above analysis shows that integrating effective people management practices in the BPs strategic human resource management practices will increase the likelihood of developing sufficient competitive advantage with regard to human capital. Subsequently, it is imperative for the firms management team to focus on the following aspects.

1. The firm should nurture a high level of employee involvement and engagement in order to improve their job satisfaction.
2. BP should invest in employee training programs in order to assist employees achieve their career development objectives.
3. The firm should adopt an effective internal communication strategy [top-bottom and bottom-up] in order to improve the level of engagement amongst employees.
4. The firms management team should constantly review the employment laws in order to eliminate the risk of non-adherence.

Reference List

Abram, L, Cross, R, Lesser, E & Levin, D 2003, Nurturing interpersonal trust in knowledge sharing networks, Academy of Management Executive, vol. 17 no.4, pp. 64-77.

Aguilera, R & Dencker, J 2004, The role of human resource management in cross-border mergers and acquisitions, International Journal of Human Resource Management, vol. 15 no. 8, pp. 1355-1370.

Baines, G 2009, Meaning Inc: the rise of the 21^st century company, Pearson Education, New York.

Cornelissen, J 2011, Corporate communication; a guide to theory and practice, Sage, New York.

Inagami, T 2008, New developments in employment discrimination law, Japan Institute for Labour Policy and Training, Tokyo.

Leat, M 2011, Employee relations, Edinburg Business School, Edinburg.

McNall, L, Masuda, A & Nicklin, J 2010, Flexible work arrangements, job satisfaction and turnover intentions; the mediating role of work-to-family enrichment, The Journal of Psychology, vol. 144 no. 1, pp. 61-81.

Ryan, S, Windsor, J, Ibragimova, B & Prybutok, V 2010, Organisational practices that foster knowledge sharing across distinct national cultures, International Journal of Emerging Transdiscipline, vol. 13 no.2, pp. 131-158.

Thomas, F, Zolin, R & Hartman, J 2009, The central role of communication in developing trust and its effect on employee involvement, Journal of Business Communications, vol. 46 no. 3, pp. 287-310.

Turner, T, Qvarfordt, P, Biehl, J, Golovchinsky, G & Back, M 2010, Exploring the workplace communication ecology, FX Palo Alto Laboratory Incorporation, San Francisco.

Executive Summary

People engage in tourism for different purposes such as pleasure, recreation, holiday, sport, business, visiting friends, missions, meetings, conferences, studies and religion purposes among other reasons. According to tourist travel motivation, one is subjected to specific regulations. Success in international tourism market is attained by its overall attractiveness and the integrity of the services delivered to the visitors which must exceed that of many other alternative destinations open to the potential visitors.

There exists a model of destination competitiveness which is linked to a set of indicators that allow identification of the relative strengths and weaknesses of different tourism destinations. The model is used by various industries and governments to raise tourism numbers and to monitor its expenditure and other economic impacts. The notion of destination competitiveness is consistent with the notion of ‘competitiveness’ in the international business and economics literature.

Sustainable tourism is the processes that satisfactorily meet the tourist and host communities’ demands, and those which ensure the future of the society is protected. These sustainability issues are being addressed by the government at the local, regional and national level and international levels. The other ways have been the given role of privatization of tourism sector which is common in many countries.

The issue of competitiveness and sustainable tourism is a major concern in the business community and in the tourism sector. It increasingly addresses the face of growing globalization and more intense domestic competition. This is an issue that is receiving attention by the industry, government and academics in the international phenomenon.

The increased pressures of establishing foreign markets and world trade organization especially tourism businesses no longer relies on protectionist policies set by their governments to sustain their survival. To ensure survival in the global market, a country should be in a position to identify inefficiencies that exists within the governance so that they can be rectified.

Introduction

Destination competitiveness is strongly associated with the ability of the destination to convey services and goods of better utility. Tourism competitiveness includes the cost and attractiveness of the place being toured and has been viewed as the capacity of a place to sustain its marketability over time. Tourism competitiveness has also been defined as the ability to create and integrate value added products which sustain its resources while maintaining its market advantage in relative to competitors (Dwyer and Kim 2).

In this paper, competitiveness is defined as both a relative concept and a multifaceted concept. It is associated with four major groups of thought namely a) comparative advantage perspective b) a strategy and management perspective c) a historical and socio–cultural perspective and d) development of indicators of national competitiveness. The paper also discusses the concept of international sustainable tourism and how the two concepts inter-relate to each other in international tourism industry.

Destination Competitiveness

According to literature, comparative advantage together with price competitiveness arises from the recognition of the potential importance of destination price competitiveness in influencing visitor flow. Price sensitivity is a major factor that affects travelers in certain markets. Price is influenced by the destination technological advancement, the prevailing policies, industry competition and influences from multinational enterprises.

Strategy and management perspective arises from appreciating the importance of the tourism resources which influence and sustain competitive advantage (Dwyer and Kim 2). This basically implies that to attain the sustainable competitive advantage, the institution should focus more on developing and maintaining meaningful assets, skills and strategies that will exploit the resource to the maximum to neutralize the competitors’ assets and skills. These resources will range from skills of employees, assets, cash flow.

Capital investment, organization structure, organization environment, alignment and its strategic, generic planning which is customer oriented. Considering the fact that destination competitiveness must be essentially linked to the competitiveness of the tourism industry, the exploitation of the above named variables is recognized in the model destination competiveness (Dwyer and Kim 2).

Destination competitiveness is also influenced by history, politics and culture of a place. Morals, cultural values and moral discipline of a place develop climate that can influence destination competitiveness in positive or negative way. However, not all influences on the destination competitiveness are objectively quantifiable. As a matter of fact, in tourism context, there is distinction that is involves reality of the situation (crime statistics on tourist’s victims and price competitiveness) and their effect on tourists’ perceptions.

For instance, in terms of security, comfort levels and aesthetic appeal to the tourist. Tourist perception should be separately recognized in the destination competitiveness model. There exists arguments for developing tourism competitiveness model arguing that there is fundamental difference between the nature of the tourism ‘product’ and those other of goods and services.

For instance, in tourism, comparative advantage relates to climate scenery, flora, and fauna whilst competitive advantage relates to tourism infrastructure such as hotels, events attractions and transport networks, the quality of management, skills of workers and government policy.

On this note, a country’s resources are very imperative when it comes to competitive advantage in international tourism. These resources usually do not suffer depletion despite the fact that people pay for their use. This explains why tourism product is virtually a different form of economic exchange than the sale of physical resources (Dwyer and Kim 3).

Indicators o f destination competitiveness

There exists a model of destination competitiveness suggested by various authors. This model adjoins the major elements of national and firm competitiveness with the main elements of destination competitiveness. This model categorizes the determinants of the destination competitiveness under several major headings.

To signify the value of resource base for destination competitiveness, core resources are dividend into a) inherited (endowed) and b) created. Inherited resources are further grouped as natural (mountains, Lakes, rivers etc) and Cultural (handicrafts, language, customs etc).

The core resources, supporting factors and resource are major the attributes of destination competitiveness that attract tourists and form the foundation for sustainable tourism industry and the foundation for destination competitiveness (Dwyer and Kim 4). Destination management factors improve the appeal of the core resources, as well as the supporting factors improve the quality and competitiveness of the destination.

These may include Destination Management organizations, Destination Marketing Management, Destination Policy, planning and development amongst others. Demand conditions consists of “demand awareness, perception and preferences” (Dwyer and Kim 4). Awareness is generated through marketing activities. Tourism depends on the equivalence between what is preferred and what is perceived. Situational conditions are the forces in the external environments that influence tourism in one way or another.

These relates to the economic, social, cultural, political, legal and governmental policies to regulate tourism. These trends and events in a destination can impact tourism by preventing opportunities and threats to their operations. However, to sustain the destination competitiveness the tourism must not only be sustainable economically but also ecologically, socially, culturally and politically as well (Dwyer and Kim 4).

Sustainable tourism

Visitation of sites of cultural and natural significance dates from the time of Greek Antiquity. This is evidenced by the invention of the Seven Wonders of the World by Hellenistic. Currently, about 157 countries have ratified the World Heritage Convection of 1972. This heritage is devoted towards protecting the Worlds cultural and natural heritage.

Other 582 sites are said to be inscribed on the UNESCO World Heritage list. There are various and most common terminologies used to define sustainable tourism. They include eco-tourism, green travel, environmentally and culturally responsible tourism, fair trade and ethical travel. These words suggested are also the accepted definition for sustainable tourism by the World Tourism Organization (Enderson 1).

Sustainable tourism is defined as the “tourism which leads to management of all resources in such a way that economic, social and aesthetic needs are fulfilled while maintaining cultural integrity, essential ecological process, and biological diversity and life support systems” (WTO 1). It also suggests that sustainable tourism is the processes that satisfactorily meet the tourist and host communities demands, and those which ensure the future of the society is protected.

These sustainability issues are being addressed by the government local, regional and national level and international levels. The other ways have been the given role of privatization of tourism sector which is common in many countries (WTO 1).

There are four strategic approaches that have been identified to minimize the adverse effects of tourism on the protected area to sustain tourism internationally. These included the management of the supply demands of the tourist. This is enhanced via increasing the space and the time to ensure it is enough space for accommodation. Secondly, the visitation demand should be managed in the proper manner.

The demand can also be managed through establishing restrictions on the duration of stay, the number of tourists in a given protected area and the determining the type of the activities that are environmentally friendly. Then, it is suggested that the resources can be managed through hardening of the sites and the specification and developing the facilities and the capabilities that era essential to the environment and the tourists.

This would in turn manage the impact of use, which would modify the type and the use on the protected areas. Additionally, the ICLEI puts the major policies’ being addressed in sustaining the tourism industry to include the promotion of national strategies for sustainable development in the tourism industry. The promotion entails the decentralization of environmental management to regional and the local levels.

Other management practices involved are the use of both regulatory mechanisms and the economic instruments with the support of voluntary initiative by the community and the government to the industry. Eventually, all that effort will lead to sustainable tourism not only at the international level and to the whole world at large (WTO 5).

Relationship between destination competitiveness and International sustainable tourism

To attain a sustainable international tourism and destination competitive advantage, the institution should focus more on developing and maintaining meaningful assets, skills and strategies that will exploit the resource to the maximum to neutralize the competitor’s assets and skills. These resources will range from skills of employees, assets, cash flow. Capital investment, organization structure, organization environment, alignment and its strategic, generic planning which is customer oriented (UNCSD 3).

Considering the fact that destination competitiveness must be essentially linked to the competitiveness of the tourism industry, the exploitation of the above named variables is recognized in the model destination competiveness. For example, Chinese tourism has been low for a long time due to the political instability and economic situation of China. China has been amongst the leading emerging markets in the global village (Verhelst 10).

The secret between China successes in most of its sectors including tourism industry lies in its ability to associate domestic competitiveness and sustainable tourism, thus attracting more tourists and investors in the country. A good example is the China smooth and friendly bilateral relations with Kenya. This cooperation has had a rapid headway in areas of electric power, communications, investment and project contract.

The bilateral economy and trade agreements signed between China and Kenya such as the Agreement on economic and technological cooperation between People’s Republic of China and the Republic of Kenya and the Agreement on promotion and protection of investments in 2001. The two countries have signed a total of 12 bilateral accords over the past three years (Onjala 23).

Additionally, this bilateral relation has expanded cooperation in the fields of culture and education, health, tourism and environmental protection and sport build up for mutual understanding and friendship between the two nations.

Chinese has also invested in tourism sector such as creation of direct flight connections between various destinations. Another example of destination competitiveness is the introduction of “Approved Destination Status.” This is a mechanism where the China government has made it easy for outbound tourism industry. This involves easy Visa processing and good relations to the countries where visitors hail promoting tourism industry (Lim and Wang 1; Anon 1).

Works Cited

Anon. (2008). A fair go for tourists compliance for the tourism industry in Australia. Government of Australia, 2008. Web.

Dwyer, Larry and Kim Chulwon. “Destination competitiveness and Bilateral Tourism flows between Australia and Korea”. The Journal of Tourism Studies 14.2 (2003): 1. Web.

Enderson, Kris. Sustainable Tourism and Cultural Heritage: A review of development assistance and its potential to promote sustainability. NWHO, 1999. Web.

Lim, Can, and Wang Yan. A time series analysis of Chinese Outbound Tourism to Australia. Modelling and Simulation Society of Australian and New Zealand, 2003. Web.

Onjala, Joseph. “Scoping Study on China Advice Economic Relations: The case study of Kenya”. African Economic Research Consortium (AERC), 2008. Web.

UNCSD. Tourism and sustainable development: Sustainable Tourism; A nongovernmental organization perspective. Department of Economic and social affairs, 1999. Web.

Verhelst, Veronique. Study of the outbound tourism industry of the Peoples republic of china: the probability of a bilateral ADS Agreement between the PRC and the Shengen Area. Ethesis, 2003. Web.

WTO. An extension of the WTO manila declaration on the social impacts of tourism1997. Global Code of Ethics for Tourism, 1999. Web.

Abstract

The success of tourism destinations in world markets is influenced by their relative competitiveness. The aim of this study was to establish determinants of enhancing the extent of tourism destination competitiveness. Primary data was collected through self-administered structure questionnaires. A convenience sampling strategy was used in this study, with a sample size of 250 respondents having been selected. The obtained information was analyzed through descriptive statistics. The results showed that improving the attractiveness of the tourist destination is one of the factors that help in improving its competitiveness. Support resources were, however, not found to have any effect on the tourists’ destination competitiveness. It is therefore critical to recognize that performance enhancement and the introduction of a proper positioning strategy in the tourism market are dependent not only on a destination’s ability to attract new visitors but also on the destination’s ability to introduce appropriate product differentiation techniques with the help of a sustainable framework for natural and cultural resources management.

Introduction

Competitiveness is a wide concept that may be seen from several perspectives, such as goods, economic sectors, or national economies, in the short or long run. Competitiveness is defined in both micro and macro terms. From a macro viewpoint, Streimikiene et al. (2021) define competitiveness as a major national issue, which suggests that the ultimate goal is to increase the community’s actual income. It is viewed as a phenomenon occurring on a corporate level from a micro viewpoint. To remain competitive, every firm must produce products and services that fulfill the modern consumer’s never-ending needs.

Previously, tourism destinations felt that having merely tourists, destination resources, inexpensive wages, and favorable exchange rates was enough to compete and succeed in the international tourism sector. This strategy resulted in the development and execution of strategies and policies geared primarily at increasing visitor flows. In most cases, the results were not as predicted, calling this technique into doubt. Empirical research on destination competitiveness continues to differ across authors and, consequently, between destinations, demonstrating that competitive criteria for destinations cannot be the same for all locations (Streimikiene et al., 2021). For example, research by Alseiari et al. (2019), on the competitiveness of Hong Kong as a South-East Asian international conference location. According to Alseiari et al. (2019), housing, as well as the related notions, including conventional facilities, were viewed as essential tourist choices. Similarly, the presence of accessibility, the consistent focus on safety, and the development of a robust infrastructural system represented crucial aspects of the tourism industry. In their examination of Seoul as an important aspect of the tourism infrastructure, Cronjé and du Plessis (2020) identified service quality, the infrastructure and vehicles within the transportation system, amenities provided, such as meeting rooms, and destination appeal as important factors to consider when selecting a location. Long-term profitability and ongoing patronage are critical in gaining a competitive edge.

China’s tourism competitiveness is based on five fundamental dimensions: destination management, tourist resources, tourism superstructure, infrastructure, and destination-supporting variables. According to Hanafiah and Zulkifly (2019), South Africa has a variety of characteristics that make it a potentially lucrative tourist attraction. Specifically, the extent of political and economic stability, massive opportunities for building marketing strategies, focus on quality, and the extent of food diversity should be mentioned. United Nations World Tourism Organizations’s strategy (UNTWO) posits that destination competitiveness is one of the primary topics linked with the development of the target venue since it makes destinations especially lucrative and sustainable in the long term (Hanafiah & Zulkifly, 2019). Additionally, the available evidence indicates that elements influencing the profitability of the target venue include investment opportunities, its brand image, options associated with innovation and branding, and the associated issues.

The worldwide market has become more competitive, offering a challenge to the tourist sector as well as other businesses. This rise has fueled fierce rivalry among destinations to enhance their market share. Over the past couple of years, Asia has gained major traction in the global economy as a source of tourism destinations, threatening Europe’s and North America’s historic supremacy, with variety and distinction playing an important role in the competition (Hanafiah & Zulkifly, 2019). Due to heavy rivalry among global tourist destinations, Africa has had a reduced proportion of worldwide tourism distribution. The research utilizes the framework of Ritchie and Crouch’s destination competitiveness model (Kovačević et al., 2018). The level of competitiveness observed in a destination can be interpreted as being inherently dependent on the robustness of core resources, the variety of attractors, as well as the related resources, and the efficacy of the management framework.

Literature Review

This chapter evaluated the literature on the following topics: theoretical framework, tourist destination concepts, the competitiveness of tourist destinations, approaches to managing and maintaining a tourism destination, the efficacy of destination attractors’ performance, the robustness of support resources, and the framework for destination management.

Research by Boivin and Tanguay (2019) details that the combination of competitiveness and attractiveness allows for enhancing the extent of the appeal of tourist destinations. Specifically, the application of the conceptual model developed by the authors helps determine the connection between the two variables. The authors go on to say that the more a place represents the thoughts and opinions of its guests, the more appealing it is seen to be and likely to be picked. Reisinger et al. (2019) agreed that the appeal of a tourist area motivates visitors to visit and spend time there. As a result, the primary value of destination attractiveness is the enticing influence it has on travelers, without which tourism could not exist. Seyfi et al. (2020) discovered that cultural factors are one of the factors that attract international conferences to European locations. Castillo-Manzano et al. (2021) all contributed to the idea that towns with venues that serve as crucial historic sites attracting the attention of tourists are more appealing to both conference attendees and visitors in general.

Bakker (2019) classified inherited, developed, and support resources as having diverse features that make a location appealing to visitors. Furthermore, Bakker (2019) divided inherited resources into two categories, namely, natural and cultural ones. He considered encouraging active development of aspects and resources, namely, the infrastructure, the efficacy of performance, the extent of service accessibility, and the level of hospitality) as the cornerstone for a successful tourist sector. According to Dos Anjos and Da Rosa (2021), natural and sociocultural roots represent the main selling point of Slovenian tourism. In his study, Sekhniashvili (2020) proves that cultural legacy, as well as the robustness of resources, are crucial factors causing an increase in destination competitiveness. According to Tien et al. (2021), tourist managers value the specified resource type more than developed resources and the efficacy of their management.

Location resources, according to Bakker (2019), are assets that are linked to the concept of a destination. These are characterized as strategic assets that define how active a place may be. They also claim to be the primary resources on which a destination’s tourism is built. Luštický and Štumpf (2021) assert the overwhelming significance of developing destination service infrastructure as an instrumental part of enhancing tourist experience. Reisinger et al., (2019) stressed the importance of individual visitor well-being and the importance of considering destination attractiveness as a significant predictor of TDC. Castillo-Manzano et al. (2021) developed a quantitative model of four TDC determinants: tourist resource endowment, as well as the characteristics such as tourism reception capacity, the level of its industrial strength, and the extent of support provided within the respective services. It is also critical to recognize that the beauty of a place is the key motivator for establishing a successful tourist sector.

Research Aims and Objectives

Main Aim and Objective

This study seeks to locate core determinants of improving tourism destination competitiveness.

Specific Objectives

1. To investigate the connection between tourism destination attractors and destination competitiveness rates.
2. To determine the effects that resources have on tourism-related entrepreneurship.
3. To study the impact of destination management and the associated strategies for managing destination on the extent of competitiveness of the tourism destination.
4. To investigate the effects of safety and security on the possible correlation and causation between tourism destination competitiveness and the essential determinants thereof.

Research Hypotheses

H₀₁: Attractiveness of a destination does not chive a cause-and-effect connection to tourism destination competitiveness.

H₀₂: Support resources in a destination do not create a cause-and-effect connection to tourism destination competitiveness.

Methodology

Research Design and Data Collection procedures

This section considers the most effective research methodology, design, and data collection techniques for this study.

Research Design

An explanatory research design was used in the study. According to Sovacool et al. (2018), the approach is suitable for obtaining data on people’s views, attitudes, opinions, and sentiments about a variety of social concerns. However, Abutabenjeh and Jaradat (2018) define its goal as describing the current condition of circumstances. It was also great for gaining a better grasp of the key aspects of improving tourist destination competitiveness.

Target Population

The study targeted population was mainly people on social media. Questionnaires were sent to targeted populations via specific social media handles. Respondents were given a period of two days to fill up the forms and sent them back. The target population included primarily freelance participants and hence was not quantifiable.

Sample Size

The sample size consisted of 250 respondents who were tourists visiting the destinations under study.

Sampling Procedure

Convenience sampling creates a sample by locating persons who are suitable or available. A sample size of 250 visitors visiting the destinations was chosen using convenience sampling. This approach was great since it made it simple to recruit respondents and collect data in a short amount of time.

Research Instrument

Research instruments refer to the methods used in collecting data and they can either be qualitative or quantitative. Unlike qualitative data gathering techniques, where data is gathered by interviewing and observing, quantitative data gathering involves measuring and counting to get data. Furthermore, in quantitative, data is analyzed by use of statistical analysis tools, while in qualitative, data is analyzed by grouping.

Data was gathered via questionnaires. A questionnaire is a set of questions that is written and delivered in order to elicit replies (Abutabenjeh and Jaradat, 2018). Closed-ended questionnaires were also incorporated to collect the data relevant to the study. Due to the opportunity to maintain the reliability of the obtained information high, the specified framework was exceptionally useful. The selected research instrument simply had one component that included questions about study variables. Short sentences were offered on a Likert scale containing five key points, allowing respondents to express their opinions, ranging from strong agreement to strong disagreement.

Data Analysis

Eviews (Web), a statistical tool was employed for the analysis. The independent variable, namely, the strategic determinants considered for this research, and the dependent variable, specifically, the destination competitiveness of specific tourist locations, were analyzed using inferential analysis. With the help of a multiple regression analysis, a conceptual model was developed to examine the variables under analysis and the correlation between them. Due to the number of variables, the specified conceptual model was regarded as the most suitable one.

Hypothesis Testing

The study utilized the Z-test as the means of examining the possible correlation between the extent of destination competitiveness and the relevant factors. Specifically, the principles of Z-statistics were applied.

Discussion

Overview

This chapter demonstrates the key findings of the study. The demographic variables studied as part of the descriptive statistics were respondents’ age, as well as their visits frequency. The findings were structured in accordance with the goals. The study’s goal was to identify the primary variables for boosting tourist destination competitiveness. As a result, strategic determinants were the independent variable, whereas destination competitiveness was the dependent variable.

Response Rate

Only 250 (83%) of the 300 copies of the study questionnaires supplied were returned. Sovacool et al. (2018) details that the response rate was sufficient since it approached 60%.

Correlation Results

The study tried to determine if there is a link between the factors under consideration. Destination attractors, as well as resources for supporting the business and destination management, were the independent factors. Destination competitiveness represented the main moderating variable, whereas the dependent variable was the extent of tourists’ safety and the level of their security. According to the core findings, safety and security are positively correlated with both of the dependent variables, namely, attractors and resources. The findings agree with Hanafiah and Zulkifly (2019) assertion tourists’ choices regarding the attractiveness of a certain venue are defined by factors such as safety. Streimikiene et al. (2021) identified transportation safety records, corruption of police as the related authorities, including the administration, sanitation quality, illness outbreak prevalence, quality/reliability of medical services and medicines as significant qualifying variables of the extent of destination competitiveness.

Resources and management strategies are likewise positively and strongly associated, indicating their equally robust contribution to a destination’s success. This supports Hanafiah and Zulkifly’s (2019) conclusions that it is crucial for a destination to demonstrate an acceptable level of progress in order to compete with similar alternative locations. The findings agreed with Sekhniashvili (2020) who discovered that the cornerstone for developing a lucrative destination is closely connected to the issues associated with the infrastructure, which offers access to critical resources. Luštický and Štumpf (2021), on the other hand, argued that competitive forces varied in determinacies and relevance and are country-dependent.

Destination management was also shown to be positively and substantially connected with core attractors. This demonstrates that appropriate management of attractors contributes to a destination’s successful growth and development. Luštický and Štumpf (2021) found similar results, stating that the management process should incorporate the actions that enhance the appeal of core resources. Tien et al. (2021) agreed that in order to gain a competitive edge, management should be able to maintain the multidimensional elements of the tourism framework in balance. Positive correlation was also located between support resources and attractors, which aligned with the findings by Boivin and Tanguay (2019). Bakker (2019), who offered a classification of core resources needed to increase the appeal of a tourist destination, supports the specified claim.

Hypothesis Testing

To test the hypothesis, an analytical comparison of the independent and dependent factors involving the regression analysis was performed. The generalized Linear Model was applied to both models. The Z-statistic was used to evaluate if the null hypothesis should be rejected, and the likelihood ratio test, also known as the LR test, was utilized to evaluate the quality of fit for the specified frameworks. The two models’ LR statistics were significant (8.066; p-value=0.0450.05 and 20.546; p-value=0.005 0.05), indicating a regression link observed in the relationships between the variables.

The findings indicate that there is a clear correlation between the variables under analysis. Specifically, the Generalized Linear Model shows that the coefficient, standard error, z-statistics, and probability for the destination attractions are -0.812, 0.318, 2.550, and 0.011, respectively. For destination management, these are -0.523, 0.342, -1.530, and 0.126; whereas for support resources, these estimate -0.443, 0.259, -1.711, and 0.087 correspondingly. Finally, for the constant, the specified variables are 4.589, 1.038, 4.423, and 0.000. In turn, Regression Model 2 demonstrates the following rates for destination management: -4.133, 1.620, -2.552, 0.011; the support resources: 2.276, 1.421, 1.602, 0.109l; safety and security: 2.497, 1.375, 1.816, 0.069; safety and security in regard to destination management: -1.155, 0.365, -3.165, 0.002; safety and security in regard to support services: -0.628, 0.328, -1.910, 0.056; and safety and security as it pertains to destination attractions: 1.231, 0.385, 3.195, 0.001.

The Effect of Attractors on Competitiveness of a Tourist Venue

The idea that there was no positive correlation between destination attractors as the essential component of the tourism business and the level of destination competitiveness was rejected since the data proved that attractors for specific destinations had a substantial positive influence on the competitiveness level of the venue. The observed trend means that the beauty of a destination is the key motivator for a visitor to choose a certain trip. The data support Vengesayi’s (2017) claim that beauty increases the popularity of a tourist site. Bakker (2019) concurs that destination attractors are significant in influencing tourist destination competitiveness. To gain a competitive advantage, a location must guarantee that its total appeal as far as its landscapes, culture, and overall experience are concerned is greater than that of other alternative locations.

Support Resources: Impact on the Extent of Destination Competitiveness

The null hypothesis for the specified aspect of the analysis was not rejected. Consequently, support resources have little impact on a destination’s competitiveness in the Western tourism circuit. Luštický and Štumpf (2021), on the other hand, believe that supporting variables and resources, including infrastructure, accessibility, and opportunities for entrepreneurship, create the essential basis for developing a successful tourist destination. Reisinger et al. (2019) also suggested that a destination must have a robust framework of offerings in regard to the range of destinations, as well as the quality and diversity of services.

Conclusion

The hypothesis regarding the extent of attractiveness for a specific destination, as well as its competitive advantage, tried to determine whether or not there was a link between the variables. The study has returned results that showed that destination attractiveness has a substantial influence on destination competitiveness (=0.812; p=0.0110.05). The second hypothesis tried to determine whether or not there was a link between resources and the competitive rates of a destination. As the data (=-0.443; p=0.0870.05) illustrates, the level of impact that support resources have on the dependent variable can be regarded as insignificant enough to be dismissed.

According to the research, the attractiveness of a tourist destination influences and hence enhances its competitiveness. As a result, it is critical to recognize that a sufficiently positive rise in the opportunities for promoting the services in the tourism market are dependent not only on the extent to which a specific venue attracts visitors but also on the extent to which the provided services and products are differentiated. In turn, the specified movement can be achieved by allocating the respective resources, including natural and cultural ones. The destination’s marketing strategy should be extended to include diversity. The poor attendance of visitors within the range of the service attractions should cause the relevant stakeholders involved to increase their promotional efforts.

Reference List

Alseiari, H. et al. (2019) ‘Tourism destination competitiveness in UAE: The role of strategic leadership and strategic planning effectiveness’, International Journal of Recent Technology and Engineering (IJRTE), 8(4), pp.860-865.

Abutabenjeh, S. and Jaradat, R. (2018) ‘Clarification of research design, research methods, and research methodology: A guide for public administration researchers and practitioners’, Teaching Public Administration, 36(3), pp.237-258.

Boivin, M. and Tanguay, G.A. (2019) ‘Analysis of the determinants of urban tourism attractiveness: The case of Québec City and Bordeaux’, Journal of destination marketing & management, 11, pp.67-79.

Bakker, M. (2019) ‘A conceptual framework for identifying the binding constraints to tourism-driven inclusive growth’, Tourism Planning & Development, 16(5), pp.575-590.

Cronjé, D.F. and du Plessis, E. (2020) ‘A review on tourism destination competitiveness’, Journal of Hospitality and Tourism Management, 45, pp.256-265.

Castillo-Manzano, J. et al. (2021) ‘Assessing the tourism attractiveness of World Heritage Sites: The case of Spain’, Journal of Cultural Heritage, 48, pp.305-311.

Dos Anjos, F.A. and Da Rosa, S. (2021) ‘Measurement of competitiveness of nature-based tourist destinations: Application to national parks in brazil’, Journal of Environmental Management & Tourism, 12(5), pp.1204-1219.

Hanafiah, M.H., and Zulkifly, M.I. (2019) ‘Tourism destination competitiveness and tourism performance: A secondary data approach’, Competitiveness Review: An International Business Journal.

Kovačević, N. et al. (2018) ‘Applying destination competitiveness model to strategic tourism development of small destinations: The case of South Banat district’, Journal of destination marketing & management, 8, pp.114-124.

Luštický, M. and Štumpf, P. (2021) ‘Leverage points of tourism destination competitiveness dynamics’, Tourism Management Perspectives, 38, p.100792.

Reisinger, Y. et al. (2019) ‘Destination competitiveness from a tourist perspective: A case of the United Arab Emirates’, International Journal of Tourism, 21(2), 259-279.

Seyfi, S. et al. (2020) ‘Exploring memorable cultural tourism experiences’, Journal of Heritage Tourism, 15(3), pp. 341-357.

Streimikiene, D. et al. (2021) ‘Sustainable tourism development and competitiveness: The systematic literature review’, Sustainable Development, 29(1), pp. 259-271.

Sekhniashvili, G. (2020) ‘Wine tourism destination competitiveness: The case of Georgia’, Ecocycles, 6(1), pp.39-51.

Sovacool, B. et al. (2018) ‘Promoting novelty, rigor, and style in energy social science: Towards codes of practice for appropriate methods and research design’, Energy Research & Social Science, 45, pp.12-42.

Tien, N. et al. (2021) ‘Sustainability of tourism development in Vietnam’s coastal provinces’, World Review of Entrepreneurship, Management, and Sustainable Development, 17(5), pp.579-598.

Introduction

Swimming is one of the most popular sports in the world. One can derive pleasure from swimming as well swimming can be carried out as a sport. This article examines the competitive aspect of swimming within United States. Sport clubs are very vital in enhancing competitive sports and consequently this paper will examine the running of Dynamo Swim Club to shade light on competitive swimming in the US.

Types of Clubs

Swim clubs are recognized as the backbone of USA Swimming. Swim clubs are typically divided into three types: the parent governed clubs; the coach owned clubs; and the institution owned clubs.

The Parent Governed Clubs

This is the most common model in the US. This model of clubs is nonprofit and its governance is through a board of directors. The board of directors is predominantly constituted of the parents. The USA swimming national governing body has set up policies which have to be adhered to when setting up a parent governed club (USA Swimming, 2011).

Coach-Owned Clubs

This model represents most of the successful competitive clubs in the US. The clubs falling in this model are privately owned. Private swim clubs are under the jurisdiction of the USA Swimming national governing body (USA Swimming, 2011).

Institution-Owned Clubs

Clubs falling under this category are owned by institutions. The institutions have to meet some specific conditions for them to be allowed to operate a swim club. The institution owned clubs are as well under the jurisdiction of the of the US swimming national governing body (USA Swimming, 2011).

Dynamo Swim Club

The Dynamo swim club was started in 1964. It is an example of a parent governed club; “it is operated and owned by Dynamo Parents Club Inc” (Dynamo Club, 2011, p. 1). The club has two swimming facilities, the Alpharette and Chamblee; the club has been quite competitive at various levels of swimming.

The club is governed by a parent club board with Bob Anderson being the current president of the board. The head coach for Dynamo swim club is Jason Turcotte. The club mission statement is “To have nationally recognized aquatic programs that build on a tradition of excellence by teaching and training all levels of swimmers combining individual development with team unity in a family centered organization” (Dynamo Club, 2011, p. 1).

Board of Directors

The board of directors is made up of nine members. The table below gives the names of the board of directors’ names and their responsibilities:

The Coaching Staff

The coaching staff is made up of 16 members out of whom 12 are coaches. The table below gives the analysis of the coaching staff.

Head Coach – Jason G Turcotte

Jason is the 8^th head coach of Dynamo and joined the club in 2006. He undertakes the coaching of the SR1 group at Chamblee. He is also in charge of the Dynamo programs and all developments. Before coming to Dynamo, Jason was at Lake Erie Silver Dolphines, Naperville Riptide Swim team, and at Stanford University. He has also coached the Olympic elite athlete.

Lead Coach – Rich Murphy

Rich Murphy is greatly experienced as a coach. He has previously been a coach for the Tigers at Auburn University. Rich also coached the Falcons at the Bowling Green state University acting at the capacity of an assistant coach. His coaching experience is quite great as illustrated below:

From 2001 to 2005, Rich was at Arizona State University. While at ASU, Rich was Head Coach of Sun Devil Aquatics from 2003 to 2005 – a Gold Medal Club as recognized by USA Swimming, at the time. During Rich`s last season with the club, he coached two athletes who were number 1 in the USA in their events (3 events overall) for their age group, he coached a Mexican National Record, and he had athletes set 3 individual Arizona State Records.

On a whole during Rich`s time with Sun Devil (2001 to 2005), he had athletes achieve 2004 Olympic Trials qualification, over 50 Top 16 list-making times, plus 9 individual and 12 relay Arizona State Records. At ASU, Rich was a Graduate Assistant Swim Coach for Arizona State during the 2002-2003 season (NCAA finish: Women – 11th, Men – 10th) and Volunteer Assistant Coach for the Sun Devils during the 2001-2002 season (NCAA finish: Women – 10th, Men – 14th).

Rich is an American Swim Coaches Association Level 5 certified coach (Top 3% of coaches nationally) and is a World Swim Coaches Association Member. Rich has also coached at Palo Alto Stanford Aquatics (formerly Palo Alto Swim Club) and at Los Altos Mountain View Aquatic Club. (Dynamo Club, 2011, p. 1)

Dynamo Swim Club Programs

There are four programs run by Dynamo club: competitive team, swim school/lessons, Dynamo juniors program, and home school program.

Competitive team: this is a program meant for those seeking personal development as well as those seeking to develop as a team at competitive levels.

Swim School/Lessons: this program is meant to offer aquatic lessons. The age allowed to join this program is 6 months and above.

Dynamo junior program: this is a six week session program that is offered for those seeking quality aquatic lessons but not in a competitive level.

Home school program: this program is offered in both swimming facilities of the club. This program is meant for home school swimmers.

Dynamo Group Structure

Member Registration

Club officials have to carry out an evaluation before placing a new member into one of the four programs. There are time slots dedicated to the evaluation activity for people willing to join the club. The evaluation activity involves the person wishing to register engaging in one or more laps of the four competitive strokes.

For those wishing to engage in advanced swimming, the athlete may be required to engage in more swimming. The evaluation will also include the short and long term objectives of the athletes. Typically, the evaluation activity will take between 30 and 40 minutes to be complete (Dynamo Club, 2011).

Corporate Social Relations

Corporate Social Relations (CSR) is quite vital for an organization; CSR makes it possible for an organization to foster a good relationship with the community from which it draws it resources (Blueble, 2006).

Creating a good relationship with the community is especially very significant for an organization whose services are aimed at the public (Krotee & Bucher, 2006). The Dynamo swim club has been engaged in a number of community projects some of which include “Atlanta Food Bank, The Lionheart School, Ronald McDonald House, Camp Sunshine, and Nicholas House” (Dynamo Club, 2011, p. 1).

Conclusion

Swimming is a sport as well as a leisure activity. The USA swimming is the national governing body in the US. Dynamo is a parent governed club. The club has two swimming facilities which are used to run its programs. The club has 16 members in the coaching staff headed by Jason Turcotte.

The club members are offered four programs to choose from. The club has five group structures: home school division; AG3 division; AG2 division; AG1 division; and senior division. The club engages in corporate social relations with some of the past community projects carried out by the club being Atlanta food project, camp sunshine among others.

References

Blueble, E. (2009). Corporate Social Responsibility: CSR Communications. New York, NY: GRIN Verlag.

Dynamo Club. (2011). Home. Dynamo Swim Club. Retrieved from: http://www.dynamoswimclub.com/

Krotee, L. K & Bucher, C. A. (2006). Management of Physical Education and Sport. New York, NY: McGraw-Hill.

USA Swimming. (2011). Home. USA Swimming. Retrieved from: https://www.usaswimming.org/home

Introduction

The dynamics of the business environment has continued to complicate the way business is conducted through out the world, in terms of its competitiveness in differentiating countries economic growth. Mok (2006) observes that because the phenomenon of globalization has been extensively used in the world, specifically in admired discourses and policy issues, it describes ways in which the world is progressively more interrelated, organized, competing and interdependent through a set of socially reinforced processes. For instance, he notes that the global infrastructure which is technology based, developed as a knowledge base economy, increases and is a measure of competiveness (Mok 2006). Competitiveness, is according to him should be measured in Porter’s summery of processes including among others, integration of markets, nation states and technologies to a scale that is aiding individuals, corporations and distinct governments to access and ‘navigate’ the world much more, rapidly, deeper and by less costly methodologies (Mok 2006)

Review of Countries Competitive Ranking

On the whole the competiveness index does not necessarily represent the reality on the ground. Gray (2008) argues that it lacks both empirical and theoretical cut-and-dried approaches. On the other hand and to a great degree, the World Index Scoreboard is to a great extent on point and accurate. The industrialized countries listed as toping the indexing cannot be ignored (Gray 2008). This is because a country’s prosperity predominantly depends on growth in productivity often influenced by government policy intervention programs which largely define other measures outlined in Porter’s factors on evaluating and ranking a country’s competitiveness. The choosing by countries for higher living standards for the citizenry is an indicator of competitiveness and the desire to compete. Moreover, the World Competitiveness Indices seem to be in concurrence with the reality depicting most European Union Countries trailing countries like Japan and the United States, and showing that of the G-7 countries, Italy is at the bottom of the competitiveness. In summary, while the competitiveness indices are still imperfect and that their methodologies should be further worked on, they give very realistic figures as far as country ranking is concerned (Harrison et al. 2008)

Harrison et al. (2008) reckons that the World Competitiveness Scoreboard evaluates competiveness of different countries in an arguably reliable way because it also includes factors such as executive opinion from various people holding managerial positions in international and domestic firms and corporations across the world. Indeed, even expert opinion indicates that the six Latin American States (Brazil, Argentina, Chile, Mexico, Venezuela, and Colombia) represent the most and significant component of the most competitive countries in the larger Latin America region. They capture not only most of the richest countries, but also most populous and largest countries (Harrison et al.2008).

Overall, the World Competiveness Scoreboard takes into a count most of competitive factors explored by Porter. These include broad measurement of a country’s domestic macro-economic strength, the degree to which a country participates in global trade and flow of investment as well as the nature of capital markets in terms of performance.Others includes the degree of managing businesses while taking care of innovation and profitability as well as government policy-programs conduciveness to promote competitiveness. Moreover, issues like human resources in terms of quality and availability as well as empirical assessment of technological capacity and research are also considered (Tempeir 2011). According to Tempier (2011), all these take into account inter-linkage of trade aided in two ways: universal financial links and information, both of which are tailored connections made possible due to hunger for trade.

Evaluation Based on Personal Consumer Experience

Based on my consumer experiences, I do not think the ranking is missing out on any country. Most countries that we would have ‘loved’ to be on top like China are probably not there due to a number of factors. As Porter notes, a country does not become more internationally competitive based on one factor or a few alone. Instead, to be competitive, there is of a need of mutually reinforcing systems and balancing of determining factors. For this reason, Latin American, Asian and African countries, should endeavor to support and work on other factors including research and development, skilled personnel and technological advancement.

Further, educational curriculum that emphasizes international languages such as English, have been emphasized by most governments and other countries are only catching up (Mok 2006). Besides various Multinational companies influence many countries to increasingly get ‘’locked into a cutthroat competitive bidding process’’ for investments. These processes give such companies the opening to ‘’play off one bidder’ in opposition to another and countries which do not conform are edged out in trade competition and therefore growth. Examples of such policies would be that they require education in those countries to be reorganized down the market angling of their investment, with policies more tweaked to promote a better design of human resource team to meet up their labor requirements (Gray 2008).

Other Factors that Capture World Competiveness Today: The Extent to Which International Security at the Ports are Addressed and Managed: Focus on the Supply Chain

International security at the ports particularly in respect of supply chain is important in measuring countries competitiveness. Tempeir (2011) exposes the meaning of supply chain in this context as the international principles of practice which facilitate administration and management of customs and their partners in order to enhance security of the ‘global trade supply chain’ while at the same time ensuring that lawful goods go through. He agrees that effective facilitation of trade is one of the key contributors to a sound economy and competiveness in the global spectrum. Recognizing that as economic development marries with other demands such job creation, protection of the environment and elimination of poverty, he contends that trade at the ports should be well handled (Tempeir 2011).In a global economy, there has been undying talk about the need to be security complaint at various ports given threats that terrorist posit and portend, and issues such as money laundering, smuggling of items, and organized crime.

All these have meant an increase in security concerns leading to stringent security measures being placed on international goods transit, to curb such menace and to promote effective revenue collection. Thus a country that works on these concerns better seems to edge others in global trade (Tempeir 2011). In fact the dilemma posited by this development led to the World Customs Organization (WCO) initiating its own ‘Framework of Standards to secure and Facilitate Global Trade’’. This development recognized international trade reality in the present times, and took care of such concerns as bringing in a tradition of safer and secured international trade and the WCO unanimously agreed for its adoption in Brussels, in 2005. It is believed that with this development, facilitation of international trade will be smoothly handled (Tempeir 2011).

References

Gray, J 2008, False Dawn: The Delusions of Global Capitalism. New York, British Conservative Intellectual.

Harrison, J, Hokinson, R, Hitt M, Ireland R, 2008, Competing for Advantage (2nd ed., Mason, Ohio, Thomson-Southwester.

Mok, K 2006, Education Reform and Education Policy in Asia Pacific, NewYork, Routledge.

Tempier, L 2010, Security and facilitation of the international trade supply, GFP.

Introduction

Competitiveness refers to the productivity of a nation‘s resources. This productivity arises from a combination of domestic and foreign firms. Through competition, an organization creates wealth and jobs; offering the most productive environment for businesses in any nation. The public and private sector plays a great role in creating a productive economy.

Microeconomic competitiveness is determined by the quality of the national business environment, the state of the cluster development and the complexities of a company’s operations and strategy. Therefore, productivity ultimately depends on improving the microeconomic value of the aforementioned concepts to improve the microeconomic capability of the economy.

Body

National macroeconomic competitiveness has been a Key focus point of the national policy debates over a long period of time. For example, Laureate Paul Krugman challenged the concept competitiveness arguing that nations usually do not compete with one another in a zero–sum game, but rather they benefit from each other’s successes through mutual beneficial trade.

Other alternative approaches put forward by other authors focus on the measure of a nation’s competitiveness. Competition elsewhere has been defined as the nation’s ability to produce, distribute and service goods in the international economy in comparison to the other products produced in other countries (Hasset 2).

It was not until recently that Michael Porter, a prominent advocate of competitiveness concept, related the welfare of a nation to the microeconomic factors which determine the competitiveness of a firm. According to Porter, competitive advantage implies that a firm is more productive than the rival firms.

The model explains that competition at the national level is extended due to the interconnection of micro reforms in the marketplace. The competitive interests have resulted to a number of indexes consistent with Porter’s view. The two most important are the Global Competitiveness Report of the World Economic Forum (WEF) and the report by the International Institute of Management Development IMD in the World Competitiveness Year book.

Additionally, various institutions have developed their own ranking and evaluation systems. According to the Global competitiveness report, competitiveness refers to an institution’s policies and factors that determine the level of productivity of an organization or a country. They agree with Porters’ view that the role of firms is to remain productive whilst the role of the government is to establish the environment for productivity (Hasset 3).

Evidently, much discussion of competitiveness and economic development has focused on the macroeconomic, political, legal and social circumstances underpinning success in a nation’s economy. It is well established that sound fiscal and monetary policies accompanied by a trusted and efficient legal context and stable set institutions contribute greatly to healthy economy. However, the broader conditions are crucial but insufficient to provide the opportunity to create wealth.

Wealth is created in the microeconomic level of the economy. It is rooted in the complexities of an organization’s strategies, the operating practices as well as the quality of the microeconomic business environment where the nation’s firms should compete. Therefore, unless there is appropriate improvement at the microeconomic level, the macroeconomic, political, legal and social reforms will not bear full benefits (Porter 1).

The microeconomics of competition focuses on evaluating and comparing the complex array of national circumstances that support high and sustainable level of productivity measurable by GDP per capita. It aims at moving beyond the examination of the broad, aggregate variables in the most typical economic growth analyses to that of establishing a framework for countries and companies to understand their detailed competitive strengths and weaknesses.

The microeconomic approach also highlights that improvement in competitive potential is not the simple linear process in which an organization must progress on but rather a successful economic development requires nations to develop the ability to compete increasingly in ways that support higher wages and national income (Montiel 303). As a matter of fact, more than 80% of the variation of GDP per Capita across countries is accounted for by microeconomic fundamentals.

Despite the micro reforms in larger institutions such as International Monetary Fund, findings show that without Micro reforms, growth in GDP induced by sound macro policies, market openings and privatization do not translate into improvements in GDP Per capita. Appropriate micro reforms which boost productivity and productivity growth ease in a great extent the government’s challenges in meeting the fiscal obligations and in reduction of macroeconomic distortions.

Additionally, micro economic reforms ease the political pressure on governments trying to defend macroeconomic stabilization and the market opening against vested interests. It results to monopolies losing their grip, businesses reforming themselves, increased opportunities for employment and entrepreneurship increased more than government interventions would do (Porter 20).

Conclusion

To continue to have a momentum of economic performance in the world, there is a pressing need to look into the microeconomic competitiveness reforms. The reforms should focus on narrow standards approaches that embrace domestic competition, increase stringent environmental standards and policies to meaningfully boost the skills and opportunities of individuals at the microeconomic level. This is because countries’ competitiveness depends largely on the productivity of their companies.

Works Cited

Hasset, Kevin. Rethinking competitiveness. American Institute for Public Policy Research, 2011. Web.

Montiel, Peter. (2011). Macroeconomics in Emerging Markets. Cambridge, UK: Cambridge University Press.

Porter Michael. Microeconomics of competitiveness: Firms, Clusters and economic development. Harvard Business School, 2012. Web. <https://www.hbs.edu/Pages/default.aspx>

Introduction

National competitiveness is an important economic indicator which determines the ability to compete in international markets while maintaining or improving living standards over time. From a national viewpoint, the objective of international trade is to increase total national wealth and national living standards¹. A country is competitive if it trades in a reasonably free and open market environment, produces goods and services and trade, and, by implication, balances its accounts while simultaneously maintaining and expanding the real income of its citizens. The notion of competitiveness and the ability of a nation to compete on the global scale was analyzed and discussed by many economists. Classical economy and modern economic tradition try to determine the main factors and influences important for a nation-state to achieve a leading role in the global economy. Critics admit that to compete in the new world economy nations must adopt new production practices and trade policies².

Smith and Ricardo developed the main of national competitiveness explaining the main factors which helped a state to compete with other nations. Modern economists extend their assumptions and add the role of natural resources, foreign direct investments and national advantages. Michael Porter goes beyond traditional economic approach underlining the role of factor conditions, demand conditions, relating and supporting industries, strategy, structure, and rivalry between firms. Thus, these theories have some weaknesses and limitations in their frameworks. The aim of the paper is to analyze the beginning and development of national competitiveness theory, and discuss the main similarities and weaknesses of the theories. The paper consists of an introduction, four chapters and conclusion

Classical Economy

According to classical tradition, economy was understood as the management of the material affairs of the nation (polis). The “science” of classical economy consisted of the laws and principles that should guide statesmen in their capacity as administrators and legislators³. A contribution by classical economists has been their search for an understanding of the varying linkages over time between nations and the ‘outside’ world. How and to what extent do intra-state and also inter-firm relationships provide efficiencies in the allocation of resources over borders and add to overall economic growth? Sometimes nations have not only responded to conditions within the world economy, but have had profound impact on the course of those circumstances⁴.

Adam Smiths’ Theory

Classical economy theory began with publication of work of Adam Smith “The Wealth of Nations” in 1776, where he wrote that “invisible hand” leads all individuals in their motivation of self-interest to produce the greatest benefit for society and community⁵. In contrast to previous knowledge, Smith narrowed the object of political economy, as implied by its etymology, from the general “material affairs of the nation” to the much more restrictive “nation’s wealth,” a restriction of meaning that was often alluded to by critics of Smith and his followers⁶.

According to Smith, a society made up of self-interested men measures its well-being primarily in quantitative terms. Social prosperity from one year to the next, from one generation to the next, is dependent on the increase in the marketable value of economic goods men labor to produce and to trade. Second, society as a whole is a self-regulating mechanism. If one believes that in a free market competitive trade among individuals serves to prevent selfish passions from becoming destructive, it follows that man’s common social destination will take care of itself. Thus, the health of a capitalist society is not the result of a comprehensive rational design⁷. It is found in the extent of that society’s ability to facilitate its members’ desires to satisfy their own separate material needs. Finally, politics has no positive moral value or purpose in a capitalist society⁸.

Statesmen and legislators understand that their subjects do not pursue trade and profit for the conscious purpose of increasing the wealth and prestige of the state. Since the public good is founded on economic prosperity and growth, and not the proper activity of citizens, men with political power see that their primary responsibilities are legislative and administrative improvements that facilitate further increases in trade and profit. Smith states that production of income and strongly rejected governmental interference and restriction of any kind. In his view the ideal economy is a self-regulating market system that automatically satisfies the economic needs of the populace⁹.

In terms of classical economy, Smith emphasized that commerce satisfied social passions as well as social needs. Profits that lead to luxury or comfort represent hollow satisfactions unless accompanied by social recognition. Money-making may not be virtuous activity strictly speaking, but it surely involves some “communicating of pleasures to others”¹⁰. More important, it also explained the cosmopolitan nature of commercial civilization¹¹.

Free pursuit of profit required commercial men to cross all political and cultural boundaries. With the advance of commerce, local interconnectedness brought about by economic activity extended to the whole world. Commerce may have been divorced from virtue, but it was wedded to peace. Adam Smith thought that the case for economic freedom turned on an accurate appraisal of the relationship between men and their governments. The “Wealth of Nations” also was held together by a series of theoretical couplets including productive/unproductive labor, production/consumption, town/country, commerce/agriculture¹², East/West, ancient/ modern–designed to provide a multiplicity of perspectives, not all of them positive, on man’s pursuit of wealth¹³. As a working analytical principle in Smith’s work, it meant that capitalists seek to employ their capitals in those lines of production that yield the greatest profits, that workers seek to sell their labor in the market in which it will fetch the highest wage, and that consumers seek to buy the objects of their desires in the cheapest markets¹⁴.

It was also seen as “the master spring” of human industry and exertion¹⁵. The principle of self-interest would probably not have been regarded as so fundamental had it not been so closely associated with the principle of liberty. That principle asserted that people, if left to pursue their own interests in their own ways, would, without intending it, promote the interest of the nation as a whole. In Smith’s words:

The most effectual plan for advancing a people to greatness is to maintain that order of things which nature pointed out; by allowing every man, as long as he observes the rules of justice, to pursue his own interest in his own way, and to bring both his industry and his capital into the freest competition with those of his fellow citizens¹⁶.

Underlying this principle was the concept of the market as essentially self-regulating. The outcome of its self-regulation would be, it was believed, in modern parlance, the optimal allocation of the nation’s capital and an equitable distribution of income. The principle of liberty was the basis of the economists’ advocacy of free trade and laissez-faire, and was the fundamental tenet of the ideology of “liberalism.” Another of the most conspicuous of the economists’ principles was the quantity theory of money–that the exchangeable value of the currency is roughly proportional to the quantity of currency in circulation¹⁷. Upon this principle were built most of the political economists’ analyses of the monetary system and, in particular, their diagnosis of the effects of the suspension of the gold standard that took place in 1797 and continued until 1821¹⁸.

David Ricardo’s Theory

Another important theorist and economist who followed ideas by Adam Smith was David Ricardo. His work, “Principles of Political Economy and Taxation” (1817) is a running commentary on Smith’s views of the subject. Ricardo “Principles” was seen by many at the time to stand on its own merits as a classic of political economy, and Ricardo was seen by some as a “second founder of the science.”¹⁹ In spite of Ricardo’s influence and notoriety, Smith remained the preeminent master of the science, and those unpersuaded by Ricardo’s revisions continued to praise in as high terms as ever the authority and insight of Smith²⁰.

Ricardo’s contribution to the proceedings that did the most to raise his name to public attention and associate political economy with the bill that ultimately put a plan to resume into effect, came in the second half of the investigations by the committees. In his book, Ricardo developed a theory of comparative advantage and stated that a nation has a comparative advantage if it produces goods and services more efficiently than another nation. This theory became a basis for modern Heckscher-Ohlin model. It is significant that Ricardo’s challenge to Smith’s authority had a considerable impact, for it was Ricardo and his followers, through their efforts as political reformers, who did the most to bring political economy to the attention of the public and most actively to bring it to bear on issues of political relevance²¹. Ricardo states: “The value of a commodity, or the quantity of any other commodity for which it will exchange, depends on the relative quantity of labor which is necessary for its production, and not on the greater or less compensation which is paid for that labor”²². Ricardo emphasized especially the dampening effects upon capital accumulation that the restriction of imports would entail. Ricardo stated that countries could benefit from relative costs of production participating in international trade; it could lead states in production specialization acquiring as consequence comparative advantage²³.

Free Trade and Competitiveness in Classical Economy

One was that freedom of trade gives the most efficacious encouragement to the exercise of human effort and industry, which for Smith was the immediate source of the nation’s wealth. This followed directly, although perhaps somewhat naively, from Smith’s fundamental principle that there is in every man an inextinguishable “desire to better his condition.”²⁴ Thus to inhibit the exercise of human industry by inhibiting the opportunities of individuals to employ their capital and labor as they see fit would be to cap the nation’s wealth at its source. Another argument was that commercial freedom would encourage improvements in the productive power of labor by giving the freest scope possible to the development of the division of labor²⁵.

The division of labor, the greatest single source of improvements in the productive power of labor according to Smith, was limited mainly by the extent of the market. It could not help but be facilitated by freeing the development of competitive markets or be inhibited by restricting the range allowed to market activity. The third argument was that it would naturally and necessarily lead to the employment of the nation’s capital and labor in those lines of production most beneficial to the nation as a whole. In “Wealth of Nations”, Smith wrote:

Every individual is continually exerting himself to find out the most advantageous employment for whatever capital he can command. It is his own advantage, indeed, and not that of society, which he has in view. The study of his own advantage naturally, or rather necessarily, leads him to prefer that employment which is most advantageous to society²⁶

This is the fabled “invisible hand” argument. Implicitly it contains the notion of a market economy as essentially self-regulating, whose inner logic and laws of motion, so to speak, derive from man’s natural propensities and the nature of the production process. In short, the argument is that as a result of free competition, production comes naturally to be suited to the desires of the people at a minimum cost to the nation²⁷.

Under such a regime the prices of commodities, including labor, and the quantities of commodities brought to market are continually seeking their natural level as determined by competition. If the production of a good is less than this natural level, its market price will exceed its “natural” price. Profits to be derived from its production will exceed the natural rate of profit, and as a consequence capitalists seeking to better their condition will move their capital out of less profitable lines of production and into the production of the good yielding higher than normal profits²⁸. This will have the effect of increasing the supply of the commodity and reducing its price to its natural level, the one that will afford to capitalists the normal rate of profit. Moreover, in continually seeking to undersell their competitors and thereby garner a larger share of the market, capitalists will seek to employ those methods of production that entail the lowest costs. Hence an economy in which there is free trade will be continually and automatically adjusting production to match the desires of the community at the lowest cost²⁹.

Notably, the period 1815-1825 saw the introduction of two new and innovative arguments in favor of a free international trade. Ricardo was the man most responsible for their propagation if not their formulation, although he had a sizable hand in the latter as well. One was an argument for free trade in general. It has come down to us under the name of the “theory of comparative advantage,” which proposes that it is in the interest of a nation to import goods in exchange for exports that would cost the nation less than what the imported goods would cost if produced domestically³⁰.

Thus it would be in the nation’s interest if it could trade exports valued at, say, £100 for imports that, if produced domestically, would be valued at over £100. By such trade the nation could transfer the capital freed by the import of the previously domestically produced good to the further production of the exported good and end up as a result with more of both goods available for domestic consumption. Indeed, all of this would happen automatically, without the need for any governmental intervention. Ricardo showed that such trade was advantageous even if one country could produce both goods at a lower cost than the other³¹.

What was necessary for trade to benefit both countries was that there be a comparative difference in the production costs of the traded commodities. The other innovation in the set of arguments in favor of a free international trade developed by Ricardo was the argument based on the celebrated theory of diminishing returns in agriculture. It was Ricardo, however, who in the same year made the most stunning use of it. The theory held that in well-settled countries additional applications of capital and labor to agriculture, either in improving lands already in cultivation or in extending production to previously untilled lands, would result in successively smaller additions to output³².

On the basis of this “law,” Ricardo and others reasoned that an increasing population requiring increasing quantities of food for its support could be supplied only at increasingly higher costs. The effect would be to increase not only the costs of food but also the rent obtained from the better land already under cultivation. Hence profits would be squeezed, dampening accumulation in the nonagricultural sectors of the economy³³.

Although then the rise in the price of most of our own commodities, would for a time check exportation generally, and might permanently prevent the exportation of a few commodities, it could not materially interfere with foreign trade, and would not place us under any comparative disadvantage as far as regarded competition in foreign markets³⁴

The effects of protecting domestic agriculture and keeping out low-cost foods that could be imported from the European continent would be to encourage the extension of agriculture to poor soils, raise the costs of food, engorge the incomes of the landed classes, and restrict the expansion of manufacturing.

A Contemporary Economic Theory

Contemporary economic theory takes its roots in classical tradition including Smith’s and Ricardo’s concepts. Contemporary economic theory defines a competitive nation as a nation with a growing economy that is creating jobs and lifting incomes without inflation, and that is getting the most from its natural and human resources³⁵. In short, a competitive nation is one that has what economists would call a healthy, vibrant economy. Most trade between developed countries is intra-industry trade, which means that at a high level of aggregation of products (e.g. electronics or automobiles), developed countries have similar macro-level location advantages. The key explanation of this phenomenon is product differentiation, combined with the presence of scale economies and therefore imperfect competition³⁶.

Competitiveness

That means that competitiveness is an issue of the standard of living: the state (nation) needs to balance its accounts while maintaining or expanding the standard of living of citizens. At bottom national competitiveness defined this way is a living-standard issue that boils down to a productivity issue, because improving a nation’s international competitiveness depends fundamentally on productivity growth rates. That does not mean just increasing productivity; in an integrated world economy, rates of productivity increase must compare favorably with those of major foreign competitors³⁷.

In order to achieve the strongest international competitive advantage, there must be cooperation between the public and business sectors. In other words, a nation will maximize its competitive advantage when both government and firms pool their competitive advantages together. Competitive advantage along with locationspecific advantages should be integrated in the design of a firm’s overall international strategy.

In modern economci theory, competitiveness, as seen by an individual firm is its view of its current and projected ability to sell and to profit in international markets or, at a minimum, to compete successfully with foreign firms in the market³⁸. Competitiveness would look very much the same from the standpoint of individual industries. In political economy, competitiveness is associated with “unit labor costs, from which it follows that many will move production abroad if they can find cheaper labor there³⁹. These propositions generate a particular model of the political dynamic inspired by globalization”⁴⁰.

That is an important point in the sense that the competitiveness of individual firms and industries can perhaps be enhanced by dollar depreciation, by wage cuts, by overseas sourcing of production, and even by U.S. import restrictions. If most of the firms in an industry are competitive in the sense of being able to make a profit and if they are not losing out to foreign competitors in foreign markets or their own market, they would consider themselves internationally competitive⁴¹.

Absolute Advantage and Comparative Advantage

Absolute advantage refers to the ability of nations to produce more efficiently than other. It is presumed that nation has absolute advantage in relation to another when less inputs are required to produce same quantity of outputs. “Most of this literature, looks for the ingredients of absolute advantage, i.e. it identifies factors more of which will improve the performance of any economy”⁴².

The other results tend to reinforce conventional views concerning the sources of comperetive advantage for the United States. Imports are significantly higher in industries which are either labor-intensive or rapidly expanding. Imports are lower for products which are protected by tariffs or produced by high-wage industries abroad. Exports are strongest in U.S. industries characterized by workers with high education levels and by high expenditures on research and development. There is also some evidence that imports are higher in energy-intensive sectors and that net imports are higher in sectors which are dependent on nonrenewable resources (excluding petroleum) ⁴³.

These results confirm that many industry characteristics, with the notable exception of unions, are important in determining U.S. trade flows. Also, it is possible to speak about comparative institutional advantge. “The basic idea is that the institutional structure of a particular political economy provides firms with advantages for engaging in specific types of activities there. Firms can perform some types of activities, which allow them to produce some kinds of goods, more efficiently than others because of the institutional support they receive for those activities in the political economy, and the institutions relevant to these activities are not distributed evenly across nations”⁴⁴.

Comparative advantage should affect the volume of activity in an industry for a given country; it is by no means manifest what the effects of the workings of comparative advantage on the size of the largest firms should be, unless the industry volume is below the optimum. It can also be argued that comparative advantage in the context of intra-industry trade and investment is hard to capture at this level of aggregation. Despite these caveats, these findings point to the importance of competition through technological and product differentiation in advanced industrial markets rather than through comparative advantage resulting in specialization⁴⁵.

Location Advantage

The standard Ricardian model concludes that comparative rather than absolute advantage of nations leads to trade and gains from trade. Even if the country possesses a superior technology that would make it the more efficient producer of any good, it will, subject to a number of conditions, specialize in only that product for which it is comparatively most efficient in terms of labour productivity⁴⁶. This also implies that the other country, with an inferior technology, will still have an implicit location advantage in producing the second product. The Heckscher-Ohlin model builds upon the availability of identical technologies in the two countries, but also the presence of two production factors (labour and capital) and concludes, again subject to several critical assumptions, that each country will specialize in the product that, in relative terms, requires the most intensive use of its most abundant production factor⁴⁷.

More specifically, the labour abundant and capital abundant country will export the labour intensive and capital intensive product respectively. Follow-up work, building upon the Heckscher-Ohlin thinking has led to a relaxation of most assumptions of the original model, allowing analyses to be performed that recognize the presence of many goods and many production factors. The two key conclusions usually continue to hold, however; first, an abundance of a particular production factor in one country gives this country a location advantage for the manufacturing of products that make an intensive use of the abundant production factor⁴⁸.

Second, an increase of a specific production factor will not lead to a homogeneous expansion of the country’s output. It will shift production and trade toward products that make the most intensive use of the expanding factor, hence strengthening the country’s apparent location advantage for that product. The explanation of trade based upon the comparative, macro-level advantage of countries in terms of the availability of technology or production factor abundance has undoubtedly proven useful to explain trade patterns between countries at very different levels of economic development⁴⁹.

Although the identification of location advantages clearly becomes much more complex when international production is involved, the predicted direction of the trade flows associated with natural, resource seeking FDI is largely consistent with conventional trade theory. The home country will export capital intensive products with a high knowledge content. The host country will primarily export resource based or labour intensive products with a low technology content. In addition to the four main motives for FDI, additional motives appear equally related to location factors⁵⁰.

First, escape investments, typically made to avoid home country restrictions (e.g. regulation of laboratory tests on animals, limitations on the range of services that can be provided in the financial services industry, etc.) obviously reflect the absence of government restrictions elsewhere. Second, trade supporting investments (e.g. to aid in purchasing of inputs, logistics activities, after sales service, the liaison with host governments, etc.) precisely aim to facilitate home country imports or exports through building on host country location advantages⁵¹.

Productivity

Productivity refers to quantity of the goods and services produced per unit of input. Role of the productivity is to define living standard, where nations that can produce high level of goods and services can enjoy high living standard. Resources that determine productivity are physical capital, human capital, national resources and technological knowledge.⁵² Physical capital represents all nonhuman asset made by humans, tools and equipments, and infrastructure which are used to produce goods and services. Quality and advancement physical capital, or just capita, stipulates quality of products and services, thus nations with higher living standard tend to have sophisticated equipment which allows them to produce at higher volume requesting better price.⁵³

Gross Domestic Product

The gross domestic product (GDP) deflator can greatly help to explain the different levels of productivity in a relatively large number of countries. For instacne, popular impressions sometimes outrun the realities of the US situation, and an antidote needs to be injected. U.S. productivity and per capita income level are still the highest in the world based on purchasing power comparisons. In the latest data available, Japan ranks sixth among the twenty-four OECD countries in per capita GDP, approximately three-quarters of the U.S. level. Nevertheless, this could change in little more than a decade should recent trends persist. “GDP generally is defined as the market value of the goods and services produced by a country”⁵⁴.

Each of the leading national capital goods companies makes substantial capital expenditures to restructure plants and reduce manufacturing costs in order to become more competitive. Investment spending influences the technological level of a nation by creating the opportunity for introducing technical changes. Research and development spending is another form of investment in new technology, most of which is charged to current operations by businesses. A third form of spending, not often thought of as embodying some investment, is that involved to establish distribution outlets, service, finance, and other support facilities offering opportunities for change and improvement in the delivery of products and services⁵⁵.

Foreign Direct Investments

Foreign direct indestments (FDI) can be devided into three main catagories: FDI seeking natural resource, market seeking FDI and efficiency seeking FDI⁵⁶. These types of investments have a great impact on national and foreign economy and competitiveness of the nation. Natural resource seeking FDI occurs when firms identify specific host country locations as an attractive source of natural resources at the lowest real cost. However, even in this case, additional location advantages such as good transport infrastructure, an effective institutional and legal framework, etc. have been identified as critical.

In this case, FDI is usually associated with the exports of resource based products from the host country. However, this may in turn improve the location advantages of the home country both for the production and exports of goods which use the imported resources as a low cost or high quality input. As intra-firm trade replaces inter-firm trade, an unfavourable taxation regime in a specific country—whether the home or host nation—can even be overcome as a location

disadvantage by shifting profit, but not the production itself from the nation with the unfavourable regime. FDI should therefore not be viewed solely as an outcome of existing location advantages but it may be instrumental to the creation of new location advantages⁵⁷.

Market seeking FDI is more difficult to reconcile with conventional trade theory because it usually has an immediate import substitution effect (except if trade barriers made imports impossible in the first place), but often also leads to trade creation⁵⁸. This occurs, for example, when the newly established subsidiary uses intermediate outputs from the home country in its own production process, when it becomes a leveraging platform for additional exports in other product areas for the home country and finally, when its production is not used only to serve a host country market but also third country markets. Location advantages of specific countries may shift over time as exemplified by the international product cycle A net exporter of innovative products may switch to market seeking FDI and may later become a net importer of the same, but now standardized, product⁵⁹.

Efficiency seeking FDI leads to even higher complexity as regards the location advantages of the countries involved. First, this type of FDI is usually trade creating at the firm level, because it reflects a rationalization of the MNE’s operations and typically a specialization of the various affiliates in its internal network. This increases both intra-firm knowledge and goods flows, and the international exposure of the affiliates. An in-depth, fine grained analysis, of FSA and location advantage bundles at the affiliate level is then required to understand exactly how location matters to the firm. Here, it is important to understand the specific role given to or earned by affiliates in the company⁶⁰.

They may act as ‘globally rationalized’ subsidiaries performing a particular set of activities in the vertical chain or have a regional or world product mandate. In the case of a vertically integrated chain consisting of several, globally rationalized businesses, intra-firm trade is likely to increase, building upon the location advantages benefiting each subsidiary, thereby leading to an increase of both intermediate goods trade and international production⁶¹.

Substantial intra-industry FDI can now be observed, reflecting the differential firm specific advantagesof rivals in an industry but also the similar location advantages of countries, as both the source nation and recipient of FDI. Even within a single MNE, complex intra-firm flows of knowledge and goods can often be observed, reflecting sophisticated bundles of location advantages and firm specific advantages, and resulting in complex network linkages among the various affiliates. Dunning (2000) in a survey of the field studies on FDI, already identified thirty location advantages viewed as determinants of especially market seeking FDI including host country market characteristics, trade barriers, cost factors, investment climate components, etc⁶².

The third type of FDI, An interesting observation regarding internationally integrated production is, however, that the key location advantages do not appear to be related to low wages. MNEs export primarily from high labor cost countries with large markets, implying to some extent the presence of local scale economies. Even more importantly MNEs seek location advantages complementary to their own firm specific advantages, typically in the form of an appropriate infrastructure, technology development, and supporting institutions. Assets of foreign firms are secured by new plants and acquisitions or joint ventures, to create synergies with the existing pool of assets through common ownership performed in host countries rather than the home country which constitutes the key location advantage leading to FDI. To the extent that the acquired assets sourced from a host country are also linked to a localized innovation system, the MNE as a whole may get access to at least some spillovers from that innovation system. Conversely, the localized innovation system may benefit from being associated with the foreign MNE⁶³.

Innovation and Technology

In recent years there has been a steady expansion in the literature that relates the internationalization of production to the development and transfer of technology by multinational enterprises (MNEs)⁶⁴. It is a literature that can be dated back at least to John Dunning’s (1958) seminal study of the impact of US MNEs upon UK technology and productivity, and Ray Vernon’s (1966) development of the product cycle model (PCM) as an explanation of the technological dynamism associated with the growth of US foreign direct investment (FDI) in Europe in the 1950s and 1960s.. However, what is new in subsequent research is the greater focus upon the firm as a unit of analysis, and upon the theory of the firm or a theory of business, in place of the earlier focus upon the level of the country or the product⁶⁵

A crucial related theme in Dunning’s work was the association of FDI with technology gaps between countries, and how FDI may sometimes act (and sometimes not act) to narrow these gaps and permit ‘catching up’. It was when the local industry in a host European country had inherited a strong technological tradition from the past (such as in the case of the German chemical industry) that inward FDI precipitated an indigenous revival and a closing of the postwar technology gap with the US. Thus, technological change is a localized and context-specific process, and some models of international technology transfer have attempted to accommodate the implications of this insight⁶⁶.

It is not only the possibility of favourable spillovers from MNE affiliates to indigenous firms that depends upon the existent level of local capabilities, but also the feasibility of licensing the technological knowledge of MNEs to local partners as opposed to developing and exploiting technology entirely internally within the MNE. Indeed, locally technologically creative FDI and inter-firm licensing are generally complements rather than substitutes, on how MNE affiliates depend upon localized knowledge sources in their own local knowledge generation. Indeed, the realization that FDI is both easiest to attract and has the most favorable effects the greater is the innovativeness of indigenous companies, has led to an increasing interest in corporate capabilities and in the firm as a level of analysis alongside the country or the product levels⁶⁷.

Linked as well to the current understanding that Innovation and imitation or adaptation are complementary parts of a common process rather than alternatives, attention has shifted from the MNE simply as an agent of technology transfer and towards the MNE as a technology creator across national boundaries.

Natural Resources

Companies that own or access unique resources and capabilities—demonstrating unique core competencies in Hamel and Prahalad’s terms—find that international expansion gives them vast new opportunities to leverage these expensive and valuable skills. A variety of studies have shown that for American and British MNEs, international expansion leads to greater profitability, presumably because they can leverage such resources⁶⁸.

Competencies typically involve large investments in capital and managerial energy, incurring high fixed costs⁶⁹. Firms that can expand their operations widely can earn greater returns to these investments, while potentially improving the competencies through previously unconsidered applications. International markets offer many of the advantages of product proliferation while allowing the firm to remain in its primary line of business. MNEs can also access resources and build capabilities through international expansion. While many firms go abroad seeking new, more accessible markets, others (and even the same firms examined from a different perspective) go abroad to access resources that are in short supply in the home market⁷⁰.

Frms move abroad in search of less expensive labor in overpopulated developing countries, as has been seen historically for American firms locating plants in Mexico or South East Asia. Essentially, access to traditional sources of comparative advantage, cheap land, labor, or resources, is a key objective of many internationalization moves. Many such companies still see themselves as essentially domestic, but they are actually totally reliant on international sources of supply for their domestic markets. When the resources cannot move (or cannot move in sufficient quantity) to the producer, the producer must move to the resources.

Porter’s “Diamond Theory”

Definition

The most influential work on the impact of location on international competitiveness in the 1990s has undoubtedly been Porter’s study on the ‘diamond’ of competitive advantage (Porter 1990). “Diamond Theory” emerged as a consequence of the research done by Porter and his associates in 1990⁷¹. During four years, they investigate the problem of the competitive advantage in particular industries in 10 states. Porter concluded that nation succeeds in a particular industry if it has a competitive advantage. Porter argues that four interrelated elements at the level of each industry within an individual nation determine international competitiveness. These determinants include factor conditions, demand conditions, related and supporting industries, and firm strategy, structure, and rivalry⁷². Two other elements, namely government and chance are viewed by Porter as secondary determinants that may affect the strength of the primary elements. Porter foundation of competitiveness is based on productivity of national economy and it is underlying source of national prosperity.⁷³ What defines national environment in which companies are born and learn how to compete are four attributes:

1. Factor conditions. The situation in the country regarding production factors, such as skilful labor, infrastructure and all necessary for competition in domestic industry.
2. Demand conditions. Describes the state of demand for products and services in a country.
3. Relating and supporting industries. The existence or non-existence of internationally competitive supplying industries and supporting industries.
4. Firm strategy, structure, and rivalry. The conditions in a country that determine how companies are established, coordinated, administrated and that determine the characteristics of domestic competition.⁷⁴

Porter goes well beyond classical economy on explaining what competitiveness is and what new possible sources of competitive advantages are.

The determinants, individually and as a system, create the context in which a nations born and compete: the availability of resources and skills necessary for competitive advantage in an industry; the information that shapes what opportunities are perceived and the directions in which resources and skills are deployed; the goals of the owners, managers, and the employees that are involved in or carry out competition; and most importantly the pressure on firms to invest and innovate.⁷⁵

If home environment is not dynamic and does not force companies to innovate and invest it cannot be expected that firms’ performance internationally be successful. Four determinants stimulate international firms to enter or stay away from market⁷⁶. Porter’s (1990) approach constitutes an important advance on conventional economics thinking on the sources of competitiveness at the industry level⁷⁷. His comments on the importance of

1. created, advanced factor conditions as opposed to natural resource endowments;
2. sophisticated rather than large scale demand;
3. linkages with related and supporting firms; and
4. intense domestic competition, have undoubtedly been useful to both managers and public policy makers⁷⁸.

Main Determinants

For each business, the firm relies on country specific advantages of a single nation as the key source of competitiveness. The firm then creates non-location bound country specific advantages building upon the home base country specific advantages, leading to exports and outward FDI (foreign direct investments). Porter describes the firms that consist of largely independent, country based business units⁷⁹.

They derive their competitive advantages primarily from location-bound firm specific advantages that allow them to be nationally responsive. Porter reflects the case whereby the firm (or its businesses) again relies on a single home base, but here it does not lead to the firm becoming a successful exporter or outward investor. Instead, the only way to achieve survival, profitability and growth is to develop specific domestic niches. “Other parts of the “diamond,” then, influence whether a nation’s firms innovate around selective factor disadvantages rather than take the easy but less desirable solution”⁸⁰.

Porter represents firms or individual businesses within the firm which function primarily through international network linkages. These units operate in a more integrated fashion, within a structure that may take the form of a ‘global web’. It is in this case that the management of both the intra-organizational and inter-organizational networks may become very complex. The question arises where firms should be positioned that work with subsidiary world product mandates. Here, it should be emphasized that if the ‘businesses’ within an MNE are defined sufficiently narrowly, it can usually be argued that individual ‘business units’ with world product mandates indeed all function with a single home base, thus requiring their positioning⁸¹.

However, the single home base concept then becomes largely tautological (see below). It should be mentioned that Porter has refined his perspective on the importance of a single home base in more recent work⁸², recognizing the importance of foreign locations to the overall competitiveness of MNEs. However, rather than acknowledging the existence in many cases of the importance of multiple home bases for MNEs, even for individual businesses, he has now chosen to define the concept of ‘business’ or ‘product line’ in such a narrow fashion that the prevalence of a single home base can indeed be defended in most cases of world product mandates. Porter’s (1998) analysis suggests that a high percentage of core assets, competencies, and strategic decision making power concentrated in one country would lead to the qualification of a firm as being a single home based company⁸³.

In contrast, the authors argue that there must be a ‘threshold percentage’ of core assets, competencies, and strategic decision making power concentration below which a firm would be viewed as functioning with several home bases, and when one or various foreign units have built up a substantial critical mass of, e.g., R&D knowledge and are able to substantially augment this knowledge base through virtuous interactions with location advantages in host countries, the firm would again be viewed as functioning with several home bases.

At the business unit level, Porter’s perspective suggests that any business unit can be defined sufficiently narrowly (typically as a product line) so as to allow the identification of a single home base. A business unit with several product lines using different home bases would then reflect the presence of a multiple home base structure. From a normative perspective, “The causes of cluster atrophy and decline can also be found in the elements of the diamond. They can be grouped into two broad categories: endogenous, or deriving from the location itself, and exogenous”⁸⁴.

Porter’s view is more problematic as he suggests that it is impossible at the firm or business unit level to have more than one home base. His approach therefore is not testable. In contrast, the economists view the presence of one or multiple home bases as an empirical question, whereby factual evidence suggests an increased use of multiple home bases. The main challenge facing MNEs today in the location area is to combine effective access to—and participation in—foreign knowledge clusters, with efficient firm-level leveraging of the resulting knowledge base. To meet this challenge may be fraught with difficulties, for two reasons.

First, the benefits from setting up a subsidiary in a foreign, local cluster may not be easy to assess at once, as these benefits may largely depend on the actual absorption of cluster know-how. The absorption effectiveness may be very difficult to predict, given that a substantial portion of these benefits consists of cluster spill-over effects. Subjective perceptions may be critical here. This also implies that existing participants in a cluster, as well as local/regional⁸⁵.

Porter’s “Diamond Model” goes beyond simple economic development in determining preferred locations for activities. MNEs can base key product lines in order to access local competencies or regional clusters and then can apply these skills to the benefit of the entire MNE. Even within general categories of national development, regional specialization is common to many industries.

Comparison and Weaknesses of the Theories

Weaknesses of the Theories

The notions of national and economic competitiveness and Porter’s “Diamond Theory” raise heated discussions among modern scholars. Both classical and Porter’s theory have some weaknesses and limitation in their analyses and explanations of the phenomenon. Porter’s (1990) perspective has been rightfully criticized by several international business scholars⁸⁶. Dunning (1993) has argued: “To suggest the competitive position of MNEs like IBM, Philips of Eindhoven, SKF, Nestle, BAT, rests only on their access to the diamond of competitive advantage of their home countries is ludicrous—however much their initial foray overseas may have been based on such advantages.”⁸⁷.

Porter did acknowledge the strategic option for firms to ‘shift’ the ‘home base’ for specific businesses from the home country to a host country, in function of their relative country specific advantages. However, firms and industries from small open economies largely rely on international linkages, especially through inward and outward FDI as sources of competitiveness. For example, in relatively small economic systems such as Belgium in the European Union (EU) context, or Canada in the context of the North American Free Trade Agreement (NAFTA), any analysis of the sources of domestic firms’ international competitiveness needs to take into account the issue of access to foreign diamond components. Hence, a ‘multiple diamond’ approach is clearly required, as demonstrated by several conceptual and empirical studies⁸⁸.

One of the key problems of Porter’s (1990) framework is his concentration on non-location bound firm specific advantages developed by companies in their home country prior to engaging in FDI⁸⁹. As a result, he largely neglects

• the systemic advantages of MNEs resulting precisely from the common governance of internationally dispersed value added activities, each building upon an idiosyncratic bundle of country specific advantages, and
• the benefits of strategic asset seeking FDI, accruing to the MNE, whereby these assets may largely have been created on the basis of host country specific advantages ⁹⁰.

Dunning (1993) has empirically assessed the geographical sources of MNE competitiveness through a survey of 144 of the Fortune global 500 industrial firms. He found that the relative contribution of host nation country specific advantages to the MNE overall competitiveness is increasing⁹¹. On average, between 40 and 50 per cent of the location advantages’ contribution to MNE competitiveness is viewed as being derived from host countries, particularly in the areas of natural resources, linkages with suppliers and rivals, and through foreign market size. In contrast, technological capabilities and skilled labour capital still appeared to be derived largely from the home country⁹².

In The Competitive Advantage of Nations, Porter argues instead for participating in national markets with the strongest rivals and most demanding customers, in order to build international competitiveness. One difference between his two positions is explainable by the difference between a closed, domestic industry and an open, globalized industry. In a closed, domestic industry, a company accustomed to weak competitors and undemanding customers has little to fear—there is no source of new competitors who might grow strong in more demanding competitive arenas. In an open, globalized industry, such newly strong competitors abound. Porter, together with other international strategists, has also come to recognize the importance of learning in international environments in addition to simply exploiting old capabilities in new locations⁹³.

However, from an international business perspective, Porter’s (1990) framework is also associated with substantial weaknesses, especially when applying his perspective at the firm level. His framework assumes that for each business in a firm, a single home base exists which acts as the sole source of this firm’s key location advantages. These country specific advantages can then be absorbed within the firm, i.e. contribute to the development and exploitation of its firm specific advantages. Foreign nations’ diamonds can only be tapped into selectively, because a firm aiming to draw upon a foreign diamond’s strengths is viewed as always being at a disadvantage vis-à-vis firms ‘inside’ this foreign diamond system.

Given that Porter established his reputation by providing frameworks for mapping the strategic environment of businesses (the “Diamond” of national competitiveness in 1990), it is somewhat ironic that when he turned his attention to global competition, he eschewed the I-R grid in favor of his own model that mapped strategies on a two-dimensional grid made up not of environmental but of organizational variables (coordination and configuration, the latter being defined as a continuum between concentrated and dispersed).

Despite his insistence that the Integration-Responsiveness Grid didn’t capture the complexity of a firm’s international strategic choices, Porter shared the emerging unilinear view of international competition as entailing organizational convergence on a single model, which he characterized in terms of rising levels of both dispersion and of coordination⁹⁴. Although many found configuration and coordination useful concepts, the main contribution of Porter’s brief foray into the analysis of MNE organization was to reinforce the increasingly widespread perception of convergence on a single dominant model of the MNE.

Second, the international leveraging of know-how derived from participation in a cluster may also be difficult, when various MNE operations build upon diverging, specialized technological capabilities and when knowledge transfer costs are high. A complementary issue is related to the effect of MNEs on the local knowledge clusters themselves. Whether MNEs will consistently enhance the upgrading of local knowledge clusters, rather than eliminate domestic expertise and reduce long-run cluster stability in host countries is at present a much debated policy issue and an empirical question which requires substantial further research. However, on the positive side, two categories of potential benefits to clusters from MNE activity have so far been largely ignored in the literature⁹⁵.

First, high profile MNEs may through their presence in a cluster provide legitimacy to this cluster and alter the cluster’s attractiveness as perceived by other MNEs and domestic firms. In other words, a global signalling effect may arise, which may greatly contribute to the cluster’s visibility, as well as its expansion and sustainability.

The mainstream international business literature has traditionally viewed the MNE as an efficiency driven, transaction cost reducing, and welfare enhancing institution, as exemplified by J. Dunning⁹⁶.

In this work, the MNE is considered an appropriate vehicle for the transfer and exploitation of proprietary knowledge, as well as for knowledge development, and extension or acquisition across borders when alternative modes of operation are inefficient. As a result of FDI, the MNE benefits from foreign location advantages, whereas foreign locations may benefit from various beneficial MNE spill-over effects, such as the upgrading of the local supplier base, the productivity improvement of the local human resources pool, the increase in sophistication of local demand, and better customer service as an outcome of stronger competition. However, MNEs may also increasingly act as a link between sticky, localized innovation clusters. In such a case they are the unintended lubricant for international exchanges and spill-overs among these centers⁹⁷.

The main weaknesses of classical economi theories (Smith and Ricardo) are that they do not take into account GDP, productivity and countries investments. These are important elements of competitive advantage because international spread is generally associated with superior performance, as might be expected for firms applying their particular capabilities in a wider market. However, other studies have shown less apparent benefit, even for firms. Modern longitudinal studies of Japanese multinational firms suggest that increased international sales actually predict lower levels of accounting performance, although they are more likely to reflect faster sales growth⁹⁸.

The marginal costs of entering international market may well surpass the marginal benefits at some point, resulting in an eventual competitive disadvantage to ever-greater geographical spread. In today’s knowledge-intensive business world, asset-seeking investment is moving away from traditional natural resource endowments. More firms go abroad to access constructed, or man-made assets⁹⁹. Porter (1990) focuses on the role of social institutions in developing home country advantages that can be exploited in foreign markets, but it is equally the case that international expansion can access location-bound competencies that have developed in other countries¹⁰⁰.

Asset-seeking expansion may be looking for skilled labor educated and conditioned in foreign systems (often a driver of investment from less developed countries (LDCs) into the United States or Europe), technologies that have arisen in foreign industrial clusters, or business processes that are embedded in a foreign location. Companies may also seek institutional conditions more friendly to their activities, moving their financing arms to financial centers, production to areas with less restrictive labor laws, or research to countries with strong intellectual property rights enforcement. The definition of location-based assets has changed, but the objectives of asset-seeking international expansion have not, at least, not in any real sense¹⁰¹.

The main weaknesses and limitations of both theories are that they neglect the role of government in competitive advantage of the nation. Despite all the negative publicity concerning government’s economic actions, nobody yet categorically denies that government historically played a critical role in modern economic development. Everybody accepts the importance of public institutions that ensure property rights and effective markets.

There is little question concerning the positive effects of public spending on infrastructure such as basic education and transportation. Public investment in technology has been universally encouraged. Above all, sound macroeconomic policies, accountable public finance, and monetary stability are accepted as necessary conditions for continuous economic growth. For the past generation, economic thinking on the appropriate role of the government has shifted drastically¹⁰². Up to the early 1970s a main focus of economic policy, at least in advanced industrial economies, was demand-side, macroeconomic management in the Keynesian tradition, which aimed to increase demand, often with extensive government spending, to boost economic expansion¹⁰³.

Within this macroeconomic framework, however, microeconomic interventions to tamper with the price mechanism remained an important undercurrent. Across nations, economic concerns and political realities propelled individual governments to adopt different mixes of microeconomic policies such as industrial policies, antitrust measures, and price-regulatory regimes in order to ensure the maximum economic output of individual industries and enterprises.

As conventional demand management became problematic in many industrialized nations due mainly to hyper-inflation, unemployment, and overall poor economic performance, the focal point of economic policies shifted towards the supply-side, emphasizing production and efficiency. Supply-oriented policies actually went in two conflicting directions: first, microeconomic, particularly industrial policies, which aimed to increase output and productivity through government guidance of individual industries; and, macroeconomic, particularly financial policies, which attempted to maximize economic welfare by encouraging saving and investment¹⁰⁴.

Many modern policy-makers in many industrial as well as industrializing nations became acutely interested in supply-side microeconomic policies, particularly sector-specific industrial development policies, thanks mostly to the powerful impression of rapid economic growth achieved in Japan and, later, in other East Asian countries. The European Union actively sought to establish a systematic ‘European Industrial Policy’ following its formation in 1992, based on elements of the industrial policies of different members from the end of the Second World War, or earlier.

In 1993 even the World Bank endorsed the ‘marketfriendly’ approach to economic policy management which recognized de facto the positive effects of industrial policy in East Asia. By the 1990s, however, the tide of public policy worldwide had again shifted, as market forces revived themselves as the major administrative mechanism for economic growth and efficiency. These policies encourage private saving and investment in order to increase the capacity and capability of the economy to produce more goods at a lower cost.

Comparison of the Theories

The main similarity between classical economic tradition and Porter’s Diamond theory is that they accept a need of high national saving rates to fund strong capital formation rates, expanding research and development, and continuing human resources development–which means, of course, continuing improvement of the labor force. Some economists suggest that a country needs effective trade policies to become competitive. Probably trade policies get more attention than the other elements, those that take a long time to improve. A country makes an input today and gets an output maybe several years downstream. A country can balance its accounts without good performance in savings rates, capital formation rates, R&D, and labor force improvement, but it cannot be internationally competitive i without consistently strong performance in these elements¹⁰⁵.

In dealing with U.S. international competitiveness, the important items are laws, rules, and regulations that affect human and physical capital formation and technology development and national trade policies. But common to both would be policies that affect saving, consumption, and investment rates. What lies ahead? The trade deficits will decline. U.S. manufacturing will certainly survive. But the debt is going to grow. The competitiveness challenge is going to intensify. International competition in manufacturing trade is going to get even more intensive than it is now. Part of the solution to problem will be the movement of foreign firms to the United States to produce here rather than abroad. Adjustment is going to come; there will be major adjustment problems in the United States and abroad. National deficits will be shrinking, and foreign surpluses will be shrinking¹⁰⁶.

The analysis of intra-industry trade has pushed international economics scholars to largely shift their focus from analysing the comparative advantage of nations merely at the macro-level toward the joint analysis of country level, industry level, and even firm level location advantages. The modern trade theory literature has thereby systematically shifted from merely covering national advantages. In this context is Cox and Harris’ (1985) study on the likely impact of free trade between Canada and the United States¹⁰⁷.

The study not only concludes that both countries may actually benefit from gains of trade at the macro-level but also that the higher potential to obtain scale economies and lower prices will lead to an exit of small, inefficient producers. Although freer trade with the United States will lead to a stronger location advantage for Canadian exporters at the macro and industry level, it simultaneously implies the elimination of the main location advantages, i.e. trade barrier protection, benefiting small, but previously economically viable firms.

Classical economic theory does not involve the impact on knowledge on economic performance of a nation an its competitiveness. The tendency is now to think of technology in broader terms, as encompassing the corporate capability to operationalize and effectively use in production this knowledge. While innovation can be defined as the introduction of new products and processes, technology is the capability to efficiently sustain these processes that generate quality products. Indeed, the creation of technology in this broader sense relies upon the corporate capacity to absorb new knowledge as an input into further learning in production, and hence in the generation of new capabilities. From this perspective technology transfer is a misnomer. While codified knowledge and blueprints can be transferred, corporate technological capabilities cannot be transferred through market-like exchange¹⁰⁸.

Conclusion

National competitiveness is a complex notion which involves different factors and determinants. There is not a single approach to factors and determinants which lead to success on the global scale. Both classical and Porter’s theories promote regional solutions as balanced compromises to meet both the challenges of globally efficient integration and local organizational responsiveness. These authors suggest that benefits from globalization and localization challenges could indeed be exploited simultaneously and therefore express skepticism whether global strategies always represent the right choice for national companies.

National competitiveness is closely connected with particulate industries and their development. Firms that plan to excel in a particular industry must be present in such clusters or industrial districts, but without the ability to move the products of such location-based advantage efficiently and to combine them with other capabilities, advantage is localized and benefits are severely limited. This is a key point that distinguishes local adaptation strategies from globally integrated strategies. The ultimate determinant of which type or types of global strategies a nation should use depends on performance.

Classical and modern theories of competitiveness show a strong positive relationship between the use of global strategy and superior performance in terms of relative market share and relative profitability. In global industries, nations with strong comparative advantage best perform on measures of return on assets and return on investment. It is not the case that integration into a global system is always best for a nation, or that an overall integrated strategy is the preferred international solution to world markets for all firms in all industries. Most of the theories continue to look at change over time in the organization of national factors and advantages, and in doing so many researchers attempted to integrate the internal and the external drivers of global change, and to move away from simple unilinear models of evolution.

Issues of innovation and knowledge transfers became increasingly central to all streams of work on national competitiveness. Research on competitiveness is quite likely to have an evolutionary framing, either explicitly or implicitly, for the foreseeable future, as the development of border-crossing capabilities, learning across units in different contexts, and the adjustments of organizational patterns to changing intra-state networks and changing external contexts continue to be the focus of work on MNE strategy and organization.

Evolutionary framing can draw on increasingly sophisticated theorizing in the social sciences, as the recognition of the importance of a variety of selection forces (both internal and external), multiple evolutionary paths, strategic choice, and the complexities of the co-evolution of organizations and environments have reshaped evolutionary thinking.

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Footnotes

1. Dicken, P. (1998). Global Shift: Transforming the World Economy. (London: Paul Chapman Publishing Ltd), p. 171.
2. Ibid., p. 173.
3. Becker, G. (2007). Economic Theory (Transaction Publishers; 2Enlarged Ed edition), p. 4.
4. Ibid, p. 7.
5. Ibid., p.5.
6. Ibid, p. 6.
7. Niehans, J. A. (1994). History of Economic Theory: Classic Contributions, 1720-1980. (The Johns Hopkins University Press; New Ed edition), p. 10.
8. Ibid, p. 10.
9. Niehans, J. A. (1994). History of Economic Theory: Classic Contributions, 1720-1980. (The Johns Hopkins University Press; New Ed edition), p. 23.
10. Robbins, L., Medema, S.G., Samuels, W.J., Baumol, W.J. A (2000). History of Economic Thought. (Princeton University Press; New Ed edition), p. 36.
11. Ibid., p. 51.
12. Ibid, p. 107
13. Walras, L. (1954). Elements of Pure Economics (Reprints of Economic Classics). (Harvard University Press), p. 54.
14. Welch, P. J., Welch, G. F. (2006). Economics: Theory and Practice. (Wiley; 8 edition), p. 76.
15. Ibid, p. 77.
16. Smith, A. Wealth of nations. (Prometheus Books; New edition), p. 651.
17. Welch, P. J., Welch, G. F. (2006). Economics: Theory and Practice. (Wiley; 8 edition), p. 72.
18. Ibid., p. 92.
19. Becker, G. (2007). Economic Theory. (Transaction Publishers; 2Enlarged Ed edition), p. 23.
20. Ibid., p. 24.
21. Dasgupta, P.S., Heal, G.M. (1990). Economic Theory and Exhaustible Resources (Cambridge Economic Handbooks). (Cambridge University Press; New Ed edition), p. 6.
22. Ricardo, D. (2004). The Principles of Political Economy and Taxation (Dover Value Editions). (Dover Publications), p. 5
23. Robbins, L., Medema, S.G., Samuels, W.J., Baumol, W.J. A (2000). History of Economic Thought. Princeton (University Press; New Ed edition), p. 49.
24. Ibid., p. 241.
25. Ibid., p. 214.
26. Smith, A. (1991). Wealth of Nations. (Prometheus Books; New edition), p. 45..
27. Robbins, L., Medema, S.G., Samuels, W.J., Baumol, W.J. A (2000). History of Economic Thought. Princeton (University Press; New Ed edition), p. 73.
28. Robbins, L., Medema, S.G., Samuels, W.J., Baumol, W.J. A (2000). History of Economic Thought. Princeton (University Press; New Ed edition), p. 98.
29. Becker, G. (2007). Economic Theory. (Transaction Publishers; 2Enlarged Ed edition.), p. 54.
30. Ibid., p. 98.
31. Ibid., p. 98.
32. Robbins, L., Medema, S.G., Samuels, W.J., Baumol, W.J. A (2000). History of Economic Thought. (Princeton University Press; New Ed edition), p. 82.
33. Ibid., p. 54.
34. Ricardo, D. (2004). The Principles of Political Economy and Taxation (Dover Value Editions). (Dover Publications), p. 82.
35. Dicken, P. (1998). Global Shift: Transforming the World Economy. (London: Paul Chapman Publishing Ltd), p. 4.
36. Rugman, A. M. and Verbeke, A. (1990). Global Corporate Strategy and Trade Policy. (London: Routledge), p. 54.
37. Welch, P. J., Welch, G. F. (2006). Economics: Theory and Practice. (Wiley; 8 edition), p. 87..
38. Dunning, J. H. (1993). The Globalization of Business. (London: Routledge), p. 82.
39. Becker, G. (2007). Economic Theory. Transaction Publishers; (Enlarged Ed edition), p. 47.
40. Varieties of Capitalism: The Institutional Foundations of Comparative Advantage. (eds) P.A. Hall, Soskice, D. (Oxford University Press, 2001), p. 55.
41. Dunning, J. H. (1973). ‘The Determinants of International Production’, Oxford Economic Papers, 25(3).: p. 290.
42. Varieties of Capitalism: The Institutional Foundations of Comparative Advantage. (eds) P.A. Hall, Soskice, D. (Oxford University Press, 2001), p. 38.
43. Rugman, A. M. (2000). The End of Globalization. (London: Random House Business Books.p. 54.
44. Varieties of Capitalism: The Institutional Foundations of Comparative Advantage. (eds) P.A. Hall, Soskice, D. (Oxford University Press, 2001), p. 38.
45. Rugman, A. M. (1981). Inside the Multinationals: The Economics of Internal Markets. (New York: Columbia University Press), p. 82.
46. Caves, R. (1996). Multinational Firms and Economic Analysis. (Cambridge: Cambridge University Press), p. 83.
47. Dicken, P. (1998). Global Shift: Transforming the World Economy. (London: Paul Chapman Publishing Ltd), p. 65.
48. Krugman, P. R. (1991). Geography and Trade. Cambridge, (Mass.: MIT Press), p. 32.
49. Dicken, P. (1998). Global Shift: Transforming the World Economy. (London: Paul Chapman Publishing Ltd), p. 43..
50. Ibid., p. 48.
51. Dunning, J. H. (1993). The Globalization of Business. (London: Routledge. P. 54.
52. Mankiw, N.G., Mankiw, G. Principles of Economics. (Harcourt, 2004), p. 540.
53. Mankiw, N.G., Mankiw, G. Principles of Economics. (Harcourt, 2004), p. 541-42.
54. Gross Domestic Product (2007). MBA. Web.
55. Welch, P. J., Welch, G. F. (2006). Economics: Theory and Practice. (Wiley; 8 edition), p. 38.
56. Rugman, A. M. (2000). The End of Globalization. (London: Random House Business Books), p. 49.
57. Rugman, A. M. (2000). The End of Globalization. (London: Random House Business Books), p. 50.
58. Ibid., p. 52.
59. Rugman, A. M. and Verbeke, A. (1990). Global Corporate Strategy and Trade Policy. (London: Routledge), p. 46.
60. Rugman, A. M. (1981). Inside the Multinationals: The Economics of Internal Markets. (New York: Columbia University Press), p. 65.
61. Becker, G. (2007). Economic Theory. Transaction Publishers; (Enlarged Ed edition), p. 28..
62. Dunning, J. H. (2000). ‘The Eclectic Paradigm as an Envelope for Economic and Business Theories of MNE Activity’, International Business Review, 9, p. 166.
63. Dicken, P. (1998). Global Shift: Transforming the World Economy. (London: Paul Chapman Publishing Ltd), p. 76.
64. Dunning, J. H. (1993). The Globalization of Business. (London: Routledge), p. 73.
65. Dunning, J. H. (1993). The Globalization of Business. (London: Routledge), p. 45.
66. Dunning, J. H. (1993). The Globalization of Business. (London: Routledge), p. 64.
67. Ibid., P. 39.
68. Ibid., p. 76.
69. Rugman, A. M. (1981). Inside the Multinationals: The Economics of Internal Markets. (New York: Columbia University Press), p. 92.
70. Ibid., p. 87.
71. ProQuest ed. Chang, Lieh-Ching and Lin, Cheng-Ted. (2005). The Exploratory Study of Competitive Advantages of Hsin-Chu City Government b…, The business review; 3,2; ABI/INFORM Global.
72. Moon, H. C., Rugman, A. M., and Verbeke, A. (1998). ‘A Generalized Double Diamond Approach to the Global Competitiveness of Korea and Singapore’, International Business Review, 7: p.
73. Porter, E. Porter, M. (2004). Competitive Strategy: Techniques for snslyzing industries and competitors Free Press. p. 31.
74. Porter, E. Michael, (1990). On Competition. (Boston: Harvard Business School Press), pp. 69-71.
75. Ibid. pp.71.
76. Moon, H. C., Rugman, A. M., and Verbeke, A. (1998). ‘A Generalized Double Diamond Approach to the Global Competitiveness of Korea and Singapore’, International Business Review, 7: p. 135.
77. Porter, M. E. (ed.) (1986). Competition in Global Industries. (Boston: Harvard Business School Press), p. 83.
78. Moon, H. C., Rugman, A. M., and Verbeke, A. (1995). ‘The Generalized Double Diamond Approach to International Competitiveness’, in A. M. Rugman, J. Van den Broeck, and A. Verbeke (eds.), Research in Global Strategic Management, Vol. 5: Beyond the Diamond. Greenwich, Conn.: JAI Press, p. 97.
79. Ibid, p. 98.
80. Porter, M. E. (1990). The Competitive Advantage of Nations. (New York: Free Press), p. 85.
81. Moon, H. C., Rugman, A. M., and Verbeke, A. (1995). ‘The Generalized Double Diamond Approach to International Competitiveness’, in A. M. Rugman, J. Van den Broeck, and A. Verbeke (eds.), Research in Global Strategic Management, Vol. 5: Beyond the Diamond. Greenwich, Conn.: JAI Press, p. 97.
82. Porter, M. E. (1998). On Competition. (Boston: Harvard Business School Press), p. 65.
83. Ibid., p. 73.
84. Porter, M. E. (1998). On Competition. (Boston: Harvard Business School Press), p. 65.
85. Moon, H. C., Rugman, A. M., and Verbeke, A. (1995). ‘The Generalized Double Diamond Approach to International Competitiveness’, in A. M. Rugman, J. Van den Broeck, and A. Verbeke (eds.), Research in Global Strategic Management, Vol. 5: Beyond the Diamond. Greenwich, Conn.: JAI Press, p. 99.
86. Cho, Dong-Sung, Moon, Hwy-Chang (2000). From Adam Smith to Michael Porter. Evolution of Competitiveness Theory. (World Scientific Pub Co Inc), p. 52.
87. Dunning, J. H. (1992). Multinational Enterprises and the Global Economy. (Wokingham: Addison-Wesley), p. 92.
88. Ibid., p. 39.
89. Welch, P. J., Welch, G. F. (2006). Economics: Theory and Practice. (Wiley; 8 edition), p, 28.
90. Ibid., p. 48.
91. Dunning, J. H. (1993). The Globalization of Business. (London: Routledge), p. 29.
92. Ibid., p. 47.
93. Krugman, P. R. (1991). Geography and Trade. Cambridge, Mass.: MIT Press.
94. Becker, G. (2007). Economic Theory. (Transaction Publishers; Enlarged Ed edition), p. 76..
95. Becker, G. (2007). Economic Theory. (Transaction Publishers; 2Enlarged Ed edition), p. 62..
96. Dunning, J. H. (1973). ‘The Determinants of International Production’, Oxford Economic Papers, 25, p. 290.
97. Dicken, P. (1998). Global Shift: Transforming the World Economy.(London: Paul Chapman Publishing Ltd), p. 28.
98. Krugman, P. R. (1991). Geography and Trade. Cambridge, (Mass.: MIT Press(, p. 49..
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105. Caves, R. (1996). Multinational Firms and Economic Analysis. (Cambridge: Cambridge University Press), p. 38.
106. Ibid, p. 38.
107. Robbins, L., Medema, S.G., Samuels, W.J., Baumol, W.J. A (2000). History of Economic Thought. (Princeton University Press; New Ed edition), p. 49.
108. Rugman, A. M. and Verbeke, A. (1990). Global Corporate Strategy and Trade Policy. (London: Routledge), p. 63.

Introduction

Strategy is about achieving competitive advantage. A company can achieve this by being different, delivering a unique value addition to the customer and by having a clear and enact-able view of how to position itself uniquely in the industry. This essay uses Virgin Blue as a case study to find out if it has successfully achieved strategic competitiveness in the Australian airline industry. The I/O and the Returns-based models of above average returns are central in classification of external and internal environment elements.

Strategic Management and Strategic Competitiveness

Strategic management is the systematic analysis of the external and internal environment to form a basis of re-evaluating the current management practices with the aim of achieving better alignment of corporate policies and strategic priorities. Strategic competitiveness is achievable when a company formulates strategies that give it an edge over its competitors.

The strategy formulated should be rare, that current and potential competitors are unable to duplicate because it is costly, and in that way the firm achieves sustainable competitive advantage. The 21^st century competitive landscape is rapidly changing because of technology and uncertainty. This means that managers have to adopt new ways of thinking. Managers have to value flexibility, innovation and speed in responding to existing competitors and new entrants to remain in business.

These characteristics may have affected the entry and survival of Virgin Blue into the Australian airline industry. In order to enter the market, Virgin Blue had to introduce low cost and take measures to keep the costs low and using imaginative tactics of thinking outside the box to remain innovative.

External Environment

External environment consists of factors outside the control of the firm that affect the ability to meet customer demands and that face the whole industry. These factors based on resource-based model include political, economic, socio-cultural, technological, and legal. They determine the laws to apply in running business, the economic conditions that the firm will have to operate in, the characteristics of the market, and the technology determines the way the product should be (Millmore, 2007).

In the case of Virgin Blue, the economic aspect of external environment can be considered to have crucial importance. The rising fuel costs, increasing operating costs, and increasing terminal costs are some of the economic challenges the Virgin Blue faced as it pursued its low cost services strategy.

Additionally due to the economic slowdown in 2008, Virgin Blue recorded a loss of $160 for the financial year 2008-2009. This loss must have had a great influence on how the firm was to be run to survive this period until the economic recovery period in 2010 when Virgin reported a profit of $21.3 million.

Internal Environment

Internal environment encompasses elements that are specific to a firm and affect its ability to meet customer. Financial resources, organizational resources, physical resources and technological resources are the tangible elements considered to affect the internal environment of a firm in Resource-based model of above average returns. On the other hand, the intangible elements are human resources, innovation resources, and reputational resources (Michael and Hitt, 2010).

Virgin Blue being in the service industry depends more on its intangible resources. The friendly crew has been known to greet passengers as boys and girls, entertain them with rock music on takeoff and landing, make jokes and read horoscopes in-flight. This good customer relation enhances customer loyalty therefore enabling the firm to attract new customers while retaining the current ones.

Financially the firm has been able to cut down costs by the improved scheduling system, self check-in kiosk’s, outsourcing of catering, managing catering wastage, maintenance agreements and a fuel efficiency program (Carnal, 2007).

Business Level Strategies

Business level strategy is the strategy a firm chooses in order to gain competitive advantage in the market or industry it operates. This is critical when a firm operates in an industry with intense competition like the one Virgin Blue operates in. Managers therefore have to formulate a strategy geared towards creating and implementing a strategy that gives it the competitive advantage over the other players in the industry (Christensen, 2006).

There are five business level strategies; cost leadership, focused cost leadership, differentiation and focused differentiation. Firms make a choice whether to be a cost leader which means it will focus on competing for customers based on the pricing while still being able to report more than average returns. Alternatively, a focused cost leader meaning that it will not only compete in terms of price but also will segment it and market its products to a particular market.

On the hand, firms have a can differentiate products. Firms choosing just to differentiate by providing unique characteristics and features do so through high quality advanced technological features and customer service. A firm that differentiates and chooses a market segment to provide goods and services uses focused differentiation (Hanson et al. 2011).

Virgin Blue evidently from the national point of view has chosen the cost leadership strategy by delivering services that are of acceptable standards to customers at a cost considered lowest among the competitors in the Australian market.

The firm has cut down costs and trimmed unnecessary ones to achieve its strategy. It has done so by paying its staff less than Qantas, all in-flight meals and entertainment are provided at a cost, outsourcing catering, managing catering wastage and using one type of aircraft. A cost leadership strategy helps a firm survive since it is able to remain profitable even in the face of rivalry, new entrants, suppliers’ power, substitute products, and buyers’ power (Bowles, 2011).

Conclusion

Virgin Blue has successfully achieved strategic competitive in the 8years it has been in the market. It has been able to survive the economic downturn in 2008-2009 and bounce back to reporting profits a year later in 2010 while still maintaining its cost leadership strategy.

Additionally Virgin has introduced competitive moves that include the introduction of a frequent flier program, a member lounge, and strengthening marketing and code sharing alliances with international airlines and by so doing remaining in the market when other airlines like Ansett went under (Beer, 1999).

Reference List

Beer, M. (1999). Readings in Human Resource Management. New York: Free Press.

Bowles, M. (2011) External Environment. The Institute For Working Futures. Web.

Carnal, C. (2007) Managing Change in Organizations. Essex: Pearson Education.

Christensen, R. (2006) Roadmap to Successful Strategic HR Management. New York: American Management Association.

Hanson, D. et al. (2011) Strategic Management: Competitiveness and Globalisation. Southbank, Victoria: Cengage.

Michael A. & Hitt, R. D. (2010) Strategic Management: Competitive and Globalization , Concepts. London: Wiley.

Millmore, M. (2007) Strategic Human Resource Management: Contemporary Issues. Essex: Pearson Education.

Introduction

There is no denying that the human capital in any organization is central to how well it is able to compete in the market. A well motivated work force will no doubt perform better hence enhancing the organization’s competitiveness.

According to Encyclopedia of Business (2010), employee compensation is extremely important to an organization’s competitiveness since employees always compare their pay to what employees in other organizations receive.

Ideally, firms willing to achieve external competitiveness through their employee must match the pay offered to their employees to what is offered in a competing firm (Encyclopedia of Business, 2010). In a cash-strapped firm however, this may not be easy since the money to compensate the employee may simply not be available.

Pay vs. compensation

The Encyclopedia of Business (2010) observes that while most employers believe that pay and compensation are similar, there is a major difference between the two. While employee pay is tied to the monetary earnings that the employee receives for work done in the organization, compensation include different financial returns availed to the employee either as benefits or tangible services. Such things include the base salary, employee incentives, sick days, leave days, employee discounts, pension plans and paid vacations.

Regardless of the pay that an employee receives from an organization, Henderson (2003) notes that the compensation program adopted by an organization must support the strategic actions and plans therein.

Since the cost of labor represents a significant percentage of any organizations operating cost, Henderson (2003) suggests that any cash-strapped firm should devise an effective strategy of controlling the labor costs. This must however be done without too much pay cuts on the employee because in the competitive global market place today, employees can always get other better compensating jobs in the industry.

Most importantly, an organization must acknowledge that most employees are motivated by the benefits and pay they receive for their work. With adequate compensation, organizations not only provide their employees with sustenance, but also serve their self esteem needs in addition to allowing them to meet recreational and materialistic needs they may have.

If employees perceive the compensation offered by their employer as inadequate, then chances are that a good number of them will leave the organization for better prospects somewhere else, while potential employees will reject any job offers from the organizations based on the poor compensation system.

Employees who remain with the organization may become unproductive by becoming less cooperative, helpful or less motivated. At an age where most organizations’ competitiveness is determined by the skills and efficiency of the human capital, such a reaction from employees would drastically reduce the firm’s competitiveness.

Steps to follow

According to Encyclopedia of Business (2010), most employees’ attitudes on their pat and compensation affect how they will behave at work. As such, employees have an obligation to instill positive attitudes in their employees towards the same. One of the ideal ways through which employers can do this according to Henderson (2003) is by ensuring that there is fairness and equity in the compensation practices.

As Adams (1965) found out employees judge how equitable or fair their compensation is, based on their input at work and the compensation they receive for the same. More to this, they also compare what the amount of compensation that other people in the same job category within the organization receive. To ensure that all employees perceive compensation as equitable and fair, an organization entrench fairness and equity in its compensation schemes.

The second step for an organization that wants to remain competitive despite its inability to compensate its employees competitively would be to achieve internal consistency whereby, the pay rate on each employee must reflect the importance of the employee’s contribution to the organization.

Heneman (2002) suggests that in some cases, an organization may have to shift from job-based pay and instead adopt a person-based approach whereby every employee is rewarded for their competency, knowledge and skills. Alternatively, the organization can adopt a pay-for-performance approach where work teams or units are rewarded collectively according to their performance.

The third step would be to scrap the employee benefits that apply to every employee regardless of their contribution on the job. According to Heneman (2002), a cafeteria-style benefit plan would be more fitting to a cash-strapped organization since such would only reward employees based on their contribution to the job. Since the scrapping of benefits will most likely be met by opposition from employees, Henderson (2003) suggests that employers must always discuss any changes in remuneration with the employee.

By making them understand the financial situation in the company, the employees will be more understanding and more tolerant towards the changes. In most cases employees will agree to a system that rewards them for their contribution to the job as long as they perceive the compensation as fair.

Conclusion

A cash-strapped organization does not always have many options in employee compensation. It can either choose to downsize its human resource and remain with an employee number that it can compensate adequately, or institute compensation cuts on all employees while choosing to retain them in the workforce. While the latter is the best option for an organization that relies on its employees to remain competitive, the changes in employee compensation should be communicated clearly and in good time to the employees.

References

Adams, J.S. (1965). Injustices in social Exchange, In Advances in Experimental Social psychology. (Eds.) New York: Academic Press.

Encyclopedia of Business. (2010). Employee Compensation. Web.

Henderson, R. I. (2003). Compensation Management in a Knowledge-based World. New Jersey: Prentice hall.

Heneman, R. L. (2002). Strategic reward management: design, implementation, and evaluation. New York: IAP.

Introduction

For the last one decade, Senseo has been an important contributor to the coffee appliances business. The company breakthrough in coffee pod machine has enabled consumers to make quality coffee faster than before (Hollensen, 2010, p.140). Small size and ease of use from Senseo system helps in making the necessary coffee cup. Many households today rely on Senseo automated coffee pod machine.

The company highlights the coffee pod machine and coffee pods as the ensuing unique value adds in the current global market. These are products that can rapidly obtain, analyze and take action on real-time data inputs.

For the products such as coffee pods, Senseo is a market leader in many European countries while it also serves other foreign markets in America continent. The uncertainties associated with each market are different and part of the Senseo story. The constant adaptation of products and business strategies are defining features of Senseo as a business.

This is an important accomplishment of the firm especially when it comes to international expansion. The stiff competition in the global coffee market suggests the need for strategic entry into foreign markets in order to increase the market share (Hollensen, 2010, p.142).

Beginning with the development of the patented coffee machine and brewing process in 2001 and extending to Senseo one-of-a-kind coffee ponds, international marketing initiatives have been considered by Senseo as the key to business success.

The international alliance between Philips and Douwe Egberts is not just incremental gain but performance gain of an order of magnitude. Concurrently, Senseo has long invested in international market expansion which is another imperative part of this case.

Senseo is the result of the partnership between electronics expert Philips and coffee roaster Douwe Egberts both of which have a degree of autonomy (Hollensen, 2010, p.139). Royal Philips Electronics is based in Netherlands while Douwe Egberts is based in Denmark.

Both of these firms have expanded internationally with substantial brand recognition across the world. This case study is focused on the competitive advantage created through this alliance and the spirit of expansion is reflected in the performance of Senseo in presence of determined competitors.

Global market environment

The global coffee products market is becoming increasingly saturated. This is because of the increasing number of companies which are venturing into the industry. One of the factors that are contributing to this rapid growth is the increasing distribution of me-too products. This section gives a comprehensive of the coffee products market environment through PEST analysis.

PEST analysis

Political factors

In order for Senseo to operate in the international market, it went through an important strategic alliance. This process of partnering exposed the company to various political factors across different economies. Government stability is a major factor that affects the company business.

According to Cavusgil et al (2009), firms intending to enter new market encounter country risks including political risk which refers to the stability of the target country government. Expansion to these markets put the company under these political risks.

The success of Senseo in many European countries can be attributed to the political stability of these countries. Thus the firm should reconsider this issue when entering emerging markets in future.

In addition, governmental trade laws and regulation are key factors influencing Senseo international business. Between 2001 and 2007, the company success was accelerated by the patented pod machine (Hollensen, 2010, p.141). However, the ccompany has to cope with new environments where such laws do not apply.

There are also different intellectual property rights within these environments though Senseo can take the advantage of the alliance as the basis to mitigate any risk associated. Export laws affect the business in that Douwe Egberts has to abide with such legal requirements when exporting the coffee used to make coffee pods.

Economic

The potential markets for Senseo products include the developed and emerging markets. In fact, the economic situation in the European countries where the company operates in terms of monetary issues is a major factor that drives Senseo.

The economic trends in home countries of the partners have also impacted on the business significantly. For instance, it has been reported that one third of the Dutch households own a Senseo machine and the number is expected to increase (Hollensen, 2010, p.140). This is partly because the country is economically stable and individual income is relatively high.

Moreover, the fact that Senseo is operating in emerging markets such as the Chinese market suggests the influence of economic factors in these economies. According to Fedorova and Vaihekoski (2009), the major sources of risks in emerging markets are market segmentation and fluctuations in exchange rates (p.6).

Single serve brewing concept is expected to impact most developing markets where disposable income has not reached sustainable level (Hollensen, 2010, p.138). Therefore, the economic growth in these markets will be a key driver of Senseo business in future.

Socio-cultural factors

International business are affected by changes in social environment either positively or negatively (Baron, 2005, p.207). Senseo operates in several markets with varying social and cultural preferences. Cavusgil et al (2009) connote that cross cultural risk is a key challenge for internationalizing firms.

The fact that European consumers have a special attachment to coffee is a major drive for success in the industry. Coffee is consumed daily by all members in a typical European family. Essentially, the international growth of Senseo can be directly related to increasing demand of a faster way to make a cup of coffee.

Furthermore, the population has been increasing throughout the decade leading to increase in coffee consumption (De Mooij, 2010, p.71). The new generation is looking for the easiest and convenient lifestyle thus embracing new technologies with both hands. For Senseo and other coffee pod machine marketers, this group forms the largest segment.

Indeed, the typical owner of such a machine is 40 years or below suggesting the significance of the younger generations (Hollensen, 2010, p.140). Therefore, it appears that the high birth rates in potential markets are a factor that can influence the industry as long as it meets the expected lifestyle standards.

Technological factors

In the last one decade the world has experienced massive technological developments. These changes have been part of the success factors for Senseo. Senseo coffee pod machine is a technological breakthrough that has built consumer intimacy. The company has also sort to differentiate the products through the adoption of new technologies for their products as reflected in the new model machine.

Competitors such as Nestle and Melitta Unternehmensgruppe Bents KG have continued to introduce new machines with added technological features. Thus, the competition is somehow based on the technological capability of individual firms.

Strategic fit analysis

The market environment indicates that Senseo is faced by a number of opportunities and challenges. For instance, the analysis shows that there is a high probability of the company experiencing an increment in the intensity of competition. On the other hand, economic stability and growth coupled with social trends represents an opportunity for Senseo to increase market share and profitability.

The high rate of technological innovation presents an opportunity for Senseo to improve the competitive advantage through production of faster and high quality coffee pod machines. However, this is achieved when the company focuses on the core competencies and strengths to exploit the emerging opportunities while converting the weaknesses into strengths (Spence & Kale, 2011).

Core competencies

According to Hitt, Ireland and Hoskisson (2011), firms’ core competencies refer to the capabilities that form the accruing source of competitive advantage (p.82).

Johnson, Scholes and Whittington (2008) are of the opinion that for a company capability to be considered as a core competency, it should be inimitable, unique, non-substitutable and valuable (p.4). In all operations, Senseo has managed to create a number of core competencies.

First, Senseo has developed strong brands that have successfully penetrated the international market. The company has achieved this by forming a strategic business alliance with two important firms. The strong brand is accompanied by the strong brands of individual companies that form the alliance.

As noted, creating an overall identity that transparently links coffee and appliance as part of single system and building consumer intimacy around this was the crucial building block to success (Hollensen, 2010, p.140). Secondly, Senseo has built a strong management team to suit the internationalization strategy.

As Cavusgil et al (2008) noted the fundamental challenge facing the organizations entering international markets is centered on solving managerial problems in these markets (p.5). Thus, the success of the company is directly connected to good management. Furthermore, the key people involved in managing such an alliance must have the personal skills to make it a success.

SWOT analysis

Strength

To survive in the international market, it is vital to build a competitive advantage (Harrison & John, 2009, p.61). Among the ways through which a firm can achieve this is by improving important strengths. In business operations Senseo has developed a strong brand image due to the effectiveness in designing and producing high quality coffee pod machines.

The company has invested heavily on R&D such that they produce new products ahead of market competitors. With characteristics of a strategic asset-seeking investment, Senseo has been able to promote long-term goals by reaping the advantages of the two partners (Dunning & Lundan, 2008, p.73).

The implementation of effective technology enables the company to produce high quality products. This satisfies the needs and wants of the consumers in the target markets especially those in European and American countries.

Weaknesses

The major weakness for Senseo is the narrowed focus on Eastern Europe markets. Cavusgil et al (2009) highlight the importance of market research before a firm decides to enter foreign market.

But, Senseo demonstrates failure in this respect as their target market is primarily European countries while other countries could promise better performance. In addition, Senseo has very few products in their portfolio which suggests limited market segments. Coffee appliances are many and the company should attempt to widen the product portfolio and probably enhance their competitive advantage.

Opportunities

The social changes being experienced in many countries present an opportunity to Senseo. For instance, the growth in population presents an opportunity for the company to increase the current customer base. In addition, the economic growth in some countries is an opening to new markets.

Emerging markets are said to offer greater market development opportunities than those in developed countries but with the offer of higher returns comes higher risks (Cavusgil et al, 2008).

The high rate of technological innovation also presents an opportunity for Senseo to enhance global competitiveness. This arises from the fact that the company will be able to develop high quality coffee pod machines (Economist Intelligence Unit Limited, 2009, p.10).

Threats

Senseo faces intense competition from other multinational companies such as Nestle, Melitta, Tchibo and Aldi (Varga, 2010, p.5). The future success of the firm is threatened by the fact that these companies are also diversifying their products. Therefore, consumer bargaining power in international markets is increasing due to the wide range of products available for them.

In addition, Senseo is threatened by low-cost followers from china who must enter the industry in future (Tsui & Lau, 2002). In as much as the firm differentiates through the alliance, the low cost followers will never be discouraged as long as new technologies are in place.

There could be the fear of the followers developing cheap coffee pod machines that consumers would consider to be better. More interesting is that the followers begin by entering the emerging markets on their way up while Senseo approach these markets from the top. Therefore, the firm is threatened by saturated markets in those emerging markets if the foreign investment comes at a later stage.

Creating international competitiveness through core competences

Product development has been a long-term priority for Senseo. When the company focused on coffee products to support market entry it needed to create value to customer through innovation and high quality products. In 2001 the company developed the first coffee pod machine that was geared towards the use of coffee pods produced by Douwe Egberts (Hollensen, 2010, p.140).

As the machine was patented, Senseo was able to increase the market share due to the high demand of the product. Indeed, the company was able to sell more than 15 million coffee machines and more than 8 billion coffee pods in the first seven years (Hollensen, 2010, p.140).

According to Uppsala model, the company gradually increased and intensified activities in neighboring markets as the demand increased. By mid-2007 it was estimated that the company sold over five million coffee pod machines in Germany.

Currently, Senseo business depends on innovation as patents were revoked in many market environments. Competitors keep on bringing new products into the market thus forcing the company to heavily invest on R&D.

In 2007 the company launched a new model-the Senseo New Generation-with novel mechanism to accommodate larger cups and new features including insufficient water indicators, larger water reservoir and options allowing users to adjust water quantity (Hollensen, 2010, p.142).

This breakthrough is a result of the strategic alliance that enables the company to control the development of both coffee pod machines and the coffee pods.

The success of a strategic alliance depends on the benefits perceived by each partner especially if their brands are already recognized. In this regard, Senseo had to leverage the equity in the partnering brands in order to give credibility to the new brand (Hollensen, 2010, p.141).

While competition may lead to adverse factors like reduced prices of the products, a partnership can succeed by relying on mutual performance (Wallace, 2001, p.859). For instance, when the prices of coffee pod machines went below production costs Senseo continues to succeed as the losses in machine sales are compensated by the profits from coffee sales.

Internationalization

Hollensen (2010) identifies three models that can define how organizations enter foreign markets namely network, transaction cost and Uppsala models. These models may depend on factors like the type of business; the nature of target markets; the position of the firm in terms of resources; and the corporation motive to include others.

Network model is where the supplier develops a good relationship with the buyer and internationalizes in order to service the customer better from another location while depending on resources controlled by other firms. Transaction cost theory is when a firm enters a foreign market and creates activities internally instead of outsourcing especially through exports or foreign direct investment (Dunning & Lundan, 2008, p.70).

Uppsala model is about how firms gradually increase and intensify their activities in foreign markets by first gaining experience from home markets before proceeding to international markets.

From the analysis of Senseo case study, it is evident that the entry strategy to foreign markets can be explained through Uppsala model. The initial market for the firm was the Scandinavian countries where the partners came from. As the demand for coffee pod machines increased in the neighboring markets of France and Germany, the firm would enter the markets.

This is reflected in the market being concentrated within the Western part of Europe. Certainly, the single serve brewing concept has proved successful in Europe and the trend is still in the early stages in the U.S. and is yet to impact on developing countries (Hollensen 2010, p.138). In this respect, it would be worth to suggest that transaction cost model for internationalization would serve Senseo business better.

This is because the company is well established and has vast resources that can be used to extend assumed business in other potential markets through Foreign Direct Investment (FDI).

According to Cavusgil et al (2008), the fundamental challenge facing the firms entering international markets centers on solving managerial problems in these markets (p.5). But Senseo managers have proved to be competent enough such that they can be able to make effective decisions about how to mitigate the risks associated with Internationalization.

In addition, there are many opportunities in the markets that the company is slack in operation. The American market is the largest in terms of coffee consumption while the Asian emerging markets have opportunities related to economic growth. As Dunning and Lundan (2008) connote, the company should engage market-seeking investment in order to exploit new market besides sustaining the existing one (p.70).

In fact, competition in coffee pods machines is concentrated in European countries and moving away from these markets would suggest low competition. Therefore, Senseo should consider entering the emerging markets such as China, India and Brazil. While the developed markets are threatened by saturation, the emerging markets lack branded firms that offer coffee pod machines as well as the coffee pods and capsules.

References

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Cavusgil, S. T., Knight, G., Riesenberger, J. & Yaprak, A. 2009. Conducting market research for international business. Upper Saddle River, NJ: Prentice Hall.

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Dunning, J. H. & Lundan, S. M. 2008. Multinational enterprises and the global economy. London, UK: Edward Elgar Publishing.

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Johnson, G., Scholes, K. & Whittington, R. 2008. Exploring corporate strategy: Text & cases. New York: FT/Financial Times.

Spence, M., & Kale, S. 2011. Optimizing the internal value chain: Principles and practices. Journal of Management Organization, Vol. 14 (2), pp. 193-206.

Tsui, A., & Lau, C. 2002. The management of enterprises on the People’s Republic of China. Dordrecht: Kluwer Academic Publishers Group.

Varga, M. 2010. Analyzing the Australian fashion industry according to Porter’s five forces. New York, NY: GRIN Verlag.

Wallace, P. D. 2001. Encyclopedia of Ecommerce. New Delhi, India: Sarup & Sons.