Academic journal article Advances in Competitiveness Research

Unraveling Firm Competitiveness: An Evolutionary Perspective

Academic journal article Advances in Competitiveness Research

Unraveling Firm Competitiveness: An Evolutionary Perspective

Article excerpt

A measure of either competitiveness or competitive advantage at a firm level could lead us to consider several dimensions of competitiveness. Porter (1990) suggested that sustained above industry average operating profits could be an indicator of a firm possessing a certain competitive advantage in its industry. This is a relatively simple and effective measure to adapt for understanding competitiveness. However, firms may not always return above industry average profits while still retaining competitiveness, and certain industries or sectors of business activity may be beset with obsolescence resulting in decline.

Krugman (1994) does not quite agree that percentage of exports in the total output of an economy is an indicator of competitiveness of an economy. This indicator seems to suggest that acquiring a share of international markets is a sign of competitiveness of a nation. The same argument could be transposed to a firm level and it could be argued that share of exports as percentage of total sales of firm indicates its competitiveness. Export motivation for a firm could be a result of a relatively small home market, or a very concentrated home market, which is unattractive to penetrate, or a highly regulated market where quotas and licenses are still in vogue. Hence, exports of a firm alone would not be complete indicators of its competitiveness. It would also be pertinent to consider where the exports of a certain firm are headed--competitive markets or relatively uncompetitive markets.

Barney (1991) has argued that resources that are valuable, rare, and inimitable are likely to lead to a firm possessing a competitive advantage. Peteraf (1993) has argued that possession of heterogeneous and imperfectly mobile resources are likely to result in competitive advantage. These arguments shift the focus from the outputs delivered by a firm in terms of exports and profits to the inputs secured by a firm to conduct its business. However, not all firms may be able to possess the sort of resources Barney considers important to achieve competitive advantage and imperfectly mobile resources may not be available in every sector as suggested by Peteraf (1993). Priem and Butler (2001) have questioned the usefulness of the resource-based view for strategic management research.

There do not seem to be many definitions of Competitive Advantage in literature. Ansoff (1965, p, 79, c.f. Mooney, 2007) defined competitive advantage as the "properties of individual product / markets which will give the firm a strong competitive position." The Industrial Organization (IO) School (Porter, 1980, 1985, etc.) echoes this line of reasoning and views competitive advantage as a position of superior performance that a firm achieves by choosing an appropriate response to a selective pressure imposed by the industry. This view of competitiveness does not seem to consider if a certain firm has the capability to respond to industry pressures.

Hunt & Morgan (1996) developed the Resource Advantage (R A) theory of competition wherein they suggested positions of competitive advantage for firms with superior relative resource disposition and superior relative resource produced value. They acknowledge that these are not easily measurable and one could infer these from the superior financial performance a firm returns. The R A theory has also been criticized for not considering evolutionary trends and not directly considering the organizational learning aspects.

Porter (2000) and others have indicated the importance of location in being competitive and achieving competitive advantage. The stream of research on clusters and cluster competitiveness seems to suggest that a firm located in a certain industrial cluster is likely to benefit from being part of a network for its resources, revenues, and trade related information. However, not all firms in an industrial cluster may be competitive and some of them may become uncompetitive by changing technology trends. …

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