Building Business Competitiveness

By Badrinath, R.; Wignaraja, Ganeshan | International Trade Forum, April-June 2004 | Go to article overview

Building Business Competitiveness


Badrinath, R., Wignaraja, Ganeshan, International Trade Forum


For small firms to meet the significant and growing challenges of globalization, they need governmental and institutional back-up. A three-pronged approach can help build and strengthen competitiveness: closer business-government partnership; effective networking of national agencies involved in the value chain; and optimal use of new technologies.

Globalization has sharpened competition. The main challenge facing firms is how to take advantage of new resources and markets while dealing with intense and growing global competition. The challenge facing governments is how to design and implement supportive policies and strategies. Business and government both need to intensify their partnership to build and strengthen competitiveness.

Powerful factors are driving globalization: falling trade barriers; fast-paced technological advances; declining communications and transport costs; international migration; and highly mobile investment. The changes are striking. For instance, the average tariff on manufactured imports is about 2.1% today, down from around 47% in 1947. The price of computer processing power has fallen by an average of 30% per year in real terms over the last 20 years. Since the mid-1980s, world flows of foreign direct investment have been growing at nearly 14% a year--almost twice the growth rate of world exports. The eventual outcome is an international market that appears increasingly indifferent to national borders and regulation. Globalization is irreversible and has profound implications for business and its relationship with governments in developing countries.

Winners and losers

The global economy offers firms in developing countries access to new technologies, skills, markets and financial sources--hence, better outward-oriented growth prospects than ever before. At the same time, it exposes them to intensive competition from lower-cost imports and locally-based foreign firms. With falling trade barriers, there is no such thing as a domestic market alone. Any product or service that a developing country firm offers has increasingly to meet the price, quality and delivery standards of international markets.

There is a real prospect of winners and losers among firms in developing countries. The double-edged nature of globalization seems somewhat daunting to businesses and policy-makers alike. It has sparked widespread interest in business competitiveness, business-government partnerships and public policies in developing countries.

What is competitiveness?

The term "competitiveness" is usually equated with macroeconomic issues (such as changes in exchange rates or wages) or microeconomic issues (such as an absence of entrepreneurship and excessive bureaucratic regulations on business). In popular discussions, solutions such as "depreciate the exchange rate" or "cut red tape" are often suggested as a panacea to augment business competitiveness. These clearly influence business competitiveness but they are insufficient to deal with the challenges of a global economy.

Firms bear the burden

The brunt of the competitiveness challenge falls on the business sector. To respond effectively to the demanding global environment, firms need to develop a range of export capabilities in the areas of technology, marketing, management, human resources and finance, and continuously upgrade them over time. However, building business competitiveness--particularly for export markets--also has to involve both governments and trade support institutions in a major way. They need to support competitiveness with a coherent strategy. Translating this strategy into success depends on a close and active partnership between business and government.

Putting "e" to work

The difficult processes involved in building business competitiveness in developing countries need special attention. Innovation in applying information and communications technologies (ICTs) to trade--or putting "e" to work--is an undisputed driver of competitiveness. …

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