The competitiveness of a country’s companies refers to the attractiveness of the services and goods that these companies produce for foreign companies or consumers. In other words, it is a country’s ability to export
Two dimensions of competitiveness
Price competitiveness is highly dependent on export prices. These prices are, in general, defined by:
- Production costs including labour and wage costs.
- Both capital costs and interest.
- The cost of productivity, which is measured by dividing the quantity of goods produced by the number of hours used to produce these goods.
- The exchange rate, which is the relative value of the national currency in relation to foreign currencies.
- Competition: The more competition between countries, the more companies will have to reduce their prices if they want to remain competitive and gain market share. On the contrary, the less competition there is, the more companies have the possibility to set prices well above their cost of production.
- Costs related to transport, customs duties and regulations.
These last two costs are elements that unfortunately cannot be changed.
How to improve a country’s price competitiveness?
To make a country more competitive in terms of price competitiveness, the determining factors of a country are: its exchange rate and the cost of production of its companies. The exchange rate can be influenced by the central bank depending on its monetary policy. Production costs beyond labour and capital costs are influenced by productivity.
Several elements are likely to influence this productivity: the quality of infrastructure such as roads and telecommunications networks. The latter facilitate exchanges. The proximity of partners (suppliers and service providers), the qualification of workers (the ability to organise production in an efficient and innovative way) and technical progress also influence this productivity.
Non-price competitiveness is part of business strategy and depends on product quality and innovation. These strategies are determined according to a country’s economic environment, as well as its fiscal and social environment. On the other hand, state regulation plays a pre-determining role in the choice of strategies to be adopted.
As a result, States have several levers at their disposal: support for commercial technical innovation, vocational training, encouraging the adoption of upmarket strategies, assistance in the creation of inter-company networks, research organizations and training centres. This is called a competitiveness cluster.
The competitiveness of companies can have strong effects in terms of employment, spatial planning and economic growth. In conclusion, this is a key economic issue in which companies and governments must work together.
- What is GDP? back on this indicator most often cited by when we talk about a country’s productivity