Competitiveness: A Market Perspective

Abstract

The concepts of competitiveness and competitive advantage have traditionally been discussed on a firm level base. National competitiveness has long been solely treated as the result of factor-based comparative advantages. Among others, Porter (1990) has pushed this approach towards a competitive advantage of nations by demanding that “a rich conception of competition includes segmented markets, differentiated products, technology differences, and economies of scale.” The following analysis uses both frameworks as scaffolding. At first, it focuses on the performance of the European automotive industry on international markets, both in terms of trade and foreign direct investment. This follows the simple rationale that markets (in this particular case international markets) are the single most efficient mechanism to filter and condense decentralised information from all relevant sources. Put simply, the market participants that perform best on the world market must be competitive (in the absence of trade distorting measures). This concept fits nicely with the definition put forward by Scott and Lodge (1985): “national competitiveness refers to a country’s ability to create, produce, distribute and/or service products in international trade while earning rising returns on its resources.” While this aspect reflects mostly comparative advantages the following section on the home market introduces the points that Porter mentioned above by moving from comparative to competitive advantages.