What are the signs of a competitive enterprise? An enterprise is definitely in the top tier in terms of competitiveness if it exports products or services all over the world, with higher client satisfaction and profitability than its competitors. While competitiveness often means that a company has a price advantage, there are also other items on which a company may compete, such as innovation or quality. Virtually always, a company that is competitive has a unique selling proposition that is truly unique in price, quality or innovation, in a way that really matters to its customers. If customers' tastes change or evolve, competitive advantage may be eroded. Or if competitors match the unique selling proposition, the proposition is no longer unique. Competitiveness is never static; as the market evolves, the bar is always being raised.
A book that is widely recognized as the seminal work on competitiveness, “The Competitiveness of Nations,” was written by Michael E. Porter, a Harvard professor, in 1990. His basic paradigm is explained by the following chart:
Allow me to illustrate each of the five competitive forces at the enterprise level:
Threat of new entrants: It is difficult for a company to be competitive when there are low barriers to entry. Such industries become dog-eat-dog industries. Sometimes new entrants, especially if they bring technological innovation, can be highly disruptive -- for example, when Skype and Vonage entered the telecom industry.
Bargaining power of buyers: If you are a small processor of foodstuffs, unless you have a world-beating product or a very strong brand, chances are that you'll have a hard time selling to hypermarkets. They can play you off against the competition and increasingly even sell their own “no name” products.
Bargaining power of suppliers: Sometimes a supplier can be so dominant that their clients have little negotiating power. For example, if you are an airline that wants to purchase wide-bodied aircraft, there are only two suppliers in the world: Boeing and Airbus. You do not have many options if the aircraft producers wish to raise price or experience production delays.
Threat of substitute products or services: Sometimes competition comes from completely unexpected sources. I, for example, have not used a watch in over 15 years -- my mobile phone serves as my timepiece. Another example: Google thought it had the Internet by the tail -- until Facebook emerged. Social networking trumped accessing of information in the sense that today people spend more time on Facebook than searching for information on Google.
Rivalry among existing competitors: What are the dynamics of the industry? Are the participants sleepy oligopolists or is there dog-eat-dog competition? Even the Airbus-Boeing duopoly shows signs of being very competitive at times.
As mentioned, competitiveness is not static, but dynamic. A company that is competitive cannot rest on its laurels; it must constantly innovate and invest to maintain its competitiveness, or even grow it. For example, the German auto industry seems to have widened its lead over other European competitors over the past five years.
So what can governments do to foster competitiveness? In many accession countries, there are countless EU grants being handed out to enterprises. I am not sure that these foster competitiveness. Some of these grants may prop up enterprises that would otherwise fail. My fear is that these grants may also create a culture among enterprise owners and managers giving them incentives to become better at competing for handouts than competing in the marketplace. In my view, the best thing that government can do is provide the right environment for businesses -- easy administration, fair and enforceable laws and regulations that don't change too frequently, a fair tax and social security regime, etc. Government was never particularly good at “picking winners.” This should be left to the market.
Competitiveness -- at both the national and enterprise level -- should be square in the center of the debate on how to resolve the European crisis. If it is mostly German enterprises that are competitive within Europe -- and a few companies in the European “periphery” -- there will be no sustainable solution to Europe's current issues.