Today, international economic relations are developing quite actively. Almost all countries of the world to one degree or another participate in them. At the same time, some states receive large profits from foreign economic activity, constantly expand production, while others can barely contain available capacities. This situation is determined by the level of competitiveness of the economy.
Urgency of the problem
The concept of competitiveness is the subject of numerous discussions among people making corporate and state management decisions. The increasing interest in the problem is due to various reasons. One of the key is the desire of countries to take into account economic requirements that are changing within the framework of globalization. Michael Porter made a great contribution to the development of the concept of state competitiveness. Consider his ideas in more detail.
General concept
The standard of living in a particular state is measured in terms of national income per person. It is increasing with the improvement of the economic system in the country. Michael Porter's analysis showed that the stability of the state in the foreign market should not be regarded as a macroeconomic category, which is achieved by the methods of fiscal and monetary policy. It must be defined as productivity, efficient use of capital and labor. National income is generated at the enterprise level. In this regard, the welfare of the state economy should be considered separately for each company.
Michael Porter's Theory of Competitive Advantage (briefly)
For successful operation, enterprises must have low costs or provide products with higher cost with differentiated quality. To maintain market positions, companies need to constantly improve products and services, reduce production costs, thereby increasing productivity. A special catalyst is foreign investment and international competition. They form a strong motivation for enterprises. At the same time, competition at the international level can not only have a beneficial effect on the activities of companies, but also make certain industries completely unprofitable. This situation, meanwhile, cannot be considered absolutely negative. Michael Porter points out that the state can specialize in those segments in which its enterprises are most productive. Accordingly, you need to import those products in the release of which companies show worse results than foreign firms. As a result, the overall level of performance will increase. One of the key components in it will be import. You can increase productivity by setting up affiliated enterprises abroad. Part of the production is transferred to them - less efficient, but more adapted to new conditions. Profits from production are sent back to the state, thus increasing national income.
Export
No state can be competitive in all production areas. When exporting to the same industry, labor and material costs increase. This, accordingly, negatively affects less competitive segments. Constantly increasing exports cause an appreciation of the national currency. The strategy of Michael Porter suggests that the transfer of production abroad will contribute to a normal expansion of exports. In some sectors, undoubtedly, positions will be lost, but in others they will gain a stronger hold. Michael Porter believes that protectionist measures will limit the ability of the state in foreign markets, slow down the improvement of living standards of citizens in the long term.
The problem of attracting resources
International trade and foreign investment can certainly significantly increase national productivity. However, they can also have a negative effect on her. This is due to the fact that in each industry there is a level of both absolute and relative productivity. For example, a segment may attract resources, but export from it is not possible. The industry is not able to withstand competition in the field of imports if the level of competitiveness is not absolute.
Five forces of competition for Michael Porter
If the country's industrial sectors, yielding their positions to foreign enterprises, are more productive in the state, then its overall ability to provide an increase in productivity is reduced. The same is true for firms that transfer more profitable activities abroad, since there are less costs and earnings. Michael Porter's theory, in short, connects several indicators that determine the country's stability in the foreign market. In each state, there are several methods to increase competitiveness. Collaborating with scientists from ten countries, Michael Porter formed a system of the following indicators:
- Factor conditions.
- Serving and related industries.
- Factors of domestic demand.
- Strategy and company structure, competition within industries.
- The role of public policy and chance.
Factor conditions
The Michael Porter model suggests that this category includes:
- Human resources. They are characterized by qualifications, cost, quantity of labor, length of shifts and work ethic. Human resources are divided into various categories, since each industry has its own needs for certain employees.
- Scientific and informational potential. It is a set of data affecting services and goods. This potential is concentrated in research centers, literature, information bases, universities, etc.
- Natural and physical resources. They are determined by the quality, cost, availability, amount of land, water sources, minerals, forests and so on. This category also includes climatic and geographical conditions.
- Capital - money that can be directed to investing. This category also includes the level of savings, the structure of national financial markets.
- Infrastructure. It includes a transport network, a communication and healthcare system, postal services, payment transfers between banking organizations, etc.
Explanation
Michael Porter points out that key factor conditions are not inherited, but created by the country itself. In this case, it is not their presence that matters, but the pace of their formation and the mechanism of improvement. Another important point is the classification of factors into developed and basic, specialized and general. It follows that the stability of the state in the foreign market, based on the above conditions, is strong enough, albeit fragile and short-lived. In practice, there is a lot of evidence supporting the Michael Porter model. An example is Sweden. It profitably used its largest deposits of low-sulfur iron until the metallurgical process in the main market of Western Europe changed. As a result, the quality of the ore ceased to cover the high costs of its extraction. In a number of knowledge-intensive industries, certain basic conditions (for example, cheap labor and wealth of natural resources) may not give any advantages at all. To increase productivity, they must be tailored to specific industries. This may be specialized personnel in manufacturing industries, which are difficult to form elsewhere.
Compensation
Michael Porter’s model admits that the lack of certain basic conditions can also be a strong point, motivating companies to improve and develop. So, in Japan there is a shortage of land. The absence of this important factor began to act as the basis for the development and implementation of compact technological operations and processes, which, in turn, became very popular on the world market. The lack of individual conditions must be offset by the benefits of others. So, for innovation, appropriate qualified personnel are needed.
State in the system
The theory of Michael Porter does not classify him among the basic factors. However, in describing the factors that influence the degree of stability of a country in foreign markets, the state plays a special role. Michael Porter believes that it should act as a kind of catalyst. Through its policy, the state can influence all elements of the system. Moreover, the influence can be both beneficial and negative. In this regard, it is important to clearly state the priorities of state policy. The general recommendations are encouraging development, stimulating innovation, and increasing competition in domestic markets.
Spheres of influence of the state
The indicators of production factors are affected by subsidies, education policies, financial markets, etc. The government determines internal standards and production standards for certain products, approves instructions that affect consumer behavior. The state often acts as a major buyer of a variety of products (goods for transport, army, education, communications, health, and so on). The government can create conditions for the development of industries by establishing control over advertising media, regulating the operation of infrastructure facilities. State policy is able to influence the structure, strategy, features of enterprise rivalry through tax mechanisms, legislative provisions. The impact of the government on the country's competitiveness is quite large, but in any case it is only partial.
Conclusion
Analysis of the system of elements that ensure the stability of any state allows us to determine the level of its development, the structure of the economy. The classification of individual countries in a specific time period was carried out. As a result, 4 stages of development were identified in accordance with four key forces: production factors, wealth, innovations, and investments. Each stage is characterized by its own set of industries and its own lines of business. The allocation of stages allows you to illustrate the process of economic development, to identify problems that arise in companies.