The Concept Of Competitiveness

Published Date: 02 Nov 2017

1.1 Introduction.

The growing interdependencies between national economies materialize in acceleration of the process of economic integration, both on global and regional scale. As a consequence, the necessity of redefining the concept of economic competitiveness and competitiveness’ main framework, results from two important reasons: the first comes from the fact that international factor

movement and the activity of multinational firms cannot be neglected when we are about to measure the performances of a national economy and, secondly, a more distinct separation should be made between the factors which influences the competitiveness in the case of a large economy and in the situation of a small developing economy. The complexity of actual world economy makes the debates over the concept of economic competitiveness, and how could we

better define it, more passionate being essentially centered on the components of Michael Porter’s diamond of competitiveness. The structure of the paper is as follows: in the next section we analyze the most relevant publications on this issue, followed by empirical evidence on the economy of Romania and European Union.

The nation and firm competitiveness have drawn a great deal of attention from scholars in the fields of international business and industrial economics. Nevertheless, many of the existing literature on the subject of competitiveness provide no clear framework for business industries in developing countries. In Tanzania, aContractor and Kundu, 1998a J.F. Contractor and K.S. Kundu, Modal choice in the world of alliances: analysing organizational forms in the international hotel sector, J. Int. Bus. Stud. 29 (1998aaviation industry is among the principal economic sector, however; lack of sufficient research regarding its competitive strategies yet to our knowledge no specific studies have specifically explored the competitive strategies that will make the Tanzania airlines firms and/ industry to become global competitive. To a large degree, the lack of such researches has derived Tanzania airlines firms to be less competitive in the global arena and some went bankruptcy. Therefore, there is a need to find out the specific conditions that could enable the Tanzanian airlines industry to become internationally competitive. Specifically, this dissertation intends to explore the factors for competitiveness of airlines industry in Tanzania.

1.2 The concept of competitiveness

The concept of competitiveness in the literatures has been explain well by many authors and in most cases they define the term based on the context of their point of interest. Some academic literature demonstrates that while competitiveness is a major issue (Porter, 1990) it has still not been well defined (Martin Westgren and Duren 1991; Cannor; 2003). Yet competitiveness remains an important measure of benchmarking economic performance (Dunning; 1997)

Competitiveness is the ability to provide products and services as or more effectively and efficiently than the relevant competitors; Freiling et al. (2007). Competitiveness usually refers to advantage obtained through superior productivity of goods and or services and therefore this definition conceptualized as the firm’s ability to remain in markets under conditions of almost free competition (Sanchez, Ron 2004). In today’s business sector reveals a rather turbulent picture and about half of small businesses do not survive for more then five years on the market (Jörg S. Heinzelmann 2009).Much research has been conducted on the factors making enterprises competitive in general but comparatively little research has been conducted on the competitiveness of airline sector especial in developing countries like Tanzania that faces mixed challenges At the firm level, profitability, costs, productivity and market share are all indicators of competitiveness. Generally, competitiveness is considered synonymous with success. In very simple terms, success can be intended as achievement of company’s objectives. Hence, performance should be measured in terms of how an organization manages its critical success factors (Ferguson and Dickenson, 1982)..

At the industry level, competitiveness is the ability of the nation's firms to achieve sustained success against (or compared to) foreign competitors, again without protection or subsidies (Liu Wei 2007).

Competitiveness at the industry level is often a better indicator of the economic health of the nation than competitiveness at the firm level.

Measures of competitiveness at the industry level include overall profitability of the nation's firms in the industry, the nation's trade balance in the industry, the balance of outbound and inbound foreign direct investment, and direct measures of cost and quality at the industry level ( Franziska Blunck. 2006)

The success of a single firm from the nation might be due to company-specific factors that are difficult or impossible to reproduce. The success of several firms from the nation in an industry, on the other hand, is often evidence of nation-specific factors that might be extended and improved.

Assessing the competitiveness of an industry in which there is only one important firm requires an assessment of whether its success is due to monopoly rents, government support, or true efficiency. It is also important to note that the competitiveness of a single firm does not necessarily imply the competitiveness of an industry (Dollar, D. and Wolff, E. N. 1993).

For the nation, competitiveness means the ability of the nation's citizens to achieve a high and rising standard of living. In most nations, the standard of living is determined by the productivity with which the nation's resources are deployed, the output of the economy per unit of labor and/or capital employed (Porter, M. E. 1990) A high and rising standard of living for all the nation's citizens can be sustained only by continual improvements in productivity, either through achieving higher productivity in existing businesses or through successful entry into higher productivity businesses (Scott, B. R. (1985).

Thus Comparative advantage dictates that any nation will be competitive in some industries and uncompetitive in others. A positive balance of trade has as much to do with the balance of domestic savings and investment as it does with the intrinsic capabilities of the nation's firms (Krugman, P. 1994).

A nation's standard of living is increasingly dependent on the competitiveness of its firms. Competitiveness is vital if the nation's firms are to take advantage of the opportunities presented by the international economy (Crocombe, G. T.; Enright, M. J.; and Porter, M. E. 1991)

In this study the term competitiveness will cover the most three area notably the firm level, the industry level and at the national level. We think these three entities should work together and strong coordination and both forwards and backwards linkage should be well employed to enable the firms within the industry competitiveness

On the firm level, business economists and management scientists search for factors which create "competitive advantage" and then for capabilities and processes which help to "sustain" the advantages created. On the regional level, we look for supportive institutions, firm clusters, spillovers, and forward and backward linkages. On the national level, economists analyze the innovation system, the quality of education, life long learning, physical and intangible infrastructure, trust, etc. The research on competitiveness, with its focus on firms, regions and nations, carves out the factors and processes which increase incomes and provide employment over the long run" (Aiginger, 2006). Based on a similar idea, Michael Porter, a world well-recognized guru in the field of competitiveness emphasizes that while firms compete on "market share and profitability", "nations compete in providing a platform for operating at high levels of productivity and therefore attracting and retaining an ample investment in those activities that support high returns to capital and high wages (Porter, M.E. 2000),. In the case of a company it is return on invested capital; in a region or country it is productivity measured by value, not productivity in the narrow sense of volume"(Snowdon & Stonehouse, 2006). As in the case of aviation industry in the United State While profits are volatile, many industries with volatile profits operate without substantial government regulation. Moreover, free markets generally work well for industries with large fluctuations, because the fluctuations provide incentives for firms to innovate in response to changes in demand and costs. A good example in the airline industry is Southwest in the US, one of the fastest growing airlines in recent years. Southwest operates very differently from many other airlines: it does not use a hub and spoke system, its fares are generally lower and much more uniform, its fleet is homogeneous, its turnaround time is shorter, and it does not offer meal service. In spite of the recent downturn in demand for airlines, Southwest has not eliminated any of its routes, and it reported a third quarter 2001 net profit of $82.8 million. While it remains an open question as to which of these innovations made Southwest relatively successful, free markets provide incentives for innovations to spread, thereby increasing efficiency (FRBSF Economic Letter 2002). Firms within the industry use various strategy as to improve its efficiency and productivity, and in most cases firms opt to enter in to alliance with other related industry and some time with its rivals to be able to operate efficiently and productively by sharing the most sophisticated technology to bit the rivals firms in the industry. Though it is very crucial for the firm to find the most suitable partner to venture with respect to increase its competitiveness. In other hand the government and regulatory bodies should first well analyze the cooperation before in order to protect the harmful consequences that could emerge ahead. In this particular regards knowledge and experience that could help reaching rationale decision is needed.

1.3 An overview of Tanzania services and its comparators.

Tanzania macro and micro-economic status is examined with data to compare the competitiveness of the country by benchmarking with other countries with the aim to diagnose the current and future competitors regionally and international and to realize the country’s performance in the broad sense. Benchmarking analysis also provide the country with useful information about the role model in which one country outperform others in the same industry.

As it has defined earlier in the previous chapter competitiveness is by definition is a relative term and therefore, performance of Tanzania service industry should be constantly assessing its competitiveness against regional competitors as well as international best-practice countries. It becomes more relevant that the various users of statistical sources make explicit the theoretical assumptions that lead to the use of some indicators and to make some comparisons. (Achibugi & Coco 2004)

In this study nine countries are selected as comparators against Tanzania to be benchmarked notably, Kenya, Rwanda, South Africa, Uganda, Burundi, Ethiopia, Thailand and Vietnam. Each country is a regional peer, top-tier African economy, and/or high-growth emerging economy. Thailand was selected because of its strong recent performance, and because Tanzania may find its experience instructive as it is, like Tanzania, a natural-resource based economy with substantial agricultural exports destined to off-season markets; though Thailand has had substantial success in adding value in-country to its natural resource exports (Tanzania National Competitiveness Assessment 28 September 2009).

To be able to do benchmarking analysis we have to use at least some of these national level indicators which have been developed for different goals, from S&T assessment to innovation and competitiveness analysis Andreoni 2011). World Development Indicators (World Bank data base) deployed to compare Tanzania and her comparators in the context of service industry.

The cross countries benchmarking analysis is particularly difficult when countries involved are at different stages of development. Andreoni (2011) not only are countries at different stages of development and technological capabilities. This implies that cross-country comparisons can be more useful if conducted among groups of countries which are at the same stage of development.

The indicators reviewed here are constructed by selecting those indicators which appear to be more suitable for capturing the analysis of the level of performance of service industry toward GDP growth trends of a given countries.

1.3.1 Tanzania share of services industry % GDP and its comparators from year 2007 – 2011

Tanzania’s share of service of GDP has been remaining stagnated at 46% for the last nine years between 2002 and 2011.

Table 1-1 Services, value added (% of GDP)

 

2002

2007

2011

Growth rate

Ranking 2011

2000-07

2000-11

2011

Tanzania

46.48

46.7

46.36

0%

0%

4

Kenya

53.46

56.45

57.68

1%

1%

2

Ethiopia

42.6

40.49

45.51

-1%

1%

6

Uganda

50.74

49.77

51.14

0%

0%

3

Rwanda

50.58

50.39

　

0%

　

 

Burundi

38.19

43.19

46.25

2%

2%

5

Thailand

48.13

44.59

44.09

-2%

-1%

7

Vietnam

38.49

38.18

39.71

0%

0%

8

South Africa

63.24

65.44

67.01

1%

1%

1

Source: World Development Indicators

The contribution of the service industry shown by Burundi and the trend can be analyzed as the country GDP has been contributed significantly by the service industry compared to other members in the EAC region, however; this can’t give details performance of the country’s growth trajectory in this economic outlook, one of the reason might be caused by the declined of the other sectors to the economy. Hirschman’s (1958) argued unbalanced growth model each sector is linked with the rest of the economic system by its direct and indirect intermediate purchase of productive inputs and sales and he emphasized that the industry (manufacturing) characterized by both stronger forwards and backwards linkage and therefore the main driver of the economy.

Kaldor (1966) in his view observed the overall economy’s productivity growth depends on the expansion of industry (manufacturing) while shrinkage of agriculture and other non-manufacturing industries such as services, and he argued that these two decreases return and contained productivity growth, respectively.

Despite the fact that Burundi performed well in service industry but her GDP growth has been declining from 5% in 2008 to 3.1% in 2011, an interpretation that Burundi is not performing well in industrial manufacturing and in agriculture main sector.

For the case of South Africa which has been reached a good level of economic growth the service industry plays an important role toward sustaining its economic vigor.

Figure 1-1 South Africa services value added (%of GDP)

Source: World Development Indicators 2012.

In 2007 the contribution of services fall from 65.44% to 63.97% in 2008 while that of industry rose from 31.20% in 2007 to 32.81 % in 2008, during this period the share of agriculture remained almost the same while the annual GDP growth rate dropped sharply from 5.5% to 3.6%.

The significance contribution of services industry in South Africa is clear when it picked up again in 2011 reaching 67% and boosts the South Africa GDP annual growth rate hiked to 3.1%

For the case of Thailand which went to negative GDP growth rate (-2%) in 2009 had highest record of the contribution of services amounted to approximately 45.2%, the GDP growth again hiked to 7.8% in 2010 conversely the share of the service dropped to approximately 43%.

The observation also reveals that these three industries are inter-reliant and depends on the country’s level of economic development where one industry is more dominant compared to other in the economic growth of a nation.

As for Tanzania the scenario is quite different to those observation stated earlier. Tanzania GDP has been growing by 7% in 2002 and kept on average the same pace 6.3% in 2011. The contribution of services, value added has been remained in the level of 46% from the year 2002 to 2011; however the structural changes towards industrialization led the country to increase the share of Industry value added to GDP growth rates from 21% in 2002 to 26.5% in 2011 complimenting the views of Kaldor (1966) and Hirschman’s (1958) that indeed there is a strong link between industrialization and economic growth，however relying solely on output variables does not allow us to capture the big picture of ongoing process within the economies.

Beyond this analysis the pro-manufacturing vision was heavily criticized during the 1980s and was fully abandoned the following decade when the pro-services vision became dominant. Theoretical explanations for the rising share of services associated with economic growth primarily focused on final expenditure patterns and prices – i.e. demand side factors Antonio Andreoni (2011). The basic intuition is that as people’s income increases, they begin to demand more services. The drop in demand for manufactured goods, so the argument goes, results in the shrinking of the manufacturing sector, which is declassed to a second rate activity, especially in countries in advanced stages of development. This new vision was supported by the fact that the services sector assumed the role of manufacturing in leading the process of economic growth in both advanced and in some developing countries. As a result of an accelerated process of de-industrialization, the most advanced economies have, since the 1960s, lost nearly half of their manufacturing sector as a percentage of GDP on average. Moreover, it has been argued that several developing countries (India is often taken as a paradigmatic example) are in fact experiencing a historically unusual pattern of structural change which is determined by a new technological paradigm. According to this explanation, services such as ICTs, business services and finance are replacing and (more likely) complementing manufacturing in a pro-growth , Palma (2005)

Although the pro-services vision continues to prevail worldwide, increased attention in the development economics debate has been paid to manufacturing over the last decade, as pressure on issues such as the loss of production jobs, loss of national level productive capabilities in advanced economies, loss of competitiveness vis-à-vis foreign competitors and trade imbalances has been rising Antonio Andreoni (2011). However; UNIDO argued that the development of the manufacturing has a ‘pull effect’ on other sector of the economy and thus the development of the manufacturing sector stimulates demand for more better services, such as banking, insurance, communication and transport (UNIDO-Tanzania industrial competitiveness report 2012 pg 15), therefore an increasing number of economists have recently refocused their attention on structural change dynamics O’Sullivan (2011).

Despite this performance, the relevant question is whether Tanzania can sustain this growth trend, especially if it continues to focus on industrial manufacturing activities. In this regard, the share of the service value added to GDP growth from 2006 to 2010 has been increased by the value addition in transportation and communication from 7% to 8 % of total annual GDP growth as seen in the (table 1-2).

Table 1-2 Tanzania service value added to GDP 2006 - 2010

Services (% GDP)

2006

2010

Wholesale and retail trade, hotels and restaurants

15.4

15.9

Public administration, education and health

8.9

8.8

Finance, real estate and business services

11.4

10.4

Transport, storage and communication

7.0

8.0

Financial intermediation, and other service activities

1.7

1.7

Public administration & defence; social security, & social work

3

3

Public administration, other social & personal services

0.7

0.6

Real estate and business services

9.6

9.0

Other services

　

　

　

4.1

4.1

Source www.africaneconomicoutlook.org retrieved November 2012

The value addition from Finance, real estate and business services is still limited. Accordingly, one sensible strategic option for the country is to upgrade within this important sector and to thus move into higher level of growth. This is in line with the idea that these are core functions of the services industry for improving a country’s economic development has to take into account the comparative and competitive advantages of the country.

1.3.2 Tanzania share of services industry per capita and its comparators from year 2007 – 2011

For the entire picture of Tanzania’s service value added performance in relative terms, it is necessary to take the country’s size into account. Applying a service value added per capita indicator to service industry base of Tanzania remains one among the lowest in the group worth only US$ 220 in 2011 from US$ 144 in 2002, despite a growing rate of 5 percent per annum since 2002 (Table 1-3).

Table 1-3 Services, value added (constant 2000 US$) per capita

Country

2002

2006

2011

Annual Growth rate

Ranking

02-06

06-11

02-011

2011

Tanzania

144.37

174.75

220.13

5%

5%

5%

4

Thailand

1,956.11

2,142.15

2,036.33

2%

-1%

0%

1

Kenya

84.85

92.59

104.65

2%

2%

2%

7

Uganda

124.82

151.16

191.37

5%

5%

5%

5

Vietnam

171.6

219.75

298.5

6%

6%

6%

3

South Africa

1,312.39

1,473.00

1,692.41

3%

3%

3%

2

Ethiopia

69.6

94.75

166.73

8%

12%

10%

6

Burundi

55.05

68.19

89.86

5%

6%

6%

8

Source: World Development Indicators

This growth has enabled Tanzania to maintain its position despite the increasing annual population growth rate by 2.6 % (Carlos & Roland 2011). However, from an international perspective, this comparison shows that the service value added growth in Tanzania is less impressive than it appears at first glance. In fact, the group of East African Countries remains quite far behind their more developed comparators taking the leading edge in the group these are South Africa and Thailand. For instance, South Africa as the main role model in the sector performance in the region point such that the service value added amounted far above that of Uganda, Kenya or Tanzania.

1.3.3 Share of employees in the service industry to total number of employees.

The pro-manufacturing vision was heavily criticized during the 1980s and was fully abandoned the following decade when the pro-services vision became dominant. Theoretical explanations for the rising share of services associated with economic growth primarily focused on final expenditure patterns and prices – i.e. demand side factors and logic behind the intuition is that as people’s income increases, they begin to demand more services (working paper 17/2011UNIDO), for that reason more labor force betrothed in service to make their days done.

Table 1-4 Tanzania Employment in services (% of total employment) and comparators 2002-2009

Country Name

2002

2003

2004

2005

2006

2007

2008

2009

Vietnam

23.3

23.9

24.8

28.2

Thailand

34

35.3

37.1

37.1

37

37.4

37.9

38.9

Tanzania

19.2

Kenya

32.2

Ethiopia

12.6

13

Uganda

22.1

23.5

23.2

28.4

Rwanda

16.6

Burundi

South Africa

61.3

64.1

64.5

66.6

65.6

64.9

68.6

69.8

Source: World Development Indicators

One among the challenge in this area is the availability of hard data in the international data bases which can provide at least sound statistical data that we can use time series analysis to get broad and clearer picture of the competitiveness performance of these economies by using this indicator. With these available data we can now narrow our analysis here.

In most undeveloped countries the service industry is still at infancy stage and provides very little job opportunities to the locals. As for Tanzania about 76% of labour force are engaged in agriculture (WDI 2006) especial in the rural areas and less developed regions where infrastructures like electrical power, telecommunication and transportation network are poor, inadequate and unimpressive social services impedes the growth of industrial manufacturing and the growth of service sectors alike.

Data in table 1-4 above suggests the developing countries are also weaker in quality and reliable data collection and some other cases data are not available; rather, one can choose indicators that are available for more countries and be aware that the data are not as satisfactory and as accurate as they are for the developed countries.

Tanzania placed in lower income country made very little progress and up to 2006 offered only 19 % workforce in service sector.

There is much to be done in order to unleash opportunities existing in the services which have the potential to contribute significantly towards employment creation, revenue growth and economic growth. It is crucial to improve education system in order to overcome challenges associated with and that obvious may take longer at least to achieve half of the level growing path where at least South Africa and high income countries have reached now. Therefore Tanzania and other EAC member states should continue investing in research institutions, upgrading education system, improving social services, strengthening governmental and private institutions, infrastructure and modern technology, if it has to institute a pool of renowned excellence and that requires long term huge investment.

1.4 Problem statement

As it has been studied out by many previous researchers that International business activities are a consequence of the fact that market are imperfect in the politically constructed environment (Boddewyn and Brewer 1994). Such imperfections enable firms to gain economic advantages in the international market. In other hand National governments are acting as instrument in stimulating the supply and demand of both the resources and capabilities of firms affecting competitiveness. The problem of where and how governments create system that affect a firms’ performance and influence the industry needs to be further investigated. In particular, relevant attributes need to be identified and analyzed as part of consistent and more comprehensive conceptualization of international competitiveness.

Recently Tanzania Aviation industry is not performing well due to different reasons that in turns affect other dependent sectors of economic growth in the country. According to the chief of the Tanzania Civil Aviation Authority (TCAA) Director-General Margareth Munyagi in her statement has said "The Tanzanian aviation industry is expected to grow by 7.9 percent in the next financial year 2008/2009" (Xinhua October 27 2008). The statement drew the attention of many Tanzanians believing that it’s a good move that could lead to strategic improvement of the industry efficiency and productivity, yet; the statement is far behind the reality and therefore necessitates this study

1.5 Research Objective and research questions

The principal objective of this study is to explore the specific conditions that could enable the Tanzanian aviation industry to become internationally competitiveness.

Another principal objective of this study is to find out proposed sustainable solution to the competitiveness issue of the Tanzanian aviation industry.

To identify key issues facing the Tanzania aviation industry recently

To evaluate overall competiveness of Tanzanian aviation industry and seek to identify the reasons behind its lack of competitiveness.

Investigate for breakthrough solutions to features the unique challenges encounter the Tanzania aviation industry.

by undertaking a study of the innovative and best practices developed and adopted by players of this industry in the global arena which are applicable in Tanzania conditions

By what factors Tanzania aviation industry can attain the international competiveness in the industry?

Is the R&D personnel of the firms within the industry attained the knowledge and skills to perform and fulfill their roles of helping the firms technological capabilities for competitiveness?

How well are the Tanzania aviation industry infrastructures?

How the home demand conditions for the aviation services affect the aviation industry in Tanzania?

How well the country’s national institutions set up connected to the aviation industry are linked to better enhance technology and knowledge flow in helping firms within the industry to perform effectively and productively?

How effective is the National policy of aviation industry in the country?

What are the impacts of politicians toward a direction of influencing the industry competitiveness?

How does the government stimulate and encourages the firms competition within the industry for developing technological capability towards improving firms efficiency and productivity?

How effective does the government involves the societies in seeking public opinion for the aviation industry competitiveness?

1.6 Significance of the study

This dissertation attempts to develop a framework for identifying various factors for competitiveness of aviation industry in the Tanzania and therefore it confers a number of significances as outlined below:

Aviation industry has contributed positively to Tanzanian’ economic development and as such it is vital for Tanzania to compete in the global market.

Discovering the factors influencing competitiveness in aviation industry is vital to further assist the government in policy formulation for the future.

Identification of the major factors influencing competitiveness in aviation industry is beneficial in the long run to further sustain and increase the sectors development.

The study will sketch together different pieces of thought on the competitiveness and economic significance of aviation industry in the country and more over will put on paper the economic impact into an overall assessment of the economic importance of the industry.

Since this study will use the application of Porter’s framework developed in Competitive Advantage of Nations, it will help analyze and explain the competitiveness of the Tanzanian aviation industry by identifying the gap laid by the key players in accordance to the Porter’s frame work.

The conclusions from the analysis of Tanzania aviation industry could be the basis

For the reforms and adjustments for policy actions to improve the current conditions for competitiveness.

1.7 Scope of the study

This research will try to analyze the aviation industry competitiveness in Tanzania, however in doing so we will need to benchmark with the best performing, future competitions and immediate competitors regional and international.

In order to be able to analyze this we will need to have statistical data to support our argument therefore we will use the data from the international databases to be able to analyse the performance by selecting relevant countries.

Moreover we will need to analyse the various other qualitative indicators to complement the existing statistical ones therefore we will narrow down our analysis of qualitative part only to Tanzania economic and business environment.

1.8 Research Process

Primary data

Primary data will be collected from all aviation stakeholders as shown in the diagram 1. The data collection will be done under full support from Ministry of infrastructure of Tanzania, and Tanzanian government Agencies of the aviation industry. Preliminary; these organizations have shown positive interest on this research and therefore two methods will be used to collect data. First, the research will utilize a structured self-administered survey questionnaire in collecting data from selected list of aviation main players in Tanzania.

Second, the key informants will be employed to enhance richness of the study. Among the key informants are policy makers, government officials and academics. The questionnaires will be prepared in English Language and will be designed in a way that respondents would find it easy to understand

Figure 1-2 Research method and technical route to be taken.

Source: Author

Secondary data:

The secondary data will be collected through books, journals, research based conferences, reports, statistical data released by government or central statistics authorities.

6.1.3 Sample selection:

Purposive sampling will be employed for both aviation industry stakeholders and key informants. A purposive sample of aviation firms will be drawn from the overall population of aviation companies operating in Tanzania. A reasonable number of questionnaires will be sent to selected companies to increase richness of data.

1.9 Thesis Structure.