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Finding the key to competitiveness


The latest European Competitiveness Report examines the factors which help or hinder firms’ economic growth. Amongst its key messages is that companies which trade across borders are more productive than those which do all their business in their home country. A second message is that high-growth firms are found in all EU Member States and in all sectors of the economy. Now in its 11th annual edition, the 2008 European Competitiveness Report aims to assess the state of European economies, relative to each other and to the United States of America, and identify issues on which efforts could be focused to improve the overall competitiveness of European firms. At macroeconomic level, the 2008 report shows that the gaps in labour productivity between EU Member States have been decreasing, i.e. the less productive economies are improving faster than the more productive. However, labour productivity in the EU has grown less strongly than in the USA in the past decade. These macroeconomic findings in the 2008 report, it should be noted, are based on data which do not yet reflect the recent economic downturn.


 Firms which engage in trade across borders are more productive than their counterparts which do not participate in international trade. In terms of labour productivity, exporting firms perform between 3 and 10% better than non-exporting companies, the report finds. Moreover, a similar productivity premium is observed in importing firms, and an even stronger one in firms engaged in foreign direct investment (FDI). The literature is divided as to whether more productive firms are more likely to export, or whether exporting leads firms to become more productive. Although there is stronger evidence for the first of these, in many case both will apply. Estimates suggest that by reducing the costs of trading in the Single Market by a further 5%, EU firms would increase productivity by 2%.

Growing small firms

The Union’s Small Business Act, agreed last year, contains a set of initiatives to improve the business environment, making it easier to set up new firms and grow them into large companies. SMEs are the primary creator of jobs in industry, and fast-growing SMEs are recognised as making a major contribution to improving EU competitiveness. The report states that such high-growth firms are found in every Member State and in all sectors of the economy. The common factor is the entrepreneurial eye to spot and take on opportunities in the marketplace. High-growth firms in the EU-15 tend to be more innovative than average, whereas those in the new Member States have average innovation levels. In comparison to the USA, however, the EU hosts fewer high-growth, high-tech firms, which means the European economy is slower to seize opportunities in promising sectors.

Broader impact

The 2008 Competitiveness Report also considers the impact of the EU’s sustainable industrial policy and corporate social responsibility (CSR) on competitiveness. The evidence shows there is significant potential for EU firms to gain in competitiveness through opportunities in the market for environmentally friendly products. In CSR, the report finds evidence of a contribution to firms’ competitiveness, in particular in the areas of human resources recruitment and retention, reputation and innovation. A positive approach to CSR is seen not only as protecting value but creating it, and more and more firms see CSR as an essential part of developing their position relative to the competition."

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