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 opened up for them in the international arena. World trade and foreign investment have grown faster than world output in the last several decades.

Competitiveness in industries subject to international trade and foreign direct investment can, therefore, provide substantial leverage for economic growth. This is especially true for small nations, where competitiveness can allow firms to overcome the limitations of their small home markets in order to achieve their maximum potential.

Competitiveness is also vital if a nation’s firms are to guard against the threats posed by the international economy, indeed,International competition has become fiercer than ever before. Lower costs for transportation and communication, reduced trade barriers, and the spread of technology have fused to sharpen international competition. This competition has put unprecedented pressure on all national economic actors, including management, labor, and government. In an environment in which the nation’s firms must improve continually in order to meet the threat from an ever-widening array of competitors, the failure of management, labor, or government to rise up to the challenge can spell out incalculable disasters for the nation’s firms.

There is a growing realization that nations cannot avoid the rigors of international competition, for no nation is totally self-sufficient. Nations are linked to the international economy through commodity trade, prices and through international capital flows. The experience of developing nations in the 1980s has indicated that attempts to isolate an economy can have lasting detrimental effects. Nowadays, nations can try to run away from the world economy, but they cannot hide. This is particularly true for small nations, in which the costs generated by economic isolation in terms of rent seeking and losses in efficiency can be substantial, and for developing nations, in which any loss of efficiency often means higher levels of poverty.