Competitiveness is a difficult concept to define satisfactorily because it is so subject to variations in scale, scope, time and place, not to mention the unit of analysis. Pioneering work by Michael Porter focused on the comparative advantages that individual states can obtain at the national level. This work provided a model featuring the interaction of five individual forces that produced a model more static than dynamic that suggests where clusters of industries could be located within the map of a state's economic geography. This model must be developed further to provide additional value to the analysis. The factors that might be added to it include the dynamic effects of time, the interactions and co-operation between non-state actors (e.g. localizing multinational enterprises) and the domestic government, the internationalization of state economies and the different levels of significance obtained by considering competitiveness at the industrial level and at the level of the individual firm or even employee. Given the multifarious levels of interaction between firms and individuals within a mutually foreign environment then network theory provides useful insights. Examples of these situations include the connections between local and international advertising agencies and their multinational clients. The advertising industry has become increasingly internationalized and consolidated as the result of agencies being required to follow their clients as they internationalise and need to acquire local content and specialized knowledge often at rapid speed. This necessitates interaction with a variety of local business services which may themselves result from internationalization or at least regionalization of service providers.
Additional efforts to identify and classify competitiveness have tended to rely on constructs of variables ranging from the very simple to the complex. Simplistic measures (e.g. exchange rates, tax rates or interest rates) are obviously inappropriate alone for the subtleties of modern economies while complex lists of variables of course suffer from data completeness issues and the tendency to obscure important institutional and socio-cultural differences between states under the guise of quantitative figures. The IMD World Competitiveness Report, for example (http://www02.imd.ch/wcy/factors/)lists a range of variables under the headings of economic performance (including domestic economy, international trade, international investment, employment and prices), government efficiency (including public finance, fiscal policy, institutional framework, business legislation and societal framework), business efficiency (productivity, labour market, finance, management practices and attitudes and values) as well as infrastructure (including basic infrastructure, technological infrastructure, scientific infrastructure and health and environment). While this is a perfectly reasonable approach to the issue of competitiveness as the authors define it to be, it remains to be seen whether the results actually measures a real world evaluation of the situation within individual states. For example, some competitiveness indices provide results which are quite out of kilter with the situation that people with experience of relevant countries perceive. In this project, we have chosen small states with good coverage of data to investigate competitiveness at a low level and with close attention to real life details.
Irrespective of the level of analysis and the simplicity or otherwise of the variables used to describe it, most mainstream commentators now accept that there are important roles to be played by the government in promoting and sustaining competitiveness. Dunning, for example, summarises these roles as follows:
"� create and effectively communicate to their constituents a distinctive and challenging economic vision �. Ensure that the institutions responsible for translating that vision into reality are both willing and able to adjust to the changes required of them by a learning and innovation-driven economy � ensure that the availability, quality and cost effectiveness of general purpose inputs match up to the standards of their global competitors � create and sustain an institutional framework and ethos that facilitates a continuous upgrading of the resources and capabilities within its jurisdiction � do everything to encourage and nothing to impede the formation of micro-regional cluster development." (Dunning, John H., "A Business Analytic Approach to Governments and Globalization," in John H. Dunning, ed., Governments, Globalization, and International Business (Oxford: Oxford University Press, 1997), pp.114-31.)
The roles of governments in promoting competitiveness is discussed in the section concerning hypotheses later.
