Defining MSME Competitiveness

Michael Porter176, a renowned and influential business strategist, defines the competitiveness of a location as the productivity that companies located there can achieve.177 The definition of competitiveness is thus used to understand the drivers of sustainable economic prosperity at a given site, with productivity as the cornerstone of Porter’s definition of competitiveness.178

Competitiveness can be examined at the national and enterprise level. The national competitiveness appraises the ability of a national economy to grow. It is measured by a set of factors, policies, and institutions that determine a country’s level of productivity. In general, national competitiveness is realized through maintaining an environment for its companies and other institutions to create, utilize and sell goods and services meeting the requirements of global competition and changing social norms. Separately, enterprise competitiveness reflects on the capability of a business to meet customer requirements at a profit. This capability is realized through the offering of goods and services which customers value higher than those offered by competitors. Enterprise competitiveness is applied at the microeconomic level, describing the competitive situation to which an enterprise is exposed. Both national competitiveness and enterprise competitiveness definitions have a structural similarity: they are both defined as capabilities with a double focus on sociological (customer requirements and social welfare) and technical (profit and productivity factor), and involve strategic governance and the idea of sustainability.

In the Diamond Model, Porter explains the essence of industries within a particular nation in garnering competitiveness internationally. He emphasizes the significance of an interrelated set of location advantages that specific sectors in different countries possess in gaining a competitive advantage. These advantages include the firm strategy, structure and rivalry, factor conditions, demand conditions, and related and supporting industries. If these conditions are favourable, it forces domestic companies to innovate and upgrade continuously. This competitiveness can allow an MSME to enter the international arena and better compete with global competitors. Porters’ concept of competitiveness also focuses on prosperity created from economic activity. Here, productivity is the critical determinant of the level of wealth a business can sustain over time. Figure 1 illustrates the components of Porter’s Diamond model of national competitive advantage.

Figure 3. Porter’s Diamond Model of National Competitive Advantage

Figure 3. Porter’s Diamond Model of National Competitive Advantage

Source: Porter, M. E. "How Competitive Forces Shape Strategy." Harvard Business Review 57, no. 2 (March–April 1979): 137–145.


176 Michael Porter is an economist, researcher, author, advisor, speaker and teacher. Throughout his career at Harvard Business School, he has brought economic theory and strategy concepts to bear on many of the most challenging problems facing corporations, economies and societies, including market competition and company strategy, economic development, political competition, the environment, and health care. His approach is based on understanding the overall economics and structure of complex systems, in contrast to particular elements or parts. His extensive research is widely recognized in governments, corporations, NGOs, and academic circles around the globe.

177 Porter, M. E. "How Competitive Forces Shape Strategy." Harvard Business Review 57, no. 2 (March–April 1979): 137–145.

178 Davies, Howard & Ellis, Paul (2000). Porter’s Competitive Advantage of Nations: Time for the Final Judgement? Journal of Management Studies. 37. 1189 - 1214. 10.1111/1467-6486.00221.