THE PERFORMANCE OF INDIAN IRON AND STEEL INDUSTRY AND COMPETITIVENESS OF THE FIRMS

L. G. Burange and Shruti Yamini The paper examines the performance of Indian iron and steel industry in the pre and post-liberalisation periods in terms of primary indicators such as production, consumption and foreign trade. It also studies growth in capacity utilisation, prices and employment. It is deduced that the industry has grown manifold in all the aspects, especially after the liberalisation of the economy except employment, which shows a substantial fall during post-liberalisation when competition among the Indian manufacturing firms has increased. Therefore, that leads us to investigate the competitiveness of the sample firms in the industry through composite competitiveness indices. On the basis of overall competitiveness, as well as financial and non-financial aspects of competitiveness, the industry is mostly dominated by Tata Steel Ltd., even though SAIL has a greater market share and proves to be superior with respect to non-financial indicators. 1. Introduction period 1991 to 2007 and at astounding 14.44 per cent in the last eight years [World Steel Association, 2008]. As per an official estimate, the industry contributes around 2 per cent of the Gross Domestic Product and its weight in the Index of Industrial Production is 6.20 per cent [GOI, 2008a, p. 10]. Further, with a share of approximately 10 per cent, the industry is amongst the largest contributors to the central excise duty.

It can apparently be stated that iron and steel has little or no competition because of its ideal combination of strength, rigidity and workability and the relatively high cost of alternative materials. Moreover, the steel industry has very strong forward and backward linkages in terms of material flow, income generation and employment creation; hence the economic prosperity and growth of an economy is very closely related to the quantity of steel consumed The first large scale production of iron and by it. steel in India was made in 1829, when Josiah Heath ventured on his famous enterprise of The Indian iron and steel industry has mining and smelting iron ore at Salem and Porto traversed a long path since the first steel plant Novo. However, due to high capital requirement went into operation in 1907. Starting at 1 million the works was wound up in 1867. Therefore, the tonne (m. t.) capacity at the time of independence, credit of finally initiating the iron and steel India has now risen to be the fifth largest crude industry in India on a full-fledged scale goes to steel producer in the world and the largest late Jamshedji Tata who in 1907 organised the producer of sponge iron. Moreover, India is Tata Iron and Steel Company [TISCO, now Tata expected to become second largest producer of Steel Ltd.]. The iron and steel production steel in the world by the year 2015. That the increased quite rapidly following Independence industry has started to mark its presence as India attempted to strategically invest in this world-wide is also evident from the fact that its core sector to bring about national industrial share in world production of crude steel has been transformation [DCosta 2006, p. 8]. According constantly on a rise since the industrys to the first Industrial Policy Resolution adopted liberalisation, at a healthy compound annual in 1948, new production units of iron and steel growth rate (CAGR) of 2.86 per cent between the were to be started exclusively by the government
L.G. Burange is Professor, Department of Economics, University of Mumbai, Mumbai. Shruti Yamini is Research Scholar. The authors wish to thank Professor Nilakantha Rath, Professor Vikas Chitre and an anonymous referee for their useful suggestions and comments. However, the authors are solely responsible for any remaining errors.

450

JOURNAL OF INDIAN SCHOOL OF POLITICAL ECONOMY

JULY-SEPT 2008

in the public sector without disturbing the existing ones in the private sector. Therefore, state ownership of steel plants in independent India began in the 1950s as some integrated steel plants were set up in the public sector and few steel units in the private sector. The first push to this industry came during the first five year plan (1952-56). Massive injections of investment in the public sector coupled with a protected market environment laid the foundations of a viable and competitive indigenous iron and steel industry. Unfortunately, Indias steel capacity was not augmented to any appreciable extent over the next two decades of 1960s and 1970s as the general economic slowdown adversely affected the pace of growth. However, this phase was reversed from 1991-92, when the country replaced the control regime by liberalisation and deregulation in the context of the New Economic Policy. The Indian iron and steel industry was freed from the shackles of control and liberalised in July 1991, which led it to grow in several dimensions. The main policy measures taken with regard to the industry include [GOI, 2007]: 1. The industry was removed from the list of industries reserved for the public sector and also exempted from the provisions of compulsory licensing. The industry was included in the list of high priority industries for automatic approval for foreign equity investment up to 51 per cent. This limit has recently been increased to 100 per cent. Price and distribution of steel were deregulated from January 1992. The trade policy was liberalised whereby import and export was freely allowed. Levy on account of Steel Development Fund was discontinued from April 1994, thereby providing greater flexibility to main producers to respond to the market.

2.

After passing through the initial phase of stabilisation following the economic reforms and liberalisation, the steel industry experienced a growth of 22 per cent and 14 per cent during 1994-95 and 1995-96, respectively [Mazumder and Ghoshal, 2003, p. 65]. The industry however experienced a difficult phase between 1997 and 2001. This was due to the severe recession in the global economy which led to demand-supply mismatch with potential production capacity being much higher than demand. Prices of a few types of steel during this period touched a 20-year low and most producers in India made heavy losses. Many firms were forced to shut down leading to loss of jobs. New capacities became uneconomical and surplus [Joshi, 2006, p. 2]. As noted by Muthuraman [2006], the industrial recovery in India really began to be seen in 2002-03; was consolidated during 2003-04; gathered momentum during 2004-05; and scaled new heights during 2005-06 and 2006-07. Consequently, the competition between the firms within the industry has increased. This is mainly on account of the better performance of the existing firms in all the fields of competency and the resultant surge in competition for market share. Furthermore, due to the expectant prospects of the industry in the near future, newer secondary producers have entered the market making competition even more intense down the line. The accompanying outcome is worth examining through the analysis of the current scenario of competitiveness among the firms in the industry in the following sections. The paper is organised as follows: Following the introduction, the second Section deals with the performance of the industry in terms of some key indicators. The third Section discusses the concept and measurement of competitiveness along with the methodology and the data. Section four analyses the results of the study. Section five examines financial and non financial performance of the firms whereas the last Section concludes the paper.

3. 4. 5.

VOL. 20 NO. 3

THE PERFORMANCE OF INDIAN IRON AND STEEL INDUSTRY ...

451

2. Performance of the Industry

economic growth and soaring demand by sectors like infrastructure, real estate and automobiles, at The performance of the industry in key home and abroad, has put Indian steel industry on indicators such as production, consumption, the global map. export, import, employment, etc., has been studied by analysing their growth rates. For the 2.2. Apparent Consumption purpose, compound annual growth rates (CAGR) The apparent consumption (as commonly are computed for the 32 years, from 1975-76 to 2006-07, as per the semi-log method (Appendix referred to) of steel is arrived at by subtracting table 2). Besides, the CAGR is estimated for two export of steel from the total domestic production sub-periods, i.e., pre-liberalisation period and adding the import of steel.1 Change in stock (1975-76 to 1991-92) and post-liberalisation is also adjusted in getting the consumption period (1991-92 to 2006-07), using the kinked figures. It is treated as the actual domestic demand exponential growth model [Boyce, 1986, Pp. of steel in the country. Apparent consumption of 385-391; Goldar and Seth, 1989, Pp. 1237-1240; finished steel kept pace with production as it Burange, 2000, Pp. 81-98]. The main data sources increased from 14.84 m. t. in 1991-92 to 44.33 m. used here are SAIL [2008], Joint Plant Committee t. in 2006-07 with the CAGR of 6.26 per cent p.a. [2007] and Government of India [2009]. over the post-liberalisation period as against 5.53 per cent in the pre-liberalisation period (figure 1). 2.1. Production The CAGR for the entire period is 6.19 per cent. However, the potential demand for steel in India The finished steel production in India has is still vast, as the present per capita consumption grown from a mere 1.1 m. t. in 1951 to 50.20 m. in the country is only around 46 kg [GOI, 2008a, t. in 2006-07. During the first two decades of p. 10] against the world average of 150 kg and planned economic development, i.e., 1950-60 and that of 400 kg in the developed countries. The 1960-70, the average annual growth rate of steel consumption of iron and steel is primarily driven production exceeded 8 per cent. However, this by the manufacturing, construction and growth rate could not be sustained in the infrastructure sectors, which have witnessed following decades due to lack of demand. During impressive growth in India in the past few years. 1970-80, the growth rate in steel production came The prospects for the market might get brighter, down to 5.7 per cent p.a. and picked up marginally if supported by government initiatives in the to 6.4 per cent p.a. during 1980-90 [GOI, 2005a], infrastructure sector, and an expected early which further increased to 8.61 per cent p.a. revival in the manufacturing sector. during 1990-2000. The addition in production is all the more significant after recovery of the 2.3. Foreign Trade industry on domestic as well as the global clues, i.e., after 2001-02. When CAGR is estimated for Liberalisation of the foreign trade regime has the pre-liberalisation (1975-76 to 1991-92) and had a favourable effect on Indian exports. post-liberalisation (1991-92 to 2006-07) periods, Exports, in volume terms, grew fast- at a rate it is noted that growth rate is understandably exceeding 30.7 per cent p.a. between 1991-92 and higher in the later period at 8.11 per cent 2006-07 (post-liberalisation period). This was in compared to 4.96 per cent for the earlier period contrast to the declining trend, at (-) 1.15 per cent (table 1). After liberalisation, there have been no in the pre-liberalisation period of 1975-76 to shortages of iron and steel materials in the country 1991-92 (Table 1). During the post-liberalisation as production has augmented. Indias rapid period, the countrys export basket also changed

452

JOURNAL OF INDIAN SCHOOL OF POLITICAL ECONOMY

JULY-SEPT 2008

in favour of more value added and sophisticated products. The major steel items of export include hot rolled (HR) coils, plates, cold rolled (CR) and galvanised products, pipes, stainless steel, wire rods and wires. The export destinations also got widened with Indian steel reaching very large

number of countries in all the continents of the world. Indias major markets for steel items include USA, Canada, Indonesia, Italy, West Asia, Nepal, Taiwan, Thailand, Japan, Sri Lanka and Belgium.

Table 1. Growth Trend in Primary Performance Indicators (Per cent) Year (1) Total Period CAGR (1975-76 to 2006-07) Pre- Liberalisation Period CAGR (1975-76 to 1991-92) Post- Liberalisation Period CAGR (1991-92 to 2006-07) Production (2) 6.85 4.96 8.11 Apparent Consumption (Production + Import) - Export (3) 6.19 5.53 6.26 Export (4) 14.16 -1.15 30.7 Import (5) 5.45 4.1 6.3

Figure 1. Comparison of CAGR of Key Performance Indicators

Import of steel, on the other hand, followed a different growth path. Contrary to the declining trend in exports, it remained stable at around 4.1 per cent (CAGR) in the pre-liberalisation period. And, unlike exports, it increased only marginally at around 6.3 per cent CAGR in the post-liberalisation period. Most dramatic increase in imports can be seen between 2003-04

and 2006-07, doubling itself from 1.45 m. t. to 4.39 m. t. in over just four years. As a result, for a major part of the post-deregulation years, India enjoyed the status of a net exporter of steel, even though the net export levels varied widely. As noted by the Report of the Working Group on Steel Industry for the Eleventh Five-Year Plan [GOI, 2006], an association observed between the

VOL. 20 NO. 3

THE PERFORMANCE OF INDIAN IRON AND STEEL INDUSTRY ...

453

growth in domestic demand and relative movements in imports and exports, (i.e., net exports) shows that the industry is ready to operate in an open economy where exports and imports respond to increases or decreases in domestic demand driven primarily by market signals, (i.e., relative domestic and international price and relative realisation on domestic versus international sales) and appropriate fiscal adjustments, (i.e., changes in tax rate). 2.4. Capacity Utilisation

Capacity underutilisation, as in other industrial sectors, presents a major drawback in the Indian iron and steel industry. Capacity utilisation, as measured by total output divided by installed capacity multiplied by 100, has historically been fluctuating. From a low start in 1970-71 of 67 per cent average capacity utilisation, it increased to 75 per cent in 1980-81 and declined again thereafter to around 65 per cent in 1990-91. In 2000-01, however, it improved again to 79 per cent (Table 2). It needs to be mentioned that the range of capacity utilisations amongst the plants is considerable. In 1970-71 it ranged between 40 per cent and 86 per cent, and in 1977-78 two plants even registered capacity utilisation of over 94 per cent [Schumacher and 2.5. Pricing Trends Sathaye, 1998]. However, the capacity utilisation in mini steel plants is usually low largely due to The domestic prices of iron and steel have been inadequate supply of scrap and power. market-determined ever since the de-regulation Table 2. Capacity Utilisation of Crude Steel of prices for integrated steel plants in 1991-92. Market prices remain closely related to Years Capacity Utilisation of international prices, though generally lower. The Crude Steel (%) main policy instrument available to influence (1) (2) prices is the adjustment of the customs and excise 1970-71 67 duty structure. An important feature of the 1980-81 75 de-regulated era is that prices of both finished 1990-91 65 steel and its inputs have risen at a much faster rate 2000-01 79 2001-02 82 and with a lot of volatility, compared to the past. 2002-03 86 Table 3 below gives the trend in WPI (with base 2003-04 88 year 1993-94=100) for iron and steel between 2004-05 91 2005-06 91 1990-91 and 2007-08. The Indian steel industry 2006-07 89 experienced a significant slump in prices during 2007-08 91 the period 1998-99 to 2001-02 in line with global Source: JPC (2007) and Other Sources. trend, which adversely affected the profitability

Low capacity utilisation in the pre-liberalisation period inevitably resulted in high costs of production and losses. It was due to inadequate supply of coal and power, transport bottlenecks and other infrastructural constraints, absence of proper maintenance, poor management, (e.g., caused by frequent changes in top management of public sector plants), extensive labour unrests and in more recent years due to lack of demand by engineering industries like railway wagons, etc., [Datt and Sundharam, 1998]. Furthermore, public sector units seemed to be particularly inefficient. They showed continuous losses since they were set up, additionally due to heavy investments on social overheads and administered prices and controlled distribution that did not allow these units to receive reasonable returns for their products. However, in the post reform period, there has been significant improvement in the capacity utilisation levels, as a result of expansionary phase in the general economy and the consequent accelerated growth in demand for steel by the user sectors [GOI, 2006], better export performance of the sector and high prices of steel.

454

JOURNAL OF INDIAN SCHOOL OF POLITICAL ECONOMY

JULY-SEPT 2008

of domestic steel firms. However, certain steel mills remained profitable during this period due to price control over key inputs such as coal, value addition in the production chain and product diversity by introducing new types of steel meant for specialised usage. Nonetheless the prices have recovered significantly after 2003-04.
Table 3. Wholesale Price Index of Indian Iron and Steel Year (1) 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 CAGR (%) WPI (2) 94.86 91.85 92.09 100.00 106.00 116.60 124.10 129.80 132.80 134.50 136.80 136.60 143.50 181.10 232.90 250.10 254.40 278.10 6.69

Source: GOI, (2008b) (Base Year: 1993-94=100)

2.6. Employment The trend in employment (number of workers) in the iron and steel industry is studied in the postand pre-liberalisation periods with the help of ASI database [Government of India, 2009]. The results are distinct in the sense that it is the only performance indicator which has recorded negative growth during the total period of 1975-76 to 2005-06. The estimated CAGR in employment in the period between 1975-76 and 2005-06 is (-) 1.01 per cent. However, the rate

was a little better at 0.35 per cent in the pre-liberalisation period (1975-76 to 1991-92). The figures indicate that the level of employment was worst in the post-liberalisation period (1991-92 to 2005-06) where it declined at a rate of (-) 2.41 per cent CAGR (table 4). After deregulation of the industry, through the schemes such as voluntary retirement and golden hands-shakes, industry tried to rationalise labour cost in the iron and steel production. This led to decline in employment in the Indian iron and steel industry during post-liberalisation period. The declining employment in the industry led to improvement in labour productivity, although it is still low compared to most of the steel producing countries. This phenomenon can be attributed to increased mechanisation and technological advancement in the industry following decontrol, which led to the substitution of labour with capital in iron and steel production. Nevertheless, after stagnating in the years 2001-03, the number of workers in the industry has increased from 268459 in 2003-04 to 294974 in 2004-05 and to 323051 in 2005-06, indicating a positive signal for the employment in the industry. This recent growth in employment is primarily due to the growth in the number of producing units in the industry, especially in the private sector, as well as the growth in the size of individual units.
Table 4. Employment Growth in Indian Iron and Steel Industry Time Period (1) Overall Period (1975-76 to 2005-06) Pre-liberalisation Period (1975-76 to 1991-92) Post-liberalisation Period (1991-92 to 2005-06) CAGR (%) (2) -1.01 0.35 -2.41

VOL. 20 NO. 3

THE PERFORMANCE OF INDIAN IRON AND STEEL INDUSTRY ...

455

Figure 2. Trend of Employment in the Industry

2.7. Pig and Sponge Iron Industry

can come down. Although this might mean substitution of labour and result in decline in Pig iron is one of the basic raw materials employment in such units. required by the foundry and casting industry for Table 5. Production in Indian Pig and Sponge manufacture of various types of castings for the Iron Industry (Million Tonnes) engineering industries. In 2006-07, the share of production of pig iron by secondary, (i.e., smaller) Years Pig Iron Sponge Iron producers was 82.8 per cent, whereas primary, (1) (2) (3) (i.e., larger) producers produced only 17.2 per 1991-92 1.59 1.31 cent. Along with the production of steel, the 1992-93 1.84 1.44 production of pig iron in the country has also 1993-94 2.25 2.40 increased at a modest rate of 6.3 per cent in the 1994-95 2.79 3.39 1995-96 2.80 4.40 post liberalisation period (table 5) due to positive 1996-97 3.29 5.01 global demand, India being a major exporter. 1997-98 3.45 5.35 However, it would help the industry, if the 1998-99 3.00 5.11 1999-00 3.15 5.18 government invests more on the development of 2000-01 3.40 5.44 the infrastructure sectors, such as road and 2001-02 4.07 5.66 transport, so that the derived investment demand 2002-03 5.29 6.91 2003-04 3.76 8.09 from the increased economic activity could as 2004-05 3.23 10.27 well flow into the industry. Also, the foundries in 2005-06 4.70 12.65 India, particularly the smaller ones, are using 2006-07 4.99 16.27 CAGR (%) 6.30 14.77 obsolete technology and need modernisation with better technology so that the cost of production Source: JPC (2007, Various Issues)

456

JOURNAL OF INDIAN SCHOOL OF POLITICAL ECONOMY

JULY-SEPT 2008

Figure 3. Trend in Production in Indian Pig and Sponge Iron Industry

India is the worlds largest producer of sponge iron. Production of sponge iron in the country as an alternative feed material to steel melting scrap (re-usable steel waste), which was being imported hitherto in large quantities by the Electric Arc Furnace units and the Induction Furnace Units, has resulted in considerable savings in foreign exchange. The growth of sponge iron especially during last 5 years in terms of capacity and production has been substantial. The installed capacity of sponge iron increased from 1.52 m. t. p.a. in 1990-91 to 26.39 m. t. in 2004-05. The production has increased from 1.31 m. t. in 1991-92 to 16.27 m. t. in 2006-07 (table 5) at 14.77 per cent CAGR mainly due to de-licensing of the industry. Moreover, growth in production in sponge iron in the last 5 years has been at an impressive 24.11 per cent.

competition among the firms has also increased in the Indian manufacturing industries after the economic liberalisation. This leads us to examine the competitiveness among the firms in the industry. 3. Concept and Measurement Competitiveness of the Firms of

It is presumed that because of superior iron and steel industry performance resulting from various factors such as favourable government policies, desirable external environment, increased competition, etc., the competitiveness of the firms has improved. Competitiveness here refers to the ability of the firms to compete with the competitors in any specified market. The present study moves on to examine this issue of competitiveness of the firms within the industry It may be summed up that the industry with the help of empirical data. performance has definitely improved in the In the existing literature, mainly two scientific post-liberalisation period in terms of production, consumption, trade, etc., the only exception being approaches to measure and analyse employment. Furthermore, according to competitiveness, namely modelsandindices,are Pushpangandan and Shanta [2009], the encountered. Models are complex, usually

VOL. 20 NO. 3

THE PERFORMANCE OF INDIAN IRON AND STEEL INDUSTRY ...

457

custom-built to answer specific questions and require relatively large investment in data collection and analysis. The principal alternative to models is indices, designed to measure and compare specific phenomenon, encompassing several variables. Therefore, to achieve our objective of measuring competitiveness of firms in the Indian iron and steel industry, a composite competitiveness index for the firms has been constructed. Typically, it is a weighted linear (mathematical) combination of individual indicators that represent different dimensions of a concept whose description is the objective of the analysis [Saisana and Tarantola, 2002]. Therefore, the competitiveness index evaluates the sample firms relative competitive performance, represented by a number of indicators. Typically, the first step towards construction of composite indices involves defining the concept that is to be measured through it. Therefore, the concept of competitiveness is introduced concisely. Most simply put, competitiveness is a relative term, which means willingness and ability to profitably compete with competitors. Due to the fact that competitiveness is a relative measure, one always has to make the comparison with a base value. Nonetheless, the meaning remains vague and ambiguous, until its application on the level of aggregation of an economy (such as regions, nations, industries, firms and products) is ascertained. There is a distinct divergence in definitions, as competitiveness at the different levels of the economy is analysed, as each entitys competitiveness is sought to be examined according to the factors most vital to the survival of the entity in its specific competitive environment [Reiljan, et al., 2000]. Following Porters [2002] viewpoint, where he maintains that wealth is actually created in an economy at the microeconomic level, in the ability of the firms to create valuable goods and

services using efficient methods, we concern ourselves with the firm-level competitiveness in the industry. However, it may be noted that there is a complete lack of empirical research on the subject, as most of the studies attempt to analyse and measure region, country or industry competitiveness. This guides us to examine the definitions and theoretical models discussed by some of the main studies initially, and thereafter identify the main variables explaining the competitiveness of a firm following them. According to Buckley, et al., [1988, Pp. 175-200], the most complete definition to describe competitiveness at the firm level, as given by the Aldington Report, [1985] is as follows; firm is competitive if it can produce a products and services of superior quality and lower costs than its domestic and international competitors. Competitiveness is synonymous with a firms long-term profit performance and its ability to compensate its employees and provide superior returns to its owners. This comprehensive definition highlights the importance of quality of the product which is dependent on the technology used by the firm, its financial and stock market performance and investment in human resource by the firm. In the same line of thinking, the Department of Trade and Industry [1994, p. 9] of U. K. states that;for a firm, competitiveness is the ability to produce the right goods and services, at the right price, at the right time. It means meeting customers needs more efficiently and more effectively than other firms. Apart from stressing on the productivity, quality and price aspects, the stated definition sheds some light on importance of consumer satisfaction too. DCruz and Rugman [1992, p. 13] argue that the firm level competitiveness can be defined as ..... the ability to design, produce and market goods and services, the price and non-price characteristics of which form a more attractive

458

JOURNAL OF INDIAN SCHOOL OF POLITICAL ECONOMY

JULY-SEPT 2008

package than those of competitors. A distinction is often made between the price and non-price competitiveness, the first representing a firms capacity to succeed in price competition (for a given product quality) profitably, while non-price competitiveness encompasses a host of other factors that account for a firms success such as product technology, diversity, novelty or sales and marketing services. Gelei [2003, p. 43] has used the definition of firm competitiveness as the basic capability of perceiving changes in both the external and internal environment and the capability of adapting to these changes in a way that the profit flow generated guarantees the long term operation of the firm. This definition interprets competitiveness of firms as an ongoing struggle for survival, which is one of the most complex phenomena of a firms operation. She maintains that firm competitiveness is basically a function of two factors. First,it is determined by the extent a firm can identify the value dimensions that their customers expect and offer them those through product and service package. In the long run a firm can be competitive only when it is able to create value for their customers. The second factor of firm competitiveness is the sum of resources and capabilities that makes a firm capable to create and deliver the identified important value dimensions for the customer. Prahalad and Hamel [1990, Pp. 79-91] call the second set core competences. It may be noted that Gelei [2003] has placed a well-defined stress on the long term goals of the firm, when competitiveness is implicated.

certainly gives an emphasis to the significance of financial stability of a firm in its existence in market. Moreover, human resource development, payment of wages and extending other benefits to the workers comparable with other firms and profitable returns to the shareholders are also considered crucial. Altenburg, et al., [1998, p. 2], elaborates this view further by maintaining that firm competitiveness is the ability to sustain a market position. This ability requires the simultaneous achievement of several targets. The firm must supply products of adequate quality on time and at competitive prices. Moreover, as a rule it must be in a position to provide sufficiently diversified products to meet a differentiated demand, and it must respond quickly to changes in demand behaviour. Beyond this, success is contingent on a firms innovative capacity, its ability to build up an effective marketing system, to establish a brand name, and so on. The given definition exaggerates the criticality of the firm to sustain the competitive position in the industry over a longer term, and not only to focus on its current performance. This objective can be attained through proper investment in technology and marketing of the products. Moving on to the application of the concept, since a firm does not produce in a vacuum, its competitiveness can only be measured within various types of market territories at the sub-national, national and supra-national levels [UNCTAD, 2002; Sinner, 2002]. Hence at least three general types of competitiveness have been identified or implied in various contexts: Economy Competitiveness: The ability of all the firms in the economy to compete, via price or other product attributes, with businesses located in other countries. This is sometimes referred to as the competitiveness of a country when the combined firm performance of two or more countries is compared.

Krugman [1994, Pp. 28-44] rightly states that 1. the competitiveness of firms has a clearly defined bottom line:if a corporation cannot afford to pay itsworkers, suppliers and bondholders, it will go out of business. So when we say that a corporation is uncompetitive, we mean that its market position is unsustainable- that unless it improves its performance, it will cease to exist. By this, he