Gaining and losing competitive advantage

Efficient policies to stimulate the competitiveness of firms require knowledge of future firm-strategies and a proper assessment of the location advantages of a country or region. Therefore, industry comparative advantage analysis needs to be complemented by firm competitive advantage analysis. This yields four hypotheses of firm strategies on the basis of the existing advantage combination. Detailed empirical analysis of a representative sample of Austrian manufacturing firms during 1990- 2000 shows that changes in employment, value-added and exports are in line with the suggested development. Three of the 3-digit industries lost their advantages while seven industries gained advantages, yet overall industry distribution has been remarkable stable over the four advantage combinations. In terms of number of firms, however, a large share (30%) of the total population shifts between advantage combinations even during short periods of time. The firm strategies outlined suggest a differentiated policy approach, yet the short-term dynamics revealed empirically imply a high potential for policy failure.