By Matija Šerić

The 21st century has been marked by the rise of globalization, which has transformed the world in every sense, including the economic sphere. New rules and new business conditions have come into force. For states to remain economically competitive on the global market, governments and managers of public and private enterprises must be creative and innovative in times of constant change and uncertainty. Special emphasis should be placed on the process of continuous improvement, since globalization brings continuous change. What was effective yesterday does not necessarily have to be effective today.

Globalization has contributed to the disappearance of traditional boundaries between nations, states, cultures, and technologies. All modern actors (individuals, companies, and states) are interconnected as never before. Small states such as Hungary, Slovakia, Croatia, and Serbia find themselves in a particularly demanding position, as they must not allow themselves to be economically overwhelmed and pushed aside by major powers such as China, India, the United States, Japan, or Germany.

The State as a Corporation

In order for a national state to be competitive in the modern globalized world – that is, to possess a competitive economy – it must, in a certain sense, transform itself into a public corporation. To achieve this, the state should fulfill the following prerequisites:

• Ensure transparency in the functioning of public institutions in order to protect public interests,
• Accept and harmonize international standards (financial and others),
• Eliminate bribery and corruption at their very inception,
• Guarantee free media,
• Ensure that government is democratic, legitimate, and flexible.

Relocation and Outsourcing

The globalization of companies, goods, products, capital, technology, information, knowledge, and consumers has changed the nature of international competitiveness: almost everything can be produced anywhere, and location is becoming less important. At the same time, leading global corporations relocate their research and development centers to strategically important locations for their industries (most often developed cities and innovation hubs), while moving production facilities to countries with cheap labor (China, Pakistan, Bangladesh, South Africa).

Industrial Parks and Infrastructure

Increasing attention is being paid to industrial parks (innovation centers or science parks), which provide various services for incubating new companies whose production is based on advanced high technologies. Well-developed infrastructure is of great value, but above all, a highly educated and skilled workforce. Government support for improving high-quality human resources through regular and lifelong education is a key foundation for strengthening competitiveness and achieving successful economic development of the national state.

To achieve excellent business results in the global market competition, a new concept of thinking and problem-solving is required – one based on creativity, knowledge, and innovation.

The Role of Knowledge

Knowledge is a crucial strategic resource in the 21st century. It must be continuously developed in order to keep pace with globalization trends. In the global economy, market participants must find solutions that create value and generate profit. Some states are capable of doing this, while others are not. For a state to be globally competitive, its public and private sectors must be efficient, fast, adaptable, and ready to face new challenges and threats, because globalization is a constant process that changes existing frameworks and demands the creation of new values.

Digitalization and Deregulation

Globalization brings trends of digitalization and deregulation that alter the balance of power among companies, states, and individuals. In the modern era, market movements are transparent, and in order to achieve success in the global marketplace, it is necessary to create something new, since it is difficult to stand out globally. It is essential to introduce something innovative in terms of ideas, projects, plans, and implementation.

Therefore, in addition to knowledge and education, competitiveness also requires globally relevant skills. However, if knowledge and education are not applied at the right time and in the right place, they will not produce the desired effect. That is precisely why flexibility and adaptability are essential skills – only through them can competitive advantage be achieved.

Institutional Framework

In the conditions of globalization, market competitiveness also depends on institutional frameworks. The institutional framework may or may not provide opportunities for the development of the aforementioned skills that constitute competitiveness. It is necessary to restructure existing institutions and establish new ones that will enable institutional innovation to support competitiveness.

An institutional framework can be originally created or inherited from predecessor states. In the latter case, this refers to states in transition in Eastern Europe (Romania, Bulgaria, Serbia, Croatia). In such situations, states must decide how to reshape their outdated frameworks in order to become market competitive. Practice shows that this is an extremely difficult task.

An institutional framework that fosters market competitiveness is manifested through a flexible labor market, ease of employment, an appropriate level of social security and employee protection, systematic encouragement of investment in education, attraction of new highly educated professionals, and the prevention of “brain drain.”

Flexibility of Workers and States

The most competitive workers in the labor market are those who possess knowledge and skills that are currently in demand. This means being flexible. Workers must continuously upgrade their knowledge and skills throughout their entire working lives in order to remain employable. This is a direct consequence of the impact of globalization on labor competitiveness.

The same rule applies to states: in order to survive in the market competition and retain the ability to compete, they must constantly improve, adapt, and change. In a globalized world where success is tied to competitive advantage, a once-acquired advantage does not remain a permanent characteristic. More precisely, competitive advantage must be built in accordance with global challenges and specific changes.