The export activity and non-price competitiveness of European firms

The external sector is currently essential to restoring growth to the Spanish economy. The weakness of domestic demand, caused by the need for further deleveraging by households and firms and fiscal consolidation in the public sector, suggests that the external sector will continue to play a key role in the medium term. In this respect, price competitiveness and world demand are prime determinants of export growth. However, the latest evidence highlights the importance of other variables, usually associated with the notion of non-price competitiveness, which may explain the uneven behaviour of exports across the euro area countries over the last decade. The concept of non-price competitiveness is very broad and reflects not only improvements in product quality and processes, but also improvements in relation to the management of the firm, distribution channels and after-sales services [Dieppe et al. (2012)]. Accordingly, non-price competitiveness is not only linked to the quality of the products, but also to the efficiency of the firm, which contributes in turn to increasing competitiveness through the traditional price and cost channels. Distinguishing these two channels empirically is complicated, since the factors that generate productivity gains (e.g. investment in intangible assets or human capital) improve the competitiveness of the firm, not only through costs, but also by increasing the quality of the final product. According to the latest international trade literature, exporting firms are larger, more productive and more innovative than those that produce solely for the domestic market. Adaptation to an increasingly globalised, more competitive environment requires firms to refine their management, innovation and human-capital-investment strategies, so as to achieve a growing level of sophistication that enables their non-price competitiveness to improve, through increases in efficiency and product quality. This enhances their ability to face up to international competition, to penetrate markets with greater growth potential and to position themselves advantageously in global value chains [Mayer and Ottaviano (2007)]. This article analyses the relationship between export activity and the non-price competitiveness of Spanish firms and of our main euro area trading partners. It uses microeconomic information from the survey “European Firms in a Global Economy” (EFIGE), which provides details on the quality of firms’ output, and of other variables, which, according to the available evidence, have a positive impact on competitiveness, such as their humancapital endowment, innovation and involvement in other forms of internationalisation. The rest of the article is organised as follows. First, following a brief description of the database, a comparative analysis is made of the export activity and non-price competitiveness of Spanish firms in relation to those of some of our main euro area trading partners. Afterwards, the relationship between these two variables is estimated, considering not only the impact of non-price competitiveness on the probability of exporting, but also on the diversification of external sales. Finally, the conclusions are presented in the last section.