Lec 5

COMPETITIVENESS
1
What makes nations prosper?
A nations standard of living (wealth) is determined by the
productivity with which it uses its human, capital, and natural
resources. The appropriate definition of competitiveness is
productivity.
Productivity depends on the value of products and services e.g.
uniqueness, quality) and the efficiency with which they are
produced.
It is not what industries a nation competes in that matters for
prosperity, but how firms compete in those industries
Productivity in a nation reflects what both domestic and foreign
firms choose to do in that location (location of ownership is
secondary)
2
What makes nations prosper?
Standard of Living
Trade
Productivity
Investment in Productive Zctivities
The productivity of all local industries is of fundamental
importance to competitiveness, not just that of traded
industries
Devaluation does not make a country more competitive,
rather it reveals a lack of fundamental competitiveness
3
What is competitiveness?
Competitiveness is defined as the set of factors, policies
and institutions that determine the level of productivity of
a country
Because productivity is the main driver of investment in
an economy and investment, in turn, unambiguously
determines the rate of growth of the economy, we say
that:
A more competitive economy is one that is likely to grow
faster over the medium to long run
We try to shed light on the factors, policies and
institutions that determine the sharply different growth
experiences economies worldwide
4
What is competitiveness?
Competitiveness is the productivity with which a
nation uses its human, capital, and natural resources
Productivity sets the standard of living
Productivity growth sets sustainable economic
growth
Productivity and prosperity depends on how a nation

competes, not what industries it competes in
Productivity in the modern global economy arises
from a combination of domestic and foreign firms
Relentless innovation is necessary to drive
productivity growth and enable the standard of
living to rise Technology, products, and
organizational methods (source: Porter -2010) 5
Does national competitiveness exist?
Nations compete to offer the most productive
environment for business
Legal framework
Market efficiency
The public and private sectors play different
but interrelated roles in creating a productive
economy
6
National Competitiveness policy clusters
External Regulatory Public sector

Competitiveness Competitiveness Competitiveness
Openness to Attractiveness of Investment in
international trade the domestic infrastructure
business Security
environment
Education
Regulation
supportive of
efficient markets
7
How can governments nurture competitiveness?
Establish a stable and predictable macroeconomic, political,

and legal environment
Improve the availability, quality, and efficiency of general
purpose inputs, infrastructure, and institutions
Set overall rules and incentives governing competition that
encourage productivity growth
Facilitate cluster development and upgrading
Create an explicit, ongoing process of economic change and
competitive upgrading which informs citizens and mobilizes
the private sector, government at all levels, educational and
other institutions, and civil society.
8
Example: the Case of Japan
Factors contributing to Japan success include;
Thoughtful strategic planning
The planned transfer of technology
Targeting of niche products and markets (steel &
automobile)
Team work and excellent execution
Commitment and desire to win
SMDE, TQM, JIT .
9
Example: the Case of Singapore
A small domestic market, Limited natural
resources, limited supply of indigenous human
resourses.
Serving as a regional business service hub for other
nearby nations
Engaging in niche specialization
Acting as home base & R & D hub for global firms
10
Comparison of International
Competivemness
Economic Indicators
GDP
GNP
Trade Indexes
Productivity Indexes
Investment Indexes
Patent Index
11
The 4 dimensions of competitiveness
Attractiveness vs Aggressiveness
Proximity vs Globality
Assets vs Processes
Individual Risk Taking vs Social Cohesiveness
These dimensions can combine in national/regional

models:
Globality + Risk Taking
Proximity + Social Cohesiveness
12
Cultural and other factors
Values, which evolve as the economy becomes
richer:
Hard work - Wealth
Social Participation - Self-achievement
Behavior models :
South European: regulations, social protection
North European: stability, social consensus,
regulation
Anglo-saxon model: deregulation, flexible labour,
higher risk acceptance
Technology
13
Selected golden rules of
competitiveness (Garelli)
A stable and predictable regulatory environment
Work on a flexible and resilient economic structure
Invest in traditional and technological infrastructure
Promote private savings and domestic investment
Develop export- drive and attract FDI (Foreign Direct Investment)
Quality, speed and transparency of admin action
Maintain relation between wage levels and productivity
Preserve the social fabric by reducing wage disparity
Invest in education and training of work force
14
Determinants of competitiveness
(Porter)
Macroeconomic competitiveness:
Social infrastructure and political institutions
Macroeconomic policies
Microeconomic competitiveness:
Quality of business environment
State of development of clusters
Sophistication of company operations and strategy
15
16
17
18
19
20
The Irish approach
21
Measuring competitiveness
Global Competitiveness Index

World Bank Doing Business
22
Sub-indexes and pillars
The 12 pillars are grouped in 3 sub-indexes,
which are weighted differently according to
the stage of development
Basic requirements, key for factor-driven
economies (20% in innovation-driven)
Efficiency enhancers, key for efficiency-driven
economies (50%)
Innovation and sophistication factors, key for
innovation driven economies (30%)
23
Taiwans assets in global competition
Highly innovative
Strong intellectual property protection
Entrepreneurial
Flexible business culture reacts rapidly
Large pool of researchers
Strong science and technology education, research
institutions
Some deep technology clusters in closely related industries
Logistics strengthened In past 10 years
Strong outbound FDI
Gateway to China: strongest democracy, freedom of speech of
any Chinese-speaking
24
Three stages of development:
The process of economic development evolves in three
stages captured by the model:
1. Factor-driven stage
Firms compete in prices, taking advantage of cheap factors
2. Efficiency-driven stage
Efficient production practices to increase productivity
3. Innovation-driven stage
Economies need to produce innovative products using
sophisticated production methods
All pillars matter to a certain extent for all countries
However, the importance of each pillar depends on a

countrys particular stage of development
The pillars are organized into 3 subindexes, each critical to

one particular stage:
1. Basic requirements factor-driven stage

2. Efficiency enhancers efficiency-driven stage
3. Innovation and sophistication factors innovation-
driven stage

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COMPETITIVENESS

Productivity and prosperity depends on how a nation

External Regulatory Public sector

Establish a stable and predictable macroeconomic, political,

These dimensions can combine in national/regional

Global Competitiveness Index

However, the importance of each pillar depends on a

The pillars are organized into 3 subindexes, each critical to

1. Basic requirements factor-driven stage

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