Transcript Presented by: Dr. Peter Larose Definition of Competitiveness

Presented by: Dr. Peter Larose
Definition of Competitiveness
With the globalization phenomenon, the increased mobility of corporate assets,
and the requirement to recruit productive human resources, this question is
becoming very difficult to answer.
When economic and financial data of a particular country is used to compare with
another country’s, the analyst must be very careful with its consistency.
Various countries employ different terminology to compare its competitiveness with
the rest of the world. There is no “one finite” set of data, which provides for the
full meaning of competitiveness.
Competitiveness would involve a series of factors to be considered:
(a) Size -effect
(b) Population at a particular point in time
(c) Factors of Productions (e.g. land, labour, capital, & time)
(d) Use of New Technology
(e) Macro-economic policies (e.g. financial performance)
(f) External Factors
The OECD defines competitiveness as
"The degree to which a country can, under free and fair market conditions, produce
goods and services which meet the test of international markets, while simultaneously
maintaining and expanding the real incomes of its people over the long-term".
The World Competitiveness Report suggests eight major factors which influence
the competitiveness of companies and nations
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Internationalization
Domestic Economy
The State (Government)
Finance
Infrastructure
Management
Science & Technology
Quality of Labour Force
Internationalization
Openness for international economic activities increases a country's
economic performance.
Export-led competitiveness is often associated with growth-orientation in
the domestic economy.
Higher integration with the international economy results in more productive
resource allocation and higher living standards.
Domestic Economy
The more competition there is in the domestic economy the
more productive and competitive the domestic firms are likely to be
abroad and the higher value-added productivity and country prosperity.
Government
Direct state intervention in business activities are minimized.
Government policies concentrate on creating a competitive
environment for enterprises and on providing macro-economic and
social conditions that are predictable and thus minimizing the external
risks for economic activities.
It is flexible in adapting its economic policies to a changing
international environment.
Finance
A well-developed, internationally-integrated financial sector in a country
supports its international competitiveness.
The efficiency of the financial sector is best measured by the narrowness of
the "spread" between the rate of interest that borrowers pay, and the rate
that depositors receive.
A narrower "spread" means either that depositors receive higher interest
rates, or that borrowers pay less.
The financial sector performs more efficiently when the spread declines,
whether it is borrowers or lenders who benefit
Infrastructure
A well-developed infrastructure supports economic activity.
It includes the availability of natural resources and functional business
systems, information technology, transport, communication and education,
and an efficient protection of the environment.
Management
A competitive product and service reflects managerial ability,
its long-term orientation, ability to adapt to changes in the competitive
environment, a level of entrepreneurship and skill for integration and
differentiation of business activities.
Science & Technology
Competitive advantage can be built on efficient and innovative application
of existing technologies.
Investment in research and innovative activities creating new knowledge is
crucial for a country in a more mature stage of economic development.
Quality of People
A skilled labour force with a positive attitude increases a country's
productivity and competitiveness.
Education, the technical ability of labour, the quality of management
and efficiency all contribute to competitiveness.
All this means that to pursue a competitive strategy many coordinated
changes in human resource development are simultaneously needed
rather than a few high profile initiatives in one or two areas.
(see: World Competitiveness Report )
Measurement of Competitiveness
From an economic viewpoint, what we are essentially interested is the degree to which
firms operating in a particular country have fundamentally different financial structures
and performance compared to firms located internationally.
With respect to the view of competitiveness, if one were to invest or operate in a
particular country, how would the firm’s asset structure likely to vary in comparison to
a firm operating in some other country (say Asia) or average location in the world?.
In some countries in Europe firms typically hold more cash and other short term assets.
They do concentrate their assets in physical plant and equipment.
On the liability side, some firms operating in Europe have a higher percent of payables
compared to other firms operating in say Asia,
Advantages of a Globalize Trade
Enabled a number of international agreements to be reached by many countries.
(e.g. developed and developing countries).
Created an environment for strategic alliances in commerce, trade, & investment
Impacted on the way Government operates to bring about internal changes
Many countries have raised their standard of living and economic efficiency
Given the opportunity for competitiveness
Factors Influencing Competitiveness
Economic Strength & Power
Prices
Availability of Adequate Natural Resources
Information System Integration
Geographical Position With the Main Trading Partners
Business Culture
Socio-Economic Development
Size of Land
Human Resources Development
Financial Market Development
Economic Strength & Power
Policy & decision makers should identify the weakest factors relating to economic
performance and strengthen it as basis for increased economic development.
Complementary policies should be considered for spatial development rather
than relying on one policy to enhance competitiveness.
Prices
In spite of all identifiable factors to determine the competitiveness of
a particular country, the end result emerges from the set of prices of
the commodities.
Prices can be determined through direct and indirect local costs
inclusive of profit margin, then translated in the importing countries
currencies.
Mass production of a certain commodity can have its effect on the
final quoted price.
The only difficulty in maintaining a stable price is subject to changes
in the exchange rate.
This is a macro-economic issue that can only be solved involving
the Government and the private sector.
Availability of Adequate Natural Resources
oIndicators at a European level has unveiled the deficiencies
of presently available data banks.
oThe regional scale applied, which was based on administrative borders,
o limits severely possibilities of adequately reflecting the state of nature.
The more the stock of natural resources a country possesses, the greater
scope of mass production – thus resulting into economies of scale.
Then, the cheaper the price of the commodities available on the local
or international commodities market.
Information System Integration
The availability of reliable and accurate sources of information
transcending national borders is a basic prerequisite for analysis of
a country’s spatial integration.
The more processed information about a country’s economic
development, the more potential for all the economic agents to
organize themselves and benefit.
This is one of the key information, which attract investors as part of
their decision-making processes, of whether to invest or divest.
Competitiveness although it is difficult to measure and analyzed, it
is all about the available information to decision-makers.
Geographical Position With the Main Trading Partners
Accessibility is a main measure for geographical position since it
describes the influence of all affecting factors considering their
connections, volume and location.
If a country is out-of-reach from the main trading partners, the result
would be that its exports become uncompetitive due to transport costs
,which must be added to the factory prices.
Although plenty of accessibility studies have been made standardized
data and operational specifications concerning calculation models are
needed to enable researchers to calculate indicators in comparable way.
Business Culture
Socio-Economic Development
To what extent is the socio-economic development of a country important
In terms of its competitiveness can be considered a subjective matter.
There is no study or commercial reports, which support this view with
data analysis, but on the contrary, to many analysts, if a country endures
social stability, through a high standard of living, then the tendency is for
the population to adopt a production-driven culture.
A typical example, can be seen in the Asian countries, where the workers
believe in a society of maximization of production.
In comparison with the European, the same input utilized may not necessarily
produced the same output as the Asian countries.
For example, the European cannot compete in the car manufacturing business
with the Asian.
Size of Land Space
Most significant forms of land-use pressure is urbanization.
Urban sprawl has led to lower urban population densities, higher
requirements for infrastructure, and the permanent conversion of
land from other uses to built-up areas.
For the small state this is a major constraint in keeping with the pace
of competitiveness.
There is always the demand to increase the productive land space
for greater productivity.
However, the previous remark should be interpreted with much caution
because many African countries have adequate land space for
production, but not used optimally.
Human Resources Development
The human resources must be given the opportunity to develop their
Knowledge and skills to the highest standards possible.
Training must be a continuous process of the human skills development.
Ensure that the quality of life for all employees are met.
From previous research carried out in the UK, the scientists found that
there is an increasing recognition that quality of life is not only the
key goal of economic activity, but an important determinant of economic
performance.
This is due that labour is one of the most critical ingredients in the
finished products or services.
Financial Market Development
Structure
of
Competitiveness
Resources
Commercial Exploit
Science & Technology
Exchange of Know-How
Economic Innovation
Business Environment
Increase in Productivity
Increase in GDP
New Employment
•Human Resources
•Finance
•R & D
•Technology
Economic Results
Degree of Competition
Economic Stability
Business Perceptions
Workers Attitude
Impact of Globalization on Small States
Small states face many challenges in the context of a global economy.
The principal economic constraint is the “size-effect”, which prevents the small states
to gain economies of scale in production.
This problem may not necessarily be representative of all small open economies
because some of them are very competitive.
It is a reflection of the macro-economic policies of the Government of the day that
makes the difference between competitiveness or lack of it.
Competitiveness depends on a coherent policy strategy to address the future
development of a country in an integrated manner rather than in a piecemeal
style.
Advantages of Globalization Trade on Small States
Scope of access to new markets for exports
New labour skills and specialists
New sources of funding for economic development
Access to advanced tele-communication system and information technology
Scope for economic diversification and national income growth
Dis-advantages of Globalization Trade on Small States
Difficulty to attract Foreign Direct Investment (FDI)
Competition from low-cost producing countries
Severe competition for export in major markets
Strategies To Remain Competitive in the Future
Maintain stable macro-economic policy
Maintain stable prices for the commodities and services
Seek for ways and means to become more innovative
Keep an openness to trade and foreign capital
Ensure that the human resources of the country are well equipped
Promote new ideas concept
Invite for strategic alliances, when deem necessary
Invest in more Research & Development Costs
Encourage the use of new technology
Ensure that the Labour Market is well protected
I Wish You All
Good Luck
in Your Studies