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- 2. Table of contents • Introduction to competitiveness Index • 12 pillars of competitiveness • Stages of development S i bili dj d GCI• Sustainability‐adjusted GCI • Executive Opinion Survey • Competitiveness Index – India & BRIC nationsCompetitiveness Index India & BRIC nations
- 3. Competitiveness Index: Introduction ‘ The Global Competitiveness Index integrates the macroeconomic environment d h i /b i f i i i i l i d ’and the micro/business aspects of competitiveness into a single index’ What it does ? • It assesses the ability of countries to provide high levels of prosperity to their• It assesses the ability of countries to provide high levels of prosperity to their citizens by using available resources productively • It measures the set of institutions, policies, and factors that set the sustainable current and medium‐term levels of economic prosperity Who developed it ? • This mechanism of measuring competitiveness of nations was developed by Xavier Sala i Martin and Elsa V Artadi This is widely used by World Economic ForumSala‐i‐Martin and Elsa V. Artadi. This is widely used by World Economic Forum (WEF) in its Global Competitiveness Report (GCR) • Before that, the macroeconomic ranks were based on Jeffrey Sachs's Growth Development Index and the microeconomic ranks were based on Michael P t ' B i C titi I dPorter's Business Competitiveness Index
- 4. Competitiveness Index: Introduction (cont’d) Presently, how does the scenario look like ? • Switzerland leads the ranking as the most competitive economy in the world • The United States, which ranked first for several years, fell to 5th place due to the consequences of the financial crisis of 2007–2010 and its macroeconomic instability • China continues its relative rise in the rankings reaching 29th • India is still to be a part of top 30 nations (currently at 59)
- 5. 12 Pillars of competitiveness 1st pillar ‐ Institutions: The institutional environment is determined by the legal and administrative framework within which individuals, firms, and governments interact to generate wealth. Thi l i di t th G t ttit d t d k t th i f d dThis also indicates the Government attitudes toward markets, their freedoms and the efficiency of its operations like excessive bureaucracy and overregulation, corruption, lack of transparency and trustworthiness, etc 2nd pillar – Infrastructure: Extensive and efficient infrastructure is critical for ensuring the effective functioning & growth of the economy. Infrastructure pillar indicates quality of,g g y p q y , – transport – railroads, roads, air transport, ports, etc – Power supplies – Telecommunication networks
- 6. 12 Pillars of competitiveness 3rd pillar ‐ Macroeconomic environment: The stability of the macroeconomic environment is important for business and, therefore, is important for the overall competitiveness of a country. It is important to note that this pillar evaluates the stability of the macroeconomic i tenvironment, 4th pillar ‐ Health and primary education: A h l h kf i h B i d i i h ffi i f h i di id lA healthy workforce with Basic education increases the efficiency of each individual worker is vital to a country’s competitiveness and productivity. 5th pillar: Higher education and training:5th pillar: Higher education and training: Quality higher education and vocational training is particularly crucial for economies that want to move up the value chain
- 7. 12 Pillars of competitiveness 6th pillar ‐ Goods market efficiency: It indicates Health of market competition, both domestic and foreign. The best possible environment for the exchange of goods requires a minimum of impediments to business activity through government intervention. 7th pillar ‐ Labor market efficiency: The efficiency and flexibility of the labor market are critical for ensuring that k ll d h i ff i i h d id dworkers are allocated to their most effective use in the economy and provided with incentives to give their best effort in their jobs. 8th pillar Financial market development:8th pillar ‐ Financial market development: An efficient financial sector allocates the resources saved by a nation’s citizens, as well as those entering the economy from abroad, to their most productive uses. This pillar indicates capital available for private‐sector investment from sourcesThis pillar indicates capital available for private sector investment from sources such as loans from a sound banking sector, well‐regulated securities exchanges, venture capital, and other financial products.
- 8. 12 Pillars of competitiveness 9th pillar ‐ Technological readiness: This pillar measures the agility with which an economy adopts existing technologies to enhance the productivity (of its industries), capacity (by fully leveraging information and communication technologies) in daily activities and production processes for increased efficiency and enabling innovation for competitivenessprocesses for increased efficiency and enabling innovation for competitiveness. 10th pillar ‐ Market size: The size of the market affects productivity since large markets allow firms to exploitThe size of the market affects productivity since large markets allow firms to exploit economies of scale. 11th pillar ‐ Business sophistication:11 pillar Business sophistication: This pillar measures the quality of a country’s overall business networks and the quality of individual firms’ operations and strategies. 12th pillar ‐ Innovation: This pillar measures Non‐technological innovations which are closely related to the know‐how, skills, and working conditions that are embedded in organizations
- 9. The interrelation of the 12 pillars • Even though, these pillars are reported separately, they are not independent & weakness in one area often has a negative impact in others. • For example, • a strong innovation capacity (pillar 12) will be very difficult to achieve without a healthy, well‐educated and trained workforce (pillars 4 and 5) • which is adept at absorbing new technologies (pillar 9), and without sufficient financing (pillar 8) for R&D or an efficient goods market that makes it possiblefinancing (pillar 8) for R&D or an efficient goods market that makes it possible to take new innovations to market (pillar 6). • Although the pillars are aggregated into a single index, measures are reported forAlthough the pillars are aggregated into a single index, measures are reported for the 12 pillars separately because such details provide a sense of the specific areas in which a particular country needs to improve.
- 11. Different Stages of Development As per economic theory of stages of development, there are three stages, 1st stage: The factor‐driven stage of developmentg g p GCI assumes that economies in the first stage are mainly factor driven and compete based on their factor endowments ‐ primarily low‐skilled labor and natural resources. Maintaining competitiveness at this stage of development requires pillar 1, 2, 3 & 4 2nd stage: The efficiency‐driven stage of development As a country becomes more competitive, productivity will increase and wages will rise with advancing development. At this point, competitiveness is increasingly driven by pillar 5, 6, 7, 8, 9 & 10 3rd Stage: The innovation‐driven stage of development By this stage, the wages will have risen by so much that to sustain higher wages d d d f li i h i b i h i h d/ iand standard of living, their businesses have to compete with new and/or unique products, services, models, and processes. At this point, competitiveness is increasingly driven by pillar 11 & 12
- 12. Criteria for determining stage of development Two criteria are used to allocate countries into stages of development, 1) The level of GDP per capita at market exchange rates. This widely available measure is used as a proxy for wages, because internationally comparable data on wages are not available for all countries covered. 2) The share of exports of mineral goods in total exports (goods and services) i d dj f i h l h b h i i b dIt is used to adjust for countries that are wealthy, but where prosperity is based on the extraction of resources.
- 14. Sustainability‐adjusted GCI • This measure fulfills the need to better understand the relationship between economic competitiveness and social and environmental sustainability • This measure aims to assess the set of institutions, policies and factors that make a nation remain productive over the longer term while ensuring social and environmental sustainabilityenvironmental sustainability • It measures not only the propensity to prosper and grow, but also integrates the notion of “quality growth”, taking into account environmental stewardship and social sustainabilityy • In this model, the GCI is adjusted by two new pillars, – The social sustainability pillar: This measures the “set of institutions, policies and factors that enable all members of society to experience the best possible health, participation and security; and to maximize their potential to contribute to and benefit from the economicsecurity; and to maximize their potential to contribute to and benefit from the economic prosperity of the country in which they live” – The environmental sustainability pillar: This measures “the institutions, policies and factors that ensure an efficient management of resources to enable prosperity for present and future generations” A conceptual representation of this framework is presented in the figure belowgenerations . A conceptual representation of this framework is presented in the figure below.
- 17. Analysis of the framework & future research Analysis of the framework: • One of the most important findings of this analysis suggests that there do not seem to be any necessary trade‐offs between being competitive as well as socially and environmentally sustainable. A ll f th fi t i t i th f t th t liti l ill i ti l t hi i• A corollary of the first point is the fact that political will is essential to achieving sustainable competitiveness. • This framework also indicates that competitiveness on its own may not lead to sustainable levels of prosperitysustainable levels of prosperity. Concepts not yet captured by this framework & areas for future research: • Inclusion of minorities. • Working conditions. • Water pollution • Recycling • Waste management
- 18. Executive Opinion Survey (Voice of the Business Community) • In order to arrive at the accurate GCI, WEF not only considers twelve pillars of competitiveness & sustainability of competitiveness but also survey the business community to mirror the countries’ performance • In order to mirror the countries’ economic performance, the World Economic Forum draws its data from two sources: international organizations and national sources and its own annual Executive Opinion Survey (Survey)sources, and its own annual Executive Opinion Survey (Survey). • The Executive Opinion Survey remains the largest poll of its kind, collecting the insight of more than 14,000 executives into their business operating environment.g , p g
- 19. Survey structure • About Your Company • Overall Perceptions of Your Economy • Government and Public Institutions • Infrastructure • Innovation and Technology • Financial Environment • Foreign Trade and Investment • Domestic Competition • Company Operations and Strategy • Education and Human Capital • Corruption, Ethics and Social Responsibility • Travel & Tourism • Environment • Health
- 24. GCI of BRIC nations Stages of BRIC economies Stage 1 Transition from Stage 1 to 2 Stage 2 Transition from Stage 2 to 3 Stage 3 India ‐ China Brazil & Russia ‐ Adjustment to the GCI scores by sustainability indicators C GCI R k S i l i bili E i l S i biliCountry GCI Rank Social sustainability ‐ adjusted GCI Environmental sustainability ‐ adjusted GCI Sustainability‐ adjusted GCI† Brazil 48 4.22 4.69 4.46 Russia 67 4.09 3.87 3.98 India 59 3.70 3.75 3.73 China 29 4.61 4.27 4.44