With the Americas Competitiveness Forum in full swing now, and globalEDGE dedicating an entire blog series towards international competitiveness, there is definitely a lot of attention on the subject here. But what exactly is “competitiveness” and how can a country change how “competitive” their economy is in the global market place? That is where this particular blog comes in play: to give a brief answer to both of these questions.
To boil down the opening couple pages of the World Economic Forum’s (WEF) The Global Competitiveness Report 2010-2011, competitiveness is the “set of institutions, policies, and factors that determine the level of productivity of a country.” In more laymen terms, competitiveness is the goods and services that a country can produce that are valuable in the global marketplace, and therefore give that country the ability to maximize its economic output and income. The more competitive a country is in this sense, the higher its growth potential will be as well. Since the world is becoming increasing more global, competiveness is becoming increasingly important. However, to truly understand how to make a country competitive, we need to read in between the lines of the definition and know what competitiveness is composed of.
In the same report, the WEF bases competitiveness on 12 pillars: institutions, infrastructure, macroeconomic environment, health and primary education, higher education and training, goods market efficiency, labor market efficiency, financial market development, technological readiness, market size, business sophistication, and innovation. The WEF has found, based on their research, that these are the most important variables to consider when determining how viable a country’s economy is in the global marketplace. The first four factors (institutions, infrastructure, macroeconomic environment, and health and primary education) are called the basic requirements and are found to be essential for factor-driven economies. The next 6 are called efficiency enhancers and are valuable for efficiency-driven economies. They are higher education and training, goods market efficiency, labor market efficiency, financial market development, technological readiness, and market size. Business sophistication and innovation are their own category and are key for innovation-driven economies.
Because of the wide variety of variables used to define a country’s competiveness (as well as the many different stages of development countries can be found in) no two countries plans to improve competiveness are the same. For instance a poorer, less developed country (such as Bolivia) should focus on developing the first four pillars, the basic requirements. As that country becomes more competitive and needs to expand further (much like Brazil today), they should develop the efficiency enhancers to make them more valuable in the global marketplace. In the final stage, there are the innovation-driven factors which are only needed when businesses in a country have to develop creative new products in order to compete. Countries in the final stage include the U.S. and Canada.
That is a very brief overview on how a country’s international competiveness is technically defined. This blog wasn’t intended to go very in-depth on the subject, but rather to just give a casual reader an idea of what globalEDGE will be talking about during our current blog series. If anyone is curious for further research on international competiveness or wants to view a ranking of countries by their competitiveness, I would highly recommend they read the WEF’s report.