IMD World Competitiveness Index Group 2 Cheng Ka Kit 04002512 Chau Sze Ming 03005186 Chui Yee Hang 03005224 Sze Ka Po 04002075

Content I. Introduction - about WCI - competitive definition - theoretical basis for WCY - golden rule for competitiveness II. Methodology - methodology - Four competitiveness principles - how to use the WCY III. Comparison with some economic indicator - Real GDP growth in current year - Unemployment in current year - Average real GDP growth across five years

Part I: Introduction Why we want to know competitiveness? A trend of enhancing communications globally Enhancing free flow of knowledge and skills Frontiers between nations are losing importance

About WCI WCI – World Competitiveness Index Computed by IMD - International Institute for Management Development, a leading provider of Executive Education located in Swiss Published in WCY - World Competitiveness Yearbook

About WCI Indices are developed for 60 countries and regional economies, all key players in world market 312 criteria under evaluation for each player Indices are ranked descending to show decreasing competitiveness across players

About WCI The ranking represent a success, economic performance, wealth of a nation It shows the ability of nations create and maintain a competitive environment Also investigate the global economic situation WCI and its ranking provide a frame of reference to asses how nations mange their economic future.

Competitiveness Definition Condensed definition: Competitiveness analyses how nation and enterprises manage the totality of their competencies to achieve prosperity or profit

Competitiveness Definition Academic definition: Competitiveness analyses the facts and policies that shape the ability of a nation to create and maintain an environment that sustains more value creation for its enterprises and more prosperity for its people Fact: natural resources, land area, risk of disasters, war…… Fully utilize or efficiently allocate resources more comparative advantage

Competitiveness Definition Basic and Important Idea: Wealth creation takes place at the enterprise level National environment may enhance or hinder a country’s ability to compete domestically and internationally

Theory provided for WCY Four fundamental forces shape the country’s competitiveness environment a) Attractiveness vs. Aggressiveness b) Proximity vs. Globality c) Assets vs. processes d) Individual Risk Taking vs. Social Cohesiveness

a) Attractiveness vs. Aggressiveness    How a nation manage his relationship with the world business community Aggressiveness Attractiveness By exports and foreign direct investment (FDI) strategy Through incentives and investment

a) Attractiveness vs. Aggressiveness      Aggressiveness Attractiveness Generates income in the home country, not necessarily jobs e.g. Germany, Japan, Korea Creates jobs in the FDI host countries, can be short of money e.g. Ireland, Singapore Must consider both to compete in the world business

b) Proximity vs. Globality Types of economic system a nation refers to Proximity Globality Comprises traditional activities Crafts, social and personal services, administrative activities and consumer-support activities Is composed with international operations Global business

b) Proximity vs. Globality      Proximity Globality Provide value-added close to the end-user Generally protectionist and expensive Not necessarily close to the end-user Benefits from the comparative advantages with operation costs Generally competitive and price effective

b) Proximity vs. Globality      In Western Europe 2/3 of the GDP come from economy of proximity Smaller countries are more dependent on economy of globality

c) Assets vs. Processes Resources a nation relied on to create a competitive environment Assets Processes Rich in assets Land, people and natural resources Poor in resources Essentially on transformation processes (Economic value added activities)

c) Assets vs. Processes Assets Processes Not necessarily competitive      Assets Processes Not necessarily competitive Become complacent Brazil, India and Russia More competitive Added on infrastructure, industrial power, education and skills Singapore, Japan and Switzerland

d) Individual Risk Taking vs. Social Cohesiveness      Two different types of Government policy Individual risk taking Social cohesiveness Emphasis on risk Deregulation, privatization and the responsibility of the individual Minimize social welfare Relies on social consensus Extensive welfare system

Golden Rules of Competitiveness     

Golden Rules of Competitiveness     

Part II: Methodology The methodology of the WCY divides the competitive environment into four main areas: Economic Performance Government Efficiency Business Efficiency Infrastructure

Methodology Each of these four factors is broken down into five sub-factors Features 20 such sub-factors Each highlighting different measures of competitiveness. Criteria under sub-factors, sum up to be 320

Methodology Sub-factor’ s characteristics: not necessarily including the same number of criteria has the same weight in overall consolidation of results (5%) Collect objective statistic or subjective data accordingly

Competitiveness factor ECONOMIC PERFORMANCE (83 criteria) (Macro-economic evaluation of the domestic economy) Domestic Economy International Trade International Investment Employment Prices

Examples Real GDP Growth Percentage change, based on national currency in constant prices Balance of trade US$ billions (minus sign = deficit) Direct investment flows abroad US$ billions Employment Percentage of population Consumer price inflation Average annual rate

Competitiveness factor GOVERNMENT EFFICIENCY (77 criteria) (Extent to which government policies conductive to competitiveness) Public Finance Fiscal Policy Institutional Framework Business Legislation Societal Framework

Examples Government budget surplus/deficit Percentage of GDP Collected total tax revenues Personal security and private property Survey Price controls

Competitiveness factor BUSINESS EFFICIENCY (69 criteria) (Extent to which enterprises are performing in an innovative, profitable and responsible manner) Productivity Labor Market Finance Management Practices Attitudes and Values

Examples Overall productivity GDP per person employed, US$ Labor relations Survey Banking sector assets Percentage of GDP Social responsibility Values of society

Competitiveness factor INFRASTRUCTURE (94 criteria) (Extent to which basic, technological, scientific and human resources meet the needs of business ) Basic Infrastructure Technological Infrastructure Scientific Infrastructure Health and Environment Education

Examples Urbanization Survey High-tech exports Percentage of manufactured exports Total expenditure on R&D US$ millions Total health expenditure Percentage of GDP Total public expenditure on education

I M D W O R L D C O M P E T I T I V E N E S S Y E A R B O O K 2 0 0 5 Countries World competitiveness Index (1) USA 1 100 (6) HONG KONG 2 93.073 (2) SINGAPORE 3 89.679 (5) ICELAND 4 85.349 (3) CANADA 5 82.648 (8) FINLAND 6 82.627 (7) DENMARK 7 82.545 (14) SWITZERLAND 8 82.534 (4) AUSTRALIA 9 81.975 (9) LUXEMBOURG 10 80.311

(11) SWEDEN 14 76.261 (23) JAPAN 21 68.652 (22) UNITED KINGDOM 22 68.518 (21) GERMANY 23 67.842 (35) KOREA 29 64.239 (30) FRANCE 30 64.203 (24) CHINA MAINLAND 31 63.219 (50) RUSSIA 54 43.591

How to use the World Competitiveness Yearbook apply Chile’s example here Competitiveness Trend – Overall Show evolution of the economy’s overall performance and individual results

How to use the World Competitiveness Yearbook Competitiveness Trends – Factor Breakdown Show the economy’s performance over time for each Competitiveness Factor from 2001 to 2005

How to use the World Competitiveness Yearbook Competitiveness balance Sheets Highlight specific strengths and weaknesses of the economy in world competitiveness

How to use the World Competitiveness Yearbook Twenty Strongest Criteria Identifies the 20 strongest criteria overall. Are broken down by the 13 hard and 7 survey criteria with the highest STD values

How to use the World Competitiveness Yearbook Twenty weakest Criteria Identifies the 20 weakest criteria

Part III: Comparison We try to find the correlation between WCI and some commonly used economic indicator To see how should we interpret WCI We apply figures in 2004 for illustration

2004 WCI Ranking Countries World competitiveness Index (04) (1) USA 1 100 (6) HONG KONG 2 93.073 (2) SINGAPORE 3 89.679 (5) ICELAND 4 85.349 (3) CANADA 5 82.648 (8) FINLAND 6 82.627 (7) DENMARK 7 82.545 (14) SWITZERLAND 8 82.534 (4) AUSTRALIA 9 81.975 (9) LUXEMBOURG 10 80.311 (12) TAIWAN 11 78.319 (10) IRELAND 12 77.846 (15) NETHERLANDS 13 77.4 (11) SWEDEN 14 76.261 (17) NORWAY 15 76.157

WCI and other economic indicator Compare with real GDP growth in the current year Compare with unemployment rate Compare with average real GDP growth in past five years

W C Index & real GDP growth (04)

W C Index & real GDP growth (04) The correlation coefficient is 0.386560   It seems no significant correlation between the index and real GDP growth One should not simply conclude that high index means high GDP Growth or vice versa (Venezuela as an example)

W C Index & Unemployment rate(04)

W C Index & Unemployment rate(04) The correlation coefficient is 0.571966 It seems there is negative relationship between the index and unemployment rate

W C Index & real GDP growth (average 00-04)

W C Index & real GDP growth (average 00-04) The correlation coefficient is 0.072043  It seems no relationship between the index and average real GDP growth in past five years

Conclusion Four forces shaping a region’s competitiveness environment Four areas altogether 312 criteria to investigate WCI does not necessary correlate with GDP growth or GDP volume WCI does correlate with some indicators like unemployment, per capita income