4. Global Competitive Index & Indian scenario.pdf

Global Competitive Index & Indian scenario

Mithil Gandhi

[email protected]

+91-9819066954

Table of contents

• Introduction to competitiveness Index

• 12 pillars of competitiveness

• Stages of development

• Sustainability-adjusted GCI

• Executive Opinion Survey

• Competitiveness Index – India & BRIC nations

Competitiveness Index: Introduction

‘ The Global Competitiveness Index integrates the macroeconomic environment 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 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 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 Porter's Business Competitiveness Index

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)

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.

This 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,

– transport – railroads, roads, air transport, ports, etc

– Power supplies

– Telecommunication networks

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

environment,

4th pillar - Health and primary education:

A 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:

Quality higher education and vocational training is particularly crucial for

economies that want to move up the value chain

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

workers 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:

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 sources

such as loans from a sound banking sector, well-regulated securities exchanges,

venture capital, and other financial products.

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 competitiveness.

10th pillar - Market size:

The size of the market affects productivity since large markets allow firms to exploit

economies of scale.

11th 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

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 possible

to take new innovations to market (pillar 6).

• Although 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.

Global Competitive Index Framework

Source: Global Competitiveness Index 2012-23 (WEF)

Different Stages of Development

As per economic theory of stages of development, there are three stages,

1st stage: The factor-driven stage of development

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

and 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

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)

It is used to adjust for countries that are wealthy, but where prosperity is based

on the extraction of resources.

The CGI heat map

Source: Global Competitiveness Index 2012-23 (WEF)

• 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 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 sustainability

• 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 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 below.

Sustainability-adjusted GCI

Structure of the sustainability-adjusted GCI

Source: Global Competitiveness Index 2012-23 (WEF)

Indicators of sustainability

Summary of indicators of environmental sustainability:

Summary of indicators of social sustainability:

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 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 prosperity.

Concepts not yet captured by this framework & areas for future research:

• Inclusion of minorities.

• Working conditions.

• Water pollution

• Recycling

• Waste management

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).

• 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.

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

Competitiveness Index - Key Indicators

India:

Source: Global Competitiveness Index 2012-23 (WEF)

Competitiveness Index - stage of development

India:

Source: Global Competitiveness Index 2012-23 (WEF)

Problematic factors for doing business

India:

Source: Global Competitiveness Index 2012-23 (WEF)

GCI in details - India

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Glo

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ss I

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20

12

-23

(W

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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

Country 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

How can India be more competitive ?

Thank You

(For more details, refer The Global Competitiveness Report 2012-13 by World

Economic Forum)