A Comparative Analysis of World Competitiveness Records and a Cost
Projection resulting from the Lack of Competitiveness in the Greek Economy
by Nektaria Berikou
Paper prepared for
the 3rd Hellenic Observatory PhD Symposium on
Contemporary Greece: Structures, Context and Challenges.
Hellenic Observatory,
European Institute,
London School of Economics and Political Science
June 14 - 15, 2007.
3rd Hellenic Observatory PhD Symposium
A Comparative Analysis of World Competitiveness Records and a Cost
Projection resulting from the Lack of Competitiveness in the Greek Economy
Nektaria Berikou*
Abstract Developing country policy makers worry about national competitiveness and closely
watch indices ranking international competitive performance. The World
Competitiveness Yearbook (WCY), a report annually produced by the Institute for
Management Development, based in Switzerland, is a study that rates and ranks the
competitiveness of a certain group of nations and is a widely quoted report, especially
by government and public leaders. Although some essence of its methodology is
given for a general understanding, the details are not provided and are in large part
unknown to the public. The objective of this paper is to uncover and make
understandable the theory and methodology of the WCY. Without diminishing the
role and importance of WCY reports, we will try to strengthen them, propose ways of
improvement so as this index can constitute an important guideline to be used for the
reinforcement of Greek economy’s competitiveness.
*PhD Candidate, Department of Chemical Engineering, Laboratory of Industrial & Energy Economics (LIEE), National Technical University of Athens (NTUA).
Address for Correspondence: 9 Heroon Polytechniou str, 157 80 Zografou Campus, Athens Greece, tel: +30 210 7723200, fax:+30 210 7723155, [email protected]
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3rd Hellenic Observatory PhD Symposium
1Reinert (1995) argues that competitiveness in a broader sense has occupied policy makers of industrialized countries for centuries, though the terminology was different. The concerns were to increase “national wealth”, promote “good trade”, enhance “productive power” by promoting more advanced forms of manufacturing industry, and so on. 2
INTRODUCTION
Policy makers all over the world express their concern about national
competitiveness. Such concern is not new1; the competitiveness of nations has been
on the research agenda for some time. The idea that the economic success of a country
depends on its international competitiveness tool hold among business, political and
intellectual leaders in the late 1970s. What seems new is its intensity and spread, a
response to globalisation, rapid technical change, shrinking economic distance and
sweeping liberalization.
In March 2000, in the European Council of Lisbon it was decided that the strategic
objective for the decade 2000-2010 is “the European Union to become the most
competitive dynamic economy of knowledge, capable of viable economic growth,
with more and better places for work and with bigger social cohesion”. It becomes,
therefore, obvious that the estimation of competitiveness begins to constitute a wide
field of research. Although many researchers have studied the subject of
competitiveness and suggested relevant measures, most of the studies focus on the
firm level and have not attempted a more comprehensive comparison of multi-country
competitiveness. The international competitiveness of a country needs to be defined
so as to give governments and firms the opportunities for realizing the global
competitive advantages they require in order to survive.
The efforts in this area intensified since the early 1980s. Porter (1990), in his book
entitled The Competitive Advantage of Nations, proposes and uses a methodology,
which he calls “the National Diamond”, in order to study the competitiveness of ten
selected countries. Applying “the National Diamond” to these countries, he develops
an agenda for each of them to pursue in order to become internationally more
competitive. Moreover, international institutions present annually competitive records
of several countries. The two most well known indices are the Global
Competitiveness Report of the World Economic Forum (WEF) and the World
Competitiveness Yearbook (WCY) produced by the Institute for Management
Development (IMD).
However, although these ratings have an impact on the international community, the
methodology used remains in large part unknown. Researchers claim that their
3rd Hellenic Observatory PhD Symposium
definitions are too broad, many of the indicators used are subjective and
impressionistic, and many measures are vague and redundant. Not knowing their
methodology, the assumptions and formulas underlying them might very well
preclude an intelligent use of its results, which is counterproductive and against the
very idea of publishing them.
The primary objective of this paper is to uncover the methodology of the WCY.
Paying attention to the way its variables are defined, measured and aggregated, to its
particularities and its probable structural weaknesses, we will try to strengthen them,
propose ways of improvement and evaluate alternative approaches able to secure a
greater structural security, allow methodological validity and flexibility and provide a
greater interpretational ability, always aiming at the effective and objective estimation
of competitiveness of European States.
THE COMPETITIVENESS DEBATE
The term competitiveness stems from the analysis of firms and is usually thought to
be well defined at the firm level. Today, however, the notion competitiveness has
become a prominent concept in the assessment of countries, regions and locations.
The competitive advantage of nations and the competitiveness of locations have
become important topics in economic policy. A business can no longer expect
competition only from neighboring businesses or from businesses within its own
region. The marketplace is no longer restricted to a specific geographic location.
However, while it may appear from the wide use of “national competitiveness” that
the term has an accepted economic definition and can be readily measured, this is not
the case. The concept of national competitiveness has itself been severely criticized in
recent years. It is an elusive concept, much studied by business theorists and much
invoked by politicians and commentators, but frequently dismissed as irrelevant or
unimportant by economists.
Defining the competitiveness of nations is a controversial issue. A large number of
concepts of competitiveness have been proposed in the economic and business
literature. The concept of competitiveness and competitive strategy comes from the
business school literature. For the great majority of those who use the term, it means
exactly what it seems to mean: it is the view that nations compete for world markets
in the same way that corporations do, that a nation which fails to match other nations
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in productivity or technology will face the same kind of crisis as a company that
cannot match the costs or products of its rivals. Economies compete with each other,
can easily measure their competitiveness and are able to mount competitiveness
strategy.
On the other hand, there are some authors which deny the importance of this concept.
Krugman (1994, p.44) argues that “competitiveness is a meaningless word when
applied to national economies and the obsession with competitiveness is both wrong
and dangerous.” He attacked the use of the term in relations to countries, arguing that
it is firms, not countries that compete with each other. This may, however, be an
exaggeration. As Reinert (1995, p.24) says, “although often misused and mostly ill-
defined, the term competitiveness properly used does describe an important feature in
the world economy. This concept scratches the surface of important issues which are
central for understanding the distribution of wealth, both nationally and globally.”
In addition, Michael Porter of Harvard Business School (1990) has highlighted
competitive advantage as the key to superior performance by firms, industries and
economies as a whole. Lall (2001.a) argues that competitiveness in industrial
activities means developing relative efficiency along with sustainable growth.
Competitiveness is thus more a process than an absolute state, and can only be
assessed in a relative sense. National competitiveness does not mean just being a low-
cost producer, but being competitive in activities that lead to long-term income
growth, as incomes (and wages) rise.
Tyson (1992) added the rising and sustainable standard of living of citizens. Aigigner
(1998) states that an evaluation of the competitiveness of a nation must be done with
respect to its ultimate goal to maximize the well being of itself or of its people. Trade
balance and market share thus appear to be insufficient indicators of a nation’s
competitiveness. Development specialists have increasingly recognized that pure
economic indicators do not sufficiently indicate a nation’s overall welfare and
competitiveness level and as a result the indicators of choice should cover not only
economic factors, but social, technological and environmental factors as well. There is
no single “recipe” for competitiveness. Various policies can be benchmarked, and
then each individual country needs to adapt them to their own environment.
Competitiveness strategies succeed when they balance the economic imperatives
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imposed by world markets with the social requirements of a nation formed by history,
value systems and tradition.
Although the concept of national competitiveness as such has been strongly criticized
by some theoreticians, the importance of the underlying challenges makes it unlikely
that this issue will lose the attention of policy makers soon. A nation with its natural
resources, human capabilities, research and educational institutions, political and
economic structure, its cultural and social values provides an environment in which
firms are created, organized and managed. The competitive environment a nation
provides influences the performance of its firms at home and abroad. Therefore, it is
of prime importance for both governments and firms to study the competitive
environment of a country in comparison with those of the others. It should be
evaluated both on macro- and micro platforms and, while doing so appropriate
attributes should be used for accurate measurement.
WORLD COMPETITIVENESS INDICES
A lot of international institutions record and present in an annual base the competitive
records of countries. These Annual Reports (World Competitiveness Indices)
constitute an important source of information for all foreigner investors and a motive
force of the international economic activity. Such rankings can help policy-makers
design and evaluate national competitive performance in the way technical
benchmarking helps enterprises to assess and improve their competence against other
firms. They can also help investors to allocate resources between countries,
researchers to analyze economic issues in comparative firms, aid donors and
international institutions to judge themselves against competitors.
The best known measure of competitiveness used to be the “Competitiveness Index”
produced annually in the World Competitiveness Report (WCR) by the World
Economic Forum and the International Institute for Management Development. This
index was based upon a huge number of variables. The two institutions separated
their indices from 1996, using different variables and weights; both are now widely
used and cited: the Global Competitiveness Report of the World Economic Forum
(WEF) and the World Competitiveness Yearbook (WCY) produced by the Institute
for Management Development (IMD). In addition to the two well-known published
rankings, there are many unpublished ones prepared by governments, consultants and
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research institutions, all feeding an insatiable appetite for benchmarking competitive
performance and providing guidelines for strategy.
Although all World Competitiveness Indices have impact on the international
community among politicians, company executives and researchers, the underlying
analytical framework used in producing country rankings remains weak and suspect.
The connections between the variables in terms of producing growth or structural
competitiveness are unclear, often tendentious. Oral and Chabchoub (1996) tried to
uncover it and they found after detailed mathematical programming, that the
undisclosed methodology of WCR is hard to “guess”. They tried again to understand
the methodology through exact replications of the rankings at all levels of aggregation
by using a particular mathematical programming model, called the Weight Estimation
Model (1997). It has been shown that one does not need to use all of the indicators in
order to replicate the WCR ranking: in fact, 27 of them are unnecessary. Moreover, it
has been observed that a unique set of weights cannot reproduce the results of WCR.
Different sets of weights for different countries need to be used, suggesting the notion
that the importance of a criterion varies from one country to another and implying that
one cannot be sure of the importance of a given criterion in evaluating the national
competitiveness. Based on Oral’s and Chabchoub’s findings, Zanakis and Beccera-
Fernandez (2005) presented the insights gained from the use of data mining and
multivariate statistical techniques to identify important factors associated with
determining a country’s competitiveness.
Sanjaya Lall (2001.b) argues that the WEF index suffers from several analytical,
methodological and quantitative weaknesses. Its presentation conceals these
weaknesses, giving a misleading impression of precision, robustness and
sophistication. Moreover he argues that the way the estimation results of the WEF
index are presented, does not allow understanding its limitations.
Furthermore, Ulengin και Onsel (2002) offered a more robust and objective way of
evaluating the competitiveness of countries while replicating the WCR results in a
statistically significant manner. After the validation of their results based on the
hypothesis that the long-term competitiveness of a country can be estimated using
objective attributes, versus those of the WCR, they explained the relative competitive
level of the countries analyzed by using explanatory variables. Moreover, a sensitivity
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analysis was used to show how movements, by design or by happenstance, in levels of
some of the indicators may affect a country’s overall competitiveness.
In Greece, in 2003 the National Council on Competitiveness and Growth tried for the
first time to assess Greece’s competitiveness by forming a National Ranking System
of Competitiveness. However, this first report aimed mostly at valuing the record of
the country in a small number of indicators and it gathered opinions from all members
of the National Council on potential directions for policy, while it did not adopt a
concrete methodology for a comparative evaluation of countries. Nevertheless it
constitutes Greece’s first effort to develop a national system of measurement for
competitiveness. In 2005, the second report focused on the direct exploitation of
existing ranking systems that have been developed by international institutions, like
WEF and IMD, without however leading to an acceptable methodology, with
explanatory possibilities.
The use of competitive indicators causes continuously increasing interest and it is
expected to extend itself in the future. The international bibliography, even in small
extent, shows already problems in the theoretical and mainly in the methodological
background of these indices. It is, therefore, obvious how important it is that these
reports will be handled responsibly and their results will be transferred to a wider
number of interested parties.
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2 These statistics are referred to in the WCY as Hard data and include 129 criteria used to determine the overall rankings and 82 criteria presented as valuable background information but not used in the calculation of the rankings. The 129 Hard criteria represent a weight of approximately two-thirds in the overall ranking. 3 These data are referred to in the WCY as Survey data. The survey questions are included in the Yearbook as individual criteria and are used in calculating the overall ranking, representing a weight of approximately one-third.
8
THE GENERAL STRUCTURE OF WCY AND ITS RANKING SYSTEM
The IMD World Competitiveness Yearbook (WCY) is one of the world’s most known
and comprehensive annual reports on the competitive advantage of nations, published
since 1989. The WCY analyzes and ranks the ability of nations to create and maintain
an environment that sustains the competitiveness of enterprises. It provides extensive
coverage of 60 countries and regional economies, all of them chosen because of their
impact on the global economy and the availability of comparable international
statistics. The national environment is divided into four main Competitiveness
Factors: Economic Performance, Government Efficiency, Business Efficiency and
Infrastructure. Each of these four factors has been broken down into five sub-factors,
as seen in Table 1 and some of these sub-factors have been further divided into
categories that define competitiveness issues more explicitly.
Table 1 Competitiveness Factors and Sub-factors
Business Efficiency Economic Performance Infrastructure Government Efficiency
Productivity Domestic Economy Basic Infrastructure Public Finance
Labor Market International Trade Technological Infrastructure Fiscal Policy
Finance International Investment Scientific Infrastructure Institutional Framework
Management Practices Employment Health & Environment Business Legislation
Attitudes & Values Prices Education Societal Framework
All 323 criteria, used in the WCY, have been selected after an extensive research
using economic literature, international, national, regional sources2 and feedback from
academics, governments and business community3, and have been grouped into these
sub-factors and categories. Each sub-factor, independently of the number of criteria it
contains, has the same weight in the overall consolidation of results, which is 5% (20
x 5 = 100).
3rd Hellenic Observatory PhD Symposium
The essential building block for the rankings is the standardized value for all the
criteria, called the STD value. Firstly, the STD value for each criterion is computed
using all available data for all countries and then all economies are ranked for the 241
criteria used in the aggregation. In most cases, a higher value is better, for example
the Gross Domestic Product; the economy with the highest standardized value is
ranked first while the one with the lowest is last. However, with some criteria the
inverse may be true, for example Consumer Price Inflation.
Because most criteria have different scales, a constant scale of comparison is used in
order to calculate the total results for all sectors and categories. The method of
Standard Deviation measures the relative difference between the economies’
performance and thus each country’s or region’s relative “ranking “place in the final
classifications is calculated more precisely.
First, for each criterion, we compute the average value for the entire population of
economies. Then, the standard deviation is calculated using the following formula:
( )N
xxS ∑ −=
2
Finally, we compute each of the 60 economies’ standardized values (STD) for the 241
ranked criteria. The STD is calculated by subtracting the average value of the 60
economies from the economy’s original value and then dividing the result by the
standard deviation.
The STD value for criteria is calculated as follows:
SxxSTD i
−=)(
Where:
x = original value
x = average value of the 60 economies
N = number of economies
S = Standard Deviation
The sub-factor rankings are then determined by calculating the weighted average of
the criteria STD values that make up the sub-factor, excluding the background
criteria. When data is unavailable for particular economies, the missing values are
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replaced by a STD value equal to 0. The weighted average for each sub-factor enables
us to “lock” the weight of the 20 sub-factors independently of the number of criteria
they contain so that each sub-factor has an equal impact on the overall ranking that is
5%.
Next, we aggregate the sub-factor average STD values to determine the
Competitiveness Factor rankings and the STD values of the Competitiveness Factors
are then aggregated to determine the Overall Scoreboard. Since statistics for all
economies are standardized, they are aggregated to compute indices. The rankings
computed are: the Sub-factor rankings, the Competitiveness Factor rankings and
finally the Overall Scoreboard
It must be mentioned that across the four Competitiveness factors, only one economy
will have a score equal to 100 and one economy will have score equal to zero. For the
Overall Scoreboard, IMD takes the average scores of the four Competitiveness
Factors and converts them in a final indicator according to which the leading economy
has a value equal to 100.
THE ESTIMATION MODEL FOR REPLICATING THE WCY RESULTS
The first step to our study was to try to replicate the WCY results. We tried to find the
same classification of countries with the one presented by IMD for the year 2004, by
using the same statistical data and methodology. The first thing to do was to
transform the data from files type pdf into files excel and then the creation of a
database structured, like the one that WCY’s methodology follows, by composing
and using a program of Visual Basic. In the following Figure 1 we present the ranking
results of our estimation model compared to the final classification of
competitiveness as it is published by IMD.
Due to the lack of important fluctuations, the reproduction could be considered
successful.
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R2 = 0,9984
0
10
20
30
40
50
60
70
USA
SIN
GAP
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ANAD
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STR
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Countries
Rank
IMDReplication modelLinear
Figure 1: Overall Competitiveness Rankings
MEASURING A COUNTRY’S COMPETITIVENESS
Countries selected
As it was previously mentioned, IMD selected 60 countries (51 countries and 9
provinces of countries) so as to have an overall picture of world competitiveness.
However, there are increasingly questions on whether the comparisons are valid
because of the growing divide between developed – technically diverse – OECD
countries, and emerging nations which are focused only on a few key technical
sectors, such as electronics or telecommunications. In general nations differ in
technological emphasis and level of diversification; instead it is more likely that a
nation resembles other nations in its region, and in turn, a “trading block” comparison
of nations will be more reliable.
In order to study and measure the competitiveness of a given country, for example
Greece, it is essential to determine its competitors. After all, competitiveness has a
relative significance that results from each country’s records compared to those of
other countries-competitors, both in macroeconomic and micro-economic level. Such
an approach may be proved to be more useful and more reliable for certain researches
concerning Greece’s or any other country’s competitiveness. It is different to study
and measure the competitiveness of Greece in comparison to 60 countries that many
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of them may not even have common goals, than to countries that belong to the “same
family”, that is to say European Union. Based on the aforementioned we have
decided to examine paralleled to the sample of 60 countries used by IMD another
sample of countries, which will mainly consist of the countries-competitors for
Greece.
The Centre of Export Researches and Studies, founded by the Hellenic Association of
Exporters, has published many studies in order to determine the basic countries-
competitors for Greece. According to its last research published in 2000, countries of
European Union represent the 61% of total competition that Greece faces, and
countries belonging to OECD represent the 81%. Turkey has also been proved to
constitute one of the more important competitors of Greece in rural as well as in
industrial products. The following table presents the subset of the 21 basic countries-
competitors for Greece.
Table 2 Countries Competitors for Greece
Basic Countries Competitors for Greece
Austria Netherlands Belgium Poland Canada Portugal China Romania Denmark Spain Finland Sweden France Switzerland Germany Turkey Hungary United Kingdom Ireland USA Italy
Alternative scenarios
The criteria included in the WCY can be divided in 3 categories: absolute
quantitative, relative quantitative and qualitative criteria. The absolute quantitative
criteria and the qualitative ones have important particularities and it is possible that
they lead to a fake depiction of truth regarding the competitiveness of countries.
Absolute quantitative criteria concern numbers that can lead to unfair comparisons
between concrete countries, while qualitative include the element of subjectivity.
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Thus, we are called to evaluate these two categories separately and to investigate if
their exclusion will cause changes to the final classification of countries.
In order to examine and test the “architectural” composition of criteria we will apply
two alternative scenarios of sensitivity (plays). Each one of these scenarios is applied
to the total group of countries and provinces (60) as well as to the subgroup of the 22
countries-competitors of Greece, for the year 2004.
In the first play the absolute quantitative criteria are removed, and the model makes
use only of relative quantitative and qualitative data. In the second play we remove
the qualitative-soft data and only quantitative data (relatively and absolutely) are
used. The same Visual Basic program is being used, since it gives us the possibility to
remove any criteria and any countries we want to, and to check afterwards whether
and how these changes influenced the final classification of countries’
competitiveness.
FINDINGS The final rankings (overall) for all scenarios and for the two groups of countries are
presented below.
The group of 60 countries 0
10
20
30
40
50
60
70
US
ASI
NG
APO
RE
CA
NA
DA
AU
STR
ALIA
ICE
LAN
DH
ON
G K
ON
GD
EN
MAR
KFI
NLA
ND
LUX
EMB
OU
RG
IRE
LAN
DS
WE
DE
NTA
IWA
NAU
STR
IASW
ITZE
RLA
ND
NE
THE
RLA
ND
SM
ALA
YS
IAN
OR
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YN
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ALA
ND
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JIA
NG
BAV
AR
IAG
ER
MA
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UN
ITE
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ING
DO
MJA
PAN
CH
INA
MA
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ND
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EC
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NIA
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AIN
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UB
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ES
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EN
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AR
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SA
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AU
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AN
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UTH
AFR
ICA
RU
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PH
ILIP
PIN
ES
BR
AZI
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AN
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EX
ICO
PO
LAN
DIN
DO
NE
SIA
AR
GE
NTI
NA
VEN
EZU
ELA
Countries
Ran
k
IMD 1st Scenario
Figure 2: Overall Competitiveness Ranking by IMD vs that resulted in the 1st scenario
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Observing Figure 2, we notice that in the first scenario with the exclusion of absolute
quantitative criteria, “big” economies lose places, like United States, Germany and
China. This behavior was more or less expected since these countries are the biggest
ones in extent and in population worldwide. On the contrary, countries like Estonia
and Luxembourg gain places. Moreover, as far as the records across the four
Competitiveness Factors concerns, it was observed that the most significant changes
were noticed in the factor of Economic Efficiency. More specifically in this factor
United States, United Kingdom, Germany, France and Japan, that is to say five from
the more powerful economies of the world, lost 30 to 40 places.
0
10
20
30
40
50
60
70
USA
SIN
GAP
OR
EC
ANA
DA
AU
STR
ALI
AIC
ELAN
DH
ON
G K
ON
GD
EN
MA
RK
FIN
LAN
DLU
XEM
BOU
RG
IREL
AND
SWE
DE
NTA
IWAN
AU
STR
IAS
WIT
ZER
LAN
DN
ETH
ER
LAN
DS
MA
LAY
SIA
NO
RW
AYN
EW
ZE
ALAN
DZH
EJIA
NG
BAV
AR
IAG
ER
MA
NY
UN
ITE
D K
ING
DO
MJA
PAN
CH
INA
MA
INLA
ND
BELG
IUM
CH
ILE
CAT
ALO
NIA
ESTO
NIA
THAI
LAN
DFR
AN
CE
SPA
INIL
E-D
E-F
RA
NC
EIS
RA
ELIN
DIA
KOR
EASC
OTL
AND
RH
ON
E-A
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HA
RA
SH
TRA
POR
TUG
ALS
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AKC
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MB
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UN
GA
RY
CZE
CH
REP
UBL
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RE
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VEN
IALO
MBA
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AU
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RD
ANS
OU
TH A
FRIC
AR
USS
IAIT
ALY
PH
ILIP
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ES
BRAZ
ILR
OM
ANIA
TUR
KEY
ME
XIC
OP
OLA
ND
IND
ON
ESIA
ARG
ENTI
NA
VEN
EZU
ELA
Countries
Ran
k
IMD 2nd Scenario
Figure 3 Overall Competitiveness Ranking by IMD vs that resulted in the 2nd scenario
In the second play, as it appears in figure 3, Malaysia, Austria, Czech Republic, Chile
and Colombia present an important drop, while an important increase was noticed for
countries like Italy, United Kingdom, Russia, Japan and Germany. Regarding the four
Competitiveness Factors, the sector of Economic Efficiency does not have any big
differences, while on the contrary big fluctuations are presented in the remainder
three factors.
Applying the same alternative scenarios to the subgroup of 22 countries and after
making the same comparisons in the final classifications, we resulted in table 3. Table
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3 consists of 5 different columns-classifications of countries. The first one presents
the final ranking of these 22 countries as it was published in the WCY 2004. The
second column presents the classification that resulted after the replication of the
WCY methodology and in the third column we present the rankings that derived
when we run our model (the Visual basic program) only for the subgroup that is
without having all the 60 countries and provinces. The fourth and fifth columns
present the results for the two scenarios. We observe that when we apply the method
in a different group of countries, realignments in the overall rankings take place and
these are especially noticed for the countries that occupied a low ranking place in the
overall ranking of WCY.
Table 3 Overall Competitiveness Rankings for the sub-group of 22 countries
Countries IMD ranking
Estimation model for 60countries
Estimation model for 22 countries 1st Scenario 2nd Scenario
USA 1 1 1 6 1 CANADA 3 3 2 1 2 DENMARK 7 7 3 2 7 FINLAND 8 8 4 3 10 IRELAND 10 10 5 4 6 SWEDEN 11 11 6 5 4 AUSTRIA 13 14 7 8 12 SWITZERLAND 14 13 8 7 5 NETHERLANDS 15 15 9 9 8 GERMANY 21 21 11 12 9 UNITED KINGDOM 22 22 10 11 3 CHINA MAINLAND 24 24 13 15 11 BELGIUM 25 25 12 10 15 FRANCE 30 30 15 14 14 SPAIN 31 31 14 13 13 PORTUGAL 39 39 17 17 16 HUNGARY 42 43 18 18 21 GREECE 44 42 16 16 19 ITALY 51 51 20 20 17 ROMANIA 54 54 19 19 18 TURKEY 55 55 22 22 22 POLAND 57 57 21 21 20
The application of the two alternative scenarios of sensitivity to the sample of 22
countries leads to similar conclusions. The existence of absolute quantitative criteria
encourages “big” countries, like USA, which from the 1st place drops to the 6th after
their removal. However, the differences in the subgroup of 22 countries are smaller,
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and as a consequence the absolute quantitative data may be considered more reliable.
On the other hand, the fluctuations observed when qualitative data are excluded, are
bigger, United Kingdom gains 8 places. In general, the differences in this subgroup
are less than those observed between the total sample of 60 countries. Nevertheless,
they remain important, since someone can easily understand that a difference of 5
places between a total number of 22 countries is quite appreciable.
DISCUSSION
The exclusion of absolute quantitative criteria results in “big” in extent and
population countries to loose places, while on the other hand “small” countries gain.
Consequently, the use of absolute quantitative data is not always reliable. “Big”
countries are encouraged against small and respectively, their absence encourages
“small” ones against the “bigger”. The final rankings may be unfair for certain
countries, which although they succeed in several fields, they are not big in
population and in extent. The results are not reliable mainly for the factor concerning
economic efficiency, since this is the factor that relies heavily on extensional sizes.
Regarding the other three factors, the differences are fewer and thus the danger to be
led to false conclusions is of course smaller.
Large populated economies present a different competitive model than smaller ones.
Therefore, a ranking split by population size may be particularly useful to those who
wish to make comparisons between countries and regions that are in the same
“playing field”. In addition, all efforts should be more limited in coverage, focusing
on particular sectors than economies as a whole, and using a smaller number of
critical variables rather than pulling in everything the economics, strategy and
management disciplines suggest. In the World Competitiveness Yearbook, the
competitiveness of each economy is calculated for each criterion by using the
Standard Deviation Method. We notice, therefore, that the scores, each country
assembles, are dependent on the total sample of countries that is taken into
consideration each time, action that influences the results’ stability and accuracy.
The role of soft data is curious and challenging, and most of the times it is difficult to
interpret the differences. For example United Kingdom loses 12 places when soft data
are present and on the contrary Malaysia gains 10 (we refer to the first group of
countries). Thus, it is obvious that qualitative criteria can lead to an erroneous
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impression of reality. The observations mentioned above were expected. Survey data
measures competitiveness as it is perceived. The survey is an in-depth 112-point
questionnaire sent to executives in top- and middle management in all of the
economies covered by the WCY. The survey was designed to quantify issues that are
not easily measured, for example: management practices, labour relations, corruption,
environmental concerns or quality of life. The responses given reflect perceptions of
competitiveness and indications for the future by business executives who are dealing
with international business situations.
The survey respondents are nationals or expatriates, located in local and foreign
enterprises in the country or region and which, in general, have an international
dimension. They are asked to evaluate the present and expected competitiveness
conditions of the economy in which they work and have resided during the past year,
drawing from the wealth of their international experience, and thereby ensuring that
the evaluations portray an in-depth knowledge of their particular environment. When,
they give positive and optimistic answers it is in favour of their country. On the
contrary, when a country loses places in the final classification, this means that the
survey respondents give negative and pessimistic answers and there is a high
possibility that the specific country could have been in a higher ranking place, if
qualitative criteria were absent.
We assume that in the most advanced, developed countries there is a tendency for
intense criticism. Although the conditions are favourable, this is not expressed in the
answers given by Administrative executives. Even if the circumstances, under which
the country’s economy, government, enterprises and infrastructures operate, are
objectively good, executives are not satisfied, they consider that their country can
improve more in all fields and thus they give negative answers in the surveys. On the
contrary, in the emerging economies executives perhaps consider that even a minimal
improvement in any sector of quality of life recommends automatically an “enormous
success” and a reason for optimism.
In the case of 60 countries, we make the segregation between developed and
developing economies and we observed that developing lose places in the general
classification when soft data are absent. When we examined separately the group of
22 countries, we were reported only to developed economies; hence the above
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segregation is not valid. However, gradation of growth still exists between these
countries, since they are not all in the same situation. This gradation leads countries to
have a similar behavior corresponding with the one that we observed in the first
group. From these 22 countries, apart from minimal exceptions, the “traditional
forces” of Europe lose places, like United Kingdom and Germany. In order to explain
these big differences, we should take into consideration historical and social factors.
These two countries were historical the first big European industries and even
nowadays they are attached to their traditions. Therefore they are not very flexible to
changes and to new conditions that began to prevail in Europe. These difficulties and
negative reactions are reflected as well as implied and included in the negative
answers that executives give.
World Competitiveness Yearbook’s reliability is subject to justified contestation. This
problem of subjectivity due to the presence of soft data has puzzled even the
researchers of IMD. This has been proven since IMD researchers have changed the
weight given to qualitative criteria between years 2003 and 2004. Until 2003 the
weight was equal to 1, that is to say equal to that of hard data, and in 2004 they
changed it to 0.5, that is to say half from that of quantitative-hard data. With this
change, they tried to make the method more reliable, recognizing that the role of
qualitative criteria cannot be equal to the role of quantitative criteria.
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The case of Greece
It is quite useful to make a special reference to Greece. In this section we present the
rankings scores of Greece and we study whether and how its place changed in every
intervention we made in the method of IMD.
4442 43 43
16 1619
0
5
10
15
20
25
30
35
40
45
50IMD 2004 our model
(60 countries) 1st scenario
(60 countries) 2nd scenario (60 countries)
our model(22countries)
1st scenario (22 countries)
2nd scenario (22 countries)
rank
Figure 4: Overall ranking place for Greece in each group and in each scenario
We observe that in the group of 60 countries, the overall ranking place of Greece
oscillates between 42 and 44 without any essential fluctuations. In the second sub-
group Greece is 16th. The exclusion of absolute quantitative criteria does not cause
any particular influence in her classification, while in the second scenario Greece
loses 3 places.
In case a researcher was examining the place of Greece only in comparison with the
group of 60 countries, he would observe that the international competitive
performance of Greece fluctuates in the middle of world classification. Therefore, he
could easily declare that everything goes well for Greece. But if at the same time he
was looking at its place compared only to its countries-competitors, he would see that
Greece has very low scores. This is the most realistic approach, because when a
country wants to measure its competitiveness, it is done compared to countries that
are located in common geographic and commercial frame and that have same
interests and goals. Thus a comparison with the competitive performance of
Indonesia, Malaysia, or Colombia for example is not of our interest. This observation
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explains also the approach that was made for the subgroup of the 22 countries in the
frames of our study.
The following table presents how the international competitive advantage of Greece
has changed diachronically (2000-2004) in the overall ranking as well as across the
four Competitiveness Factors. The general sense drawn is that the competitive
performance of Greece remains low and that the policies taken in the past few years
are not sufficient, since there is no improvement. Even if Greek economy is
nowadays characterized by certain important advantages, like the improved
infrastructures and its worldwide projection because of the successful organization of
Olympic Games, it still does not seem that the international investment community ,
which will take off productive activity of country, is activated, while on the contrary
the competitiveness of Greek economy loses, even in sectors such as production of
goods and services, whereas it is recognized that Greece has competitive advantages.
Table 4 International Competitiveness of Greece for 2000-2004
2000 2001 2002 2003 2004 Overall Performance 34 31 36 42 44 Economic Performance 36 33 37 44 45 Government Efficiency 36 34 41 46 49 Business Efficiency 37 29 28 36 39 Infrastructure 30 28 32 36 39
The relation between the level of competitiveness of a given country and its economic
prosperity is powerful. The higher the level of competitiveness is the more the country
accomplishes, resulting in a more active presence in the international economic scene.
World Competitiveness Indices give us the possibility of understanding this relation
and of quantifying the cost resulting from the lack of competitiveness. The positive
effect that could emanate after the improvement of the indicators ranking Greece’s
competitiveness performance is very important. The Greek enterprises would be
capable of rivalling the companies abroad and allocating universally their products or
services, thus helping employment and creating higher standards of living. A small
improvement in several indicators is enough in order for Greece to gain places in the
international competitiveness classification. Nevertheless, beyond essential
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improvements in sectors related with these indicators, the architecture of the model
used each time plays an important role.
CONCLUSION
Competitiveness is a key issue for policy makers in many countries and regions. Its
growing importance is fuelled by changes in the nature of global competition that
have increased the pressure on many locations to design sustainable strategies to
support and improve prosperity. There is a significant amount of debate surrounding
the concept of competitiveness, often leaving policy makers without clear guidance
on how to address the challenges they face.
This paper has outlined that competitiveness is and will remain a central occupation
for policy makers in coming years. Continuing and, where necessary, improving the
effectiveness of the debate among researchers on the factors underpinning
competitiveness will be critical to provide them with the most effective analytical
tools and concepts available. Our examination of the WCY index showed that it
suffers from several analytical and methodological weaknesses. IMD makes use of a
big number of criteria and it draws statistical data from a big number of countries,
trying to present a more objective report for the international competitiveness. While
it is well written and contains useful material, IMD competitiveness indices have
several deficiencies. Although we managed to replicate the WCY ranking, its actual
methodology remains unknown and this precludes intelligent use of the WCY results
by executives and policy makers.
Our results suggest that alternative scenarios should be evaluated with regard to the
countries that will constitute the sample, the selection of the most suitable indicators,
so as to be direct measurable and based on objective statistics, as well as to the
objective determination of their weight always based on the information that each
criterion transfers, in order to be able to propose new approaches capable: (a) to
ensure better structural stability, (b) methodological reliability and flexibility, and (c)
to provide better interpretational possibilities. These are the necessary conditions that
would allow the composition of a national system of comparative evaluation of
competitiveness, simple in comprehension, more homogeneous regarding the
countries that will compose it and based mainly on the countries of European Union.
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