IMD World Competitiveness IndexIMD World Competitiveness Index

Group 2

Cheng Ka Kit 04002512

Chau Sze Ming 03005186

Chui Yee Hang 03005224

Sze Ka Po 04002075

ContentContentI. 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 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 WCIAbout 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 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

• The ranking represent a success, economic The ranking represent a success, economic performance, wealth of a nationperformance, wealth of a nation

• It shows the ability of nations create and It shows the ability of nations create and maintain a competitive environmentmaintain a competitive environment

• Also investigate the global economic Also investigate the global economic situationsituation

• WCI and its ranking provide a frame of WCI and its ranking provide a frame of reference to asses how nations mange reference to asses how nations mange their economic future. their economic future.

About WCI About WCI

Competitiveness Definition Competitiveness Definition Condensed definitionCondensed definition: : • Competitiveness analyses how nation and Competitiveness analyses how nation and

enterprises manage the totality of their enterprises manage the totality of their competencies to achieve prosperity or profitcompetencies to achieve prosperity or profit

Competitiveness Definition Competitiveness Definition Academic definition:Academic definition: • Competitiveness analyses the Competitiveness analyses the factsfacts and and policies policies that that

shape the ability of a nation to shape the ability of a nation to createcreate and and maintainmaintain an environment that an environment that sustains more value creation for sustains more value creation for its enterprisesits enterprises and and more prosperity for its peoplemore prosperity for its people

• Fact: natural resources, land area, risk of disasters, Fact: natural resources, land area, risk of disasters, war…… war……

• Fully utilize or efficiently allocate resourcesFully utilize or efficiently allocate resources more comparative advantage more comparative advantage

Competitiveness DefinitionCompetitiveness 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 WCYTheory provided for WCY

Four fundamental forces shape the country’s competFour fundamental forces shape the country’s competitiveness environment itiveness environment

a) Attractiveness vs. Aggressivenessa) Attractiveness vs. Aggressiveness

b) Proximity vs. Globalityb) Proximity vs. Globality

c) Assets vs. processesc) Assets vs. processes

d) Individual Risk Taking vs. Sociald) Individual Risk Taking vs. Social

CohesivenessCohesiveness

a) Attractiveness vs. Aggressivenessa) Attractiveness vs. Aggressiveness   How a nation manage his relationship with t

he world business community

Aggressiveness Attractiveness

By exports and foreign direct investment (FDI) strategy

Through incentives and investment

    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

a) Attractiveness vs. Aggressivenessa) Attractiveness vs. Aggressiveness

b) Proximity vs. Globality 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

    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. Globalityb) 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

b) Proximity vs. Globalityb) Proximity vs. Globality

c) Assets vs. Processes c) Assets vs. Processes Resources a nation relied on to create a

competitive environmentAssets Processes

Rich in assets

Land, people and natural resources

Poor in resources

Essentially on transformation processes (Economic value added activities)

    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

c) Assets vs. Processesc) Assets vs. Processes

d) Individual Risk Taking d) Individual Risk Taking vs. Social Cohesivenessvs. Social Cohesiveness

    Two different types of Government policyIndividual 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 CompetitivenessGolden Rules of Competitiveness    

    

Golden Rules of CompetitivenessGolden Rules of Competitiveness

Part II: MethodologyPart II: Methodology

• The methodology of the WCY divides the competitive environment into four main areas:

1. Economic Performance

2. Government Efficiency

3. Business Efficiency

4. Infrastructure

MethodologyMethodology

• 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

MethodologyMethodology

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 factorCompetitiveness factor1. ECONOMIC PERFORMANCE (83 criteria) (Macro-economic evaluation of the domestic

economy)

• Domestic Economy

• International Trade

• International Investment

• Employment

• Prices

ExamplesExamples• 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 factorCompetitiveness factor2. GOVERNMENT EFFICIENCY (77 criteria) (Extent to which government policies conductive to co

mpetitiveness)

• Public Finance

• Fiscal Policy

• Institutional Framework

• Business Legislation

• Societal Framework

ExamplesExamples• Government budget surplus/deficit Percentage of GDP

• Collected total tax revenues Percentage of GDP

• Personal security and private property Survey

• Price controls Survey

• Personal security and private property Survey

Competitiveness factorCompetitiveness factor3. BUSINESS EFFICIENCY (69 criteria) (Extent to which enterprises are performing in an inno

vative, profitable and responsible manner)

• Productivity

• Labor Market

• Finance

• Management Practices

• Attitudes and Values

ExamplesExamples• Overall productivity GDP per person employed, US$

• Labor relations Survey

• Banking sector assets Percentage of GDP

• Social responsibility Survey

• Values of society Survey

Competitiveness factorCompetitiveness factor4. 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

ExamplesExamples• 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 Percentage of GDP

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 1080.311

(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 How to use the World Competitiveness YearbookWorld Competitiveness Yearbook

• apply Chile’s example here

A. Competitiveness Trend – Overall

• Show evolution of the economy’s overall performance and individual results

How to use the How to use the World Competitiveness YearbookWorld Competitiveness Yearbook

B. Competitiveness Trends – Factor Breakdown

• Show the economy’s performance over time for each Competitiveness Factor from 2001 to 2005

How to use the How to use the World Competitiveness YearbookWorld Competitiveness Yearbook

C. Competitiveness balance Sheets

• Highlight specific strengths and weaknesses of the economy in world competitiveness

How to use the How to use the World Competitiveness YearbookWorld Competitiveness Yearbook

D. 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 How to use the World Competitiveness YearbookWorld Competitiveness Yearbook

E. Twenty weakest Criteria

• Identifies the 20 weakest criteria

Part III: ComparisonPart 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

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

2004 WCI Ranking2004 WCI Ranking

WCI and other WCI and other economic indicatoreconomic indicator

1.1. Compare with real GDP growth in the current Compare with real GDP growth in the current yearyear

2.2. Compare with unemployment rateCompare with unemployment rate

3.3. Compare with average real GDP growth in Compare with average real GDP growth in past five yearspast five years

W C Index & real GDP growth (04)W C Index & real GDP growth (04)

0

4

8

12

16

20

20 30 40 50 60 70 80 90 100

WCINDEX

GROW

TH04

W C Index & real GDP growth (04)W C Index & real GDP growth (04)

• N = 46

• 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)

0

5

10

15

20

25

30

20 30 40 50 60 70 80 90 100

WCINDEX04U

UNEM

PLO

YRATE

W C Index & Unemployment rate(04)W C Index & Unemployment rate(04)

• N = 40

• The correlation coefficient is 0.571966

• It seems there is negative relationship between the index and unemployment rate

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

0

1

2

3

4

5

6

7

8

20 30 40 50 60 70 80 90 100

WCINDEX

GROW

TH04

ADV

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

• N = 46

• The correlation coefficient is 0.072043

•  It seems no relationship between the index and average real GDP growth in past five years

ConclusionConclusion

• 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