The Global Competitiveness Report 2012-2013

Written by : Cazan Andreea Cenusa Andreea Covic Mirela Group : 112

Contents
The Global Competitiveness Report 2012-2013 ........................................................................................... 1 Introduction .................................................................................................................................................. 3 Why competition ?.................................................................................................................................... 3 Social and environmental sustainability ................................................................................................... 3 Determinants of competitiveness............................................................................................................. 4 The 12 pillars of competitiveness ................................................................................................................. 5 Institutions ................................................................................................................................................ 6 Infrastructure ............................................................................................................................................ 6 Macroeconomic environment .................................................................................................................. 7 Health and primary education .................................................................................................................. 7 Higher education and training .................................................................................................................. 7 Goods market efficiency ........................................................................................................................... 7 Labor market efficiency ............................................................................................................................ 7 Financial market development ................................................................................................................. 7 Technological readiness ............................................................................................................................ 7 Market size................................................................................................................................................ 8 Business sophistication ............................................................................................................................. 8 Innovation ................................................................................................................................................. 8 THE GLOBAL COMPETITIVENESS INDEX 20122013 RANKINGS ................................................................... 9 Top 10 ................................................................................................................................................... 9 Switzerland............................................................................................................................................ 9 Singapore .............................................................................................................................................. 9 Finland................................................................................................................................................... 9 Sweden................................................................................................................................................ 10 Netherlands......................................................................................................................................... 10 Germany.............................................................................................................................................. 10 United Stats......................................................................................................................................... 10 United Kingdom .................................................................................................................................. 11 Hong Kong ........................................................................................................................................... 11 Japan ................................................................................................................................................... 11

Introduction
Why is competition important ? Countries compete, companies compete, even us, as individuals, do it. Competition is everywhere, but why is it important for us in a such rapid changing society to stop and think about competition and its advantages ? If nations compete for investments, trading goods and services and investments, companies compete for customers, market share, capital and investors. People compete for most of the things in their lives, from childish competition to the most serious forms of it, such as sports contests. Competition has always been the driving force behind efficiency and progress.

Why competition ?
Competitiveness is becoming highly relevant for countries and for us as individuals giving the fact that we are going through rough economic times; it is now critical for countries to determine the factors that underpin economic growth and development for a long term. In the complexity of todays global economic environment, the need for information that would help us understand what makes an economy grow, what factors determine such progress and why some countries are better than others at rising income levels is more important than ever. This report can be used by nations, but also by us, future business leaders, as a tool in the formulation of improved economic strategies and institutional reforms. All kinds of qualitative growth and progress must be recognized and encouraged, while the forces that nurture productivity and prosperity should be observed and documented, which is exactly the aim of this report. By assessing the competitiveness landscape of 144 countries, this report gives an insight to the winning combination of competitiveness and strengths which has led many countries to provide rising and sustainable living standards for its citizens by driving them out of the economic crises. Moreover, investors and the media pay close attention to the indicators and use the information to assess country standings across a variety of metrics.

Social and environmental sustainability

Concepts such as social and environmental sustainability have been integrated, providing a fuller picture of what works and what measures have to be taken, while the Forums Global Benchmarking Network has put forward its research on how sustainability relates to competitiveness and economic performance. What does social and environmental sustainability mean and how can they be related to economic growth ? Well, data on economic growth and employment from the last 60 years show that the world has evolved substantially : the living conditions have been improved, access to more and better goods and services for a growing portion of the population, and an overall enhancement of the well-being. Still, those statistics do not reflect the potential negative effects of this economic development either on the portion of the population who is not able to benefit from the overall economic conditions or on the natural environment. In todays world we need to take in consideration all the factors when talking about economic growth, the society and the natural environment being the ones neglected in the last few years. One event that has raised concerns about the social sustainability is the Arab Spring : increasing inequalities of incomes and socioeconomic opportunities in both Western 3

countries and fast-growing Asian economies. Consumerism and a fast-growing population have led to the scarcity of natural resources such as water, energy, mineral resources; not to mention the negative externality of human activity : pollution. All those factors are now questioning the feasibility of an economic model that doesnt take them into account. As a result, economic performance is now also represented by social and environmental sustainability. Consequently they need to be properly measured and understood in order in track progress toward higher levels of sustainable prosperity but also to inform policies that will set and achieve the desired objectives.

Determinants of competitiveness
So what are the determinants that drive competitiveness? From Adam Smiths specialization theory to more recent interests such as education, technological progress or market efficiency, there are many factors that have been considered throughout the years in the economic literature. Still, the maze of factors that determine competitiveness is captured within the Global Competitiveness Report into 12 pillars of competitiveness : 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 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 Innovation

And now my colleague Andreea Cenusa will talk more about those determinants. Written by : Andreea Cazan

The 12 pillars of competitiveness

The factors that led to economic growth and long-term prosperity and also set the level of productivity (of a country) have been elaborated during the last thirty years. An entire system which encloses policies, institutions and the factors mentioned above, define competitiveness .One factor in particular, namely the one that influences the productivity, sets also the stage of prosperity that can be acquired or achieved by an economy. Competitiveness, as a notion, involves both active and passive (inactive) elements. Substantial levels of income are maintained by its ability. This specific ability is established by the productivity of a country, which has a major influence into cashing the results of the investments and is one of the main agents elucidating the potential of the economic growth. What does pillar of competitiveness mean? Well, a pillar means a pylon, a column or even a shaft that supports a heavy construction. In this case, the pillars are the factors that support and influence the idea of competitiveness (take this example: if one pylon of a bridge crashes, a part of the bridge crashes too; in some cases, if we are talking about the main pylon, the whole bridge is destroyed).

To be able to understand more easily how these pillars got to influence the entire system of competitiveness, I made a sketch with a little bit of history:

Institutions
The quality of institutions has a major influence on growth and competitiveness, investment decisions and organization of production. The main role played by the institutions goes beyond the legal framework meaning that they influence the way associations spread the benefits and endure the expenditures of evolution and in-progress strategies and policies. As important as public institutions can be, private ones are also taken into consideration pretty much, given that they help in the process of increasing the opulence.

Infrastructure
Wide and active infrastructure is necessary for the efficient operation of the economy. Well-developed infrastructure decreases the effect of distance between regions. It also integrates the national market and connecting it at low cost to markets in other countries and regions. Economies also depend on electricity supplies, a solid and extensive telecommunications network, effective modes of transport, etc.

Macroeconomic environment
The macroeconomic environment has to be stable for business to go as planned and for the overall competitiveness of the country. Even stable, it cannot increase the productivity of a nation, but its instability certainly harms the economy (take as example the last years in Europe).

Health and primary education

For the productivity and competitiveness of a country, healthy workforce is critical. Workers who suffer from different illnesses cannot work at the same capacity or be as productive as healthy ones. Basic education increases the efficiency of each individual worker. People who have received little primary education can handle only simple tasks and they adapt with much more difficulty.

Higher education and training

It plays a key role in economies that intend to grow and wand to move UP the value of simple production process and products. This pillar measures secondary the enrollment rates, and tertiary the quality of education as evaluated by the business community.

Goods market efficiency

- Some countries can produce the right mix of products and services given their particular supply-anddemand conditions, only because they have efficient goods market. Their products are the most traded in the economy. Market efficiency also depends on demand conditions (customer orientation and buyer sophistication).

Labor market efficiency

The labor market has to be flexible and efficient. The workers have to be allocated to their most effective use in the economy, although they can be shifted rapidly. Rigid labor market can lead to high rate of youth unemployment. Women must be as equal as men, when talking about equity in the business environment

Financial market development

An economic crisis messes with the weel-functioning of the financial sector of an economy. To be efficient, a financial sector has to allocate its resources to the most productive uses (projects with the highest expected rates of return rather than to the politically connected).

Technological readiness
Nowadays, technology represents the factor of competition between firms. This pillar measures the agility with which an economy adopts existing technologies to enhance the productivity of its industries. Even if technology has or has not been developed in a specific country, it enhances productivity anyway.

Market size
There is a general sense that trade has a positive effect on growth. Productivity is affected by the size of the market. National borders constrain markets available to firms. Growth is positively associated to trade openness. For small countries, international markets can substitute for domestic markets.

Business sophistication
In the production of goods and services, sophisticated business practices are conducive to higher efficiency. When the more basic sources of productivity improvements have been exhausted, these factors are particularly important. For more advantages, companies and suppliers from a particular sector should be interconnected in geographically proximate groups.

Innovation
This final pillar of competitiveness can be considered the main one, and refers to technological innovation. Although all the others function in a efficient and effective way, it has been proved that they seem to run into diminishing returns. Looking in perspective, technological innovation is the only one which can enhance the standards of living.

Written by : Cenusa Andreea

THE GLOBAL COMPETITIVENESS INDEX 20122013 RANKINGS

Top 10
The Global Competitiveness Report 2012-2013 informs us that Switzerland attains the 1st place for the fourth consecutive year. Also, on the 2nd position remains Singapore, and Finland moves up on the 3rd position, overcoming Sweden, which is on the 4th place. The 5th, 6th and 8th places are taken by other Northern and Western European, which are Netherlands, Germany and United Kingdom. The United States (7th), Hong Kong (9th) and Japan (10th) fill up the top 10. But, lets take them one by one: Switzerland The most important strengths are innovation and labor market efficiency and sophistication of business sector. The factors that support the competitiveness (and Switzerland ranks) are the following: superior infrastructure (5th), well-functioning goods market (7th), and highly developed financial markets (9th) When it comes to the macroeconomic environment, Switzerland is ranked the 8th, being among the most stable in the world. Tips: Even if Switzerland has many competitive strength, its innovative capacity is not among the bests. Therefore, to maintain its innovative capacity, the country should increase its university enrolment. Singapore Its on the 2nd place because of the high ranks on the entire index. It is in top 3 in 7 out of the 12 categories and its the 10th in other three categories. In the last 5 years its public and private institutions are ranked as the best in the world. Furthermore, its on the 1st place when it comes to efficiency of its goods and labor markets and on the 2nd place when we talk about financial market development. Also, Singapores infrastructure is rated as the 2nd best in the world. Competitiveness: strong focus on education it can be seen an important improvement in higher education and training pillar (2nd). Finland It has well-functioning and highly transparent public institutions (2nd). Its private sector is rated as the 3rd and it is seen as the most ethical and best run in the world. Moreover, Finland is the 2nd most innovative countries in Europe after Switzerland and it occupies the top positions both in the health and education pillar.

Sweden The quality of its public institutions stays on top, with a very high degree of efficiency, trust, and transparency. Private sector is also very good seen, having companies that demonstrate a good sense of ethical behavior. Also, Sweden is on the 1st place when it comes to education. Other important strengths are goods and financial markets that are very efficient, although the labor market could be more flexible. In the past 3 years its been observed a small but homogenous deterioration in the countrys institutional framework. However, Sweden is one of the most productive and competitive economies in the world. Netherlands This country strengthened its innovative capacity and its financial markets are highly efficient and stable. Overall, Dutch businesses are highly sophisticated (4th) and innovative (9th), and the country is rapidly and aggressively harnessing new technologies for productivity improvements (9th). Its excellent educational system (5th) and efficient markets (especially its goods market -6th) are highly supportive of business activity. It has a good quality infrastructure. Germany Its infrastructure quality is ranked as 3rd. The goods market is efficient, having intense local competition (8th) and low market dominance by large companies (2nd). The business sector is very sophisticated, particularly when it comes to production processes and distribution channels, and German companies are among the most innovative in the world. Germanys performance in the macroeconomic pillar remains remarkably stable, with the country even registering a reduction in the fiscal deficit to 1 percent of GDP. United Stats US continue its decline, falling 2 more positions this year. Competitiveness given by: highly sophisticated and innovative businesses, an excellent university system, and flexible labor markets. Strengths: recovery in financial markets, improving from 31st two years ago to 16th this year in that pillar. Weaknesses: the business community continues to be critical toward public and private institutions (41st), the trust in politicians is not at all strong (54th). A lack on macroeconomic stability continues to be the countrys greatest area of weakness (111th, down from 90th last year)

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United Kingdom Strengths: efficiency of its labor market (5th), sophisticated (8th) and innovative (10th) business. Ranked the 6th at market size. Weaknesses: the countrys macroeconomic environment (110th down from 85th last year) with a fiscal deficit nearing 9 percent in 2011, an increase of 5 percentage points in public debt amounting to 82.5 percent of GDP in 2011 (127th) and a comparatively low national savings rate (12.9 percent of GDP in 2011, 113th).

Hong Kong It has a good infrastructure. The banking sector is stabile, trustworthy and efficient. Its goods market (2nd) and labor market (3rd) are contributing to the economys good ranking. Tips: To maintain its competitiveness growing, there are necessary continued improvements in two important areas: higher education (22nd) and innovation (26th). Japan It has a major competitiveness in business sophistication and innovation. Companies produce highvalue-added goods and services. The countrys overall competitive performance, however, continues to be dragged down by severe macroeconomic weaknesses (124th), with the second-highest budget deficit in this years sample (143th). It can be observed a downward assessment of labor market efficiency (from 13th 2 years ago to 20th place this year).

Written by : Covic Mirela

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