The fundamentals of competitiveness
Sunday, 11 July 2010
GKM Towfique Hassan
The world economy has entered an era of total competition. Traditional barriers have begun to fall, new sophisticated competitors have emerged and global rivalry increased.
Traditional sources of comparative advantage are now less important than initially perceived for the development of a strong competitive economy.
New competitive nature of development is one that involves the whole market and all institutions in the economy.
Productivity is the main component that creates a competitive advantage rather than comparative advantage, as comparative advantage addresses only the supply side of the market structure ignoring demand and the role of the government.
Even at the middle of 2010 the global economy is still in tatter in the aftermath of the financial crisis.
World GDP is estimated to have contracted by around 2.5% as the crisis has affected the real economy with massive fall in consumer demand, rising unemployment and mounting protectionist pressure worldwide.
It was apprehended first that developing countries could be spared from the fallout of the crisis, which has proved wrong.
Developing countries have faced slump in demand for their exportable, decline in commodity prices and fall in FDI.
The present difficult economic environment underscores the importance of long term competitiveness fundamentals. Competitiveness involves a set of institutions, policies and factors that determine the level of productivity of a country.
According to OECD, competitiveness is the degree to which a country can, under free and fair market conditions, produce goods and services which meet the test of international market, while simultaneously maintain and expanding the real incomes of its people over the long term.
Competitiveness and openness to global business activity are inextricably linked to a country's standard of living. Why do nations compete?
Nations compete to have bigger market share in the global products & services market, aiming to earn more foreign currency and increase the standard of living and enhance GDP per capita. Competition is necessary for sustainable growth through protection of environment, personal security, education and other attributes of standard of living. Competition ensures free movement of capital, goods & services
Worldwide, it helps develop attractiveness for wealth creation through Foreign Direct Investment (FDI). Nations not only compete on products & services but also on brains. The ability of a nation to develop an excellent education system & to improve knowledge in the labour force through training is vital for competitiveness.
Competitiveness is an abstract concept. As such different countries look at it from different perspective. Various theories initiated by experts on the concept of competitiveness fundamentals although differ in modus operandi, the ultimate objective of having better status in the arena of global trade and enhancement of living standard remains at the core of competitiveness.
According to World Competitiveness Year book the competitiveness of a nation can be viewed from four fundamentals of the economy. They are attractiveness vis-à-vis aggressiveness, proximity and globality, assets and process, individual risk taking verses social cohesiveness.
Traditionally competitiveness was linked to international aggressiveness as well as attractiveness in relation to exports & FDI. Although economic system of countries is not homogeneous , economy of proximity and globality plays important role. Globality removes trade barriers, encourages trade agreements, promotes regional integration, supports privatisation & deregulation. At the end of the day it all have a profound impact on prices, margin of profits and wages. Those countries which are enriched in assets like land, people and natural resources may not necessarily be competitive whereas countries poor in resource endowment may be more competitive due to transformation process. Beside the force that shapes the competitive environment of a country is that it promotes individual risk taking ability and at the same time preserves social cohesiveness.
How can a country stay competitive? What is it that countries should do in order to become competitive? They are known to be the Golden Rules of Competitiveness. They are: create a stable & predictable legislative environment, work on a flexible and resilient economic structure, invest in traditional & technological infrastructure, promote private savings and domestic investment, develop aggressive international marketing approach & attractiveness for FDI, focus on quality, speed and good governance in administration of government and fair trading, maintain a relation ship between wage levels, productivity and taxation, preserve social fabric by reducing wage disparity & strengthening middle class, invest heavily in education and provide life long training for labour force, balance the economies of proximity & globality to sustain wealth creation while maintaining value system.
At the fag end of the Seventies, Harvard Business School identified five forces that determine the competitive intensity & attractiveness of a market for an industrial organisation. Attractiveness here refers to overall industrial profitability. An "unattractive" industry is one where combined impact of all five forces pushes down overall profitability. In extreme case profit is plummeted to Zero. Of the five forces refer to, competition comes from three external sources and the rest are from internal sources. They consist of those forces that affect the company's ability to serve its customers and make a profit. Any change in any of the forces compels a business unit to reassess the market. Industry attractiveness does not necessarily mean all the firms in the industry will earn the same amount of profit. Firms' profitability depends on the competitiveness of the core competencies, business model, network etc. to achieve profitability above industry average. The identified five forces are: bargaining power of the customers, the threat of new entrants, bargaining power of the suppliers, the competitive rivalry within an industry, the threat of substitute products and the impact of the entry of new competitors.
Profitable markets that yield high return will always attract new firms. As a result with entry of many new firm profitability of the industry will eventually decline. Unless the entry of new firms is blocked by the existing firms, profit will fall to zero.With the existence of barriers to entry is in place only a few new firms could make an entry and non-performing firms could exit easily. Besides, economies of product differences, brand equity, sunk costs, capital requirements, access to distribution, customers loyalty to established brands, absolute cost advantages, expected retaliation by existing firms, government policies and industry profitability are other possible factors to resist new potential entrants and limit the intensity of competition.
For many industries the intensity of competitive rivalry is a major determinant of the competitiveness of the industry. Sustainable competitive advantage through innovation, competition between online and offline companies, level of advertising expenses, powerful competitive strategy and existence of propriety items could be major factors in the determination of competitiveness. Competitive rivalry is mostly based on price, quality, innovation, technological advancement. With new and innovative technology a company can charge higher prices and make higher profit. In this regard, vertical integration also adds to competitiveness.
Policymakers globally are regularly confronted with new economic management challenges. Recent global financial crisis has hastened the action programmes of the policy makers. Governments all over the world are taking active stance to address the crisis. Present difficult economic environment underscores the importance of not losing sight of long term competitiveness fundamentals. Competitive economies are those that have in place factors driving the productivity enhancement on which their present & future prosperity is built.
A good number of organisations do regularly monitor & evaluate the competitiveness of the nations. World Economic Forum is one of them that regularly measures the competitive strength of nations on the basis of a good number of relative factors.
There is an analysis of Bangladesh position compared to 133 countries as well as SAARC countries to determine our overall competitive position and sub-sectoral stand. While assessing the competitiveness many factors that enable national economies to achieve sustained economic growth and long term prosperities have been considered. The index formulated by World Economic Forum covers both macro and micro economic issues to measure competitiveness. Thus, the concept of competitiveness involves static and dynamic components. Productivity of a country determines its ability to sustain its level of income, and is the central determinant of the return on investment, which is the key factor for an economy's growth potentials
Comparative Ranking of Bangladesh in Terms of Competitiveness
Source: Compiled from Global Competitive Report:2009-10
Best overall rank: Rank: 1 score 5.60- country Switzerland
Total number of countries ranked: 133
Comparative Evaluation on the basis of sub-heads of Competitiveness of Bangladesh in relation to SAARC Countries
Total countries assessed:133
Best Ranking in different Sub -heads:-
The national competitiveness can be enhanced only through an improvement in an array of reforms in different areas that affect long-term productivity of a country. Financial crisis like the one we encountered in recent times may revisit us and negatively impact the competitiveness in the shorter terms. But with prudent policies in place we can get out of such crisis and rebound more strongly and aggressively. Assessment of competitive framework is not an end in itself, but it also allows countries at least to determine the strength and
weaknesses of the national competitiveness environment in comparison to a nation's competitors and to identify those factors most constraining the economic development. It also provides a platform for stakeholders to work for productivity improvement reforms with aims of harnessing the standard of living of the people throughout the world.
The writer is Secretary-General, BTMA. He can be reached
at E-mail : btmasg@gmail.com
The world economy has entered an era of total competition. Traditional barriers have begun to fall, new sophisticated competitors have emerged and global rivalry increased.
Traditional sources of comparative advantage are now less important than initially perceived for the development of a strong competitive economy.
New competitive nature of development is one that involves the whole market and all institutions in the economy.
Productivity is the main component that creates a competitive advantage rather than comparative advantage, as comparative advantage addresses only the supply side of the market structure ignoring demand and the role of the government.
Even at the middle of 2010 the global economy is still in tatter in the aftermath of the financial crisis.
World GDP is estimated to have contracted by around 2.5% as the crisis has affected the real economy with massive fall in consumer demand, rising unemployment and mounting protectionist pressure worldwide.
It was apprehended first that developing countries could be spared from the fallout of the crisis, which has proved wrong.
Developing countries have faced slump in demand for their exportable, decline in commodity prices and fall in FDI.
The present difficult economic environment underscores the importance of long term competitiveness fundamentals. Competitiveness involves a set of institutions, policies and factors that determine the level of productivity of a country.
According to OECD, competitiveness is the degree to which a country can, under free and fair market conditions, produce goods and services which meet the test of international market, while simultaneously maintain and expanding the real incomes of its people over the long term.
Competitiveness and openness to global business activity are inextricably linked to a country's standard of living. Why do nations compete?
Nations compete to have bigger market share in the global products & services market, aiming to earn more foreign currency and increase the standard of living and enhance GDP per capita. Competition is necessary for sustainable growth through protection of environment, personal security, education and other attributes of standard of living. Competition ensures free movement of capital, goods & services
Worldwide, it helps develop attractiveness for wealth creation through Foreign Direct Investment (FDI). Nations not only compete on products & services but also on brains. The ability of a nation to develop an excellent education system & to improve knowledge in the labour force through training is vital for competitiveness.
Competitiveness is an abstract concept. As such different countries look at it from different perspective. Various theories initiated by experts on the concept of competitiveness fundamentals although differ in modus operandi, the ultimate objective of having better status in the arena of global trade and enhancement of living standard remains at the core of competitiveness.
According to World Competitiveness Year book the competitiveness of a nation can be viewed from four fundamentals of the economy. They are attractiveness vis-à-vis aggressiveness, proximity and globality, assets and process, individual risk taking verses social cohesiveness.
Traditionally competitiveness was linked to international aggressiveness as well as attractiveness in relation to exports & FDI. Although economic system of countries is not homogeneous , economy of proximity and globality plays important role. Globality removes trade barriers, encourages trade agreements, promotes regional integration, supports privatisation & deregulation. At the end of the day it all have a profound impact on prices, margin of profits and wages. Those countries which are enriched in assets like land, people and natural resources may not necessarily be competitive whereas countries poor in resource endowment may be more competitive due to transformation process. Beside the force that shapes the competitive environment of a country is that it promotes individual risk taking ability and at the same time preserves social cohesiveness.
How can a country stay competitive? What is it that countries should do in order to become competitive? They are known to be the Golden Rules of Competitiveness. They are: create a stable & predictable legislative environment, work on a flexible and resilient economic structure, invest in traditional & technological infrastructure, promote private savings and domestic investment, develop aggressive international marketing approach & attractiveness for FDI, focus on quality, speed and good governance in administration of government and fair trading, maintain a relation ship between wage levels, productivity and taxation, preserve social fabric by reducing wage disparity & strengthening middle class, invest heavily in education and provide life long training for labour force, balance the economies of proximity & globality to sustain wealth creation while maintaining value system.
At the fag end of the Seventies, Harvard Business School identified five forces that determine the competitive intensity & attractiveness of a market for an industrial organisation. Attractiveness here refers to overall industrial profitability. An "unattractive" industry is one where combined impact of all five forces pushes down overall profitability. In extreme case profit is plummeted to Zero. Of the five forces refer to, competition comes from three external sources and the rest are from internal sources. They consist of those forces that affect the company's ability to serve its customers and make a profit. Any change in any of the forces compels a business unit to reassess the market. Industry attractiveness does not necessarily mean all the firms in the industry will earn the same amount of profit. Firms' profitability depends on the competitiveness of the core competencies, business model, network etc. to achieve profitability above industry average. The identified five forces are: bargaining power of the customers, the threat of new entrants, bargaining power of the suppliers, the competitive rivalry within an industry, the threat of substitute products and the impact of the entry of new competitors.
Profitable markets that yield high return will always attract new firms. As a result with entry of many new firm profitability of the industry will eventually decline. Unless the entry of new firms is blocked by the existing firms, profit will fall to zero.With the existence of barriers to entry is in place only a few new firms could make an entry and non-performing firms could exit easily. Besides, economies of product differences, brand equity, sunk costs, capital requirements, access to distribution, customers loyalty to established brands, absolute cost advantages, expected retaliation by existing firms, government policies and industry profitability are other possible factors to resist new potential entrants and limit the intensity of competition.
For many industries the intensity of competitive rivalry is a major determinant of the competitiveness of the industry. Sustainable competitive advantage through innovation, competition between online and offline companies, level of advertising expenses, powerful competitive strategy and existence of propriety items could be major factors in the determination of competitiveness. Competitive rivalry is mostly based on price, quality, innovation, technological advancement. With new and innovative technology a company can charge higher prices and make higher profit. In this regard, vertical integration also adds to competitiveness.
Policymakers globally are regularly confronted with new economic management challenges. Recent global financial crisis has hastened the action programmes of the policy makers. Governments all over the world are taking active stance to address the crisis. Present difficult economic environment underscores the importance of not losing sight of long term competitiveness fundamentals. Competitive economies are those that have in place factors driving the productivity enhancement on which their present & future prosperity is built.
A good number of organisations do regularly monitor & evaluate the competitiveness of the nations. World Economic Forum is one of them that regularly measures the competitive strength of nations on the basis of a good number of relative factors.
There is an analysis of Bangladesh position compared to 133 countries as well as SAARC countries to determine our overall competitive position and sub-sectoral stand. While assessing the competitiveness many factors that enable national economies to achieve sustained economic growth and long term prosperities have been considered. The index formulated by World Economic Forum covers both macro and micro economic issues to measure competitiveness. Thus, the concept of competitiveness involves static and dynamic components. Productivity of a country determines its ability to sustain its level of income, and is the central determinant of the return on investment, which is the key factor for an economy's growth potentials
Comparative Ranking of Bangladesh in Terms of Competitiveness
| Country | Overall Rank in 2009-10 | Score | Basic Requirements | Efficiency Enhancer | Innovation Factor | |||
| Rank | Score | Rank | Score | Rank | Score | |||
| Bangladesh | 106 | 3.55 | 108 | 3.60 | 97 | 3.54 | 114 | 3.00 |
| India | 49 | 4.30 | 79 | 4.18 | 35 | 4.52 | 28 | 4.24 |
| Pakistan | 101 | 3.58 | 114 | 3.53 | 92 | 3.69 | 84 | 3.39 |
| Sri-Lanka | 79 | 4.01 | 89 | 4.05 | 74 | 3.95 | 44 | 3.95 |
| Nepal | 125 | 3.34 | 109 | 3.60 | 132 | 2.78 | 132 | 2.68 |
Best overall rank: Rank: 1 score 5.60- country Switzerland
Total number of countries ranked: 133
| Country | Institution | Infrastructure | Macro-Economic stability | Health & Education | ||||
| Rank | Score | Rank | Score | Rank | Score | Rank | Score | |
| Bangladesh | 122 | 3.09 | 126 | 2.39 | 84 | 4.45 | 105 | 4.49 |
| India | 54 | 4.21 | 76 | 3.47 | 96 | 4.23 | 101 | 4.82 |
| Pakistan | 104 | 3.31 | 89 | 3.06 | 114 | 3.812 | 113 | 3.95 |
| Sri-Lanka | 73 | 3.80 | 64 | 3.88 | 128 | 2.83 | 47 | 5.69 |
| Nepal | 123 | 3.07 | 131 | 2.03 | 86 | 4.44 | 106 | 4.45 |
| Country | Higher Education & Training | Goods Market Efficiency | Labour Market Efficiency | Financial Market Efficiency | ||||
| Rank | Score | Rank | Score | Rank | Score | Rank | Score | |
| Bangladesh | 129 | 2.57 | 102 | 3.82 | 112 | 3.89 | 71 | 4.18 |
| India | 66 | 3.96 | 48 | 4.42 | 83 | 4.23 | 16 | 5.10 |
| Pakistan | 118 | 2.86 | 83 | 4.00 | 124 | 3.52 | 64 | 4.25 |
| Sri-Lanka | 64 | 4.01 | 45 | 4.45 | 111 | 3.93 | 65 | 4.25 |
| Nepal | 124 | 2.69 | 117 | 3.64 | 122 | 3.61 | 99 | 3.76 |
| Country | Technological Readiness | Market Size | Business Sophistication | Innovation | ||||
| Rank | Score | Rank | Score | Rank | Score | Rank | Score | |
| Bangladesh | 125 | 2.45 | 48 | 4.32 | 100 | 3.47 | 122 | 2.52 |
| India | 83 | 3.33 | 4 | 6.07 | 27 | 4.76 | 30 | 3.73 |
| Pakistan | 104 | 2.87 | 30 | 4.67 | 81 | 3.80 | 79 | 2.98 |
| Sri-Lanka | 85 | 3.28 | 63 | 3.76 | 42 | 4.47 | 46 | 3.43 |
| Nepal | 1321 | 2.21 | 96 | 2.99 | 126 | 3.21 | 130 | 2.34 |
Comparative Evaluation on the basis of sub-heads of Competitiveness of Bangladesh in relation to SAARC Countries
Total countries assessed:133
Best Ranking in different Sub -heads:-
The national competitiveness can be enhanced only through an improvement in an array of reforms in different areas that affect long-term productivity of a country. Financial crisis like the one we encountered in recent times may revisit us and negatively impact the competitiveness in the shorter terms. But with prudent policies in place we can get out of such crisis and rebound more strongly and aggressively. Assessment of competitive framework is not an end in itself, but it also allows countries at least to determine the strength and
| Country | Rank | Score | sub –heads |
| Singapore | 1 | 6.15 | Institution |
| Germany | 1 | 6.59 | Infrastructure |
| Brunei | 1 | 6.64 | Macro-economic stability |
| Finland | 1 | 6.46 | Health & Education |
| Finland | 1 | 5.97 | Higher education & training |
| Singapore | 1 | 5.57 | Goods Market efficiency |
| Singapore | 1 | 5.95 | Labour Market efficiency |
| Hong Kong | 1 | 5.95 | Financial Market efficiency |
| Sweden | 1 | 6.15 | Technical readiness |
| United States | 1 | 6.93 | Market size |
| Jap[an | 1 | 5.89 | Business sophistication |
| United States | 1 | 5.77 | Innovation |
The writer is Secretary-General, BTMA. He can be reached
at E-mail : btmasg@gmail.com