The U.S. and Germany remain at the top of the business environment competitiveness while China continually slips down and India ascends. In addition to ranking countries by overall competitiveness, the report identifies national competitive strengths and weaknesses, highlights global economic trends, and signals the ingredients of successful economic development. The Index is part of the research contributing to The Global Competitiveness Report 2006-2007, released September 26 by the World Economic Forum.
The U.S. topped at six various level of measuring business competitiveness respectively. It scored high on business environment dynamics, financial markets sophistication as well as on innovative capacity. On the other side, while Germany gained from the quality of legal and partly regulatory framework. It benefited from its orientation on exports and also from the competitive position of German companies in the global markets.
Rounding out top 10, were Finland, Denmark, Switzerland, Netherlands, Denmark, United Kingdom, Hong Kong and SAR. It's been a striking surprise that Hong Kong improved its position by seven. The main area of improvement has been Hong Kong's moving direction in making management education an increasingly important factor of moving towards the rounding up of competitiveness of this small Asian tiger. France, Czech Republic and Cyprus decline partly due to the lack of innovative capacity. France, for example, suffers very much from the rigid labor market, financial markets signalized no notable improvement. China slipped sports to 64th place. This year's lack in this particular area of general and detailed competitiveness was engined by a very high rate of corruption. In release, Transparency International noted China's spreading corruption as on of the foremost concerns. Buyer assessment was weaker and labor rigidies amounted a huge burden as well. China is also known as an environment in which weak private property protection remains one of the biggest obstacles when it comes to improve China's competitiveness position in the global context. The inability of companies to face the upcoming competitive challenges is mainly driven by an inefficient board governance and low management education. Chinese management schools are still more or less politically instilled while according to various reports (Forbes, McKinsey, AT Kearney, Harvard Institute of Strategy for Competitiveness...) the improvement and innovation in management education lacks behind the very much needed pace. In the future, we can expect a decent moderation on China's euphoria in response to its decline in competitiveness index respectively. That's how China's nominal convergence of competitiveness as well as its real position in it, will become more apparent.
On the other side India surprised nearly every economist and research analyist. Somehow, we have diagnosed India's increase in the field of competitiveness score since Indian government has undertaken some serious steps towards the improvement of legal and regulatory framework for companies. Indian companies have become more sophisticated. The conditions on financial markets are still not efficient enough but the increasing level of country's openness and willingness to liberalize the framework for Foreign Direct Investors could, on the long-run, play a pivotial role as one of the greatest measures of country's global position. The recent announcement of Wal Mart to penetrate into Indian retail market, shows that India's comparative advantages (comparably cheap labor and a large market gap for sophistication) dynamically coexist with the improvment in previously stated regulatory and legal framework liberalization. Dozens of other variables increase India's competition itself. There's an ever increasing locally intensive competition, intellectual property is becoming stronger, per capita Internet use and phone calls is growing, and financial market's are slowly getting more sophisticated but this is only a temporary sign of improvement. To make it effective, policy-makers will have to focus on continually announced reduction of state ownership of insurance companies, banks and financial intermediaries. Generally speaking it is admirable that private sector is getting a stronger role within the financial markets. There're also several ingredients to ensure long-term, sustainable economic growth. Institutional stability is very much needed, privatization required, sound macroeconomic policies urgent and the promotion of market openness highly desirable.
However, those measures are still not sufficient enough for a long-term prosperity. The reduction of regulation of business sector is urgent to let firms compete, grow and sustain themselves, FDI measures should be the same as for domestic investors. High tax burden should be put down as income and corporate tax rates were cut. Freedom of the trade should be enforced immediately. Standards and qualifications, confusing bureaucracy and conditional restrictions limit the very much needed imports. Banking reform delays behind the pace required for long-term prosperity of businesses and individuals. Current state-owned bank accounts form more 70 percent of deposits and loans. Private banks represent 17 percent of the entire market activity, while foreign banks accounts, situated in metropolitan areas , account for more than approximately 13 percent of market activities. The explicit protection of governmentally enhenced banks, seen in making limits to foreign enterers, is harmful. The Central Bank is still putting pressure on commercial banks to offer low interest on loans to "priority sectors" such as agriculture and small companies an similar areas. Microeconomic activities account 80 percent of the GDP per capita across countries, while the aim of macroeconomic policy must be committed to officially announced inflation-targeting regime of the central bank, public debt pay-off and budget efficiency balance. There's still many gaps upon which India can easily switch to creating long-term framework for economic prosperity and for the international competitiveness as well. In fact, the latter is the main indicator of country's prosperity.
Macroeconomic factors should improve the quality of business environment while microeconomic activity must be committed to productivity and competitiveness among firms.
If anyone is interested, we can make discuss this issue on my blog.
Furtherly recommended readings:
- The Global Competitiveness Report 2006-2007: Interviews
- Harvard Business School's Institute for Strategy and Competitiveness; Global Competitiveness Report
- The Global Competitiveness Report 2006-2007
- Harvard Institute for Strategy and Competitiveness
- U.S. Tops Business Competitiveness Index 2006
- Porter's Perspective; Competing in Global Economy
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