Global Competitive Index & Indian scenario

Mithil Gandhi
gandhi.mithil@gmail.com
+91-9819066954

Table of contents

Introduction to competitiveness Index

12 pillars of competitiveness
Stages of development
Sustainability-adjusted GCI
Executive Opinion Survey
Competitiveness Index India & BRIC nations

Competitiveness Index: Introduction

The Global Competitiveness Index integrates the macroeconomic environment
and the micro/business aspects of competitiveness into a single index
What it does ?
It assesses the ability of countries to provide high levels of prosperity to their
citizens by using available resources productively
It measures the set of institutions, policies, and factors that set the sustainable
current and medium-term levels of economic prosperity
Who developed it ?
This mechanism of measuring competitiveness of nations was developed by Xavier
Sala-i-Martin and Elsa V. Artadi. This is widely used by World Economic Forum
(WEF) in its Global Competitiveness Report (GCR)
Before that, the macroeconomic ranks were based on Jeffrey Sachs's Growth
Development Index and the microeconomic ranks were based on Michael
Porter's Business Competitiveness Index

Competitiveness Index: Introduction (contd)

Presently, how does the scenario look like ?

Switzerland leads the ranking as the most competitive economy in the world
The United States, which ranked first for several years, fell to 5th place due to the
consequences of the financial crisis of 20072010 and its macroeconomic instability
China continues its relative rise in the rankings reaching 29th
India is still to be a part of top 30 nations (currently at 59)

12 Pillars of competitiveness
1st pillar - Institutions:
The institutional environment is determined by the legal and administrative
framework within which individuals, firms, and governments interact to generate
wealth.
This also indicates the Government attitudes toward markets, their freedoms and
the efficiency of its operations like excessive bureaucracy and overregulation,
corruption, lack of transparency and trustworthiness, etc
2nd pillar Infrastructure:
Extensive and efficient infrastructure is critical for ensuring the effective
functioning & growth of the economy. Infrastructure pillar indicates quality of,

transport railroads, roads, air transport, ports, etc

Power supplies
Telecommunication networks

12 Pillars of competitiveness
3rd pillar - Macroeconomic environment:
The stability of the macroeconomic environment is important for business and,
therefore, is important for the overall competitiveness of a country.
It is important to note that this pillar evaluates the stability of the macroeconomic
environment,
4th pillar - Health and primary education:
A healthy workforce with Basic education increases the efficiency of each individual
worker is vital to a countrys competitiveness and productivity.
5th pillar: Higher education and training:
Quality higher education and vocational training is particularly crucial for
economies that want to move up the value chain

12 Pillars of competitiveness
6th pillar - Goods market efficiency:
It indicates Health of market competition, both domestic and foreign.
The best possible environment for the exchange of goods requires a minimum of
impediments to business activity through government intervention.
7th pillar - Labor market efficiency:
The efficiency and flexibility of the labor market are critical for ensuring that
workers are allocated to their most effective use in the economy and provided
with incentives to give their best effort in their jobs.
8th pillar - Financial market development:
An efficient financial sector allocates the resources saved by a nations citizens, as
well as those entering the economy from abroad, to their most productive uses.
This pillar indicates capital available for private-sector investment from sources
such as loans from a sound banking sector, well-regulated securities exchanges,
venture capital, and other financial products.

12 Pillars of competitiveness
9th pillar - Technological readiness:
This pillar measures the agility with which an economy adopts existing technologies
to enhance the productivity (of its industries), capacity (by fully leveraging
information and communication technologies) in daily activities and production
processes for increased efficiency and enabling innovation for competitiveness.
10th pillar - Market size:
The size of the market affects productivity since large markets allow firms to exploit
economies of scale.
11th pillar - Business sophistication:
This pillar measures the quality of a countrys overall business networks and the
quality of individual firms operations and strategies.
12th pillar - Innovation:
This pillar measures Non-technological innovations which are closely related to the
know-how, skills, and working conditions that are embedded in organizations

The interrelation of the 12 pillars

Even though, these pillars are reported separately, they are not independent &
weakness in one area often has a negative impact in others.

For example,
a strong innovation capacity (pillar 12) will be very difficult to achieve without
a healthy, well-educated and trained workforce (pillars 4 and 5)
which is adept at absorbing new technologies (pillar 9), and without sufficient
financing (pillar 8) for R&D or an efficient goods market that makes it possible
to take new innovations to market (pillar 6).

Although the pillars are aggregated into a single index, measures are reported for
the 12 pillars separately because such details provide a sense of the specific areas
in which a particular country needs to improve.

Global Competitive Index Framework

Source: Global Competitiveness Index 2012-23 (WEF)

Different Stages of Development

As per economic theory of stages of development, there are three stages,
1st stage: The factor-driven stage of development
GCI assumes that economies in the first stage are mainly factor driven and compete
based on their factor endowments - primarily low-skilled labor and natural
resources.
Maintaining competitiveness at this stage of development requires pillar 1, 2, 3 & 4
2nd stage: The efficiency-driven stage of development
As a country becomes more competitive, productivity will increase and wages will
rise with advancing development.
At this point, competitiveness is increasingly driven by pillar 5, 6, 7, 8, 9 & 10
3rd Stage: The innovation-driven stage of development
By this stage, the wages will have risen by so much that to sustain higher wages
and standard of living, their businesses have to compete with new and/or unique
products, services, models, and processes.
At this point, competitiveness is increasingly driven by pillar 11 & 12

Criteria for determining stage of development

Two criteria are used to allocate countries into stages of development,
1)

The level of GDP per capita at market exchange rates.

This widely available measure is used as a proxy for wages, because
internationally comparable data on wages are not available for all countries
covered.

2)

The share of exports of mineral goods in total exports (goods and services)
It is used to adjust for countries that are wealthy, but where prosperity is based
on the extraction of resources.

The CGI heat map

Source: Global Competitiveness Index 2012-23 (WEF)

Sustainability-adjusted GCI

This measure fulfills the need to better understand the relationship between
economic competitiveness and social and environmental sustainability
This measure aims to assess the set of institutions, policies and factors that make a
nation remain productive over the longer term while ensuring social and
environmental sustainability
It measures not only the propensity to prosper and grow, but also integrates the
notion of quality growth, taking into account environmental stewardship and
social sustainability
In this model, the GCI is adjusted by two new pillars,
The social sustainability pillar: This measures the set of institutions, policies and factors that
enable all members of society to experience the best possible health, participation and
security; and to maximize their potential to contribute to and benefit from the economic
prosperity of the country in which they live
The environmental sustainability pillar: This measures the institutions, policies and factors
that ensure an efficient management of resources to enable prosperity for present and future
generations. A conceptual representation of this framework is presented in the figure below.

Structure of the sustainability-adjusted GCI

Source: Global Competitiveness Index 2012-23 (WEF)

Indicators of sustainability
Summary of indicators of environmental sustainability:

Summary of indicators of social sustainability:

Analysis of the framework & future research

Analysis of the framework:
One of the most important findings of this analysis suggests that there do not seem
to be any necessary trade-offs between being competitive as well as socially and
environmentally sustainable.
A corollary of the first point is the fact that political will is essential to achieving
sustainable competitiveness.
This framework also indicates that competitiveness on its own may not lead to
sustainable levels of prosperity.
Concepts not yet captured by this framework & areas for future research:

Inclusion of minorities.
Working conditions.
Water pollution
Recycling
Waste management

Executive Opinion Survey (Voice of the Business Community)

In order to arrive at the accurate GCI, WEF not only considers twelve pillars of
competitiveness & sustainability of competitiveness but also survey the business
community to mirror the countries performance

In order to mirror the countries economic performance, the World Economic

Forum draws its data from two sources: international organizations and national
sources, and its own annual Executive Opinion Survey (Survey).

The Executive Opinion Survey remains the largest poll of its kind, collecting the
insight of more than 14,000 executives into their business operating environment.

Survey structure

About Your Company

Overall Perceptions of Your Economy
Government and Public Institutions
Infrastructure
Innovation and Technology
Financial Environment
Foreign Trade and Investment
Domestic Competition
Company Operations and Strategy
Education and Human Capital
Corruption, Ethics and Social Responsibility
Travel & Tourism
Environment
Health

Competitiveness Index - Key Indicators

India:

Source: Global Competitiveness Index 2012-23 (WEF)

Competitiveness Index - stage of development

India:

Source: Global Competitiveness Index 2012-23 (WEF)

Problematic factors for doing business

India:

Source: Global Competitiveness Index 2012-23 (WEF)

Source: Global Competitiveness Index 2012-23 (WEF)

GCI in details - India

GCI of BRIC nations

Stages of BRIC economies
Stage 1

Transition from
Stage 1 to 2

Stage 2

Transition from
Stage 2 to 3

Stage 3

India

China

Brazil & Russia

Adjustment to the GCI scores by sustainability indicators

Country

GCI Rank

Social sustainability Environmental

Sustainabilityadjusted GCI
sustainability - adjusted GCI adjusted GCI

Brazil

48

4.22

4.69

4.46

Russia

67

4.09

3.87

3.98

India

59

3.70

3.75

3.73

China

29

4.61

4.27

4.44

How can India be more competitive ?

Thank You
(For more details, refer The Global Competitiveness Report 2012-13 by World
Economic Forum)