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The Concept of Competitiveness
Defining Competitiveness
Competitiveness could be defined at the corporate, industry and national levels. For a company, competitiveness is directly related to market share and profitability. That is, being able to provide higher quality products at lower prices than competitors. At the industry level competitiveness is determined by trade balance, aggregate profitability and total foreign direct investment. National competitiveness, however, is much more complex.
The competitiveness concept started to emerge and spread since the 1980s accompanying the acceleration of the globalization effect. National competitiveness gained importance as scholars and policymakers sought to explain the wide variation in cross-country development and identify sources of growth. In his seminal work The Competitive Advantage of Nations published in 1990, Professor Michael Porter introduced the first theory of national competitiveness based on productivity - the ability to maximize economic output per unit of resources. His models shifted focus away from national trade balance or factor endowments toward the micro and macro economic factors affecting productivity, the main driver of competitiveness and long term growth.
National competitiveness has been defined in different ways including:
“The capacity to produce goods and services that correspond to the demand of the international markets while giving to the citizens living standards that grow and can be preserved in the long time” - Competitiveness Policy Council (1992)
“The ability of a country to achieve sustained high rates of growth in GDP per capita.” – World Economic Forum, Global Competitiveness Report (1996)
“Supporting the ability of companies, industries, regions, nations or supranational regions to generate, while being and remaining exposed to international competition, relatively high factor income and factor employment levels”. – OECD (1996)
“A field of economic knowledge, which analyses the facts and policies that shape the ability of a nation to create and maintain an environment that sustains more value creation for its enterprises and more prosperity for its people” – International Institute for Management Development’s World Competitiveness Yearbook (2003)
“Competitiveness implies elements of productivity, efficiency and profitability. But it is not an end in itself or a target. It is a powerful means to achieve rising living standards and increasing social welfare – a tool for achieving targets. Globally, by increasing productivity and efficiency in the context of international specialization, competitiveness provides the basis for raising peoples’ earnings in a non-inflationary way” -Competitiveness Advisory Group (Ciampi Group) First Report to the President of the European Commission, the Prime Ministers and the Heads of State (1995)
These definitions all allude to a very similar notion and have more commonalities than differences. The most current definition of competitiveness within the Global Competitiveness Report is.
“the collection of factors, policies and institutions which determine the level of productivity of a country and that, therefore, determine the level of prosperity” (GCR).
Measuring Competitiveness:
The Global Competitiveness Report is the flagship publication of the World Economic Forum. It provides a detailed assessment and comparison of national competitiveness. First published in 1979 the report has expanded the countries that it covers each year to include 134 countries by 2008/2009.
The methodology used to measure competitiveness has evolved over the years. The most recent is the Global Competitiveness Index (GCI) developed in 2004 by Professor Xavier Sala-i-Martin. The index seeks to a) accurately reflect all the factors influencing national productivity and b) accommodate the widest possible geographical scope. It combines both micro and macroeconomic factors into what is known as the 12 pillars of competitiveness.
The Global Competitiveness Index (GCI) initially focused on 9 pillars of competitiveness; institutions, infrastructure, macroeconomy, health and primary education, higher education and training, market efficiency, technological readiness, market size and lastly, innovation. However, in 2007/2008 three more pillars were added, labor market efficiency, financial market efficiency and business sophistication, giving a total of 12. Each pillar is then subdivided into a number of variables. There are a total of 164 variables in the GCI.
12 Pillars of Competitiveness
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| Basic Requirements |
Institutions
Infrastructure
Macroeconomy
Health and primary education |
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| Efficiency Enhancers |
Higher education and training
Market efficiency
Technological readiness
Labor market efficiency
Financial market efficiency
Market size
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| Innovation & Sophistication |
Innovation
Business sophistication
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Egypt’s Competitiveness:
According to the 2008/2009 Global Competitiveness Report, Egypt, a factor-driven country, ranked 81 out of 134 countries with a score of 3.98. In 2007/2008 the nation ranked 77 out of 131 countries and scored a 3.96. This drop could be caused by a decline in national performance or simply the relative improvements made by other economies. But more important than the trend it’s general message; Egypt is struggling when it comes to competitiveness and productivity.
Egyptian Competitiveness in Numbers
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Global Competitiveness Index (12 pillar version) |
| Year |
2004-2005 |
2005-2006 |
2006-2007 |
2007-2008 |
2008-2009 |
| Egypt’s rank |
47 |
58 |
71 |
77 |
81 |
| Coverage |
104 |
114 |
122 |
131 |
134 |
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