How Do We Remain Competitive in a Globalised World?

1. How Do We Remain Competitive in a Globalised World? Presented by: Dr. Peter Larose

2. Definition of Competitiveness • With the globalization phenomenon, the increased mobility of corporate assets, • and the requirement to recruit productive human resources, this question is • becoming very difficult to answer. • When economic and financial data of a particular country is used to compare with • another country’s, the analyst must be very careful with its consistency. • Various countries employ different terminology to compare its competitiveness with • the rest of the world. There is no “one finite” set of data, which provides for the • full meaning of competitiveness. • Competitiveness would involve a series of factors to be considered: • Size -effect • Population at a particular point in time • Factors of Productions (e.g. land, labour, capital, & time) • Use of New Technology • Macro-economic policies (e.g. financial performance) • External Factors

3. The OECD defines competitiveness as "The degree to which a country can, under free and fair market conditions, produce goods and services which meet the test of international markets, while simultaneously maintaining and expanding the real incomes of its people over the long-term". The World Competitiveness Report suggests eight major factors which influence the competitiveness of companies and nations • Internationalization • Domestic Economy • The State (Government) • Finance • Infrastructure • Management • Science & Technology • Quality of Labour Force

4. Internationalization Openness for international economic activities increases a country's economic performance. Export-led competitiveness is often associated with growth-orientation in the domestic economy. Higher integration with the international economy results in more productive resource allocation and higher living standards.

5. Domestic Economy The more competition there is in the domestic economy the more productive and competitive the domestic firms are likely to be abroad and the higher value-added productivity and country prosperity. Government Direct state intervention in business activities are minimized. Government policies concentrate on creating a competitive environment for enterprises and on providing macro-economic and social conditions that are predictable and thus minimizing the external risks for economic activities. It is flexible in adapting its economic policies to a changing international environment.

6. Finance A well-developed, internationally-integrated financial sector in a country supports its international competitiveness. The efficiency of the financial sector is best measured by the narrowness of the "spread" between the rate of interest that borrowers pay, and the rate that depositors receive. A narrower "spread" means either that depositors receive higher interest rates, or that borrowers pay less. The financial sector performs more efficiently when the spread declines, whether it is borrowers or lenders who benefit Infrastructure A well-developed infrastructure supports economic activity. It includes the availability of natural resources and functional business systems, information technology, transport, communication and education, and an efficient protection of the environment.

7. Management A competitive product and service reflects managerial ability, its long-term orientation, ability to adapt to changes in the competitive environment, a level of entrepreneurship and skill for integration and differentiation of business activities. Science & Technology Competitive advantage can be built on efficient and innovative application of existing technologies. Investment in research and innovative activities creating new knowledge is crucial for a country in a more mature stage of economic development.

8. Quality of People A skilled labour force with a positive attitude increases a country's productivity and competitiveness. Education, the technical ability of labour, the quality of management and efficiency all contribute to competitiveness. All this means that to pursue a competitive strategy many coordinated changes in human resource development are simultaneously needed rather than a few high profile initiatives in one or two areas. (see: World Competitiveness Report )

9. Measurement of Competitiveness From an economic viewpoint, what we are essentially interested is the degree to which firms operating in a particular country have fundamentally different financial structures and performance compared to firms located internationally. With respect to the view of competitiveness, if one were to invest or operate in a particular country, how would the firm’s asset structure likely to vary in comparison to a firm operating in some other country (say Asia) or average location in the world?. In some countries in Europe firms typically hold more cash and other short term assets. They do concentrate their assets in physical plant and equipment. On the liability side, some firms operating in Europe have a higher percent of payables compared to other firms operating in say Asia,

10. Advantages of a Globalize Trade • Enabled a number of international agreements to be reached by many countries. • (e.g. developed and developing countries). • Created an environment for strategic alliances in commerce, trade, & investment • Impacted on the way Government operates to bring about internal changes • Many countries have raised their standard of living and economic efficiency • Given the opportunity for competitiveness

11. Factors Influencing Competitiveness • Economic Strength & Power • Prices • Availability of Adequate Natural Resources • Information System Integration • Geographical Position With the Main Trading Partners • Business Culture • Socio-Economic Development • Size of Land • Human Resources Development • Financial Market Development

12. Economic Strength & Power Policy & decision makers should identify the weakest factors relating to economic performance and strengthen it as basis for increased economic development. Complementary policies should be considered for spatial development rather than relying on one policy to enhance competitiveness.

13. Prices In spiteof all identifiable factors to determine the competitiveness of a particular country, the end result emerges from the set of prices of the commodities. Prices can be determined through direct and indirect local costs inclusive of profit margin, then translated in the importing countries currencies. Mass production of a certain commodity can have its effect on the final quoted price. The only difficulty in maintaining a stable price is subject to changes in the exchange rate. This is a macro-economic issue that can only be solved involving the Government and the private sector.

14. Availability of Adequate Natural Resources • Indicators at a European level has unveiled the deficiencies of presently available data banks. • The regional scale applied, which was based on administrative borders, • limits severely possibilities of adequately reflecting the state of nature. • The more the stock of natural resources a country possesses, the greater • scope of mass production – thus resulting into economies of scale. • Then, the cheaper the price of the commodities available on the local • or international commodities market.

15. Information System Integration The availability of reliable and accurate sources of information transcending national borders is a basic prerequisite for analysis of a country’s spatial integration. The more processed information about a country’s economic development, the more potential for all the economic agents to organize themselves and benefit. This is one of the key information, which attract investors as part of their decision-making processes, of whether to invest or divest. Competitiveness although it is difficult to measure and analyzed, it is all about the available information to decision-makers.

16. Geographical Position With the Main Trading Partners Accessibility is a main measure for geographical position since it describes the influence of all affecting factors considering their connections, volume and location. If a country is out-of-reach from the main trading partners, the result would be that its exports become uncompetitive due to transport costs ,which must be added to the factory prices. Although plenty of accessibility studies have been made standardized data and operational specifications concerning calculation models are needed to enable researchers to calculate indicators in comparable way.

17. Business Culture

18. Socio-Economic Development To what extent is the socio-economic development of a country important In terms of its competitiveness can be considered a subjective matter. There is no study or commercial reports, which support this view with data analysis, but on the contrary, to many analysts, if a country endures social stability, through a high standard of living, then the tendency is for the population to adopt a production-driven culture. A typical example, can be seen in the Asian countries, where the workers believe in a society of maximization of production. In comparison with the European, the same input utilized may not necessarily produced the same output as the Asian countries. For example, the European cannot compete in the car manufacturing business with the Asian.

19. Size of Land Space Most significant forms of land-use pressure is urbanization. Urban sprawl has led to lower urban population densities, higher requirements for infrastructure, and the permanent conversion of land from other uses to built-up areas. For the small state this is a major constraint in keeping with the pace of competitiveness. There is always the demand to increase the productive land space for greater productivity. However, the previous remark should be interpreted with much caution because many African countries have adequate land space for production, but not used optimally.

20. Human Resources Development The human resources must be given the opportunity to develop their Knowledge and skills to the highest standards possible. Training must be a continuous process of the human skills development. Ensure that the quality of life for all employees are met. From previous research carried out in the UK, the scientists found that there is an increasing recognition that quality of life is not only the key goal of economic activity, but an important determinant of economic performance. This is due that labour is one of the most critical ingredients in the finished products or services.

21. Financial Market Development

22. Structure of Competitiveness • Human Resources • Finance • R & D • Technology Resources Commercial Exploit Science & Technology Exchange of Know-How Economic Innovation Degree of Competition Economic Stability Business Perceptions Workers Attitude Business Environment Increase in Productivity Increase in GDP New Employment Economic Results

23. Impact of Globalization on Small States Small states face many challenges in the context of a global economy. The principal economic constraint is the “size-effect”, which prevents the small states to gain economies of scale in production. This problem may not necessarily be representative of all small open economies because some of them are very competitive. It is a reflection of the macro-economic policies of the Government of the day that makes the difference between competitiveness or lack of it. Competitiveness depends on a coherent policy strategy to address the future development of a country in an integrated manner rather than in a piecemeal style.

24. Advantages of Globalization Trade on Small States • Scope of access to new markets for exports • New labour skills and specialists • New sources of funding for economic development • Access to advanced tele-communication system and information technology • Scope for economic diversification and national income growth Dis-advantages of Globalization Trade on Small States • Difficulty to attract Foreign Direct Investment (FDI) • Competition from low-cost producing countries • Severe competition for export in major markets

25. Strategies To Remain Competitive in the Future • Maintain stable macro-economic policy • Maintain stable prices for the commodities and services • Seek for ways and means to become more innovative • Keep an openness to trade and foreign capital • Ensure that the human resources of the country are well equipped • Promote new ideas concept • Invite for strategic alliances, when deem necessary • Invest in more Research & Development Costs • Encourage the use of new technology • Ensure that the Labour Market is well protected

26. Thank You for Your Participation I Wish You All Good Luck in Your Studies

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