Competitiveness, Strategy....

Competitiveness

The World Economic Forum lists the following indicators of competitiveness:

1. Effective institutions - which create an economic environment in which businesses can develop, and consumers have confidence. These should be ‘sound, honest and fair’.
   
2. Effective infrastructure – which provides effective transport and energy supplies.
   
3. A sound macro-economic environment, including sound public finances, and low and stable inflation.
   
4. A healthy and educated labour force, with an emphasis on higher education, and the continuous upgrading of skills.
   
5. Efficient goods markets, with high levels of competition, and low levels of regulation.
   
6. Efficient labour markets, which are flexible, and provide effective incentives to work and effort.
   
7. An effective financial market, which provides a continuous flow of capital to business, effectively manages financial risk, and is trustworthy and transparent.
   
8. The ‘readiness’ of firms to adopt new technology.
   
9. The extent to which firms operate in large global markets, which enable them to gain from economies of scale.
   
10. Business sophistication, which relates to the effectiveness of business networks, the quality of supporting industries, and advanced business processes.
    
11. Continuous innovation, which counteracts diminishing returns to existing technology. 
    
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Productivity and Competitiveness

  Measuring competitiveness

There is no single method of measuring competitiveness, hence it can be measured in a number of ways, including:

1. Relative export prices, which are one country’s export prices in relation to other countries, expressed as an index.
2. A country's terms of trade, which is an index of the ratio of a country's export and import prices.
3. Labour productivity, which is usually expressed as GDP per worker, or GDP per hour of employment.
4. Unit labour costs, which are the cost of labour per unit of output.

   Price competitiveness

   Price competitiveness refers to how well UK exports compare in terms of price.  This is affected by a number of factors, including:
5. Relative inflation - even small annual differences can build-up over time and become significant.
6. The relative real exchange rate (RER) – which is the nominal exchange rate deflated by an index of prices. In the UK it is measured by dividing the trade weighted Sterling Index by the RPI (or the Consumer Price Index – CPI), x 100. For example, if the Sterling Index rises by 7% and UK prices rise by 2%, the RER is 107/102 x 100 = 105, hence the real value of Sterling rose by 5%.
7. Labour costs - including wage and non-wage costs, such as employer contributions to pensions.

Non-price competitiveness

Non-price competitiveness  refers to how well UK exports of branded goods and services do in overseas markets in aspects of competition not associated with price, such as:

1. Product quality and design.
2. Business Research and Development (R&D), especially new product development
3. Product reliability
4. The strength or weakness of ‘local’ brands
5. The effectiveness of marketing in overseas markets
6. Levels of productive and dynamic efficiency of firms.
7. Levels of ‘x’ inefficiency, including poor management, excessive bureaucracy, and government failures.
8. How effective the economic and political system is in allowing markets to form - are there missing or incomplete markets?
9. Investment in new technology, which helps improve quality and reliability
10. Investment in human capital, which improves skill levels and reduces skill shortages – low skills, and labour shortages, can both seriously reduce competitiveness.
    

Competitveness, Strategy and Productivity