a study of global competitiveness index to manage competition and

Kadakia International Journal of Research in Multidiscipline
ISSN: 2349 - 4875
A STUDY OF GLOBAL COMPETITIVENESS INDEX TO MANAGE
COMPETITION AND LEARNING FOR BRINGING ASIA GLOBAL
LEADER WITH REFERENCE TO INDIA - CHINA
Dr Kartik M. Bhatt
Professor & Head, Department of Economics
School of Social Sciences
Gujarat University, Ahmedabad, Gujarat State, INDIA
ABSTRACT:
The aim of the paper is to present the position of India and China in terms of its competitiveness
in comparison to rest of the world being largest nations in terms of population and also one of the
fastest growing countries of the world. The political situation in both the countries is quite
different, resulting in difference in economical, social and political status. The Global
Competitiveness Index measures the set of institutions, policies, and factors that set the
sustainable current and medium-term levels of economic prosperity. The Report contributes to an
understanding of the key factors that determine economic growth, helps to explain why some
countries are more successful than others in raising income levels and providing opportunities
for their respective population, and offers policymakers and business leaders an important tool
for formulating improved economic policies and institutional reforms. As Per GCI Government
of India should take serious note on indicators like public trust in politicians, irregular payments
and bribes, burden of government regulation, business costs of terrorism, government budget
balance, inflation, secondary education enrollment, total tax rate, trade tariffs, women in labor
force, individuals using internet, exports as a percentage of GDP etc. in order to improve its
global competitiveness. India and China share similar situation in terms of geographical location,
population, culture etc. But both the nations have different situation as far as their GCI ranks are
concerned. This should be taken in the spirit of learning from each other and areas of
collaboration for their individual development and bringing Asia as global leader.
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INTRODUCTION:
The process of globalization has created an environment where entire world has become
one entity with sub regions in it. The development of this global entity (world) depends on the
development of sub regions (countries) within it. Human body will be considered deformed if all
body parts are not equally/ proportionately developed, world at large will be considered
deformed if there are wide disparities in the development of various nations. In order to have
balanced economic growth around the world, it is necessary to have balanced approach where
developed countries will support the underdeveloped countries in their growth efforts.
Globalization has created an environment where sustainable economic growth can only be
achieved through balanced economic growth around the world. We have examples of East Asian
Crisis, European Crisis, and American Crisis have proved that problem in one part of the world
cannot be limited to the territories of the country but its impact extend to rest of the world
through international trade and financial flow across the countries. Even if one country has no
direct trade and financial relationship with the country in trouble, the impact if bound to be there
because of indirect impact via the other countries and sentimental impact within the nation.
Under such a circumstances, it is imperative to keep track on the economic parameters across the
world so that timely signals of any crisis can be used to avoid the crisis or to minimize the
adverse impact of crisis.
Various agencies at the national and international level have
mechanism to keep track of economic and financial conditions at various countries. World Bank,
United Nations, IMF, etc are the prominent one to keep surveillance on world economic outlook
and also warn the concerned nations in case of any possibility of crisis. They also suggest policy
mechanism to avoid crisis in the spirit of ‘prevention is better than cure’.
The surveillance on the economic, social, political and financial situations in various
countries are kept through maintaining the regular data base and using the same with well
defined scientific models to keep track on situation. At the same time various indices are
prepared by agencies in order to present the relative position of one country vis-à-vis other
countries. Various indices prepared include, World Corruption Index prepared by Transparency
International (TI), Global Competitiveness Index prepared by World Economic Forum (WEF),
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Human Development Report prepared by United Nations Development Programme (UNDP),
Global Hunger Index developed by The International Food Policy Research Institute (IFPRI),
Human Poverty Index developed by United Nations (UN), Global Innovation Index published by
Cornell University, and the World Intellectual Property Organization (WIPO), etc.
The aim of the paper is to present the position of India in terms of its competitiveness in
comparison to rest of the world. Special emphasis is on comparison of India and China, two
largest nations in terms of population and also one of the fastest growing countries of the world.
The political situation in both the countries is quite different, resulting in difference in
economical, social and political status. The second purpose of comparison is to identify the areas
where two Asian giants can cooperate to create an environment where the centre of globalization
can shift from western world to eastern world. The paper is divided into four parts. First part
provides an insight in Global Competitiveness Index (GCI) and its features. The second part
deals with the relative position of India among all 148 countries on various parameters used by
World Economic Forum (WEF). Special emphasis here is on comparison of India vis-s-vis other
Asian countries. Third part of the paper stress on the comparison on India and China in GCI with
special focus on areas where large differences are observed between countries. The intention is
on identifying areas of improvement and mutual cooperation. The final part deals with
conclusion and suggestions to both India and China for improving their global competitiveness
to take Asia towards global leader position.
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GLOBAL COMPETITIVE INDEX:
The Global Competitiveness Report (GCR) is an annual report published by the World
Economic Forum (WEF). The World Economic Forum publishes a comprehensive series of
reports which examine in detail the broad range of global issues it seeks to address with
stakeholders as part of its mission of improving the state of the world. Along with Global
Competitiveness Report, it also publishes the Global Risks Report and the Global Gender Gap
Report. The Global Competitiveness Index integrates the macroeconomic and the micro/business
aspects of competitiveness into a single index. The report "assesses the ability of countries to
provide high levels of prosperity to their citizens. This in turn depends on how productively a
country uses available resources. Therefore, the Global Competitiveness Index measures the set
of institutions, policies, and factors that set the sustainable current and medium-term levels of
economic prosperity." The Report contributes to an understanding of the key factors that
determine economic growth, helps to explain why some countries are more successful than
others in raising income levels and providing opportunities for their respective populations, and
offers policymakers and business leaders an important tool for formulating improved economic
policies and institutional reforms.
GCI defines competitiveness as the set of institutions, policies, and factors that determine
the level of productivity of a country. The level of productivity, in turn, sets the level of
prosperity that can be reached by an economy. The productivity level also determines the rates of
return obtained by investments in an economy, which in turn are the fundamental drivers of its
growth rates. In other words, a more competitive economy is one that is likely to grow faster
over time. Although the productivity of a country determines its ability to sustain a high level of
income, it is also one of the central determinants of its returns on investment, which is one of the
key factors explaining an economy’s growth potential1. The competitiveness has been measured
in terms of weighted average of many different components within the key determinants of
1
Global Competitiveness Index 2013-14
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competitiveness. Various components are grouped into 12 categories called pillars of
competitiveness. The basic framework used by Global Competitive Index is presented in figure 1
below.
FIGURE 1
In order to understand the GCI in its true sense it is imperative to understand each of its
components. Let’s briefly take each pillars of competitiveness as discussed by Global
Competitiveness Report.
Institutions: The institutional environment is determined by the legal and administrative
framework within which individuals, firms, and governments interact to generate wealth. The
quality of institutions has a strong bearing on competitiveness and growth. GCI include 21
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different variables in the institutional framework which includes property rights, corruption,
government spending, ethics, business costs reporting standards, investors protections etc.
Infrastructure: Extensive and efficient infrastructure is critical for ensuring the effective
functioning of the economy, as it is an important factor in determining the location of economic
activity and the kinds of activities or sectors that can develop within a country. Various
parameters indicating the quality and quantity of infrastructure are included in GCI.
Macroeconomic environment: The stability of the macroeconomic environment is important
for business and, therefore, is significant for the overall competitiveness of a country.
Macroeconomic parameters like rate of savings, inflation, government debt etc are included as
part of macroeconomic environment.
Health and primary education: A healthy workforce is vital to a country’s competitiveness and
productivity. Workers who are ill cannot function to their potential and will be less productive.
Poor health leads to significant costs to business, as sick workers are often absent or operate at
lower levels of efficiency. GCI included parameters like malarial, tuberculosis, HIV, life
expectancy, quality of primary education etc.
Higher education and training: Quality higher education and training is crucial for economies
that want to move up the value chain beyond simple production processes and products. In terms
of higher education, GCI considers the quality of secondary education, education system, quality
of management schools, internet access to schools, research and training facilities etc.
Goods market efficiency: Countries with efficient goods markets are well positioned to produce
the right mix of products and services given their particular supply-and-demand conditions, as
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well as to ensure that these goods can be most effectively traded in the economy Healthy market
competition, both domestic and foreign, is important in driving market efficiency, and thus
business productivity, by ensuring that the most efficient firms, producing goods demanded by
the market, are those that thrive. Market efficiency is measured by intensity of competition, tax
rates, trade barriers, FDI, customer orientation etc.
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. Labor markets must therefore have the flexibility
to shift workers from one economic activity to another rapidly and at low cost, and to allow for
wage fluctuations without much social disruption. GCI measures the labor market efficiency
based on parameters like flexibility in wage determination, incentives to work, pay and
productivity, professional management etc.
Financial market development: An efficient financial sector allocates the resources saved by a
nation’s citizens, as well as those entering the economy from abroad, to their most productive
uses. It channels resources to those entrepreneurial or investment projects with the highest
expected rates of return rather than to the politically connected. Financial market efficiency is
measured by the availability of financial products and services, quality of banks, financial
regulations etc.
Technological readiness: The technological readiness shows the agility with which an economy
adopts existing technologies to enhance the productivity of its industries, with specific emphasis
on its capacity to fully leverage information and communication technologies (ICTs) in daily
activities and production processes for increased efficiency and enabling innovation for
competitiveness. The availability of latest technology, used o internet and mobile, technology
transfer etc are some of the parameters used by GCI to measure the technological readiness.
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Market size: The size of the market affects productivity since large markets allow firms to
exploit economies of scale. Traditionally, the markets available to firms have been constrained
by national borders. In the era of globalization, international markets have become a substitute
for domestic markets, especially for small countries. Vast empirical evidence shows that trade
openness is positively associated with growth. GCI takes into account availability of domestic
market as well as foreign markets.
Business sophistication: There is no doubt that sophisticated business practices are conducive to
higher efficiency in the production of goods and services. Business sophistication is measured in
terms of quality and quantity of suppliers, competitive advantage, sophistication in production
process etc.
Innovation: Innovation can emerge from new technological and non technological knowledge.
Non-technological innovations are closely related to the know-how, skills, and working
conditions that are embedded in organizations. GCI covers capacity to innovate, spending on
R&D, availability of scientists and engineers, etc as some of the variables to measure innovation.
INDIAN POSITION IN GLOBAL COMPETITIVENESS INDEX:
India’s GCI score has remained stagnant at 4.3 during last three years i.e. 2011-12, 201213 and 2013-14. India is ranked 60 among 148 countries as per Global Competitiveness Report
2013-14. India’s rank fell from 56 in 2011-12 to 59 in 2012-13 and further to 60 in the year
2013-14. Among various pillars of competitiveness, India is ranked 96 with score of 4.2 in basic
requirement, 42 in efficiency enhancers and 41 in motivation and sophistication factors. India’s
score and rank in each pillars of competitiveness is presented in table below.
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Among various sub indices in which India’s rank worst include Public trust in politicians
(115) Irregular payments and bribes (110), Burden of government regulation(104), Business
costs of terrorism (113), Government budget balance, % GDP (113), Inflation (130), Secondary
education enrollment (110), Total tax rate (128), No. procedures to start a business (129), Trade
tariffs (128), Women in labor force (137), Individuals using Internet(120), Exports as a
percentage of GDP (125), etc. On the other side indicators in which India’s rank is favorable
include Domestic market size (3), Foreign market size (4), GDP (PPP$ billions (3), Local
supplier quantity(2), Availability of scientists and engineers(15), Gross national savings, % GDP
(28), Quality of the educational system(32), Intensity of local competition (24), Extent of market
dominance (26), State of cluster development (16), Financing through local equity market (18)
Regulation of securities exchanges (27) etc.
GCI also presented a picture about the most problematic factors in doing business in India which
is presented in table below.
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TABLE 1:
The Most Problematic Factors For Doing Business In India
Problematic Factor
% of Respondents
Inadequate supply of infrastructure
18.1
Inefficient government bureaucracy
17.5
Corruption
17.3
Tax regulations
7.6
Policy instability
6.6
Restrictive labor regulations
5.8
Inflation
4.3
Access to financing
3.9
Tax rates
3.4
Poor work ethic in national labor force
3
Foreign currency regulations
2.9
Government instability/coups
2.8
Insufficient capacity to innovate
2.8
Inadequately educated workforce
2.2
Crime and theft
1.2
Poor public health
0.7
Source: Global Competitiveness Report 2013-14
Executive Opinion Survey conducted by World Economic Forum to support the Global
Competitive Index clearly indicates inadequate supply of infrastructure, inefficient government
bureaucracy; corruption, tax regulations, policy instability etc are some of the most problematic
factors in doing business in India.
GLOBAL COMPETITIVENESS INDEX: INDIA AND CHINA:
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India and China are two most promising countries in Asia. Both the countries are
comparable in terms of size of their population, growth rate, per capita income, geographical
locations etc. In terms of trade, both the nations have strong international trade relationships both
for exports and imports. It will be interesting to compare India and China in terms of their
competitiveness. This kind of comparison will highlights the areas of competitive advantages
with each nation. It will also provide as direction for bilateral co-operations between two Asian
giants which will be beneficial to both the countries.
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TABLE 2
Pillars of Competitiveness
India
China
Rank
Score
Rank
Score
Basic requirements
96
4.2
31
5.3
Institutions
72
3.9
47
4.2
Infrastructure
85
3.7
48
4.5
Macroeconomic environment
110
4.1
10
6.3
Health and primary education
102
5.3
40
6.1
Efficiency enhancers
42
4.4
31
4.6
Higher education and training
91
3.9
70
4.2
Goods market efficiency
85
4.2
61
4.3
Labor market efficiency
99
4.1
34
4.6
Financial market development
19
4.8
54
4.3
Technological readiness.
98
3.2
85
3.4
Market size
3
6.2
2
6.9
Innovation and sophistication factors
41
4
34
4.1
Business sophistication
42
4.4
45
4.3
Innovation
41
3
32
3.9
Source: Global Competitiveness Report 2013-14
In terms of overall ranking in GCI, china is ranked 29 while India is ranked 60 among
148 countries. This clearly indicates that China is much more competitive as compared to India.
The comparable statistics on 12 pillars of competitiveness between India is China is presented in
table 2 above.
The main difference between India and China as presented by Global
Competitiveness Report is, India is grouped in to countries which are at factor driven stage of
development while Chins is efficiency driven stage of development. According to the stage of
development the weight assign to each pillar in computation of overall index will differ.
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With the score of 4.2, India is ranked 96 in terms of Basic requirement while China is
ranked 31 with score of 5.3. Within the Basic requirement, major different between two
countries is noticed in macroeconomic environment where India is ranked 110 while China is
ranked 10. Similar different is also observed in the case of health and primary education where
against India’s rank of 102, China is ranked 40 indicating huge difference of 62 ranks. In the
case of labor market efficiency China is ranked 34 while India is ranked 99 showing the gap of
65.
On the other side India has better picture as compared to China is the case of financial
market development, and business sophistication. In the case of financial market development
India is ranked 19against China’s rank of 54. Similarly, in the case of business sophistication
India’s rank is 42 while that of China 45.
According to Executive Opinion Survey conducted by World Economic Forum, the
major problem in doing business in China include accessing to financing, government
bureaucracy, corruption, tax rates, inefficient capacity to innovate etc are the prominent one.
Similar issues are also observed in the case of India but the percentage of respondents are
different in both the countries indicating there by difference in the intensity of problems
perceived by executives.
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CONCLUSION:
Global Competitiveness Report published by World Economic Forms is an important
source of information for all the countries of the world to measure the competitive position of
particular nation vis-à-vis rest of world. India’s rank has declined from 56 in 2011-12 to 60 in
2013-14 showing not so good picture for one of the fastest growing country of the world
managing more than 16 percent of world population. Government of India should take serious
note on indicators like public trust in politicians, irregular payments and bribes, burden of
government regulation, business costs of terrorism, government budget balance, inflation,
secondary education enrollment, total tax rate, no. procedures to start a business, trade tariffs,
women in labor force, individuals using internet, exports as a percentage of GDP etc. in order to
improve its global competitiveness.
India and China share similar situation in terms of geographical location, population,
culture etc. But both the nations have different situation as far as their GCI ranks are concerned.
This should be taken in the spirit of learning from each other and areas of collaboration for their
individual development.
REFERENCES:
1. World Economic Forum: Global Competitiveness Report 2011-12, 2012-13 and 2013-14.
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