Twenty-five years ago, the International Institute for Management Development, now known as IMD, was created in Lausanne, Switzerland, through the merger of two business schools: one founded by Alcan in 1946 and the other founded by Nestlé in 1957. So it only makes sense that its study of world competitiveness over those 25 years continues to derive from evidence that correlates to IMD's philosophy of “real world” business education.
Today the school released its annual look at how 60 countries compete economically, led by these top 10 nations:
"The overall competitiveness story for 2014 is one of continued success in the US, partial recovery in Europe, and struggles for some large emerging markets,” said Professor Arturo Bris, director of the IMD World Competitiveness Center. “There is no single recipe for a country to climb the competitiveness rankings, and much depends on the local context.”
The US retains the No. 1 spot in 2014, “reflecting the resilience of its economy, better employment numbers, and its dominance in technology and infrastructure,” says IMD.
A look at IMD’s 20-page profile of the US data reveals that while its public finance ranking remains near the bottom at No. 52 (up from 55 in 2013), the country has jumped from No. 22 to No. 16 in the economic performance sub-category of employment, and — just when American workers and managers might think they can’t possibly be any more productive — from No. 5 to No. 1 in productivity and efficiency.
Also, perhaps surprising to some, the United States’ No. 1 rank in various categories of infrastructure includes a rise in basic infrastructure from No. 6 to No. 4. The survey of corporate and public officials at the heart of the annual and recently released report on infrastructure from the Urban Land Institute and EY found that 88 percent of respondents considered infrastructure quality a top consideration or “very important” as a driver of real estate investment, putting it at the top spot ahead of consumer demand and skilled workforce availability.
Jostling for Position
The positive news jibes with findings released by the White House this week as the Obama administration convened a group of company leaders to discuss how best to assist their inward investment into the US. In addition to announcing the next SelectUSA Investment Summit next March in Washington, the administration released a report, “Winning Business Investment in the United States,” trotting out familiar recent studies and surveys from Boston Consulting Group, PricewaterhouseCoopers, AT Kearney and the Organization for International Investment showing increased interest in reshoring by US companies, and increased interest in US-shoring by foreign firms.
Though still taking baby steps compared to its state and regional economic development agency counterparts, SelectUSA says it has “facilitated over $18 billion in new investment for the United States.” Moreover, in this fiscal year, “SelectUSA will provide services to nearly 1,000 investors and EDOs to advocate for business investments in the United States."
IMD's rankings note that small economies such as Switzerland (2), Singapore (3) and Hong Kong (4) continue to prosper thanks to exports, business efficiency and innovation. In Europe, Denmark (9) enters the top 10, joining Switzerland, Sweden (5), Germany (6) and Norway (10). "Among Europe’s peripheral economies, Ireland (15), Spain (39) and Portugal (43) all rise, while Italy (46) and Greece (57) fall," says the school.
Germany and Denmark each ascended by three positions over last year's rankings. But the most dramatic jumps, curiously unremarked upon by IMD, come from the Baltic states of Estonia (No. 30) and Latvia (No. 35), each of which climb six spots since last year.
Estonia’s primary impetus appears to be inward-bound FDI, which last year totaled $3.9 billion, good enough for 12th place among the 60 countries when measured as a proportion of GDP. Among its strengths are lack of government debt, an increasingly business-friendly operating environment and tax regime, and cost-competitiveness. Projects tracked by Site Selection in Estonia over the past two years include facilities from Katoen Natie iin Muuga and water purifier maker Aquaphor in Sillame.
In Latvia, by contrast, outward direct investment seems to be increasing, and inward investment slowing. However, low consumer prices and a cost-competitive, skilled and educated workforce are key attractors, say survey respondents.
In Asia, Japan (21) continues to climb in the rankings (three spots), helped by a weaker currency that has improved its competitiveness abroad. The biggest leap upward since last year comes from New Zealand, whose ranking goes from No. 25 to No. 20. Both Malaysia (12, up three positions) and Indonesia (37, up two spots) make gains, while Thailand (29) falls amid political uncertainty. In an interview with The Nation, following the familiar trope of comparing perennially superior Singapore to Switzerland, IMD President Dominique Turpin said Thailand is Asia's France.
"For me, the Thais are the French of Asia when it comes to social cohesion," he said, "with lots of demonstrations, while the government is totally helpless — therefore business people have to rely on themselves."
As for the big emerging markets on everyone's shopping list, most slide in the IMD rankings "as economic growth and foreign investment slow and infrastructure remains inadequate," says IMD. "China (23) falls, partly owing to concerns about its business environment, while India (44) and Brazil (54) suffer from inefficient labor markets and ineffective business management. Turkey (40), Mexico (41), the Philippines (42) and Peru (50) also fall."
The IMD World Competitiveness Yearbook, which will be published at the end of June, measures how well countries manage all their resources and competencies to increase their prosperity. The overall ranking released today reflects 338 criteria, two-thirds of which are based on statistical indicators and one-third on an exclusive IMD survey of 4,300 international executives across the primary/extractive, manufacturing, and services/finance sectors. The criteria are grouped under the four main headings of economic performance, government efficiency, business efficiency and infrastructure, where they are then herded into 20 sub-factors.
Views from Abroad
To compile its report IMD enlists the work and support of 58 partner institutes in 56 countries, some of which have issued their own statements about the rankings.
CERGE-EI, the Prague-based institute that is one of IMD’s 55 partner institutes, noted that skilled, educated workforce, low costs, stable infrastructure and stable union/management relations were strong attractors, but also noted that traditional weaknesses still persist in the Czech Republic (no. 33, up from 35), among them high social security contributions, corruption and bureaucracy, and a lack of transparency and efficiency in government policy. Another potential threat, says the institute, is a deteriorating educational system, “which in the past was one of the better features of the Czech economy.”
Bulgaria has dropped from 38th in 2009 to 56th this year, though that’s up one notch from last year. “Bulgaria’s economy has improved its export position and public finances remain sound on the macroeconomic level,” says Martin Tsanov, analyst with the Center for the Study of Democracy. “The severe labor market crisis seems to have eased in the beginning of 2014 but the unemployment rate remains high … Three particularly worrying factors in 2014 stand out: the persistently low level of education; the lack of fresh financing options for businesses and deflation on the back of administratively instituted squeeze on energy prices; [and] low trust in the overall government and institutional environment, which has slumped profit margins and hold back short-term business development.”
From the glass half full department, Malaysia has plenty to crow about, climbing three rungs to No. 12 globally. Dato’ Seri Mustapa Mohamed, minister of international trade and industry, noted that among 29 countries with populations greater than 20 million, Malaysia improved to 4th position from 5th last year. It also placed second to Singapore among ASEAN nations, and third among 13 countries in the broader Asia-Pacific region. But he also said there was room for improvement.
“Though Malaysia remained at 15th position in the government efficiency factor, the Government is committed to further strengthen Malaysia’s public finances, ensure fiscal sustainability and promote long-term macroeconomic stability of the country,” he said. “The setting up of the Fiscal Policy Committee [FPC] chaired by the Prime Minister reflects Malaysia’s commitment to achieve a fiscal deficit of 3 percent of GDP by 2015 and work towards a balanced budget by 2020. Among the initiatives undertaken by the Government is the implementation of phased rationalization of subsidies, and ensure a more targeted approach in providing financial assistance.”
Malaysia also saw improvements in such business efficiency sub-factors as productivity and efficiency, labor market and management practices, and in infrastructure sub-factors of technological infrastructure and health and environment.
New Zealand’s sudden rise to 20th comes after dropping from 15th in 2009 to its lowest-ever ranking of 25th in 2013. As might be expected, the New Zealand Institute of Management (NZIM) did not hesitate to point out that “this year's leap further closed the gap between trans-Tasman neighbors New Zealand and Australia.”
“New Zealand seems to be climbing back into contention and pitching for a higher slot,” said NZIM Chief Executive Gary Sturgess. “It's been a long, hard slog to get back on top of our competitiveness game but the signs, as revealed in this year's report, are promising. If we're to compete successfully in our new and fast growing Asian marketplace, we'll have to perform better than we have in recent years.”
While the island nation continues to lead in such areas as government efficiency and transparency, he said, “We still suffer from an acute shortage of international management skills. International [management] experience, entrepreneurship and employee training all rank lower than 50 among the 60 economies measured. Our shortage of skilled labor and low workplace productivity are competitiveness performance inhibitors according to the yearbook. Organizations must put more effort into developing the competencies needed to lift our overall management and leadership capability.”
Still, New Zealand placed sixth in the Asia-Pacific region, outscoring China and South Korea, among others.
IMD is based in Lausanne, just 44 miles (71 km.) from the Geneva headquarters of another arbiter of world competitiveness, the World Economic Forum. That organization’s 2013-2014 Global Competitiveness Index, issued last fall, said the US was No. 5, with the top three comprising Switzerland at No. 1, Singapore at No. 2, Finland in third and Germany in fourth.
Finland? Really? In the IMD’s “real world” rankings, it comes in 18th, and WEF’s 10th place UK comes in 16th from the IMD point of view. On the flip side, IMD’s seventh-ranked Canada drops to 14th in WEF’s world. The United Arab Emirates are No. 8 on the charts at IMD, but just 19th in the WEF index, and IMD’s No. 9 Denmark comes in at 15th.
One of the big reasons for the discrepancies, says IMD, is its use of 338 criteria, compared to less than 120 used by the WEF. The WEF also uses 70 percent survey data, whereas IMD says it focuses more on "hard statistics."
"This is one reason why the WEF can cover so many more economies (148) than we can (60) because it is nearly impossible to find any hard data for many of these economies," says IMD. "This also raises the issue of rankings almost entirely based on subjective opinion data that is difficult to manage efficiently and reliable. We prefer a more objective approach based on hard facts."
In the world of Swiss think tanks, them's fightin' words.