Drivers of Competitiveness
Achieving real and sustainable competitive advantage requires a clear understanding of what “competitiveness” means and how to analyze it effectively. Such clarity is the key to creating economic environments that boost innovation, efficiency and prosperity.
Key Concepts
Productivity
Competitivenss is determined by the productivity with which a location uses its human, capital, and natural endowments to create value.
Microeconomic Foundations
Productivity ultimately depends on improving the microeconomic
capability of the economy.
HOW, NOT WHAT
It is not what a location competes in that determines its prosperity, but how productively it competes.What Determines Competitiveness?
Microeconomics Competitiveness
Quality of the Business Environment
State of Cluster Development
Sophistication of Company Operations & Strategy
Macroeconomics Competitiveness
Sound Monetary & Fiscal Policies
Human Development & Effective Political Institutions
Endowments
- Productivity ultimately depends on improving the microeconomic capability of the economy and the sophistication of local competition
- Macroeconomic competitiveness sets the potential for high productivity, but is not sufficient
- Endowments create a foundation for prosperity, but true prosperity is created by productivity in the use of endowments
The overall quality of the business environment impacts company productivity,
innovation, and growth.
The Diamond Model is useful for thinking about multiple dimensions of the environment
and the way they interact.
Clusters are concentrations of firms in particular fields, including suppliers,
supporting services and related institutions. They enable productivity and new business
formation.
Economic performance depends on the capacity of firms in terms of skills,
capabilities and management practices.
- Fiscal Policy: Effective public spending aligned with revenues over time
- Monetary Policy: Low levels of inflation
- Economic Stabilization: Avoiding structural imbalances and cyclical overheating
- Human Development: Basic education, health care, equal opportunity
- Rule of Law: Property rights, personal security, and due process
- Political Institutions: Stable and effective political and governmental organizations and processes
Endowments, including natural resources, geographical location, population,
and country size, create a foundation for prosperity, but true prosperity arises from
productivity in the use of endowments.
- Productivity ultimately depends on improving the microeconomic capability of the economy and the sophistication of local competition
- Macroeconomic competitiveness sets the potential for high productivity, but is not sufficient
- Endowments create a foundation for prosperity, but true prosperity is created by productivity in the use of endowments