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A Comparative Analysis of World Competitiveness Records and a Cost

Projection resulting from the Lack of Competitiveness in the Greek Economy

by Nektaria Berikou

Paper prepared for

the 3rd Hellenic Observatory PhD Symposium on

Contemporary Greece: Structures, Context and Challenges.

Hellenic Observatory,

European Institute,

London School of Economics and Political Science

June 14 - 15, 2007.

3rd Hellenic Observatory PhD Symposium

A Comparative Analysis of World Competitiveness Records and a Cost

Projection resulting from the Lack of Competitiveness in the Greek Economy

Nektaria Berikou*

Abstract Developing country policy makers worry about national competitiveness and closely

watch indices ranking international competitive performance. The World

Competitiveness Yearbook (WCY), a report annually produced by the Institute for

Management Development, based in Switzerland, is a study that rates and ranks the

competitiveness of a certain group of nations and is a widely quoted report, especially

by government and public leaders. Although some essence of its methodology is

given for a general understanding, the details are not provided and are in large part

unknown to the public. The objective of this paper is to uncover and make

understandable the theory and methodology of the WCY. Without diminishing the

role and importance of WCY reports, we will try to strengthen them, propose ways of

improvement so as this index can constitute an important guideline to be used for the

reinforcement of Greek economy’s competitiveness.

*PhD Candidate, Department of Chemical Engineering, Laboratory of Industrial & Energy Economics (LIEE), National Technical University of Athens (NTUA).

Address for Correspondence: 9 Heroon Polytechniou str, 157 80 Zografou Campus, Athens Greece, tel: +30 210 7723200, fax:+30 210 7723155, [email protected]

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1Reinert (1995) argues that competitiveness in a broader sense has occupied policy makers of industrialized countries for centuries, though the terminology was different. The concerns were to increase “national wealth”, promote “good trade”, enhance “productive power” by promoting more advanced forms of manufacturing industry, and so on. 2

INTRODUCTION

Policy makers all over the world express their concern about national

competitiveness. Such concern is not new1; the competitiveness of nations has been

on the research agenda for some time. The idea that the economic success of a country

depends on its international competitiveness tool hold among business, political and

intellectual leaders in the late 1970s. What seems new is its intensity and spread, a

response to globalisation, rapid technical change, shrinking economic distance and

sweeping liberalization.

In March 2000, in the European Council of Lisbon it was decided that the strategic

objective for the decade 2000-2010 is “the European Union to become the most

competitive dynamic economy of knowledge, capable of viable economic growth,

with more and better places for work and with bigger social cohesion”. It becomes,

therefore, obvious that the estimation of competitiveness begins to constitute a wide

field of research. Although many researchers have studied the subject of

competitiveness and suggested relevant measures, most of the studies focus on the

firm level and have not attempted a more comprehensive comparison of multi-country

competitiveness. The international competitiveness of a country needs to be defined

so as to give governments and firms the opportunities for realizing the global

competitive advantages they require in order to survive.

The efforts in this area intensified since the early 1980s. Porter (1990), in his book

entitled The Competitive Advantage of Nations, proposes and uses a methodology,

which he calls “the National Diamond”, in order to study the competitiveness of ten

selected countries. Applying “the National Diamond” to these countries, he develops

an agenda for each of them to pursue in order to become internationally more

competitive. Moreover, international institutions present annually competitive records

of several countries. The two most well known indices are the Global

Competitiveness Report of the World Economic Forum (WEF) and the World

Competitiveness Yearbook (WCY) produced by the Institute for Management

Development (IMD).

However, although these ratings have an impact on the international community, the

methodology used remains in large part unknown. Researchers claim that their


definitions are too broad, many of the indicators used are subjective and

impressionistic, and many measures are vague and redundant. Not knowing their

methodology, the assumptions and formulas underlying them might very well

preclude an intelligent use of its results, which is counterproductive and against the

very idea of publishing them.

The primary objective of this paper is to uncover the methodology of the WCY.

Paying attention to the way its variables are defined, measured and aggregated, to its

particularities and its probable structural weaknesses, we will try to strengthen them,

propose ways of improvement and evaluate alternative approaches able to secure a

greater structural security, allow methodological validity and flexibility and provide a

greater interpretational ability, always aiming at the effective and objective estimation

of competitiveness of European States.

THE COMPETITIVENESS DEBATE

The term competitiveness stems from the analysis of firms and is usually thought to

be well defined at the firm level. Today, however, the notion competitiveness has

become a prominent concept in the assessment of countries, regions and locations.

The competitive advantage of nations and the competitiveness of locations have

become important topics in economic policy. A business can no longer expect

competition only from neighboring businesses or from businesses within its own

region. The marketplace is no longer restricted to a specific geographic location.

However, while it may appear from the wide use of “national competitiveness” that

the term has an accepted economic definition and can be readily measured, this is not

the case. The concept of national competitiveness has itself been severely criticized in

recent years. It is an elusive concept, much studied by business theorists and much

invoked by politicians and commentators, but frequently dismissed as irrelevant or

unimportant by economists.

Defining the competitiveness of nations is a controversial issue. A large number of

concepts of competitiveness have been proposed in the economic and business

literature. The concept of competitiveness and competitive strategy comes from the

business school literature. For the great majority of those who use the term, it means

exactly what it seems to mean: it is the view that nations compete for world markets

in the same way that corporations do, that a nation which fails to match other nations

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in productivity or technology will face the same kind of crisis as a company that

cannot match the costs or products of its rivals. Economies compete with each other,

can easily measure their competitiveness and are able to mount competitiveness

strategy.

On the other hand, there are some authors which deny the importance of this concept.

Krugman (1994, p.44) argues that “competitiveness is a meaningless word when

applied to national economies and the obsession with competitiveness is both wrong

and dangerous.” He attacked the use of the term in relations to countries, arguing that

it is firms, not countries that compete with each other. This may, however, be an

exaggeration. As Reinert (1995, p.24) says, “although often misused and mostly ill-

defined, the term competitiveness properly used does describe an important feature in

the world economy. This concept scratches the surface of important issues which are

central for understanding the distribution of wealth, both nationally and globally.”

In addition, Michael Porter of Harvard Business School (1990) has highlighted

competitive advantage as the key to superior performance by firms, industries and

economies as a whole. Lall (2001.a) argues that competitiveness in industrial

activities means developing relative efficiency along with sustainable growth.

Competitiveness is thus more a process than an absolute state, and can only be

assessed in a relative sense. National competitiveness does not mean just being a low-

cost producer, but being competitive in activities that lead to long-term income

growth, as incomes (and wages) rise.

Tyson (1992) added the rising and sustainable standard of living of citizens. Aigigner

(1998) states that an evaluation of the competitiveness of a nation must be done with

respect to its ultimate goal to maximize the well being of itself or of its people. Trade

balance and market share thus appear to be insufficient indicators of a nation’s

competitiveness. Development specialists have increasingly recognized that pure

economic indicators do not sufficiently indicate a nation’s overall welfare and

competitiveness level and as a result the indicators of choice should cover not only

economic factors, but social, technological and environmental factors as well. There is

no single “recipe” for competitiveness. Various policies can be benchmarked, and

then each individual country needs to adapt them to their own environment.

Competitiveness strategies succeed when they balance the economic imperatives

4


imposed by world markets with the social requirements of a nation formed by history,

value systems and tradition.

Although the concept of national competitiveness as such has been strongly criticized

by some theoreticians, the importance of the underlying challenges makes it unlikely

that this issue will lose the attention of policy makers soon. A nation with its natural

resources, human capabilities, research and educational institutions, political and

economic structure, its cultural and social values provides an environment in which

firms are created, organized and managed. The competitive environment a nation

provides influences the performance of its firms at home and abroad. Therefore, it is

of prime importance for both governments and firms to study the competitive

environment of a country in comparison with those of the others. It should be

evaluated both on macro- and micro platforms and, while doing so appropriate

attributes should be used for accurate measurement.

WORLD COMPETITIVENESS INDICES

A lot of international institutions record and present in an annual base the competitive

records of countries. These Annual Reports (World Competitiveness Indices)

constitute an important source of information for all foreigner investors and a motive

force of the international economic activity. Such rankings can help policy-makers

design and evaluate national competitive performance in the way technical

benchmarking helps enterprises to assess and improve their competence against other

firms. They can also help investors to allocate resources between countries,

researchers to analyze economic issues in comparative firms, aid donors and

international institutions to judge themselves against competitors.

The best known measure of competitiveness used to be the “Competitiveness Index”

produced annually in the World Competitiveness Report (WCR) by the World

Economic Forum and the International Institute for Management Development. This

index was based upon a huge number of variables. The two institutions separated

their indices from 1996, using different variables and weights; both are now widely

used and cited: the Global Competitiveness Report of the World Economic Forum

(WEF) and the World Competitiveness Yearbook (WCY) produced by the Institute

for Management Development (IMD). In addition to the two well-known published

rankings, there are many unpublished ones prepared by governments, consultants and

5


research institutions, all feeding an insatiable appetite for benchmarking competitive

performance and providing guidelines for strategy.

Although all World Competitiveness Indices have impact on the international

community among politicians, company executives and researchers, the underlying

analytical framework used in producing country rankings remains weak and suspect.

The connections between the variables in terms of producing growth or structural

competitiveness are unclear, often tendentious. Oral and Chabchoub (1996) tried to

uncover it and they found after detailed mathematical programming, that the

undisclosed methodology of WCR is hard to “guess”. They tried again to understand

the methodology through exact replications of the rankings at all levels of aggregation

by using a particular mathematical programming model, called the Weight Estimation

Model (1997). It has been shown that one does not need to use all of the indicators in

order to replicate the WCR ranking: in fact, 27 of them are unnecessary. Moreover, it

has been observed that a unique set of weights cannot reproduce the results of WCR.

Different sets of weights for different countries need to be used, suggesting the notion

that the importance of a criterion varies from one country to another and implying that

one cannot be sure of the importance of a given criterion in evaluating the national

competitiveness. Based on Oral’s and Chabchoub’s findings, Zanakis and Beccera-

Fernandez (2005) presented the insights gained from the use of data mining and

multivariate statistical techniques to identify important factors associated with

determining a country’s competitiveness.

Sanjaya Lall (2001.b) argues that the WEF index suffers from several analytical,

methodological and quantitative weaknesses. Its presentation conceals these

weaknesses, giving a misleading impression of precision, robustness and

sophistication. Moreover he argues that the way the estimation results of the WEF

index are presented, does not allow understanding its limitations.

Furthermore, Ulengin και Onsel (2002) offered a more robust and objective way of

evaluating the competitiveness of countries while replicating the WCR results in a

statistically significant manner. After the validation of their results based on the

hypothesis that the long-term competitiveness of a country can be estimated using

objective attributes, versus those of the WCR, they explained the relative competitive

level of the countries analyzed by using explanatory variables. Moreover, a sensitivity

6


analysis was used to show how movements, by design or by happenstance, in levels of

some of the indicators may affect a country’s overall competitiveness.

In Greece, in 2003 the National Council on Competitiveness and Growth tried for the

first time to assess Greece’s competitiveness by forming a National Ranking System

of Competitiveness. However, this first report aimed mostly at valuing the record of

the country in a small number of indicators and it gathered opinions from all members

of the National Council on potential directions for policy, while it did not adopt a

concrete methodology for a comparative evaluation of countries. Nevertheless it

constitutes Greece’s first effort to develop a national system of measurement for

competitiveness. In 2005, the second report focused on the direct exploitation of

existing ranking systems that have been developed by international institutions, like

WEF and IMD, without however leading to an acceptable methodology, with

explanatory possibilities.

The use of competitive indicators causes continuously increasing interest and it is

expected to extend itself in the future. The international bibliography, even in small

extent, shows already problems in the theoretical and mainly in the methodological

background of these indices. It is, therefore, obvious how important it is that these

reports will be handled responsibly and their results will be transferred to a wider

number of interested parties.

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2 These statistics are referred to in the WCY as Hard data and include 129 criteria used to determine the overall rankings and 82 criteria presented as valuable background information but not used in the calculation of the rankings. The 129 Hard criteria represent a weight of approximately two-thirds in the overall ranking. 3 These data are referred to in the WCY as Survey data. The survey questions are included in the Yearbook as individual criteria and are used in calculating the overall ranking, representing a weight of approximately one-third.

8

THE GENERAL STRUCTURE OF WCY AND ITS RANKING SYSTEM

The IMD World Competitiveness Yearbook (WCY) is one of the world’s most known

and comprehensive annual reports on the competitive advantage of nations, published

since 1989. The WCY analyzes and ranks the ability of nations to create and maintain

an environment that sustains the competitiveness of enterprises. It provides extensive

coverage of 60 countries and regional economies, all of them chosen because of their

impact on the global economy and the availability of comparable international

statistics. The national environment is divided into four main Competitiveness

Factors: Economic Performance, Government Efficiency, Business Efficiency and

Infrastructure. Each of these four factors has been broken down into five sub-factors,

as seen in Table 1 and some of these sub-factors have been further divided into

categories that define competitiveness issues more explicitly.

Table 1 Competitiveness Factors and Sub-factors

Business Efficiency Economic Performance Infrastructure Government Efficiency

Productivity Domestic Economy Basic Infrastructure Public Finance

Labor Market International Trade Technological Infrastructure Fiscal Policy

Finance International Investment Scientific Infrastructure Institutional Framework

Management Practices Employment Health & Environment Business Legislation

Attitudes & Values Prices Education Societal Framework

All 323 criteria, used in the WCY, have been selected after an extensive research

using economic literature, international, national, regional sources2 and feedback from

academics, governments and business community3, and have been grouped into these

sub-factors and categories. Each sub-factor, independently of the number of criteria it

contains, has the same weight in the overall consolidation of results, which is 5% (20

x 5 = 100).


The essential building block for the rankings is the standardized value for all the

criteria, called the STD value. Firstly, the STD value for each criterion is computed

using all available data for all countries and then all economies are ranked for the 241

criteria used in the aggregation. In most cases, a higher value is better, for example

the Gross Domestic Product; the economy with the highest standardized value is

ranked first while the one with the lowest is last. However, with some criteria the

inverse may be true, for example Consumer Price Inflation.

Because most criteria have different scales, a constant scale of comparison is used in

order to calculate the total results for all sectors and categories. The method of

Standard Deviation measures the relative difference between the economies’

performance and thus each country’s or region’s relative “ranking “place in the final

classifications is calculated more precisely.

First, for each criterion, we compute the average value for the entire population of

economies. Then, the standard deviation is calculated using the following formula:

( )N

xxS ∑ −=

2

Finally, we compute each of the 60 economies’ standardized values (STD) for the 241

ranked criteria. The STD is calculated by subtracting the average value of the 60

economies from the economy’s original value and then dividing the result by the

standard deviation.

The STD value for criteria is calculated as follows:

SxxSTD i

−=)(

Where:

x = original value

x = average value of the 60 economies

N = number of economies

S = Standard Deviation

The sub-factor rankings are then determined by calculating the weighted average of

the criteria STD values that make up the sub-factor, excluding the background

criteria. When data is unavailable for particular economies, the missing values are

9


replaced by a STD value equal to 0. The weighted average for each sub-factor enables

us to “lock” the weight of the 20 sub-factors independently of the number of criteria

they contain so that each sub-factor has an equal impact on the overall ranking that is

5%.

Next, we aggregate the sub-factor average STD values to determine the

Competitiveness Factor rankings and the STD values of the Competitiveness Factors

are then aggregated to determine the Overall Scoreboard. Since statistics for all

economies are standardized, they are aggregated to compute indices. The rankings

computed are: the Sub-factor rankings, the Competitiveness Factor rankings and

finally the Overall Scoreboard

It must be mentioned that across the four Competitiveness factors, only one economy

will have a score equal to 100 and one economy will have score equal to zero. For the

Overall Scoreboard, IMD takes the average scores of the four Competitiveness

Factors and converts them in a final indicator according to which the leading economy

has a value equal to 100.

THE ESTIMATION MODEL FOR REPLICATING THE WCY RESULTS

The first step to our study was to try to replicate the WCY results. We tried to find the

same classification of countries with the one presented by IMD for the year 2004, by

using the same statistical data and methodology. The first thing to do was to

transform the data from files type pdf into files excel and then the creation of a

database structured, like the one that WCY’s methodology follows, by composing

and using a program of Visual Basic. In the following Figure 1 we present the ranking

results of our estimation model compared to the final classification of

competitiveness as it is published by IMD.

Due to the lack of important fluctuations, the reproduction could be considered

successful.

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R2 = 0,9984

0

10

20

30

40

50

60

70

USA

SIN

GAP

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EC

ANAD

AAU

STR

ALIA

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KO

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KFI

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AND

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SHTR

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SLO

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REP

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Countries

Rank

IMDReplication modelLinear

Figure 1: Overall Competitiveness Rankings

MEASURING A COUNTRY’S COMPETITIVENESS

Countries selected

As it was previously mentioned, IMD selected 60 countries (51 countries and 9

provinces of countries) so as to have an overall picture of world competitiveness.

However, there are increasingly questions on whether the comparisons are valid

because of the growing divide between developed – technically diverse – OECD

countries, and emerging nations which are focused only on a few key technical

sectors, such as electronics or telecommunications. In general nations differ in

technological emphasis and level of diversification; instead it is more likely that a

nation resembles other nations in its region, and in turn, a “trading block” comparison

of nations will be more reliable.

In order to study and measure the competitiveness of a given country, for example

Greece, it is essential to determine its competitors. After all, competitiveness has a

relative significance that results from each country’s records compared to those of

other countries-competitors, both in macroeconomic and micro-economic level. Such

an approach may be proved to be more useful and more reliable for certain researches

concerning Greece’s or any other country’s competitiveness. It is different to study

and measure the competitiveness of Greece in comparison to 60 countries that many

11


of them may not even have common goals, than to countries that belong to the “same

family”, that is to say European Union. Based on the aforementioned we have

decided to examine paralleled to the sample of 60 countries used by IMD another

sample of countries, which will mainly consist of the countries-competitors for

Greece.

The Centre of Export Researches and Studies, founded by the Hellenic Association of

Exporters, has published many studies in order to determine the basic countries-

competitors for Greece. According to its last research published in 2000, countries of

European Union represent the 61% of total competition that Greece faces, and

countries belonging to OECD represent the 81%. Turkey has also been proved to

constitute one of the more important competitors of Greece in rural as well as in

industrial products. The following table presents the subset of the 21 basic countries-

competitors for Greece.

Table 2 Countries Competitors for Greece

Basic Countries Competitors for Greece

Austria Netherlands Belgium Poland Canada Portugal China Romania Denmark Spain Finland Sweden France Switzerland Germany Turkey Hungary United Kingdom Ireland USA Italy

Alternative scenarios

The criteria included in the WCY can be divided in 3 categories: absolute

quantitative, relative quantitative and qualitative criteria. The absolute quantitative

criteria and the qualitative ones have important particularities and it is possible that

they lead to a fake depiction of truth regarding the competitiveness of countries.

Absolute quantitative criteria concern numbers that can lead to unfair comparisons

between concrete countries, while qualitative include the element of subjectivity.

12


Thus, we are called to evaluate these two categories separately and to investigate if

their exclusion will cause changes to the final classification of countries.

In order to examine and test the “architectural” composition of criteria we will apply

two alternative scenarios of sensitivity (plays). Each one of these scenarios is applied

to the total group of countries and provinces (60) as well as to the subgroup of the 22

countries-competitors of Greece, for the year 2004.

In the first play the absolute quantitative criteria are removed, and the model makes

use only of relative quantitative and qualitative data. In the second play we remove

the qualitative-soft data and only quantitative data (relatively and absolutely) are

used. The same Visual Basic program is being used, since it gives us the possibility to

remove any criteria and any countries we want to, and to check afterwards whether

and how these changes influenced the final classification of countries’

competitiveness.

FINDINGS The final rankings (overall) for all scenarios and for the two groups of countries are

presented below.

The group of 60 countries 0

10

20

30

40

50

60

70

US

ASI

NG

APO

RE

CA

NA

DA

AU

STR

ALIA

ICE

LAN

DH

ON

G K

ON

GD

EN

MAR

KFI

NLA

ND

LUX

EMB

OU

RG

IRE

LAN

DS

WE

DE

NTA

IWA

NAU

STR

IASW

ITZE

RLA

ND

NE

THE

RLA

ND

SM

ALA

YS

IAN

OR

WA

YN

EW

ZE

ALA

ND

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JIA

NG

BAV

AR

IAG

ER

MA

NY

UN

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ING

DO

MJA

PAN

CH

INA

MA

INLA

ND

BEL

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MC

HIL

EC

ATA

LON

IAE

STO

NIA

THA

ILA

ND

FRAN

CE

SP

AIN

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ANC

EIS

RA

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IND

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OR

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ND

RH

ON

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MA

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KC

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MB

IAH

UN

GAR

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H R

EP

UB

LIC

GR

EEC

ES

LOV

EN

IALO

MB

AR

DY

SA

O P

AU

LOJO

RD

AN

SO

UTH

AFR

ICA

RU

SSI

AIT

ALY

PH

ILIP

PIN

ES

BR

AZI

LR

OM

AN

IATU

RKE

YM

EX

ICO

PO

LAN

DIN

DO

NE

SIA

AR

GE

NTI

NA

VEN

EZU

ELA

Countries

Ran

k

IMD 1st Scenario

Figure 2: Overall Competitiveness Ranking by IMD vs that resulted in the 1st scenario

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Observing Figure 2, we notice that in the first scenario with the exclusion of absolute

quantitative criteria, “big” economies lose places, like United States, Germany and

China. This behavior was more or less expected since these countries are the biggest

ones in extent and in population worldwide. On the contrary, countries like Estonia

and Luxembourg gain places. Moreover, as far as the records across the four

Competitiveness Factors concerns, it was observed that the most significant changes

were noticed in the factor of Economic Efficiency. More specifically in this factor

United States, United Kingdom, Germany, France and Japan, that is to say five from

the more powerful economies of the world, lost 30 to 40 places.

0

10

20

30

40

50

60

70

USA

SIN

GAP

OR

EC

ANA

DA

AU

STR

ALI

AIC

ELAN

DH

ON

G K

ON

GD

EN

MA

RK

FIN

LAN

DLU

XEM

BOU

RG

IREL

AND

SWE

DE

NTA

IWAN

AU

STR

IAS

WIT

ZER

LAN

DN

ETH

ER

LAN

DS

MA

LAY

SIA

NO

RW

AYN

EW

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ALAN

DZH

EJIA

NG

BAV

AR

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MA

NY

UN

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D K

ING

DO

MJA

PAN

CH

INA

MA

INLA

ND

BELG

IUM

CH

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CAT

ALO

NIA

ESTO

NIA

THAI

LAN

DFR

AN

CE

SPA

INIL

E-D

E-F

RA

NC

EIS

RA

ELIN

DIA

KOR

EASC

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AND

RH

ON

E-A

LPS

MA

HA

RA

SH

TRA

POR

TUG

ALS

LOV

AKC

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MB

IAH

UN

GA

RY

CZE

CH

REP

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ICG

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ECE

SLO

VEN

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MBA

RD

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O P

AU

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ANS

OU

TH A

FRIC

AR

USS

IAIT

ALY

PH

ILIP

PIN

ES

BRAZ

ILR

OM

ANIA

TUR

KEY

ME

XIC

OP

OLA

ND

IND

ON

ESIA

ARG

ENTI

NA

VEN

EZU

ELA

Countries

Ran

k

IMD 2nd Scenario

Figure 3 Overall Competitiveness Ranking by IMD vs that resulted in the 2nd scenario

In the second play, as it appears in figure 3, Malaysia, Austria, Czech Republic, Chile

and Colombia present an important drop, while an important increase was noticed for

countries like Italy, United Kingdom, Russia, Japan and Germany. Regarding the four

Competitiveness Factors, the sector of Economic Efficiency does not have any big

differences, while on the contrary big fluctuations are presented in the remainder

three factors.

Applying the same alternative scenarios to the subgroup of 22 countries and after

making the same comparisons in the final classifications, we resulted in table 3. Table

14


3 consists of 5 different columns-classifications of countries. The first one presents

the final ranking of these 22 countries as it was published in the WCY 2004. The

second column presents the classification that resulted after the replication of the

WCY methodology and in the third column we present the rankings that derived

when we run our model (the Visual basic program) only for the subgroup that is

without having all the 60 countries and provinces. The fourth and fifth columns

present the results for the two scenarios. We observe that when we apply the method

in a different group of countries, realignments in the overall rankings take place and

these are especially noticed for the countries that occupied a low ranking place in the

overall ranking of WCY.

Table 3 Overall Competitiveness Rankings for the sub-group of 22 countries

Countries IMD ranking

Estimation model for 60countries

Estimation model for 22 countries 1st Scenario 2nd Scenario

USA 1 1 1 6 1 CANADA 3 3 2 1 2 DENMARK 7 7 3 2 7 FINLAND 8 8 4 3 10 IRELAND 10 10 5 4 6 SWEDEN 11 11 6 5 4 AUSTRIA 13 14 7 8 12 SWITZERLAND 14 13 8 7 5 NETHERLANDS 15 15 9 9 8 GERMANY 21 21 11 12 9 UNITED KINGDOM 22 22 10 11 3 CHINA MAINLAND 24 24 13 15 11 BELGIUM 25 25 12 10 15 FRANCE 30 30 15 14 14 SPAIN 31 31 14 13 13 PORTUGAL 39 39 17 17 16 HUNGARY 42 43 18 18 21 GREECE 44 42 16 16 19 ITALY 51 51 20 20 17 ROMANIA 54 54 19 19 18 TURKEY 55 55 22 22 22 POLAND 57 57 21 21 20

The application of the two alternative scenarios of sensitivity to the sample of 22

countries leads to similar conclusions. The existence of absolute quantitative criteria

encourages “big” countries, like USA, which from the 1st place drops to the 6th after

their removal. However, the differences in the subgroup of 22 countries are smaller,

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and as a consequence the absolute quantitative data may be considered more reliable.

On the other hand, the fluctuations observed when qualitative data are excluded, are

bigger, United Kingdom gains 8 places. In general, the differences in this subgroup

are less than those observed between the total sample of 60 countries. Nevertheless,

they remain important, since someone can easily understand that a difference of 5

places between a total number of 22 countries is quite appreciable.

DISCUSSION

The exclusion of absolute quantitative criteria results in “big” in extent and

population countries to loose places, while on the other hand “small” countries gain.

Consequently, the use of absolute quantitative data is not always reliable. “Big”

countries are encouraged against small and respectively, their absence encourages

“small” ones against the “bigger”. The final rankings may be unfair for certain

countries, which although they succeed in several fields, they are not big in

population and in extent. The results are not reliable mainly for the factor concerning

economic efficiency, since this is the factor that relies heavily on extensional sizes.

Regarding the other three factors, the differences are fewer and thus the danger to be

led to false conclusions is of course smaller.

Large populated economies present a different competitive model than smaller ones.

Therefore, a ranking split by population size may be particularly useful to those who

wish to make comparisons between countries and regions that are in the same

“playing field”. In addition, all efforts should be more limited in coverage, focusing

on particular sectors than economies as a whole, and using a smaller number of

critical variables rather than pulling in everything the economics, strategy and

management disciplines suggest. In the World Competitiveness Yearbook, the

competitiveness of each economy is calculated for each criterion by using the

Standard Deviation Method. We notice, therefore, that the scores, each country

assembles, are dependent on the total sample of countries that is taken into

consideration each time, action that influences the results’ stability and accuracy.

The role of soft data is curious and challenging, and most of the times it is difficult to

interpret the differences. For example United Kingdom loses 12 places when soft data

are present and on the contrary Malaysia gains 10 (we refer to the first group of

countries). Thus, it is obvious that qualitative criteria can lead to an erroneous

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impression of reality. The observations mentioned above were expected. Survey data

measures competitiveness as it is perceived. The survey is an in-depth 112-point

questionnaire sent to executives in top- and middle management in all of the

economies covered by the WCY. The survey was designed to quantify issues that are

not easily measured, for example: management practices, labour relations, corruption,

environmental concerns or quality of life. The responses given reflect perceptions of

competitiveness and indications for the future by business executives who are dealing

with international business situations.

The survey respondents are nationals or expatriates, located in local and foreign

enterprises in the country or region and which, in general, have an international

dimension. They are asked to evaluate the present and expected competitiveness

conditions of the economy in which they work and have resided during the past year,

drawing from the wealth of their international experience, and thereby ensuring that

the evaluations portray an in-depth knowledge of their particular environment. When,

they give positive and optimistic answers it is in favour of their country. On the

contrary, when a country loses places in the final classification, this means that the

survey respondents give negative and pessimistic answers and there is a high

possibility that the specific country could have been in a higher ranking place, if

qualitative criteria were absent.

We assume that in the most advanced, developed countries there is a tendency for

intense criticism. Although the conditions are favourable, this is not expressed in the

answers given by Administrative executives. Even if the circumstances, under which

the country’s economy, government, enterprises and infrastructures operate, are

objectively good, executives are not satisfied, they consider that their country can

improve more in all fields and thus they give negative answers in the surveys. On the

contrary, in the emerging economies executives perhaps consider that even a minimal

improvement in any sector of quality of life recommends automatically an “enormous

success” and a reason for optimism.

In the case of 60 countries, we make the segregation between developed and

developing economies and we observed that developing lose places in the general

classification when soft data are absent. When we examined separately the group of

22 countries, we were reported only to developed economies; hence the above

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segregation is not valid. However, gradation of growth still exists between these

countries, since they are not all in the same situation. This gradation leads countries to

have a similar behavior corresponding with the one that we observed in the first

group. From these 22 countries, apart from minimal exceptions, the “traditional

forces” of Europe lose places, like United Kingdom and Germany. In order to explain

these big differences, we should take into consideration historical and social factors.

These two countries were historical the first big European industries and even

nowadays they are attached to their traditions. Therefore they are not very flexible to

changes and to new conditions that began to prevail in Europe. These difficulties and

negative reactions are reflected as well as implied and included in the negative

answers that executives give.

World Competitiveness Yearbook’s reliability is subject to justified contestation. This

problem of subjectivity due to the presence of soft data has puzzled even the

researchers of IMD. This has been proven since IMD researchers have changed the

weight given to qualitative criteria between years 2003 and 2004. Until 2003 the

weight was equal to 1, that is to say equal to that of hard data, and in 2004 they

changed it to 0.5, that is to say half from that of quantitative-hard data. With this

change, they tried to make the method more reliable, recognizing that the role of

qualitative criteria cannot be equal to the role of quantitative criteria.

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The case of Greece

It is quite useful to make a special reference to Greece. In this section we present the

rankings scores of Greece and we study whether and how its place changed in every

intervention we made in the method of IMD.

4442 43 43

16 1619

0

5

10

15

20

25

30

35

40

45

50IMD 2004 our model

(60 countries) 1st scenario

(60 countries) 2nd scenario (60 countries)

our model(22countries)

1st scenario (22 countries)

2nd scenario (22 countries)

rank

Figure 4: Overall ranking place for Greece in each group and in each scenario

We observe that in the group of 60 countries, the overall ranking place of Greece

oscillates between 42 and 44 without any essential fluctuations. In the second sub-

group Greece is 16th. The exclusion of absolute quantitative criteria does not cause

any particular influence in her classification, while in the second scenario Greece

loses 3 places.

In case a researcher was examining the place of Greece only in comparison with the

group of 60 countries, he would observe that the international competitive

performance of Greece fluctuates in the middle of world classification. Therefore, he

could easily declare that everything goes well for Greece. But if at the same time he

was looking at its place compared only to its countries-competitors, he would see that

Greece has very low scores. This is the most realistic approach, because when a

country wants to measure its competitiveness, it is done compared to countries that

are located in common geographic and commercial frame and that have same

interests and goals. Thus a comparison with the competitive performance of

Indonesia, Malaysia, or Colombia for example is not of our interest. This observation

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explains also the approach that was made for the subgroup of the 22 countries in the

frames of our study.

The following table presents how the international competitive advantage of Greece

has changed diachronically (2000-2004) in the overall ranking as well as across the

four Competitiveness Factors. The general sense drawn is that the competitive

performance of Greece remains low and that the policies taken in the past few years

are not sufficient, since there is no improvement. Even if Greek economy is

nowadays characterized by certain important advantages, like the improved

infrastructures and its worldwide projection because of the successful organization of

Olympic Games, it still does not seem that the international investment community ,

which will take off productive activity of country, is activated, while on the contrary

the competitiveness of Greek economy loses, even in sectors such as production of

goods and services, whereas it is recognized that Greece has competitive advantages.

Table 4 International Competitiveness of Greece for 2000-2004

2000 2001 2002 2003 2004 Overall Performance 34 31 36 42 44 Economic Performance 36 33 37 44 45 Government Efficiency 36 34 41 46 49 Business Efficiency 37 29 28 36 39 Infrastructure 30 28 32 36 39

The relation between the level of competitiveness of a given country and its economic

prosperity is powerful. The higher the level of competitiveness is the more the country

accomplishes, resulting in a more active presence in the international economic scene.

World Competitiveness Indices give us the possibility of understanding this relation

and of quantifying the cost resulting from the lack of competitiveness. The positive

effect that could emanate after the improvement of the indicators ranking Greece’s

competitiveness performance is very important. The Greek enterprises would be

capable of rivalling the companies abroad and allocating universally their products or

services, thus helping employment and creating higher standards of living. A small

improvement in several indicators is enough in order for Greece to gain places in the

international competitiveness classification. Nevertheless, beyond essential

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improvements in sectors related with these indicators, the architecture of the model

used each time plays an important role.

CONCLUSION

Competitiveness is a key issue for policy makers in many countries and regions. Its

growing importance is fuelled by changes in the nature of global competition that

have increased the pressure on many locations to design sustainable strategies to

support and improve prosperity. There is a significant amount of debate surrounding

the concept of competitiveness, often leaving policy makers without clear guidance

on how to address the challenges they face.

This paper has outlined that competitiveness is and will remain a central occupation

for policy makers in coming years. Continuing and, where necessary, improving the

effectiveness of the debate among researchers on the factors underpinning

competitiveness will be critical to provide them with the most effective analytical

tools and concepts available. Our examination of the WCY index showed that it

suffers from several analytical and methodological weaknesses. IMD makes use of a

big number of criteria and it draws statistical data from a big number of countries,

trying to present a more objective report for the international competitiveness. While

it is well written and contains useful material, IMD competitiveness indices have

several deficiencies. Although we managed to replicate the WCY ranking, its actual

methodology remains unknown and this precludes intelligent use of the WCY results

by executives and policy makers.

Our results suggest that alternative scenarios should be evaluated with regard to the

countries that will constitute the sample, the selection of the most suitable indicators,

so as to be direct measurable and based on objective statistics, as well as to the

objective determination of their weight always based on the information that each

criterion transfers, in order to be able to propose new approaches capable: (a) to

ensure better structural stability, (b) methodological reliability and flexibility, and (c)

to provide better interpretational possibilities. These are the necessary conditions that

would allow the composition of a national system of comparative evaluation of

competitiveness, simple in comprehension, more homogeneous regarding the

countries that will compose it and based mainly on the countries of European Union.

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http://www.weforum.org/

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