international competitiveness

PROF DR J.BOSSAK INTERNATIONAL COMPETITIVENESS

1

INTERNATIONAL COMPETITIVENESS

THEORY, METHODOLOGY AND REPORTS


2

THEORY OF INTERNATIONAL TRADE

• A.SMITH -ABSOLUTE COSTS

• D.RICARDO-COMPARATVE COSTS

• HECKSHER-OHLIN :ABUNDANCE AND COST

• R.VERNON-PRODUCT CYCLE : DEVELOPMENT AND CHANGING FACTORS

• TECHNOLOGICAL FACTORS

• NEO-TECHNOLOGICAL FACTORS

• DUNNING ECLECTIC THEOREM: SET OF FACTORS

• SYSTEMS AND INTERACTIONS


3

GLOBAL COMPETITION : RULES OF THE GAME

• NATIONAL SYSTEMS: OPEN VERSUS CLOSE

• NATIONAL AND GLOBAL• VALUE CREATION AND DISTRIBUTION• ECONOMIC VERSUS SOCIAL SYSTEM• WORLD MARKET AND GLOBAL

COMPETITION• PROBLEM OF WINNER AND LOOSER


4

ECONOMIC COMPETITIVENESSBASIC CONCEPTS

• COMPETITION VS.COMPETITIVENESS• MARKET AND COMPETITIVE POSITION • CURRENT COMPETITIVENESS• COMPETITIVE POTENTIAL (ABILITY)• INTERNAL AND EXTERNAL FACTORS• COMPETITIVENESS AND VALUE

CREATION• VALUE CREATION FOR CLIENT AND

INVESTOR


5

FACTORS OF COMPETITIVENESS

• NATURAL RESOURCES • ACCUMULATED RESOURCES : HUMAN,

FINANCIAL, TECHNOLOGY,KNOW-HOW• ACCUMULATED WEALTH ,INFRASTRUCTURE• INSTITUTIONS : SYSTEM AND SOCIAL VALUE

SYSTEM• INTERACTIONS AND ENTREPRENEURSHIP AND

INNOVATION• MACROECONOMIC FACTORS• BUSINESS EFFICIENCY AND STRATEGY


6

COMPETITIVENESS AND STAGES OF ECONOMIC DEVELOPMENT

COSTDIVERSITY

QUALITY

INNOVATION

CHINA

SPAIN

FRANCE

USA


7

GDP GROWTH IN HISTORICAL

PERSPECTIVE

USA France Germany G.B. Japan1820-1870 4,22 1,27 2 2,04 0,311870-1913 3,94 1,63 2,81 1,9 2,341913-50 2,84 1,15 1,06 1,19 2,241950-73 3,92 5,02 5,99 2,96 9,251973-92 2,39 2,26 2,3 1,59 3,76


8

INSTITUTIONS

• LEGAL AND SOCIAL NORMS• ORGANISATIONS SUPPORTING BUSINESS

ACTIVITY AND COOPERATION• AS CONSTRAINS• AND COOPERATION• AND SOCIAL BALANCE• AND NEW OPPORTUNITIES• AND EFFICIENCY, • TRANSACTION COST , RISK AND VALUE

CREATION


9

INSTITUTIONS

• INSTITUTIONS AND VALUE SYSTEMS• FREEDOM AND INSTITUTIONS• INSTITUTIONS AND HARMONISATION• INSTITUTIONS AND RENT-SEEKING AND

PROFIT-SEEKING• QUALITY OF INSTITUTIONS• INSTITUTIONS AND VALUE CREATIONS


10

INSTITUTIONS AND ECONOMIC FREEDOM

DEMOCRATIC

NON DEMOCRATIC

ANARCHYFREEDOM

OMNIPOTENT STATE FREEDOM

SOCIO-ECONOMIC EQUILLIBRIUM

QUALITY OF INSTITUTIONS


11

OPENESS AND QUALITY OF INSTITUTIONS

• INSTITUTIONS AND SOVREIGNITY• GLOBAL COMPETITION AND DEFICIT OF

DEMOCRACY• OPENESS AND QUALITY OF

INSTITUTIONS• ECONOMIC FREEDOM AND

ENTERPRENERSHIP AND INNOVATION• QUALITY OF INSTITUTIONS AND VALUE

CREATION


12

INSTITUTIONS AND ECONOMIC FREEDOM

ANARCHY OMNIPOTENT STATE

MARKET PLACENO MARKETNO MARKET

ECONOMIC FREEDOM AND OPTIMAL INSTITUTIONS

EUROPE

TRANSITION

USA

CHINA

SOMALIA

CUBA

NO DEMOCRACY

NO DEMOCRACY

DEMORACYQUALITY OF INSTITUTIONS


13

ECONOMIC SYSTEM

MECHANISM

PROPERTY RIGHTS,ECONOMIC FREEDOM,COMPETITION

SUBSYTEMS:FINACIAL,FISCAL,LABOR,FOREIGN RELATIONS

MACROECONOMIC POLICY

INVESTORS CLIENTS

FIRMSLABOR

HUMAN BEHAVIOUR

OBJECTIVESfreedom competition

cooperation


14

COMPETITIVENESSVALUE CREATION ABILITY

COST DIVERSITY QUALITY INNOVATION

DEMAND

STRUCTURE INCOME LEVEL

NECESSITIES

COMPETITIVENESS

PREFERENCES

SUPPLY


15

ECONOMIC SYSTEM AND COMPETITIVENESS

• LEGAL ORDER: TRANSPARENCY,EFFICIENCY,STABILITY

• SOCIAL HARMONY VS ECONOMIC EFFICIENCY

• ECONOMIC ACTORS :TYPES,FORMS AND STRUCTURES

• MECHANISM OF COORDINATION

• OBJECTIVES

• SYSTEM QUALITY ASSESSMENT : TRANSACTION COST AND RISK, EQUILLIBRIUM, VALUE CREATION


16

BASIC FUNCTIONS OF MARKET MECHANISM

• INFORMATION

• SETTING EQUILIBRIUM PRICES

• MOTIVATION

• SELECTION

• ALLOCATION

• COORDINATION OF ACTIVITIES

• DISTRIBIUTION OF BENEFITS


17


18


19

SYSTEM OF ECONOMIC INTERACTIONS

• TRADE,FINACIAL,TECHNOLOGICAL,INFORMATIONAL,ORGANIZATIONAL RELATIONS

• INFORMATION INTERACTION

• HUMAN INFORMATION AND MOTIVATION DISPOSITION

• INTERACTIONS

• COMPETITION,RIVALRY

• COORDINATION,COOPERATION

• CONTRACTUAL AGREEMENT

• RISK AND RISK SHARING

• DISTRIBUTION OF BENEFITS


20

ECONOMIC MECHANISMSECONOMIC MECHANISMS

• CHARACTER OF INTERACTION IN SOCIAL DIVISION OF LABOUR

• MARKET,ADMINISTRATIVE AND MIXED METHODS OF COORDINATION OF SOCIAL DIVISION OF LABOUR

• SCOPE OF FREEDOM AND COMPETITION ARE KEY FACTORS DETERMINION HUMAN MOTIVATION, INCOME DIVERSITY AND EFFICIENCY

• ECONOMIC COORDIANTION COVERS CONSUMER GOODS AND FACTORS OF PRODUCTION

• EFFICIENT MARKET MECHANISMS REDUCE TRANSACTION COSTS AND RISK


21

MECHANISMS AND THEIR FUNCTIONS

• FREEDOM,COMPETITION AND EFFECTIVENESS OF ECONOMIC SYSTEM (MECHANISM)

• INFORMATION• VALUATION • MOTIVATION• BALANCING SUPPLY AND DEMAND• SEKECTION• ALLOCATION• BENEFITS DISTRIBUTION


22

SYSTEMSMECHANICAL, INTELLIGENT

• SIMPLE AND MULTIFUNCTIONAL SYSTEM

• MECHANICAL AND INTELLIGENT

• OPEN AND CLOSED SYSTEMS

• STRUCTURE OF THE SYSTEM

• REGULATION OF THE SYSTEM

• LOGIC OF THE SYSTEM

• REGULATION AND BALANCE

• REGULATION AND DEVELOPMENT

• ADAPTATION,STEERING OF THE SYSTEM


23

ECONOMIC SYSTEM STRUCTURAL AND SUBJECTIVE APPROACH

STRUCTURAL:• REAL FLOWS AND

RELATIONS• INPUT/OUTPUT• QUANTITATIVE • REGULATION AND

AUTOMATION• AUTOMATYZM• MAXIMASATION OF

EFFICIENCY

TARGETS OF BUSINESS ACTORS

• INFORMATION INTERACTION

• TARGET ORIENTED EFFICIENCY

• MARKET COMPETITION, FLEXIBILITY,COMPETITION,INNOVATION

• OPTIMAL VERSUS MAXIMAL


24

ECONOMIC SYSTEM.CYBERNETICS VIEW

• SYSTEM AND ENVIRONMENT• REAL AND INFORMATIONS FLOWS AND

INTERACTION• SERVO-MECHANISM AND STEERING• SYSTEM AND ITS ADAPTATION ABILITY

AND DEVELOPMENT POTENTIAL• SYSTEMIC AND DYNAMIC APPROACH


25

CYBERNETIC APPROACH

• STRUCTURE OF SYSTEM AND WEB OF INTERACTIONS

• EACH ELEMENT AND SUBSYSTEM EFFECTS THE SYSTEM

• CHANGES IN THE WEB SYSTEM OF INTERACTIONS EFFECTS THE SYSTEM BEHAVIOUR

• CHANGES IN THE INTENSITY AND CHARACTER OF INFORMATION FLOWS CHANGES SYSTEM BAHAVIOUR

• REAL FLOWS.EQUILLIBRIUM AND ASYMETRY


26

ECONOMIC FREEDOMHERITAGE FOUNDATION

• FACTORS• ROLE OF INSTITUTIONS • ECONOMIC FREEDOM: ABSENCE OF

COERCION OR CONSTRAIN ON PRODUCTION AND TRADE

• 10 BROAD GROUPS OF FACTORS• QUALITY OF INSTITUTIONS


27

ECONOMIC FREEDOM INDEX

1. Trade policy

2. Fiscal Burden

3. Government Intervention

4. Monetary Policy

5. Capital flows and FDI

1. Banking and finance

2. Wages and prices

3. Property rights

4. Regulation

5. Black market


28

GRADING SCALE

• 4 BROAD LEVELS OF ECONOMIC FREEDOM AND INSTITUTIONS QUALITY

• FREE : 1,95 or less

• BASICLY FREE 1,95 to 2,95

• UNFREE : 3 to 3,95

• REPRESSED: over 4


29

ECONOMIC FREEDOMProperty Rights

• Freedom of judical system• Commercial code defining contracts• Possible of foreign arbitration of contract

disputes• Government expropration of property• Corruption within the judiciary• Delays in receiving judical decisions• Legal protection of property rigths


30

ECONOMIC FREEDOM

Variables of trade policy

• Weighted average tariff rate

• Non-tariff barriers• Corruption in the

customs service

Fiscal Burden of Government

• Top income tax rate• Marginal rate for the

average taxpayer• Corporate tax rate• Government

expenditure in GDP


31

ECONOMIC FREEDOM

Regulation• Licensing to operate a business• Corruption within bureaucracy• Labor regulations (etsablished

work weeks,paid vacations,parental leave, standard dissmisal practices,

• Environmental ,consumer safety,worker health

• That impose a burden(cost) on business

Government Intervention

• Government consumption in GDP

• State ownership of business and industries

• Government revenues from state owned business

• Economic output of state sector


32

ECONOMIC FREEDOM

Capital Flows and FDI• Foreign Investment Code

• Restriction on foreign ownership of business

• Sectoral restriction for foreign investors

• Performance requirements on foreign companies

• Foreign ownership of land

• Restrictions on repatriation of earnings

Banking and Finance• Government ownership of

banks• Restrictions on opening

branches and subsidiares of foreign banks

• Government influence over credit allocation

• Government regulations• Freedom to offer all types of

financial services


33

ECONOMIC FREEDOM

Wages and Prices• Minimum wage laws

• Freedom to set prices

• Extent of price administration

• Government subsidies to business

• Government role in setting wages

Black market• Smuggling• Piracy of intellectual property• Agricultural black marketing• Manufacturing black

marketing• Services black marketing• Transportation black

marketing• Labor black marketing


34


35

Changes in Economic Freedom Index


36

ECONOMIC FREEDOM OF EU

NEW MEMBERS


37

ECONOMIC FREEDOM, INSTITUTIONS AND MARKET

BEHAVIOUR• SOCIAL DIVISION OF LABOUR :COOPERATION

AND COMPETITION• INSTITIUTIONS : LAW,ORGANIZATION AND

MARKET • BEHAVIORAL FACTORS: SOCIAL NORMS,

INFORMATION AND MOTIVATION OFA HUMAN INDIVIDUAL.

• VALUES,ATTITUDES,CHOICE AND ECONOMIOC BEHAVIOR

• INSTITUTIONS,BEHAVIOR OF ACTORS AND MARKET EFFICIENCY


38

COMPETITIVENESS

• SUPPLY SUPERIORITY :

COST,DIVERSITY,QUALITY AND INNOVATIVENESS

• ATTRACTIVENESS OF FACTOR MARKETS AND INSTITUTIONS:

R&D,HUMAN CAPITAL,VENTURE CAPITAL,LOW TRANSACTION COSTS AND RISK

• SUPERIOR INVESTMENT CLIMATE

• OPENESS OF SYSTEM AND POLICY

• SOCIAL AND POLITICAL STABILITY


39

COMPETITIVENESS AS AN INVESTMENT CLIMATE

• WORLD DEVELOPMENT OUTLOOK: FOR A BETTER INVESTMENT CLIMATE

• MOBLIZATION OF RESOURCES• EFFICIENT USE OF RESOURCES• DEVELOPMENT OF RESOURCES• CHANGING STRUCTURE OF

RESOURCES


40

COMPETITIVENESSPOSITION, ACTUAL AND ABILITY

• Position: ex post share, relations, source of competitive advantage

• Actual performance: ex post benchmarking performance

• Ability : ex ante potential,openess,knowledge,creativeness,strategy,future potential cashflows,WACC and risk,investment climate


41

DOING BUSINESS THE WORLD BANK

• STARTING A BUSINESS

• DEALING WITH LICENSES

• HIRING AND FIRING WORKERS

• REGISTERING PROPERTY

• GETTING CREDIT

• PAYING TAXES

• TRADING ACROSS BOARDERS

• ENFORCING CONTRACTS

• CLOSING A BUSINESS


42


43


44


45


46


47


48


49


50


51


52


53


54


55


56


57


58


59


60


61

GLOBAL COMPETITIVENESS REPORT

• Growth Competitiveness Index (GCI)• Microeconomic Competitiveness Index

(MICI)• GCI subindexes:technology,public

institutions and macroeconomics• MICI subindexes:company operations

and strategy,quality of business environment


62

LEADERS OF GCI

• United States

• Finland

• Taiwan

• Singapore

• Sweden

• Switherland

• Australia

• Canada

• Norway

• Denmark

• United Kingdom

• Japan

• Netherland

• Hongkong

• Austria

• Korea

• Spain

• Ireland


63

MICI LEADERS

• United States• Finland• United Kingdom• Germany• Switzerland• Sweden• Netherland

• Denmark• Singapore• Canada• Japan• Austria• France • Taiwan


64

INNOVATORSCore-technology

• USA• Japan• Taiwan• Switzerland• Sweden• Israel• Germany• Finland

• Canada• Denmark• Netherland• Korea• Belgium• France• Austria• United Kingdom


65

PUBLIC INSTITUTIONSQuality

• Finland• Denmark• Netherland• Singapore• Sweden• Australia• United Kingdom• Hongking

• Canada• United States• Switzerland• Israel• Norway• Germany• Ireland• Japan


66

MACRO ECONOMIC ENVIRONMENT

• Singapore• Ireland• Switzerland• Hongkong• Norway• China• United States• Korea

• Netherland• Finland• Spain• United Kingdom• Canada• Taiwan• Australia• Japan


67

WORLD COMPETITIVENESS YEARBOOK

• MDI

Four major group of factors :1. Economic Performance

2. Government Efficiency

3. Business Efficiency

4. Infrastructure


68

WORLD COMPETITIVENESS YEARBOOK

• Competitiveness of countries and companies

• The competitive cube : dual approach :1. Aggressiveness and attractiveness2. Globality and proximity3. Assets and processes4. Social cohesiveness and individual risk

taking


69

COMPETITIVENESS FACTORS

Domestic Economy

• Productivity reflects value added

• Long term competitiveness requires capital formation

• Competition improves performance

• Competition strengthens competitiveness

Internationalization

• Sucess in international trade reflects competitiveness of national economy

• Openess improves economic performance

• Export-led competitiveness support growth of gdp

• High standard of living requires internationalization


70


Government• State intervention

minimized ,apart from creating competitive conditions

• Stable macroeconomic and social conditions

• Flexible policies adopted to changing international environment

Finance• Finacial stability

important precondition of competitiveness

• Finance facilitates value added activity

• Open financial sector support international competitiveness


71


People

• Skilled labor force supports quality competitiveness

• Labor relations and attitudes affect competitiveness

• Competitiveness helps to increase quality of life

Management• Competitive price/quality

ratio reflects managerial ability

• Long term orientation increases competitiveness

• Competitiveness requires efficiency,adaptability

• Enterpreneurship is crucial• Business netwarking

affects competitiveness


72


Science&Technology• Efficiency and

technological iinovativeness builds competitiveness

• Long term R&D important for long term competitiveness

• Private investments in R&D more effective than public ones

Infrastructure

• Infrastructure supports activity and efficiency

• ICT infrastructure important for innovation and flexibility

• Social infrastructre and harmony important for competitiveness


73


Real factors• Availability of resources• Mobilisation and activity

of factors of production• Input/output efficiency• Value added,structure• Innovation• Labor • Technology• Financial resources

Institutional factors

• Socio-economic system

• Institutions,actors and mechanisms

• Economic freedom, entrepreneurship and competition

• Strategy and management

• Corporate governance


74

ECONOMIC MODELS

Free market

Hongkong

United States

Ireland

Australia

Canada

Taiwan

Market economies• United Kingdom• Switzerland• Chile• Estonia• Spain


75

ECONOMIC MODELS

Social market economy• Germany• Austria• Belgium• France• Netherland• Italy• Greece

Welfare states• Sweden• Norway• Denmark• Finland• Iceland


76

ECONOMIC MODELS

Regulatory states• Japan• Singapore• Korea• Malaysia

Transitory states• Poland• Czechs• Hungary• Slovenia• Russia• Lithuenia• Slovakia


77

ECONOMIC MODELS

State capitalism• India• Pakistan• Egypt• Iran• Iraq• Algeria

Dual systems

China

Wietnam

Cambodia

Laos


78

ECONOMIC MODELS

Asiatic model• Macroeconomic

stability• Developmental state• Limited social

transfers• High savings• Pro-export

Latin American diversity• Chile• Brazil• Argentina• Mexico• Andean states


79

ECONOMIC MODELS

Rich oil Arab countries• Saudi Arabia• Kuwejt• Bahrain• Quatar• UAE

Dual economy.Early transition

• Ukraine,• Turkmenistan• Kazachstan ,• Georgia,• Armenia,• Uzbekistan


80

QUALITY OF INSTITUTIONS

• Finland• Iceland• Denmark• Netherland• Singapore• Sweden• Australia

• United Kingdom• United States• Austria• Germany• Japan• France• Ireland


81

Technology,innovation driven countries

• United States• Canada• Finland• Taiwan• Sweden• Norway• Australia

• Korea• United Kingdom • Belgium• Germany• Austria• France• Japan


82

THE LISBON SUMMIT March,2000

• UE heads declared to make UE:”the most competitive and dynamic knowledge-based economy in the world by 2010, capable of sustainable economic growth,with more and better jobs and greater social cohesion”

• The Lisbon Strategy: a far reaching agenda combining political initiatives and long term economic reforms.

• Strategy includes benchmarking based on quantitative and qualitative indicators and setting the specific timetables and translation of UE guidelines into national and regional policies


83

LISBON STRATEGY OBJECTIVES

1. Creating an information society

2. European area for research and innovation

3. Completing the Single market: services and network industries

4. Efficient and integrated financial markets

5. Strengthening entrepreneurship

6. Creating new jobs

7. Sustainable development


84

THE LISBON REVIEWAssessment of Reforms

• „European model”? • Economic rating : behind US• Social rating : ahead of US• Weakness of business environment in EU

vis US• The Central European new members

perform significantly worse than the average EU -15


85

COMPETITIVENESS STRATEGY

• A competitive country can maintain high rates of growth and employment in the medium term

• Country’s economic system has as an ability to provide high and rising standards of living

• Competitiveness depends on quality of countries institutions and the extent they supporte value creation and adjustment to changing circumstances


86

CRITERIA OF ASSESSMENT

• Innovation

• Liberalization

• Enterprise

• Information technologies

• Sustainable development

• Financial services

• Network industries

• Social Inclusion


87

LS RANKING

• Finland top performer

• Sweden,Denmark,UK

• Netherland,Germany,Austria,Belgium

• France,Ireland

• Portugal,Spain,Italy,Greece

• New members: leaders and outsiders


88

GOLDEN RULES Competitiveness

• Create a stable and predictable environment• Flexible and resilient economic structure• Invest in infrastruture and technology• Promote private savings and domestic investment• Support export competitiveness and attractiveness for FDI• Focus on quality and transparency of government

administration• Maintain a balance between wage levels,productivity and

taxation• Invest in eductation and R&D• Reduce wage disparities and strengthen middle class


89

Economic system and company competitiveness

Value creation perspective


90

WHERE DO WE CREATE VALUE

• KEY DRIVERS OF SHAREHOLDER VALUE ?

• IS OUR STRATEGY LINKED TO SHAREHOLDER VALUE CREATION ?

• HOW DOES OUR RETURN COMPARES TO COMPETITORS ?


91

COMPETITIVENSS AND VALUE BASED MANAGEMENT

• BUSINESS OBJECTIVES AND SHAREHOLDER VALUE

• HOW DO WE GET OUR MANAGERS TO ACT LIKE OWNERS ?

• HOW DO WE ALIGN BUSINESS UNIT PERFORMANCE WITH CORPORATE OBJECTIVES ?

• HOW DO WE LINK REWARDS TO IMPROVED SHAREHOLDER VALUE


92

COMPETITIVENESS AND CASH FLOW

• STRONG CORRELATION BETWEEN TOTAL FREE CASH FLOW AND SHARE PRICES

• SV=PV OF FUTURE FREE CASH FLOWS DISCOUNTED AT THE WACC OF THE COMPANY ,LESS THE VALUE OF DEBT

• TOTAL FREE CASH FLOWS= NET OPERATING PROFIT+ CHANGES IN CAPITAL+CHANGES IN DEBT


93

VALUE DRIVERS

• REVENUE GROWTH• PROFIT MARGINS• CASH TAX• CAPITAL EXPENDITURE/INCREASE

CHANGES• WORKING CAPITAL CHANGES• COMPETITIVE ADVANTAGE PERIOD• WACC (COST OF EQUITY,DEBT ,CAPITAL

STRUCTURE AND COMPANY RISK)


94

COMPETITIVENSS AND VBM

• COMPETITIVE COMPANY CREATES VALUE WHILE UNCOMPETITIVE DESTROYS IT

• COMPETITIVENESS IS AN ABILITY OF AN ORGANIZATION TO CREATE VALUE

• COMPETITIVENESS IS TO A LARGE EXTENT A MATTER OF EFFICIENT MANAGEMENT


95

COMPETITIVENSS AND VBM

• BEING COMPETITIVE MEANS TO TAKE BUSINESS DECISIONS INCREASING TOTAL CASH FLOW,REDUCING COST OF CAPITAL AND COMPANY RISK

• TOTAL CASH FLOW=IN AND OUT FLOWS• TOTAL CF=NET OPERATING +FINANCIAL

AND INVESTMENT FLOWS


96

MEASURES OF VALUE BASED ON CASH FLOWS

• CASH FLOW RETURN ON INVESTMENT

• CORPORATE VALUE=FCF FROM ASSETS+ FCF FROM INVESTMENTS DISCOUNTED BY COST OF CAPITAL

• EVA(ECONOMIC VALUE ADDED)

EVA=ECONOMIC PROFIT LESS(CAPITAL INVESTED*COST OF CAPITAL

MVA (MARKET VALUE ADDED)=FUTURE EVA AT COST OF CAPITAL

CORPORATE VALUE=CAPITAL INVESTED+ MVA

• FCF

CORPORATE VALUE=FCF AT COST OF CAPITAL


97

COMPETITIVENSS AND SV

• SV IS A CAPITAL MARKET PERSPECTIVE ON COMPETITIVENESS OF SBU

• TO BUILD A SV YOU MUST DELIVER PERFORMANCE IN OPERATING,FINANCIAL AND INVESTMENT BETTER THAN YOUR MAIN COMPETITORS

• TO OUTPERFORM COMPETITION YOU HAVE TO DEVELOP STRATEGIES AND POLICIES THAT WILL DELIVER CASH FLOWS BETTER THAN EXPECTED BY CAPITAL MARKET


98

ACTUAL SV AND POTENTIAL ONE

• EXPECTED SHAREHOLDER RETURN

• WHICH BUSINESS CONTRIBUTES TO SV AND WHICH NOT

• WHAT NEW STRATEGIES ARE REQUIRED TO INCREASE VALUE

• HOW NEW INITIATIVES,STRATEGIES WILL CONTRIBUTE TO INCREASED SV

• VALUE MAP


99

CORPORATE OBJECTIVES AND BUSINESS UNIT PERFORMANCE

MEASURES

SV

CUSTOMER SATISFACTION

OPERATIONAL PERFORMANCE

EMPLOYEES SKILLS AND SATISFACTION

QUALITY OF ORGANIZATIONLEARNING AND OPENESS


100

IDENTIFING COMPETENCESVALUE CHAIN ANALYSIS

COMPETITIVE ADVANTAGE SOURCES

COST

EFFICIENCY

VALUE ADDED

QUALITY INNOVATION


101

IDENTIFING COMPETENCESVALUE CHAIN ANALYSIS

COMPETITIVE ADVANTAGE SOURCES

COST VALUE ADDED

ENTREPRE

NEURSHIP

INNOVATION


102

PENTAGONAL VBM RESTRUCTURING

ACTUAL MARKET PRICE

OPTIMAL VALUE

VALUE AFTER RESTRUCTURING

FINANCIAL ENGINEERING

COMPANY VALUE

POTENTIAL VALUE AFTER INTERNAL RESTRUCTURING

IMPROVED EFFICIENCY

M.&A,EXTERNAL RESTRUCTURING

VALUATION GAP

VBM

VALUE


103

WACC,ROIC AND NOPLAT AND COMPANY VALUE

WACC=10% ROIC ROIC ROIC ROIC

NOPLAT 7,5% 10% 12,5% 15%

3% 887 1000 1068 1130

6% 706 1000 1177 1295

9% 410 1000 1354 1591


104

WACC

SHARE COST TAXRATE

NETCOST

SHAREIN W.A.

DEBT 15% 7,5% 39% 4,58 0,7%

EQUITY 85% 10,9% 39% 9,3%

WACC 10,0%


105

WACC -2

SHARE COST TAXRATE

NETCOST

SHAREIN A.W.

DEBT 50% 7,5% 39% 4,58% 2,3%

EQUITY 50% 10,9% 5,5%

WACC 7,7%


106

TAX RATE AND WACC

SHARE COST TAXRATE

NETCOST

SHAREIN A.W.

DEBT 50% 7,50% 20% 6,0% 3,0

EQUITY 50% 10,9% 5,5%

WACC 8,5%


107

TAX RATE AND WACC

SHARE COST TAXRATE

NETCOST

SHAREIN A.W.

DEBT 50% 7,5% 45% 4,13% 2,1%

EQUITY 50% 10,9% 5,5%

WACC 7,5%


108

Total hours worked

1820-1870 3,09 n.a. n.a. 0,86 0,211870-1913 2,02 -0,1 0,92 0,76 0,451913-50 0,35 -0,75 0,45 -0,46 0,41950-73 1,15 0,01 0 -0,15 1,441973-92 1,27 -0,46 -0,38 -0,57 0,61


109

Growth of investments

USA France Germany G.B. Japan1820-1870 5,46 2,611870-1913 5,53 1,73 3,491913-50 2,01 1,09 4,171950-73 3,27 4,8 5,93 5,17 9,181973-92 3,13 4,3 3,37 3,32 6,81


110

GDP growth per hour

USA France Germany G.B. Japan1820-1870 1,1 . 1,16 0,091870-1913 1,88 1,74 1,87 1,13 1,891913-50 2,48 1,87 0,6 1,66 1,851950-73 2,74 5,11 5,99 3,12 7,691973-92 1,11 2,73 2,69 2,18 3,13


111

Capital productivity

USA France Germany G.B. Japan1820-1870 -1,18 n.a. n.a. -0,55 n.a.1870-1913 -1,51 n.a. n.a. 0,16 -0,951913-50 0,81 n.a. n.a. 0,1 -1,851950-73 0,63 0,22 0,05 -2,1 0,061973-92 -0,72 -1,96 -1,04 -1,67 -2,85


112

Foreign trade effect

USA France Germany G.B. Japan1913-50 0,03 0,02 -0,09 0,01 0,031950-73 0,11 0,37 0,48 0,32 0,531973-92 0,05 0,12 0,15 0,15 0,09


113

Scale effect

USA France Germany G.B. Japan

1913-50 0,09 0,03 0,04 0,04 0,071950-73 0,12 0,15 0,18 0,09 0,281973-92 0,07 0,07 0,07 0,05 0,11


114

Total Factor Productivity

USA France Germany G.B. Japan1913-50 1,5 0,81 0,361950-73 1,72 3,22 4,05 1,48 5,081973-92 0,18 0,73 1,54 0,69 1,04


115


116


117


118


119


120


121


122


123

China’s fiscal balance and broad money supply


124

China


125

China


126


127


128


129


130


131


132

TRANSITION OF AN ECONOMIC SYSTEM AND COMPETITVENESS OF

POLAND

BY JAN BOSSAK


133

TRANSITION FROM STATE CENTRAL PLANNING TOWARDS MARKET

ECONOMY• POLITICAL,SOCIAL AND ECONOMIC REFORMS• OPENNING OF THE SYSTEM• LIBERALIZATION,DEREGULATION,DEMONOPOLI

ZATION• PRIVATIZATION• FINANCIAL SYSTEM REFORM• FISCAL REFORM• LABOR REFORMS• SOCIAL SECURITY REFORMS• FROM CMEA TOWARDS EUROPEAN UNION


134

PRIVATIZATION,ECONOMIC FREEDOM AND DEVELOPMENT

• OPENNING OF ECONOMIC SYSTEM• PRIVATIZATION, ENTREPRENEURSHIP,

INNOVATION AND COMPETITION• FDI• PRIVATIZATION OF DEMAND• ECONOMIC FREEDOM,MARKET

MECHANISM,COMPETITION AND COMPETITIVENESS


135

ECONOMIC REFORMS AND MACRO ADJUSTMENT

• FINANCIAL REFORM.NBP AUTONOMY• FIGHTING INFLATION• REAL INTEREST RATES• EXCHANGE RATE• BANKING SECTOR PROVATIZATION• CAPITAL MARKET DEVELOPMENT• FOREIGN DEBT REDUCTION• ROLE OF IMF , THE WORLD BANK,EBRD


136

FISCAL REFORM

• BUDGET DEFICIT AND PUBLIC DEBT• INCREASING REVENUES • TAX REFORM• REDUCING SUBSIDIES AND OTHER

EXPENDITURES• TARIFF REDUCTION• SOCIAL SECURITY REFORM


137

INTERNATIONAL ECONOMIC RELATIONS

• LIBERALIZATION OF FOREIGN TRADE AND INVESTMENTS

• DEMONOPOLIZATION• EXCHANGE AND PAYMENTS LIBERALIZATION• RADICAL CHANGES IN FOREIGN BUSINESS

PARTNERS• FACING COMPETITION• REDUCTION OF CURRENT ACCOUNT DEFICIT• INFLOW OF FDI• EXPORT EXPANSION


138

RELATIVE GDP IN PPP PER CAPITA

0

50

100

150

200

250

300

350

1989 1992 2000 2001 2002 2003 2004 2005

Poland

EU-15


139

RELATIVE GDP PER CAPITAPOLAND=100

0

50

100

150

200

250

300

350

1989 1992 2000 2001 2002 2003 2004 2005

Poland

EU-15

Czech R

Hungary

Slovakia

Russia

Ukraine


140

RELATIVE DEVELOPMENTS IN 1990-2005

REAL GDP INDEXREAL GDP ANNUAL GROWTH RATE

GROWTH RATE 2003 2004 2005 1989=100 2000=1001990-2005

POLAND 2,7 3,8 5,4 3,2 153 115CZECH R 1,2 3,2 4,7 6 121 119

HUNGARY 1,4 3,4 4,6 4,1 125 121RUSSIA -0,8 7,3 7,2 6,4 87 135

UKRAINE -2,3 9,6 12,1 2,4 58 146EU-15 2,1 1 2,3 1,4 139 108


141

ECONOMIC SIZE IN OER AND PPP EXCHANGE RATES

GDP IN US$ BILLION OER PPPUSA 11668 11628

JAPAN 4623 3774GERMANY 2714 2326

UK 2141 1832FRANCE 2003 1744ITALY 1672 1621CHINA 1649 7124INDIA 692 2263

BRAZIL 605 1483RUSSIA 582 1409POLAND 242 492


142

EUROPEAN UNION . GDP COMPARED IN OER AND PPP

0 500 1000 1500 2000 2500

GERMANY

GREAT BRITAIN

FRANCE

ITALY

SPAIN

NETHERLAND

POLAND

BELGIUM

SWEDEN

AUSTRIA

GREECE

PORTUGAL

CZECH R

DENMARK

HUNGARY

FINLAND

IRELAND

PPP

OER


143

EUROPENA UNION.GDP PER CAPITA

IRELAND 32400NETHERLAND 28900DENMARK 28900AUSTRIA 28600SWEDEN 27700BELGIUM 27500UK 27100FINLAND 26300FRANCE 25500GERMANY 25300ITALY 24200SPAIN 23000


144

EUROPEAN UNION. NEW MEMBERS AND ACCESSION COUNTRIES GDP PER CAPITA

CYPRUS 19600SLOVENIA 18900CZECH R 17100MALTA 16200HUNGARY 14500ESTONIA 13000SLOVAKIA 12700LITHUENIA 11900POLAND 11700LATVIA 10900BULGARIA* 7500ROMANIA* 7500


145

EUROPAN UNION. SOCIO-ECONOMIC AND STANDARD OF LIVING INDEXES

GINI LIFE HDICOEFFICIENT EXPECTANCY

SWEDEN 25 80 0,949IRELAND 36 78 0,946BELGIUM 25 78 0,945GREAT BRITAIN 36 78 0,939FRANCE 33 79 0,938AUSTRIA 30 79 0,936ITALY 36 80 0,934GERMANY 28 78 0,93SPAIN 33 80 0,928


146

EUROPEAN UNION.NEW MEMBER STATES.SOCIOECONOMIC INDEXES

GINI LIFE HDICOEFFICIENT EXPECTANCY

SLOVENIA 28 76 0,904CZECH R 25 75 0,874HUNGARY 27 73 0,862POLAND 34 75 0,858ESTONIA 37 71 0,853SLOVAKIA 26 73 0,849LITHUENIA 32 73 0,852LATVIA 34 71 0,836


147

EU NEW MEMBER STATES. SHARE OF EXPORT AND IMPORT IN GDP 1995-2005

IMPORT/GDP EXPORT/GDP1995 2005 1995 2005

ESTONIA 71 100 51 71LITHUANIA 59 68 43 53LATVIA 41 68 29 40POLAND 21 36 16 32CZECH R 46 65 39 63SLOVAKIA 45 75 44 69SLOVENIA 48 63 42 58HUNGARY 34 61 28 56SIMPLE AVERAGE 44 67 37 55


148

EU NEW MEMBER STATES.FDI INWARD STOCK/GDP

1990 2000 2004 2005ESTONIA 51 85 88LITHUANIA 21 29 32LATVIA 29 33 36POLAND 0,2 21 25 29CZECH R 3,9 39 53 61SLOVAKIA 0,5 18 35 45SLOVENIA 3,8 15 15 17HUNGARY 1,7 49 61 62


149

EUROPEAN UNION. LABOR COST COMPARED 2005

ANNUAL INDUSTRY AND SERVICES EARNIGS IN EUROEURO PPP MINIMUM WAGES

POLAND 7070 11950 205CZECH R 7210 13950 235SLOVAKIA 5710 13130 167HUNGARY 5910 11020 232GERMANY 34620 33460FRANCE 29140 29040 1197UK 38540 33560 1197EU-25 28020 28020


150

LABOR COST STRUCTUREGROSS WAGES AND EMPLOYERS’S

CONTRIBUTIONS

POLAND CZECH R HUNGARY GERMANY FRANCE UK USA

NET WAGE 57 57 59 50 52 69 70SSC-L 22 11 12 24 24 11 9SSC-E 18 25 25 18 28 8 6INCOME TAX 4 7 4 8 6 12 15


151

ECONOMIC FREEDOM IN NEW MEMBER STATES

POLAND CZECH R HUNGARY SLOVAKIA NA+EUROPELA ASIA2006 2,49 2,1 2,44 2,35 2,46 3,06 3,242000 2,84 2,2 2,43 3,18 2,7 3,01 3,341995 3,46 2,38 2,93 2,88


152

QUALITY OF INSTITUTIONS WHEN DOING BUSINESS

POLAND REGION OECD Starting a business Procedures(numbers) 10 9,6 6,5 Time (days) 31 36,4 19,5 Cost (% of income) 22,2 13,5 6,8 Minimum capital (%) 220 49 41 Difficulty of hiring 11 34,5 30,1 Rigidity of hours 60 56,9 49,6 Difficulty of firing 40 41,5 27,4 Rigidity of employment

37 44,3 35,8


153

SUMMARY INNOVATION INDEX 2005

2005

00,10,20,30,40,50,60,70,8

SWEDEN

FINLA

ND

DENMARK

GERMANY

AUSTRIA

BELGIU

M UK

FRANCE

IRELA

ND

ITALY

POLAND

2005


154

FDI CONFIDANCE INDEXAT KEARNEY

Poland

0

2

4

6

8

10

12

14

2005 2004 2003 2002 2001 2000 1999 1998

Poland

international competitiveness

Documents

value systemsfreedom

value creationvalue

social normsorganisations

social systemworld market

globalvalue creation

sovreignityglobal competition

trade effectusafrancegermanyg

transaction cost