Unidad

Third Teaching
1 / Escenario
Unit /2Fifth Learning environment
Lectura Fundamental
Essential reading

Competitiveness
Etapas de un planbetween
de comunicación
north
estratégica
and south economies

Content

1 North-south competitiveness

2 Productivity and international competitiveness

3 Competitiveness indicators

4 Conclusions

Keywords: competitiveness indicators, doing business, innovation index, global competitiveness index, international
productivity.
1. North-south competitiveness
It is well known that the so-called North Countries are more competitive than the ones from the
South. This fact can be justified by the different policies that each country has applied. As you may
recall, the Global Competitiveness Report explains some aspects that make a country competitive.
Some of these have been applied by northern countries like France, Russia, Sweden, and Switzerland.

Did you know that…?

Russia and France are competitive due to their commitment with
innovation and high-quality education.

Sweden, for example, is a developed country with low poverty index and various opportunities for
every Swedish. Switzerland is another great example because it is well known that it doesn’t need to
have the Euro as its currency, and they are not totally part of the European Union. How did these
countries have become competitive?

“The north-south differences have generated a polarization in terms of wealth and educational
and social levels” (Martín, 2015). The biggest difference between northern and southern countries
is based on the poor use the latter have of their geographical location. Another factor is the
social conditions of their inhabitants, and the gap on the access to education. A country can
have an excellent geographical location, but this is not the only variable that will determine its
competitiveness, governments must have a strategy to take advantage of their country location.

It is important to consider the past: the economic consolidation of the north is related to historical
conditions, rather than recent strategies of productivity of the. That is why many countries depend
on others. This is what happens in Greece and Italy, that depend on Germany or France because they
didn’t establish strong competitive strategies.

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2. Productivity and international competitiveness
There is a direct relationship between the concepts of productivity and competitiveness. In fact,
Michael Porter explain that “the only meaningful concept of competitiveness at the national
level is productivity” (Porter, 2008). Therefore, it is important to understand what international
competitiveness means. According to Pettinger (2017), international competitiveness is the
measurement of the relative costs and value of a country’s exports.

Factors like inflation rate, exchange rate and macroeconomic environment, along with education and
levels of corruption are essential to determine the productivity and quality of a company.

Inflation rate Institutions and

levels of corruption

Exchange rate Company’s Education and

health - care
productivity

Macroeconomic Laboral
environment conditions

Figure 1. Factors that determine a company’s productivity

Source: designed by the author

But how is productivity connected to competitiveness? Well, when a country grows in productivity it
enables competitiveness, especially in the international trade sector. Since productivity lowers costs,
it can increase sales of a company at a global scale, thus becoming more competitive.

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 Trade surplus

Competitive
economy

Limited discounts Few barriers

to exporters to importers

Figure 2. Factors that determine a competitive economy

Source: designed by the author

Governments play an important role in promoting productivity among companies and throughout
the country. For that reason, it is necessary that a nation has well-articulated policies that include
competitiveness, innovation and production strategies (Atkinson, 2013).

Russia, France, Sweden, Switzerland, and Canada are considered northern countries since their levels
of competitiveness is higher than other countries like Bolivia, Morocco or even Colombia. These
northern countries base their economies on international trade, high quality education, and training
for their employers.

3. Competitiveness indicators
A country’s competitiveness can be measured through different indicators like, business
encouragement , innovation, and Global Competitiveness index. Each of these factors will show
different dimensions that can explain why some countries took advantage of globalization to become
richer and more competitive.

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 3.1. Global competitiveness index

The Global Competitiveness Index (GCI) is defined by the World Economic Forum (WEF) as a
set of institutions, policies and factors that determine the level of productivity of a country (World
Economic Forum, 2013). Also, the GCI measures the ability of a country to provide high levels of
prosperity. The best country in Latin America is Chile ranked 33 worldwide, followed by Costa Rica
(47), Panama (50) and Mexico (51). According to the latest report (2018A) the most competitive
countries are:

1. Switzerland

2. United States

3. Singapore

4. Netherlands

5. Germany

The last ranked countries are exposed in the following table:

Table 1. Less competitive countries 2018 report

Country Position
Mauritania 133
Liberia 134

Chad 135

Mozambique 136

Yemen 137

Source: World economic forum (2018A)

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 3.2. Doing business Index

Another important aspect that contributes to a country’s productivity and competitiveness is the
government’s policy related with foreign direct investment and the encouragements to do business.
The World Bank issues the Doing Business Index, that measures how regulations affect the business
activity and the intellectual property protection. Out of 190 economies, the best 10 countries are.

Table 2. Top 10 countries doing business in 2018

Ranking Country Score

1 New Zealand 86.55

3 Singapore 84.57

2 Denmark 84.06

4 Republic of Korea 83.92

5 Hong Kong 83.44

9 United States 82.54

6 United Kingdom 82.22

7 Norway 82.16

8 Georgia 82.04

10 Sweden 81.27

Source: The World Bank (2018)

The worst countries for doing business are Somalia, Venezuela, Sudan, and Yemen.

But what does the Doing Business Index evaluates in a country? The answer is illustrated in the
following figure.

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 Getting a
1 location

Accesing
finance
2
3 Dealing with
day-to-day operation
Operatin a secure
business environment 4
5 Starting a
business

Figure 3. Aspects measured in the doing business index

Source: designed by the author

In Latin America, the theory that northern countries are more competitive is evident, especially loo-
king at the ranking of the Doing Business Index.

Table 3. Top 5 Latin American countries doing business index 2017

Ranking Country Score

1 (49) Mexico 72.27

2 (55) Chile 71.22

3 (58) Peru 69.45

4 (59) Colombia 69.41

5 (94) Uruguay 61.99

Source: designed by the author

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 3.3. Global innovation index

The Global Innovation Index is used to measure the ability of a country to innovate in terms of
education, infrastructure, and political environment.

The idea of innovating is not easy to adapt in some cultures or economies. Innovation must include
the use of information technology in all business processes, as well as the creation of new products
and services that have a competitive advantage. According to this Index, the most innovative
countries in 2017 were:

Table 3. Top 5 Latin American countries doing business index 2017

Ranking Country Score

1 Switzerland 67.69

2 Sweden 63.82

3 Netherlands 63.36

4 United States of America 61.40

5 United Kingdom 60.89

Source: designed by the author

The worst countries are from Africa: Yemen, Guinea, Togo, Zambia and Niger.

But what does this index really measure? To find the answer is important to look at the following figure.

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 Global innovation index

Innovation
efficiency ratio

Innovation input Innovation output

sub-index sub-index

Knowledge and
Institutions technology outputs

Human capital Creative outputs

and research

Infraestructure

Market
sophistication

Figure 4. Framework of the global innovation index 2017

Source: Dutta et al. (2017)

Chile is the best Latin American country, followed by Costa Rica (53) and Mexico (58). Colombia
is ranked 65 out of 127 economies, basically because it needs to work on business sophistication and
innovation. Innovation most of the time includes intellectual property regulation, since the creation
can be considered a patent, copyright or a global brand. So, the country must have a stronger
regulation that enables companies to innovate and constantly create products and services. Colombia
is not a patent country. Asian countries, for example, are the best in this area. In fact, in 2016 the
countries that registered the most patents were:

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 China
United States
Japan
Republic of Korea
Germany
Figure 5. Top 5 countries with registered patents 2016
Source: design by the author

Again, Asia and Europe are leading in innovation, thus their companies are more productive and,
therefore, more competitive.

4. Conclusions
The competitiveness between the north and the south is well stablished. The indexes support
this argument: in most cases, northern countries are developing strategies that make them more
productive and, therefore, more competitive. But, the main conclusion is that northern countries
base their economies in two principals: innovation and technology.

In Latin America, for example, the only country that is having an outstanding development in
productivity and competitiveness is Chile. Others, like Colombia, Costa Rica, Mexico, and Panama
are still working hard to be in the top 50 of the competitive countries worldwide. On the other hand,
the African countries are still behind in productivity and competitiveness.

Every government plays an important role in the economic growth and productivity of a country,
since they are the ones who establish the policies and legal framework for business.

To summarize…
The gap between north and south countries will exist if governments don’t
invest in education, innovation and business sophistication!

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References
Atkinson, R. D. (2013). Competitiveness, Innovation and Productivity: Clearing up the Confusion.
Washington: Information Technology and Innovation Foundation.

Dutta, S., Reynoso, R. E., Litnier, J., Lanvin, B., Wunsch-Vincent, S., & Guadagno, F. (2017).
The Global Innovation Index 2017: Innovation Feeding the World. WIPO. Retrieved from
http://www.wipo.int/edocs/pubdocs/en/wipo_pub_gii_2017-chapter1.pdf

Martín, A. (May 28 2015). ¿Por qué siempre, en cualquier lugar, hay tanta diferencia entre norte y sur?
Hipertextual. Retrieved from https://hipertextual.com/2015/05/diferencia-entre-norte-y-sur
Pettinger, T. (June 13 2017). International Competitiveness. Economics Help. Retrieved from
https://www.economicshelp.org/trade2/international_competitiveness/

Porter, M. (2008). On Competition. Boston: Harvard Business Review.

World Economic Forum. (2013). The Global Competitiveness Report 2012-2013. Retrieved from
http://www.economy.ge/uploads/ek_ciprebshi/reitingebi/reitingebi_eng/gci.pdf

World Economic Forum. (2018A). Global Competitiveness Index. Retrieved from http://reports.
weforum.org/pdf/gci-2017-2018-scorecard/WEF_GCI_2017_2018_Scorecard_GCI.pdf

The World Bank. (2018). Doing Business. The World Bank. Retrieved from
http://www.doingbusiness.org/en/rankings

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 TECHNICAL INFORMATION

Module: Globalization and Competitiveness

Third Teaching Unit: Competitiveness between countries
Fifth Learning environment: Competitiveness
between countries

Author: Sandra Milena Chicas Sierra

Academic advisor: Claudia Rocío Puentes Mendoza

Graphic designer: Brandon Steven Ramírez Carrero
Assistant: Eveling Patricia Peñaranda Izquierdo

This material belongs to the Politécnico Grancolombiano.

Total or partial reproduction is prohibited.

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