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Challenges and Opportunities for the Future of Competitiveness

Challenges and Opportunities for the Future of Competitiveness

No. 5-6, May.-Aug. 2017 » ReseARCH

Discussing competitiveness is both a challenge and an act of courage. Nonetheless, approaching a new perspective in this matter literally means walking into the lion’s den.

Tackling such a challenge was a consequence of the subtitle of the Sectorial Operational Programme “Increasing Economic Competitiveness”, namely “Investing in your future” (structural instruments 2007-2013). This was the main instrument to bring into being the second specific priority of the National Strategic Reference Framework (2007-2013) – long-term improvement of the economic competitiveness in Romania – an aspect, which is covered by the National Development Plan as well.

In spite of the progress made in privatization, streamlining and the financial regulations, the access to capital/ funds for businesses is still limited, no matter the national set-up that aims to stimulate the entrepreneurial initiatives and the foreign investment. Just to roll off some recent examples, we could mention Startup Nation, Startup Diaspora or Invest Romania.

Analyses performed at that time concluded that the slow, unfavorable development of specific elements influencing competitiveness were causing major discrepancies in comparison with other EU Member States. The reasons for the divergence were found at the level of all components of competitiveness, where they persist to this day. In spite of the progress made in privatization, streamlining and the financial regulations, the access to capital/ funds for businesses is still limited, no matter the national set-up that aims to stimulate the entrepreneurial initiatives and the foreign investment. Just to roll off some recent examples, we could mention Startup Nation, Startup Diaspora or Invest Romania. Moreover, using outdated technologies and equipment drastically reduces the productivity of most of the economic sectors.

The SOP IEC 2007-2013 report mentioned that “rising competitiveness cannot be perceived/seen as the exploitation of short-term advantages (e.g. cheap work force), but as a building process for an economic structure based on capital investment and research, development and innovation”.

The SOP IEC 2007-2013 report mentioned that “rising competitiveness cannot be perceived/seen as the exploitation of short-term advantages (e.g. cheap work force), but as a building process for an economic structure based on capital investment and research, development and innovation”. To put it differently, the achievement of medium and long-term convergence perspectives as well as a successful integration of the Romanian market need to take into consideration the development of an economy based on knowledge. 

Competitiveness 

There are various definitions for competitiveness, but probably the most comprehensive one is given by the World Economic Forum, which defines it as “the set of institutions, policies, and factors that determine the level of productivity of a country”. Almost all definitions make use of the term “productivity”.

Another way of understanding the particularities of competitiveness in a country is by considering the methods used to propose wellbeing. A competitive economy is a productive one. And this leads to development, which increases income and the wellbeing in general.

Source: World Economic Forum 

Productivity has proved to be important because it is the main element that generates increases in income and living standards, closely related to wellbeing. Basically, rising competitiveness means rising prosperity. The position of the World Economic Forum’s representatives is that competitive economies are the most likely to support a sustainable and inclusive development, meaning that all members of society will benefit from the economic growth.

Economic indicators are divided into three pillars with 12 distinctive areas, according to the World Economic Forum.

  • Basic needs – are at the basis of a state formation and growth and include institutions, infrastructure, the macroeconomic environment, health system and primary education system;
  • Efficiency indicators – which are, in fact, the markets, whether we refer to goods, labor or capital. The educational system as well as technological features also indicate how prepared an economy is to go through a transition towards an economy based on knowledge;
  • Diversity and distinctiveness – can be understood in two dimensions – subtlety and innovation of the business environment. These are more complex areas of competitiveness that require an economy able to count on multinational companies and research centers as well as on an innovative and supportive government. Those countries that have acquired a top score at this level have developed economies and a high GDP per capita. Such states can face the future challenges self-consciously and have a higher level of control over their fate (Finland’s study “100 Opportunities for Finland and the world” is very relevant in this regard). 

Smart countries vs. smart cities
 

The global distribution of the GDP (Source: Jeff Desjardins, Visual Capitalist, published on 22 February 2017[1]

This section deals with the possible shift from the New Public Management theory to decentralization and self-determination. The evolution of NPM since the 1980s under Margaret Thatcher's government has highlighted the role of entrepreneurial thinking in determining the wellbeing of a state. NPM reforms have used approaches such as disaggregation, customer satisfaction initiatives, customer service, applying an entrepreneurial spirit to public service and introducing innovation.

The last few years have found European countries, and many others besides, in an effervescence of decentralization and dispersion either determined by outside factors or internal forces (through the emergence of free trade areas or self-determined urban spaces, such as in the China or in our neighborhood, in the Republic of Moldova, only to point out very briefly some diametrically opposed examples).

The report claims that “this is understandable: more than half of the world's population lives in cities, generating more than 80% of global GDP". Global growth over the next 30 years will be entirely generated by urban areas. “The number of people living in the world's cities is growing by nearly 60 million every year”.

Extremely relevant, for this dimension, is the study commissioned from The Economist’s Intelligence Unit publication by Citigroup, titled "Hotspots 2025 – Benchmarking the future competitiveness of cities". According to this study, a hundred years ago, only 20% of the world's population lived in urban areas. By the middle of the 21st century, 70% of people will be living in cities. Already, the business world is beginning to plan its strategy from an urban, rather than a country perspective. The report claims that “this is understandable: more than half of the world's population lives in cities, generating more than 80% of global GDP". Global growth over the next 30 years will be entirely generated by urban areas. “The number of people living in the world's cities is growing by nearly 60 million every year”. North American and European cities are today among the most competitive in the world and are likely to retain their advantage until 2025, despite concerns over ageing populations and infrastructure, indebtedness and slow growth. “Combined, China and India's GDP is projected to exceed that of the major seven (G7) OECD economies by 2025. Asia's economic rise is reflected in the competitiveness of its cities by 2025”. Another factor determining the economic competitiveness of cities is the quality of institutions[2]

The new environment of competitiveness 

The main themes currently debated in prospective analyses are those related to changes with impact on wealth and power, extreme economic uncertainty and transition policies in many countries. At the same time, the world of business is driven to adjustment by a combination of market volatility, globalization and transformation brought on by innovation. Turbulence is the new normal. The impact of these challenges is disruptively accelerated by advances in science and technology, demographic changes and disruptions in established business models. Collectively, these forces of change determine new social values, new needs and expectations. In short, they turn every aspect of our world. 

Answers to challenges 

In the face of such an all-embracing change, the need to develop a rigorous understanding of the emerging stimuli of change and the preparation of potential future scenarios (contingency planning and prospective studies) becomes more and more evident, both in the academia and the business environment.

In the face of such an all-embracing change, the need to develop a rigorous understanding of the emerging stimuli of change and the preparation of potential future scenarios (contingency planning and prospective studies) becomes more and more evident, both in the academia and the business environment. The development of a “prospective radar” of the business environment is required. Indeed, as we have already emphasized, some states or companies (i.e. the aforementioned analysis of Citigroup or the investment made by J.P. Morgan in the new blockchain technology[3]) managed to develop capabilities/capacities for scanning the horizon and identifying the key factors and forces shaping the future. The latter allow them to “acclimatize” themselves to emerging “shocks” and capitalize on new opportunities. 

Future-proof[4] or the ability to positively answer to changes 

Such an analysis must embark upon the following steps – defining and evaluating key factors triggering the change; identifying critical effects and subsequent implications for both the economy and the business environment; prioritizing imperative actions or related to assumed policies in order to respond to such factors of change and their impact; and projecting alternative scenarios, prospective/future-oriented, based on the possible way of responding to those imperatives. 

Strategic effects for the business environment 

A brief assessment of the forces which shape the business environment will open new horizons for future debates.

Therefore, we enumerate: the global economy, the business environment per se, innovation and change, the society and the labor market, education and development.

Starting from these, five imperative actions emerge for the business environment: taking into account and planning for the volatility of the system, elaborating a “radar”, continuous striving for leadership/technological supremacy, constant preparation for the genuine globalization, developing a thirst for knowledge, rooted in the experimental and the adaptable.

To conclude: in order to allow for prosperity in times of turbulence, you must seize the opportunities with time to spare. In an increasingly uncertain world (as compared to the previous logic of business as usual), in which every aspect of the economy, of the business environment and of the social sphere will be in constant transition, the elements presented here in general terms illustrate critical aspects which will affect the landscape that is being defined. The fact that these have been identified by certain actors represents a clear proof of the capacity of some states and sectors to engage in strategic thinking in the long run, as well as their desire to do so.

Rohit Talwar, author and strategic consultant, from whose knowledge I can benefit as a result of an exchange of ideas, editor of www.fastfuture.com, is in charge of a study entitled Future Unveiled, a provocative and inspirational tour of the emerging tendencies, of the trigger sources and of the ideas and developments that make up tomorrow’s world, as a result of examining the outcomes and opportunities for the individuals, the society, the big and small companies, the NGOs and governments. Intelligent companies succeed in creating their future. Prospective studies generate sustainable development, in the long run, for those countries, cities and sectors of the industry which embrace them in their strategies. Tomorrow’s business models have to respond to a rapidly changing market. 

Romania 4.0 

Romania ranks 62nd in the Global Competitiveness Report 2016-2017. In the 2015-2016 report, Romania ranked 53rd out of 140 states, the most problematic factors undermining business dealings being: the tax rates, the inefficient governmental bureaucracy, the access to funding, the inadequate infrastructure and corruption.

Romania ranks 62nd in the Global Competitiveness Report 2016-2017. Making use of the Global Indicator of Competitiveness, the report evaluates the competitiveness landscape of 138 economies, offering a unique perspective on the sources of productivity and prosperity.

In the 2015-2016 report, Romania ranked 53rd out of 140 states, the most problematic factors undermining business dealings being: the tax rates, the inefficient governmental bureaucracy, the access to funding, the inadequate infrastructure and corruption. Romania ranked the lowest:

  • within the first pillar (Institutions), with respect to the ethical behavior of companies: 122/140; of losses related to government spending – 114/140; of favoritism in the decisions of government officials – 111/140; of public trust in the politicians – 112/140;
  • within the second pillar (Infrastructure), with respect to road quality – 120/140;
  • within the fourth pillar (Health and primary Education), with respect to primary education enrolment (net %) – 117/140;
  • within the sixth pillar (general market efficiency), with respect to the impact of taxes upon investment incentives – 126/140; intensity of local competitiveness – 112/140;
  • within the seventh pillar (Labor Market Efficiency), with respect to the impact of taxes upon labor incentives – 118/140; the capacity of the state to retain talent – 131/140; the capacity of the state to attract talent – 113/140;
  • within the eighth pillar (Financial Market Development), with respect to the availability of capital – 103/140;
  • within the twelfth pillar (Innovation), with respect to the purchase of high-tech products by the Government – 105/140; company spending on R&D – 94/140.

Despite all of these hindrances, Romania still displays a native “future-proofness”, which can endow it with an advantage on the global arena of competitiveness. The decisive element remains, however, a government with an innovative approach. 

A new chapter – the role of Competitive Intelligence 

Recently, the growing appetite for competitive intelligence as compared to business intelligence and marketing intelligence resulted from the fact that the former entails a process of collecting and analyzing the information about the competitors and the industries in which they conduct their activities, with the aim of helping the organization to make better decisions in order to achieve its goals. Corporate intelligence, business intelligence and marketing intelligence, as well as other similar terms, are often used alternatively, with the difference being that of order rather than substance, but this is a subject for a future article.

 

[1] http://www.visualcapitalist.com/74-trillion-global-economy-one-chart.

[2] Also, the dimensions of urban spaces do not constitute a constraint on competitiveness. Access to sea routes remains an advantage. Last but not least, the quality of a city's physical capital is closely correlated with global competitiveness.

[3] http://www.businessinsider.com/exclusive-jpmorgan-employee-note-confirms-aggressiveinvestment-in-block-chain-technology-and-robotics-2015-12.

[4] to project the software, a computer etc., in order for the latter to be used in the future regardless of what technological changes may take place http://dictionary.cambridge.org/dictionary/english/future-proof however to consult also the point of view available at https://www.techopedia.com/definition/2204/future-proof.

 
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