Global Competitiveness:part 6

Eleventh pillar: Business sophistication

                   Business sophistication is conducive to higher efficiency

in the production of goods and services.

This leads, in turn, to increased productivity, thus enhancing a nation’s

competitiveness.

Business sophistication concerns the

quality of a country’s overall business networks as well as

the quality of individual firms’ operations and strategies.

This is particularly important for countries at an

advanced stage of development,

when the more basic sources of productivity improvements have been exhausted

to a large extent.

The quality of a country’s business

networks and supporting industries, as measured by the

quantity and quality of local suppliers and the extent of

their interaction, is important for a variety of reasons.

When companies and suppliers from a particular sector

are interconnected in geographically proximate groups

(“clusters”), efficiency is heightened, greater opportunities

for innovation are created, and barriers to entry for new

firms are reduced.

Individual firms’ operations and strategies

(branding, marketing, the presence of a value chain,

and the production of unique and sophisticated products)

all lead to sophisticated and modern business processes.

Twelfth pillar: Innovation

              The final pillar of competitiveness is technological innovation.

Although substantial gains can be obtained by

improving institutions, building infrastructure, reducing

macroeconomic instability, or improving human capital,

all these factors eventually seem to run into diminishing

returns.

In the long run, standards of living can be enhanced only by technological innovation.

Innovation is particularly important for economies

as they approach the frontiers of knowledge and the

possibility of integrating and adapting exogenous technologies

tends to disappear.

Although less-advanced countries can still improve

their productivity by adopting existing technologies or

making incremental improvements in other areas, for

those that have reached the innovation stage of development,

this is no longer sufficient for increasing productivity.

Firms in these countries must design and develop

cutting-edge products and processes to maintain a competitive

edge.

 This requires an environment that is conducive

to innovative activity, supported by both the

public and the private sectors. In particular, it means sufficient

investment in research and development (R&D),

especially by the private sector; the presence of highquality

scientific research institutions; extensive collaboration

in research between universities and industry; and

the protection of intellectual property.

 Amid the present

economic uncertainty, it will be important to resist pressures

to cut back on R&D spending—both at the private

and public levels—that will be so critical for sustainable

growth going into the future.

The interrelation of the 12 pillars

While we report the results of the 12 pillars of competitiveness

separately, it is important to keep in mind that

they are not independent: they tend to reinforce each

other, and a weakness in one area often has a negative

impact on other areas.

For example, innovation (pillar 12)

will be very difficult without a well-educated and trained

workforce (pillars 4 and 5) that are adept at absorbing

new technologies (pillar 9), and without sufficient

financing (pillar 8) for R&D or an efficient goods market

that makes it possible to take new innovations to

market (pillar 6). 

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