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Where’s the best place to start a new company?
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Imagine that you could open a business anywhere. Where would you choose?
The answer is in competitive economies. Whether or not a country is competitive is not determined by short-term growth, countries’ own assessment of prosperity, or even competition. Rather, it is about the ability to generate sustainable long-term value.
From an entrepreneur’s point of view, another key factor identified by the IMD World Competitiveness Center is that a country that improves its competitiveness will see a subsequent improvement in GDP and stock market growth.
This indicates that competitiveness is a key economic driver in a way that simple economic growth is not; past economic growth does not automatically lead to future stock market returns.
Competitiveness at the country level is about managing resources and competencies — the value drivers — to create an environment in which companies can maintain sustainable value creation.
Doing this effectively requires the country to have the right value drivers in their economy and to manage them, as opposed to managing key performance indicators. For example, Mexico is focusing on value drivers to increase its competitiveness by improving its health care and educational systems and reducing its public sector; Chile’s massive educational reform aimed at ensuring everyone has access to education means the country has fewer resources to develop its infrastructure, but education is an important tool to reduce income inequality, and therefore a driver of competitiveness.
Good government
Good government entails good regulation, transparency, and a focus on people. Although jobs are created by the private sector, governments need to develop a favorable environment for companies to be able to generate jobs.
Countries that fail to provide this are less likely to attract business investments. Many developing countries have poor infrastructure (among other things), which prevents many organizations from running their business there. Good regulation and infrastructure are essential elements for business creation.
Country competitiveness also requires development of the private sector to boost business and job creation. In this context good regulation, such as that seen in Switzerland, is essential to promote entrepreneurship and allow companies to attract capital.
Other important characteristics of competitive countries include leadership and a strategy for the short and long term. Think about the strategies countries have been implementing to emerge from the crisis in Europe. Spain is working its way out of the crisis, but what exactly is its economic strategy?
It is frequently difficult to explain a country’s economic policy, but one example of a country that has a clear strategy is Mexico. Its president, Enrique Peña Nieto, said: “Mexico urgently needs a series of structural reforms that will generate more public welfare.”
Strategy should not only provide answers to short-term problems but also focus on long term issues, since one of the main drivers of competitiveness is a long-term orientation. However, the difficulty here is that most political systems hamper long-term vision because leaders tend to focus on quick wins in an effort to win the next election.
Each country should develop a framework and strategy that is relevant to their own specific context. Learning from good practice is one thing but copying another country’s competitiveness model is not a good idea because no two countries have the same context.
As Stéphane Garelli, former director of the IMD World Competitiveness Center, said: “It doesn’t matter which country you go to, the salad is going to be different. It doesn’t mean it is going to be better; it is just going to be different.”
So, back to our original question: where should you set up your new business? Our research suggests that you should choose a country that is determined to be competitive. Look for one with leadership; a long-term view; a clear, focused, and unique strategy; and development that supports both private enterprise and institutions.
Arturo Bris is Professor of Finance at IMD and directs the IMD World Competitiveness Center. He is a keynote speaker at IMD’s Orchestrating Winning Performance program in Lausanne, which runs from June 27 — July 1, 2016. Shanghai Daily condensed the article.
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