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Geographical location – or helping to create it – dictates companies’ success

29 April 2022 • by Arturo Bris, Philip Rosenzweig in Videos

To boost company performance, executives must support the competitiveness of their countries and embrace public-private collaboration to help articulate and implement national strategy, say IMD Professors Arturo Bris and Phil Rosenzweig....

All too often, management talk centers around those aspects that senior executives can control – at least in theory. But how about those that seem beyond their immediate sphere of influence, like national governance?

This was the subject of an I by IMD Book Club webinar led by Phil Rosenzweig, Professor of Strategy and International Management at IMD, who quizzed Arturo Bris, IMD Professor of Finance and Director of the IMD World Competitiveness Center (WCC), on his 2021 book The Right Place: How National Competitiveness Makes or Breaks Companies.

Bris said, “Executives in global firms need to realize that tracking the quality of the countries in which they operate is crucial; operating in Argentina isn’t the same as doing so in Jordan. And I’m referring as much to where they set up their factories as the markets they target – selling products in Singapore is probably easier than in Nigeria.”

Overall, a national strategy needs to exist, but countries must be able to differentiate themselves during this process. The industrial transformation that took place in South-East Asia – but also South Korea – involving Taiwan, Thailand and the Philippines is a good example of how doing so works, where blindly copying others rarely does.

“After the Second World War, South Korea and Korea specialized,” Bris explained. “South Korea in steel and automotive, and Taiwan in semi-conductors. Thailand didn’t, but tried to copy them. Now, have you ever heard of a famous Thai car brand?”

Creating your differentiation goes hand in hand with “branding” your country in a particular way, he argued, using Thailand as an example.

“More than 16% of Thailand’s GDP today comes from the tourism it receives – but it used to be ‘low class’ (backpackers and sexual tourism), so it started a tourism program which emphasized natural beauty and Thai food, which led to greater appreciation of its cuisine. Peru’s approach to branding was similar.”

The lack of consensus in the US largely explains why its competitiveness has fallen over the years. But public sector investment in high schools and universities relative to GDP is much higher in the US than the global average, so the performance of students in the labor market isn’t bad at all
Arturo Bris

Education and talent retention: laying the groundwork for national competitiveness

Education is a long-term pillar for competitiveness but is often forgotten because certain political processes – such as the four-year maximum tenure for any incumbent president in Mexico – can hamper any meaningful long-term commitment towards building a good, lasting education system.

But what is a good education system, exactly? Bris argues that it needs the voice of the private sector to fit the labor market of a country and promote competitiveness.

“Just look at Singapore,” he explained. “The private sector says what it needs, and the government changes the curriculum.”

But, he added, governments need to go further still to ensure talent is retained. “There are countries with relatively good education systems whose talent leaves, such as is rife in Eastern Europe and was common in Ukraine even before the Russian invasion.”

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The US, and the concept of being “relatively ok”

In the yearly IMD World Competitiveness Ranking, the US is often at or near the top, and yet Rosenzweig, a US native, pointed out that basic education in the country doesn’t have a good reputation. Conversely, the country is a magnet for talent.

“Our infrastructure, too, seems way behind,” he said. “We spend a lot of our GDP on healthcare, but we don’t have obviously good results. As for political consensus, it’s only got worse over the years. It’s an odd mix. If it’s not explicit branding, it’s how we are perceived abroad – soft power or cultural power – and that’s very powerful.”

Asked to imagine he was advising the US on its competitiveness, Bris responded, “The lack of consensus in the US largely explains why its competitiveness has fallen over the years. Public sector investment in high schools and universities relative to GDP is much higher in the US than the global average, so the performance of students in the labor market isn’t bad at all. Also, the match between the education system and job opportunities for graduates is very good, relatively speaking. After all, it’s easier to be employed in the US if you have a university degree compared to many other countries.”

Regarding infrastructure, Bris pointed out that when you consider non-physical (i.e. digital) infrastructure, the US tops the WCC’s digital connectivity criterion and its full Digital Competitiveness Ranking.

So, what are the major challenges in the US today? Bris argued that it’s down to the structure of its government, and its inherent inefficiency, adding, “The private sector is to some extent corrupt, and does not serve the needs of society. In terms of equality, the social gap is huge.”

Corporate leaders also underestimate their ability to shape policy and change governmental actions to create change, which Bris argues is much easier in a small country like Denmark.

But customers and shareholders do want their senior executives to speak up about important issues because their opinion matters for policymaking, said Bris. “Personally, if I buy a product, I want the CEO to have an opinion on, say, Ukraine, or policies in their country.”

Rosenzweig concurred, adding, “With climate change and sustainability center stage, there is an expectation from both the public and from employees that businesses will play a more active role in shaping the government agenda in terms of the future of competitiveness.”

However, in some countries, such as Switzerland and Thailand, the private sector is more proactive in political decision-making than in others. On the other hand, there are countries where political leaders are (or purport to be – probably for political reasons) totally deaf to the needs of the business sector, such as Brazil and Venezuela.

“This is a recipe for disaster,” Bris warned. “But let’s be clear – it’s not because we want to promote capitalism that we need to listen to corporate executives; it’s because they bring the voice of civil society.”

Authors

Arturo Bris - IMD Professor

Arturo Bris

Professor of Finance at IMD

Arturo Bris is Professor of Finance at IMD. Since January 2014 he is also leading the world-renowned IMD World Competitiveness Center. He is Program Director of the Navigating Fintech Innovation and Disruption program.

Phil Rosenzweig - IMD Professor

Philip Rosenzweig

Professor of Strategy and international Management

Phil Rosenzweig has been Professor of Strategy and International Management at IMD since 1996. He directed IMD’s Executive MBA program for six years. He is the author of The Halo Effect … and the Eight Other Business Delusions that Deceive Managers (Free Press, 2007).

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