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LEVERAGING COMPETITIVENESS TO WAGE WAR AGAINST SHORT-TERMISM

Building the house of sustainable competitiveness

By Dr. Suzanne Rosselet, World Competitiveness Center, Deputy Director - November 2011

It’s not just hard economic times. Short-term views are all around us and are partly responsible for today’s global recession. You don’t have to look far to find evidence of individuals who sought double-digit returns on share prices and property investments; brokers who undertook high-frequency trading; companies who boosted quarterly results to meet shareholders’ expectations; or politicians who promoted “quick-fix” and often populist policies to win elections.

Though short-term actions may produce quick and lucrative results, the long-term consequences can be disastrous. From the financial crisis of 2008 to today’s “Occupy Wall Street,” we have testament that many societies have been suffering from short-termism.

How did we get here? Unfortunately, the drive for competitiveness is often misunderstood as a win-lose battle between firms or currency wars between nations and encourages short-term decisions. But for any company or nation, narrowly looking at cost, price or export competiveness will not be enough to deeply impact sustainable profitability or economic development.

To really get ahead, sustainable competitiveness must be the ultimate objective of a business or national development strategy. And, if properly understood, sustainable competitiveness could be the remedy to the cancer of short-termism.

But what is sustainable competitiveness? Though sustainability is the key word, it shouldn’t be limited to sustainable development. Sustainable competiveness is much more than a strategy for the environment; it implies achieving competitiveness gains today without compromising future competitiveness.

As competitiveness implies doing something better than somebody else, sustaining that advantage means constantly fine-tuning and building on one’s strengths or talents. On an individual level, this could mean a young manager acquiring an MBA to boost his or her career opportunities or an athlete that endures constant training and privations to rise to the top podium.

For a company, sustainable competitiveness is much more than profitability through cost or differentiation. It entails sustaining competitive advantages through constant upgrading and innovation to remain cutting-edge and ahead of the pack. For nations, competitiveness involves how countries manage their resources (land, labor, capital and knowledge) and competencies (skills, infrastructure, technology, etc). But sustainable competitiveness is about leveraging advantages and improving weaknesses to achieve greater prosperity for the population by increasing living standards and human development (health, education, training, wellbeing).

No matter on the individual, corporate or national level, the rationale for eradicating short-termism could be achieved through sustainable competitiveness. But achieving this takes time and effort and involves multiple stages, much like building a house.

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As all buildings start with a foundation, the house of sustainable competitiveness is no different. Macroeconomic stability and openness to the outside world are the first important stepping stones that will help a country or business move up the ladder of competitiveness. Yet, these factors are merely a foundation, and are by no means sufficient to ensure sustainable competitiveness. Looking at the global financial crisis, many developed economies have thrown macroeconomic stability to the wind, damaging the base of sustainability in the long-term.

Once a foundation is laid out, sustainable competitiveness requires strong support beams. These include an efficient institutional and legal framework, infrastructure (basic, financial and social) and a national and corporate culture that supports competitiveness. The greater the depth and development of these key structures, the greater is the potential to move towards higher prosperity.

Institutions need to be efficient, transparent and accountable and legislation coherent and predictable. The environment doesn’t even have to be particularly “business-friendly” but investors need to know the rules of the game.

Physical infrastructure requires constant maintenance and development, combining access to markets and harnessing technology to promote first-class transportation and communications networks. Financial infrastructure needs efficient services and capital markets, which are accessible, affordable and diversified, and which support entrepreneurship, start-ups and SMEs. Social infrastructure encompasses a range of investment in human development from healthcare to education, to protection of the environment to the effective management of urbanization.

National and corporate culture characterize to what extent a nation’s value system is supportive of competitiveness and how open its national culture is. Research findings reveal significant correlations between a nation’s competitiveness, its image abroad and its value system. Strong corporate governance in terms of ethical practices, social responsibility, health, safety and environmental concerns, constructive labor relations, and an emphasis on employee training and customer satisfaction are all important components.

With a strong foundation and structure, one can get far, but the “tipping” factor that moves nations forward and provides the means for companies to improve productivity and move up the value chain, lies in technology and innovation. Highly competitive environments are conducive to boosting innovative capacity. Like a protective roof, technology and innovation are the ingredients to stay ahead of the game and move on to new frontiers.

How can we aim for sustainable competitiveness?

Since the competitiveness of nations is built on the premise that only enterprises create wealth, not nations, governments need to provide an environment that supports the ability of its companies to compete. To do this, a long-term vision is required. Governments should stick to governing: ensuring security, stability and long-term investment in the resources on which companies are dependent: education and skills, infrastructure, R&D, financial capital, alternative energies, etc. Business legislation should encourage transparency and penalize corruption; regulations need to be effectively implemented and enforced; laws should ensure fair competition practices and discourage an excessive concentration of power or cronyism. A national competitiveness strategy for sustainability also addresses areas of vulnerability, such as demographics, a skills gap, technological catch-up, or resource depletion.

This seems so obvious but when it comes down to a choice between short-term political gains versus long-term prosperity, many politicians are opting for the former. Sustainable competitiveness implies making sacrifices today to achieve long-term improvements in living standards and wellbeing. Even if short-term gains are achieved, there is a risk that they might compromise the competitiveness and prosperity of future generations. It is time for a paradigm change.

For more on sustainable competitiveness from Suzanne Rosselet, watch the video.

Dr Suzanne Rosselet-McCauley is the Deputy Director of the World Competitiveness Center at IMD Business School in Lausanne, Switzerland (www.imd.org). She holds a degree in economics from Stanford University and a PhD from the Geneva School of Diplomacy.



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