World business rankings demonstrate need for improvement for NZ

The World Economic Forum's Global Competitiveness Index was released recently.

The index defines competitiveness as the set of institutions, policies, and factors that determine the level of productivity of an economy, which in turn sets the level of prosperity that a country can achieve.

New Zealand has improved from 16th place last year to 13th in this year's ranking. It was ranked 23rd only five years ago. There are good signs in areas such as financial market development (ranked 1st), institutions (3rd), labour market efficiency, and heath and primary education (both 6th).

The index is generated by combining 114 indicators that are grouped into 12 pillars: institutions, infrastructure, macroeconomic environment, health and primary education, higher education and training, goods market efficiency, labour market efficiency, financial market development, technological readiness, market size, business sophistication, and innovation.

Some areas to improve on

We should also look at those attributes in which New Zealand is not doing well. Any attribute ranking lower than 13th would warrant further investigation.

New Zealand's market size is ranked 64th. But we all know this is something that is mostly out of our control.

Infrastructure and macro environment ranked 27th and 17th respectively. Then there's business sophistication (26th) and innovation (23rd). Looking at infrastructural factors, New Zealand scores poorly in major transport-related areas such as roads and rails, and barely average in port and air transport. Gross national savings were appalling among macro environment factors.

Business sophistication and innovation

The areas related to business sophistication and innovation are even more telling.

In 12th position, supplier quality is ranked highly. But quantity is ranked at 72nd. This comes as no surprise given New Zealand's capacity.

The nature of competitive advantage (relating to the uniqueness of New Zealand's products and processes globally), value chain breadth (relating to participation in range of activities across the value chain), and control of international distribution are not well ranked.

Value chain breadth, in particular has dropped from 34th position last year to 39th this year.

hile we have the quality and capacity to innovate, company spending on research and development, and the availability of scientists and engineers could be better.

Some of these serve as a wake-up call. Other countries have moved up the ladder on the world stage and New Zealand cannot become complacent.

International and innovation-related dimensions are pillars of growth. We cannot afford not to spend time scrutinising our performance in these spaces.

Due to its market size and distance from other parts of the world, New Zealand cannot afford to miss opportunities to present unique propositions overseas, to extend its participation into more aspects of the value chain, or to have inadequate control of distribution.

Likewise, failing to focus on innovation and its commercialisation can only lead to a slowdown.

Consistent messages

The latest World Economic Forum's Global Competitiveness Index (GCI) reminds me of the World Bank's Doing Business Index (DBI).

The index rates countries using 10 indicators from starting a business to resolving insolvency. These indicators are then used to rank each country based on the ease of doing business there.

In the latest DBI, New Zealand was ranked 1st for starting a business, getting credit, registering property, and protecting minority investors. The country was ranked 2nd overall.

Notably, trading across borders ranked low at 55th spot in the DBI. Trading across borders is assessed based on the time and cost of export and import.

This is consistent with the GCI scores for New Zealand in business sophistication. And should be a concern for a country that seeks larger stakes in trade.

Despite New Zealand's good position in these ranking systems, it is clear that engaging internationally continues to be a challenge.

We should treat the high ranking as a motivation, but must seek to delve into the underlying issues that cause the country to be ranked low in international dimensions.

After all, the market size and distance justify the need (and not just the challenges) for New Zealand's organisations to be abroad.

Published on stuff.co.nz