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Contracting abroad: the future of country competitiveness will depend on innovation

Contractors looking for the most competitive countries for contracts can use the latest, 2013-2014 edition of the World Economic Forum’s (WEF) Global Competitiveness Index. This monster 569-page edition highlights the importance of innovation in making a country competitive.

WEF founder and executive chairman Klaus Schwab believes the traditional distinction of ‘developed’ and ‘less developed’ will fade, and that governments must create education systems, institutions and environments in which innovation can flourish. “We will instead refer to [countries] much more in terms of being ‘innovation rich’ versus ‘innovation poor’,” says Schwab.

As Cranfield University research has shown that contractors are key enablers of innovation, contractors are likely to find Schwab’s ‘innovation rich’ countries more attractive destinations for contracting.

Key country rankings in 2013-2014

The top three most competitive countries have not changed. Switzerland remains the most competitive country, its fifth year at the top of the rankings. Singapore and Finland follow in second and third places respectively.

Two of the three countries at the bottom of the table remain the same: Chad is the lowest ranked country in 148th place and Burundi, another in the bottom three in 2011, is ranked 146th. Guinea is the third of the bottom three, in 147th place.

However, the rest of the index has seen some substantial changes, including many European countries which are popular contracting destinations being ranked lower as a result of the eurozone crisis.

The UK drops two places to 10th

The UK’s ranking has fallen from eighth place to tenth. According to the Index, the UK “deteriorates slightly in several areas, most notably its macroeconomic environment [down from 85th place to 115th place] and its financial markets”. The level of public debt is cited as “the greatest drag on [the UK’s] competitiveness”.

The report highlights a shift in the narrative of the global economy from one year ago, when fire-fighting still characterised much of global and regional economic policy. This has now given way to an increasing urgency for leaders to make wide-ranging structural reforms to their economies

Professor Xavier Sala-i-Martin, Colombia University

Despite this, UK contractors underpin the “clear strengths, such as the efficiency of its labour market (fifth highest ranked) in sharp contrast to the rigidity of those of many other European countries”.

Contractors also make a contribution to the UK’s 12th place ranking in the innovation category, and “the highly developed financial market also remains a strength overall, despite some weakening since last year”.

Popular expat contractor destination rankings

Many popular contractor destinations continue to perform well and are highly ranked. These include:

  • Singapore: in second place again, and the only country to be in the top three across seven of the 12 global competitiveness criteria. As a trading hub, it is an excellent base for contractors in Southeast Asia
  • Germany: up two places to fourth place, and third place for innovation, an attractive trait for contractors. However, “some shortcomings remain with respect to labour markets and the educational system”
  • United States: The US has climbed two places to fifth place overall. It features high levels of innovation and flexible labour markets, which make it an ideal destination for UK contractors
  • Japan: The index report actually highlights multiple reasons why Japan is not a popular contractor destination, such as rigid and inflexible labour markets, heavy regulation and taxation and low foreign investment. However, the country is first in the business sophistication category and sixth in innovation. Japan’s government has pledged to address the structural issues damaging competitiveness, which could open up the market for expat contractors
  • Australia and New Zealand: For the first time, Australia has fallen out of the top 20, and is in 21st place. In contrast, New Zealand has risen five places. Despite being a popular contracting destination, Australia’s decline is mainly down to the rigidity of its labour market, ranking 137th (out of 146) for rigidity of hiring and firing practices. “The business community cites labour regulations and bureaucratic red tape as being, respectively, the first and second most problematic factors for doing business in their country”.

Report co-author, and professor of economics at Colombia University in the USA, Xavier Sala-i-Martin, highlights the need for some countries to implement reforms, many of which will benefit contractors, especially now that the global economic downturn has reduced in serverity.

“The report highlights a shift in the narrative of the global economy from one year ago, when fire-fighting still characterised much of global and regional economic policy,” notes Sala-i-Martin. “This has now given way to an increasing urgency for leaders to make wide-ranging structural reforms to their economies.”

Changes since 2011

The methodology follows the same principles, based on 12 pillars, as the last report published in 2011. Interestingly, many countries have shifted position in the index becoming more, or less, competitive. This data can be a good guide to attractive locations for contractors looking for expat opportunities.

This year’s index features three new countries, Bhutan, Lao People’s Democratic Republic (Laos) and Myanmar (Burma). Angola and Tunisia have been reinstated, although Syria and Tajikistan are not included. This takes the total ranked up to 148, the highest ever number of countries ranked.

Although many of the nations surveyed might not seem like obvious contracting hotspots, many have natural resources or construction programmes that are attracting oil and gas and engineering contractors. The index provides valuable insights into some of these less well known territories.

Published: 16 September 2013

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