GLOBALIZATION AND THE COMPETITIVENESS OF

ENTERPRISES AND ECONOMIES IN BALTIC SEA REGION

Conference European Integration and Baltic Sea Region: Diversity and Perspectives

September 26-27, 2011, Riga, Latvia

Gints TurlajsMSc Econ, PhD candidate

Accounting & Consulting Institute (www.aci.lv), General Manager

Email: gints@aci.lv, Telephone: +371 29409509

BSR at a glance• The competitiveness of enterprises in the

Baltic Sea Region is heterogeneous as the region itself.

• The region 20 years ago was divided by the iron curtain.

• Countries privileged to develop their market economies in relative peace live now together with more troubled ex-soviet economies rapidly converted to free market economies 20 years ago, but still remarkably different.

EU integration and BSR

• The entry of Eastern part BSR countries to the EU has done much good, they are growing and accelerating.

• Dismantlement of borders is beneficial to economies as a whole.

Justification to open bordersJustification to open borders

Price

Quantity

Domestic supply

Domestic demand

Pworld

Q1

A

B

C

Q0

A+B = domestic consumer’s surplusE+C = domestic producer’s surplusQ0 = domestic production quantityQ1–Q0 = imported product quantityD = tariff revenue for governmentG+F=welfare loss to the society (dead weight loss)

Pworld+ tariffD

E

FG

EU GRP figures and BSR place

GDP in per capita in 2010 Purchasing Power Standards (PPS) (EU-27 = 100)

0

50

100

150

200

250

300

LU

NO

US

CH

NL IE AT

DK

SE

BE

DE

Fin

land

UK

EU

15 IS

Euro

17

Euro

16

FR JP

EU

25

ES

EU

27 IT CY

GR SI

MT

PT

CZ

SK

EE

HU PL

CR LT

LV

TR

RO

BG

MK

Contry

%

Source: Eurostat

Differences and strength in them

• GDP figures clearly show the still remaining gap.

• Heterogeneity is a strength of the region as well as it unifies low costs with some of the world’s best enterprises with long established, successful history and accumulated experience.

• BSR enterprises from West part can reach significant savings by using lower costs nearby, linked by inexpensive and effective waterways.

EU innovation performance, 2010

Source: Innometrics, 2011

Gap in innovation

• Gap in innovation between East and West still remaining.

• Estonia is closing up.

• Latvian innovation performance is catastrophic, higher education and science financing is record low.

Clusters and future• As in the whole world many different clusters

are in place in the BSR. • It can be expected that the BSR as a whole

will become more homogenous and competitive with time.

• Also high cost and income countries can be competitive as well and, for example, according to World Economic Forum measurement are considered as most competitive.

Competitiveness is changing

• Competitiveness of enterprises and economies is changing.

• South East BSR countries becoming wealthier and lose low cost advantage.

• All BSR is competitive in the world as a whole, Nordic countries and Germany being considered as some of the globally most competitive.

• Asia is emerging as the new globally economically dominant region.

How relevant is national competitiveness?

• The national boundaries due to globalization are disappearing.

• Especially evident in EU, part of which is BSR.

• However, an industrial cluster usually is comparatively geographically compact and fits into one country.

National and firm competitiveness – how are they related?

• We walk into the shop and select cheapest products with acceptable quality, price is important to us.

• If national competitiveness is the sum of the competitiveness of individual firms, it should work the same.

• Most competitive economies in our understanding could be with low labour costs but developed industry like BRICS.

• We know that goods from China are competitive in shops, the country is building foreign reserves fast.

The Global Competitiveness Index 2011–2012 rankings

IMF figures: World’s richest countries by GDP per capita at PPS, 2010

Flag, Rank   Country USD

1        Qatar 88,222

2        Luxembourg 81,466

3        Singapore 56,694

4        Norway 51,959

5        Brunei 48,333

6        United Arab Emirates 47,439

7        United States 46,860

—        Hong Kong 45,944

8        Switzerland 41,950

9        Netherlands 40,973

10        Australia 39,764

11        Austria 39,761

12        Ireland 39,492

13        Canada 39,171

14        Kuwait 38,775

15        Sweden 38,204

16        Iceland 36,730

17        Denmark 36,443

18        Belgium 36,274

19        Germany 36,081

20        China, Republic of (Taiwan) 35,604

GCI and GDP

• All of top 10 countries in GCI are in top 25 by GDP (PPS).

• World Economic Forum, the creators of GCI under the leadership of Prof. Michael Porter, indicates that competitiveness is being measured as productivity.

• Is this correct? Approximating competitiveness as productivity makes it very close to GDP.

GCI and competitiveness• GCI constructed and lead by Prof. Michael

Porter, however, draws a different conslusions.

• It is largely based on expert opinions which might be subjective and biased.

• Author proposes a new definition and illustration of firm competitiveness that interplays with definition and illustration developed by M.Porter.

• Competitveness concepts should take into account price competitiveness and dynamics.

Productivity and GDP

Productivity = Value created/WorkersGDP Per Person = Value created/People

They are almost the same!

• There should be also other alternative ways to measure competitiveness.

• The alternative ways should take into account dynamics.

Classical Porter’s diamond of national competitiveness

Factor conditions

Demand conditions

Related & supporting industries

Firms strategy,

structure & rivalry

Classical Porter’s five forces

Threat of substitutes

Threat of new entrants

Bargaining power of customers

Bargaining power of suppliers

Competitive rivalry in an

industry

Author’s proposition: competitiveness of individual

enterprise

Competitiveness of individual enterprise

Product needed by consumers

Attractive price

Effective marketing

Author’ s proposition: Enhanced Porter’s diamond

Factor conditions

Demand conditions

Related & supporting industries

Firm strategy,

structure & rivalry

Natural endowment

Business development, market size, openness

Competitiveness of individual enterprise

Product needed by consumers

Attractive price Effective marketing

Business development, market size, openness

Bargaining power of suppliers

Bargaining power of customers

Threat of entrants

Threat of substitutes

Conclusions• Gap in BSR in GDP at PPS is still remaining,• Gap in BSR in Innovation remaining strong, only

Estonia closing up.• Alternative measures of national competitiveness

should be developed.• Alternative explanation of factors behind

competitiveness has already been developed by author.

• Simple concepts known by every student are useful, but require deeper specialist investigation, new approaches can be developed.