Keeping Your Edge as the Developing World Gets Competitive
BY Diana Ransom
A new study released at Davos shows the U.S. economy made strides in the past year, but emerging markets cast a long shadow.
As a business owner, you might be accustomed to looking to the developing world for cost efficiencies and added sales. That strategy’s longevity may soon get tested, a new study out of Davos suggests.
The U.S. is showing signs of renewed vigor when compared with global rivals, according to the World Economic Forum's annual Global Competitive Index Report, which was released this week in Davos, Switzerland. In this year's report, which ranked the competitive strength of 148 countries, the U.S. rose two full positions--rising to fifth place, just behind Finland and Germany and surpassing the Netherlands and Sweden. Previously, the U.S.'s position in the ranking had declined for four consecutive years.
The U.S.'s rise in the ranking is due largely to two factors: a healthier, less-levered banking system and a more positive view of public institutions, as evidenced by Congress's recent drama-free spending agreement.
Further, the U.S. benefits from more flexible labor markets and a sophisticated pool of businesses that are supported by an "excellent" university system that collaborates effectively in commercializing research-and-development projects, according to the study.
But headwinds persist. U.S. companies may now rule the roost, but as technological advances spread, developing countries will become stronger competitors for talent and resources. If you’re among the businesses relying on the developing world for its manufacturing prowess and low-cost labor, you may see the upside from that relationship erode.
This means that if you haven’t already, revisiting your growth plans--and possibly devising a backup strategy--may be in order.
Evolving Terrain In recent years, advanced economies have looked to developing countries to speed up their economic engines and fuel the global economic recovery. While this strategy has worked brilliantly, the WEF study notes that it could have unintended consequences. Namely, that with a higher profile, emerging markets could pose future competitive challenges for U.S. businesses and other economic powerhouses.
"The traditional distinction between countries being 'developed' or 'developing' will become less relevant," notes the study. "We will instead differentiate among countries based on whether they are 'innovation rich' or 'innovation poor.'"
This trend is already on display as the Chilean government-backed accelerator Startup Chile attracts U.S. entrepreneurs in droves. On the other side of the world, entrepreneur and angel investor Fadi Ghandour recently teamed up with the International Finance Corporation to launch a new venture capital fund for tech startups across the Middle East and North Africa, known as the MENA region.
The Way Forward A greater emphasis on fast-growth businesses and innovation in the developing world is hardly a bad thing. Many businesses would celebrate a blurring of the line between developed and developing countries--particularly among companies that supply the tools that knowledge workers might use. The trend may, however, give pause to more traditional businesses that rely on these nations for an inexpensive labor force and other resources.
Here are three prescriptions for U.S. competitiveness from the report and beyond that could help your business stay on top:
1. Seek greater efficiencies. For companies that are reliant on the developing world for its manufacturing gusto, a kind of evolution of business practices may be in order. While this likely sounds easier said than done, experimenting with more efficient techniques or other productivity-enhancing measures couldn't hurt. Plus, a number of companies are actually bringing their processes back to the U.S.--hoping to seize on more advanced tools here at home.
2. Keep innovating. The report suggests a higher-level but still noteworthy prescription for enhancing U.S. competitiveness: Continue to create and foster new value-added products, processes and business models through innovation. Further, businesses should work collaboratively with the public sector to create environments that enable entrepreneurs and encourage innovation.
3. Invest in education. Finally, the education system, though world-class in the U.S., will need to evolve too. The study points out that the skills gap, particularly in technology field, will need to be addressed, as will an ongoing emphasis on cultivating future entrepreneurs. If you didn’t already think it’s in your interest as a business owner to support improving the U.S. education system, here’s another reason.