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IMF Remedy: Austerity and Growth

Wednesday, May 9th, 2012

Austerity or government investments to achieve growth? According to Ms. Christine Lagarde, Managing Director of the IMF, a mix of both is needed to achieve balanced growth. Only a well paced country specific fiscal adjustment combined with labour and product market reforms are the solution to overcome the current economic and financial instability and achieve economic and labour market growth. Lagarde explained the challenges the world faces today and emphasised that a joint effort of advanced and developing countries is required at a lecture organised by the Swiss Institute for Foreign Research (SIAF) at the  University of Zurich

Global growth is estimated about 3,5% in 2012

The IMF estimates the global economy will grow with 3,5% this year. However, there are big differences: advanced economies are expected to grow 1,5% in 2012, with a mild recession in Europe, whereas developing countries are doing much better with growth of about  5 ¾% in 2012. These figures are far below those of the last years causing a global rise of unemployment and in particular hitting young people and might cause social and political instability, in particular in developing countries.

 

Estimated GDP growth in percentages for the next five years (IMF World Economic Outlook Database April 2012, Global-Arena.com analysis)

 

Reforms needed to regain competitiveness

Lagarde stressed that the measures and pace differ for each country in order for them to return to growth and that the focus shouldn’t be on short term fiscal measures themselves, but on achieving the fiscal goals in due course. Besides fiscal austerity Lagarde emphasised that these measures should be combined with structural reforms. The US needs to implement it’s housing reform, like Iceland and Ireland already did. Southern European countries should reform their labour and product markets to regain competitiveness by lowering their minimum wages, and by increasing competition in markets such as transportation and construction. On the other hand export driven economies like China should strengthen their domestic consumption market to rebalance the global economy. At the same time a collective effort is needed to reform financial markets should be reformed and a global safety net should be created.

 

Arjen Goetheer, CIO Global-Arena.com

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Posted in: Austerity, China, Competition, Developed economies, Economic growth, EU, global-arena.com, Iceland, Ireland, Labour market, New Competition for Growth, Structural reforms, US
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Most competitive clusters offer the most attractive business environment

Tuesday, May 8th, 2012

In today’s global economy the development of clusters receives much attention from policy makers. The most important reason for this growing interest is that clusters foster high levels of productivity and innovation, supporting companies to compete globally. Research shows that the stronger the cluster, the higher the survival rate of new businesses, the more dynamic the process of new business formation, the more likely new industries within the cluster emerge and the higher the job growth in new business (Delgado, Porter & Stern, Clusters, Convergence, and Economic Performance, 2010). Although cluster initiatives date from the early 90’s, many governments still struggle with the question how to support and strengthen their clusters effectively. To exchange new insights over 400 cluster policy makers and business representatives gathered to discuss this topic at the three day European Cluster Conference in Vienna.

Location still matters

In theory, location should no longer be a source of competitive advantage. However, despite the process of ongoing globalisation, rapid transportation, and ICT enabling businesses to source any thing from any place at any time, in practice location still remains central to competition. According to Porter “geographic, cultural, and institutional proximity provide businesses with special access, closer relationships, better information, powerful incentives, and other advantages that are difficult to tap from a distance” (Porter, 1998). With the transition to a more complex, knowledge-based, and dynamic world economy, location is even becoming more decisive.

Competitive business environment to attract inward investment

The most direct way policy makers can stimulate and promote their cluster development is via the creation of a competitive business environment. Policy initiatives should therefore be focused on:

  • stimulating linkages between all the players in the ecosystem: from specialised suppliers and service providers, to research institutes, start-ups and manufacturers by facilitating and organising informal networking;
  • offering world class knowledge with state of the art research facilities; and
  • creating a high market demand.

The clusters which succeed most in offering these environments, such as Silicon Valley, Baden-Wurttemberg and Bangalore, will not only be the most competitive, but also be most successful in attracting inward investment and thereby strengthen their competitiveness and contribute more to economic growth. Furthermore, these clusters become more and more attractive for talent since they offer a vibrant environment to work, with opportunities for ongoing development and education as well as career and networking opportunities.

Arjen Goetheer, CIO Global-Arena.com

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Posted in: Baden-Wurttenberg, Bangalore, business environment, Clusters, Competition, EU, global-arena.com, Globalisation, Harvard Business School, Innovation, Inward investments, Michael E. Porter, New Competition for Growth, Policy, Silicon Valley, Talent, Talent environment
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The New Competition for Growth: Which countries are most preferred destinations for global talent?

Tuesday, March 20th, 2012

Talent tends to be, like capital, more and more mobile. According to academics such as Richard Florida and futurologists like Daniel Altman, this group will be looking for lifestyle hubs to live, work and venture and leaving the expensive ones where environmental climate and crime are problematic. Due to technological progress allowing people to work anywhere anytime, the question is which countries offer not only a competitive business environment with high growth opportunities, but also offer the most attractive environment for talent to work. With the fast growth of expanding multinationals from emerging countries the competition in attracting talent and assuring a sustainable supply of a skilled labor force has entered a new level for internationally operating businesses. In their location decision making processes, besides a competitive business environment with excellent innovation capabilities, the supply of talent and skilled labor are becoming more decisive than before. Global-Arena.com’ latest comparative advantages benchmark to global high growth opportunities shows that while emerging economies offer high growth market potential in terms of GDP growth rates and favourable demographics, they offer less attractive talent environments.

Entertainment, comfortable climate, low cost, open culture and personal growth opportunities

Talented graduates full of ambition and not willing to wait for possible future career opportunities at home and therefore more than ever look globally. Due to the continuing process of globalisation with its advanced ICT infrastructure, integrated social and economic relations and affordable air connections, global talent is seeking the best places to live, work and venture. Like the group of financially self-sufficient professionals this group prefers to work in so-called lifestyle hubs: places where they can live the lives they’ve imagined or even designed themselves. In their location decision making processes the most decisive factors are the supply of things to do, weather conditions, quality of life, globalised societies and personal growth opportunities.

Emerging economies offer high market potential with attractive career opportunities…

To provide indepth insights Global-Arena.com in association with Experian developed an interactive and comprehensive comparative advantages benchmark study for global growth opportunities assessing not only the growth drivers and competitiveness of business environments, but also including the attractiveness for global talent. The analysis reveals that in particular emerging economies such as Qatar, China, India, Azerbaijan, Singapore, Tanzania, the United Arab Emirates and Bahrain show the most favourable economic growth forecast figures for the coming years and will be in a good position to attract most business investments to expand these markets. For many international business as the strategic focus will be on these countries and therefore offer attractive career opportunities for global talent.

… but lack attractive talent environments

However, when the indicators infrastructure capacity, quality of available education institutes for ongoing education, quality of life (including supply of things to do, environmental performance, cost of living, human standards and homicide rates) and extent of globalisation are taken into account, the analysis shows that countries such as the United States of America, France, Switzerland, Germany, the United Kingdom, The Netherlands and Sweden offer the most attractive environment for global talent (see global map with the most attractive talent environments). Strongly Western oriented high growth countries such Singapore and China Hong Kong SAR show comparable levels of globalisation, but rank lower on aspects like cost of living and the of availability of things to do (restaurants, shops, activities, natural and cultural heritage sites). Bigger emerging countries like China and India show less favourable environmental quality, whereas many of the South American and African high growth countries rank low mainly due to high homicide rates.

Find out which destinations are most preferred by talent or how attractive your country

Which countries offer the most attractive talent environment? Click here to adjust the sliders of the interactive analysis to set your own preferences and find out which country offers the best match or get insights into which comparative advantages your country hsa in attracting global talent.

Arjen Goetheer, Chief Innovation Officer, Global-Arena.com

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Posted in: business environment, China, Competition, Cost of living, Developed economies, Education quality, Emerging economies, Environmental performance, EU, global-arena.com, Globalisation, Homicide rate, Infrastructure capacity, Innovation, Life style hubs, Living standards, MIPIM 2012, Natural and cultural heritage sites, New Competition for Growth, Open culture, Quality of life, Restaurants, Talent, Talent environment, Things to do
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The New Competition for Growth: Where should you locate?

Tuesday, March 13th, 2012

According to a recent article by Michael E. Porter and Jan W. Rivkin the question “Where should we locate?” has never been more prominent in the minds of executives than today. Identifying global growth opportunities and assessing the competitiveness of locations is top priority for businesses as well as for governments. Since the old laws of economic growth and competition have changed permanently with the rise of high growth emerging economies and the financial crisis, The New Competition for Growth has started. In the new set of growth dynamics, besides a competitive business environment, innovation capabilities and a sustainable supply of talent and skilled labor are becoming most important in location decision making processes. Today Global-Arena.com in association with its strategic partners launched its campaign “The New Competition for Growth” at MIPIM 2012 in Cannes and presented as part of a new series of benchmark studies its comprehensive comparative advantages benchmark to global high growth opportunities. The benchmark reveals that although emerging economies such as China and Qatar shows the most promising market potential, the United States of America and Switzerland are the ones with most competitive business environments.

The New Competition for Growth

With the rise of emerging economies such as Brazil, China and India as new global economic powers the international competition for attracting and retaining high value investments has increased intensively. Besides the competition at national level, also the competition between the expanding multinationals from emerging countries and the ones from developed countries entered a new level in attracting talent and assuring a sustainable supply of a skilled labor force.

As part of its campaign “The New Competition for Growth” Global-Arena.com (in association with its strategic partners Experian, SILC-Global, CEIBS, PWC and CLS) is expanding its capabilities and thought leadership to support executives in their search for global high growth opportunities, enabling effective decision making processes.

Emerging markets show most attractive market potential…

Using demographic and economic indicators to forecast the market potential, the study reveals that emerging economies such as Qatar, China, India, Azerbaijan, Singapore Tanzania, United Arab Emirates and Bahrain rank highest (click here to view the map). These countries show high levels of annual GDP growth rates (in particular Azerbaijan, Qatar, China and India) combined with positive demographic change rates. Compared to these high growth countries Western countries (with exception of Luxembourg, the United States, Israel and Australia) show a less favourable performance.

… but most developed economies still outperform on most competitive business environment

Despite the excellent forecast for market potential the emerging economies are currently not the ones with the most competitive business environments. When the indicators total tax rate, innovation capabilities and the quality of governance are taken into account the analysis shows that Switzerland offers the most competitive business environment. This result is not unexpected since Switzerland also holds the first position in the annual World Economic Forum’s Global Competitiveness Report 2011-2012. Other developed economies with competitive business environments are Finland, Denmark, Canada, Luxembourg, Sweden, The Netherlands and Israel (click here to view the map). However, high growth economies such as Singapore, Qatar, China Hong Kong SAR and Taiwan already show comparable levels of competitive business environments and are increasingly closing the gap with the developed economies.

Find out where you should locate or how your country performs
Which high growth countries offer the most competitive business environments for your business? Click here to adjust the sliders of the interactive analysis to set your own preferences and find out where you should locate or get insights in which comparative advantages your country has.

Arjen Goetheer, Chief Innovation Officer Global-Arena.com

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Posted in: business environment, business locations, China, Competition, Developed economies, Emerging economies, EU, FDI trends, global-arena.com, MIPIM 2012, New Competition for Growth, Switzerland
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New Competition for Growth: Will Emerging Economies Become the New Innovation Leaders?

Thursday, February 16th, 2012

Attracting international companies to locate R&D activities in their home country is top priority for all European investment and promotion agencies. In particular attracting new R&D facilities is of interest since these investments are seen as key to generate growth and high skilled job creation. By promoting their unique innovation capabilities, such as  presence of leading universities, unique research facilities, availability of a highly skilled workforce, presence of clusters of excellence and special tax regimes for innovation the European agencies compete not only each other, also other developed countries are competitors. New in this competition for growth are the emerging economies. According to the Innovation Union Scoreboard 2012 published by the EU last week, competition will increase significantly. South Korea already outperforms the EU on innovation performance and China is closing the gap with the EU.

South Korea already ahead of EU
With the annual scoreboard the EU measures its innovation performance. The scoreboard compares the EU countries and its main competitors based on 24 indicators key for stimulation innovation. Of the emerging economies South Korea is best performing on innovation according to the scoreboard 2012 (see Figure 1). In particular the Asian Tiger is outperforming the EU 27 on private R&D expenditure and patent applications.

When will China outperform the EU?
With respects to the BRICS (Brazil, Russia, India, China and South Africa), China is the only one to close the innovation gap with the EU continuously in the last five years (see Figure 2). The scoreboard shows that the EU is still performing better than China in most indicators. The exception is exports of medium and high- tech products, in which China further increased its lead the last years. However, China has decreased its innovation gap on many elements, in particular the numbers of public-private co-publications, numbers of patent applications, license and patent revenues from broad, numbers of international co-publications and private R&D expenditures. Since China has a very strong track record in meeting or even exceeding many of its targets in previous five year plans and boosting R&D and innovation in focus areas like energy, automotive, IT infrastructure and biotechnology, which are key in the 12th Five Year-Plan (2011-2015) we may expect that China will strengthen is innovation performance increasingly the following years. The improvement of its innovation capabilities combined with China’s enormous economic opportunities and Europe’s financial crisis will increase the competition with EU countries for attracting private R&D facilities in the targeted focus industries. These developments make clear that if Europe wants to maintain its competitiveness it needs to boost its efforts to stimulate and speed up innovation.

Arjen Goetheer, CIO Global-Arena.com

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Posted in: business locations, China, Competition, EU, Innovation, New Competition for Growth, South Korea
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