A Porterian Perspective on Japan's Global Competitiveness Ranking

Daniel P. Dolan (Principal, Communication Japan)

The concept of global competitiveness is both difficult to define and controversial. As Takahiro Miyao points out in a recent essay in this forum, the popular IMD World Competitiveness Scoreboard for 2003 ranks Japan behind Malaysia, Taiwan and Thailand in the category of countries with populations over 20 million. Past rankings for Japan include 10 in 1999, 10 in 2000, 9 in 2001, 11 in 2002, and 11 in 2003. The top ten countries for 2003 are, in order:
USA, Australia, Canada, Malaysia, Germany, Taiwan, United Kingdom, France, Spain, and Thailand.

Miyao argues that "Japan's low ranking seems unreasonable," and suggests that the ranking may be the result of the Scoreboard's inclusion of competitiveness factors such as business efficiency, government efficiency and infrastructure. In these areas he sees much room for improvement in Japan and acknowledges the country's growing deflation and drops in productivity, but insists that the Scoreboard is not accurately reflecting Japan's actual competitiveness.

Global Competitiveness Report

There is, in fact, another high profile window through which to view global competitiveness, but from this perspective Japan ranks even lower. The World Economic Forum's Global Competitiveness Report combines two complementary measures of competitiveness developed by professors at Harvard University: The Growth Competitiveness Index (GCI) and the Microeconomic Competitiveness Index (MICI). The GCI measures "the set of institutions and economic policies supportive of high rates of economic growth in the medium to long term (over the coming five to eight years)", and the MICI assesses "the set of institutions, market structures, and economic policies supportive of high current levels of prosperity".

Harvard Business School professor Michael Porter, leader of Harvard's Institute for Strategy and Competitiveness and a key architect of the scheme, argues that the common definition of competitiveness as a country's share of world markets for its products is mistaken. Rather, he believes, competitiveness should be measured by productivity. Productivity, in turn, can be measured by the value of a country's goods and services and the efficiency with which these are produced.

As shown in the following table, Japan ranked 13th out of 80 countries in the CGI rankings for 2002, making great improvement from its 2001 ranking of 21.

In this ranking, similar to the IMD scheme, Taiwan comes in ahead of Japan at number 3 in 2002. However, Malaysia lags at 27 and Thailand gets 31st place.

The Global Competitiveness Report's MICI Rankings are as follows:

In this ranking for 2002, Taiwan (16), Malaysia (26) and Thailand (35) trail Japan considerably.

Japan's Low Competitiveness Ranking

So what might account for Japan's low global competitiveness ranking relative to other high GNP countries? Porter proposes in an essay analyzing the Global Competitiveness Report's findings that a country's competitiveness as measured by productivity depends on mutually supportive interactions between companies and the quality of the larger national business environment, including research institutes, information, skilled workers, infrastructure and competitive pressure.

One measurable output of research institutions is patents. Porter shows that between 1997 and 2001, Japan's top patent-producing university, institute or government agency was the Agency of Industrial Science and Technology with 334 patents. In contrast, the top U.S. patent-producing organization during the same period was the University of California system with 1904. Looking at single universities, Japan's prestigious Tokyo University generated only 8 patents between 1997 and 2001, while MIT in the United States secured 595 patents in the same period.

Other aspects of Japan's business environment that perhaps should cause concern are ranked in the Global Competitiveness Report and identified by Porter as follows:

In his book "Can Japan Compete?", co-authored by Hitotsubashi University professor Hirotaka Takeuchi and Mariko Sakakibara, Porter suggests that Japan can indeed compete if it chooses to. This would require in part that Japan open its marketplace fully to competition and restrain government protectionism of vulnerable industries. Assuming that Japanese officials and business leaders understand what needs to be done, effective and timely implementation, as usual with Japan, will be key.