Analytical development
The main document used in this analysis is WEF 2016-2017. The major conceptual tools used in this report will include economic development concepts, economic development path, global competitiveness index (GCI), and the idea of competitive advantage. Based on GCI, the 12 pillars and their constituents will form the premise upon which this analysis will be undertaken. The key indicators as observed in WEF 2016-17 will aid in the analysis including the country’s population and GDP (Chaherli and Nash 2014). The performance of each of the two country will be used in understanding each pillar to unravel the country performance in terms of ranks and GCI scores alongside the trend and distance from best. Also, the subindex A through C of the Global Competitiveness Index will be used in understanding the competitiveness between Colombia and Argentina. The economic development path will also assist in explaining CEO the specific stage of development each country is classified (Schwab 2010).
According to WEF 2016-17, Columbia ranks position 61 with GCI of 4.30 which has been maintained from the previous ranking 2015-16 (GCI4.28). On the other hand, Argentina is ranked position 104 with GCI of 3.81 having moved from position 106 in the previous WEF 2015-16 (GCI 3.79). In Latin America, following almost a 10-year period of strong growth after the GFC, the rates of growth in the region have dropped and many economies are currently heading into recession (Hill, Cronk and Wickramasekera 2013).
Major commodity-exporting economies in the region including Columbia and Argentina faced a decline in export due to the end of the commodity super-cycle. The demand for manufacturing exports have subsequently been hit due to the drop in global trade in the two countries thereby decreasing the export values in the both countries. This adverse terms of trade (ToT) shock has resulted in a huge deficit in trade leading to both government budget deficits and current account deficits.
The exports have not recovered despite the Latin America’s floating currencies depreciation against the United States dollar. The Latin America region facing great competitiveness challenges as the productivity has been declining averagely in the last two decades. The net effect of this is that both region’s constituents like Argentina and Columbia also suffer from these competitiveness challenges (Ferraro and Briody 2017).
Within the pillars Argentina and Columbia’s hugest economies gaps stay in macroeconomic environment, depicting the magnitude of investment and commodity shock on these 2 commodity-exporting economies alongside the domestic market sizes. Columbia and Argentina also face a surged dispersion within institution pillars, propelled by corruption and ethics sub-pillars alongside the latest scandals facing the Latin America region. Despite small progress that Latin America region has made on average, enormous disparities stay in all the pillars in both Columbia and Argentina (Sheng and Carrera Júnior 2016).
Argentina and Colombia Position on the Economic Development Path
The hugest disparities with best global performer lies in business sophistication and innovation. Additional disparities lie in institutions, infrastructure and efficiency in labour market. Columbia and Argentina have fared worse than oil-importing economies in Latin America region in terms of macroeconomic performance. Both countries have further performed worse than importing economies based on institution, goods market efficiency, financial development and labour market efficiency (Dunning 2014).
Argentina has gained two positions to 104th, primarily propelled by such factors as innovation and sophistications thereby depicting better preparedness for coping with the changing future environment. Argentina is classified as the one transitioning from stage 2 (efficiency-driven) to stage 3 (innovation-driven) economy in terms of stage of development while Columbia is classified as being in stage 2 (efficiency-driven) economy. The Argentina’s quality of institutions have improved primarily via better protection of intellectual property (IP) and increasingly efficient legal framework.
On the other hand, Colombia rises in terms of ranking for 2nd year in a row. It gained 5 places to the position 61 saves primarily to the impressive development in financial market amelioration up 45 places to position 25. The Colombia’s performance is comparatively stable crossways other pillars, with somewhat enhancements on most dimensions relative to the previous year, including the position 59 in business sophistication and health alongside education, although at a lower place (97th). The Colombian economy further benefits from the comparatively huge market size (36th) and better macroeconomic outcomes (32nd) by the Latin America regional standard.
Additional improvements in education system quality, particularly in science and math (117th), remain imperative to deliver Colombian capacity to innovate (93rd) as well as diversify the Colombian economy. Additional areas that call for improvement include the institution framework, particularly public institution (125th), with security (134th) and corruption (126th) staying dire. Colombia also requires structural essential in fostering competition (127th) as well as improve infrastructure, particularly the country’s overal transport quality (98th), would additionally improve Colombian competitiveness (Chin and Diaz 2016).
The chosen country for investment in this case is the Argentina based on the two main factors the CEO wanted to affirm. Being a Latin-American country, Argentina meets the CEO requirements since it has a competitive advantage in domestic market size and local availability of specialized training services than Colombia (Porter, Ketels and Delgado 2007). Argentina also gas a competitive advantage in capacity for innovation than Colombia which was also desirable, but not necessary according to the CEO. Finally, Argentina also has a competitive advantage in business costs of terrorism should than Colombia. All these information are available in the WEF 2016-17.
Argentina and Colombia Overall Competitive Position
The prosperity of a nation is never inherited but created. It doesn’t grow out of the nation’s natural endowment, country’s pool of labour, rates of interests, or the value of the country’s currency, as insisted by the classical economics (Hobdari, Sinani and Torok 2015). The competitiveness of both Columbia and Argentina relies on their industry’s capacity to innovate and upgrade. Firms gain the advantage against the global best competitors due to challenge and pressure. Colombia and Argentina benefit from having stronger domestic competitive, aggressive home-anchored suppliers as well as demanding domestic customers. The contemporary of world of increasingly global competition, countries have become increasingly, not less, imperative (Blanke and Chiesa 2013).
As the premise of competition has moved more and more to the establishment and assimilation of the knowledge, the nation’s role has grown. The competitive advantage is created and sustained by a highly localized process. Variations in national values, economic structures, culture, histories and institutions all contributing to the competitive success (Porter, Delgado, Ketels and Stern 2008). There are striking variances in the trends of competitiveness in each nation, no country can or shall be competitive in each or even many industries. Eventually, countries succeed in a given industries since their home environment remains the most forward-looking, dynamic as well as challenging (Meyer and Peng 2016). The specific rules for evaluating the competitiveness of either Colombia or Argentina lies within the key indicators that are constituents of the GCI. The indicators are organized by pillars.
The overal global competitiveness Index for Argentina is ranked 104/138 with a score of 3.81/7 against Colombia’s 61/138 and 4.3/7 thus Colombia is more competitive. For the Argentina’s subindex A: basic requirements Argentina ranks 110/138 and score 3.9/7 against Colombia’s 85/38 and 4.3 thus Colombia is more competitive in terms of pillar 1 to 4. In Pillar 1 (institutions) Argentina ranks 130/138 and scores 3.0/7 while Colombia ranks 112/138 and scores 3.3 hence Colombia more competitive in pillar 1. In the 2nd pillar (infrastructure) Argentina is ranked 85/138 and scores 3.7/7 while Colombia is ranked 84/138 and scores 3.7 thus Colombia is more competitive based on pillar 2.
In Pillar 3 (macroeconomic environment) Argentina is ranked 130/138 and scores 2.9/7 while Colombia is ranked 53/138 and scores 5.0/7 thus Colombia performs much better in pillar 3. In pillar 4 (health and primary education) Argentina is ranked 63/138 and scores 5.9/7 while Colombia is ranked 90/138 and scores 5.4/7 thus Argentina performs better than Colombia in pillar 4. In the subindex B (efficiency enhancers) and covers pillar 5 to 10, Argentina ranks 82/138 and scores 3.9/7 whereas Colombia ranks 48/138 and scores 4.4 thus Colombia performs better.
Choice: Argentina or Colombia?
In Pillar 5 (higher education and training) Argentina ranks 40/138 and scores 5.0/7 whereas Colombia ranks 70/138 and scores 4.4 thus Argentina performs better in pillar 5. In pillar 6 (goods market efficiency) Argentina ranks 135/138 and scores 3.3/7 against Colombia’s rank of 100 and score of 4.1 thus Colombia is best performed in pillar 6. In Pillar 7 (labour market efficiency) Argentina ranks 130/138 and scores 3.3 whereas Colombia ranks 81/138 and scores 4.1 thus Colombia is best performed in labour market efficiency.
In pillar 8 (financial market development) Argentina ranks 127/138 and scores 3.0/7 while Colombia ranks 25/138 and scores 4.8/7 much better in terms of financial market development. In pillar 9 (technological readiness) Argentina ranks 69/138 and scores 4.1/7 while Colombia ranks 64/138 and scores 4.3 thus Colombia is a head of Argentina in technological readiness. In pillar 10 (market size) Argentina ranks 28/138 and scores 4.9/7 whereas Colombia ranks 35/138 and scores 4.7 thus Argentina is more competitive in market size.
In subindex C (innovation and sophistication) Argentina ranks 87/138 and scores 3.5/7 while Colombia ranks 63/138 and scores 3.6 covering pillar 11 and 12 thus Colombia is best competitive in innovation and sophistication. In Pillar 11 (business sophistication) Argentina ranks 88/138 and scores 3.7/7 whereas Colombia ranks 59/138 and scores 4.0/7 thus Colombia is more competitive in business sophistication. In the last pillar 12 (innovation), Argentina ranks 81/138 and scores 3.2/7 against Colombia’s 79/138 and score of 3.3 thus Colombia is competitive than Argentina in innovation (Sala-i-Martin, Blanke, Hanouz, Geiger and Mia 2009).
More detailed computation of difference between the ranks and scores between the two countries have been given under the appendix.
As seen in the analysis, Argentina ranks 28/138 and scores 4.9/7 whereas Colombia ranks 35/138 and scores 4.7 thus Argentina is more competitive in market size than Colombia. The Colombia market size index is ranked 31/138 and scores 4.7 against Argentina’s rank of 24/138 and scores of 4.9 thus Argentina is more competitive in terms of domestic market size than Colombia (Castro-Gonzáles, Peña-Vinces and Guillen 2016).
In the last pillar 12 (innovation), Argentina ranks 81/138 and scores 3.2/7 against Colombia’s 79/138 and a score of 3.3 thus Colombia is competitive than Argentina in innovation. The Colombian capacity for innovation is ranked 91/138 and scores 3.9/7 whereas Argentina’s is ranked 74/138 and scores 4.1/7. In this case, Argentina is more competitive than Colombia based on capacity for invocation.
Relevant Rule for Evaluation
Based on pillar 5 (higher education and training), the local availability of specialized training services in Colombia is ranked 80/138 with a score of 4.1 whereas Argentina is ranked 43/138 and scores 4.8/7. In this case, Argentina is more competitive than Colombia. Business costs of terrorism:
Based on pillar 1 (institutions), the business costs of terrorism in Colombia is ranked 133/138 and scores 2.9 whereas Argentina’s business cost of terrorisms is ranked 51/138 and scores 5.5 thus Argentina has competitive advantage in terms of business costs of terrorism. To sum up, in term of the four factors, Argentina has a competitive advantage over Colombia.
Conclusion
The main reason for recommending Argentina as the destination for the investment is that it has a competitive advantage in all the four key factors that the CEO wanted to be used for making decisions. It is true that Argentina has outperformed Colombia in terms of domestic market size, business cost of terrorism, local availability of specialized training services as well as capacity for innovation. Being the main premises that the CEO wanted the decision to be anchored, it is confirmed that Argentina stands to be the best destination. Nevertheless, it was a misinformation for the external report by the consultant to purport that the WEF lacked certain information on factors “capacity for innovation” and “business costs of terrorism. These information are clearly highlighted in the WEF 2016-17 under the title “The Global Competitiveness Index in detail”.
References
Blanke, J. and Chiesa, T., 2013, May. The travel & tourism competitiveness report 2013. In The World Economic Forum.
Castro-Gonzáles, S., Peña-Vinces, J.C. and Guillen, J., 2016. The competitiveness of Latin-American economies: Consolidation of the double diamond theory. Economic Systems, 40(3), pp.373-386.
Chaherli, N. and Nash, J., 2014. How Can Latin America and the Caribbean Contribute to Global Food Security?. Trade Policy and Food Security: Improving Access to Food in Developing Countries in the Wake of High World Prices, p.215.
Chin, G.T. and Diaz, I.B., 2016. Brazil in Regional and Global Governance: Foreign Policy, Leadership and UNASUR. VESTNIK MEZHDUNARODNYKH ORGANIZATSII-INTERNATIONAL ORGANISATIONS RESEARCH JOURNAL, 11(2), pp.71-96.
Dunning, J.H., 2014. The Globalization of Business (Routledge Revivals): The Challenge of the 1990s. Routledge.
Ferraro, G.P. and Briody, E.K., 2017. The cultural dimension of global business. Taylor & Francis.
Hill, C.W., Cronk, T. and Wickramasekera, R., 2013. Global business today. McGraw-Hill Education (Australia).
Hobdari, B., Sinani, E. and Torok, P., 2015. What Matters in Location Strategies for Latin American Multinationals: Countries, Regions or Cities?. In Location Decisions of Multinational Enterprises.
Meyer, K. and Peng, M.W., 2016. International business. Cengage Learning.
Porter, M.E., Delgado, M., Ketels, C. and Stern, S., 2008. Moving to a new global competitiveness index. The global competitiveness report, 2009, pp.43-63.
Porter, M.E., Ketels, C. and Delgado, M., 2007. The microeconomic foundations of prosperity: findings from the business competitiveness index. The Global Competitiveness Report 2007–2008, pp.51-81.
Sala-i-Martin, X., Blanke, J., Hanouz, M.D., Geiger, T. and Mia, I., 2009. The global competitiveness index 2009–2010: Contributing to long-term prosperity amid the global economic crisis. The global competitiveness report, 2010, pp.3-47.
Schwab, K., 2010, September. The global competitiveness report 2010-2011. Geneva: World Economic Forum.
Sheng, H.H. and Carrera Júnior, J.M., 2016. Leading brazilian multinational enterprises: trends in an era of significant uncertainties and challenges.
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