Dedicated to the advancement of knowledge on world competitiveness METHODOLOGY AND CONCEPTUAL FRAMEWORK Business Competitiveness Ranking Pionneers in competitiveness since 1989 METHODOLOGY The first step in developing the methodology that is the factors that better represent for the Business Competitiveness Ranking is Business Competitiveness. Subsequently, to design the conceptual framework that forms relevant raw scores need to be generated in the basis for the Ranking’s components. The order to construct the Ranking. The steps framework provides the notions and definitions required for that construction are the following: that give clarity to the concepts necessary for the construction of the Ranking. The next 1. Collect survey responses (numeric values) methodological step is to identify a list of and other variables criteria to assess business competitiveness. This requires two steps. First, relevant 2. Produced raw scores by aggregating statistical data in terms of country, industry responses and other variables and firm performance levels need to be determined and collected. The second step is to 3. Normalized raw scores develop the Business Competitiveness Survey to obtain data related to the intrinsic aspects 4. Aggregate normalized scores into factors of firms (discussed in sections 3 and 4). Once using averages the questionnaire is finalized, the online survey can be built. At this point, target companies 5. Construct the final ranking by aggregating and their executives (survey respondents) need relevant factors (each will have equal weight) to be identified. We will then subject the data to a series of Following these steps, the Survey will be statistical tests to identify possible biases and launched targeting members of the top errors. We will also use principle component management and/or board of directors of large (factor analysis) as a confirmatory technique. companies. Our target is to engage a minimum In such a role, principle component analysis of five members per company. Targeting such a will enable us to test the impact of the different sample will give us a more “objective” picture factors. More specifically, this analysis will of the firm. After circulating the survey among enable us to build “sub-factors” to fully participants, our team will need to engage explore the impact of the variables collected; them and carry follow-ups in order to ensure an for example, it will allows to build a human effective rate of responses. It is also important capital sub-factor and test its role in the to identify a “contact partner” in each company competitiveness of firms. who could answer or clarify any queries that may emerge after the survey has been closed. The following is a summary of the necessary The next methodological phase is to collect and methodological phases for the development of map the data following the agreed structure; the Business Competitiveness Ranking. Figure 1 : Summary of methodology CONCEPTUAL FRAMEWORK Business competitiveness is the capacity of a all the practices, processes and structures firm to sustain its long term profitability. There necessary for the effective governing of are two aspects to such a capacity, general and the firm; for example, the nature of the intrinsic dimensions. The general dimension relationship between the board of directors refers first to structural elements that define and the management team. The managerial the context in which a firm operates, for factor refers to practices and processes that example, the regulatory framework of a given allow for the well-functioning of management, country. A second component of the general for example, the existence of a systematic dimension is industry-related variables; for evaluation process of the performance of the example, the level of investment on R&D in a management team. The functional factor is particular industry. The general dimension also related to the firm’s operational processes; includes factors related to the performance for example, marketing strategies and product of the firm; for example, the outsourcing of development. Sustainability factor concerns business processes. processes that enable firms to ensure the effectiveness of its governance, managerial The intrinsic dimension refers to the behaviors and functional factors; for example, the ability and practices of firms which allow them to of firms to internalize knowledge and to sustain sustain their performance in the long-term. workers’ motivation. The following figure The intrinsic dimension includes governance, represents our conceptualization of business managerial, functional and sustainability competitiveness. factors. The governance factor concerns Figure 2 : Elements of Business Competitiveness The performance of the firm seems to be an impact of those practices and processes; for outcome of structural, industry and intrinsic example, whether a particular industry is factors. That is to say, the intrinsic factor capital or labor intensive will influence the includes the capabilities of a particular firm, nature of the practices a firm chooses to adopt. which in combination with the structural and For this reason, the Ranking will be built on industry factors impact the performance of the the intrinsic dimension of competitiveness company. Indeed, the correlation among these and the industry factor. The subsequent factors may be strong but this is not surprising statistical tests, however, will incorporate the because it reflects that competitive firms other components of the general dimension function in contexts that facilitate the conduct as constraint variables. That is to say, the of businesses, implement certain practices Business Competitiveness Ranking will be and develop internal processes which have a composed of five equally weighted factors: the strong impact in their performances. industry, governance, managerial, functional It is worth highlighting that the objective of and sustainability factors (see Figure 3). the Business Competitiveness Ranking is The structural and performance factors will to pinpoint the firm-specific practices and subsequently be used to ensure the soundness processes that companies can exploit to of the results. For example, we will test for strengthen their competitiveness. At the same causal relationships between the structural time, industry variables have a significant factor and the Competitiveness Ranking and for Figure 3 : Structure of the Business Competitiveness Ranking causality between the firm performance factor managerial, functional and sustainable and the Ranking (see illustration in Figure 4). aspects of firm capabilities. In this sense, the selection of intrinsic factors is a summary of Admittedly, the list of intrinsic factors can be the capabilities that firms can build upon in longer than the set of variables selected. Our order to sustain their long-term profitability. selection is limited, first, by the length of the This underlines the point that the choice of an questionnaire that is feasible for participants to intrinsic-factors centered Ranking will enable complete within time-constraints; and second, us to identify the behaviors and practices which by our emphasis on capturing the governance, allow firms to further their competitiveness. Figure 4. Statistical tests: target relations BUSINESS COMPETITIVENESS VARIABLES In line with the above structure, we propose Competitiveness Survey. Other variables can the following criteria for the construction of be identified in the preparation workshop and the Business Competitiveness Ranking and the later be incorporated in the study. subsequent testing that will be conducted. It is On the one hand, existing datasets and important to point out that the list of criteria company reports can provide data related to under the general dimension is not exhaustive. the general dimensions of competitiveness. A For example, there are other fundamental temporary list of general dimension’s variables variables related to firm performance, such as is presented in Table 1. On the other, we will a company’s foot-print, that can be added later utilize the Business Competitiveness Survey to in the project. Similarly, in terms of the intrinsic obtain data on intrinsic factors. Subsequently, dimension, there are objective variables, such we will complement the survey data with a set as the number of board meeting per year, that of objective variables obtained from existing are not included in the current list. This is databases or through our contact partners at because our focus in this phase of the project the companies in the sample. Table 2 presents is the immediate launching of the Business the set of intrinsic variables. Table 1. General dimensions Structural factor > Country overall productivity—real growth > Economic performance (by sectors: agriculture, industry and services) > International trade: exports (by sectors) > Employment (by sectors) > Regulatory framework > Shareholders’ rights > Labor productivity > Labor cost > Labor relations > Quality of physical country infrastructure Industry factor > Size of industry > Industry concentration > Capital/labor intensity > Vertical integration > Level of regulation > R&D investment > Productivity (by sectors) Firm performance factor > Assets > Revenues > Return on sales and return on equity > Profit margin > Business processes outsourcing > International expansion (M&A) > Job creation Table 2. Intrinsic dimensions Governance factor Functional factor > Size of the board > Dynamic strategy