Global Competitiveness Index: Pay Attention to the Sources of Data!

This week's moral: pay attention to the source of data! I have to be honest with you, after learning about the GCI composition, I am pretty annoyed. Wait till you read this!

The Global Competitiveness Index (GCI) is "a highly comprehensive index for measuring national competitiveness, including microeconomic and macroeconomic foundations of national competitiveness. (set of institutions, policies, and factors that determine the level of productivity of a country) (Liu, et al, 2001)." Productivity, in turn,  determines the rates of return obtained by investments in an economy, hence in theory, there is value of the index information for a business manager to gauge business opportunity through examining growth potential. (Liu, et al, 2001)  Indicators are often used to rank countries and to monitor changes within countries over time and they can even serve to spur debate and policy reform (Kaplan & Pathania, 2010). But, upon further investigation of the elements and actual composition of the index, this may not be the case! Lets explore.

The GCI is composed of 12 pillars such as innovation, market size, education and training which are

aggregated into a single index (Liu, et al, 2001).  The data from the Executive Opinion survey is used for the calculation of the GCI as well as contributing as a prime data source for the World Economic Forum’s  other industry-specific projects (Kaplan & Pathania, 2010). Respondents are asked to evaluate the current conditions of their particular operating  environment on a scale of 1 to 7,. A typical survey question includes: “Intellectual property protection in your 3  country is weak and not enforced,” with 1 denoting strong agreement and 7 denoting strong disagreement (Kaplan & Pathania, 2010).

If you ask me, there's just a little too much perception involved in this equation! I'm actually pretty annoyed to learn that global competitive ranks are based on soft perceptual data! What happened to hard data and facts! As a manager, I would definitely be skeptical to use this information. Furthermore, whenever I look at data, I always investigate its source, so lets investigate a little into the people who established the GCI.

The World Economic Forum (WEF) has attracted the economic and political elite for over 30 years. Director of Communication and Public Affairs of the WEF notes that ‘the WEF has succeeded as facilitator of initiatives. Now, it’s time to be more outcome oriented and become a catalyst.’ Contrasting viewpoints suggest that the organization is "a private authority exercised on a global scale by informal and weakly institutionalized non-state actors ( Graz, 2003)." The WEF has been negatively described as a “big cocktail party” or elite club (Graz, 2003). Furthermore, members are solicited to develop projects between themselves, which, if successful, are later subsidized by the Foundation.... some of them vie with other initiatives to bring new evidence to influence the policy agenda (Graz, 2003)." So, with all this self-interest surrounding the GCI, can we use the data and trust it to be unbiased? Not according to my research! 

 

Step one in any business investment venture is risk assessment. I would HIGHLY recommend looking into other MORE CREDIBLE avenues such as outside consulting firms and publishing firms, namely, Standard & Poors Rating Group, Harvard Business Review's Global Risk Navigator, Euromoney  [one of my favs :)] (Ball, 2010). Depending on someone's opinion such as that of the GCI is certainly not worth my money! 

 

What's you take? 

References:

Ball, D.A., Geringer, J.M., McNett, J. M. & Minor, M.S. (2010). International Business: The Challenge of Global Competition. New York: McGraw-Hill.

Graz, J. C. (2003). How powerful are transnational elite clubs? The social myth of the World Economic Forum.New Political Economy, 8(3), 321-340.

Kaplan, D. S., & Pathania, V. (2010). What influences firms’ perceptions?. Journal of Comparative Economics, 38(4), 419-431.

Liu, D. Y., & Hsu, H. F. (2001). Competitiveness Review: An International Business Journal incorporating Journal of Global Competitiveness. Kybernetes, 38(3), 559-580.