Canada’s Global Competitiveness Improves Modestly in 2005

Released September 28th, 2005

Wednesday September 28, 2005—Toronto— In the “Global Competitiveness Report 2005-2006” released today by the World Economic Forum, whose Canadian partner is the Institute for Competitiveness & Prosperity, Canada moved up in the rankings over 2004’s results in both of its competitiveness indices. On the “Business Competitiveness Index,” Canada moved up two to 13th from 15th in 2005. On the “Growth Competitiveness Index,” Canada also improved - from 15th to 14th.

“These indices help Canadians understand how we are faring in comparison with our global competitors,” said Roger Martin, Chairman of the Institute for Competitiveness & Prosperity and Dean of the University of Toronto’s Rotman School of Management. “While we made improvements this year, we remain far from our potential on either scale – and all of us should take note.”

Business Competitiveness Index

The “Business Competitiveness Index,” developed by Michael Porter, Director of the Harvard Business School’s Institute for Strategy and Competitiveness, draws on economic data and surveys of nearly 11,000 business leaders in 117 economies around the world to develop microeconomic indicators that measure the set of institutions, market structures, and economic policies supportive of high national prosperity. The Index consists of two sub-indices: the quality of the business environments – which includes a country’s financial markets, the impact of competitive pressure and support in the economy as well as public administrative effectiveness - where Canada held at 13th - and the sophistication of companies’ operations and strategies - where Canada fell from 16th to 18th. Due to the weighting of the two sub-indices, Canada advanced in its overall ranking.

Martin hopes that this year’s rise in Business Competitiveness rankings is a sign of a turnaround for Canada’s ranking. In five of the last seven years, Canada fell in this Index. “In 1998, Canada stood sixth in this ranking and by last year we had fallen to 15th, so a move up two spots to 13th in 2005 may be the start of a turnaround”, he said. 

Among the larger economies – those with half of Canada’s population or more – Canada has fallen from 5th to 7th over the same period. Martin noted that among these larger economies, Japan has shown the most improvement over the last seven years, moving from 18th to 8th. 

Martin also observed that Canada’s national business environment is still a cause for concern. “Canadian business and government leaders still have a lot of work to do to strengthen Canada’s competitive position in the world”, said Martin. He noted that against the US, Canada fell further behind in important factors such as the intensity of local competition and the sophistication of customer buying processes.

“Our work at the Institute points to the need to strengthen our market structures in Canada so that businesses have the pressure to innovate from capable rivals and sophisticated and demanding customers, as well as the support from specialized factors such as scientific research institutions,” said Martin.

On the other sub-index, company operations and strategy, Martin noted, “our rankings in company operations have traditionally been in a tight band around 15th in the world. But in 2005 we actually fell to 18th. To improve Canada’s ranking and overall competitiveness our business leaders need to become more competitive through unique products and processes and compete more on adding value to products and services in areas such as product design and added services. And this will occur if we step up the pressure and support for innovative strategies.”

The top ranking countries in the global Business Competitiveness Index were:

  1. The United States
  2. Finland
  3. Germany
  4. Denmark
  5. Singapore

Growth Competitiveness Index

In the World Economic Forum’s other global index, the Growth Competitiveness Index, Canada improved from 15th to 14th. This Index estimates the underlying prospects for growth over the next five to eight years. It consists of three sub-indices which measure the quality of each country’s “public institutions”, “macro-environment”, and “technology”.

Canada fell from 18th to 21st ranking in the area of public institutions. According to Martin, “we noticed a heightened animosity towards government institutions in 2005 and we suspect this is because of the publicity of the Gomery commission. The federal government will have to work hard at restoring trust in our public institutions as this has an impact on our economic environment.”

On the macroeconomic stability factor, Canada improved from 18th to 16th. On the technology factor in the Growth Competitiveness Index, Canada’s rank continued its steady seven year decline and fell from 13th to 15th in 2005.

Top ranking countries for the global Growth Competitiveness Index were:

  1. Finland (for the third consecutive year)
  2. The United States
  3. Sweden
  4. Denmark
  5. Taiwan

For more information about The Global Competitiveness Report and other activities and publications of the World Economic Forum’s Global Competitiveness Programme, please visit http://www.weforum.org/gcp

About the Institute for Competitiveness & Prosperity

The Institute for Competitiveness & Prosperity is an independent not-for-profit organization established in 2001 to serve as the research arm of Ontario’s Task Force on Competitiveness, Productivity and Economic Progress. It is also the Canadian partner of the World Economic Forum.

Working Papers published by the Institute are primarily intended to inform the work of the Task Force. In addition, they are designed to raise public awareness and stimulate debate on a range of issues related to competitiveness and prosperity.

For more information contact James Milway, Executive Director of the Institute for Competitiveness & Prosperity at 416.920.1921 ext. 222.