short notice. The company has used a linear programming model22 that takes account of international differences in exchange rates, tax rates, and transportation and labor costs to determine the best mix of production by location for each planning period.23 The company is able to respond quickly to government policies that may affect exchange rates, taxes, or other cost factors.
In policies aimed at creating a favorable climate for business in the American market, the United States seems to do quite well, Measures of general business climate usually place the United States first in the world in terms of “competitiveness.” Relative competitiveness, however, is difficult to measure and metrics tend to be quite general. The measures do, however, indicate how a country compares with other nations as a potential generator of economic growth and as a host for international business. For example, the World Economic Forum publishes the Global Competitiveness Index for 134 countries.24 Under this index in 2008, the United States ranked first, Switzerland second, Denmark third, Sweden fourth, Germany fifth, Finland sixth, Singapore seventh, Japan, eighth, United Kingdom ninth, and the Netherlands tenth. China was 34th.25
Likewise, the Institute for Management Development in Lasuanne, Switzerland publishes a World Competitiveness Scoreboard each year that “analyzes the factors and policies that shape the ability of a nation to create and maintain an environment that sustains more value creation for its enterprises and more prosperity for its people.” The analysis divides the national environments of 55 countries into four main factors (with 331 criteria): economic performance, government efficiency, business efficiency, and infrastructure. The 2008 scorecard placed the United States first, Singapore second, Hong Kong third, Switzerland fourth, and Luxembourg fifth. China was number 17.26 According to these analyses, the United States leads the world in providing an economic environment favorable for business.
These comparative indices however, tend to examine underlying performance factors that lead to high incomes and business development. While the United States ranks first in both of these international comparisons, they do not explain why companies headquartered in the United States choose to manufacture in countries that rank lower in “competitiveness.” This is where supply chains enter the analysis.
22 A linear programming is a mathematical method of maximizing or minimizing a linear function (straight line equation) subject to linear (straight line) constraints.
George S. Yip, “Global Strategy in a World of Nations?," Sloan Management review, vol. 29 (Fall 1989), p. 33.
24 The twelve components of this index are: institutions, infrastructure, macroeconomic stability, health and primary education, higher education and training, goods market efficiency, labor market efficiency, financial market sophistication, technological readiness, market size, business sophistication, and innovation. See World Economic Forum, The Global Competitiveness Report 2007-2008. Available at http://www.gcr.weforum.org/.
25 The World Economic Forum defines competitiveness as ... the set of institutions, policies, and factors that determine the level of productivity of a country. The level of productivity, in turn, sets the sustainable level of prosperity that can be earned by an economy. In other words, more competitive economies tend to be able to produce higher levels of income for their citizens. The productivity level also determines the rates of return obtained by investments in an economy. Because the rates of return are the fundamental determinants of the growth rates of the economy, a more competitive economy is one that is likely to grow faster over the medium to long run. World Economic Forum, Global Competitiveness Report, chapter 1.1.
26 International Management Development. World Competitiveness Yearbook, 2008. Scorecard available at http://www.imd.ch/research/publications/wcy/upload/scoreboard.pdf.