Competitiveness:
Analytic Tools and Approaches
Norwegian Trust Fund Meetings
June 2005
Investment Climate Unit
The World Bank
Washington DC
Development Objective
Competitiveness = f (Input Costs, Transactions Costs, Productivity)
Competitiveness
Catalyze reform through addressing concrete issues affecting
competitiveness
1
Focus on Two Products
1. Global Logistics Indicators
Benchmarking across 137 countries (Doing Business 2006)
2. Value Chain Analysis
Process mapping of strategic products in terms of time, cost
and value added to get at underlying factor and product market
constraints
2
1. Global Logistics Indicators
Example: Carpet exports from Nepal to Germany
Process 1
Process 2
Process 3
Process 4
Process 5
0 100 200 300 400 500 Time (hours)
1 Packing of consignment in factory 52
2 Loading onto 1 Nepalese truck 2
3 Trucking from factory to Birgunj over distance of 165 km 24 Points of inefficiency:
4 Customs clearance and containerization at Birgunj 84 Border crossing
5 Trucking to Indian border at Raxaul 8
procedures
6 Overnight wait to cross over to Indian Customs at Raxaul 10
7 Customs clearance at Raxaul (fees, informal payments, etc. 5 Customs
8 Line haul trucking to Calcutta 220
9 Waiting to enter Calcutta Port 96 Port and terminal
10 Unloading at Port 1 inefficiency
11 Customs inspection, tech clearance, terminal handling 204
12 Other terminal charges (river dues, labor fund contr., etc. -
14 Liner shipping from Calcutta Port to Bremen Port 528 3
A Streamlined Framework
Pre-Arrival or
Shipment Activity
Inland
Transportation
Process 1
Process 2
Process 3
Process 4
Process 5 Border Clearance
Port &Term
Handling Activity
Process 14
CUSTOMS
PORTS
BUREAUCRACY/
REGULATIONS 4
Key Metrics
TIME
TIME
RELIABILITY
Logistics Indicators
COST
INFORMATION COMMUNICATION
TECHNOLOGY
5
Key Indicators
Focus Areas Examples of Indicators
Customs clearance time and cost (aver. & max)
CUSTOMS Technical control time and cost (aver. & max)
PERFORMANCE
Percent of containers inspected
Level of inspection (comprehensive; risk analysis based)
Time for processing a typical trade order
BUREAUCRACY/ Cost for processing a typical trade order
REGULATIONS
Number of signatures; Number of documents
Number of Agencies
PORT Vessel turn-around time
PERFORMANCE Port and Terminal charges
Number of Days the Port did not function
Costs and time to comply with additional security measures
6
2. Value Chain Analysis
Source Make Deliver
Cotton
Source Make Deliver
Yarn
Source Make Deliver Source Make Deliver
Textile
Source Make Deliver
Apparel
Policy Institutions Infrastructure
7
Value Chain Analysis: Elements
Value Chains/ Overview of Measure Explain
Sectors Industry Performance and Performance Recommendations
Selection Structure Benchmark Gaps
Size Market share Factor costs Government failures WB policy advocacy/
Growth /trends Transaction Market failures lending
Potential Price trends costs IFC investments/
Poverty Competition Value added technical assistance
Gender levels Productivity Public-private
Links to global dialogue
Policy
relevance value chains
Linkages Technological
trends
Tariffs (e.g. import duties)
Global policy Non-tariff barriers
trends(Trade; Infrastructure/ utilities service quality, price
CSR) Regulatory barriers and enforcement
Administrative barriers
Market structure and Competition policy
Factor market rigidities
Price restrictions / Subsidies
Product quality and standards
CSR (environmental and social standards)
8
Example: Honduran Apparel Industry
- US $2.5 billion exports
- 16 % growth rate in 2003
- > 120,000 jobs created
( 75-80% women)
- Value added - US$ 500 mill.
- Key drivers:
CBI (89% of Honduran
exports qualify)
Proximity to US market
- Regional : CAFTA
- Global: MFA phaseout
9
Is Honduras Competitive?
Production of a cotton T-shirt Order to Delivery: Lead Time
Mexico US $1.25 4 days
Honduras US $1.22 4 days
China US $1.47 10 days
10
Cost Structure
US$1.25 US$1.22 US$1.47
1,6
1,4
0.34
1,2 0.06 0.09 Quota & Tariff
0.18
US$ per unit
1 0.18 0.12
Freight
0.26 0.18
0.2
0,8 Margin
0.16
0,6 Labor
0,4 Cloth & Inputs
0.75 0.74 0.67
0,2
0
Mexico Honduras China
Source: E. Dussel 2000, Interviews, ELCATEX, Interviews, Estimates
11
Value Chain Distribution of Costs
One dozen T-shirts: FOB US $21
Raw Material Labor Energy Freight Distrib Retail Markup
40% 17% 5% 4% 4% 30% 100%
Imported yarn and LAC labor costs are
fabric from US three times as much
constitutes 60% of as Asia
production cost
Raw material costs
on average are 30%
higher than China
12
Comparative Labor Costs
Asian labor costs LAC labor costs
Average: US $0.40/hour Average: US $1.3/hour
0.21 Haiti 0,49
Indonesia
Vietnam 0.22 Nicaragua 0,88
Bangladesh 0.28 Colombia 0,94
Pakistan 0.31 Bolivia 0,95
India 0.38 Peru 1,22
Kenya 0.38 Ecuador 1,3
Sri Lanka 0.41 Guatemala 1,45
China 0.48 EL Salvador 1,5
Bulgaria 0.58 Honduras 1,5
Rusia 0.7 DominicanRep. 1,65
Filipinas 0.7 Costa Rica 2,7
0 0.2 0.4 0.6 0.8 0 0,5 1 1,5 2 2,5 3
US$/ Hour US$/Hour
Source: Jassin O’Rourke Group LLC calibrated with Honduran industry experts fr om AHM
13
Value Chain Distribution of Costs
One dozen T-shirts: FOB US $21
Raw Material Labor Energy Freight Distrib Retail Markup
40% 17% 5% 4% 4% 30% 100%
Honduran Power costs
>150 % of Chinese power costs
& 130% as much as Columbia
14
Comparative Electricity Costs
Electricity Cost Total Hours of Electricity Cuts
US cents / kWh
Mexico 17 Honduras
127
Guatemala 14 Nicaragua 129
Honduras 9 Peru 67
Nicaragua 9 Guatemala 60
India 8.8
Ecuador 32
Costa Rica 8
Brazil 28
Colombia 7
6
China
0 5 10 15 20
Source: WB Study estimates; Investment Climate Survey data
- 15
Policy Implications: MFA Phase out…
Major clothing exporters' share of the US market 2004 How U.S. market shares may rank after elimination of MFA quotas
Other
24% Other
12% Bangladesh
China 2%
16%
Indonesia
2%
Philippines
2%
Bangladesh Thailand
4% 3%
Mexico
India 3%
4% China
Rest of Americas 50% Rest of Americas
16% 5%
Indonesia
4%
Hong Kong
6%
Philippines
4%
Mexico
Taiwan
EU 10%
4% Hong Kong
5% 9%
India
15%
Source: Gereffi (2005) 16
… Moving Up-market
16
14 Honduras
14 Nicaragua
El Salvador
US$ per Square Meter Equivalent
Guatemala
12 Mexico
12 11
11 China
10
World
10 9
8 8
8 7 7
7 6 6
6 6 6 6
6
6 5 5 5 5
5 5
4 4
4 4 4 4 44 4
44 4 4 343
4 3 3 3
3
3 3 3
3 3
3
2 2
2 2 2
2
2 1 11 1 1
1
0
0
Knit Knit tops Cotton Cotton Cotton Knit Manmade Lingerie Total
Cotton For Pants pants Under Manmade fiber
men women men women wear fiber trousers
tops for men
17
Mainstreaming into Operations: Some Examples
Collaboration with Examples of Operational Applications
Kenya Africa PSD Growth & Competitiveness Strategy
Econ. Recovery Strategy Support Credit
IFC-SME Dep. MSME Project
Nigeria Africa PSD Country Assistance Strategy
Country Economic Memorandum
IFC-SME Dep. MSME Project
Pakistan S.Asia PSD/ PREM Growth & Competitiveness Strategy
NW Frontier Province Strategy
SEDF (PDF) Rural Development Project
Mozambique Africa PSD Growth & Competitiveness Strategy
PSD Linkages Project (PODE)
IFC-SEATIP IFC investment potential
MIGA MIGA Benchmarks
Cambodia E.Asia PSD Investment Climate Assessment
E.Asia Rural Trade Facilitation Project
MPDF (PDF)
18
Competitiveness:
Analytic Tools and Approaches
Norwegian Trust Fund Meetings
June 2005
Investment Climate Unit
The World Bank
Washington DC