Contact: Jim Aisner, Harvard Business School Communications, 617-495-6157, jaisner@hbs.edu

BOSTON, Nov. 15 /Standard Newswire/ -- Which countries have the most competitive companies and business environment - and which ones don't?

To answer these questions, Harvard's Michael E. Porter, the Bishop William Lawrence University Professor, based at Harvard Business School, and two of his colleagues at the Institute for Strategy and Competitiveness (ISC), which Porter heads, have recently published the 2006 edition of the Business Competitiveness Index (BCI), part of the Global Competitiveness Report prepared in cooperation with the World Economic Forum (http://www.weforum.org/gcr ).

Initiated in 2001 and this year comprising 121 countries, the BCI ranks nations by their microeconomic competitiveness, identifies competitive strengths and weaknesses in terms of business environment and company operations and strategies, and assesses the sustainability of current levels of prosperity as measured by per capita GDP adjusted for purchasing power.

Based on these criteria, the United States ranks first in competitiveness, ahead of Germany, Finland, Switzerland, and Denmark - the other nations in the top five.

According to the study, coauthored by ISC scholars Christian Ketels and Mercedes Delgado, the high degree of US domestic rivalry brought about by intense local competition and facilitated by effective antitrust policy, plus accessible and sophisticated financial markets and a high capacity for innovation, are the key ingredients in the success of the United States.

Porter and his colleagues found that the Chinese economy has faltered, falling to the middle of the pack at number 64. "China (down nine ranks from last year) continues a downward trend that started in 2002," they report. "This year's decline was driven especially by higher levels of corruption, weaker assessment of buyer sophistication, and concerns about labor relations. China also suffers from weak property rights, poor board governance, low quality of management education, and poor access to loans. Overall, it is clear that euphoria about China is moderating as the realities of its competitiveness become more apparent."

With a ranking of 27, India fared better, winning praise for recording the highest rate of "dynamism" in improving its competitiveness among low-income countries. "Competitiveness is a dynamic concept," the authors explain in reference to the addition of this new measure in the BCI. "India's rapid improvement is visible both in the business environment and in company sophistication."

High-income countries that bettered their previous rankings the most include Hong Kong, with impressive improvements in management education, the efficacy of government boards, and local availability of process machinery; and Norway, which benefited from the increasing intensity of local competition, the availability of venture capital, and the efficiency of its legal framework.

On the other side of the ledger, among the high-income nations that fell in the rankings are Cyprus, the Czech Republic, Taiwan, and France. Down six places, France lost ground because of decreasing accessibility to loans, less effective university/industry collaboration in research, and the quality of the country's public schools.

Among the middle-income nations whose rankings went up are Guatemala, Indonesia, the Dominican Republic, and Morocco. Middle-income countries that dipped include Argentina, Botswana, Ukraine, Jordan, and Poland.

In the low-income category, Benin, Kenya, and Tanzania made the largest improvements, while Malawi, Zimbabwe, Cameroon, and Mozambique experienced the biggest drops.

The BCI also analyzes the contextual factors of each country in the survey, focusing on the impact of political stability, location, and natural resource wealth. These factors, the authors point out, help to explain why the prosperity of nations can deviate from the level predicted by their competitiveness.

"True competitiveness," Porter and his coauthors write, "is measured by productivity. Productivity supports high wages, a strong currency, and attractive returns to capital - and with them a high standard of living. The world economy is not a zero-sum game. Many nations can improve their prosperity if they can improve productivity. The central challenge in economic development is how to create the conditions for rapid and sustained productivity growth." It's a process, they conclude, that's the proverbial marathon rather than a sprint.