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How to increase the productivity of Lebanese companies ?

Analysis by Louis G. Hobeika

To survive and then prosper in this global world, Lebanese companies must be more flexible to respond rapidly to competitive and market changes. According to Michael Porter, a company can outperform rivals only if it can establish a difference that it can preserve. It must deliver greater value to customers or create comparable value at a lower cost, or do both. Superior profitability will then follow.

Operational Effectiveness (OE) means performing similar activities better than rivals. Strategic positioning (SP) means performing different activities from rivals or performing similar activities in different ways.

Competitive strategy is therefore about being different. Due to limited resources for research and development and sometimes lack of a clear vision, Lebanese companies have generally shown success in OE and not in SP. The problem with competition based on OE is that it is mutually destructive, leads to wars of attrition and could end up in mergers and acquisitions.

According to Peter Drucker, knowledge constantly makes itself obsolete with the result that today's advanced knowledge is tomorrow's ignorance. The new economics of information will precipitate changes in the structure of entire industries and in the ways companies compete.

Lebanese companies should invest further in information technology which requires better training and more advanced machinery and equipment. Why do many companies in the developed and developing world fail to have a strategy? It really depends on leadership, i.e. on the presence of strong general managers who are willing to make choices. Do we have these leaders in our Lebanese companies? Strategy renders choice about what not to do as important as choices about what to do. It requires constant discipline and clear communication. Are we seeing the missing links within our companies?

Economic activity based on new knowledge generates higher wages and greater employment opportunities for our future generations. It would reflect the higher demand for new and improved products and services. Innovation and creativity on the part of Lebanese business help them as well as society, as they diminish emigration. Even in a global world, an increased concentration of a particular industry within a specific geographic area facilitates knowledge spillovers across firms. Lebanese society should keep its openness and encourage the competition and exchange of ideas in all fields by all means of communication.

For Lebanese companies to improve their competitive position worldwide, the government should play a more constructive role. It should build a stable macroeconomic environment conducive to investment and business. It should start public administration reform which improves procedures and modernize regulations. It should use better technology and implement rules of transparency and accountability which will successfully fight corruption over time.

Clearly, implementing measures to enhance security and facilitate social and political stability is a prerequisite. East Asian economies derived more than half of their output growth from increases in productivity of factors of production rather than accumulation. East Asian economies succeeded especially in improving the quality of education and the efficiency of labor.

The Lebanese public and private sectors need to collaborate to improve human capital. We need to raise the quality of basic education and the efficiency of health and social services. The quality of basic public education is not satisfactory and has been neglected for decades. What is happening today in the social security system is unacceptable to Lebanese society and should be resolved immediately.

Efficient financial markets as well as an enhanced legal and regulatory framework are needed. Fiscal prudence is required to improve savings rates and allow companies to borrow at lower costs. It is not acceptable to raise tax rates or implement new taxes in this period of slow or absent economic growth. It goes against economic theory and international practices. Clearly and due to security issues and to the current governmental crisis, the time of our public officials and civil servants has not been well spent for months. The Lebanese government should go back to its original function and duties, which is serving the full interests of the people.

Finally, Singapore was the world's first fully networked society. It created an "intelligent island" and demonstrated the capacity of a country with no natural resources to create economic advantages with great regional and international influence.

If Singapore did it two decades ago, Lebanon should think about it and achieve overall success during the next two decades.

Dr. Louis G. Hobeika is Professor of Economics and Finance at NDU - Louaize.

Beirut,02 07 2006
Louis G. Hobeika
The Daily Star
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