Pesewa Presentations. GOVERNMENT POLICY ON COMPETITIVE ADVANTAGE Government policy does affect...

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Transcript of Pesewa Presentations. GOVERNMENT POLICY ON COMPETITIVE ADVANTAGE Government policy does affect...

Market Segmentation Analysis

Government Policy on Competitive AdvantagePesewa PresentationsGOVERNMENT POLICY ON COMPETITIVE ADVANTAGEGovernment policy does affect international competitive advantage both positively and negatively.However without the presence of underlying national circumstances that support competitive advantage, the best policy intentions fail.Government DO NOT (should not) control competitive advantage, they only INFLUENCE IT.Government at the LOCAL,STATE or NATIONAL level can influence competitive advantage in an industry if its policies influence ONE or MORE of the FOUR determinants.Governments role in the competitive advantage is partial : Government policies that succeed are those that create an environment(context and infrastructure surrounding firms ) in which firm can gain competitive advantage rather than involve government directly in the process, except in nations at early stage of competitive development

KEY ROLES OF GOVERNMENT POLICYTo deploy nations factor conditions with high and rising levels of productivityTo create deployment through the interaction of diamond determinantsSupport formation of new businesses and nations firms to enter related/ supporting industriesTo stimulate dynamism and upgradingThe formulation and implementation of government policies in upgrading one determinant should also effect the others

( Some ) Examples of Government PolicyDevaluationRegulation/ deregulationPrivatizationImproving environment standardsPromotion of direct/ indirect collaboration and cooperation of various typesEncouragement/ discouragement of mergers, tax reforms, regional development, marketing arrangementsImprove general education system and R & DGovernment programs to fund new enterprisesProactive role for defense and other forms of government procurementAttracting FDITo create and upgrade factor conditions ( especially advanced and specialized ones) To create unique institutional mechanisms ( e.g. training programs, university-industry link, trade assoc.activities) to create dynamic factor conditionsAnti-trust policyTight fiscal/ monetary policyGOVERNMENTS EFFECT ON FACTOR CONDITIONSSetting policies to upgradei Education and trainingSetting high educational standards and grading systemsProviding generous financial support to all economic backgroundProviding pre-administered programs to raise student preparationPolicies for well -prepared , prestigious and valued teaching professionEncouraging Education-Industry link so that students receive education and training with some practical orientationContributing in the formation of alternative and industry specific HE institutions ( various schools, technical Universities etc)Encouraging firms to invest heavily in in-house training through trade assoc. or individually ii) Science and technologyCreate a match between science and technology and the patterns of comp.advantage in the nations industry.(policies and programs should concentrate on science and technology that affect competitive industries or which are important in deepening and upgrading industry clusters) Policies should also concentrate in addressing the key success factors and creating sustainable competitive advantage in those national industriesAllocate government investments in R & D to research universities either directly or via partial government funding on research contracts.Encourage research that has commercial benefits and applicationsPut principal emphasis on commercially relevant technologies Encourage strong links between research institutes and industry via:Specialized research institutes focusing on industry clusters and industry problems attracting competitive advantageResearch contacts and match fundingExplicit dissemination mechanismsEncouragement of research activity within firms as an ongoing element of company strategy .Policies that ensure vigorous domestic rivalry, raise sophistication of home demand, promoting appropriate company goals, enhancing the amount of marketing and technical information are better than direct research grants or subsidy, and tax credits.Primary emphasis on speeding the rate of innovation rather than slowing diffusioniii) InfrastructureCooperate fully with regional / local governments as well as clusters and private vendors to increase infrastructure investments ( BOT etc) .Infrastructure investment can only be a source of advantage if it plays a prominent role in regional / local economy ( create sustained wealth, employment, better local conditions for to live and work)iv)InformationEncourage creating and dissemination of information on markets, technology and competitionEncourage formation of public/ private groups on creating information on trends, issues related to national competitiveness and signal it to the firmsGOVERNMENTS EFFECT ON FACTOR CONDITIONS-cont.v)CapitalLow cost of supply of capital depends on :1) Personal savings rate ( forced savings tied to SS system -Singapore)2) The size of government surplus/ deficits ( control deficits that are not used to finance productivity enhancing investments)3) Tax policy ( that encourage -(Japan) or retard- (USA) savings)4) Foreign capital inflows ( depending on the globalisation of markets)vi)Direct SubsidyDiscourage direct subsidies ( subsidized capital, research, raw materials, exports, direct grants) as research showed that it leads to failure. Research has also shown that Subsidy delays innovation and competitiveness, reduces creativity as implicit/ explicit strings attached. Ongoing subsidies dull incentives and create an attitude of dependenceFocuses attention on renewing subsidies rather than creating comp advantageSubsidies to one ailing industry encourage others to seek themTax incentives are better vehicles then subsidies to upgrade national advantage as they force firms to undertake projects only when they see prospects of economy returnIndirect subsidies in areas of education , research and advanced infrastructure are better investment of government funds in the perspective of improving competitive position of nations industryProviding incentives to buyers is often a better way of stimulating the development of advanced new products thus giving support to firms directly GOVERNMENTS EFFECT ON DEMAND CONDITIONSThe principle aim of the demand side policies should be to improve the quality of domestic demand and upgrade advanced and sophisticated demand in particular industries not the aggregate demand. Policies include:I) Government Procurement :Government procurement can work for and against national competitive advantage.Against if government purchases become a guaranteed market where innovation/ upgrading by domestic firms slow downGovernment policy can work for national advantage if :Procurement policy provide early demand for advanced new products/ servicesGovernment set stringent product specifications and seek sophisticated products rather than accept what is domestically availableGovernment procurement specifications should reflect internationally competitive standardsGovernment procurement include strong element of competition in purchasing and tendering processii) Regulation of Product and Process: Setting stringent product/ process standards that pressure firms to improve and upgradeSetting stringent regulations that anticipate standards that will spread internationally. These will give a nations firms ahead start in developing product/ services that will be valued elsewhere Set stringent product liability laws by acting like a sophisticated buyer to encourage the development of better productsEfficiently, rapidly and consistently administer and enforce stringent regulationsiii) Stimulating Early and Domestic DemandProvide incentives to buyers to be early purchasers of sophisticated products as long as demand is global and domestic competition is in place Provide accurate and complete information on latest innovative international product/ servicesProvide assistance in organizing international fairs, exhibitions and seminars on new product/ process/ technological developmentsiv) Foreign Aid and Political TiesCreate special buying , trade and political relationship between nations through trade missions and business linksGOVERNMENTS EFFECT ON FIRM STRATEGY , STRUCTURE AND RIVALRYI) InternationalizationActively encourage exports and international outlook by providing and disseminating foreign market and technical informationAssist exporters and outward investors connected to international industries and clustersShould seek to avoid currency and foreign investment restrictions and restrictions of the inflow-outflow of skilled personnelEncourage investing or outsourcing activities abroad that are not significant ( less productive ) in the diamondii) Company GoalsEncourage long term investments in R & D , new facilities and training preference to others which have a lower social returnEncourage favourable tax treatment of long term capital gains on equity investment in firmsEncourage corporate governance structures in which boards represent the interest of large investorsEncourage long term stock ownership in favour of annual bonusesiii) Trade Policy Eliminate unfair practices, not protect domestic competitorsConcentrate on dismantling barriers not on directly regulating imports/ exports( orderly marketing, voluntary retraining arrangements, cartelizing markets are ineffective and costly to consumers)Encourage training of staff in overseas tradeiv) Domestic RivalryActively encourage domestic rivalry over mergers and acquisitionsEstablish strong anti-cartel laws and anti-trust laws in the area of horizontal mergers , alliances and collusive behaviourDisallow mergers, acquisitions and alliances involving industry leadersProhibit acquisitions that significantly threaten domestic rivalryEstablish strict guidelines on cooperative ventures involving direct collaborationAvoid regulation of competition through such poli