Geopolitical Factors in International Geopolitical Factors in International CompetitivenessCompetitiveness

Jeffrey A. HartJeffrey A. Hart

Indiana UniversityIndiana University

April 1, 2011April 1, 2011

Contact informationContact information

Department of Political ScienceDepartment of Political Science

Woodburn Hall 210Woodburn Hall 210

Bloomington, IN 47405Bloomington, IN 47405

Email: Email: hartj@indiana.edu

Web: Web: http://mypage.iu.edu/~hartj

My books on this topic:My books on this topic:

Rival CapitalistsRival Capitalists (1992) (1992) Globalization and Governance Globalization and Governance (1999)(1999) Managing New Industry CreationManaging New Industry Creation (2002) (2002) Technology, Television, and CompetitionTechnology, Television, and Competition

(2004)(2004) Competing for KnowledgeCompeting for Knowledge (in preparation) (in preparation)

What are Geopolitical Factors?What are Geopolitical Factors?

Governmental policies adopted primarily Governmental policies adopted primarily as a response to inter-country and inter-as a response to inter-country and inter-regional rivalriesregional rivalries

They take three primary forms:They take three primary forms: Industrial policiesIndustrial policies Macroeconomic policies motivated by rivalriesMacroeconomic policies motivated by rivalries National security policies that have economic National security policies that have economic

consequencesconsequences

The Example of Digital TVThe Example of Digital TV

Competition among three Competition among three regions (North America, regions (North America, Western Europe, and Western Europe, and Japan) resulted in the Japan) resulted in the adoption of 3 incompatible adoption of 3 incompatible DTV standards:DTV standards: ATSC (N. America)ATSC (N. America) DVB (W. Europe)DVB (W. Europe) ISDB (Japan)ISDB (Japan)

Global DTV Standards WarsGlobal DTV Standards Wars

The Example of Flat Panel The Example of Flat Panel DisplaysDisplays

Japanese dominance of the industry Japanese dominance of the industry challenged in the 1990s by Korea and challenged in the 1990s by Korea and TaiwanTaiwan

More recent entry of China into the marketMore recent entry of China into the market

Tianma LCD Factory in Tianma LCD Factory in Shanghai (formerly SVA-NEC)Shanghai (formerly SVA-NEC)

Theoretical approaches:Theoretical approaches:

Neoclassical (industrial policy is bad and Neoclassical (industrial policy is bad and counterproductive)counterproductive)

Regulatory State (regulation necessary for Regulatory State (regulation necessary for markets to work properly, but industrial markets to work properly, but industrial policy is still bad)policy is still bad)

Developmental State (industrial policy is Developmental State (industrial policy is useful for catching up)useful for catching up)

Competition State (industrial policy has to Competition State (industrial policy has to take globalization into account)take globalization into account)

The Developmental State vs. the The Developmental State vs. the Regulatory StateRegulatory StateDevelopmentalDevelopmental RegulatoryRegulatory

Type of Type of BureaucracyBureaucracy

Elite, InsulatedElite, Insulated Transparent, Transparent, AccountableAccountable

Support for New Support for New IndustriesIndustries

ExtensiveExtensive LimitedLimited

Use of State-Use of State-Controlled BanksControlled Banks

ExtensiveExtensive LimitedLimited

Stance w/regard Stance w/regard to Private Firmsto Private Firms

TutellaryTutellary RegulatoryRegulatory

Industrial PoliciesIndustrial Policies

Includes a wide variety of policy Includes a wide variety of policy instruments that are intended to advance instruments that are intended to advance the international competitiveness of the international competitiveness of “national champion” firms, such as:“national champion” firms, such as: Investment subsidiesInvestment subsidies Public R&D expendituresPublic R&D expenditures Science parks and free trade zonesScience parks and free trade zones Export incentivesExport incentives

The Impact of Globalization on The Impact of Globalization on National Economic StrategiesNational Economic Strategies

Greater volatility in global financial markets Greater volatility in global financial markets requires changes in financial market regulations requires changes in financial market regulations in all countriesin all countries

To remain internationally competitive, firms have To remain internationally competitive, firms have adopted global production strategiesadopted global production strategies

Even regulatory states have to compete for Even regulatory states have to compete for inflows of foreign direct investmentinflows of foreign direct investment

Developmental states cannot succeed with pure Developmental states cannot succeed with pure national champion strategiesnational champion strategies

Example of GM in ChinaExample of GM in China

2010 sales of 2.3 million vehicles in China2010 sales of 2.3 million vehicles in China World-class production facilities (joint World-class production facilities (joint

venture with SAIC)venture with SAIC) Modified Buick as a chauffeur-driven Modified Buick as a chauffeur-driven

luxury carluxury car Not competing with low-end national Not competing with low-end national

champions like Geelychampions like Geely

Example of LG LCD ProductionExample of LG LCD Production

Joint venture with PhilipsJoint venture with Philips Only major competitors Only major competitors

globally are Samsung and globally are Samsung and SharpSharp

Production facilities use best Production facilities use best materials and tools from global materials and tools from global suppliers (e.g. Corning and suppliers (e.g. Corning and Canon)Canon)

Have to worry about ChinaHave to worry about China

A New Theory about Economic A New Theory about Economic Rivalry in Globalized IndustriesRivalry in Globalized Industries

Gap between global production and consumption shares in country A

Gap between global production and consumption shares in country B

Level of Economic Rivalry between A and B