International Competitiveness and Trade Promotion Policy from a Network Perspective

I. F. Wilkinson,
School of Marketing, International Business and Asian Studies
University of Western Sydney, Nepean
! Bo" #$ %ings&ood, NSW Australia
'(ail) i.&ilkinson*u&s.edu.au
(Corresponding author)
+,-. Mattsson
Stockhol( School of 'cono(ics
-. 'aston
.epart(ent of Marketing
University of +ancaster
/evised 0ersion Fe1ruary 2$$$
3 4he authors &ish to ackno&ledge the valua1le assistance provided 1y anony(ous revie&ers of
this paper, +a&rence Welch as &ell as the editor for his patient 1adgering.
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ABSTRACT
4he international co(petitiveness of fir(s and trade pro(otion policy are analy5ed fro( a net&ork
perspective &hich e(phasi5es the role and i(portance of interfir( relations and net&orks spanning
industry and international 1oundaries. First, &e identify t&o types of producer net&orks involved
in the overall value production syste(, i.e. pri(ary and ancillary producer nets. Second, &e
classify net&orks in ter(s of t&o factors that i(pact on their potential international co(petitiveness
i.e. the location of net&orks in local or foreign (arkets and the presence of internationally
co(petitive fir(s. 4his leads to the identification of different types of net&ork situations that
provide opportunities as &ell as threats to the international perfor(ance of fir(s operating in those
net&orks and call for different types of trade pro(otion policies. We discuss the key features of
each situation and (anage(ent and trade pro(otion policy i(plications arising.
page 3
Introduction
In an increasingly glo1al econo(y the future prosperity of a country depends (ore and (ore on the
international co(petitiveness of its fir(s and industries. A fir(6s co(petitiveness is usually
e"plained in ter(s of the characteristics of the fir(s the(selves, including their resources and costs
co(pared to others and ho& these affect the a1ility to succeed in international (arkets 7e.g. Barney
#889, :unt and Morgan #88;<. :ere &e consider an alternative fra(e&ork for understanding and
developing a fir(6s international co(petitiveness and in developing trade pro(otion policy, the
(arkets as net&orks perspective, that has 1een developed largely 1y S&edish and other 'uropean
researchers 7=ohanson and Mattsson #88><. According to this perspective a fir(?s perfor(ance,
including its international co(petitiveness, depends not only on its o&n efforts, skills and resources,
1ut also, in i(portant &ays, on the perfor(ance of other fir(s and organi5ations and on the nature
of the relationships 1oth direct and indirect it has &ith the(. Markets are vie&ed as net&orks of
e"change relations and other for(s of relations a(ong econo(ic actors.
'ach fir( controls resources it uses to perfor( production and@or distri1ution activities. But fir(s
are not islands, they are not self,sufficient. 4o 1e a1le to co(pete, fir(s cooperate &ith other
organi5ations to access reAuired inputs and they co(pete &ith rivals to esta1lish cooperative
relations &ith these other organi5ations. Fir(s need specialised inputs fro( other organisations to
create and deliver value in the for( of products and services to end users. 4hese other organi5ations
include suppliers of (aterials, co(ponents, (achinery and eAuip(ent, infor(ation, technical
services, and financeB various types of channel inter(ediaries and custo(er organisations further
do&n the value syste(B and co(ple(entors, that supply co(ple(entary products and services,
including govern(ent organi5ations 7Branden1urger and Nale1uff #88C<. 4hese e"ternally
accessed inputs for( a significant part, if not the largest part, of a fir(?s total costs and value
creating activities and research indicates that (any fir(s are seeking to significantly increase this
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proportion 7Ford et al #88D, 0enkatesan #882<. 4o access these e"ternal inputs fir(s engage in
e"change &ith others as &ell as other for(s of cooperative relations.
A fuller account of the E(arkets as net&orksE or Eindustrial net&ork approachE and its develop(ent
is 1eyond the scope of this paper 7see Anderson et al, #88>, A"elsson and 'aston ,#882, Ford, #88C,
:akansson and Snehota, #88;<.
4he purpose of this paper is to consider the (anage(ent and trade pro(otion policy i(plications of
a (arkets as net&orks perspective on the deter(inants of fir(s6 international co(petitiveness. 4he
general i(plications for (anage(ent in developing their fir(s6 international co(petitiveness are
t&ofold. First, there is a need to develop and (aintain effective relations &ith other organi5ations
on &hich they depend for creating and accessing valued inputs. !ften this reAuires the develop(ent
of close cooperative, long,ter( relations, rather than relying on ar(slength (arket transactions, in
order to reali5e the 1enefits of resource and product adaptationB effective co((unication and
coordination of activitiesB and kno&ledge transfer and creation 7Morgan and :unt #88>, :akansson
#8F2<. Such relations typically involve (ore direct, personal and social interactions a(ong people
fro( the fir(s involved 7e.g., :akansson and Snehota #88;, Nonaka and 4ekeuchi #88;<.
4he second general i(plication focuses on the position of fir(s in industrial net&orks. Net&ork
position refers to the pattern of relations a fir(s has &ith other (e(1ers of the net&ork and the
role7s< it is e"pected to play &ithin the net&ork. Its position 1oth ena1les and constrains a fir(6s
actions and focuses strategic attention on the issues and pro1le(s of understanding, esta1lishing and
changing a fir(6s position as &ell as defending and (aintaining a position 7Achrol and %otler #888,
=ohansson and Mattsson #882, 4horelli #8F9<.
4he general i(plications for trade pro(otion policy are that it needs to (ove 1eyond the usual
focus on the characteristics of individual fir(s and industries and take into account the role and
i(portance of personal and 1usiness relations and net&orks 1et&een fir(s and other organi5ations
that cut across traditional industry 1oundaries as &ell as national 1orders.
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4he paper is organised as follo&s. First &e develop a fra(e&ork for categorising 1usiness
net&orks in ter(s of their international trade potential. 4his fra(e&ork is then used to develop
(anage(ent and trade pro(otion policy i(plications for i(proving fir(s6 international orientation
and co(petitiveness.
Focusing on Relations and Networks
Nations around the &orld have e(ployed a variety of policies to try to 1oost international trade
perfor(ance. 4hese include industry and fir( focused trade pro(otion activities as &ell as &ell as
(acro,econo(ic, regulatory and environ(ental policies, &hich shape the general environ(ent in
&hich fir(s operate in a country. :ere &e focus on the for(er type. In the (ain these policies
have tended to focus on the characteristics of actual and potential e"porters 7Gavusgil and G5inkota
#88$, Seringhaus and /osson #88$< or have targeted &hole industries 7%rug(an #8F9, 4yson
#882<.
A pro1le(s confronting trade pro(otion policy (akers is ho& to select the fir(s or industries that
such policies should 1e directed at. Many sche(es have 1een developed around the &orld that are
1ased on the characteristics of individual fir(s and driven 1y nu(erous research studies that have
identified the perceived pro1le(s, 1arriers and needs of actual or potential e"porters 7e.g Barrett
and Wilkinson #8F;, Gavusgil and Naor #8FC, Gavusgil and Hou #88><. 4he pro1le( &ith such a
Euser orientedE approach to developing assistance sche(es is that it assu(es that e"isting fir(s
kno& 1est the pro1le(s li(iting and preventing e"ports and that this provides an appropriate guide
for policy develop(ent. But as G5inkota and /icks 7#8F#< pointed out, e"isting or potential
e"porters fro( a particular country (ay not al&ays understand &hat is reAuired to succeed in
international 1usiness operations. 4herefore addressing the self,perceived pro1le(s and difficulties
of e"isting and potential e"porters (ay not reveal the (ost effective strategies for penetrating
foreign (arkets. Fro( a policy (akers perspective it (ay 1e (ore appropriate to give greater
attention to the felt needs and pro1le(s of i(porters in foreign (arkets rather than actual or
page 6
potential e"porters. :elping foreign 1uyers 1uy (ay 1e Iust as i(portant as helping do(estic fir(s
sell.
4his argu(ent highlights the need to consider suppliers needs in relation to the needs of its foreign
custo(ers. 4he net&ork (odel e"tends this argu(ent. It is not Iust that the pro1le(s and needs of
1oth sellers and foreign 1uyers that (ust 1e considered in efforts to strengthen international
co(petitiveness, the relationship 1et&een the( also (atters. Success in international 1usiness
depends on developing and (anaging successful relations &ith overseas counterparts, including
foreign 1uyers. 4hese relations are often long ter( in nature and involve each party adapting to the
needs and pro1le(s of the other 7:akansson #8F2<. 4his adaptation process leads to the upgrading
of products and processes and the 1onding of fir(s into long ter( relations.
Such adaptations and upgrading are a continuing process and an i(portant feature of the dyna(ics
of international co(petition. Moreover the increasing i(portance of created rather than inherited
sources of co(petitive advantage, such as technology and innovation, learning effects and scale
econo(ies in internationally traded goods and services under(ine traditional notions of patterns of
trade 1ased on static co(parisons of the factor endo&(ents of nations. 4he result is that the pattern
of specialisation a(ong countries is (ore dyna(ic and history dependent. 4he accu(ulation of
e"perience in particular technologies, the develop(ent of scale econo(ies, the advantages arising
fro( innovation and the spillover effects fro( one fir( and industry to others play a critical role in
shaping the potential future directions for develop(ent of fir(s and industries.
4his has i(plications for (anage(ent and policy(akers. For the fir( it focuses attention on
relationships as resources in developing its international co(petitiveness, as opposed to the fir(6s
internal resources such as (anage(ent characteristics, e"perience, products and capital. As noted,
research on co(petitiveness has tended to focus on the latter types of resources 7e.g. :unt and
Morgan #88;, Gavusgil and Hou #88><. :o&ever, a fir(6s relationship resources are (ore
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pro1le(atic 1ecause they are not so directly controlla1le. 4hey depend on the cooperation of other
fir(s &ith their o&n o1Iectives, perceptions and strategies.
For trade policy the i(plications are to (ove fro( targeting individual fir(s as a &ay of enhancing
trade perfor(ance to a focus on the relationships and net&orks linking fir(s. 4his includes
considering inter as &ell as intra,industry linkages and interdependencies a(ong fir(s. Such inter,
industry links have 1een stressed 1y orter 7#88$< in his concept of Jindustry clustersK as i(portant
deter(inants of a country6s international co(petitiveness. :o&ever, his analysis tends to focus
(ore on the relations a(ong industries than on the relations a(ong co(ple(entary fir(s spanning
different industries. Underlying these connections across as &ell as &ithin industries are interfir(
and interpersonal relationships and net&orks.
Figure # illustrates the kind of inter,industry and inter,fir( connections that e"ist in a nation6s
econo(y. It depicts an hypothetical e"a(ple of the value production syste( associated &ith
transfor(ing ra& (aterials into finished products and services for final consu(ption. 4&o types of
net&orks of relations are distinguished) 7a< those associated &ith the pri(ary value syste( and 71<
those associated &ith ancillary value syste(s. 4he pri(ary value syste( is defined in ter(s of the
seAuence of relations involved in the transfor(ation of ra& (aterials through various production
stages to the final distri1ution to end users. Ancillary value syste(s refer to the net&orks of
relations involved in supplying various types of inputs to the pri(ary value syste( at each
production stage, including production eAuip(ent, su1asse(1lies, technical kno&,ho& and
specialised services reAuired to carry out the activities perfor(ed 1y fir(s in the pri(ary value
syste(. It can 1e vie&ed as the secondary net&ork infrastructure that supports the pri(ary
net&ork. 4he distinction 1et&een pri(ary and ancillary net&orks is relative rather than a1solute.
4here is not one pri(ary value syste( 1ut (any that interpenetrate in the co(ple" &e1s that (ake
up econo(ic syste(s. What is pri(ary and ancillary depends on the focus of analysis 1ut the
distinction dra&s attention to the different kinds of relations 1et&een fir(s supplying (aterials and
page 8
co(ponents that &ill 1e incorporated in the final product and those supplying products and services
that are not.
Figure # a1out here
4he distinction 1et&een pri(ary and ancillary net&orks serves to illustrate different types of
international trade flo&s that take place in industrial net&orks. 4hese are la1elled A through . in
the figure. 4ype A concerns international trade &ithin the pri(ary value syste(, as &hen se(i,
processed products such as te"tiles or processed (aterials are e"ported to other countries &here
they are further processed. 4ypes B through . concern various types of international trade
involving ancillary net&orks in &hich inputs other than pri(ary (aterials and co(ponents are
traded to support, directly or indirectly, pri(ary value syste( suppliers in other countries.
International Competitiveness in Primary and Ancillary Networks
An understanding of the structure and operations of a pri(ary net&ork and its associated ancillary
net&orks provides a 1asis for targeting trade pro(otion policies and for enhancing a fir(6s
international co(petitiveness.
4o 1egin &ith consider the case of Australia, &hich is a resource 1ased econo(y. :istorically, a
large proportion of Australian e"ports co(es fro( producers of less refined products located at the
early stages of pri(ary value syste(s for &ool, &heat, (eat and (ineral products. 4his has led
so(e to argue that Australia should try to esta1lish (ore internationally co(petitive value added
(anufacturing industries further do&n pri(ary value syste(, such as e"ports of agricultural
products in the for( of processed food, &ool in the for( of te"tiles and clothing, and (inerals in
the for( of (ore ela1orately transfor(ed (anufactures. 4he develop(ent of Nestle, a S&iss
co(pany, fro( a (ilk processor into (any do&n strea( processed food and 1everage products
develop(ent is an e"a(ple of this. 4hrough such develop(ents, so the argu(ent goes, Australia or
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other resource 1ased econo(ies &ill capture a greater share of the revenues o1tained fro( sales of
higher priced value added products and services.
4his argu(ent focuses on the structure of the pri(ary value syste( net&ork and on one type of
resource needed to esta1lish value added (anufacturing industry, i.e. ra& (aterials. But, further
processing of pri(ary products reAuires relationships to 1e esta1lished &ith providers of (any other
types of resources and inputs in ancillary net&orks that (ay not 1e availa1le in a cost,effective
(anner in the sa(e country. In addition relationships have to 1e esta1lished &ith distri1utors and
other organisations at su1seAuent stages of the pri(ary net&ork, through &hich to reach final
custo(ers at ho(e and a1road. Without good access to such inputs, internationally co(petitive
industries for (ore refined products (ay 1e very costly to esta1lish and difficult to sustain. Indeed
there are reports that (any Australian food processors are (oving offshore to access these inputs
7Letton .avis and S&an #882<. Nestle6s 1ase in S&it5erland &as close to (any developed
'uropean (arkets as &ell as providing ready access to other inputs. 'cono(ies like Australia and
Ne& Healand, South A(erica and Africa have less easy access to such ancillary net&orks.
An alternative vie& is to focus on the ancillary net&ork , &hich supports the pri(ary production
stage. 4he international co(petitiveness of pri(ary production depends on the characteristics of
these input net&orks and the relations 1et&een the(. If the pri(ary production stage is
internationally co(petitive, fir(s in the input net&orks are likely to 1e internationally co(petitive
as &ell, 1ecause they are the direct or indirect suppliers of these Eleading edgeE custo(ers. 4his
suggests an alternative focus for trade pro(otion policies and potential opportunities for fir(s in the
ancillary net&orks to develop international (arkets. Instead of looking further down the pri(ary
net&orks, look further up the ancillary net&orks supporting pri(ary industries that are
internationally co(petitive.
In S&eden, for e"a(ple, (any internationally co(petitive fir(s and industries e(erging out of
net&orks originally developed to serve do(estic 1ased pri(ary producers 7SMlvell, Hander and
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orter, #88#<. 4hey have e(erged fro( ancillary net&orks originally serving the do(estic (ining
industry 7e.g rock drills and eAuip(ent, co(pressors, transport and loading (achinery, elevators,
(ine hoists, pu(ps, crushing (achinery, ru11er co(ponents, e"plosives, and consulting services<B
the pulp and paper industryB the auto(otive industryB the ship1uilding industryB and the steel
industry. 'ven as the pri(ary industries lose their international co(petitiveness, such as S&edish
ship1uilding and (ining industries, fir(s in the ancillary net&orks have still 1een a1le to (aintain
their international co(petitiveness.
In Australia, fir(s involved in the ancillary net&orks for various pri(ary industries have 1een a1le
to 1eco(e internationally co(petitive 1ecause of their relations &ith internationally co(petitive
pri(ary industries, including those supporting agricultural and (ining industries. !ne e"a(ple is
the develop(ent of the e"port potential of fir(s in the ancillary net&orks supporting the Australian
grain e"port industry 7Welch et al #889a<. An opportunity e"isted to 1id for a share of a large World
Bank funded grain handling infrastructure proIect in Ghina. A nu(1er of fir(s e"isted in Australia
supplying inputs to the Australian grain e"port industry, including producers and designers of
storage, handling and transport syste(s, control syste(s and training services 1ut they &ere not
generally internationally focused and the relations a(ong the( &ere underdeveloped. 4he trade
pro(otion ar( of the federal -overn(ent for(ed a Ioint action group of relevant and interested
fir(s fro( the ancillary net&ork in order to position the( to 1id for part of the World Bank proIect.
=oint pro(otion, in&ard and out&ard trade (issions and various research activities &ere undertaken
to position Australian fir(s. 'ventually success &as achieved in 1idding for the design &ork as
&ell as final contracts. 4he e"a(ple sho&s ho& potential international co(petitiveness in the
ancillary net&orks (ay go unrecogni5ed 1y policy (akers and 1y the fir(s the(selves &hen they
are seen as only suppliers to do(estic custo(ers.
4o further e"a(ine the structure of pri(ary and ancillary net&orks and the i(plications for fir(s
and trade pro(otion policy, &e focus on t&o i(portant characteristics of net&orks that i(pact on
their international potential) 7a< location i.e. the e"tent to &hich the pri(ary or ancillary net&ork is
page 11
do(estically 1ased or foreign 1ased and 71< the presence of internationally co(petitive fir(s, and
organi5ations and people &ith international connections and e"perience.
ocation of Primary and Ancillary Networks
+ocation is i(portant 1ecause it affects the nature of the relations 1et&een different fir(s in the
net&ork. 4hese affect trade pro(otion policy 1ecause i(portant parts of the pri(ary or ancillary
net&ork (ay lie outside the country and 1e less a(ena1le to govern(ent intervention. +ocation
also affects the a1ility of fir(s to 1uild effective relations &ith particular input providers. 4he
strength and Auality of relations 1et&een fir(s in different countries tend to 1e &eaker than
do(estic relations, due to geographical and psychic distance effects on co((unication 7=ohanson
and 0ahlne #8CC< and &eaker personal relationships 70ahlne #8CC, 4urn1ull #8C8<. As a result,
do(estic inter,fir( relations have 1een found to play an i(portant role in developing and
supporting the internationali5ation process 7Bonaccorsi #882< and the international co(petitiveness
of fir(s 7:akansson #8FCB %anter #88;<. !ne aspect of this is the (ore direct and apparent
co(petitive rivalry a(ong fir(s located in the sa(e country and region, &hich tends to spur the
process of product and service enhance(ent 7orter #88$<. Another aspect is the a1ility to &ork
closely &ith suppliers, custo(ers and other organi5ations to i(prove products and processes.
While close relations tend to occur (ore readily 1et&een fir(s 1ased in the sa(e country, they can
develop 1et&een counterparts in different countries in certain situations. '"a(ples are &hen 1oth
fir(s are part of the sa(e (ultinational corporation, &here direct foreign invest(ent esta1lishes the
overseas distri1utors and production units, or &here conducive historical, cultural or geographical
circu(stances e"ist e.g. Gart&right #882, .unning #88$, :odgetts #882, /ug(an #882, /ug(an
and 0er1eke #882. '"a(ples include Ganada and Me"ico dra&ing on links &ith fir(s and
industries in the US, and the Ghinese diaspora 7%ao #88D, and /edding #88$<.
Presence of Internationally Competitive Firms in t!e ocal Network
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4he international co(petitiveness of so(e fir(s in a net&ork, as &ell as their international
connections and e"perience, can (ake an i(portant contri1ution to the international potential of
other fir(s, depending on the types of relationships they have &ith the(. Internationally
co(petitive fir(s can play a role as leading edge custo(ers or suppliers to other fir(s and provide
role (odels for others to e(ulate. More generally, the presence of fir(s &ith international
connections and e"perience (ay facilitate the internationali5ation of other co(panies in the
net&ork 7Bonaccorsi #882<. Such connections and e"perience can e"ist for various reasons
including) 7a< international trade e"perience, including i(porting as &ell as e"portingB 71< foreign
o&nership, &hich leads to direct and indirect connections &ith foreign fir(s as &ell as e"perience
in dealing &ith fir(s in other countriesB and 7c< personal and professional international net&orks
and kno&ledge ste((ing fro( international &ork and i((igration.
A Typology of Business Networks in Terms of t!eir International Trade Potential
4hese t&o di(ensions (ay 1e used to classify net&orks into four 1road types as sho&n in 4a1le #.
4he follo&ing discussion e"a(ines the i(plications for fir(s involved in each type of net&ork as
&ell as the types of policy responses that (ay 1e appropriate in each case. We 1egin 1y focusing on
the location of different parts of the net&ork and then introduce the issue of international
co(petitiveness, connections and e"perience.
Table 1 about here
Case A" #omestic Focused Networks
Ancillary and pri(ary net&orks 7including their custo(er 1ase at the ne"t stage of the pri(ary
value syste(< can range fro( situations in &hich all (e(1ers are located in the do(estic (arket to
those in &hich none are located do(estically. In a situation &here 1oth the pri(ary and ancillary
net&orks are fully localised and serve only the do(estic (arket, i.e. Gase A in 4a1le #, there &ill
clearly 1e a (aIor task for policy (akers to assist the develop(ent of an international orientation
page 13
a(ongst the fir(s involved. In this situation there are (any possi1le strategies for fir(s and policy
(akers to influence the internationali5ation process of the net&ork of co(panies and to develop
their international co(petitiveness..
4he purely do(estic focus of the industry net&orks constrains the a1ility of fir(s to conceive of, let
alone develop international operations. It is therefore necessary to introduce a range of trade
pro(otion a&areness, fa(iliari5ation and education progra(s in order to encourage the e"tension
of parts of the ancillary net&orks and the pri(ary net&orks and the custo(er 1ase into the
international arena.
Starting fro( such a li(ited 1ase general education progra(s and 1road incentives could 1e used to
attract initial interest in foreign operations. In addition, to 1uild a foreign custo(er 1ase to support
such progra(s, use can 1e (ade of direct pro(otion in foreign (arkets. 4his can 1e ai(ed at
foreign custo(ers through such techniAues as trade (issions and 1y the provision of pro(otional
literature descri1ing the strengths and capa1ility, not only of individual fir(s, 1ut of the industry
net&orks as a &hole.
4here are (any e"a(ples of govern(ent agencies atte(pting to put potential custo(ers in contact
&ith do(estic suppliers, &ith varying degrees of success 1ut they tend to focus on individual fir(s
rather than net&orks 7e.g. Gavusgil and G5inkota #88$<. !ne e"a(ple of a net&ork focus is the
afore(entioned Australian -overn(ent6s atte(pt to assist ancillary suppliers to the grain
production and handling industry to gain a share of a (aIor grain infrastructure proIect in Ghina. As
part of their assistance a capa1ility docu(ent detailing the ancillary net&ork &as prepared and
provided to the Ghinese -overn(ent on an initial trade (ission led 1y a ca1inet (inister 7Welch et
al #889a<. Fir(s can atte(pt such pro(otions of the(selves, alone or in cooperation &ith
co(ple(entary suppliers and other (e(1ers of the pri(ary and ancillary net&ork, such as
do(estic custo(ers and suppliers. 4he develop(ent of the internet and e,co((erce is allo&ing this
to happen (ore easily, yet nearly all &e1 sites are fir( 1ased rather than net&ork 1ased.
page 14
Because international fir(s are not present trade pro(otion activities (ay need to identify fir(s
occupying central positions in the net&ork and focus resources on facilitating their
internationali5ation 1ecause of the net&ork i(pacts this &ould have. In this &ay it (ay 1e possi1le
to kick start the process of internationalising the net&ork.
Another &ay of upgrading the do(estic net&orks is to encourage internationally co(petitive fir(s
to esta1lish operations in the do(estic pri(ary or ancillary net&orks, or in the local custo(er 1ase.
4his &ill help enhance the international co(petitiveness of other net&ork (e(1ers for the reasons
already given. 4his nor(ally involves encouraging foreign fir(s to set up in the do(estic (arket
through Ioint ventures &ith local fir(s, through takeovers or 1y esta1lishing ne& entities. Such
fir(s not only esta1lish &orld class operations in the local (arket &hich i(pact on local suppliers
and custo(ers 1ut also 1ring &ith the( their international connections, e"perience and kno&ledge.
For instance (aIor foreign (anufacturing fir(s esta1lishing operations in a local pri(ary net&ork
are 1ound to have a su1stantial i(pact on the local co(petitors in the net&ork as &ell as i(pacts on
the ancillary input net&orks. =apanese co(panies in the USA, 'urope and Asia have led to changes
in &ork practices, technology transfer, and the develop(ent of relations &ith do(estic suppliers,
resulting in significant i(prove(ents in the perfor(ance of these fir(s. In Australia the
deregulating of the financial syste( led to an influ" of foreign players that 1oosted local
co(petition and contri1uted to the internationali5ation of do(estic financial institutions as &ell as
so(e of their suppliers of soft&are and technical services. In developing countries the introduction
of foreign fir(s through Ioint ventures is an i(portant part of govern(ent policy designed to
facilitate technology transfer and &hich hopefully has spillover effects on local suppliers and
custo(ers of these Ioint ventures.
Foreign, internationally co(petitive fir(s, (ay attract other foreign fir(s to set up operations such
as suppliers of key co(ponents and services they &ork closely &ith. . For e"a(ple, =apanese
(ultinationals entering foreign (arkets are kno&n to encourage their suppliers to esta1lish a
presence in the sa(e or adIacent (arkets to facilitate their o&n as &ell as their suppliers
page 15
internationali5ation 7:atch and La(a(ura #889<. In this &ay the pri(ary net&ork is enhanced &ith
potential spill over effects on other fir(s they interact &ith as co(petitors or co(ple(entary
suppliers 7:atch and La(a(ura #889<. 4his can instigate a net&ork and learning international
(ultiplier effect. Si(ilar types of effects result fro( encouraging internationally co(petitive
foreign fir(s to set up in ancillary net&orks 1ecause of their effects on other (e(1ers of ancillary
and pri(ary net&orks, as custo(ers, suppliers, co(ple(entors or co(petitors..
+astly, such fir(s could 1e introduced into the local custo(er 1ase of the pri(ary net&ork and have
the sa(e types of effects. An additional consideration here is that ancillary net&orks (ust e"ist in
the ho(e (arket to support such do&nstrea( processors in the pri(ary value syste( and to ensure
that links are (aintained &ith the international custo(er 1ase. 4heir (ay 1e overlaps in the
ancillary net&orks supplying adIacent stages of the pri(ary value syste(, &hich provide
opportunities for fir(s 1ased in e"isting ancillary net&orks as &ell as a potential 1ase for trade
pro(otion policy to focus on. Much depends on ho& si(ilar the technology is underlying
production at each stage. Go((on inputs (ay include soft&are and co(puting products, certain
technical and research services as &ell as financial and govern(ent services. If such potential
overlaps e"ist, the end result is likely to 1e an upgraded a1ility to undertake international
operations, there1y achieving the goal of trade pro(otion policy.
Fro( a policy perspective trade pro(otion agencies can encourage foreign fir(s to esta1lish in the
local (arket 1y such (easures as providing financial incentives and ta" holidays, pro(oting the
strengths of e"isting ancillary or pri(ary net&orks, or 1y restricting access to the local (arket to
locally 1ased fir(s. For e"a(ple, the Australian govern(ent has 1een successful in attracting the
regional headAuarters of co(panies such as Gathay acific, .'G and A(erican '"press. In part
this has 1een 1ecause of negotiated financial incentives 1ut (ore enduring are strengths in the
teleco((unication syste(, the ti(e 5one of Australia in relation to Asia, and the (ulticultural
nature of Australia. 4he latter results in the a1ility to provide (ultilingual native speakers in nearly
page 16
all languages &ho have the cultural understanding and sensitivity to provide high Auality
co((unication and translation facilities 7Wilkinson and Gheng #888<.
For policy (akers and local fir(s the pro1le( is ho& to facilitate the develop(ent of productive
relations 1et&een the ne&ly arrived fir(s and e"isting and potential (e(1ers of the local net&ork.
4his (ay 1e done in various &ays, such as offsets progra(s, &hich encourage foreign o&ned fir(s
supplying the govern(ent to source so(e parts of the product or service fro( local suppliers. 4he
danger is that such sche(es (ay result in only short,ter( relations &ith local suppliers, &hich do
not lead to any sustained international develop(ent. Ulti(ately, the success of any e"ternally
induced links depends on the a1ilities of the parties involved to 1uild long ter( cooperative
relations. At the very least though such (easures allo& the esta1lish(ent of international net&ork
links and the 1eginning of associated processes of internationali5ation.
A variant of this approach is to allo& fir(s to (eet their offset o1ligations 1y facilitating the e"port
of other products and services. Another (ethod is to encourage alliances 1et&een local and foreign
o&ned fir(s ai(ed at developing international operations 1y local fir(s. !ne e"a(ple is the
Australian govern(ent6s Nartnership for .evelop(ent6 progra( in the infor(ation technology
sector 7Welch #889<. 4his type of strategy has 1een adopted 1y so(e Asian countries to attract
=apanese pri(ary producers in the car and co(puter industry, for e"a(ple, to set up do(estically
together &ith their supplier nets 7:atch and La(a(ura #889<.
A pro1le( that (ay arise here is foreign o&ned fir(s e"cluding local fir(s fro( their net&orks of
suppliers and custo(ers. 4here is evidence fro( Australia and the USA that =apanese (ultinationals
co(panies tend to i(port (ore than other (ultinationals 7-raha( and %rug(an #88#, %rug(an
#88#< and that =apanese fir(s tend to 1ring &ith the( their o&n supplier net&orks and keep core
technology at ho(e 7:atch and La(a(ura #889<. As a result they (ay provide fe& opportunities
for local fir(s to 1reak into these net&orks and li(it technological transfer to the host country. As
:atch and La(a(ura 7#889< co((ent) JWhat truly stunts the gro&th of local suppliers is the fact
page 17
that =apanese MNGs in the region are 1uilding a tight net&ork of dedicated suppliers fro( =apan,
1ut a far looser, or &ider, net&ork of do(estically o&ned suppliersK 7p#9C<
As a result -overn(ents and fir(s need to find &ays of 1reaking into such net&orks. 0arious
(eans (ay 1e used to help this process such as in setting the initial conditions of entry, offsets
policies, or in providing foru(s to facilitate the develop(ent of interpersonal and interfir(
relationships 1et&een foreign and local fir(s. An e"a(ple of the &ay interpersonal net&orks can
play an i(portant role in facilitating relationship develop(ent 1et&een foreign and local fir(s &as
in the U% North Sea oil fields in the #8C$s and #8F$s. 4he pri(ary producers 7oil co(panies<
1rought the ancillary fir(s 7e.g. drilling contractors< &ith the( to A1erdeen in Scotland. :o&ever,
local fir(s &ere to gain access to the pri(ary producers via the help and e"pertise of Scottish 1orn
(anagers &ho &orked for the 7(ainly US o&ned< oil co(panies 7'aston and S(ith, #8F><.
In addition, i((igration policy can play a role in introducing people into local net&orks &ith
su1stantial international 1usiness e"perience, kno&ledge and personal@professional net&orks.
Australia and the USA are e"a(ples of countries that have 1enefited fro( a (ulticultural
population 7'ast Asian Analytical Unit #88;, Wilkinson and Gheng #888<. For e"a(ple, -ate&ay
har(aceuticals &as esta1lished 1y (igrants fro( the Middle 'ast and 1egan trading &ith
countries in this region. 4hey set up operations in Australia in an area &ith a large 0ietna(ese
co((unity. 4his led to the( to identify opportunities in the 0ietna(ese (arket to &hich they
e"ported products and later set up a (anufacturing operation. In Australia, the Multicultural
Marketing A&ards sche(e serves to recognise and re&ard fir(s using the kno&ledge, skills and
connections resulting fro( (igrants6 1ackgrounds in serving local and foreign (arkets 7Wilkinson
and Gheng #888<. Migration policies can 1e targeted at particular net&orks in ter(s of their
international potential and (igrants can 1e selected 1ased on the relevance of their e"perience,
kno&ledge and personal@1usiness net&orks
#
.
page 18
Finally, increasing i(ports as &ell as e"ports can strengthen the internationali5ation of the net&ork.
Ancillary net&orks can 1eco(e (ore international 1y sourcing internationally and 1y govern(ents
supporting progra(s to educate and assist local co(panies to develop i(porting activities. An
indirect conseAuence is that individual fir(s (ay 1e a1le to leverage off the e"perience and contacts
gained fro( i(porting to 1uild relations &ith foreign custo(ers. 4he ai( is to develop an
international array of contacts and international trade e"perience, &hich can support e"porting as
&ell as other types of international trade activities 1y net&ork (e(1ers. Not only are the fir(s
&ho e"tend their international links (ore likely to recognise opportunities in international (arkets
1ut there (ay &ell 1e additional spinoff effects, providing connections and infor(ation for other
co(panies in the net&ork 7Welch and +uostarinen #88D, %orhonen, +uostarinen and Welch #889<
Case B" Foreign Focused Networks
At the other e"tre(e fro( Gase A is the situation &here large parts 7if not all< of the pri(ary and
ancillary net&orks and the custo(er 1ase are located internationally. 4he pro1le( for policy
(akers in this situation is that there is little to 1uild on in the ho(e (arket. So(e countries have
1een a1le to take advantage of this situation 1y 1eco(ing international ta" havens and financial
centres, &hich attract foreign co(panies to set up a notional 1ase 1ut &ith effectively all of their
operations located outside the country. '"a(ples are countries such as Ber(uda and +u"e(1ourg.
Case #" Isolated Networks
More typical are situations in &hich countries have so(e parts of the industry net&orks located
do(estically. :ere (ore carefully targeted trade pro(otion policies adapted to the particular
net&ork configuration can 1e developed. But in order to do this policy (akers &ill reAuire a (ore
detailed (ap of the net&ork in order to identify &here and ho& intervention (ay 1e appropriate.
Because (ost of the net&ork is located internationally, international relations already e"ist &ith
so(e (e(1ers of the local net&ork, e.g. relations B or G in Figure #. 4his creates opportunities to
esta1lish piggy1ack sche(es or e"port groups, &here foreign and local fir(s are 1rought together in
page 19
different cooperative arrange(ents. !ne e"a(ple is the Wisconsin Jindirect e"porterK sche(e
&hich focuses on suppliers to locally 1ased e"porting fir(s. 4he sche(e encourages e"porting
fir(s to &ork &ith their local suppliers to help the( into international (arkets &ith &hich they
&ere already fa(iliar.
2

Gusto(er focused trade pro(otion sche(es, &here a su1stantial proportion of custo(ers are 1ased
overseas, &ill need to 1e carefully targeted in order to deepen and e"tend e"isting international
custo(er connections. 4his involves &orking (ore closely &ith particular custo(ers in a (ore
direct fashion rather than (ore generalised pro(otion sche(es to potential foreign custo(ers. 4his
could (ean that officers fro( a given country6s trade pro(otion agency act as facilitators for the
develop(ent of e"isting relations and for esta1lishing ne& connections &ith (e(1ers of the
do(estic net&orks. 4his happened in the Ghina grain e"a(ple through the appoint(ent of a local
Ghinese net&ork facilitator and in Wisconsin honorary co((ercial attaches &ere created a(ong
residents of foreign countries, &ho are traders e"perienced in dealing &ith Wisconsin fir(s 74esar
and 4arleton #8FD<. 4hese connections can result in the identification of opportunities for other
(e(1ers of do(estic net&orks in foreign (arkets, 1ased on the kno&ledge and e"pertise of the
foreign custo(ers as &ell as other connections the foreign custo(er has in its local as &ell as other
foreign (arkets. International connections &ith foreign suppliers (ay 1e utilised in a si(ilar &ay.
In addition, offsets progra(s (ay 1e used to encourage foreign suppliers to any govern(ent
instru(entalities involved in the net&ork, such as utility providers, to source part of their products
or services fro( local suppliers or co(pensate 1y helping local fir(s e"port.
Case #" Internationally Competitive Networks
4he presence of internationally co(petitive fir(s, 1ased at ho(e or a1road, in the net&orks i(pacts
on the international co(petitiveness of the net&ork as a &hole. As noted a1ove such fir(s can
provide role (odels for others, 1e a source of valua1le international connections and kno&ledge
and in general enhance the a1ility of fir(s in the net&ork to internationalise.
page 20
A range of activities are possi1le to facilitate the develop(ent of connections and the sharing of
infor(ation and kno&ledge &ith these leading edge fir(s as &ell as their foreign custo(ers, si(ilar
in part to that discussed in Gase G. !ne &ay is through the provision of foru(s for co(panies and
people in the net&ork to (eet and e"change infor(ation and e"periences and to provide a 1asis for
developing personal relationships 1et&een fir(s. . A second (eans is through action learning
groups in &hich fir(s Iointly participate in international related activities such as (arket research or
technology develop(ent proIects, and policies in &hich (e(1ers of the net&ork are encouraged to
co,locate in a particular region of the country. It should 1e stressed that these groupings involve
(ore than industry associations 1ut rather e"tend across industry 1oundaries.
4he Ghina grain infrastructure e"a(ple, (entioned a1ove, created in effect an action 1ased learning
e"perience in &hich fir(s learned to JdanceK &ith each other and &ith counterparts in Ghina
7Wilkinson et al #88F<. 4hrough this learning process relationships for(ed 1et&een ancillary
suppliers and (ore internationally e"perienced fir(s, and personal and 1usiness relationships
developed &ith each other and &ith Ghinese fir(s and govern(ent officials, &hich played an
i(port role in &inning a share of the proIect 1usiness 7Welch et al #889a<. Another Ioint action
group facilitated the develop(ent of relations 1et&een hay producers in Australia and distri1utors
and dairy far(ers in =apan in order to 1oost trade 7Welch et al #8891<. An e"a(ple of an industry
initiated Ioint action sche(e is Fitout Australia +td., &hich co(prises co(ple(entary fir(s
interested in supplying various types of co(ple(entary products and services to :otels in
international (arkets, Iointly pro(oting and leveraging off each others e"perience and contacts
A third approach is to target particular leading edge fir(s that have strong connections &ith (any
fir(s in the net&ork. In this &ay they (ay 1eco(e poles for the international develop(ent of the
net&ork as &hole. Such fir(s (ay of their o&n volition 1e a1le to identify potential opportunities
fro( facilitating e"ports and international ventures 1y fir(s in their input net&orks, as is often the
case for =apanese fir(s. But this is not &ithout its pro1le(s, as discussed in Gase A a1ove. Si(ilar
e"a(ples e"ist for other (ultinationals as they develop approved supplier lists of fir(s around the
page 21
&orld and refer suppliers of one su1sidiary to su1sidiaries in other (arkets. For e"a(ple, a supplier
of car co(ponents in Australia &as a1le to gain entry into the Ghina (arket to supply a
(ultinational6s Ioint venture operation in part 1ecause of referrals fro( the Australian 1ased
su1sidiary for &hich it &as an approved supplier.
In addition do(estic 1ased suppliers can target such leading edge international fir(s as custo(ers
and through these gain international contacts and i(prove the co(petitiveness of their products and
services. !ne pro1le( here is that the potential custo(ers for international fir(s6 suppliers are
likely to 1e its co(petitors. :o&ever, to the e"tent that it helps it to understand the strengths and
&eakness of their co(petitors and 1ecause it (ay assist in the develop(ent of co(pati1le industry
standards in foreign (arkets it (ay still 1e 1eneficial
Classifying Firms in Case A Networks
Gase A (ay 1e further ela1orated in ter(s of the internationalisation of individual fir(s and the
net&orks as a &hole. We can distinguish 1et&een fir(s in ter(s of their o&n degree of
internationalisation and also in ter(s of the internationalisation of the net&ork in &hich they
operate i.e. the e"tent to &hich there is international trade in the types of inputs and services
produced. 4he classification is adapted fro( =ohanson and Mattsson 7#8FF<. 4he Iu"taposition of
these t&o factors, as depicted in 4a1le 2, identifies situations in &hich fir(s face different types of
pro1le(s reAuiring different strategies and policies.
Table 2 about here
T!e onely International
If a fir( in the pri(ary value syste( is the only one highly internationalised, the situation is that of
a E+onely International.E Fir(s in the ancillary net&ork are only indirect e"porters 1ecause their
inputs are incorporated into the outputs of the internationali5ed fir(. If the internationali5ed fir( is
a sophisticated international player it (ay have little need for govern(ent assistance, e"cept for
page 22
appropriate lo11ying and representation of their interests to other govern(ents and international
1odies, and for introductions to key decision (akers in other countries. For policy (akers as &ell
as the internationali5ed fir(, an i(portant issue is the continuing international co(petitiveness of
the pri(ary fir(. International co(petitiveness reAuires the continual upgrading of products and
processes and this reAuires &orking &ith leading edge fir(s. If this cannot 1e achieved &ith
do(estic suppliers the fir( (ay 1e o1liged to search for such net&orks a1road. !r, it can assist in
the internationali5ation of the input net&ork 1y helping (e(1ers to enter international (arkets and
for( international links, through piggy1ack sche(es or Ioint action groups as descri1ed a1ove.
Fir(s in ancillary net&orks (ay not 1e e"porting 1ecause they do not contri1ute to the international
co(petitiveness of the internationali5ed fir(. +o& cost ra& (aterial access or e"port su1sidies
(ay 1e do(inant factors, rather than any inputs of specialised technology, co(ponents or other
(aterial. :ere there (ay 1e opportunities for the internationali5ed fir( to &ork &ith suppliers to
upgrade inputs and there1y enhance their o&n co(petitiveness.
If the internationali5ed fir( is part of the ancillary net&ork, in &hich case it (ay focus on assisting
direct and indirect local custo(ers of its outputs to e"pand their 1usiness and internationali5e. An
e"a(ple is B:, Australia6s largest steel (anufacturer, &ho has tried to assist do&nstrea( users of
its steel in Australia to e"pand and internationali5e as a &ay of indirectly e"panding its o&n
1usiness 7=aco1, #88F<
International Among $t!ers
In this case (e(1ers of the pri(ary and ancillary net&ork are e"porting and 1elong to highly
internationali5ed net&orks. :ere govern(ent policy can 1e designed to reduce or eli(inate any
net&ork specific 1arriers to e"port develop(ent to let the full e"port potential 1e realised. /esearch
can 1e directed to identify such net&ork specific 1arriers to international trade. In Australia such
net&orks are likely to 1e linked to the (ining and agricultural areas and the govern(ent can play a
role in facilitating relations &ith overseas govern(ents 1odies and (ultilateral agencies, that play
page 23
an i(portant part in initiating develop(ent proIects in these areas. In the Ghina grain e"a(ple aid
funds &ere used to de(onstrate Australian inputs and relations 1et&een industry and the Ghinese
-overn(ent and World 1ank &ere facilitated. -overn(ents can also play a role in the early
detection of international aid funded proIects and in helping the for(ation of consortia to 1id. For
the(. 4hese can involve (e(1ers of the do(estic net&ork as &ell as colla1oration &ith
international partners.
For three (ain reasons, it is i(portant to develop and sustain the international co(petitiveness of
1oth pri(ary and ancillary net&ork (e(1ers. First, if the international co(petitiveness of pri(ary
fir(s , for e"a(ple 1ecause resource supply starts to run out or 1eco(es relatively (ore e"pensive,
the input net&ork can still re(ain internationally co(petitive. 4his is 1ecause internationali5ed
fir(s in the ancillary net&orks, through their o&n internationalisation, gro& less dependent on their
do(estic custo(ers. 4his happened in S&eden as the (ining, steel and ship,1uilding industries
declined 1ut fir(s originating as suppliers to those industries continued to 1e highly
internationalised and internationally co(petitive.
Second, in the International A(ong !thers case it is generally easier for internationali5ed fir(s in
the pri(ary value syste( to s&itch to non,do(estic 1ased suppliers than in the +onely International
situation. 4his is 1ecause there is international trade in the inputs involved. Further(ore, the
freAuently occurring (ergers, acAuisitions or strategic alliances 1et&een fir(s often influence their
supplier structure, &hich pose 1oth a threat of losing 1usiness for fir(s in the ancillary net&orks as
&ell as an opportunity to gain 1usiness.
4hird, an i(portant part of international trade is linked to 1ig proIects, often of a Etransfer of
technologyE or concern infrastructure develop(ent, for &hich fir(s or consortia are invited to 1id.
4he choice of suppliers to such proIects are often influenced 1y the nationality of the (ain
contractor and 1y the financial conditions offered. -overn(ent is often involved on the 1uying side
and successful 1idders need so(e sort of political and financial 1acking fro( their o&n
page 24
govern(ents. It is easier for a (ain contractor or consortiu( fro( a particular country to have a
high content fro( that country if the ancillary net&ork is also internationally co(petitive.
ate Starters
4his is the situation of do(estic fir(s in highly internationalised net&orks. If these fir(s are
(e(1ers of the ancillary net&ork, there are several reasons &hy the fir( (ay not e"port. First, the
nature of the input could 1e of little significance in contri1uting to the international co(petitiveness
of other fir(s in the pri(ary or ancillary net&ork. Second, there (ight e"ist specific 1arriers to
trade for the products, such as govern(ent prohi1itions. 4hird, there (ight still 1e enough gro&th
opportunities in the do(estic (arket. Fourth, these fir(s (ight not 1e internationally co(petitive
or a&are of international opportunities. Such fir(s run a high risk of 1eco(ing out co(peted in
their o&n do(estic (arket 1y foreign fir(s, unless they find so(e &ay to internationali5e 1ecause,
1y definition, (any co(petitors 7and custo(ers< have 1een a1le to 1eco(e internationally
co(petitive. 4hey (ight 1e a takeover target for a foreign fir( and in this &ay 1eco(e
internationali5ed.
For trade pro(otion policy the +ate Starter poses a pro1le(. Why is it lateO If the input it provides
is of little significance in achieving international co(petitiveness, &hat types of advantages can
offer custo(ers in international (arketsO If trade 1arriers are the reason, then eli(ination of such
1arriers is as likely to increase i(ports into the do(estic (arket if there e"ists strong co(petition
fro( foreign 1ased, highly internationali5ed suppliers, &ho currently supply the fir(s &ho co(pete
&ith the +ate Starter6s direct or indirect custo(ers in international (arkets.
!f course, the strategies and policies that &ere discussed for the +onely International case (ay 1e
appropriate here, especially if the +ate Starters are una&are of e"port opportunities. A 1etter
solution (ay 1e that others acAuire such fir(s in the net&ork that are already highly
internationali5ed. 4his could 1e necessary 1ecause the internationali5ation process for +ate
page 25
Starters, due to international interdependencies, needs to 1e faster than for 'arly Starters 7=ohanson
and Mattsson #8FF<.
%arly Starters
'arly Starters are different fro( +ate Starters in that other (e(1ers of the ancillary net&ork or the
part of the pri(ary net&ork served are not internationali5ed. -enerally, the sa(e reasons for non
e"porting e"ist as for the +ate Starter 1ut there are t&o i(portant differences. First, there (ay 1e
little de(onstrated internationali5ation for this type of fir( any&here. !ne reason for this is that
the type of product or service supplied 1y these fir(s is not a tradea1le good or service e.g.
&holesaling, retailing, real estate services, staff recruit(ent services. :ence these services are only
e"ported e(1odied in other products or services. If such services have a significant i(pact on the
co(petitiveness of fir(s using these services there is a still a need to ensure that such fir(s are
a&are of their role and ho& they can &ork &ith their custo(ers to enhance their e"porting potential
through upgrading service inputs.
4he second difference fro( the +ate Starter situation is that, should this fir( start to e"port, it (ay
not (eet internationally active co(petitors or custo(ers, unless the do(estic industry had 1een
isolated fro( international trade. Since 'arly Starters are pioneers it is likely that (anage(ent
attitudes to e"porting are positive and that kno&ledge a1out internationali5ation is li(ited. It is
i(portant to (ake 'arly Starters a&are of the ti(e and resource co((it(ents needed for
sustaina1le international gro&th and to provide assistance for so(e of the invest(ents needed to
esta1lish relationships &ith foreign distri1utors and custo(ers. Also, 'arly Starters need to
recognise that their international co(petitiveness depends not only on their o&n efforts and
resources 1ut also on those of others in its ancillary net&ork, and its do(estic custo(er 1ase, and
the nature of its relations &ith the(. Because none of the( are internationali5ed they (ay inhi1it
the 'arly Starters internationali5ation efforts or, they could 1e 1rought in to the internationali5ation
process and encouraged to upgrade their inputs. Success &ill help further develop the relationship
page 26
and further internationali5ation. 4apping into the personal and professional relations and net&orks
of individuals e(ployed in the fir(s in the net&ork, as &ell as hiring such people, is one &ay of
enhancing the international skills and resources of the fir( and in developing international links.
4his has happened in various fir(s in Australia &ho have taken advantage of the diversity of
cultures present in the &orkforce and co((unity 7Wilkinson and Gheng #888<.
&eneric Network Approac!es to International Competitiveness
Apart fro( the types of targeted initiatives discussed a1ove, so(e general net&ork oriented policies
(ay 1e envisaged that involve the participation of 1oth govern(ent and industry. 4he net&ork
approach stresses the i(portance of esta1lishing and (anaging cooperative relations a(ong
different co(ple(entary types of fir(s. 'ven co(petitors can have co(ple(entary interests. 4his
occurs in entering international (arkets that is too large for any single supplier to service, in
generating pri(ary de(and, such as in the case of Australian &ine(akers in =apan, and in Iointly
developing industry standards and lo11ying govern(ent. 4he for(ation and develop(ent of
interfir( relations and net&orks are seen as 1eing of critical i(portance in deter(ining
international 7and do(estic< co(petitiveness, particularly in industrial, 1usiness,to,1usiness
(arkets. :ence 1usiness education progra(s need to focus attention on developing the cooperative
as &ell as co(petitive skills of 1usinessB (aking (anage(ent educational institutions, (anagers
and fir(s a&are of and skilled in the (eans of esta1lishing cooperative and colla1orative, as &ell as
co(petitive, advantage 7%anter #88;<, and harnessing the po&er of net&orks. 4he
internationali5ation of education courses and institutions, including course content as &ell as links
and e"change progra(s &ith foreign universities is one aspect of this. In addition, courses
designed to attract international students and study a1road progra(s can 1e an i(portant vehicle for
i(proving cultural understanding and sensitivity and help develop and strengthen personal and
fa(ily links &ith foreign (arkets &hich provide a potential 1ase for future co((ercial activities.
olicy (akers and fir(s can assist in encouraging such develop(ents in a nu(1er of &ays. 4hese
include) funding support for the develop(ent of international 1usiness education progra(sB hosting
page 27
international students in &ork e"perience progra(s do(estically and in overseas (arketsB setting up
foreign focused alu(ni associations, facilitating the develop(ent of and participating in study
a1road progra(sB and assisting in international student recruiting through foreign 1ased agencies.
+ike&ise, research funding can 1e used as a general tool to facilitate the develop(ent of
international and 1usiness net&orks including international research colla1orations 1et&een
research organisations, 1usiness and govern(ent. International professional and personal
connections a(ong researchers and technologists, as &ell as international trade personnel, can lead
to international technology transfer as &ell as net&orks that (ay facilitate technological
develop(ent. Also, the international (arket e"ploitation of research results can 1e facilitated
through the develop(ent of such personal and professional relations. !ften, the technical aspects of
/ P . proIects in industry (ay 1e sponsored 1y a govern(ent agency, 1ut research on relevant
international (arketing issues concerning the output fro( such / P .,proIects are not. For
e"a(ple, &hen funding support is availa1le for research on agriculture production issues 1ut not for
the develop(ent of refined products, distri1ution syste(s or international (arketing. 4his inhi1its
the for(ation of relevant personal and 1usiness net&orks a(ong researchers and 1usiness.
More generally, govern(ent policy needs to ensure that any 1arriers to the esta1lish(ent and
develop(ent of effective relationships are addressed. As .unning 7#88#< has argued, govern(ents
should pay at least as (uch attention to transaction cost related policies as to production cost related
policies in their efforts to create favora1le conditions in their country for internationally co(petitive
industrial activities. 4his includes govern(ent anti,trust policy, &hich needs to 1e revie&ed in this
conte"t. 4here are 1ound to 1e occasions &hen support for the develop(ent of close colla1orative
relations 1et&een co(panies &ithin and 1et&een net&orks could 1e seen as anti,co(petitive in the
local (arket. But this (ust 1e 1alanced against the 1enefits to 1e gained fro( greater international
co(petitiveness.
page 28
More 1roadly still .unning6s focus on transaction costs highlights the i(portance of re(oving and
reducing trade 1arriers 1et&een nations &hich inhi1it the develop(ent of internationally
co(petitive industries and fir(s. It is 1eyond the scope of this paper to consider &hether the
i(pact of reducing trade 1arriers and increasing the glo1ali5ation of industries and econo(ies is
al&ays positive. In ter(s of sti(ulating and ena1ling fir(s to upgrade products and processes and
to 1eco(e (ore internationally co(petitive, reducing such 1arriers through tariff reductions,
regional trading 1locks and other (eans can have strong positive effects. It forces fir(s to face
international co(petition at ho(e and a1road, &hich increases fir( learning and kno&ledge
develop(ent and (ay give the( (ore confidence to tackle international (arkets. For e"a(ple the
deregulation of the Australian finance industry sho&ed so(e fir(s such as the MacAuarie
Invest(ent Bank that they could co(pete &ith glo1al players in particular (arkets &hich in turn led
(anage(ent to internationali5e.
/educing 1arriers prevents the gro&th of a dependence (entality a(ong fir(s &ho rely on
govern(ent policies to reduce threats of international co(petition. But (ore i(portantly fro( a
net&ork perspective is that trade 1arriers force fir(s into relations &ith custo(ers and ancillary
net&orks that are not conducive to developing or (aintaining long ter( international
co(petitiveness. 4he case of Ne& Healand is instructive as (any sectors of industry &ere protected
fro( international co(petition or their custo(ers and suppliers &ere such industries. After trade
li1erali5ation, together &ith various assistance sche(es, internationally co(petitive sectors of
ancillary net&orks surfaced.
In an increasingly glo1ali5ed (arket place, &ith easy and fast (eans of co((unication and access
to people and organi5ations around the glo1e 7:eld et al #888<, the opportunity e"ists for fir(s to
1eco(e truly international and to develop and (anage effective personal and 1usiness relations and
net&orks spanning international as &ell as industry 1orders. 4he continual upgrading of products
and processes and the gro&th in i(portance of created rather then inherited sources of co(petitive
page 29
advantage focuses attention of these relationship and net&ork resources of fir(s and ho& they can
1e effectively harnessed and developed.
Summary and Conclusions
We have e"a(ined the deter(inants of fir(s6 international co(petitiveness and trade pro(otion
policy fro( a net&ork perspective. 4his gives ne& insight into the &ays 1oth fir(s and
govern(ents (ay seek to develop and strengthen the international co(petitiveness of fir(s and
industries. We have stresses the i(portant role played 1y personal and 1usiness relations 1et&een
fir(s &ithin and across industry 1oundaries and &ithin and 1et&een different countries. It is a
different perspective to the (ore co((on individual fir( or industry,focused strategies, research
and policy (aking, and 1road (acro econo(ic policies. olicies and strategies designed for
specific net&ork situations have 1een identified as &ell as (ore generic net&ork develop(ent
policies. So(e of these incorporate (ore traditional fir( or industry 1ased policy ele(ents.
I(portant issues identified as a 1asis for developing and targeting policies are) 7a< the location of
different parts of the pri(ary and ancillary net&orks in the do(estic or foreign (arketsB and 71< the
international co(petitiveness, e"perience, kno&ledge and connections e"isting in the net&orks
including that resulting fro( the presence of foreign fir(s and i((igration flo&s.
It is 1eyond the scope of this paper to consider ho& govern(ents should evaluate the perfor(ance
of such net&ork 1ased policies, &hich has 1een considered else&here 7Welch et al #889a, #8891<.
Increases in e"ports are an o1vious focus 1ut it should 1e noted that the develop(ent of relations
and net&orks is (ore a1out resource creation, creating the a1ility to act and respond to changing
conditions, as it is a1out short and (ediu( ter( e"port gro&th.
4he net&ork approach leads to a (ore &ide,ranging, (ulti,pronged strategic and policy approach.
4he focus changes fro( individual fir(s to net&orks of interconnected fir(s i.e. seeking to achieve
changes in and through these net&orks , 1oth local and foreign. Adopting a net&ork focus dra&s
page 30
attention to the role played 1y a variety of govern(ent functions in influencing industry net&ork
develop(ent, including foreign invest(ent policy, govern(ent purchasing policies, education and
training, i(porting policy, i((igration policy and industry policy.
olicy and strategy develop(ent fro( a net&ork perspective reAuire an understanding of the
structure and operations of 1usiness net&orks , (ore than typically e(erges fro( govern(ent,
industry and fir( statistical reports. 4his is necessary in order to identify the net&ork positions
occupied 1y fir(s, the type of links they have &ith local and foreign net&orks and the potential
links that (ay e"ist that could significantly affect the international develop(ent of the net&ork. It is
also relevant to tracking the i(pact of policy and fir( strategies on the evolution of the net&ork.
For several reasons, govern(ents can and should play only a li(ited role in facilitating net&ork
evolution. Most i(portantly, they are li(ited in their a1ility to respond to the increasingly rapid
pace of technological and industrial develop(ent and restructuring that ever challenges
organi5ation and net&ork relations and structures. 4raditional for(s of govern(ent 1ureaucracy
are ill eAuipped to handle such an fast,changing landscape.
Secondly the policies of (ore than one govern(ent are relevant to the structural develop(ent and
operation of international 1usiness net&orks. 'ach is trying to create and capture as (any 1enefits
as it can for its do(estic econo(y and society 1ut the outco(es depend on &hat other govern(ents
are doing, in countries &here e"isting or potential parts of the pri(ary and ancillary net&orks are
located. 4here is an opportunity for govern(ent trade policy agencies to develop effective relations
and net&orks a(ongst the(selves in order to co,create (utually supporting policies, rather than
ones that escalate the costs of co(peting for si(ilar types of fir(s and net&orks
D
.
4hird, the pri(ary role of govern(ent is not to pick &inners 1ut to help gro& potential e"porters in
industrial net&orks , to create variety and rivalry in industrial net&orks. 4he &inners &ill 1e
selected 1y actual and potential counterparts in the net&orks, not 1y any govern(ent or a faceless
(arket. 4he history of the develop(ent of net&orks in various countries sho&s that they are in a
page 31
continuing process of structuring as ne& relations and opportunities 1eco(e availa1le.
-overn(ents cannot design the( 7e.g. I(ai #8F8B +undgren #88#<. I(ai?s 7#8F8< account of the
structuring and restructuring of the =apanese industrial net&orks sho&s ho& the govern(ent
provided a fra(e&ork &ithin &hich net&orks developed naturally in a self,organising fashion.
/elations need to for( &ithin a co(petitive fra(e&ork in &hich there is so(e rivalry to negotiate
relationships &ith key partners , not Iust for(s of arranged (arriages. Mutual co((it(ent 1y
individual net&ork participants is necessary for their develop(ent. No a(ount of govern(ent
incentives, encourage(ent and e"hortation can su1stitute for a clearly perceived logic of
relationship for(ation 1y the parties involved and identified 1eneficial outco(es. :o&ever, there is
a role for govern(ents to play in facilitating the develop(ent of industrial net&orks and providing a
fra(e&ork that per(its the self organising process to operate effectively.
page 32
Ta'le ( Four Types of Networks
Presence of ocation of Network
Internationally
Competitive )ostly ocal )ostly Foreign
firms*
No Gase A) .o(estic Focused Gase B) Foreign Focused
Net&orks Net&orks
+es Gase .) Internationally Gase G) Isolated
Go(petitive Net&ork Net&ork
page 33
Ta'le , Internationali-ation of t!e Firm and Network.
Internationali-ation of t!e Network"
ow /ig!
Internationali-ation
of t!e firm"
/ig! onely International International Among $t!ers
ow 'arly Starter ate Starter
Source" 'ased on 0o!anson and )attsson 1(2334
page 34
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#
A si(ilar idea is reflected in :arvey and Buckley6s 7#88C< concept of inpatriation as a core
co(petency of fir(s.
2
-eorge 4esar, University of Wisconsin, personal co((unication
D
4he issue of developing relations and net&orks a(ong policy (aking agencies fro( different
countries &as suggested 1y an anony(ous revie&er.