Toward a Comprehensive Understanding: Systemic Competitive Advantage (GDI)

The models featured in the last sections are related to a definition of the environment of competitiveness. However, all of them present some methodological difficulties for developing a comprehensive definition of competitiveness applicable to agricultural products in developing countries. To resolve some of these difficulties, the systemic competitiveness model incorporates other disciplines (particularly political sciences and sociology) in the study of industrial development. They link some crucial aspects in the analysis of specific sectors, taking into account units of analysis not only for nations, but for firms and products as well.

Companies become more competitive if there is sustained pressure to enhance products and processes and if they are supported by a net of externalities, services, and institutions that strengthen their competitive advantage. These aspects are considered in the systemic model, led by the German Development Institute (GDI).

The GDI integrates rules and institutions and defines all four levels of analysis (see Graph II.5). A brief description of the context of the micro- and macro-levels follows.

The meta-level belongs to the political science sphere and will not be discussed in detail here. Particular emphasis will be placed on the meso-level.

Whereas macro-level analyses define a stable macroeconomic environment by a stable exchange rate and a national foreign-trade policy that stimulates local industry, micro-level analysis concentrates on firms or networks of firms with strong externalities. The main difference between the GDI and other models of competitiveness is the inclusion of two new levels of analysis, the “meta” and “meso” levels. The meta-level includes socio-cultural values and the capacity of social actors to formulate strategies relevant for economic development. Meso-level analysis defines the specific policies and institutions necessary to shape industries and their environment for competitive advantage. In an orthodox definition of competitiveness, the micro-level would include the meso-level, while the meta-level corresponds more to political science than to the economic sphere. In all, the GDI attempts “to find an appropriate balance between intervention, i.e., the formulation and implementation of targeted policies (meso)

designed to stimulate and shape industrial development and market forces” (Altenburg et al. 1998, p. 2).

Graph II.5 Determinants of Systemic Competitiveness

Source: Altenburg et al. German Development Institute. 1998.

The word “systemic” refers to this model’s intention to embrace all four levels (macro, micro, meta and meso) in a comprehensive manner. According to Porter (1990, 2004), a favorable macroeconomic environment rooted in national policies allows companies to be competitive at the micro-level, if they are supported by suppliers, production-oriented services, and if they have the pressure of local competitors.

The mainstream and the scholars of the systemic model agree on the necessity for deliberate action both by the government (macro) and social actors (micro and meso) to create competitive advantage. However, according to the systemic model, the meta-level points out new modes of governance required for competitiveness. Thus, Altenburg et al. use the World Bank’s definition of governance to explain the context of systemic competitiveness as “…the manner in which power is exercised in the management of a country’s economic and social resources for development”⁵² (1998, p.

3). This presupposes an interaction between social actors and the state. The state again

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II. THE MODELS OF COMPETITIVENESS

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plays a very important role in this model, not just in the elaboration of policies at the macro-level but also in the cohesion of different social actors at the meta-level and the formulation of specific sector policies at the meso-level.

The meso-level is key in the economic sphere because it links the micro- and macro-levels. At the meso-level, groups of firms and institutions in networks, not companies, compete in clusters⁵³. Institutions support specific services of the firms (meso-level institutions), as well as targeted and selective policies for specific clusters (meso-level policies).

Porter’s distinction between development that is based on basic and generalized factors at early development stages (such as natural resources, climate, location, unskilled and semi-skilled labor, and debt capital), and development that is based on advanced and specialized factors at later development stages (modern communications infrastructure, highly educated personnel, and research institutions in particular fields) is important for understanding governmental meso-level policies and the role of meso-level institutions emphasizing on private enterprises.

At early stages of national development, the government assists specific policies through cooperation with universities’ research and attempts to improve education.

Market failure and infant industries are used to justify selective and specific policies including regulations, financial instruments, and government activities. At more advanced stages of development, private enterprise and, in some cases, non-governmental organizations support selective non-governmental policies for specific sectors.

Overall, meso-level policies should avoid creating market distortions and future losses of competitiveness; they should be temporary and help industries become highly competitive. Meso-level policies have a tendency to become increasingly regionally- and locally-addressed. Therefore, the central government should focus on the preparation of large-scale technology initiatives, the formulation of an overall long-term strategy, and motivating its policies through incentives (for example, tax decentralization) at the local and regional levels. The globalization pressure on companies (especially small- and medium-sized enterprises) is too time-sensitive for the

52 World Bank: Governance and Development, Washington, D.C. 1992

53 In Section II.2 of this chapter there is an extensive analysis of the cluster concept.

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decision making of a centralized government, meaning that regional and even local governments must be responsible for the creation of a favorable competitive environment and encouraging the formation of clusters.

The systemic model is a comprehensive and interdisciplinary way to analyze competitiveness and to analytically link the macro and micro-levels by means of the meso-level. The meso-level elucidates the institutional variables and policies addressed at specific industries that are not easily described at the macro- or micro-levels. It presents a suitable basis for the general objective of this chapter and to elaborate a functional model of competitiveness for developing countries. The next section emphasizes the cluster concept.

II.2 Clusters as the Functional Competitiveness Tool for the Analysis of Developing Countries