Full text of DOI:10.1016/S1090-9516(00)00039-0

International Competitiveness
and Trade Promotion Policy
from a Network Perspective
I. F. Wilkinson
L-G. Mattsson
G. Easton
The international competitiveness of firms and trade promotion policy are analyzed from a network
perspective that emphasizes the role and importance of interfirm relations and networks spanning
industry and international boundaries. First, we identify two types of producer networks involved in the
overall value production system, that is, primary and ancillary producer nets. Second, we classify
networks in terms of two factors that impact on their potential international competitiveness, that is, the
location of networks in local or foreign markets and the presence of internationally competitive firms.
This leads to the identification of different types of network situations that provide opportunities as well
as threats to the international performance of firms operating in those networks and call for different
types of trade promotion policies. We discuss the key features of each situation and management and
trade promotion policy implications arising.
n an increasingly global economy,
the future prosperity of a country
kets (e.g., Barney, 1996, Hunt and Mor-
gan, 1995). Here we consider an alter-
native framework for understanding and
developing a firm’s international com-
petitiveness and in developing trade
promotion policy, the markets as net-
works perspective, that has been devel-
oped largely by Swedish and other Eu-
ropean researchers (Johanson and
Mattsson, 1994). According to this per-
spective a firm’s performance, includ-
ing its international competitiveness,
depends not only on its own efforts,
skills, and resources, but also, in impor-
tant ways, on the performance of other
firms and organizations and on the na-
I
depends more and more on the interna-
tional competitiveness of its firms and
industries. A firm’s competitiveness is
usually explained in terms of the char-
acteristics of the firms themselves, in-
cluding their resources and costs com-
pared to others and how these affect the
ability to succeed in international mar-
I. F. Wilkinson, School of Marketing, International
Business and Asian Studies, University of Western
Sydney, Nepean, P.O. Box 10 Kingswood, NSW
Australia. Ͻi.wilkinson@uws.edu.auϾ.
L-G. Mattson, Stockholm School of Economics.
G. Easton, Department of Marketing, University of
Lancaster.
International Competitiveness and Trade Promotion Policy from a Network Perspective 275

ture of the relationships both direct and
indirect it has with them. Markets are
viewed as networks of exchange rela-
tions and other forms of relations
among economic actors.
Ford, 1997, Hakansson and Snehota,
1995).
The purpose of this article is to con-
sider the management and trade promo-
tion policy implications of a markets as
networks perspective on the determi-
nants of firms’ international competi-
tiveness. The general implications for
management in developing their firms’
international competitiveness are two-
fold. First, there is a need to develop
and maintain effective relations with
other organizations on which they de-
pend for creating and accessing valued
inputs. Often this requires the develop-
ment of close, cooperative, long-term
relations, rather than relying on arms-
length market transactions, in order to
realize the benefits of resource and
product adaptation; effective communi-
cation and coordination of activities;
and knowledge transfer and creation
(Morgan and Hunt, 1994, Hakansson,
1982). Such relations typically involve
more direct, personal, and social inter-
actions among people from the firms
involved (e.g., Hakansson and Snehota,
1995, Nonaka and Tekeuchi, 1995).
The second general implication fo-
cuses on the position of firms in indus-
trial networks. Network position refers
to the pattern of relations a firms has
with other members of the network and
the role(s) it is expected to play within
the network. Its position both enables
and constrains a firm’s actions and fo-
cuses strategic attention on the issues
and problems of understanding, estab-
lishing and changing a firm’s position
as well as defending and maintaining a
position (Achrol and Kotler, 1999, Jo-
hansson and Mattsson, 1992, Thorelli,
1986).
Each firm controls resources it uses
to perform production and/or distribu-
tion activities. But firms are not islands;
they are not self-sufficient. To be able
to compete, firms cooperate with other
organizations to access required inputs
and they compete with rivals to estab-
lish cooperative relations with these
other organizations. Firms need special-
ized inputs from other organizations to
create and deliver value in the form of
products and services to end users.
These other organizations include sup-
pliers of materials, components, ma-
chinery and equipment, information,
technical services, and finance; various
types of channel intermediaries and cus-
tomer organizations further down the
value system; and complementors, that
supply complementary products and
services, including government organi-
zations (Brandenburger and Nalebuff,
1997). These externally accessed inputs
form a significant part, if not the largest
part, of a firm’s total costs and value
creating activities and research indi-
cates that many firms are seeking to
significantly increase this proportion
(Ford et al., 1993, Venkatesan, 1992).
To access these external inputs firms
engage in exchange with others as well
as other forms of cooperative relations.
A fuller account of the “markets as
networks” or “industrial network” ap-
proach and its development is beyond
the scope of this article (see Anderson
et al., 1994, Axelsson and Easton, 1992,
276 Journal of World Business / 35(3) / 2000

The general implications for trade
promotion policy are that it needs to
move beyond the usual focus on the
characteristics of individual firms and
industries and take into account the role
and importance of personal and busi-
ness relations and networks between
firms and other organizations that cut
across traditional industry boundaries as
well as national borders.
The article is organized as follows.
First we develop a framework for cat-
egorising business networks in terms of
their international trade potential. This
framework is then used to develop man-
agement and trade promotion policy im-
plications for improving firms’ interna-
tional orientation and competitiveness.
have been developed around the world
that are based on the characteristics of
individual firms and driven by numer-
ous research studies that have identified
the perceived problems, barriers, and
needs of actual or potential exporters
(e.g., Barrett and Wilkinson, 1985, Ca-
vusgil and Naor, 1987, Cavusgil and
Zou, 1994). The problem with such a
“user oriented” approach to developing
assistance schemes is that it assumes
that existing firms know best the prob-
lems limiting and preventing exports
and that this provides an appropriate
guide for policy development. But as
Czinkota and Ricks (1981) pointed out,
existing or potential exporters from a
particular country may not always un-
derstand what is required to succeed in
international
Therefore,
business
addressing
operations.
the self-
FOCUSING ON RELATIONS
AND NETWORKS
perceived problems and difficulties of
existing and potential exporters may not
reveal the most effective strategies for
penetrating foreign markets. From a
policy maker’s perspective it may be
more appropriate to give greater atten-
tion to the felt needs and problems of
importers in foreign markets, rather
than actual or potential exporters. Help-
ing foreign buyers buy may be just as
important as helping domestic firms
sell.
This argument highlights the need to
consider suppliers needs in relation to
the needs of its foreign customers. The
network model extends this argument.
It is not just that the problems and needs
of both sellers and foreign buyers must
be considered in efforts to strengthen
international competitiveness; the rela-
tionship between them also matters.
Success in international business de-
Nations around the world have used a
variety of policies to try to boost inter-
national trade performance. These in-
clude industry and firm focused trade
promotion activities as well as well as
macroeconomic, regulatory, and envi-
ronmental policies, which shape the
general environment in which firms op-
erate in a country. Here we focus on the
former type. In the main these policies
have tended to focus on the character-
istics of actual and potential exporters
(Cavusgil and Czinkota, 1990, Sering-
haus and Rosson, 1990) or have tar-
geted whole industries (Krugman, 1986,
Tyson, 1992).
A problem confronting trade promo-
tion policy makers is how to select the
firms or industries that such policies
should be directed at. Many schemes
International Competitiveness and Trade Promotion Policy from a Network Perspective 277

pends on developing and managing suc-
cessful relations with overseas counter-
parts, including foreign buyers. These
relations are often long term in nature
and involve each party adapting to the
needs and problems of the other (Ha-
kansson 1982). This adaptation process
leads to the upgrading of products and
processes and the bonding of firms into
long term relations.
Such adaptations and upgrading are a
continuing process and an important
feature of the dynamics of international
competition. Moreover the increasing
importance of created rather than inher-
ited sources of competitive advantage,
such as technology and innovation,
learning effects and scale economies in
internationally traded goods and ser-
vices undermine traditional notions of
patterns of trade based on static com-
parisons of the factor endowments of
nations. The result is that the pattern of
specialization among countries is more
dynamic and history dependent. The ac-
cumulation of experience in particular
technologies, the development of scale
economies, the advantages arising from
innovation, and the spillover effects
from one firm and industry to others
play a critical role in shaping the poten-
tial future directions for development of
firms and industries.
(e.g., Hunt and Morgan, 1995, Cavusgil
and Zou, 1994). However, a firm’s re-
lationship resources are more problem-
atic because they are not so directly
controllable. They depend on the coop-
eration of other firms with their own
objectives, perceptions, and strategies.
For trade policy the implications are
to move from targeting individual firms
as a way of enhancing trade perfor-
mance to a focus on the relationships
and networks linking firms. This in-
cludes considering inter as well as in-
traindustry linkages and interdependen-
cies among firms. Such interindustry
links have been stressed by Porter
(1990) in his concept of “industry clus-
ters” as important determinants of a
country’s international competitiveness.
However, his analysis tends to focus
more on the relations among industries
than on the relations among comple-
mentary firms spanning different indus-
tries. Underlying these connections
across as well as within industries are
interfirm and interpersonal relationships
and networks.
Fig. 1 illustrates the kind of inter-
industry and interfirm connections
that exist in a nation’s economy. It
depicts an hypothetical example of the
value production system associated
with transforming raw materials into
finished products and services for fi-
nal consumption. Two types of net-
works of relations are distinguished:
(a) those associated with the primary
value system and (b) those associated
with ancillary value systems. The pri-
mary value system is defined in terms
of the sequence of relations involved
in the transformation of raw materials
through various production stages to
This has implications for manage-
ment and policymakers. For the firm it
focuses attention on relationships as re-
sources in developing its international
competitiveness, as opposed to the
firm’s internal resources such as man-
agement characteristics, experience,
products, and capital. As noted, re-
search on competitiveness has tended to
focus on the latter types of resources
278 Journal of World Business / 35(3) / 2000

Figure 1
An Hypothetical Example of the Structure of Industrial Networks within and
Between Countries
the final distribution to end users. An-
cillary value systems refer to the net-
works of relations involved in supply-
ing various types of inputs to the
primary value system at each produc-
tion stage, including production
equipment, subassemblies, technical
know-how and specialized services
required to carry out the activities per-
formed by firms in the primary value
system. It can be viewed as the sec-
ondary network infrastructure that
supports the primary network. The
distinction between primary and an-
cillary networks is relative rather than
absolute. There is not one primary
value system but many that interpen-
etrate in the complex webs that make
up economic systems. What is pri-
mary and ancillary depends on the
focus of analysis but the distinction
draws attention to the different kinds
of relations between firms supplying
materials and components that will be
incorporated in the final product and
those supplying products and services
that are not.
The distinction between primary and
ancillary networks serves to illustrate
different types of international trade
flows that take place in industrial net-
works. These are labeled A through D
in the figure. Type A concerns interna-
tional trade within the primary value
system, as when semiprocessed prod-
ucts such as textiles or processed mate-
rials are exported to other countries
where they are further processed. Types
B through D concern various types of
international trade involving ancillary
networks in which inputs other than pri-
mary materials and components are
International Competitiveness and Trade Promotion Policy from a Network Perspective 279

traded to support, directly or indirectly,
primary value system suppliers in other
countries.
work and on one type of resource
needed to establish value added manu-
facturing industry, that is, raw materi-
als. But, further processing of primary
products requires relationships to be es-
tablished with providers of many other
types of resources and inputs in ancil-
lary networks that may not be available
in a cost-effective manner in the same
country. In addition, relationships have
to be established with distributors and
other organizations at subsequent stages
of the primary network, through which
to reach final customers at home and
abroad. Without good access to such
inputs, internationally competitive in-
dustries for more refined products may
be very costly to establish and difficult
to sustain. Indeed there are reports that
many Australian food processors are
moving offshore to access these inputs
(Yetton, Davis, & Swan, 1992). Nes-
tle’s base in Switzerland is close to
many developed European markets as
well as providing ready access to other
inputs. Economies like Australia and
New Zealand, South America, and Af-
rica have less easy access to such ancil-
lary networks.
An alternative view is to focus on the
ancillary network, which supports the
primary production stage. The interna-
tional competitiveness of primary pro-
duction depends on the characteristics
of these input networks and the rela-
tions between them. If the primary pro-
duction stage is internationally compet-
itive, firms in the input networks are
likely to be internationally competitive
as well, because they are the direct or
indirect suppliers of these “leading
edge” customers. This suggests an al-
ternative focus for trade promotion pol-
INTERNATIONAL COMPETITIVENESS IN
PRIMARY AND ANCILLARY NETWORKS
An understanding of the structure and
operations of a primary network and its
associated ancillary networks provides
a basis for targeting trade promotion
policies and for enhancing a firm’s in-
ternational competitiveness.
To begin, consider the case of Aus-
tralia, which is a resource based econ-
omy. Historically, a large proportion of
Australian exports comes from produc-
ers of less refined products located at
the early stages of primary value sys-
tems for wool, wheat, meat, and mineral
products. This has led some to argue
that Australia should try to establish
more internationally competitive value
added manufacturing industries further
down primary value systems, such as
exports of agricultural products in the
form of processed food, wool in the
form of textiles and clothing, and min-
erals in the form of more elaborately
transformed manufactures. The devel-
opment of Nestle, a Swiss company,
from a milk processor into many down
stream processed food and beverage
products is an example of this. Through
such developments, so the argument
goes, Australia or other resource based
economies will capture a greater share
of the revenues obtained from sales of
higher priced value added products and
services.
This argument focuses on the struc-
ture of the primary value system net-
280 Journal of World Business / 35(3) / 2000

icies and potential opportunities for
firms in the ancillary networks to de-
velop international markets. Instead of
looking further down the primary net-
works, look further up the ancillary net-
works supporting primary industries
that are internationally competitive.
In Sweden, for example, many interna-
tionally competitive firms and industries
emerging out of networks originally de-
veloped to serve domestic based primary
producers (So¨lvell, Zander, & Porter,
1991). They have emerged from ancillary
networks originally serving the domestic
mining industry (e.g., rock drills and
equipment, compressors, transport and
loading machinery, elevators, mine
hoists, pumps, crushing machinery, rub-
ber components, explosives, and consult-
ing services); the pulp and paper industry;
the automotive industry; the shipbuilding
industry; and the steel industry. Even as
the primary industries lose their interna-
tional competitiveness, such as Swedish
shipbuilding and mining industries, firms
in the ancillary networks have still been
able to maintain their international com-
petitiveness.
In Australia, firms involved in the
ancillary networks for various primary
industries have been able to become
internationally competitive because of
their relations with internationally com-
petitive primary industries, including
those supporting agricultural and min-
ing industries. One example is the de-
velopment of the export potential of
firms in the ancillary networks support-
ing the Australian grain export industry
(Welch et al., 1996a). An opportunity
existed to bid for a share of a large
World Bank funded grain handling in-
frastructure project in China. Several
firms existed in Australia supplying in-
puts to the Australian grain export in-
dustry, including producers and design-
ers of storage, handling and transport
systems, control systems and training
services but they were not generally in-
ternationally focused and the relations
among them were underdeveloped. The
trade promotion arm of the federal Gov-
ernment formed a joint action group of
relevant and interested firms from the
ancillary network in order to position
them to bid for part of the World Bank
project. Joint promotion, inward and
outward trade missions, and various re-
search activities were undertaken to po-
sition Australian firms. Eventually suc-
cess was achieved in bidding for the
design work as well as final contracts.
The example shows how potential inter-
national competitiveness in the ancil-
lary networks may go unrecognized by
policy makers and by the firms them-
selves when they are seen as only sup-
pliers to domestic customers.
To further examine the structure of pri-
mary and ancillary networks and the im-
plications for firms and trade promotion
policy, we focus on two important char-
acteristics of networks that impact on
their international potential: (a) location,
that is, the extent to which the primary or
ancillary network is domestically based or
foreign based and (b) the presence of in-
ternationally competitive firms, and orga-
nizations and people with international
connections and experience.
LOCATION OF PRIMARY AND
ANCILLARY NETWORKS
Location is important because it af-
fects the nature of the relations among
International Competitiveness and Trade Promotion Policy from a Network Perspective 281

different firms in the network. These
affect trade promotion policy because
important parts of the primary or ancil-
lary network may lie outside the coun-
try and be less amenable to government
intervention. Location also affects the
ability of firms to build effective rela-
tions with particular input providers.
The strength and quality of relations
between firms in different countries
tend to be weaker than domestic rela-
tions, due to geographical and psychic
distance effects on communication (Jo-
hanson & Vahlne, 1977) and weaker
personal relationships (Vahlne, 1977,
Turnbull, 1979). As a result, domestic
interfirm relations have been found to
play an important role in developing
and supporting the internationalization
process (Bonaccorsi, 1992) and the in-
ternational competitiveness of firms
(Hakansson, 1987; Kanter, 1995). One
aspect of this is the more direct and
apparent competitive rivalry among
firms located in the same country and
region, which tends to spur the process
of product and service enhancement
(Porter, 1990). Another aspect is the
ability to work closely with suppliers,
customers, and other organizations to
improve products and processes.
Hodgetts, 1992, Rugman, 1992, Rug-
man & Verbeke, 1992. Examples in-
clude Canada and Mexico drawing on
links with firms and industries in the
US, and the Chinese diaspora (Kao,
1993, and Redding, 1990).
PRESENCE OF INTERNATIONALLY
COMPETITIVE FIRMS IN THE
LOCAL NETWORK
The international competitiveness of
some firms in a network, as well as their
international connections and experience,
can make an important contribution to the
international potential of other firms, de-
pending on the types of relationships they
have with them. Internationally competi-
tive firms can play a role as leading edge
customers or suppliers to other firms and
provide role models for others to emulate.
More generally, the presence of firms
with international connections and expe-
rience may facilitate the internationaliza-
tion of other companies in the network
(Bonaccorsi, 1992). Such connections
and experience can exist for various rea-
sons including: (a) international trade ex-
perience, including importing as well as
exporting; (b) foreign ownership, which
leads to direct and indirect connections
with foreign firms as well as experience in
dealing with firms in other countries; and
(c) personal and professional international
networks and knowledge stemming from
international work and immigration.
Although close relations tend to oc-
cur more readily between firms based in
the same country, they can develop be-
tween counterparts in different coun-
tries in certain situations. Examples are
when both firms are part of the same
multinational corporation, where direct
foreign investment establishes the over-
seas distributors and production units,
or where conducive historical, cultural,
or geographical circumstances exist,
(Cartwright, 1992, Dunning, 1990,
A TYPOLOGY OF BUSINESS NETWORKS
IN TERMS OF THEIR INTERNATIONAL
TRADE POTENTIAL
These two dimensions may be used
to classify networks into four broad
282 Journal of World Business / 35(3) / 2000

Table 1
Four Types of Networks
Presence of
Internationally
Location of Network
Competitive firms?
Mostly Local
Mostly Foreign
No
Case A: Domestic Focused Networks
Case B: Foreign Focused Networks
Case C: Isolated Network
Yes
Case D: Internationally Competitive
Network
types as shown in Table 1. The follow-
ing discussion examines the implica-
tions for firms involved in each type of
network as well as the types of policy
responses that may be appropriate in
each case. We begin by focusing on the
location of different parts of the net-
work and then introduce the issue of
international competitiveness, connec-
tions, and experience.
The purely domestic focus of the in-
dustry networks constrains the ability of
firms to conceive of, let alone develop
international operations. It is therefore
necessary to introduce a range of trade
promotion awareness, familiarization
and education programs in order to en-
courage the extension of parts of the
ancillary networks and the primary net-
works and the customer base into the
international arena.
Starting from such a limited base
general education programs and broad
incentives could be used to attract initial
interest in foreign operations. In addi-
tion, to build a foreign customer base to
support such programs, use can be
made of direct promotion in foreign
markets. This can be aimed at foreign
customers through such techniques as
trade missions and by the provision of
promotional literature describing the
strengths and capability, not only of in-
dividual firms, but of the industry net-
works as a whole.
There are many examples of govern-
ment agencies attempting to put poten-
tial customers in contact with domestic
suppliers, with varying degrees of suc-
cess, but they tend to focus on individ-
ual firms rather than networks (e.g., Ca-
vusgil & Czinkota, 1990). One example
of a network focus is the aforemen-
CASE A: DOMESTIC FOCUSED
NETWORKS
Ancillary and primary networks (in-
cluding their customer base at the next
stage of the primary value system) can
range from situations in which all mem-
bers are located in the domestic market
to those in which none are located do-
mestically. In a situation where both the
primary and ancillary networks are fully
localized and serve only the domestic
market, that is, Case A in Table 1, there
will clearly be a major task for policy
makers to assist the development of an
international orientation among the
firms involved. In this situation there
are many possible strategies for firms
and policy makers to influence the in-
ternationalization process of the net-
work of companies and to develop their
international competitiveness.
International Competitiveness and Trade Promotion Policy from a Network Perspective 283

tioned Australian Government’s at-
tempt to assist ancillary suppliers to the
grain production and handling industry
to gain a share of a major grain infra-
structure project in China. As part of
their assistance, a capability document
detailing the ancillary network was pre-
pared and provided to the Chinese Gov-
ernment on an initial trade mission led
by a cabinet minister (Welch et al.,
1996a). Firms can attempt such promo-
tions of themselves, alone or in cooper-
ation with complementary suppliers and
other members of the primary and an-
cillary network, such as domestic cus-
tomers and suppliers. The development
of the internet and e-commerce is al-
lowing this to happen more easily, yet
nearly all web sites are firm based rather
than network based.
Because international firms are not
present, trade promotion activities may
need to identify firms occupying central
positions in the network and focus re-
sources on facilitating their internation-
alization because of the network im-
pacts this would have. In this way it
may be possible to kick start the process
of internationalising the network.
Another way of upgrading the do-
mestic networks is to encourage inter-
nationally competitive firms to establish
operations in the domestic primary or
ancillary networks, or in the local cus-
tomer base. This will help enhance the
international competitiveness of other
network members for the reasons al-
ready given. This normally involves en-
couraging foreign firms to set up in the
domestic market through joint ventures
with local firms, through takeovers, or
by establishing new entities. Such firms
not only establish world class opera-
tions in the local market that impact on
local suppliers and customers, but also
bring with them their international con-
nections, experience, and knowledge.
For instance major foreign manufactur-
ing firms establishing operations in a
local primary network are bound to
have a substantial impact on the local
competitors in the network as well as
impacts on the ancillary input networks.
Japanese companies in the U.S.A., Eu-
rope, and Asia have led to changes in
work practices, technology transfer, and
the development of relations with do-
mestic suppliers, resulting in significant
improvements in the performance of
these firms. In Australia the deregulat-
ing of the financial system led to an
influx of foreign players that boosted
local competition and contributed to the
internationalization of domestic finan-
cial institutions as well as some of their
suppliers of software and technical ser-
vices. In developing countries, the in-
troduction of foreign firms through joint
ventures is an important part of govern-
ment policy designed to facilitate tech-
nology transfer and which hopefully has
spillover effects on local suppliers and
customers of these joint ventures.
Foreign, internationally competitive
firms, may attract other foreign firms to
set up operations such as suppliers of
key components and services they work
closely with. For example, Japanese
multinationals entering foreign markets
are known to encourage their suppliers
to establish a presence in the same or
adjacent markets to facilitate their own
as well as their suppliers international-
ization (Hatch & Yamamura, 1996). In
this way the primary network is en-
hanced with potential spillover effects
284 Journal of World Business / 35(3) / 2000

on other firms they interact with as
competitors or complementary suppli-
ers (Hatch & Yamamura, 1996). This
can instigate a network and learning
international multiplier effect. Similar
types of effects result from encouraging
internationally competitive foreign
firms to set up in ancillary networks
because of their effects on other mem-
bers of ancillary and primary networks,
as customers, suppliers, complemen-
tors, or competitors.
Last, such firms could be introduced
into the local customer base of the pri-
mary network and have the same types
of effects. An additional consideration
here is that ancillary networks must ex-
ist in the home market to support such
downstream processors in the primary
value system and to ensure that links are
maintained with the international cus-
tomer base. There may be overlaps in
the ancillary networks supplying adja-
cent stages of the primary value system,
which provide opportunities for firms
based in existing ancillary networks as
well as a potential base for trade pro-
motion policy to focus on. Much de-
pends on how similar the technology is
underlying production at each stage.
Common inputs may include software
and computing products, certain techni-
cal and research services, as well as
financial and government services. If
such potential overlaps exist, the end
result is likely to be an upgraded ability
to undertake international operations,
thereby achieving the goal of trade pro-
motion policy.
centives and tax holidays, promoting
the strengths of existing ancillary or pri-
mary networks, or by restricting access
to the local market to locally based
firms. For example, the Australian gov-
ernment has been successful in attract-
ing the regional headquarters of compa-
nies such as Cathay Pacific, DEC, and
American Express. In part this has been
because of negotiated financial incen-
tives, but more enduring are strengths in
the telecommunication system, the time
zone of Australia in relation to Asia,
and the multicultural nature of Austra-
lia. The latter results in the ability to
provide multilingual native speakers in
nearly all languages, who have the cul-
tural understanding and sensitivity to
provide high quality communication
and translation facilities (Wilkinson &
Cheng, 1999).
For policy makers and local firms,
the problem is how to facilitate the de-
velopment of productive relations be-
tween the newly arrived firms and ex-
isting and potential members of the
local network. This may be done in
various ways, such as offsets programs,
which encourage foreign owned firms
supplying the government to source
some parts of the product or service
from local suppliers. The danger is that
such schemes may result in only short-
term relations with local suppliers,
which do not lead to any sustained in-
ternational development. Ultimately,
the success of any externally induced
links depends on the abilities of the
parties involved to build long term co-
operative relations. At the very least,
though, such measures allow the estab-
lishment of international network links
From a policy perspective, trade pro-
motion agencies can encourage foreign
firms to establish in the local market by
such measures as providing financial in-
International Competitiveness and Trade Promotion Policy from a Network Perspective 285

and the beginning of associated pro-
cesses of internationalization.
As a result governments and firms
need to find ways of breaking into such
networks. Various means may be used
to help this process such as in setting
the initial conditions of entry, offsets
policies, or in providing forums to fa-
cilitate the development of interper-
sonal and interfirm relationships be-
tween foreign and local firms. An
example of the way interpersonal net-
works can play an important role in
facilitating relationship development
between foreign and local firms was in
the UK North Sea oil fields in the 1970s
and 1980s. The primary producers (oil
companies) brought the ancillary firms
(e.g., drilling contractors) with them to
Aberdeen in Scotland. However, local
firms were able to gain access to the
primary producers via the help and ex-
pertise of Scottish born managers who
worked for the (mainly US owned) oil
companies (Easton & Smith, 1984).
In addition, immigration policy can
play a role in introducing people into
local networks with substantial interna-
tional business experience, knowledge,
and personal/professional networks.
Australia and the USA are examples of
countries that have benefited from a
multicultural population (East Asian
Analytical Unit, 1995, Wilkinson &
Cheng, 1999). For example, Gateway
Pharmaceuticals was established by mi-
grants from the Middle East and began
trading with countries in this region.
They set up operations in Australia in
an area with a large Vietnamese com-
munity. This led them to identify oppor-
tunities in the Vietnamese market to
which they exported products and later
set up a manufacturing operation. In
Australia, the Multicultural Marketing
A variant of this approach is to allow
firms to meet their offset obligations by
facilitating the export of other products
and services. Another method is to en-
courage alliances between local and for-
eign owned firms aimed at developing
international operations by local firms.
One example is the Australian govern-
ment’s “Partnership for Development”
program in the information technology
sector (Welch, 1996). This type of strat-
egy has been adopted by some Asian
countries to attract Japanese primary
producers in the car and computer in-
dustry, for example, to set up domesti-
cally together with their supplier nets
(Hatch & Yamamura, 1996).
A problem that may arise here is for-
eign owned firms excluding local firms
from their networks of suppliers and
customers. There is evidence from Aus-
tralia and the USA that Japanese multi-
national companies tend to import more
than other multinationals (Graham &
Krugman, 1991, Krugman, 1991) and
that Japanese firms tend to bring with
them their own supplier networks and
keep core technology at home (Hatch &
Yamamura, 1996). As a result they may
provide few opportunities for local
firms to break into these networks and
limit technological transfer to the host
country. As Hatch and Yamamura
(1996) comment, “What truly stunts the
growth of local suppliers is the fact that
Japanese MNCs in the region are build-
ing a tight network of dedicated suppli-
ers from Japan, but a far looser, or
wider, network of domestically owned
suppliers” (p167).
286 Journal of World Business / 35(3) / 2000

Awards scheme serves to recognize and
reward firms using the knowledge,
skills and connections resulting from
migrants’ backgrounds in serving local
and foreign markets (Wilkinson &
Cheng, 1999). Migration policies can be
targeted at particular networks in terms
of their international potential and mi-
grants can be selected based on the rel-
evance of their experience, knowledge,
and personal/business networks1.
Finally, increasing imports as well as
exports can strengthen the internation-
alization of the network. Ancillary net-
works can become more international
by sourcing internationally and by gov-
ernments supporting programs to edu-
cate and assist local companies to de-
velop importing activities. An indirect
consequence is that individual firms
may be able to leverage off the experi-
ence and contacts gained from import-
ing to build relations with foreign cus-
tomers. The aim is to develop an
international array of contacts and inter-
national trade experience, which can
support exporting as well as other types
of international trade activities by net-
work members. Not only are the firms
who extend their international links
more likely to recognize opportunities
in international markets but there may
well be additional spinoff effects, pro-
viding connections and information for
other companies in the network (Welch
& Luostarinen, 1993, Korhonen, Luo-
starinen, & Welch, 1996)
all) of the primary and ancillary net-
works and the customer base are located
internationally. The problem for policy
makers in this situation is that there is
little to build on in the home market.
Some countries have been able to take
advantage of this situation by becoming
international tax havens and financial
centers, which attract foreign compa-
nies to set up a notional base but with
effectively all of their operations lo-
cated outside the country. Examples are
countries such as Bermuda and Luxem-
bourg.
CASE C: ISOLATED NETWORKS
More typical are situations in which
countries have some parts of the indus-
try networks located domestically. Here
more carefully targeted trade promotion
policies adapted to the particular net-
work configuration can be developed.
But in order to do this, policy makers
will require a more detailed map of the
network in order to identify where and
how intervention may be appropriate.
Because most of the network is located
internationally, international relations
already exist with some members of the
local network, for example, relations B
or C in Fig. 1. This creates opportunities
to establish piggyback schemes or ex-
port groups, where foreign and local
firms are brought together in different
cooperative arrangements. One exam-
ple is the Wisconsin “indirect exporter”
scheme, which focuses on suppliers to
locally based exporting firms. The
scheme encourages exporting firms to
work with their local suppliers to help
them into international markets with
which they were already familiar2.
CASE B: FOREIGN FOCUSED NETWORKS
At the other extreme from Case A is
the situation where large parts (if not
International Competitiveness and Trade Promotion Policy from a Network Perspective 287

Customer focused trade promotion
schemes, where a substantial propor-
tion of customers are based overseas,
will need to be carefully targeted to
deepen and extend existing interna-
tional customer connections. This in-
volves working more closely with par-
ticular customers in a more direct
fashion rather than more generalised
promotion schemes to potential for-
eign customers. This could mean that
officers from a given country’s trade
promotion agency act as facilitators
for the development of existing rela-
tions and for establishing new connec-
tions with members of the domestic
networks. This happened in the China
grain example through the appoint-
ment of a local Chinese network fa-
cilitator and in Wisconsin, honorary
commercial attaches were created
among residents of foreign countries,
who are traders experienced in deal-
ing with Wisconsin firms (Tesar &
Tarleton, 1983). These connections
can result in the identification of op-
portunities for other members of do-
mestic networks in foreign markets,
based on the knowledge and expertise
of the foreign customers, as well as
other connections the foreign cus-
tomer has in its local as well as other
foreign markets. International connec-
tions with foreign suppliers may be
used in a similar way. In addition,
offsets programs may be used to en-
courage foreign suppliers to any gov-
ernment instrumentalities involved in
the network, such as utility providers,
to source part of their products or
services from local suppliers or com-
pensate by helping local firms export.
CASE D: INTERNATIONALLY
COMPETITIVE NETWORKS
The presence of internationally com-
petitive firms, based at home or abroad,
in the networks impacts on the interna-
tional competitiveness of the network as
a whole. As noted above, such firms can
provide role models for others, be a
source of valuable international connec-
tions and knowledge, and in general
enhance the ability of firms in the net-
work to internationalise.
A range of activities are possible to
facilitate the development of connec-
tions and the sharing of information and
knowledge with these leading edge
firms as well as their foreign customers,
similar in part to that discussed in Case
C. One way is through the provision of
forums for companies and people in the
network to meet and exchange informa-
tion and experiences and to provide a
basis for developing personal relation-
ships between firms. A second means is
through action learning groups, in
which firms jointly participate in inter-
national related activities such as mar-
ket research or technology development
projects, and policies in which members
of the network are encouraged to colo-
cate in a particular region of the coun-
try. It should be stressed that these
groupings involve more than industry
associations but rather extend across in-
dustry boundaries.
The China grain infrastructure exam-
ple, mentioned above, created in effect
an action based learning experience in
which firms learned to “dance” with
each other and with counterparts in
China (Wilkinson et al., 1998). Through
this learning process, relationships
288 Journal of World Business / 35(3) / 2000

formed between ancillary suppliers and
more internationally experienced firms,
and personal and business relationships
developed with each other and with
Chinese firms and government officials,
which played an import role in winning
a share of the project business (Welch et
al., 1996a). Another joint action group
facilitated the development of relations
between hay producers in Australia and
distributors and dairy farmers in Japan
in order to boost trade (Welch et al.,
1996b). An example of an industry ini-
tiated joint action scheme is Fitout Aus-
tralia Ltd., which comprises comple-
mentary firms interested in supplying
various types of complementary prod-
ucts and services to Hotels in interna-
tional markets, jointly promoting and
leveraging off each others’ experience
and contacts
from the Australian based subsidiary for
which it was an approved supplier.
In addition, domestic based suppliers
can target such leading edge interna-
tional firms as customers and through
these gain international contacts and
improve the competitiveness of their
products and services. One problem
here is that the potential customers for
international firms’ suppliers are likely
to be its competitors. However, to the
extent that it helps it to understand the
strengths and weakness of their compet-
itors and because it may assist in the
development of compatible industry
standards in foreign markets it may still
be beneficial.
CLASSIFYING FIRMS IN CASE A
NETWORKS
A third approach is to target particu-
lar leading edge firms that have strong
connections with many firms in the net-
work. In this way they may become
poles for the international development
of the network as whole. Such firms
may of their own volition be able to
identify potential opportunities for fa-
cilitating exports and international ven-
tures by firms in their input networks, as
is often the case for Japanese firms. But
this is not without its problems, as dis-
cussed in Case A above. Similar exam-
ples exist for other multinationals as
they develop approved supplier lists of
firms around the world and refer suppli-
ers of one subsidiary to subsidiaries in
other markets. For example, a supplier
of car components in Australia was able
to gain entry into the China market to
supply a multinational’s joint venture
operation in part because of referrals
Case A may be further elaborated in
terms of the internationalisation of indi-
vidual firms and the networks as a
whole. We can distinguish between
firms in terms of their own degree of
internationalisation and also in terms of
the internationalisation of the network
in which they operate, that is, the extent
to which there is international trade in
the types of inputs and services pro-
duced. The classification is adapted
from Johanson & Mattsson (1988). The
juxtaposition of these two factors, as
depicted in Table 2, identifies situations
in which firms face different types of
problems requiring different strategies
and policies.
THE LONELY INTERNATIONAL
If a firm in the primary value system
is the only one highly internationalised,
International Competitiveness and Trade Promotion Policy from a Network Perspective 289

Table 2
Internationalization of the Firm and Network
Internationalization of the Network
Internationalization of the
Firm
Low
High
High
Low
Lonely International
Early Starter
International Among Others
Late Starter
Source: based on Johanson and Mattsson (1988)
the situation is that of a “Lonely Inter-
national.” Firms in the ancillary net-
work are only indirect exporters be-
cause their inputs are incorporated into
the outputs of the internationalized firm.
If the internationalized firm is a sophis-
ticated international player, it may have
little need for government assistance,
except for appropriate lobbying and
representation of their interests to other
governments and international bodies,
and for introductions to key decision
makers in other countries. For policy
makers as well as the internationalized
firm, an important issue is the continu-
ing international competitiveness of the
primary firm. International competitive-
ness requires the continual upgrading of
products and processes and this requires
working with leading edge firms. If this
cannot be achieved with domestic sup-
pliers, the firm may be obliged to search
for such networks abroad. Or, it can
assist in the internationalization of the
input network by helping members to
enter international markets and form in-
ternational links, through piggyback
schemes or joint action groups as de-
scribed above.
sidies may be dominant factors, rather
than any inputs of specialized technol-
ogy, components or other material.
Here there may be opportunities for the
internationalized firm to work with sup-
pliers to upgrade inputs and thereby en-
hance their own competitiveness.
If the internationalized firm is part of
the ancillary network, it may focus on
assisting direct and indirect local cus-
tomers of its outputs to expand their
business and internationalize. An exam-
ple is BHP, Australia’s largest steel
manufacturer, who has tried to assist
downstream users of its steel in Austra-
lia to expand and internationalize as a
way of indirectly expanding its own
business (Jacob, 1998)
INTERNATIONAL AMONG OTHERS
In this case, members of the primary
and ancillary network are exporting and
belong to highly internationalized net-
works. Here government policy can be
designed to reduce or eliminate any net-
work specific barriers to export devel-
opment to let the full export potential be
realized. Research can be directed to
identify such network specific barriers
to international trade. In Australia such
networks are likely to be linked to the
mining and agricultural areas and the
Firms in ancillary networks may not
be exporting because they do not con-
tribute to the international competitive-
ness of the internationalized firm. Low
cost raw material access or export sub-
290 Journal of World Business / 35(3) / 2000

government can play a role in facilitat-
ing relations with overseas governments
bodies and multilateral agencies, that
play an important part in initiating de-
velopment projects in these areas. In the
China grain example aid funds were
used to demonstrate Australian inputs
and relations between industry and the
Chinese Government and World Bank
were facilitated. Governments can also
play a role in the early detection of
international aid funded projects and in
helping the formation of consortia to
bid. These can involve members of the
domestic network as well as collabora-
tion with international partners.
For three main reasons, it is impor-
tant to develop and sustain the interna-
tional competitiveness of both primary
and ancillary network members. First, if
the international competitiveness of pri-
mary firms starts to run out, for example
because resource supply, or becomes
relatively more expensive, the input
network can still remain internationally
competitive. This is because interna-
tionalized firms in the ancillary net-
works, through their own international-
isation, grow less dependent on their
domestic customers. This happened in
Sweden as the mining, steel, and ship-
building industries declined but firms
originating as suppliers to those indus-
tries continued to be highly internation-
alised and internationally competitive.
Second, in the International Among
Others case it is generally easier for
internationalized firms in the primary
value system to switch to nondomestic
based suppliers than in the Lonely In-
ternational situation. This is because
there is international trade in the inputs
involved. Furthermore, the frequently
occurring mergers, acquisitions, or stra-
tegic alliances between firms often in-
fluence their supplier structure, which
pose both a threat of losing business for
firms in the ancillary networks, as well
as an opportunity to gain business.
Third, an important part of interna-
tional trade is linked to big projects,
often involving a “transfer of technol-
ogy” or concern infrastructure develop-
ment, for which firms or consortia are
invited to bid. The choice of suppliers
to such projects are often influenced by
the nationality of the main contractor
and by the financial conditions offered.
Government is often involved on the
buying side and successful bidders need
some sort of political and financial
backing from their own governments. It
is easier for a main contractor or con-
sortium from a particular country to
have a high content from that country if
the ancillary network is also interna-
tionally competitive.
LATE STARTERS
This is the situation of domestic firms
in highly internationalised networks. If
these firms are members of the ancillary
network, there are several reasons why
the firm may not export. First, the nature
of the input could be of little significance
in contributing to the international com-
petitiveness of other firms in the primary
or ancillary network. Second, there might
exist specific barriers to trade for the
products, such as government prohibi-
tions. Third, there might still be enough
growth opportunities in the domestic mar-
ket. Fourth, these firms might not be in-
ternationally competitive or aware of in-
International Competitiveness and Trade Promotion Policy from a Network Perspective 291

ternational opportunities. Such firms run a
high risk of becoming out competed in
their own domestic market by foreign
firms, unless they find some way to inter-
nationalize because, by definition, many
competitors (and customers) have been
able to become internationally competi-
tive. They might be a takeover target for a
foreign firm and in this way become in-
ternationalized.
ancillary network or the part of the pri-
mary network served are not interna-
tionalized. Generally, the same reasons
for nonexporting exist as for the Late
Starter, but there are two important dif-
ferences. First, there may be little dem-
onstrated internationalization for this
type of firm anywhere. One reason for
this is that the type of product or service
supplied by these firms is not a trade-
able good or service, for example,
wholesaling, retailing, real estate ser-
vices, staff recruitment services. Hence
these services are only exported embod-
ied in other products or services. If such
services have a significant impact on the
competitiveness of firms using these
services, there is a still a need to ensure
that such firms are aware of their role
and how they can work with their cus-
tomers to enhance their exporting po-
tential through upgrading service in-
puts.
The second difference from the Late
Starter situation is that, should this firm
start to export, it may not meet interna-
tionally active competitors or custom-
ers, unless the domestic industry had
been isolated from international trade.
Since Early Starters are pioneers, it is
likely that management attitudes to ex-
porting are positive and that knowledge
about internationalization is limited. It
is important to make Early Starters
aware of the time and resource commit-
ments needed for sustainable interna-
tional growth and to provide assistance
for some of the investments needed to
establish relationships with foreign dis-
tributors and customers. Also, Early
Starters need to recognize that their in-
ternational competitiveness depends not
only on their own efforts and resources
For trade promotion policy, the Late
Starter poses a problem. Why is it late?
If the input it provides is of little sig-
nificance in achieving international
competitiveness, what types of advan-
tages can it offer customers in interna-
tional markets? If trade barriers are the
reason, then elimination of such barriers
is as likely to increase imports into the
domestic market. Especially if there ex-
ists strong competition from foreign
based, highly internationalized suppli-
ers, who currently supply the firms who
compete with the Late Starter’s direct or
indirect customers in international mar-
kets. Of course, the strategies and poli-
cies that were discussed for the Lonely
International case may be appropriate
here, especially if the Late Starters are
unaware of export opportunities. A bet-
ter solution may be that others acquire
such firms in the network that are al-
ready highly internationalized. This
could be necessary because the interna-
tionalization process for Late Starters,
due to international interdependencies,
needs to be faster than for Early Starters
(Johanson & Mattsson, 1988).
EARLY STARTERS
Early Starters are different from Late
Starters in that other members of the
292 Journal of World Business / 35(3) / 2000

but also on those of others in its ancil-
lary network, and its domestic customer
base, and the nature of its relations with
them. Because none of them are inter-
nationalized, they may inhibit the Early
Starters internationalization efforts, or
they could be brought into the interna-
tionalization process and encouraged to
upgrade their inputs. Success will help
further develop the relationship and fur-
ther internationalization. Tapping into
the personal and professional relations
and networks of individuals employed
in the firms in the network, as well as
hiring such people with such networks,
is one way of enhancing the interna-
tional skills and resources of the firm
and in developing international links.
This has happened in various firms in
Australia who have taken advantage of
the diversity of cultures present in the
workforce and community (Wilkinson
& Cheng, 1999).
jointly developing industry standards
and lobbying government. The forma-
tion and development of interfirm rela-
tions and networks are seen as being of
critical importance in determining inter-
national (and domestic) competitive-
ness, particularly in industrial, business-
to-business markets. Hence business
education programs need to focus atten-
tion on developing the cooperative as
well as competitive skills of business;
making management educational insti-
tutions, managers and firms aware of
and skilled in the means of establishing
cooperative and collaborative, as well
as competitive, advantage (Kanter,
1995), and harnessing the power of net-
works. The internationalization of edu-
cation courses and institutions, includ-
ing course content as well as links and
exchange programs with foreign univer-
sities is one aspect of this. In addition,
courses designed to attract international
students and study abroad programs can
be an important vehicle for improving
cultural understanding and sensitivity
and help develop and strengthen per-
sonal and family links with foreign mar-
kets, which provide a potential base for
future commercial activities. Policy
makers and firms can assist in encour-
aging such developments in a number
of ways. These include: funding support
for the development of international
business education programs; hosting
international students in work experi-
ence programs domestically and in
overseas markets; setting up foreign fo-
cused alumni associations, facilitating
the development of and participating in
study abroad programs; and assisting in
international student recruiting through
foreign based agencies.
GENERIC NETWORK APPROACHES TO
INTERNATIONAL COMPETITIVENESS
Apart from the types of targeted ini-
tiatives discussed above, some general
network oriented policies may be envis-
aged that involve the participation of
both government and industry. The net-
work approach stresses the importance
of establishing and managing coopera-
tive relations among different comple-
mentary types of firms. Even competi-
tors can have complementary interests.
This occurs in entering international
markets that are too large for any single
supplier to service, in generating pri-
mary demand, such as in the case of
Australian winemakers in Japan, and in
International Competitiveness and Trade Promotion Policy from a Network Perspective 293

Likewise, research funding can be
used as a general tool to facilitate the
development of international and busi-
ness networks, including international
research collaborations between re-
search organizations, business and gov-
ernment. International professional and
personal connections among research-
ers and technologists, as well as inter-
national trade personnel, can lead to
international technology transfer as well
as networks that may facilitate techno-
logical development. Also, the interna-
tional market exploitation of research
results can be facilitated through the
development of such personal and pro-
fessional relations. Often, the technical
aspects of R & D projects in industry
may be sponsored by a government
agency, but research on relevant inter-
national marketing issues concerning
the output from such R & D-projects are
not. For example, when funding support
is available for research on agriculture
production issues but not for the devel-
opment of refined products, distribution
systems or international marketing.
This inhibits the formation of relevant
personal and business networks among
researchers and business.
More generally, government policy
needs to ensure that any barriers to the
establishment and development of ef-
fective relationships are addressed. As
Dunning (1991) has argued, govern-
ments should pay at least as much at-
tention to transaction cost related poli-
cies as to production cost related
policies in their efforts to create favor-
able conditions in their country for in-
ternationally competitive industrial ac-
tivities. This includes government
antitrust policy, which needs to be re-
viewed in this context. There are bound
to be occasions when support for the
development of close collaborative re-
lations between companies within and
between networks could be seen as an-
ticompetitive in the local market. But
this must be balanced against the bene-
fits to be gained from greater interna-
tional competitiveness.
More broadly still Dunning’s focus
on transaction costs highlights the im-
portance of removing and reducing
trade barriers between nations that in-
hibit the development of internationally
competitive industries and firms. It is
beyond the scope of this article to con-
sider whether the impact of reducing
trade barriers and increasing the global-
ization of industries and economies is
always positive. In terms of stimulating
and enabling firms to upgrade products
and processes and to become more in-
ternationally competitive, reducing
such barriers through tariff reductions,
regional trading blocks, and other
means can have strong positive effects.
It forces firms to face international com-
petition at home and abroad, which in-
creases firm learning and knowledge
development and may give them more
confidence to tackle international mar-
kets. For example, the deregulation of
the Australian finance industry showed
some firms such as the Macquarie In-
vestment Bank that they could compete
with global players in particular mar-
kets, which in turn led management to
internationalize.
Reducing barriers prevents the
growth of a dependence mentality
among firms who rely on government
policies to reduce threats of interna-
tional competition. But more impor-
294 Journal of World Business / 35(3) / 2000

tantly from a network perspective is that
trade barriers force firms into relations
with customers and ancillary networks
that are not conducive to developing or
maintaining long term international
competitiveness. The case of New Zea-
land is instructive as many sectors of
industry were protected from interna-
tional competition or their customers
and suppliers were such industries. Af-
ter trade liberalization, together with
various assistance schemes, internation-
ally competitive sectors of ancillary net-
works surfaced.
In an increasingly globalized market
place, with easy and fast means of com-
munication and access to people and
organizations around the globe (Held et
al., 1999), the opportunity exists for
firms to become truly international and
to develop and manage effective per-
sonal and business relations and net-
works spanning international as well as
industry borders. The continual upgrad-
ing of products and processes and the
growth in importance of created rather
then inherited sources of competitive
advantage focuses attention on these re-
lationship and network resources of
firms and how they can be effectively
harnessed and developed.
have stressed the important role played
by personal and business relations be-
tween firms within and across industry
boundaries and within and between dif-
ferent countries. It is a different per-
spective to the more common individual
firm or industry-focused strategies, re-
search and policy making, and broad
macro economic policies. Policies and
strategies designed for specific network
situations have been identified as well
as more generic network development
policies. Some of these incorporate
more traditional firm or industry based
policy elements.
Important issues identified as a basis
for developing and targeting policies
are: (a) the location of different parts of
the primary and ancillary networks in
the domestic or foreign markets; and (b)
the international competitiveness, expe-
rience, knowledge and connections ex-
isting in the networks, including that
resulting from the presence of foreign
firms and immigration flows.
It is beyond the scope of this article
to consider how governments should
evaluate the performance of such net-
work based policies, which has been
considered elsewhere (Welch et al.,
1996a, 1996b). Increases in exports are
an obvious focus, but it should be noted
that the development of relations and
networks is more about resource cre-
ation, creating the ability to act and
respond to changing conditions, as it is
about short and medium term export
growth.
SUMMARY AND CONCLUSIONS
We have examined the determinants
of firms’ international competitiveness
and trade promotion policy from a net-
work perspective. This gives new in-
sight into the ways both firms and gov-
ernments may seek to develop and
strengthen the international competi-
tiveness of firms and industries. We
The network approach leads to a
more wide-ranging, multipronged stra-
tegic and policy approach. The focus
changes from individual firms to net-
works of interconnected firms, that is,
International Competitiveness and Trade Promotion Policy from a Network Perspective 295

seeking to achieve changes in and
through these networks - both local and
foreign. Adopting a network focus
draws attention to the role played by a
variety of government functions in in-
fluencing industry network develop-
ment, including foreign investment pol-
icy, government purchasing policies,
education and training, importing pol-
icy, immigration policy, and industry
policy.
Policy and strategy development
from a network perspective require an
understanding of the structure and op-
erations of business networks— more
than typically emerges from govern-
ment, industry, and firm statistical re-
ports. This is necessary in order to iden-
tify the network positions occupied by
firms, the type of links they have with
local and foreign networks, and the po-
tential links that may exist that could
significantly affect the international de-
velopment of the network. It is also
relevant to tracking the impact of policy
and firm strategies on the evolution of
the network.
For several reasons, governments can
and should play only a limited role in
facilitating network evolution. Most im-
portantly, they are limited in their abil-
ity to respond to the increasingly rapid
pace of technological and industrial de-
velopment and restructuring that ever
challenges organization and network re-
lations and structures. Traditional forms
of government bureaucracy are ill
equipped to handle such a fast-changing
landscape.
trying to create and capture as many
benefits as it can for its domestic econ-
omy and society, but the outcomes de-
pend on what other governments are
doing, in countries where existing or
potential parts of the primary and ancil-
lary networks are located. There is an
opportunity for government trade policy
agencies to develop effective relations
and networks among themselves in or-
der to cocreate mutually supporting pol-
icies, rather than ones that escalate the
costs of competing for similar types of
firms and networks3.
Third, the primary role of govern-
ment is not to pick winners but to help
grow potential exporters in industrial
networks - to create variety and rivalry
in industrial networks. The winners will
be selected by actual and potential
counterparts in the networks, not by any
government or a faceless market. The
history of the development of networks
in various countries shows that they are
in a continuing process of structuring as
new relations and opportunities become
available. Governments cannot design
them (e.g., Imai, 1989; Lundgren,
1991). Imai’s (1989) account of the
structuring and restructuring of the Jap-
anese industrial networks shows how
the government provided a framework
within which networks developed natu-
rally in a self-organizing fashion. Rela-
tions need to form within a competitive
framework in which there is some ri-
valry to negotiate relationships with key
partners, not just forms of arranged
marriages. Mutual commitment by indi-
vidual network participants is necessary
for their development. No amount of
government incentives, encouragement,
and exhortation can substitute for a
Second, the policies of more than one
government are relevant to the struc-
tural development and operation of in-
ternational business networks. Each is
296 Journal of World Business / 35(3) / 2000

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NOTES
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2. George Tesar, University of Wisconsin, personal
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