6 Enterprises and Industrial Policy

The Oxford Handbook of Industrial Policy
Arkebe Oqubay (ed.) et al.
https://doi.org/10.1093/oxfordhb/9780198862420.001.0001
Published: 2020 Online ISBN: 9780191898181 Print ISBN: 9780198862420
Downloaded from https://academic.oup.com/edited-volume/34292/chapter/290699694 by OUP site access user on 23 February 2024

CHAPTER
6 Enterprises and Industrial Policy: Firm-based

Perspectives 
Simon Roberts
https://doi.org/10.1093/oxfordhb/9780198862420.013.6 Pages 150–177

Published: 10 November 2020
Abstract
This chapter considers the central role of rm strategies in industrial policy. It focuses, in particular,
on large rms which can make investments to realize economies of scale and scope, coordinate
clusters of suppliers, and build capabilities. The main schools of thought addressing the theory of the
rm and the development of productive capabilities are reviewed, especially with reference to the
resource-based theory of the rm. Large rms generally have economic power and considerable
political in uence and, as such, a critical aspect is rms as agents in political settlements and the
implications for industrial development. Substantive sections then cover the following key areas:
market power, competition, and enterprise strategies; the internationalization of production and
global value chains; and recent developments regarding digital platforms and the implications for
industrial policy.
Keywords: industrial policy, firm-based perspectives, market power, competition and enterprise
strategies, digital platforms
Subject: Industry Studies, Economics
Series: Oxford Handbooks
Collection: Oxford Handbooks Online
6.1 Introduction
THIS chapter considers the central role of rm strategies in industrial policy. It focuses, in particular, on
large rms which can make investments to realize economies of scale and scope, coordinate clusters of
suppliers, and build capabilities. The productive resources, organizational capabilities and ability of big
businesses to shape the policy environment in their interests are central to a production-centric
understanding of industrial policy.
The enterprise is at the centre of industrialization and the strategies of large enterprises, in particular, drive
the development of productive capabilities. The theory of the rm is thus an essential part of the conceptual
framework for understanding industrial policy and economic transformation. As emphasized by Ohno
(2013), a dynamic private sector is critical for catch-up and supporting this is perhaps the key industrial
policy challenge facing developing countries. Four di erent dimensions to this may be distinguished (Lall,
1994): technological upgrading within industries; entry into more complex activities; increasing local
content involving local innovations and design; and mastering more complex technological tasks within
industries.

Neoclassical theories of the rm struggle to address these core concerns as their market-centric views
simply posit the rm as a set of arrangements to minimize transaction costs. Firms are located in idealized
perfectly competitive markets with many small rivals, and no economies of scale or substantial market
power. Transaction-costs theories in uence approaches to understanding the role of businesses in
p. 151 industrial development which abstract the rms from the political economy context and the reality of
market power, and support simplistic ‘investor-friendly’ policy frameworks lowering the costs of doing
business.
It is therefore essential to critically evaluate alternative theories of the rm which explain the development
of productive capabilities, and the ways in which businesses exert control and hold power over economic
activity. The market power which rms hold in setting high prices if they have a monopoly position or
collude with their competitors applies to arms-length market exchanges. However, value creation involves
a range of relationships through which activities are organized in production networks and value chains.
The coordination of the activities involves direct and di use power, which can be exerted in direct and
indirect ways (Dallas et al., 2019). For example, international business organizations can shape
sustainability codes through diverse lobbying activities which a ect the competitiveness of industry in
di erent countries and bene t some interests over others (Ponte, 2019).
Business is increasingly transnational in nature as companies coordinate activities spread around the world.
Industrial policies and regulations remain predominantly national. The ongoing digitalization of design,
production, marketing, and logistics comes on top of the advances in information and communication
technologies that have enabled international coordination by lead rms. It portends a further stepwise
change to a hyper-globalized world where companies transcend national borders. At the same time, the
dramatic growth of the Chinese economy and corporations stands as a counter-model, where the state is
intimately involved in the strategic orientation of corporations to ensure consistency with the development
vision (as addressed in Oqubay and Lin, 2019; Oqubay and Ohno, 2019).
I start by reviewing the main schools of thought in the theory of the rm and the development of productive
capabilities. This takes into account the literature on transaction costs and the resource-based theory of the
rm. Large rms naturally have considerable political in uence; a critical aspect is rms as agents in
political settlements and the implications for industrial development. Substantive sections then cover the
following key areas: market power, competition, and enterprise strategies; the internationalization of
production and global value chains; and recent developments regarding the digitalization of production,
digital platforms, and the implications for industrial policy.
6.2 Theory of the Firm and Enterprises in Industrial Development
The theories of the rm in economics can essentially be divided into two main groups. Firms can be
understood either in terms of their organizational capabilities and productive resources or as a set of
coordinating arrangements which replace market exchange.
p. 152 The transaction-costs theory of the rm, based on the seminal article by Coase (1937), posits that the rm
may essentially be viewed as the uni ed governance structure that results from the properties of di erent
transactions. It thus takes exchange as its starting point and de nes rms as sets of non-market
relationships. The primary factors producing transactional di culties include bounded rationality and
imperfect information, opportunism, small-numbers bargaining, and asymmetric information. The costs
associated with transactions increase with uncertainty and asset speci city (Williamson, 1986).
Under the transaction-costs approach the rm is the result of xed, structured, and open-ended relational
contracting which internalizes the transactions, removing or ameliorating the con ict, and exerting the

administrative control required for planning and coordination. The internationalization of production can
be seen as a particular subset of the reasons for the formation of rms, in response to the costs of
organizing cross-border markets (Dunning, 1993). The transnational corporation (TNC) is therefore
essentially viewed as an e cient response to intrinsic market failures.
The rm is, however, treated as a ‘black box’ and ‘[w]hat happens between the purchase of factors of
production and the sale of goods that are produced by these factors is largely ignored’ (Coase, 1992). The
rm is simply a nexus of contracts (Jensen and Meckling, 1976). When transaction costs are de ned to
subsume a broad range of issues with market relationships, it becomes unclear what exactly is being
internalized. For example, we need to understand costs associated with transactions in products due to asset
speci city or embodied technology (leading to intra- rm trade), the development of products through
di erent stages of the product cycle, as well as factors such as managerial capabilities and organizational
techniques.
In fact, what are identi ed as market failures are intrinsic features of the organization of economic activity
—they are not characteristics which, if somehow ‘corrected’, will mean an arms-length market
relationship can exist. At the most basic level, there are economies of scale and scope, and network e ects.
Technological improvements at the rm level also need to be taken into account. These factors have e ects
on industrial development which depend on complementary changes, such as in management approaches,
that need to be understood in a systems framework incorporating inter-industry relationships (Rosenberg,
1979).
Institutional-based theories of the rm su er from being primarily concerned with explaining the types of
contractual arrangements which govern exchange rather than understanding the way in which the
production is organized and capabilities are developed over time. This relates to the factors which explain
how rms are able to recon gure their productive assets and processes (their dynamic capabilities) to
produce new and better products and services (Teece, 2009; Teece and Pisano, 1998; Pisano, 2017). The
institutional approach also ignores the power and political in uence of large rms (Zingales, 2017). The
literature on the resource-based theory of the rm, including critiques and extensions, has sought to
address these issues head on.
p. 153 6.2.1 Resource-based Theory of the Firm

The resource-based theory of the rm builds on the essential contribution of Edith Penrose (1959) who
focused on rms’ productive resources, organizational routines, capabilities, and competencies. There is a
dynamic learning process through the interaction of technology capabilities and market opportunities that
is at the heart of the principles of production and business organization.
Penrose argued that experience builds the knowledge of productive opportunities on the part of rms and
that ‘productive services’ (that is, capabilities) open up new productive opportunities. Firms shape markets
through decisions which alter the parameters (technological, product, and organizational) of the market.
The productive capabilities of the rms are heterogeneous and evolve depending on how they are used. This
means that productive opportunities are unique for each rm and are shaped in dynamic processes
(Penrose, 1959). Firms are competitive in so far as they are able to establish technological or market ‘bases’
(a distinctive technological capability). There can be innovation-driven increasing returns to scale in
industry, which were identi ed by Babbage in the nineteenth century in his book originally published in
1832 (Babbage, 2005), and are still highly relevant to considering the implications of the digitalization of
production in the twenty- rst.
In a similar vein, Chandler (1990) views the ‘modern business rm’ as a collection of ‘dynamic
organizational capabilities’ which are the source of the rm’s competitiveness (see also Dosi, 1997). In this

framework, the rm is an organization whose development depends primarily on its ability to continuously
innovate and develop new products and ways of working. These capabilities are based on a rm’s internal
organization and the extent to which the collective experiences from production are developed, shared, and
learnt from. Cooperation and collaboration are therefore the basis for competition which is viewed not as
aiming to be the lowest-cost producer, but as the ability to advance and produce better products, more
quickly, than other groups of rms. These factors together describe di erences in rms’ competitiveness,
as well as the evolution of ‘business-enterprise systems’ (Fujimoto, 1998).
The resource-based theory of the rm, however, insu ciently recognizes the extent to which rms may
represent a locus of control and use this control to condition the environments within which they operate to
extract rents. Large pro ts may be the reward for investment and innovation to generate or maintain
competitiveness; however, they may also be due to the erection of barriers to entrants and strategies to
entrench a position of market power over potentially more innovative rivals. These considerations point to
the importance of understanding rms as part of the wider political economy, and to why large business
groupings in some countries have built productive capabilities while in others they have simply extracted
rents (as elucidated in di erent country/region chapters in this book). ‘Bringing production back-in’
(Amsden, 1997) requires locating a resource-based theory of the rm in relation to the wider society.
p. 154 The resource-based theory of the rm has been extended through a growing literature on rms understood
in terms of their dynamic organizational capabilities (Chandler, 1990; Chandler et al., 1997; Dosi et al., 1998;
Teece et al., 1997; Pisano, 2017). This includes learning, innovation, skills, and organizational resources,
and the construction of competitive assets (Amsden, 2001; Lazonick, 2010; Khan, 2009, 2019). Firms have
been located within the evolution of business-enterprise systems and the institutional context (Dosi, 1997;
Chandler et al., 1997; Best, 2018).
Chandler drew on detailed analysis in business history to explain the rise in large industrial corporations in
the United States, contrasted with the United Kingdom and Germany, setting out the dynamics of industrial
capitalism (Chandler, 1990). This emphasized the central role of large industrial rms in the creation of
wealth, and the organizational capabilities of the enterprise as a whole. The rms could make investments
large enough to reap economies of scale. Firms are the bases for technological development and managerial
skills. Large rms establish and coordinate a nexus of related small and medium-sized rms to ensure the
ows of materials and information necessary to maintain production and distribution.
The organizational capabilities were the collective physical facilities and human skills as they were
organized within the enterprise and their careful coordination and integration to achieve the economies of
scale and scope needed to compete locally and internationally. These organizational capabilities have to be
created and maintained (Chandler, 1990; Lazonick, 2010; Teece, 2010).
Changes in technology, learning and skills development, and capital are constitutive of the evolution of the
rm itself. These are all associated with a reconceptualization of the business entity around its
organizational capabilities which determines a rm’s scale (de ned as ‘throughput’) and scope, being the
production of related goods. This focus on the organizational aspects may be distinguished from the
approach in much of the new institutional economics which views institutions as a collection of
relationships that can be characterized by explicit or implicit contracts replacing market exchange
(Amsden, 1997; Khan, 2019).
The orientation of large rms is central to the nature of capitalism in di erent countries. Hikino and
Chandler (1997) contrast the US model, termed ‘competitive capitalism’ to re ect the highly developed
managerial nature of rms and the vigorous competition between them, with the experience of Germany
which is termed ‘cooperative capitalism’. In Germany it is argued that rms developed a management
hierarchy capable of exploiting the opportunities of economies of scale from investing in heavy industries

such as iron and steel, but cooperated closely together.
The resource-based theory of the rm focuses on the ability to strategically deploy its resources, on which
there is now a vast business-school literature following Porter (1990). However, the business-school
adoption of the resource-based theory diverted attention from the importance of taking into account
innovation and learning (Lazonick, 2010; Pisano, 2017) and the wider political economy instead of a narrow
and functional focus on organizational structure (Dosi, 1997). Comparative country studies (such as in
p. 155 Chandler et al., 1997, 1998) highlight the importance of understanding di erent groupings within big
business, particularly nance, as well as the complex relationships of business with the state, as addressed
in other chapters in this Handbook. It is important to emphasize the diversity of outcomes, the inherent
uncertainty, and that e ects such as cumulative causation and path dependency need to be understood at
the levels of production systems, institutional frameworks, and wider society, beyond individual rms.
Teece and Pisano (1998) draw on the de nition of the rm in terms of capabilities and competencies to
identify a rm’s ‘strategic dimensions’. These dimensions are identi ed as: a rm’s managerial and
organizational processes (including patterns of practice and learning); its present position (including its
technological and intellectual property, customer base, and relations with suppliers); and the paths
available to it (the strategic alternatives and opportunities available to the rm). Strategy and organization
are crucial to the choices rms make in identifying and selecting capabilities for future competitive
advantage, including general-purpose capabilities enabling functional integration across specialist
domains, and market-speci c ones (Pisano, 2017).
The uncertainty inherent in innovation means that nance plays a particularly important role in how some
enterprises mobilize and deploy productive resources for the development of new products and services, as
identi ed by Lazonick (2010) in the theory of the innovative enterprise. This uncertainty includes:
technological uncertainty relating to whether the rm will be able to develop the products and processes it
envisages; market uncertainty in terms of the returns which will be made from the improved goods and
services due to customer attraction; and competitive uncertainty, as rivals are engaged in similar strategies
and may be more successful. The nancial commitment is the set of relations that ensures allocation of
funds to sustain cumulative innovation processes, in what has been termed ‘patient capital’. This is mainly
about the availability of long-term development nance and the ability of the rms to retain and deploy
earnings.
The theory of an innovative enterprise must itself be embedded in a model of relations among industrial
sectors, business enterprises, and economic institutions. In addition to the conditions for nancial
commitment (as opposed to nancialization, discussed in other chapters in this volume), Lazonick
identi es two other social conditions which are essential for the innovative enterprise to thrive. First,
strategic control is the set of relations that gives decision makers the power to allocate the rm’s resources
to confront the technological, market, and competitive uncertainties inherent in the innovation process.
Second, organizational integration is the extent to which there are the incentives for people to apply skills
and e orts to the learning required at the heart of the innovation process (see also Khan, 2019). There is an
important interdependence of the organizational capabilities with formal knowledge and skills (Khan,
2019).
While this conception of the rm grapples with issues of coordination and control, the performance of rms
is based on the extent to which they are e ective in terms of arrangements, given the competitive
challenges of the time and industry in question. Drawing on resource-based theories, Best (1990) identi es
p. 156 the ‘new competition’ as being where performance rests on the ‘resources and experience of the parent
concern, including not only managerial and technical personnel but also the inde nable advantage in its
internal operations which an e cient going concern usually has over a new one’. Firms also choose to

collaborate (as well as to make or buy), and networked groupings will outcompete competing groups of
rms (Richardson, 1972). This is because competition between rms does not support the emergence of
specialized rms with networked complementarities as part of clusters.
The extensions of the resource-based theory of the rm require enterprises to be located in production
ecosystems if we are to take account of the social context and linkages which underpin dynamic capabilities
(Andreoni, 2018). A successful industrial policy requires the articulation of public policy with the detailed
mechanics of change that occur within businesses in a production-centric (rather than market-centric)
framework (Best, 2018). Such a framework can be captured in a ‘capability triad’: business models;
production capabilities, innovation, and skills; and clusters, networks, ecosystems, and learning. This triad
underpins the creation of dynamic increasing returns and the innovation dynamics that underlie
productivity growth.
Industrial policies to alter a country’s development path need to realize external economies from stronger
linkages, collective learning, and governance (Helmsing, 2001; Kaplinsky, 2000). Processes of learning and
technical change involve the rm and the wider institutions of industrial policy (Lall and Teubal, 1998;
Khan, 2019).
A proactive industrial policy requires private dynamism and improving policy capability to ensure dynamic
capacity development (Ohno, 2013). State policies reward value creation and innovation, while disciplining
unproductive rent seeking. The focus in rms and industry clusters on knowledge, skills, and technologies
needs to be mirrored by policy practitioners in government keeping up with industry developments and
building e ective engagement with industry.
I identify three key areas for further in-depth assessment. First, the interaction of enterprises’ market
power with the requirements of innovation and dynamic increasing returns is a key issue for understanding
enterprises and industrial policy. Second, the evolving internationalization of production has fundamental
implications for countries’ industrial development and policies. Third, digitalization is rapidly changing the
organization and coordination of economic activity, including across borders. These are now addressed in
turn. Other key issues, such as patterns of nancialization, are equally important and are addressed by other
contributions to this volume.
6.3 Market Power, Competition, and Enterprise Strategies
The signi cance of dynamic increasing returns to scale means that there will normally be only a few rms
p. 157 in key industries and that concentration is an inevitable feature of industrial development. For example,
large and internationalized rms have had a crucial role in developing key industries such as consumer
electronics, automobiles, shipbuilding, steel, and basic chemicals around the world. Indeed, cross-industry
regressions nd scale economies is a strong explanatory factor for concentration (Sutton, 2007, 2012). And
smaller domestic markets relative to the minimum e cient scale of production in an industry means, other
things being equal, that concentration will be higher in many developing countries.
The importance of the large rms means they have considerable power over their suppliers and customers,
as well as being important political actors. This has been emphasized in seminal work on the lead East Asian
industrializers, where state support was contingent on performance expectations which could be enforced
through disciplining mechanisms to ensure that the outcomes were in line with performance expectations
(Amsden, 1989; Chang, 1996; Wade, 1990; Sakakibara and Porter, 2001). Competition in export markets was
a key lever for discipline at the rm level and a way of measuring rms against each other even while
o ering protection in the domestic market (Rodrik, 1995; Singh, 2004). It also ensured that rms were
forced to adopt and adapt more advanced technologies, production, and marketing methods, as they were
being pitched against the international industry leaders in export markets.

More generally, competitive rivalry between big business groups is a very important disciplining and
motivating factor to ensure that state support does not lead to collusion and rent extraction. The nature of
the rivalry is also an important element of Chandler’s characterizations of di erent capitalisms, although
quite di erent from the neoclassical microeconomic elevation of competitive markets on the grounds of
static allocative e ciency. Instead, it is part of the interaction of public policies and enterprise strategies to
incentivize and support innovative capabilities.
There is no ideal of maximum or perfect competition; rather, we can consider what is meant by an ‘optimal
competition’ in terms of performance (Amsden and Singh, 1994; Singh, 2002). Management of the
economic power of key companies requires reciprocal conditionalities (Amsden, 1989, 2001). Rents are
essential for inducing the e ort and investment required on the part of rms to develop innovative
capabilities. Once again, a neoclassical framing of markets which views market power as an aberration to be
corrected is unable to take into account the real world of pervasive market power to di ering degrees and, in
particular, of those large rms required to undertake organization and technological learning.
Competition and competitiveness are therefore a result of a successful industrial policy which involves the
creation of productive rents, and discipline regarding their access. This can be equated with ‘performance
competition’ where e ort and innovation are rewarded rather than ‘handicap competition’ where rms
seek to undermine their rivals (Gerber, 2010).
There has been an increasing focus since the 2014 publication of Piketty’s Capital in the Twenty- rst Century
on the implications of concentration of ownership and control for economic development and for inequality.
It is argued that the returns from the exertion of market power go disproportionately to the wealthy and, on
p. 158 balance, market power discourages innovation and reduces productivity, as observed in the United States
(Baker and Salop, 2015; Ennis et al., 2019; De Loecker and Eeckhout, 2017). Stronger competition law is
sometimes recommended as the answer (see Stiglitz, 2017; Atkinson, 2015).
There is little doubt that there has been a growing global concentration in the hands of transnational
corporations. The largest TNCs have bigger revenues than many governments around the world. In 2015,
sixty-nine of the largest 100 corporate and government entities ranked by revenue were calculated to be
1
corporations (Zingales, 2017). This is not necessarily unprecedented. Under colonialism companies such as
the British East India Company controlled the economies of countries with monopoly rights over trade in
some commodities that lasted more than two centuries. Lobbying to maintain these rights turned rms
away from improving productivity in a ‘Medici vicious circle’ where money is used to get power and power
is used to make more money (Zingales, 2017). Control over global pro ts in major industries is in itself one
drive for global concentration (Hymer, 1976).
Network e ects and the rise of digital platforms are one reason given for the increasing concentration in
recent years. I discuss the implications of the digitalization of industry in section 6.5.
There are three main questions. First, under what terms will the concentration be accompanied by improved
productivity rather than simply rent extraction? Second, how is the economic power of companies
understood? Third, what is the nature of the political settlement with business which underpins learning
and the development of dynamic capabilities?
6.3.1 Competition and Productivity

While the promise of high monopolistic pro ts can spur innovation (in a Schumpeterian world), entrenched
dominant rms have weaker incentives to invest, innovate, and improve productivity than if they are
challenged by rivals (Schumpeter, 1942; Mathis and Sand-Zantman, 2014; Arrow, 1962; Bloom et al., 2019).
Firms with substantial market power can earn returns from exertion of this power and protect their position

by excluding rivals. As retained earnings are important for rms’ ability to make investments, smaller rms
are typically more constrained in terms of the liquidity they can use to invest (Audretsch and Elston, 2002;
Goergen and Renneboog, 2001). High entry barriers to rivals can weaken economy-wide investment, and
can prevent new business models emerging and products being introduced (Shapiro, 2012; Cohen and Levin,
1989; Federico et al., 2019).
Measuring and analysing productivity is complex precisely because of the di erent mechanisms at the rm
p. 159 and industry level that in uence it. Management practices are one critical determinant. A major US study
found substantial variations between di erent plants in the same rm, with four key factors explaining
plant-level productivity: product competition; learning spillovers; education; and local business
environment (Bloom et al., 2017). Policies required to support innovation by industries and address the
weakening productivity performance in industrialized countries include support for R&D along with skills in
science, technology, engineering, and mathematics, and measures to increase competitive rivalry (Bloom et
al., 2019).
The issue comes back to ensuring the right kind of rivalry (the ‘optimal competition’ of Amsden and Singh,
1994; Singh, 2004), which can spur large rms to continue to innovate and invest, rather than competition
for its own sake (Van Reenen, 2018). A country does not arrive at such markets by magic. Indeed, it seems
obvious that market power, imperfect competition, and market failures which can reinforce positions of
market power are intrinsic features of economic life, and competition policy is a necessary complement to
industrial policy (Roberts, 2013). We therefore need to understand how the process of evolving competitive
rivalry is related to the nature of economic opportunity and outcomes. This has been an explicit but largely
ignored aspect of competition regulation in South Korea, where the Korea Fair Trade Commission (KFTC)
has monitored the conduct of chaebols, for example in subcontracting relationships to protect against
exploitation of smaller rms (Hur, 2004; KFTC, 2011). Typically, in the short run such subcontracting
arrangements would lower prices and hence not harm consumers. In the longer term, however, unfair
subcontracting arrangements by large rms militate against the development of a dynamic base of small
and medium rms able to invest in their own independent production capabilities.
6.3.2 Economic Power of Companies

The power of companies to shape markets and in uence policies over time is more important than the
market power to charge high prices in any given period. A simplistic focus on market power measured in
static terms as prices which are marked up over marginal cost is therefore as naïve and unhelpful as
modelling the rm as a black-box internalization of transaction costs and even risks distracting attention
from the more fundamental issues. The features of an industry, such as information asymmetries, scale
economies and network e ects, can provide scope for strategic behaviour on the part of dominant rms to
lock in advantages through a range of di erent strategies (Rey and Tirole, 2006; Whinston, 2006; Vickers,
2005).
Persistant dominance can suggest that it is not e ort and creativity which are being rewarded but rather
that the legacy position of large rms continues to earn them rewards. As Geroski and Jacquemin (1984: 22)
caution, ‘when, however, small asymmetries can be solidi ed into dominant positions that persist, the
p. 160 inequities they create become institutionalized, creating long-term problems in the performance of the
economic system which cry out for policy attention’. In the context of small domestic markets, this is
consistent with the signi cance of economies of scale, dynamic e ects related to technology, and the
importance of production linkages in processes of industrialization (Gal, 2009; Hur, 2004).
The likelihood of entrenched dominant rms with extensive economic power depends on the country’s

conditions and history which are re ected in di erent approaches to competition and industrial policy. For
example, analyses have highlighted the importance of competitive discipline in the industrial development
of East Asian countries such as Japan and South Korea (Amsden and Singh, 1994; Sakakibara and Porter,
2001). The objectives of South Korea’s KFTC have included promoting ‘balanced development’ in
recognition that the early stages of rapid industrialization were viewed as ‘unbalanced’, requiring an active
competition policy addressing dominant rms in that country (Fox, 2003; KFTC, 2011).
Firms’ power exerted within markets extends to shaping vertical and horizontal relationships with other
rms. This is incorporated in the coercive, dyadic power between rms, or between the state and rms,
de ned as ‘bargaining power’ by Dallas et al. (2019). Firms with substantial market power as buyers, for
example, large supermarket groups, can undermine the ability and incentives of suppliers to reinvest and
improve productive capabilities (Inderst and Mazzarotto, 2008; Inderst and Valletti, 2011). Through vertical
arrangements lead rms are able to govern activities along value chains (Strange and Humphrey, 2019).
In uence can also be more subtle at the horizontal level, as illustrated by ndings on common ownership.
Even relatively small common ownership stakes by private equity groups such as BlackRock and Vanguard
in rms across economies have apparently in uenced rm strategies to undermine investment and rivalry
(Azar et al., 2016, 2018; Newham et al., 2018; Seldeslachts et al., 2017). In industries such as airlines and
pharmaceuticals there have been ndings that common shareholdings reduce head-to-head competition as
it supports the alignment of incentives.
Large rms exert power to shape markets in broader ways through collective groups such as business
associations which lobby in direct ways, such as for a particular policy platform or regulation that favours
some interests over others (Vilakazi and Roberts, 2019). Power is also exercised in more di use ways, such
as by in uencing accepted standards and best practices (Dallas et al., 2019; Ponte and Sturgeon, 2014). For
example, the provisions adopted in competition legislation on abuse of dominance, or the nature of support
for public research in industry, re ect a conceptual framework about markets and the role of the state in the
economy. This is in turn an outcome of in uence and ideas which are promoted within and through political
parties, the media, and academia.
This can be understood as part of the political settlement where elites exercise power through ‘informal
institutions’, setting the agenda (Khan, 2010). The nature of the political settlement determines whether
longer-term capabilities formation is rewarded, or coalitions of interests are made to enforce short-term
rent extraction.
p. 161 6.3.3 Economic Power, Rents, and Political Settlement
The orientation of large enterprises is thus intimately related to the balance of power between di erent
interests in a country and the regulatory arrangements that are part of the wider political settlement (Khan,
2015). A settlement is de ned as a combination of mutually compatible power relations and institutions that
is sustainable in terms of economic and political viability (Khan, 2010). A given settlement depends on the
coalitions of interests within countries and, for industrial development, whether this coalition supports the
design and implementation of policies with incentives and conditions on rms to ensure high levels of
e ort in learning and technological upgrading, while disciplining the earning of rents from protection and

subsidies (Khan, 2015).
The political settlements framework emerged as a criticism of institutional economics and the position that
competition with liberalized markets and independent institutions is the primary requirement for economic
development. The grounds for this are that competition will erode rents which, along with liberalized
markets, will move us to what North et al. (2009) term ‘open access orders’. However, this supposes
competition simply arises in the absence of obstacles and it fails to recognize the need to address
entrenched inequality and economic power (Makhaya and Roberts, 2013, 2014). And it does not properly
explain what the underlying power arrangements and con guration of interests are that support a given
institutional con guration (Khan, 2010).
In addition, the institutional economics of North et al. (2009) fails to recognize the important role that
industrial policies and tari s have played in countries’ industrialization—in other words, productive rents
are required to induce investments in capabilities. We need to understand what coalitions of interests are
required to sustain a policy framework for industrial development.
Powerful elites organize through ‘informal institutions’, especially during development transitions, to
sustain economic bene ts for groups who would otherwise have lost out (Khan, 2010). They are thus the
mechanisms through which social and political stability is maintained, helping to generate distributions of
economic bene ts that are more in line with existing distributions of power. In doing so they also sustain
these distributions of power. The framework identi es four sources of ‘holding power’, which refers to the
capacity to engage and survive con icts—in other words, the ability to in ict costs and absorb costs
in icted by opposing groups. In addition to violence rights to exert control over populations, the sources of
holding power include economic structure, ideology, and rents.
The economic structure re ects a country’s economic history. This includes the construction of markets and
the main participants, including the large incumbent businesses. The economic power of these companies,
and how this in uences the evolution of the political settlement, is central to whether the industrial policy
will support the growth of diversi ed manufacturing sectors with higher levels of productivity (Khan and
p. 162 Blankenburg, 2009; Khan, 2017; Andreoni and Chang, 2019; Andreoni, 2016). The political settlement
framework therefore allows us to assess how incumbent rms or groups of rms are able to lobby and enter
into arrangements with political actors to shape regulation and the economic environment to ensure future
rents. The evolving coalition of powerful interests e ectively sets the rules of the game. Whether a country
adopts a competition law appropriate for the country’s historical context, for example, with regard to the
provisions on abuse of a dominant position, is part of this picture (Budzinski and Beigi, 2015; Roberts, 2012).
6.4 Dimensions of the Internationalization of Production
The increased transnationalization of economic activity over the last fty years has been driven by large
international corporations. While big businesses were central to colonialism and earlier waves of
globalization (Bairoch and Kozul-Wright, 1996), the internationalization of production which now exists is
much more multi-dimensional, encompassing governance of trade, technology, value creation, brands,
data, and the related rents. It is associated with the ability to coordinate productive resources through a
multiplicity of governance arrangements beyond vertical integration of corporations. These blur the
boundary of the rm, although not as a ‘nexus of contracts’ but as a ‘locus of control’.

The exponential expansion in global trade (notwithstanding recent stalling) has far outpaced GDP growth.
Information and communication technologies have enabled the global dispersion of economic activity while
being centrally governed by ‘lead rms’, as described in the literature on global value chains (GVCs) and
global production networks (Bair, 2009; Gere et al., 2005; Ponte and Sturgeon, 2014; Coe and Yeung,
2015). This has included rapid growth in trade in services, including under digitalization of processes within
rms and along value chains (Baldwin, 2016).
Large internationalized rms are pursuing low costs combined with exibility and speed (Coe and Yeung,
2015). The digitalization of economic activity has further been associated with a shift in the proportions of
value added—with a higher share going to pre- and post-production activities than to production activities
(Baldwin, 2016; Rehnberg and Ponte, 2017). There have been major advances in technology in the elds of
bio-tech, design, advanced manufacturing, and arti cial intelligence, as well as the rise of digital platforms
in e-commerce, online search, and social networking which merits a separate discussion in section 6.5.2.
The term ‘transnational’ is more appropriate for large internationalized corporations rather than
‘multinational’, as the corporate organization of economy activity transcends nation states. Pro ts are
attributed to subsidiaries and associated companies according to the favourable tax treatment by di erent
jurisdictions, while research activities, ownership of intellectual property, manufacture, marketing,
p. 163 branding, and head o ce functions may all be spread around the globe. Meanwhile regulation of TNCs
and industrial policies remains predominantly national in scope, or at best regional in the case of the EU.
There are notable exceptions to the transnational (as opposed to multinational) organization of production,
in particular in the internationalization of Chinese corporations where the state plays a pivotal role (see
Oqubay and Lin, 2019).
The growing importance of intermediate goods in international trade, with prices being administratively
determined as transfer prices within rms or agreed between related parties, re ects the importance of
GVCs. Chapter 18 elsewhere in this book (Chapter 18, this volume) assess the importance of GVCs, including
the implications for industrial policy to upgrade rms’ capabilities, create employment and support more
inclusive growth. The emerging evidence is, however, that the organization of production in GVCs has
further polarized income and wealth distribution in both developed and developing countries (UNCTAD,
2018). The reasons given for this include the nature of technological change (Rodrik, 2018; Ford, 2015) and
the concentrated market structure and dominance of trade by large transnational corporations (UNCTAD,
2018).
The implications of TNCs for industrial development and the design and implementation of industrial policy
has been recognized for some time. For example, over twenty- ve years ago Lall (1993) identi ed ve areas
for future research with regard to TNCs: entrepreneurship and innovation; technological change; the
conditions required to stimulate TNC activity as part of paths of dynamic comparative advantage; the
di erent characteristics of TNCs from di erent countries and the evolution of less developed-country
TNCs; and the relationship between FDI in services (such as communications and marketing) and economic
development. These all remain extremely relevant today, with a particular extension to the implications of
the international digitalization of economic activity, addressed in section 6.5.
The international spread of businesses has been described in terms of ownership, location and
internalization (OLI) factors in Dunning’s eclectic framework (Dunning, 1992; Cantwell, 1994). This asks
relevant questions related to the intra- rm location and organization of activities across countries.
However, it is rooted in the transaction-costs theory of the rm (which drives internalization decisions,
according to the framework), albeit combined with other factors such as technological advantages and
agglomeration economies. In particular, it lacks a proper political economy understanding of large business

and an assessment of the organization of production. The omission hides an apparent leaning of many
writers within the paradigm towards seeing the rm as essentially an e cient response to conditions rather
than a means to coordinate production and secure pro ts. This ts with a business-oriented policy agenda
for the de-politicization of economic policy and promotion of a technocratic approach, which is not
consistent with the observed reality, nor with businesses’ own behaviour (Vilakazi and Roberts, 2019;
Hymer, 1976).
Understanding the internationalization of production requires a framework which explains the evolving
p. 164 organization of production, drawing on resource-based theories of the rm in terms of rms’ productive
resources, organizational capabilities, and competencies. The international competitiveness of business is
determined to a signi cant extent by the position and power of the rm both with regard to competitors and
within the production chain, which in turn depends on a range of non-/semi-market relationships, on
dimensions of internationalization other than trade and ownership, and on the position of groupings of
business in the domestic economy.
The literature on GVCs analyses inter- rm linkages and vertical relations regarding design, production, and
marketing of products as layers of value addition (Gere and Fernandez-Stark, 2011). These linked
activities span di erent enterprises often located in both developed and developing countries. The
geographic fragmentation of activities means that developing countries can attract some activities in a
value chain. However, for this to be part of sustained productive capability building depends on local
industrial clusters of producers of intermediate goods and services (Lee et al., 2018). The opening up of
opportunities for process and product upgrading in developing countries depends on the overall governance
and control of the value chain, and the ways in which industrial policies alter the governance of the chain by
key rms (Ponte and Sturgeon, 2014).
Lead rms coordinate activities to ensure the competitiveness of the end product and are able to exploit
often extremely asymmetrical power relations between rms within value chains to control how, where,
and by whom value is created and captured (Gere and Fernandez-Stark, 2011). The in uence of the lead
rm depends on the nature of the sector and the basis of competitiveness. Value chains such as automobiles
have been identi ed as producer driven due to the importance of technology and design (Gere and
Fernandez-Stark, 2011). In buyer-driven chains, such as clothing, the owners of the brands hold the power.
The relationships range from arms-length market exchange, such as to drive down costs through
outsourcing, through close relational governance such as for coordinating product-speci c design, to fully
internalized linkages (Gere et al., 2005; Bair, 2009; Gere , 2014).
The digitalization of production networks and value chains enables greater coordination of activities across
borders and shifts power to the rms who collate and analyse the data. The nature of governance over
internationalized production is changing, with new strategic industries and sectors which are the locus of
control over data and underpin dynamic capabilities (Petricevic and Teece, 2019).
6.5 Digitalization of Production, Enterprises, and Industrial Policy
A rapid digitalization of production is taking place associated with key technologies at di erent stages of
maturity, including advanced robotics and factory automation, data from mobile and ubiquitous Internet
p. 165 connectivity, cloud computing, big-data analytics, machine learning, and arti cial intelligence. This is
associated with the development of new ‘platform’ business models and modes of value creation (UNCTAD,
2018; Sturgeon, 2017). The technologies and business models emerging in the digital economy have already
2
disrupted traditional industries and created entirely new ones.

6.5.1 Digitalization of Production
Advanced manufacturing and automation can be understood as fully integrated, collaborative
manufacturing systems that respond in real time to changing demands and conditions in the factory and the
supply network. Though this typically relates to ‘smart factories’, it is equally applicable in agriculture,
commonly referred to as ‘precision farming’, or even mining or construction. Advanced manufacturing is
made possible by a combination of technologies including robotics, sensors, machine learning, and the
Internet of things (IoT). Industrial robots linked to advanced manufacturing are automatically controlled
and operate on their own. They are multipurpose (reprogrammable) and capable of doing di erent kinds of
tasks rather than simply repeating the same tasks.
The technological changes have profound implications for the coordination of economic activity by rms
and the division of returns (UNCTAD, 2018). Digital tools can improve design, prototyping and
customization processes, reducing scale economies, and opening opportunities for businesses in developing
countries; however, advanced economies have tended to retain control of higher value-added activities.
While, in principle, digital platforms can lower costs for smaller businesses to market their products and
services, most digital platforms are characterized by high levels of concentration. Many of the technological
changes are also skills biased and may undermine the ability of developing countries to compete in
traditionally labour-intensive industries that have supported their industrialization (Rodrik, 2018).
Transnational corporations in the form of digital platforms are shaping global economic activity and pose
new challenges for industrial policy around the world. In addition, there are substantial emerging
regulatory challenges associated with the ownership and control of the data that provide major platforms
with their power and associated commercial value (UNCTAD, 2018; Polson and Scott, 2018; McAfee and
Brynjolfsson, 2017).
The nature of the changes can be incremental as well as disruptive. Incremental changes include improving
supply chain integration across rms through digital tracking of product ow and quality at every stage,
p. 166 which can be combined with machine learning to improve processes and respond to changes in the
environment. Disruptive changes mean fundamentally altering the way products and services are created
and delivered, for example, through 3D printing of products on demand.
Digitalization also enables a dynamic cycle of continuously improved e ciency that is increasingly being
driven by the rapid advance of machine learning (arti cial intelligence). Maintaining competitiveness
means adopting the incremental changes to build the capabilities of clusters of rms and, as such, engaging
with the international technology leaders.
The generation of ‘big data’ is a characteristic feature of digitalization. Data can be collected through
sensors in production, from users of the product or service, and from the online search and purchasing
activities of buyers. It is possible for rms to track performance across multiple production sites and
distribution channels and to provide new services such as real-time monitoring of product use and/or
performance using big-data analytics, and increasingly, arti cial intelligence (Sturgeon, 2017). This is often
referred to as the industrial Internet of things. It heightens the potential for centralized control across
dispersed production sites and along logistics chains, enabling a further transnationalization of production.
6.5.2 Digital Platforms

The more members or users on a platform, the more data is collated and the greater its value to other users
in respect of data aggregation and analysis. There are strong economies of scale and scope and the positive
network externality e ects within and across di erent user groups of the platforms imply they are likely to

tip to the ‘winner-takes-all’ quasi-monopoly (see Furman et al., 2019; Cremer et al., 2019; Committee for
Study of Digital Platforms, 2019). There are major barriers to smaller competitors attempting to enter the
market and the dominant platforms can exert substantial market power, requiring a rethink of the
appropriate regulatory and policy framework.
Data itself is an asset and the ownership and control of data is an important determinant of power relations
in value chains and over markets. The data are collected partly in order to provide the service in question
and partly as a by-product of the service. Moreover, the combination of data from di erent sources enables
additional value to be o ered. This underpins the substantial network e ects where the aggregator of data
is able to o er better services by virtue of having more users across the di erent ‘sides’ of their platforms
(for example, suppliers of goods and consumers). First movers are therefore able to lock in their advantages.
The routes to customers are increasingly through one of a very few ‘technology giants’, whether in online
search, social networks, or e-commerce. These online platforms bring together consumer data and analysis,
logistics, and payments. Firms such as Amazon and Alibaba have immense scale, strong brand identity,
p. 167 supplier networks, and data capabilities. Multi-sided online platforms are able to aggregate and analyse
data from groups of users.
The technology giants have been able to grow so fast partly because they have been allowed to acquire small
and innovative companies without much consideration given to the possible harmful long-run e ects on
competition. Between 2008 and 2018 Google acquired 168 companies, Facebook acquired seventy-one
companies and Amazon acquired sixty companies (LEAR, 2019). The reviews carried out in 2018 and 2019
for various governments and competition authorities, including those in the EU, Australia, and the United
Kingdom, nd that merger evaluation needs to recognize the competitive value of data, the harm to
3
potential competition, and the possible conglomerate e ects of such mergers. In other words, the
assessment needs to extend beyond static analysis of whether there will be a lessening of competition from
the merger due to rms being in horizontal or vertical relationships.
The convergence of platforms which operate in and across payments systems, retailing, logistics, customer
information and marketing, and telecoms requires regulation through a exible and responsive regime. In
addition, an enabling environment for the digitalization of business, including more reliable and cheaper
connectivity and an urgent upgrading of the skills pool in big-data analytics, is urgently required to open up
markets to local entrepreneurs.
The evolving nature of economic power that arises from the digitalization of economic activity and the
importance of digital platforms has huge implications for industrial development and industrial policy. The
governance of value chains and production networks, as well as the very determination of what constitutes
the value (including for tax purposes) is controlled by the aggregator of the core data in the form of the
online platforms. The growth and competitiveness of local businesses depends on the terms on which they
can insert themselves into, and/or interface with, the dominant international platforms.
Europe has led competition enforcement of digital platforms with three decisions against Google as of
September 2019. These cases highlight the mechanisms by which power is exerted to shape markets. The
European Commission’s Google Shopping case addressed the ability to preference partners in search
4
results, restricting consumer choices, and raising prices paid by consumers. Similar concerns relating to
p. 168 consumers’ online searching behaviour have been identi ed in UK competition and consumer protection
5
matters related to digital comparison tools and online hotel booking. India has taken a decision regarding
Google preferencing searches for ights.
The EC’s Google Android case related to Google extending and protecting market power with regard to

restrictive terms applied to the Google Playstore for apps on mobile phones, as well as to the development of
6
alternative Android operating systems. The Google Adsense case relates to Google extending power over
7
advertising space on third-party websites. These cases emphasize the evolving ways in which routes to
market now depend increasingly on the online reach to consumers including online advertising.
The competition policy recommendations that have been made in the various reviews include changing the
standards in merger control to consider a ‘balance of harms’ test, and designating companies as having
‘strategic market status’ with greater obligations not to distort competition. To ensure that there is
consistency of regulation and competition enforcement some reviews have proposed establishing a
regulatory ‘data unit’ with powers to obtain information, and timeously make and enforce orders. This
recognizes the central role that control over, and access to, data has for economic participation.
6.5.3 Industrial Policy Implications

The rise of digital platform businesses as the largest global corporations, and the importance of data for the
competitiveness of rms of all sizes, poses fundamental challenges for industrial policy. The major
technological changes in the ‘new digital economy’ require business models that can integrate, coordinate,
and control value creation across businesses.
Industrial policy and economic regulation similarly need to be consistent and support public organizations
that set the standards required to support the interconnection and integration of components and
subsystems into larger systems. Three business models have been identi ed as key to these goals (Sturgeon,
2017):
• Modularity describes a business model based on interchangeability, where sub-components can be

added or subtracted without redesigning entire systems. On the factory oor, di erent sub-assemblies
with shared interfaces can be substituted in the assembly of larger products. In product design, o -
the-shelf or lightly customized modular components can be designed in as elements of larger systems.
p. 169 In supply chains, standards and protocols allow for complex information about products,
8
production, and logistics to be exchanged across organizational and geographic boundaries.
• Open innovation refers to the pre-competitive pooling of R&D activities and design criteria, either
through consortia, or through the voluntary ‘crowdsourcing’ e orts of engineers and technologists
interested in creating free resources for their communities. For example, nearly all the world’s major
computer programming languages, such as Python, are open source and free. Like modularity, open
innovation helps companies ‘vertically specialize’, that is, develop a strategic focus on a speci c
bundle of competencies, while still providing customers with a rich set of fully functional products and
solutions.
• Platforms provide services for networks of users, bringing together those using the platform to sell
goods and services with consumers looking to purchase, e ectively shaping and creating the markets
themselves. The platform owners bene t from aggregating user data (including from key components
such as geo-location and mapping) and charging for advertising, and can vertically integrate into the
suppliers of the goods and services. The platforms can then channel consumers to the platform’s
preferred services.
Digitalization means that a coordinated industrial policy which prioritizes key sectors and cross-cutting
activities is even more important. The spillover e ects mean that industry-speci c and cross-cutting
technology and skills support are both critical. This includes the key enablers of skills in software
engineering, data science, and related ICT skills, along with intermediate industries such as electronic
control systems, logistics, design, and additive manufacturing. Development nance for investments in

productive capabilities, upgrading of capital equipment, and supply-chain integration remains essential.
The signi cance of digital platforms which straddle communication, media, publishing, search, e-
commerce, nance, and payments requires a rethink of competition and regulation to establish rules for
platforms to ensure local businesses are not discriminated against. Legal provisions asserting ownership of
data on behalf of citizens are a necessary step at the national level, while countries such as Rwanda and
India have taken steps to ensure local businesses are not undermined by transnational e-commerce
businesses. E ective regulation is an industrial policy imperative when control over data is a barrier to
being able to compete. This needs to be coupled with vertical policies to support stronger local linkages.
While policy design and the governance framework are critical, the e ective implementation and
enforcement of any industrial policy will depend on government capacity and laws to ensure access to data.
The implementation of a digital industrial policy requires the establishment of high-level coordination
p. 170 capacity, institutionalized private-sector inputs, and appropriate monitoring and evaluation systems. New
coalitions for change forged around better aligned productive interests are necessary for the successful
implementation of industrial policy, enabling sector-speci c and cross-sectoral interventions.
6.6 Conclusion
Enterprises are at the centre of understanding the processes of industrialization, and the potential for, and
constraints on, industrial policy. A dynamic private sector is critical for catch-up by developing countries
(Ohno, 2013). The transaction-costs theories of the rm which have dominated economics are, however,
e ectively unable to come to terms with the most important questions of dynamic organizational
capabilities—the strategic orientation of large internationalized businesses and the nature of power
relations and the political settlement.
The resource-based theory of the rm, developed through detailed empirical study within and across
countries, provides a robust framework for analysing the development of capabilities. It has been extended
in terms of the ways in which power is understood and the internationalization of businesses. The
implications of digitalization are subject to intense current research pointing to major changes in the nature
of rm-level governance of economic activity and the appropriate industrial policies.
Substantial economic power on the part of rms is an intrinsic feature of industrial development given the
dynamic economies involved. There is therefore a natural tension between the short-term objectives of
rms in securing and exploiting rents, and the longer-term investments required to build dynamic
productive capabilities taking into account the uncertainties involved. This tension is at the heart of an
e ective industrial policy which has analysis of rms located in a production-centric framework. A critical
objective of industrial policy is therefore to shift the calculus on the part of large rms, to be able to set and
enforce conditionalities for the support required. The e ective engagement with large rms includes
locating them in clusters, with long-term relationships with smaller rms as subcontractors, through
policies supporting shared research and development, skills improvement, ongoing capabilities upgrading,
and product development.
The greater emphasis which is now being placed on concentration of ownership and control in many
countries is welcome. It is part of a rethink of competition policy which recognizes competition as a
dynamic process of rivalry underpinning ongoing improvements in productivity. An e ective framework for
competition and economic regulation, which sets the rules for markets, complements industrial policies.
Assessing the debates about concentration and the appropriate policy responses requires attention to the
in uence of coalitions of large business interests over the policy agenda in indirect and di use ways, as well

as alternative coalitions which can underpin progressive industrial policies.
p. 171 The internationalization of businesses in the context of the digitalization of economic activity raises
important questions about the ability of regulations and industrial policies at a national level to discipline
the conduct of businesses. Large developing countries have greater scope to take appropriate measures,
including supporting alternative digital platforms, in which China is leading. Countries with smaller
economies, such as those in Africa, are in relatively weak positions and depend on a broader international
development coalition to underpin e ective regulation of the global digital platforms. At the national level,
countries need to ensure access to data for local businesses as part of a digital industrial policy platform to
support local capabilities in targeted sectors and cross-cutting measures for the critical skills and
investment required to adapt to the digitalization of economic activity.
References
Amsden, Alice (1989) Asiaʼs Next Giant—South Korea and Late Industrialization. New York and Oxford: Oxford University Press.
Google Scholar Google Preview WorldCat COPAC
Amsden, Alice (1997) ʻBringing Production back in: Understanding Governmentʼs Economic Role in Late Industrializationʼ, World
Development 25(4): 469–80.
Google Scholar WorldCat

Amsden, Alice (2001) The Rise of the ʻRestʼ: Challenges to the West from Late-industrializing Economies. New York: Oxford
University Press.
Amsden, Alice and Ajit Singh (1994) ʻThe Optimal Degree of Competition and Dynamic E iciency in Japan and Koreaʼ, European
Economic Review 38: 940–51.
Andreoni, Antonio (2016) ʻVarieties of Industrial Policy: Models, Packages, and Transformation Cyclesʼ, in Akbar Noman and
Joseph E. Stiglitz (eds) E iciency, Finance and Varieties of Industrial Policy. New York: Columbia University Press, pp. 245–305.
Andreoni, Antonio (2018) ʻThe Architecture and Dynamics of Industrial Ecosystems: Diversification and Innovative Industrial
Renewal in Emilia Romagnaʼ, Cambridge Journal of Economics 42(6): 1613–42.
Andreoni, Antonio and Ha-Joon Chang (2019) ʻThe Political Economy of Industrial Policy: Structural Interdependencies, Policy
Alignment and Conflict Managementʼ, Structural Change and Economic Dynamics 48: 136–50.
Arrow, Kenneth (1962) ʻAllocation of Resources for Inventionʼ, in The Rate and Direction of Inventive Activity: Economic and Social
Factors, National Bureau of Economic Research. Princeton, NJ: Princeton University Press.
Atkinson, Anthony (2015) Inequality: What Can Be Done? Cambridge, MA: Harvard University Press.
Audretsch, David B. and Julie A. Elston (2002) ʻDoes Firm Size Matter? Evidence on the Impact of Liquidity Constraints on Firm
Investment Behavior in Germanyʼ, International Journal of Industrial Organization 20(1): 1–17.
Australian Competition and Consumer Commission (ACCC) (2019) Digital Platform Inquiry Final Report.
Azar, José, Sahil Raina, and Martin C. Schmalz (2016) ʻUltimate Ownership and Bank Competitionʼ, SSRN Electronic Journal.
p. 172 10.2139/ssrn.2710252. 10.2139/ssrn.2710252
Google Scholar WorldCat Crossref
Azar, José, Martin C. Schmalz, and Isabel Tecu (2018) ʻAnticompetitive E ects of Common Ownershipʼ, The Journal of Finance 73:
1513–65.
Babbage, Charles (2005 [1832]) On the Economy of Machinery and Manufactures. Cirencester: Echo Library.
Bair, Jennifer (2009) ʻGlobal Commodity Chainsʼ, in Jennifer Bair (ed.) Frontiers of Commodity Research. Palo Alto, CA: Stanford
University Press.
Bairoch, Paul and Richard Kozul-Wright (1996) ʻGlobalization Myths: Some Historical Reflections on Integration, Industrialization,
and Growth in the World Economyʼ. Discussion Paper No. 113. Geneva: UNCTAD.
Baker, Jonathan and Steve Salop (2015) ʻAntitrust, Competition Policy, and Inequalityʼ, The Georgetown Law Journal Online 104:
1.
Baldwin, Richard (2016) The Great Convergence: Information Technology and the New Convergence. Cambridge, MA: Harvard
University Press.

Best, Michael H. (1990) The New Competition. Cambridge: Polity Press.

Best, Michael H. (2018) How Growth Really Happens: The Making of Economic Miracles through Production, Governance, and Skills.
Princeton, NJ: Princeton University Press.
Bloom, Nicholas, Erik Brynjolfsson, Lucia Foster, Ron Jarmin, Megha Patnaik, Itay Saporta-Eksten, and John Van Reenen (2017)
ʻWhat Drives Di erences in Management?ʼ. NBER Working Paper No. 23300. Cambridge, MA: NBER.
Bloom, Nicholas, John Van Reenen, and Heidi Williams (2019) ʻA Toolkit of Policies to Promote Innovationʼ, Journal of Economic
Perspectives 33(3): 163–84.
Budzinski, Oliver and Maryam H. A. Beigi (2015) ʻGenerating Instead of Protecting Competitionʼ, in Michal S. Gal, Mor Bakhoum,
Josef Drexl, Eleanor M. Fox, and David J. Gerber (eds) Economic Characteristics of Developing Jurisdictions: Their Implications for
Competition Law. Cheltenham: Edward Elgar, pp. 223–47.
Cantwell, John (1994) ʻThe Relationship between International Trade and International Productionʼ, in David Greenaway and
L. Alan Winters (eds) Surveys in International Trade. Oxford: Blackwell, pp. 303–28.
Chandler, Alfred Jr. (1990) Scale and Scope: The Dynamics of Industrial Capitalism. Cambridge, MA: Harvard University Press.
Chandler, Alfred Jr., Franco Amatori, and Takashi Hikino (eds) (1997) Big Business and the Wealth of Nations. Cambridge:
Cambridge University Press.
Chandler, Alfred Jr., Peter Hagström, and Örjan Sölvell (eds) (1998) The Dynamic Firm. Oxford: Oxford University Press.
Chang, Ha-Joon (1996) The Political Economy of Industrial Policy. New York: St. Martinʼs Press.
Coase, Ronald (1937) ʻThe Nature of the Firmʼ, Economica 4: 386–405.

Coase, Ronald (1992) ʻThe Institutional Structure of Productionʼ, American Economic Review 82(4): 713–19.
Coe, Neil M. and Henry W. Yeung (2015) Global Production Networks: Theorizing Economic Development in an Interconnected
World. Oxford: Oxford University Press.
Cohen, Wesley M. and Richard Levin (1989) ʻEmpirical Studies of Innovation and Market Structureʼ, in Richard Schmalensee and
Robert D. Willig (eds) Handbook of Industrial Organization, Vol. II. Amsterdam: North Holland, pp. 1059–107.
Committee for the Study of Digital Platforms (2019) ʻReport of the Market Structure and Antitrust Subcommitteeʼ, Stigler Centre
p. 173 Committee for the Study of Digital Platforms Market Structure and Antitrust Subcommittee, chaired by Fiona Scott Morton.

Cremer, Jacques, Yves-Alexandre de Montjoye, and Heike Schweitzer (2019) Competition Policy for the Digital Era. Brussels:
European Commission.
Dallas, Mark, Stefano Ponte, and Timothy Sturgeon (2019) ʻPower in Global Value Chainsʼ, Review of International Political
Economy 26(4): 666–94.
De Loecker, Jan and Jan Eeckhout (2017) ʻThe Rise of Market Power and the Macroeconomic Implicationsʼ. NBER Working Paper
No. 23687. Cambridge, MA: NBER.
WorldCat
Dosi, Giovanni (1997) ʻOrganizational Competencies, Firm Size, and the Wealth of Nations: Some Comments from a Comparative
Perspectiveʼ, in Alfred Chandler, Jr., Franco Amatori, and Takashi Hikino (eds) Big Business and the Wealth of Nations. Cambridge:
Cambridge University Press, pp. 465–79.
Dosi, Giovanni, David J. Teece, and Joseph Chytry (eds) (1998) Technology, Organization, and Competitiveness: Perspectives on
Industrial and Corporate Change. Oxford: Oxford University Press.
Dunning, John (1992) Multinational Enterprises and the Global Economy. Wokingham: Addison-Wesley.
Dunning, John (1993) The Globalization of Business: The Challenge of the 1990s. London: Routledge.
Ennis, Sean, Pedro Gonzaga, and Chris Pike (2019) ʻInequality: A Hidden Cost of Market Powerʼ, Oxford Review of Economic Policy
35(3): 518–49.
Federico, Giulio, Fiona Scott Morton, and Carl Shapiro (2019) ʻAntitrust and Innovation: Welcoming and Protecting Disruptionʼ.
NBER Working Paper No. 26005. Cambridge, MA: NBER.
Ford, Martin (2015) Rise of the Robots: Technology and the Threat of a Jobless Future. New York: Basic Books.
Fox, Eleanor (2003) ʻWe Protect Competition, You Protect Competitorsʼ, World Competition 26(2): 149–65.
Fujimoto, Takahiro (1998) ʻReinterpreting the Resource-capability View of the Firm: A Case of the Development-Production
Systems of the Japanese Auto-Makersʼ, in Alfred D. Chandler, Peter Hagström, and Örjan Sölvell (eds) The Dynamic Firm: The Role
of Technology, Strategy, Organization, and Regions. Oxford: Oxford University Press, pp. 15–44.
Furman, Jason, Diane Coyle, Amelia Fletcher, Derek McAuley, and Philip Marsden (2019) ʻUnlocking Digital Competitionʼ. Report of
the Digital Competition Expert Panel, March. London: Crown Publications.
Gal, Michal (2009) ʻAntitrust in a Globalised Economy: The Unique Enforcement Challenges Faced by Small and Developing
Jurisdictionsʼ, Fordham International Law Journal 33(1): 156.

Gerber, David (2010) Global Competition: Law, Markets, and Globalisation. Oxford: Oxford University Press.
Gere i, Gary (2014) ʻGlobal Value Chains in a Post-Washington Consensus Worldʼ, Review of International Political Economy 21(1):
9–37.
Gere i, Gary and Karina Fernandez-Stark (2011) ʻGlobal Value Chain Analysis: A Primerʼ. Center on Globalization, Governance &
Competitiveness (CGGC), Duke University, North Carolina.
Gere i, Gary, John Humphrey, and Timothy Sturgeon (2005) ʻThe Governance of Global Value Chainsʼ, Review of International
p. 174 Political Economy 12: 78–104.
Geroski, Paul and Alexis Jacquemin (1984) ʻDominant Firms and their Alleged Declineʼ, International Journal of Industrial
Organisation 2(1): 1–27.
Goergen, Marc and Luc Renneboog (2001) ʻInvestment Policy, Internal Financing and Ownership Concentration in the UKʼ,
Journal of Corporate Finance 7(3): 257–84.
Helmsing, Albert H. J. (2001) ʻExternalities, Learning and Governance: New Perspectives on Local Economic Developmentʼ,
Development and Change 32: 277–308.
Hikino, Takashi and Alfred Chandler, Jr. (1997) ʻHistorical and Comparative Contours of Big Businessʼ, in Alfred Chandler, Jr.,
Franco Amatori, and Takashi Hikino (eds) Big Business and the Wealth of Nations. Cambridge: Cambridge University Press, pp. 3–
23.
Hur, Joseph Seon (2004) ʻThe Evolution of Competition Policy and its Impact on Economic Development in Koreaʼ, in
Philippe Brusick, Ana Maria Alvarez, Lucian Cernat, and Philip Holmes (eds) Competition, Competitiveness and Development:
Lessons from Developing Countries. Geneva: United Nations Conference on Trade and Development, pp. 227–49.
Hymer, Stephen (1976) The International Operations of National Firms: A Study of Direct Foreign Investment. Cambridge, MA: MIT
Press.
Inderst, Roman and Nicola Mazzarotto (2008) ʻBuyer Power in Distributionʼ, in W. D. Collins (ed.) ABA Antitrust Section Handbook:
Issues in Competition Law and Policy, American Bar Association.
Inderst, Roman and Tommaso M. Valletti (2011) ʻBuyer Power and the “Waterbed E ect”ʼ, Journal of Industrial Economics 59(1):
1–20.
Jensen, Michael C. and William H. Meckling (1976) ʻTheory of the Firm: Managerial Behavior, Agency Costs and Ownership
Structureʼ, Journal of Financial Economics 3(4): 305–60.
Kaplinsky, Raphael (2000) ʻGlobalisation and Unequalisation: What Can Be Learned from Value Chain Analysis?ʼ, Journal of
Development Studies 37(2): 117–46.

Khan, Mushtaq (2009) ʻLearning, Technology Acquisition and Governance Challenges in Developing Countriesʼ. Research Paper
Series on Governance for Growth. School of Oriental and African Studies, University of London. Available at
http://eprints.soas.ac.uk/9967/1/Learning_and_Technology_Acquisition_internet.pdf.
Khan, Mushtaq (2010) Political Settlements and the Governance of Growth-enhancing Institutions. London: SOAS.
Khan, Mushtaq (2015) ʻIndustrial Policy Design and Implementation Challengesʼ, in Jesus Felipe (ed.) Development and Modern
Industrial Policy in Practice: Issues and Country Experiences. Cheltenham: Edward Elgar, pp. 94–126.
Khan, Mushtaq (2017) ʻIntroduction: Political Settlements and the Analysis of Institutionsʼ, African A airs Special Issue: 1–20.
WorldCat
Khan, Mushtaq (2019) ʻKnowledge, Skills and Organizational Capabilities for Structural Transformationʼ, Structural Change and
Economic Dynamics 48: 42–52.
Khan, Mushtaq and Stephanie Blankenburg (2009) ʻThe Political Economy of Industrial Policy in Latin Americaʼ, in Giovanni Dosi,
Mario Cimoli, and Joseph E. Stiglitz, Industrial Policy and Development: The Political Economy of Capabilities Accumulation.
Oxford: Oxford University Press, pp. 336–77.
Korea Fair Trade Commission (KFTC) (2011) ʻ30 Years of KFTC, Looking back, Moving forwardsʼ, Annual Report 2011, Special
Edition. Seoul: KFTC.
Lall, Sanjaya (1993) ʻIntroduction: Transnational Corporations and Economic Developmentʼ, in Sanjaya Lall (ed.) Transnational
p. 175 Corporations and Economic Development. London: Routledge.
Lall, Sanjaya (1994) ʻThe East Asian Miracle: Does the Bell Toll for Industrial Strategy?ʼ, World Development 22(4): 645–54.
Lall, Sanjaya and Morris Teubal (1998) ʻ“Market-Stimulating” Technology Policies in Developing Countries: A Framework with
Examples from East Asiaʼ, World Development 26(8): 1369–85.
Lazonick, William (2010) ʻThe Chandlerian Corporation and the Theory of Innovative Enterpriseʼ, Industrial and Corporate Change
19: 317–49.
LEAR (2019) ʻEx post Assessment of Merger Control Decisions in Digital Marketsʼ, Report for the UK Competition and Markets
Authority.
WorldCat
Lee, Keun, Marina Szapiro, and Zhuqing Mao (2018) ʻFrom Global Value Chains (GVC) to Innovation Systems for Local Value
Chains and Knowledge Creationʼ, European Journal of Development Research 30(3): 424–41.
Makhaya, Gertrude and Simon Roberts (2013) ʻExpectations and Outcomes—Considering Competition and Corporate Power in
South Africa under Democracyʼ, Review of African Political Economy 138: 556–71.

Makhaya, Gertrude and Simon Roberts (2014) ʻThe Changing Strategies of Large Corporations in South Africa under Democracy
and the Role of Competition Lawʼ. CCRED Working Paper No. 2014/2.
Mathis, Jérôme and Wilfried Sand-Zantman (2014) ʻCompetition and Investment: What Do We Know from the Literature?ʼ. Institut
dʼEconomie Industrielle Working Paper. Toulouse: Institut dʼEconomie Industrielle.
McAfee, Andrew and Erik Brynjolfsson (2017) Machine, Platform, Crowd. New York: W. W. Norton.
Newham, Melissa, Jo Seldeslachts, and Albert Banal Estañol (2018) ʻCommon Ownership and Market Entry: Evidence from
Pharmaceutical Industryʼ. DIW Berlin Discussion Paper No. 1738.
North, Douglass C., John Wallis, and Barry Weingast (2009) Violence and Social Orders. Cambridge: Cambridge University Press.
Ohno, Kenichi (2013) Learning to Industrialize: From Given Growth to Policy-aided Value Creation. Oxford: Routledge.
Oqubay, Arkebe and Justin Yifu Lin (eds) (2019) China–Africa and an Economic Transformation. Oxford: Oxford University Press.
Oqubay, Arkebe and Kenichi Ohno (eds) (2019) How Nations Learn: Technological Learning, Industrial Policy, and Catch-up.
Oxford: Oxford University Press.
Penrose, Edith (1959) The Growth of the Firm. Oxford: Blackwell.

Petricevic, Olga and David Teece (2019) ʻThe Structural Reshaping of Globalization: Implications for Strategic Sectors, Profiting
from Innovation, and the Multinational Enterpriseʼ, Journal of International Business Studies 50(9): 1487–512.
Piketty, Thomas (2014) Capital in the Twenty-First Century. Cambridge: The Belknap Press of Harvard University Press.
Pisano, Gary (2017) ʻTowards a Prescriptive Theory of Dynamic Capabilities: Connecting Strategic Choice, Learning and
Competitionʼ, Industrial and Corporate Change 26(5): 747–62.
Polson, Nick and James Scott (2018) AIQ: How Artificial Intelligence Works and How We Can Harness its Power for a Better World.
London: Bantam Press.
p. 176 Ponte, Stefano (2019) Business, Power, and Sustainability in a World of Global Value Chains. London: Zed Books.
Ponte, Stefano and Timothy Sturgeon (2014) ʻExplaining Governance in Global Value Chains: A Modular Theory-building E ortʼ,
Review of International Political Economy 21(1): 195–223.

Porter, Michael (1990) The Competitive Advantage of Nations. London: Macmillan.
Rehnberg, Martha and Stefano Ponte (2017) ʻFrom Smiling to Smirking? 3D Printing, Upgrading and the Restructuring of Global
Value Chainsʼ, Global Networks 18(1) doi.org/10.1111/glob.12166. 10.1111/glob.12166
Google Scholar WorldCat Crossref
Rey, Patrick and Jean Tirole (2006) ʻA Primer on Foreclosureʼ, in Mark Armstrong and Robert H. Porter (eds) Handbook of
Industrial Organization III. Amsterdam: North Holland, pp. 2145–220.
Richardson, George B. (1972) ʻThe Organization of Industryʼ, The Economic Journal 82(327): 883–96.
Roberts, Simon (2012) ʻAdministrability and Business Certainty in Abuse of Dominance Enforcement: An Economistʼs Review of
the South African Recordʼ, World Competition 35(2): 269–96.
Roberts, Simon (2013) ʻCompetition Policy, Industrial Policy, and Corporate Conductʼ, in Joseph E. Stiglitz, Justin Yifu Lin, and
Ebrahim Patel (eds) The Industrial Policy Revolution II: Africa in the 21st Century. New York: Palgrave MacMillan, pp. 216–242.
Rodrik, Dani (1995) ʻGetting Interventions Right: How South Korea and Taiwan Grew Richʼ, Economic Policy 20: 53–108.
Rodrik, Dani (2018) ʻNew Technologies, Global Value Chains, and the Developing Economiesʼ. CESifo Working Paper No. 7307.
Rosenberg, Nathan (1979) ʻTechnological Interdependence in the American Economyʼ, Technology and Culture 20(1): 25–50.
Sakakibara, Mariko and Michael E. Porter (2001) ʻCompeting at Home to Win Abroad: Evidence from Japanese Industryʼ, Review of
Economics and Statistics 83(2): 310–22.
Schumpeter, Joseph A. (1942) Capitalism, Socialism, and Democracy. New York: Harper and Brothers.
Seldeslachts, Jo, Melissa Newham, and Albert Banal-Estanol (2017) ʻChanges in Common Ownership of German Companiesʼ, DIW
Research Bulletin 7(30): 303–11.
Shapiro, Carl (2012) ʻCompetition and Innovation: Did Arrow Hit the Bullʼs Eye?ʼ, in Josh Lerner and Scott Stern (eds) The Rate
and Direction of Inventive Activity Revisited. Chicago, IL: University of Chicago Press.
Singh, Ajit (2002) ʻCompetition and Competition Policy in Emerging Markets: International and Developmental Dimensionsʼ. ESRC
Centre for Business Research, Working Paper No. 246. University of Cambridge.
Singh, Ajit (2004) ʻMulti-lateral Competition Policy and Economic Developmentʼ. UNCTAD Series on Issues in Competition Law and
Policy. Geneva: United Nations.
Stiglitz, Joseph E. (2017) ʻTowards a Broader View of Competition Policyʼ, in Tembinkosi Bonakele, Eleanor Fox, and
Liberty Mncube (eds) Competition Policy for the New Era: Insights from the BRICS Countries. Oxford: Oxford University Press, pp.

4–21.
Strange, Roger and John Humphrey (2019) ʻWhat Lies between Market and Hierarchy? Insights from Internalization Theory and
Global Value Chain Theoryʼ, Journal of International Business Studies 50(8): 1401–13.
Sturgeon, Timothy (2017) ʻThe “New” Digital Economy and Developmentʼ. UNCTAD Technical Notes on ICT for Development No. 8.
p. 177 Geneva: UNCTAD.
Sutton, John (2007) ʻMarket Structure: Theory and Evidenceʼ, in Robert H. Porter and Mark Armstrong (eds) Handbook of
Industrial Organization, Volume III. Amsterdam: Elsevier, pp. 2301–68.
Sutton, John (2012) Competing in Capabilities: the Globalisation Process. Oxford: Oxford University Press.
Teece, David J. (2009) Dynamic Capabilities and Strategic Management: Organizing for Innovation and Growth. Oxford: Oxford
University Press.
Teece, David J. (2010) ʻAlfred Chandler and “Capabilities” Theories of Strategy and Managementʼ, Industrial and Corporate
Change 19(2): 297–316.
Teece, David J. and Gary Pisano (1998) ʻThe Dynamic Capabilities of Firms: An Introductionʼ, in Giovanni Dosi, David J. Teece, and
Josef Chytry (eds) Technology, Organization, and Competitiveness: Perspectives on Industrial and Corporate Change. Oxford:
Oxford University Press, pp. 193–212.
Teece, David J., Gary Pisano, and Amy Shuen (1997) ʻDynamic Capabilities and Strategic Managementʼ, Strategic Management
Journal 18(7): 509–33.
UNCTAD (2018) Trade and Development Report. Geneva: UNCTAD.

Van Reenen, John (2018) ʻIncreasing Di erence between Firms: Market Power and the Macro-economyʼ, Proceedings of the 2018
The Federal Reserve Bank of Kansas City Economic Policy Symposium: Changing Market Structures and Implications for
Monetary Policy, Jackson Hole, WY, August.
Vickers, John (2005) ʻAbuse of Market Powerʼ, The Economic Journal 115: 244–61.
Vilakazi, Thando and Simon Roberts (2019) ʻCartels as “Fraud”? Insights from Collusion in Southern and East Africa in the
Fertilizer and Cement Industriesʼ, Review of African Political Economy 46(161): 369–86.
Wade, Robert (1990) Governing the Market: Economic Theory and the Role of Government in East Asian Industrialization. Princeton,
NJ: Princeton University Press.
Whinston, Michael (2006) Lectures on Antitrust Economics. Cambridge, MA: MIT Press.
Williamson, Oliver (1986) Economic Organisation: Firms, Markets, and Policy Control. New York: Harvester Wheatsheaf.

Zingales, Luigi (2017) ʻTowards a Political Theory of the Firmʼ, Journal of Economic Perspectives 31(3): 113–30.
Notes
1 These include corporations controlled by the Chinese state.

2 This section draws on discussions with Rashmi Banga, Justin Barnes, Anthony Black, Parminder Jeet Singh, Stefano
Ponte, and Tim Sturgeon, for the Digital Industrial Policy Issues paper produced by the Industrial Development Think Tank
at the University of Johannesburg.
3 The UK and EU reviews are respectively Furman et al. (2019) and Cremer et al. (2019). For Australia see Australia
Competition and Consumer Commission Digital Platform Inquiry Final Report, 2019. For Germany see Report by the
Commission ʻCompetition Law 4.0ʼ, ʻA New Competition Framework for the Digital Economyʼ, report for the Federal
Ministry for Economic A airs and Energy, available at https://www.bmwi.de/Redaktion/EN/Publikationen/Wirtscha /a-
new-competition-framework-for-the-digital-economy.html.
4 European Commission, Decision of 27 June 2017, case AT.39740–Google Search (Shopping).
5 UK Competition and Markets Authority: press release of 13 September 2019, available at
https://www.gov.uk/government/news/major-overhaul-of-hotel-booking-sector-a er-cma-action; report on Digital
Comparison Tools Market Study, available at
https://assets.publishing.service.gov.uk/media/59c93546e5274a77468120d6/digital-comparison-tools-market-study-
final-report.pdf.
6 European Commission, Decision of 18 July 2018, Case AT.40099–Google Android.
7 European Commission, Decision of 20 March 2019, AT.40411–Google Search (AdSense).
8 The standards and protocols supporting value-chain modularity are o en embedded in digital ICT systems such as
CAD/CAM and ERP.

6 Enterprises and Industrial Policy

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

6 Enterprises and Industrial Policy

Uploaded by

Copyright:

Available Formats

The Oxford Handbook of Industrial Policy

Arkebe Oqubay (ed.) et al.

Downloaded from https://academic.oup.com/edited-volume/34292/chapter/290699694 by OUP site access user on 23 February 2024