Strategizing by the Government: Industrial Policy and Sustainable Competitive Advantage

Abstract

Despite the prevalence of active governmental policy devised to foster firms and industries in various countries, the link between industrial policy (IP) and competitive advantage has received scant attention in Strategic Management. I propose a model where IP influences the accumulation and churning of resources and capabilities which can be flexible or specialized. I also introduce the concept of support-adjusted sustainable competitive advantage (SASCA), which occurs if a firm’s observed economic performance is superior to the expected performance of competitors had they received the same array of policies. In my framework, SASCA is created by the interplay of three factors: external integration, geographical specificity, and policy-making capability. Thus, the model enhances our understanding of the determinants of competitive advantage in a context of governmental intervention.