…enhancing productivity and competitiveness
The industrial landscape and global markets are in a constant state of flux. As a result, industrial parameters also evolve over time. Sectors that were once considered low-tech, such as textiles or food, have seen significant advancements, leading to new binding parameters. This evolution challenges businesses to continuously innovate to remain competitive. Governments must be proactive in monitoring these changes and updating policies to foster growth and competitiveness. Industrial parameters are factors unique to each sector or sub-sector that influence its performance and competitiveness. These parameters encompass a wide range of considerations, such as scale efficiency, quality standards, operational models, and technological advancements. While all parameters play a role in achieving high levels of productivity and competitiveness, certain parameters become binding, meaning they hold greater significance in determining the success conditions of a particular activity within the industry.
The importance of understanding how parameters affect competitiveness is clear. An activity may be profitable or non-profitable depending on the variable parameters it faces, and the factors that influence these parameters are constantly changing. Understanding how these changing factors can help firms renew their strategies to remain competitive. The following framework is intended to serve as an aid in identifying the parameters that impact productivity and competitiveness of a particular sector or subsector, and what must be done to mitigate these parameters.
The framework consists of 3 levels:
The core binding parameters, secondary binding parameters, and non-binding parameters.
The core binding parameters are those that have a strong influence over the success of the sector, such as economies of scale, product differentiation, and technological change. These binding parameters should be monitored regularly by governments to ensure that their industries are adapting to these changes and achieving sustainable growth.
Secondary binding parameters refer to those that influence performance and competitiveness but do not play a dominant role in achieving high levels of productivity and competitiveness. Examples include product quality standards, availability of raw materials, and management processes. Upon identification of sector-wide secondary binding parameters, governments can initiate policies to address the problem through education or regulation.
Non-binding parameters are those that have little to no effect on the productivity and competitiveness of a sector or subsector. These parameters are sometimes also referred to as soft parameters, meaning that they can be tolerated by the firm without affecting its ability to compete.
Although non-binding parameters can be tolerated without affecting competitiveness, they should still be monitored as they may become binding if other factors change unexpectedly. While product quality is a non-binding parameter, it may become a binding one if an unexpected increase in demand for the product occurs. It would then become critical for the firm to invest in improving its quality standards to meet market demands. In order to improve productivity and competitiveness, governments should maintain a continuous eye on the changing factors that impact these parameters. Firm management should be involved in identifying binding and secondary binding parameters that could affect their activities, as well as the non-binding parameters that could potentially change. Businesses should also become more sensitive to changes in non-binding parameters by monitoring them periodically.
The taxonomy of industrial parameters
Production parameters: These parameters encompass factors directly related to the production process. They include energy and capital intensity, production time and cycle, labour and skill intensity, the scope for automation and robotisation, and the potential for capital/labour substitutability. Additionally, process standardisation is considered a critical factor in optimising production efficiency.
Organisational parameters: These parameters focus on the organisational structure and management practices within a sector. Degree of vertical integration, administrative hierarchic decentralisation, process modularisation, geographical spread, supply chain management capabilities, and organisational integration capabilities are among the key factors shaping competitiveness.
Technological parameters: Technology is a crucial driver of productivity and competitiveness. Basic science dependence, technology intensity, standardisation, learning cycles, product customisation, and product reliability all play roles in determining success conditions.
Market parameters: Market-related factors influence the demand and supply dynamics within a sector. These include the size and segmentation of the market, demand elasticity, tradability, proximity to market advantage, accessibility, and protection through regulations and standards.
Macroeconomic & demographic parameters: Macroeconomic factors influence a sector by affecting the broader business environment in which firms operate. Examples include economic growth rates, inflation rates, interest rates, currency exchange rates and international trade policy measures. Demographic parameters affect firms by influencing the demand for products and services as well as labour market dynamics. These parameters include consumption levels, fertility rates, population growth rates, immigration rates, educational attainment levels, and labour force participation rates.
Techno-academic parameters: The set of eco-systems and institutions in which a sector operates is critical to the success conditions of the sector. Technological infrastructure and research excellence are among the major factors shaping competitiveness success. As such, governments should focus on developing policies that facilitate technological innovation and encourage business activity to take place in such environments.
Implications of industrial parameters on sectoral heterogeneity
The industrial parameters taxonomy is not a one-size-fits-all formula for achieving productivity and competitiveness across sectors. Instead, it highlights the heterogeneity of industries based on their unique combinations of critical parameters. Even within the same sector, certain parameters may carry more weight for some companies than others. For example, a vertically disintegrated sector or a global value chain may have varying operational scale efficiencies among different companies.
The productivity and competitiveness parameters taxonomy also highlight the heterogeneity of industries’ external environments. In developing countries, there is a natural tendency toward homogeneity, whereby all firms are grouped into a sector with the same set of binding and secondary binding parameters. This often results in an insular view of competitiveness, where policies are created to address the needs of all firms in the sector without paying attention to specific differences among them. The result is that policies fail to achieve their intended outcomes as they do not take into account the heterogeneity within sectors.
In considering the heterogeneity of industries and their unique combinations of critical parameters, policy-makers should also pay attention to sector-specific interventions. One approach worth exploring is the establishment of special economic zones, such as the Meridian Industrial Park in Ghana, as a means of fostering growth and competitiveness within specific industries. The Meridian Industrial Park has the potential to efficiently handle the special needs of enterprises operating inside its limits by carefully choosing essential binding factors that match the targeted sectors.
Market parameters are also critical considerations for SEZs like the Meridian Industrial Park. By providing easy access to regional and international markets, the park can offer a strategic advantage to industries operating within its boundaries. Policy-makers should identify market-specific advantages, such as proximity to key markets or preferential trade agreements, and leverage these factors to attract investments and enhance market competitiveness.
Prioritising sector-specific interventions
By identifying sector-specific industrial parameters, policy-makers gain valuable insights into the critical drivers of competitiveness and productivity within a particular industry. Prioritising interventions based on these binding parameters is essential to design effective industrial policies. Neglecting such prioritisation risks rendering policy interventions ineffective and may hinder a sector’s growth potential. As sectors evolve and technologies advance, policy-makers must continuously reassess and adapt their strategies to address changing binding parameters effectively. For example, if the policy response to poor productivity in an old-growth industry is to subsidise research and development activities, policy-makers may find that this fails to address the root cause of the problem. Quickly advancing technologies may have rendered activities such as research and development obsolete. It is, therefore, important to keep in mind the need for concern over these types of rapid technological changes while designing policies that can continue to encourage R&D activities within sectors. If a country’s R&D intensity remains low, there is a high likelihood that it will not be able to withstand the pace of technological change.
The key is to recognise the differences in binding parameters that shape competitiveness across industries. Policy-makers need to determine what approaches are most suitable for each sector, and must also remain flexible enough to adapt policies as the country’s economic landscape changes. In addition, identifying sector-specific industrial parameters helps policy-makers prioritise interventions across sectors based on a sector’s competitiveness status and the potential for improving productivity. For instance, sectors with high productivity growth rates warrant greater attention. An important question here is: at what level of development should policy-makers prioritise interventions? The answer depends on the nature of a given industry. A country’s priorities should be directed toward increasing productivity and competitiveness in more advanced industries before focusing on lagging ones.
Fostering government-business interactions
A comprehensive understanding of industrial parameters fosters better government-business interactions. When formulating sector-specific policies, policy-makers must consider these parameters to create a system of incentives and compulsions that align with industry needs. Collaborative efforts between governments and businesses, supported by relevant data on industrial parameters, enhance the effectiveness of policy implementation and enforcement.
Dedicated databases on industrial parameters can provide policy-makers with an essential tool to monitor industry productivity and competitiveness. Without these databases, policy-makers are left with data that omit key determinants of sectoral growth. Furthermore, data on sector-specific industrial parameters help improve the quality of policy-making by allowing policy-makers to assess the impact of policies more effectively.
To sum up, identifying the binding parameters that shape sectoral competitiveness and productivity is a crucial step in designing effective industrial policies. By clarifying industry heterogeneity and creating an in-depth picture of each sector, policy-makers can design policies that are more effective at addressing specific business needs. This reduces the likelihood of policy interventions promoting companies that lack competitive advantages or do not possess the skills or resources to implement policy change.
Policy approaches should be tailored to suit each company’s characteristics and circumstances in order to allow for a diverse range of strategies to be employed and avoid any overreliance on any particular approach. Moreover, given the fast pace at which economies are evolving, policy-makers should not ignore technological changes while formulating policies.
Conclusion
Industrial parameters represent a comprehensive and evolving set of binding and secondary binding industrial characteristics that shape sectoral competitiveness and productivity. A firm’s competitiveness is based on how well it optimises the exploitation of its industrial parameters, which in turn determines its relative productivity. How efficiently a firm optimises these parameters depends on numerous factors – including technological capability, operational scale efficiency, quality standards, distribution channels, export linkages, structure of production processes (vertical disintegration or vertical integration), capital intensity, human resource management (employee training and development), cluster development, and country-specific business environment.
The writer is an award-winning financial advisory, trade and transformation consulting professional with almost two decades of enterprise leadership experience across EMEA
