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Modeling effects of incentives for industry competitiveness using a system dynamics approach
International Journal of Innovation and Technology Management
Abstract
Investment in the state of art machinery, tooling, and R&D is widely seen as a prerequisite for achieving industry competitiveness in the long term. Therefore, the provision for investment-based incentives by countries is perceived as a way of supporting industry competitiveness. Despite this being a global phenomenon, there is no formal process to guide the offer of industry incentives. The process of designing such incentives is often based on intuition rather than on formal models, making it difficult to assess such industry interventions objectively and to improve on them. Specific to South Africa, the offer of incentives to the automotive industry to support its competitiveness has had mixed results. In particular, investment in R&D has remained minimal. The paper presents a system dynamics model as a proposed instrument in formalising the offer of incentives, applied to the South African governmentpsilas offer of incentives to the automotive manufacturing sector. The model was developed from qualitative and quantitative information on how the incentive dispensation had been structured. Simulations with the incentive model reveal that the incentive dispensation, as a stand-alone intervention, has had a significant and positive effect on industry investment, but has had no specific policy lever to direct investment into R&D and consequent innovative activities. By this measure, the model has not been a strong policy instrument for supporting long-term industry competitiveness.
... The aim of incentives is to support the industry to become globally competitive in the long term [1]. There was consensus that government had to motivate the local industry to invest in costly robotic manufacturing and electronics, as well as control systems engineering competencies that are of key importance, among others, to the competitiveness of automotive manufacturing. ...
... PAA rebatable imports add to the stock of industry imports into the country on which the industry does not pay duties. Given that the only way industry can benefit from the PAA incentive is through importing vehicles and offsetting duties payable using earned rebate certificates, firms will import until they have exhausted issued rebates [1]. ...
... This is the sum of PAA-rebatable imports and IRCCfunded imports. A direct link between the value of industry rebatable imports and the value of planned production was then set up [1]. ...
Investment in robotic automotive manufacturing and inherent electronics has played a pivotal role in the growth and competitiveness of the South African automotive industry. Government's offering of incentives was intended to lessen the cost of local industry's expensive, but necessary investment. Despite the growth, industry trade balance has been declining systematically. To explain the apparent contradiction in industry performance, a model of South Africa's automotive incentives - including the Productive Asset Allowance (PAA) and the Import-Export Complementation (IEC) - was developed. Model simulations reveal that, while the IEC had a significant effect on the industry trade balance, the role of the PAA in this regard is trivial. Ultimately, the study reveals that combining strictly investment incentives with other 'non-investment' incentives can have unintended consequences for the local automotive industry.
This paper compares long-run economic growth in Indonesia and Thailand as related to technological progress during the second half of the twentieth century. It adopts a two-stage approach. It first provides an estimation of long-run total factor productivity differentials between the two countries then offering an in-depth analysis of this differential and associated trends and policies concerning, amongst others, capital goods imports, foreign direct investment and R&D expenditure. The paper argues that technological progress shaped by official policies and the institutional framework of absorption sufficiently explains why outcomes have differed so substantially in Thailand and Indonesia despite apparently similar initial conditions of long-run economic growth. Macroeconomic policies need to pay explicit attention to the acquisition of modern technologies in order for rapid economic growth to be sustained.
Increasing interest has been shown by governments in maintaining the competitiveness of their economies by the use of policies designed to encourage advances in science and technohgy, and the adoption of new tachniques by industry. This paper is the result of a literature review and a sumvey of researchers on the concepts of innovation and competitiveness, the relationships between them and the efficiency ofpolicies to promote them. Those policies an considered in the context of alternative economic perspectives, as is the (rather limited) empirical euidence available. Conclusions are drawn on the current stab of the art of innovation policy research.
In 2000 the South African Government introduced an investment incentive for the automotive industry, the Productive Asset Allowance (PAA). This was intended to support the objectives of the Motor Industry Development Programme (MIDP). This paper presents an empirical assessment of the PAA's prospects for supporting the competitiveness of South Africa's automotive industry. It provides a historical overview of the MIDP and the introduction of the PAA and analyses industry performance data on investment and competitiveness from 1998 to 2004. The findings reveal that while the industry succeeded in increasing exports, the share of domestically produced vehicles in the local market decreased. Moreover, investment in R&D, as an indicator for future competitiveness, was insignificant. The offer of a generic investment incentive like the PAA seems to have a significant and positive effect on industry investment, but limited ability to support long-term industry competitiveness through R&D and innovation.
The new South African government has embraced globalization, with mixed results to date. Controversies center on South Africa's international cost competitiveness and whether South African exports respond to changes in competitiveness. We measure competitiveness by relative unit labor costs. We find that South African relative unit labor costs declined in the 1990s, but are still high relative to other developing countries. Econometric analysis reveals a strong effect of relative unit labor costs on exports.
DOI: 10.1057/palgrave/2601336
Industry performance and investment patterns in capital equipment and research and development for 42 industries were examined. Superior performance was significantly associated with high levels of R&D investment in half the industries, but was unrelated to capital investment in these industries over the 20-year period studied. Implications of these findings for the competitiveness of American industry are discussed.
Innovation, technology advances, and competitive advantage are connected by complex and multidimensional relationships. This article begins by examining four factors that shape the relationship between innovation and competitive advantage. Routes to corporate entrepreneurship (research and development units, intrapreneurshiplinternal ventures, external joint ventures and acquisition) are compared in terms of these criteria. The debates and questions that set the stage for further research in this area conclude the article.
South Africa with its recent major socio-political transformation to a full democracy, has also inherited a considerable technology base from the past. Although some of this asset has already been severely weakened by erosion, the correct management of this national asset to serve the needs of the new society being created in this country, can be a considerable force in the reconstruction of our economy and our society. In particular, the following roles will be dealt with: 1.• technology as a driver of greater productivity and increased global economic competitiveness;2.• technology as a force to transform the South African industry from an exporter of base minerals to a manufacturing base through value-addition to its minerals;3.• technology as a catalyst in the reconstruction of South African society through a refocused value system.Technologically based decision making, such as LIFEX and many others, is a typical example where the productive use of scarce capital resources, can be optimised and spread over a greater part of the economy.
The regional nature of innovation and innovation policy was investigated. The aim of this study was to determine whether the specific economic and institutional conditions of a region had an influence on the results of a national policy intended to support entrepreneurial innovation. The analysis compared the effect of the national R&D subsidies on the innovation effort of firms located in central regions, which concentrate an important percentage of the national innovation activity, together with those firms located in periphery regions. Significant regional differences were detected with regard to the national R&D subsidies’ effect and distribution. The central regions manifested a higher subsidy effect compared to the periphery regions. The results of this study have allowed us to conclude that the region plays an important differentiating role in connection with the final result of the innovation policy aimed at the entire national territory. Therefore, this study recommends including the geographical location of the firm in future evaluations.
В статье производится анализ агрегированной производственной функции, вводится аппарат, позволяющий различать движение вдоль такой функции от ее сдвигов. На основании сделанных в статье предположений делаются выводы о характере технического прогресса и технологических изменений. Существенное внимание уделяется вариантам применения концепции агрегированной производственной функции.
The United States now competes in a hyper-competitive global economy in which all nations have ready access to advanced technology. Consequently, U.S. industrial survival will depend upon accelerated and sustained investments in “next-generation” products, services, and in automated manufacturing processes. Cooperative efforts increasingly will be required among companies to share risks and to pool resources and skills. This paper quantifies the overriding importance of R&D as it relates to industrial competitiveness in different industrial sectors.
This study examines the recent efforts by the governments of two Caribbean countries to enhance the competitiveness of their economies in the context of the framework of the use of functional versus selective government interventions. In the course of the study, however, it was discovered that rather than focus exclusively on the distinction between functional and selective interventions as if they represent competing models for public policy intervention, it was useful to examine, pragmatically, the range of policy options open to these governments, and then consider the scope and merits of intervention in the context of these policy options. In so doing, it becomes apparent that functional and selective government interventions, to the extent that they are always distinguishable, become points along a continuum, rather than orthogonal lines incapable of being joined. The lesson of these Caribbean economies and, it is argued, of the East Asian experience, is that there is no simple choice between selective and functional interventions for the developing economy seeking to enhance its international competitiveness. Governments of these countries, and others seeking to enhance the international competitiveness of their economies, may well have to be capable of managing the process of selecting functional interventions, and of reducing the risks and improving the functioning of selective interventions.
An abstract is not available.
System dynamics depends heavily upon quantitative data to generate feedback models. Qualitative data and their analysis also have a central role to play at all levels of the modeling process. Although the classic literature on system dynamics strongly supports this argument, the protocols to incorporate this information during the modeling process are not detailed by the most influential authors. Data-gathering techniques such as interviews and focus groups, and qualitative data analysis techniques such as grounded theory methodology and ethnographic decision models could have a strong, critical role in rigorous system dynamics efforts. This article describes some of the main qualitative, social science techniques and explores their suitability in the different stages of the modeling process. Additionally, the authors argue that the techniques described in the paper could contribute to the understanding of the modeling process, facilitate communication among modelers and clients, and set up a methodological framework to promote constructive discussion around the merits of qualitative versus quantitative modeling. Copyright © 2003 John Wiley & Sons, Ltd.
An important task in the analysis of a behavioral simulation model is to explain clearly how the model's organizational assumptions lead to its simulated behavior. All too often, model-based arguments involve an uncomfortable "leap of logic" between equations and consequences. This paper proposes two methods of analysis, premise description and partial model testing, which provide stepping stones between model equations and their simulated consequences. Premise description examines the bounded rationality of policies or decision functions in the model, pointing out the process and cognitive limitations assumed in decisionmaking. Partial model tests expose the intended rationality of smalt combinations of policies, showing that policies produce "sensible" actions with respect to their premises. The application of those methods is illustrated with a simulation model of a sales organization in which sales-force productivity is prone to decline. The behavior of productivity is traced to dysfunctional interactions between objectives, overtime, and salesforce motivation.
Although a number of studies have emphasized the importance of technological capability to competitive advantage, the empirical examination of this area has thus far been somewhat scarce, particularly at firm level. This paper therefore aims to examine the impact of technological capability on firm performance. Inasmuch as the electronics industry is expected to place significant emphasis on the absorption and application of technological knowledge from scientific research, this industry is taken as the analytical sample. In contrast to prior studies in this area, this paper attempts to determine the dynamic and nonlinear characteristics of the accumulation of technological capability by firms through ‘longitudinal operationalization,’ with the technological capability of a firm being measured from a perspective of stock rather than flow. Based upon a panel dataset, the estimations of our model, derived from the Cobb–Douglas production function, reveal that firm technological capability has a significant effect on productivity growth, and that the impact of technological capability seems to be greater than that of other conventional factors. These findings demonstrate that technological capability is an important determinant in the promotion of competitive advantage for Taiwan's electronics firms.
The question posed in this research is whether US R&D-oriented competitiveness policies are likely to be effective in light of a number of concerns about the deterministic role R&D is presumed to play in competitiveness. Three relationships are explored: (1) R&D intensity and comparative advantage; (2) R&D intensity and competitive performance; and (3) US and Japanese relative R&D efforts and competitive performance. Although R&D was found to have a direct association with comparative advantage, it was not a systematic predictor of US industrial competitiveness. Relative to Japan, R&D was found to be a necessary but not a sufficient condition for competitive ability. Critical additional determinants are total factor productivity and levels of industrial basic research spending. The findings suggest that US R&D policies may enhance US technological innovation, but not necessarily the transformation of that skill into competitive strength.
This paper presents the current state of development of technology-based small firms in Korea which have entered aggressively into emergent-technology industries since the early 1990s. With the case studies, it identifies common characteristics of successful venture companies. It also shows how government policies to promote the emergent industry have shifted facing significant changes of the economic condition in recent decades. Lastly, it discusses several problems which should be overcome for technology-based small firms to contribute to enhancing the competitiveness of Korean economy.
In the transformation of economic structures and industrial sectors in Central and Eastern European Countries, innovation plays a critical role for adapting production processes and products to global market requirements, for improving economic competitiveness and for social welfare. Since innovation processes were organised according to a linear science-push innovation model during socialist times, interactive learning processes, which are an important feature in recent innovative activity, were underdeveloped or non-existent. Using empirical data from an industrial innovation survey carried out in the Republic of Slovenia, the paper analyses structural characteristics of the Slovenian manufacturing industry and its innovative behaviour. It will be shown that although a high share of firms innovated between 1994 and 1996, interactive learning processes through innovation networking are still not fully utilised. Co-operation takes place firstly on the level of informal information exchange and less on the formal level of joint research and development.
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This study examines the technology strategies of 88 technology-based growth companies that went public on the German “Neuer Markt” between 1997 and 2002. The regression analyses show significant positive effects of R&D on growth but negative effects on profitability. The data suggests that firm age is a moderating factor influencing whether technology investments lead to higher growth or profitability in the life cycle of technology-based growth companies. In our sample, higher R&D intensity led to increased sales growth but lower return on sales, but the growth effect was negative and the impact on profitability positive. These results support the significance of company life cycle theories for formulating technology strategies, which suggests that different stages in the development of technology-based firms call for specific levels of R&D intensity to sustain growth and profitability.
This article examines the claims of the major explanations and then proposes a new way of looking at them. By using a stepwise and backtracking approach to explaining differences in growth performances, it is possible to identify the sources of output growth, the factors behind these sources, and the economic policies behind the factors themselves. Its use suggests that most of the economic policies needed to bring about output growth in the NIEs come from the adoption of a market-friendly and internationally competitive approach to growth. Thus the approach should be seen more as a more methodical way to present the market-friendly and internationally competitive hypothesis and less as a hypothesis itself. -from Author
The South African automotive industry has been subjected to rapid structural change as a result of policies, which have liberalized imports but also encouraged exports. The sector has become much more internationally integrated with a particularly rapid increase in exports. This paper assesses these developments. It is argued that the costs of liberalization have been fairly low partly because of the strong encouragement given by the programme for major foreign firms to draw South African operations into their international networks. In spite of the successes, structural problems remain such as the limited rationalization that has so far taken place. Also there are question marks over the nature and sustainability of export expansion. Copyright © 2001 John Wiley & Sons, Ltd.
Motor Industry Development Programme Review Report," Department of Trade and industry
- J Barnes
- A Black