Chapter 4.
The Concept of Political Competitive Advantage (PCA).
4.1. Introduction. 210
This chapter develops a new concept of ‘political competitive advantage’ (PCA). PCA theory is built upon, and is an extension of, the core concepts derived from competitive advantage theory, internalization theory and the resource-based view of the firm as set out in chapter 2.
It should be noted that one of the fundamental objectives of this thesis is that the research should be useful to strategic management practitioners. It must therefore provide a framework for the analysis of PCAs and contingent strategies that can be readily operationalized.
The PCA concept is embedded in strategic management theory but it is also experiential and intuitive. Prima facie it would seem unlikely that the time spent on firm/government contact, and in developing firm/government networks and relationships, has no effect on firm competitiveness at all, or only affects it in a neutral manner.
Managers, especially those in multinational firms, spend a good deal of time dealing with government in one form or another. Points of contact with government are numerous, often department-specific and uncoordinated. Government contact ranges from reactively fulfilling statutory requirements, for example on health and safety, engineering, accountancy and employment to proactively working to secure government modifications either in legislation or in the implementation of legislation as defined by government bureaucracies. Examples of proactive persuasion of government are frequently to be found over local and national issues such as applications for planning permission, interpretations of tax and employment legislation, but also include supranational-level and high-profile cases before the World Trade Organization (WTO) over non-tariff barriers, fair trade and ‘dumping’.
The theory of internalization explains that firms develop internal markets in response to externalities (see chapter 2). Here it is argued that governments produce externalities that are sources of politically-derived advantages and disadvantages to firms. Political advantages and disadvantages may be derived from “government” in its widest form, at local, national, regional and supranational levels.[1]
Since each firm has a unique structure of assets and networks, some politically-derived advantages (PAs) and disadvantages (PDs) impact asymmetrically on firms and may give rise to firm-specific, politically-derived competitive advantages (PCAs) and disadvantages (PCDs). This is most clearly demonstrated with multinational enterprises (MNEs). PAs and PDs derived from government activity will affect MNEs in markedly different ways to domestic firms.
Having reviewed the literature on competitive advantage, two fundamental concepts, efficiency and endogeneity, have been selected to demonstrate the mechanisms by which government affects industries and firms, and to provide a framework for firm-specific strategic thought and planning.
Examples taken from international trade literature are particularly useful to strategists since it is relatively simple to demonstrate that government-derived tariff and non-tariff barriers (NTBs) often fall asymmetrically on foreign and domestic firms.
[1] “Political” is defined in the Oxford English Dictionary (OED) as: “Of, belonging or pertaining to, the state, its government and policy; public, civil; of, or pertaining to the science or art of politics” but “government-derived competitive advantage” would be too narrow a definition. The reason for referring to “political competitive advantages” (PCAs), rather than “government-derived competitive advantages”, is that PCAs can be derived from any political source including NGOs, quangos, political parties and individuals, as well as from government.
