Internationalization and Government Responses: the role of government in creating competitive advantage in Shanghai, China
Chan, Roger C. K. & Hong, Wen Centre of Urban Planning and Environmental Management The University of Hong Kong
Abstract
Technological innovation and the changes of patterns in international trade as the driving force, the past few decades have witnessed a tremendous transformation in global economy. Major cities in the world have been integrated into a global network through the flows of commodities, information, capital, and people. The increasing interconnection and interdependency also intensify the competition among cities for providing goods and services for the global market.
What the internationalization of competition implies is the emergence of a New International Division of Labour which reflects a change in the geographical pattern of specialization at the global scale (Dicken, 1998), and also reflects a shift in global hierarchy (Evans, 1995). The economic activities of every modern nation are unavoidably articulated into this hierarchy; their places in production for global market have significant implications for their economic development possibility and the welfare of their citizens.
The economic transformation in Shanghai since 1990 is situated in such a global context. The launching of Pudong project is to revitalize the economy in Shanghai as well as that of the Lower Yangtze Delta through re-plugging Shanghai into the global economy. With China all set to join the WTO, which will integrate it with the global economy to an unprecedented degree, Shanghai as a leading city will no doubt become the ÒbridgeheadÓ for transnational corporations to set up their operations in China. Then, what would be the proper strategy for Shanghai to participate in the international competition? What role should government play in achieving a higher niche in the new international division of labor?
This paper begins with a discussion on why some nations can gain a position in core area in the international division of labor. Based on the concept of Ôcompetitive advantageÕ (Porter, 1990; Evans, 1995; Storper, 1998), the authors argue that it is the sources of a nationÕs competitive advantage that decide its position in the global hierarchy. To achieve a higher niche, a nation must upgrade its economy from basic-factor-driven towards more sophisticated sources of competitive advantage.
The role of governments in such an upgrading process is the focus of the second section. The relationship between the two key actors in competitive-advantage-construction process, government and firm, is discussed. This paper argues that the competitive advantage of its firms in the international competition determines a nationÕs economic developmental possibility. On the other hand, the most important influences on the business environment, in which firmsÕ survival and growth are facilitated and constrained, come form government. GovernmentÕs role in achieving national competitive advantage thus can be defined as providing appropriate business environment to facilitate and promote business activities especially higher level activities and innovation. The authors point out further that a dynamic perspective should be applied in examining the role of government, which should change accordingly as the economy goes through qualitatively different developmental stages.
Above discussions are then applied into the research area, Shanghai, in the last section. ShanghaiÕs position in the international division of labor is identified. In spite of its great achievement in 1990s, the provision of goods and services in Shanghai remains in low-to-medium-technology and low-value-added level. Although Shanghai has become the largest foreign direct investment destination city in southeast Asia, it remains as a routine production site rather than a concentration area of core activities and headquarters of transnational corperations in the international division of labor. A proper business environment in which entrepreneurial activities are facilitated and promoted is of vital importance for its economic upgrading. To response appropriately, government should reexamine the role it has played in the last decades. Heavy government intervention remains a fundamental characteristic in ShanghaiÕs development in last decade. While such a role of government works in achieving tangible objectives, the over intervention by government into enterprises does not work in achieving micro-economic development; although Shanghai government has achieved great accomplishment in physical environment construction, much work still need to be done to provide an appropriate software system which is of the same importance as physical infrastructure. Government is the key actor in building up the entrepreneurial culture, however, it should be cautious to distinguish between direct control and indirect guidance, and to avoid over intervention and intervention deficiency.
