Enhancing Industrialization: Basic Policies for Innovation and Upgrade

The article discusses the basic policies that the government should adopt for enhancing the capacity of the industries for innovation and upgrade. It talks about strengthening research and development, public financing, direct assistance, subsidies, and tax advantage. The article also highlights the importance of finance in driving innovation at all levels.

Running head: MAKING SENSE OF STRATEGY
Making sense of strategy
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MAKING SENSE OF STRATEGY
Kuwait is a petroleum-based country, situated in Western Asia. The country already
accepts foreign direct investment though the amount is not sufficient. In 2003, the
government of this country implemented a new law stating that a foreign company can own
100 percent ownership of a company in any business sectors. Due to this insufficient amount
of foreign investment, it is essential for a policy expert to attract foreign investors to invest in
different business sectors. In this context, the Diamond of National Advantage of Porter can
play a significant role (Mboya and Kazungu 2015). According to this model, the government
of a country generates advanced factor endowments through which the country can
experience comparative advantage.
To attract foreign investors in Kuwait, a deep analysis of Porter’s Diamond model is
essential. Through analysing this model, the country can understand that in which business
sectors it has comparative advantage. The entire discussion will be based on industrial sectors
of Kuwait. This diamond model provides four chief determinants that the nation can establish
of industries.
Figure 1: Diamond National Advantage
Source: (Konsolas 2017)

MAKING SENSE OF STRATEGY
The above diagram represents a diamond consisting with four determinants through
which a country can enjoy comparative advantage. These determinants further help the
policymaker of the concerned country to understand about availability of different resources
and skills. Moreover, the policymaker can collect information regarding decision-making
procedures of these firms to understand their business opportunities (Acs et al. 2017). These
opportunities are depended mainly on skills and resources. In addition to this, this diamond
model further can help a firm to set certain goals or business objectives. This in turn can
influence companies to innovate new technologies. To attract foreign investors for more
investment, the policy maker can analyse each component of these four determinants deeply
for understanding the actual scenario. These determinants can be described as follows:
Factor conditions: Porter points out that the nation needs to generate some essential
production factors which the country does not possess. Thus, the concerned policy maker
needs to focus on human resources, knowledge resources and physical resources to improve
the comparative advantage of the country. Human resources are considered as one of the
essential factors of production. Thus, through skilled and efficient labours within production
system, the country can achieves comparative advantage (Tsiligiris 2018). Therefore, the
policy maker needs to focus on various skills developing programs for improving labour
condition in Kuwait. Knowledge resources also consider an important factor. Through
implementing proper knowledge in production process, Kuwait can obtain comparative
advantage. These firm can produce higher standard of products with comparatively lower
production costs. Physical resources also help a country to enjoy comparative advantage, as it
can help the country to establish proper infrastructure. Infrastructural facilities can help
companies to transport raw materials as well as final output to desired location easily.
Moreover, this sector chiefly focuses on electricity as well as construction sector, which are

MAKING SENSE OF STRATEGY
essential components for industrial sector of Kuwait. Hence, the policy maker should focus
on infrastructural facilities to implement further development in this sector.
Demand Condition: According to Diamond of National Advantage, demand condition is
considered as another essential determinant to analyse national competitive advantage. This is
also true for industrial sector of Kuwait. All industrial organisations need to fulfil the local
demand of the country at first before exporting these in other countries (Chong 2017). This
process can help these industries to adopt proper business strategies through analysing local
markets. Demand condition of Kuwait chiefly depends on magnitude of demand in local
market, number of buyers as well as growth pattern of the business sectors. These factors can
help Kuwait to earn comparative advantage to produce certain products efficiently. As a
result, large amount of production can help this country to export excess products in
international market. This strong demand and market size in local market can attract foreign
investors positively to invest in this country (Żmuda 2017). Thus, the policy maker can
analyse the local market of Kuwait to understand its market size, growth and number of
buyers in Kuwait. Through developing proper development strategies, the concerned person
can help companies of Kuwait to earn comparative advantage. This further can help these
business organisations to attract foreign investors.
Related and supporting industries: The country can sustain any business properly without any
supporting or relative industries. In Kuwait, the policymaker needs to focus on availability of
supportive industries for specific business sectors. The country mainly produces oil. Hence,
the country needs to establish other industries that can support this oil producing companies
significantly. In addition to this, the policy maker should focus on the availability of capable
suppliers.
Firm, strategy, structure and rivalry: Without proper strategy, business structure as well as
rivalry, it is not possible for any firm to obtain comparative advantage. The competitiveness

MAKING SENSE OF STRATEGY
of a firm or industry mainly depends on the process based on which they create, organise and
manage various types of domestic rivalry (Kordalska and Olczyk 2016). Hence, for different
size of firms, different types of strategies are applied. In Kuwait, each firm needs to analyse
economy of scale along with corporate governance that further can insist these companies to
earn comparative advantage.
In Kuwait, firms mainly exports oil as well as refined products and fertilizers. Hence, it can
be considered that these firms earn comparative advantage through producing these products.
Therefore, these firms enjoy economies of scale during their production process. Moreover,
new policies, rules and regulations of government can help Kuwait to experience comparative
advantage.
Kuwait is one of the richest countries across the world. Therefore, the county easily
obtains efficient labours in their industries. Moreover, the country has huge amount of capital
accumulation and infrastructural facilities (Haque, Patnaik and Hashmi 2016). Moreover,
Kuwait has a large market for oil production. Hence, these factors can influence foreign
investors to invest in this country.
Therefore it can be concluded that Diamond model of national advantage has
significant importance in any country. This is applicable for Kuwait as well. The country can
experience comparative advantage to produce some products, such as oil. This in turn helps
these firms to attract foreign investors.

MAKING SENSE OF STRATEGY
Answer 2)
Basic policies that the government should adopt for enhancing the capacity of the industries
for innovation and upgrade
Strengthening research and development: one of the most important policy for enhancing the
upgrade and innovation of the industries. Research and development usually comprises of the
innovative activities which is generally look after by the governments for developing any
kind of new products or improving the service. The government should be spending more
amount in the research and development sector for innovation. Therefore He should support
the scientific and technical research for upgrade (Guan and Yam 2015). The government
should finance enough for the development of the research and innovation. Generally it has
been observed that there is a positive correlation which is present between the research and
development and productivity across all the sectors (Kaelble 2017). The government should
be supporting the research and development so that new products and innovated and the
industries can update itself. However, research is one of the risky financing areas.
Public financing: the government should subsidize the project which related to the
enhancement of the industries. It must be noted that the innovation performance and the
financial flows are directly related to each other. Therefore it can be stated that finance is the
significant factor for driving innovation at all levels (Wallace 2017). Therefore government
funding is very important for innovation. Public funding is the money that generally flows
from the government which is related to taxes which will help in industrilaization. The funds
are generally gathered and distributed by different levels of the government
Direct assistance: the government can provide various kind of helps to the business which
will help in enhancing industrialization. The government can provide tariffs which will save

MAKING SENSE OF STRATEGY
them from foreign competition. Taxing the imports sometimes provides the opportunities for
the local industries to innovate itself. The government should also help in boosting imports in
order to help in increasing innovation. Importing advanced technologies can help in
enhancing the capacity of the industries (Mazzucato et al. 2015). The government should
therefore also help in boosting the foreign direct investment in the economy which can again
boost industrialization. Therefore increase in the foreign direct investment and boosting
imports can help in innovation of the industries.
Subsidies: government can provide subsidies and tax cuts for innovation in the industry.
Providing huge amount of subsidies in the industries can help in innovation (Kaelble 2017).
Therefore, providing subsidy to the business and industry can help in increasing
industrialization where most of the subsidies are cash grants or loans. Tax concessions can
also help in industrialization and enhance innovation. Subsidies can be offered in two ways
were one is termed as the direct subsidies and the other is the indirect subsidies.
Tax advantage: the government can provide tax advantage or economic bonus which are
applied to certain industries. The tax advantage includes tax reductions, tax free or tax
deferred. The government in general establishes tax advantages for encouraging the private
industries. For enhancing the industrialization, government should introduce tax advantages
(Guan and Yam 2015). Therefore, the tax advantage will be helping many industries for
enhancing the capacity.

MAKING SENSE OF STRATEGY
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