STRATEGY FRAMEWORK FOR SUSTAINABLE ECONOMIC AND INDUSTRY DEVELOPMENT (AND FOR DETERMINING AND PRIORITISING THE ROLE FOR GOVERNMENT)

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STRATEGY FRAMEWORKFOR SUSTAINABLE ECONOMIC AND
INDUSTRY DEVELOPMENT(AND FOR DETERMINING AND
PRIORITISING THE ROLE FOR GOVERNMENT)

• Corporate Strategy and Policy
• PIRSA, Govt. of South Australia

Notes
2
Overview
Government Program determining the appropriate
contribution from Government
Notes
3
Outcome Getting to Accelerated Wealth Generation
Inter relationship between PIRSA outcomes
Notes
4
Each industry requires its own vision and growth
targets
Typical industry lifecycle characteristics
GROWTH
TIME
Notes
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Conditions for International Competitiveness
Porters Diamond
Notes
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STRATEGY Getting to Sustainable
International Competitiveness
Develop a ready access to knowledge, skilled
workforce, physical resources, capital and
infrastructure
Develop a discerning domestic market
Develop an industry operating environment that
encourages investment and responsiveness to
markets
Develop a business culture that encourages
entrepreneurship, collaboration and innovation
Build stronger integration and cost
efficiencies with operations of complementary indu
stries
Leveraging domestic characteristics into exports
Land, water, resources Roads, ports,
rail Courses, graduates Management resource
base Research and development Human capital
Positive rewards for entrepreneurship Competitive
industry structure (NCP) Appropriate mix of
rivalry and collaboration between firms
Consumer affairs
Development of stronger ties between
businesses associated with the value chain
Taxes and charges Accounting rules Financial
reporting rules Markets for risk capital Reward
systems Business rules and regulations
Reduce transaction costs between industries
Cluster/network formation
Maintain the sustainable integrity of the
natural and social environment
Access to international markets and market
intelligence
Bio-security Clean and green Disease-free
status Bio-diversity
Integrate demand chains
Assist companies make informed choices
Market access
Notes
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Sectors need to determine their own strategic
positioning
Typical growth drivers within the industry
lifecycle
GROWTH
TIME
Notes
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The Role Government and Chance Play in
building International Competitiveness
Notes
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PIRSA PROGRAMS Getting to Industry
Self-Mobilisation
TYPES OF GOVERNMENT INTERVENTION
INDIRECT MARKET INTERVENTION
DIRECT MARKET INTERVENTION
Notes
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PIRSA Programs Getting to optimal market benefits
Prioritising PIRSA intervention
SIGNIFICANCE OF MARKET FAILURE
Slight
None
Severe
BENEFIT COST RATIO
Clear role for private sector
Clear role for PIRSA
High
Potential role for private sector
Potential role for PIRSA
Medium
PIRSA role defined by other policy objectives
Low
Notes
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PIRSA inputs Getting to Fair cost Recovery
Recovering a fair cost for PIRSA programs
WHO CAPTURES THE BENEFIT
Combination e.g. Industry Community
Public e.g. Community
Private e.g. Firms/individuals
EFFICIENCY OF CHARGING
Fees and charges
Mix of mechanisms
High
Identity Attribution Mechanism
Levy
Medium
Fully tax-payer funded
Low
Notes
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Bringing it together a framework for strategic
thinking and decision making
Participants
Step
State Government policy orientation
PIRSA policy questions
Analytical tool
Outcome
Strategy
Government Programs
PIRSA Programs
PIRSA input
Notes
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Acknowledgements and Contacts

• Corporate Strategy and Policy Branch of PIRSA
  provides professional economic analyses to assist
  decision makers within Government. These services
  typically entail the application of standard
  economic tools to industry or natural resource
  problems, analysis of the resultant information
  and the development of strategy options. These
  analyses can be done as an input into broader
  PIRSA or Government submissions or inquiries,
  such as to PIRSA Executive, Cabinet or the
  Productivity Commission. Analyses are also done
  by Corporate Strategy Policy instigating
  economic research into issues of strategic
  importance to the State. These analyses seek to
  ensure decisions are made by Government in the
  full knowledge of their economic implications for
  South Australian primary industries and the State
  economy.
• Contact Us Location 17h Floor, 25 Grenfell
  Street,ADELAIDE, South Australia 5000.
• Phone [phone] (Tim Mares)
• E-Mail tim.mares_at_sa.gov.au

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Purpose of the Strategy Framework for Economic
and Industry Development

• The South Governments reform agenda has a
  strong emphasis on initiatives that improve
  policy and service delivery integration and
  cooperation across agencies. The government has
  declared that it is essential that those
  cross-agency initiatives which are critical to
  delivering the Governments reform agenda are
  identified and addressed appropriately in the
  planning and budget process. 
• The role of Strategy Framework is to provide a
  tool that better enable PIRSA identify and
  respond to the key issues facing South Australia
  and engender a joined up approach to the
  Governments reform agenda that is characterised
  by collaboration across divisional, agency and
  jurisdictional boundaries and that is responsive
  to the strategic needs of PIRSAs key
  constituents and stakeholders. As well as being
  a tool for collaboration with industry and the
  community, it aims to provide a coordinated,
  consultative and coherent input into the
  Governments planning and budgeting processes.  
• The ultimate purpose of this role is to
  facilitate and assist the primary and resources
  industries enhance sustainable economic growth.
• Contact Tim Mares, Director Corporate
  Strategy Policy, Primary Industries and
  Resources SA, GPO Box 1671, Adelaide SA 5001
• 08 8226 0516
• mares.tim_at_saugov.sa.gov.au

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Overview

• The framework has five levels of analyses as the
  planning and decision-making focuses down from
  broad industry visions to specific Government
  actions. The discussions move from setting
  targets for industry growth and identify
  opportunities for industry development, down to
  the resource allocation decisions made by PIRSA
  Groups to assist industry to capture particular
  opportunities.
•  
• The five levels used are
• Step1 Outcome - setting industry growth
  targets
• Step 2 Strategy - determining strategy for
  industry competitiveness
• Step 3 Government Output - establishing the
  appropriate contribution from Government
• Step 4 PIRSA Output - prioritising PIRSA
  discretionary intervention
• Step 5 PIRSA Input - when and how to recover
  costs for PIRSA interventions.

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Step 1 Outcome - setting industry growth targets

• At this level the industry Government
  discussions set targets for accelerating wealth
  generation in South Australia. The process
  starts with the vision from industry leaders of
  what could be achieved. Industry scorecards and
  the Monash model of the South Australian economy
  are used to measure past trends and potential
  gains to the South Australian economy from
  productivity enhancements captured by industry on
  both the supply and demand sides. Scenario
  building indicates where the market opportunities
  are, and which industries might have the greatest
  potential for growth.
• The Diagram shows how outcome - getting to
  sustainable economic development - is linked to
  the strategic priorities of PIRSA as illustrated
  by our Outcome 1-5 goal posts.

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Industry Life-Cycle

• As industries develop and grow over time from an
  embryonic to a mature state, the requirements of
  each industry to maintain its growth typically
  change. Hence the strategies that the industry
  may wish to pursue to achieve development targets
  and the forms of assistance that an industry may
  seek will depend to an extent on where it is
  placed on the industry life cycle curve.

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Porters Diamond

• Professor Michael Porter of Harvard University
  found that firms or industries gain and sustain
  competitive advantage in international
  competition through improvement, innovation and
  upgrading. These are ongoing dynamic processes,
  which demand continuing commitment both to
  perceive and act on opportunities. Porter
  identified four determinants of competitive
  advantage that shape the industrial environment
  of a regions firms. The determinants are the
  forces within a nation that provide firms with
  the pressures, incentives and capabilities to
  undertake necessary improvement and innovation.
• Factor conditions are the inputs necessary to
  compete in an industry, such as labour, arable
  land, natural resources, capital and
  infrastructure. Factors can be divided into
  basic factors and advanced factors. The factors
  most important to modern competition are not
  inherited, but created. Thus, a nations stock
  of factors at any particular time is less
  important than the rate at which they are
  created, upgraded, and made more specialised for
  particular industries. States that continually
  invest in the creation of advanced and
  specialised factors often translate these
  investments into industrial success.
• Home demand conditions play an important role in
  the creation of a State's competitive industries.
  Firms often succeed in industries where the
  presence of particularly sophisticated and
  demanding customers forces them to sharpen their
  performance at home. A State's firms often gain
  competitive advantage in industries where the
  home demand anticipates foreign demand and
  therefore gives local companies a clearer or
  earlier picture of emerging buyer needs. It is
  the quality of demand in particular industry
  segments that is critical to success, rather than
  its size.

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Porters Diamond continued

• The third broad determinant is firm strategy,
  structure and rivalry, which encompasses the
  conditions in the region governing how companies
  are created, organised, and managed, and the
  nature of domestic rivalry. Many aspects of a
  state influence ways in which firms are organised
  and managed. Some of these include social norms
  and attitudes towards business, which are often
  reflected in government policy. These in turn
  grow out of the educational system, social and
  religious history, family structures and other
  unique national conditions. The socio-political
  environment structure and context tends to have a
  distinct impact on the kinds of industries in
  which a region achieves international
  pre-eminence.
• Related industries are those that share common
  technologies, inputs, distribution channels,
  customers or activities, or provide products that
  are complementary. World-class related
  industries can provide firms with sources of
  technology, ideas, individual and potential
  competitors that can be advantages in
  international competition. States typically are
  competitive in clusters" of related and
  supporting industries. The complex web of
  interactions within these clusters can provide a
  major source of competitive advantage throughout
  the entire economic system. Often such clusters
  are geographically concentrated, making the
  interactions closer and more dynamic.

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Step 2 Strategy determining strategy for
industry competitiveness

• In a broad sense, opportunities for enhancing
  economic development can be achieved from
  productivity improvements along the value chain,
  or from enhanced market access.
• To add value to Porters diamond, it is useful
  for our purpose to split the third determinant
  into its two constituent parts. This does not
  change the Porter model it simply makes that
  determinant a bit more transparent.
• By creating a matrix of economic development
  opportunities on the left hand side, and Porters
  modified determinants across the top, it is
  possible to define seven strategies for economic
  development. The matrix illustrates the issues
  associated with each of Porters key determinants
  and frames them around the seven high level
  strategies, thereby adding a temporal dimension
  to Porters thinking and allowing this tool to be
  used strategically as well as diagnostically.

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Growth Drivers within Strategy Typical growth
drivers within the industry lifecycle

• In Porters terminology, the industry life cycle
  can be thought of in terms of the key drivers of
  international competitiveness for each of the
  four stages. Typically, an emerging industry will
  be driven by the natural resources available. As
  Porter would say, at this stage the key
  determinant for industry success is the Factor
  Conditions available to it. During its growth
  stage, the industry will typically be driven by
  innovation and investment the key determinants
  being Strategy and Structure, Demand, and Related
  Industries. In the Mature phase, industries
  typically become introspective and attempt more
  to maintain their status. Those industries that
  typically regenerate do so by the relentless
  pursuit of innovation, again the key determinants
  being Strategy and Structure, Demand, and Related
  Industries.

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The Role of Government and Chance in Porter
Approach

• As well as the four broad determinants for
  international competitiveness, Porter identified
  two other factors that could influence any one of
  the determinants either positively or negatively.
  They are Government intervention, and chance.
  Government intervention in the economy to enhance
  industry development is common. Most people can
  think of specific examples.
• Chance refers to events that cannot be readily
  predicted or expected / not able to be identified
  as risks by economic evaluation
• Acts of pure invention
• Wars
• Oil shocks
• Major technological changes biotechnology,
  microelectronics
• Significant shifts in world financial markets.

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Step 3 Government Output - establishing the
appropriate contribution from Government

• Given a policy orientation toward industry
  self-mobilisation, what is the role of Government
  in industry capturing the identified
  opportunities for growth, and what should
  industry be expected to do for itself? If
  Government has a role, what is the most efficient
  and effective form of intervention, and which
  Agency is best equipped to intervene?
• By developing a matrix with the possible forms
  of Government intervention down the left hand
  side, and the seven strategies for economic
  growth across the top, it is possible to map
  current programs by the form of intervention and
  the strategy targeted. This is especially useful
  in looking for possible gaps in strategic
  orientation, or in looking at the the economic
  efficiency of the forms of intervention used.
• The types of Government activities (or
  interventions) are categorised into direct and
  indirect areas. In the table, types of government
  interventions have been listed (from top down) in
  order of the typical market impacts associated
  with these interventions, where, cerates paribus,
  the light touch of persuasion or advice is
  likely to produce a more efficient outcome than a
  heavy handed legislative approach or actual
  government provision.

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Step 4 PIRSA Output prioritising PIRSA
discretionary intervention

• The aim is to maximise economic benefits to
  South Australia from Government investments in
  economic development. The issue for PIRSA is to
  determine the suite of programs that maximises
  the sustainable economic return to South
  Australia. Tools used to help determine those
  optimal investments include benefit cost
  analysis, the Monash model to determine the
  impact of investments on Gross State Product and
  employment, and PIRSA Group business plans.
  Implicit within this assessment is an
  understanding of the market failure being
  addressed by a PIRSA activity.
• Cost Benefit Analysis
• An investment is worthwhile if the benefits
  exceed the costs. By measuring the costs
  incurred, and benefits resulting from, a project
  over its lifetime, we can use discount rates to
  bring the cost and benefit streams into present
  day values that are directly comparable. This
  direct comparison of benefits and costs is the
  benefit cost ratio of an investment.
• Market Failure
• Market failure occurs when markets, if left
  alone, will not result in the socially optimum
  production and exchange of particular goods or
  services. This may occur when one or more of the
  assumptions needed for efficient market provision
  are not satisfied. For example one firm may be
  large enough to influence prices (such as a
  monopoly producer). Or, the product of research
  may be such that it is difficult to restrict
  free-riders from having access to it, diminishing
  the private incentive to fund that research.
  Market failure can also occur if there are
  effects external to the price system. For
  example, unless taxed in some way polluters may
  ignore the costs of the pollution that is a
  by-product of their production process.

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Step 5 PIRSA Input when and how to recover
costs for PIRSA interventions

• On the principle of beneficiary pays, what is
  the appropriate sharing of the costs of
  Government intervention between the public and
  private beneficiaries? The tools used to help
  determine the appropriate balance are a public
  private benefit analysis and a cost recovery
  model similar to that recently published by the
  Productivity Commission.

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Bringing it all together

• In summary, the five levels of analyses focuses
  from broad industry visions to specific
  Government actions. The Framework guides PIRSA
  groups into understanding the context of
  strategic thinking, and from this, asking the
  important questions which link industry growth
  targets and development strategies to the role of
  government and PIRSA priorities in defining
  optimal and fair actions in allocating resources.
  
• Corporate Policy and Strategy Branch has
  developed a range of tools which can assist and
  guide PIRSA groups approach to strategic thinking
  and decision making.