Governments around the world are increasingly intervening in the private sector through industrial policies designed to help domestic sectors reach goals that markets alone are unlikely to achieve. Companies in targeted sectors—such as automakers, energy companies, and semiconductor manufacturers—may experience dramatic changes in their operating environments.
The policies could create new costs or deliver significant financial incentives to shift R&D or manufacturing investments. They might also incent firms to alter their supplier networks or change their trading partners. Managers who have grown up in markets without such interventions are now facing an unfamiliar environment.
In this article, HBS professor Willy C. Shih outlines some of the policy approaches and offers a framework for responding to them. Business leaders need to understand the competing interests shaping the policies, engage and educate political leaders and their staffs, collaborate with upstream and downstream partners, and weigh the pros and cons of accepting government incentives.
Buy CopiesA new age of industrial policy is at hand. Governments have been increasingly intervening in the private sector as they have struggled to cope with the pandemic, rising geopolitical tensions, evolving economies, and climate change.
For businesses, government policies are creating new costs and forcing them to rethink where they conduct research, make products, and source components and materials.
Business leaders should understand the competing interests shaping the policies, engage and educate political leaders and their staffs, collaborate with upstream and downstream partners, and weigh the pros and cons of accepting government incentives. They must adapt to the new rules of the game.
Governments around the world are increasingly intervening in the private sector through industrial policies designed to help domestic sectors reach goals that markets alone are unlikely to achieve. As a result, companies in targeted sectors—such as automakers, energy companies, and semiconductor manufacturers—may experience dramatic changes in their operating environments. The policies could create new costs or deliver financial incentives to shift R&D or manufacturing investments. They may also incent firms to alter their supplier networks or change their trading partners. Managers who have grown up in markets without such interventions are now facing an unfamiliar environment. This article will provide an overview of policy approaches and give managers a framework for responding to them.
