Strategic Firm Response to Developing Economy Challenges

Michael Porter describes economic development as a continuous process of upgradation of the competitive position of the country. During the economic development process the macroeconomic foundation of the economy and consequently the business environment of the firm experience paradigm shifts on a continuous basis. This results in newer challenges to the firm at every stage. This article attempts to capture the strategic shifts that firms are required to make in each of the stages to gain and sustain competitive advantage. After describing the stages of economic development—factor-driven economy, investment-driven economy, innovation-driven economy and wealth-driven economy—and classifying the firm in terms of its external linkages, the article explores the strategic response that a firm would need to make under different situations. The article argues that the strategic response would depend on the type of the firm, its resource endowments and the stage of the economy. The responses are mapped through four dimensions: ( i ) Managing the Supply-side, ( ii ) Managing the Demand-side, ( iii ) Managing the Conversion Process and ( iv ) Changing the Business Model. After describing each, the article analyses a set of cases to explore deeper insights about the relationships between the stages of economic development, pre-conditions and the choice of strategies.