Anil Sood and Harinder Kohli
There is nothing fundamentally new about industrial restructuring. It is a natural phenomenon associated with economic growth and change and can proceed with or without the involvement of government. What is new is the magnitude, suddenness, rapidity, and complexity of the industrial restructuring necessitated by a much changed global economic environment over the past decade. The intensified pressure for change and its economic and social implications have increasingly led governments of all economic persuasions to play a more active role in inducing and facilitating effective restructuring so that international competitiveness can be improved or regained.
Restructuring becomes necessary when mounting losses, declining productivity, or diminishing market shares indicate an actual or potential decline in international competitiveness or in the ability to deliver required products at a competitive quality and price. Restructuring embraces all dimensions of structural change, including modifications in the efficiency and relative size of industries; the start-up, closing, growth, or shrinkage of enterprises; and alterations in product mix and technology. It calls for the movement of resources—labor, capital, and technology—from one part of the economy to another, and sometimes across countries.
Restructuring can occur on an enterprise, individual industry, or industrial sector-wide level. It can likewise take place for different reasons. It may be “defensive,” that is, in response to a threat already present, or it may be “positive,” if change is pursued to build a stronger competitive position for the future. The dominant type of restructuring that advanced European countries have attempted to assist declining industries such as steel or shipbuilding is of a defensive nature. Efforts by a number of countries, for example, France, Germany, and Japan, to accelerate the development of emerging industries, such as electronics and information technology, provide examples of positive restructuring.
This article notes some of the key factors that have recently increased the need to restructure; it looks specifically, however, at circumstances in developing countries and the policy and institutional reforms that can form the basis of effective restructuring programs there. Particular attention is paid to the roles of government and industry in the various levels and types of restructuring. For its recommendations, which are primarily of a general nature, this paper draws heavily on the Bank’s analysis of past restructuring efforts and its own research, policy, and operational work in this field. (See list of related Bank publications.)
Related World Bank publications
Chad Leechor, Harinder Kohli, and Sujin Hur, Structural Changes in World Industry: A Quantitative Analysis of Recent Developments, Industry and Finance Series, 1983.
Barend A. de Vries and William Brakel, Restructuring of Manufacturing Industry: The Experience of the Textile Industry in Pakistan, Philippines, Portugal and Turkey, Staff Working Paper No. 558, 1983.
Alan R. Roe, Industrial Restructuring: Issues and Experiences in Selected Developed Economics, Industry and Finance Series, 1984.
Mieko Nishimizu and John M. Page, Jr., Country Strategies for Industrial Restructuring: An Analytical Framework and Applications (forthcoming)*.
*Mimeograph copies available from the World Bank’s Industry Department.