This article suggests a refreshed approach to industrial strategy by drawing on principles from business strategy. Recognizing the disruptive shifts in geopolitics, global trade and technology, it lays out ways that government can act more like a strategic business—focusing on areas of long-term attractiveness and competitive advantage, making deliberate trade-offs, and aligning actions across policy levers. The article is structured around the core questions central to both business and industrial strategy: What is our ambition?, Where to play?, How to win?, and What capabilities must be in place? The article applies these questions to the context of the UK and EU, arguing that their industrial strategies must now meet the dual objectives of raising economic growth through raising productivity, and strengthening economic resilience against foreign sovereign or monopoly intervention. Taking the UK as a live example, it encourages a more purposeful, yet disciplined, industrial strategy that leverages competition and trade rather than distorts them. Emphasis is placed on making clearer strategic choices, strengthening competition and competitive alternatives in strategic sectors, greater coherence across policy levers, and regulatory reform. Ultimately, the article advocates for a pragmatic, evidence-led approach – one where industrial strategy supports, rather than undermines, a competitive, innovative, and resilient economy.
By Marcus Bokkerink[1]
I. Introduction
All governments execute an industrial strategy, even when they claim not to. As soon as a government taxes, subsidizes, licenses, regulates or otherwise promotes different economic sectors or constituents, it is making strategic choices. It is allocating taxpayer investment – and steering the nation’s private sector resources and activity – in line with these choices.
Not every government makes these strategic choices strategically, or even explicitly. Some simply continue with the choices that they find already in place. They may tweak some of these around the edges. But by not making explicit, consequential choices about where to allocate taxpayer resources and steer the nation’s activities, they are still making choices – that is, to continue their predecessors’ industrial strategies.
If governments are to have an industrial strategy whether they intend to or not, they might as well set that industrial strategy explicitly and strategically. In doing so, there is a lot they can learn from how businesses set business strategies. Around the world, almost every business pursues some form of strategy. They set a purpose and ambition; decide where to compete, where not, and their priorities; decide the business model and capabilities they need to succeed, and how to line up the necessary resources; and mobilize the organization and partner stakeholders to execute the strategy effectively. And they do this in an external environment where, like governments, they face external competition, change or disruption, and uncertainty.
So, what can a government learn from business strategy and what lessons could be applied to an industrial strategy? Moreover, what is the role here of competition?
Successful business strategies explicitly answer five questions:
- What is our ambition? What value are we aiming to create, what is the opportunity we are creating, the problem we are solving?
- Where are we going to compete – and where not?
- How are we going to compete – and win? What competitive advantages will we build, reinforce, renew?
- How will we make sure we get this done well – business model, people, funding?
- How will we know we’re successful, how will we stay ready to adapt?
This article focuses on the first three questions, taking each in turn to suggest how lessons from business strategy could be applied to a government’s industrial strategy. Where possible it will take as a live example the UK where the government intends to set a new industrial strategy during the first half of 2025.[2]
II. What Is Our Ambition? What Value Are We Aiming to Create? What Is the Opportunity We Are Creating, the Problem We Are Solving?
In setting strategy, businesses are very clear in having an ambition anchored on economic value creation. They are clear on the relative attractiveness of their markets, their competitive position, and their performance. They are clear on what drives growth, returns, and value in their business, and the potential to create further value. They are clear on the opportunities and threats from changes in their external environment – be they geopolitical, macroeconomic, technology, or competitive disruptions – and try to anticipate them.
For governments seeking to create value for their countries through an industrial strategy, this analogy generally translates into setting the objective as raising economic growth, predominantly by raising productivity so that growth is accompanied by rising prosperity that benefits citizens and enterprise across the economy.
The objective of driving productivity growth through industrial strategy has been common across development stages of countries. In the years following the Second World War, Japan sought to develop high-quality manufacturing in sectors with large, growing export markets, especially in automobiles and electronics. South Korea developed large family-owned conglomerates like Samsung, Hyundai, and LG with an emphasis on innovation- and technology-intensive sectors with high export potential. Germany’s strategy was to nurture its “Mittelstand” of small and medium enterprises in highly specialized and export-oriented manufacturing sectors. In all cases, becoming globally competitive in relatively higher technology sectors was seen as a catalyst for productivity growth. In the more recent past, in an economically advanced U.S., the 2022 CHIPS and Science Act and Inflation Reduction Act aimed to spur economic growth and resilience by boosting domestic research, manufacturing and supply capability in key growth-enabling technologies, including semiconductors, quantum computing, materials science, and clean energy. In the UK, the new government’s 2024 draft industrial strategy[3] also sets economic growth as the single overriding objective of its industrial strategy.
Looking ahead, this question of “what are we aiming to achieve” is impacted by three, overlapping, trends as we enter “a new era” of geopolitical and macroeconomic fragmentation.
First, a weakening understanding that economic growth requires productivity growth and therefore effective competition. Previously, countries pursuing ambitious industrial strategies such as Japan, Korea, and Germany, recognized that productivity and global competitiveness could only come about in a competitive environment. They therefore supported, directly or indirectly, multiple competitors rather than single national champions in each of their prioritized industries. There was a broad-based understanding that being competitive on the world market would both require and spur leaps in productivity, and innovation to drive yet further productivity, in the prioritized industry sectors; and that the benefits of this innovation and productivity would only diffuse across the economy when the main players were not shielded from competition. Even as recently as the early 2020s, the U.S. Biden administration’s Executive Order on Promoting Competition in the American Economy[4] explicitly recognized effective competition as a prerequisite for driving innovation, productivity and economic growth, a view also shared explicitly by authorities in the EU and UK[5] at the time.
In contrast, the UK government’s recent stance on economic growth in general, and industrial policy more specifically, appears more muted on competition as core to productivity, innovation and therefore economic growth. Instead, the overriding focus appears to be on raising absolute investment[6] in major sectors. This could raise challenges: strategies focused on investment, if pursued without competition, do not have the best record of success, as seen in the Soviet Union, in Communist China prior to the 1980s reforms, as well as in the UK in the 1970s, when absolute investment without competition led to stagnation and decline, not growth.
Second, the traditional objective of economic growth is rapidly being supplanted by national (or regional) economic resilience as the primary objective for government industrial strategies. Having come to the fore following the pandemic and Ukraine war on the back of supply shocks to key inputs such as vaccines and energy, this has been reinforced by the subsequent broader deterioration of the geo-political landscape. These exposed the vulnerability of national economies and security when critical assets such as telecommunications, energy, microchips and digital infrastructure are owned and controlled by foreign firms open to influence by adversarial or volatile states.
Governments’ initial industrial strategy responses to this need for greater resilience have included banning or more heavily scrutinizing foreign ownership, such as Huawei in telecommunications and the UK’s beefed up Security and Investment Act 2021 (“NSI Act”); and accelerating the development of domestic supply of strategic resource, for example the U.S. CHIPS Act 2022; or recommendations similar to that of the Draghi report on EU competitiveness.[7] However, the sheer scale of geopolitical tensions and trade upheaval unleashed by the U.S. Trump administration has brought into sharper focus the degree of economic dependence and vulnerability of European and UK economies to the “kindness of strangers.” This is reinforcing calls to improve national and regional competitiveness and self-sufficiency across a broadening range of sectors including energy, cloud infrastructure and AI.
Consequently, government industrial strategies must now satisfy not one but two primary objectives, protecting security of supply for critical products and services in addition to promoting economic growth. In the case of the UK, the new industrial strategy will therefore need to identify nationally strategic sectors not only from an economic growth perspective but also from a perspective of national economic resilience and security.
The unlock to meeting these two objectives is competition. As with Airbus in airplanes, Europe and the UK may now start using their industrial strategies to promote the competitive, scale provision of solutions in areas such as energy, transport, and telecommunications, and to accelerate the development of competitive alternatives to current dominant or near-dominant supply in digital infrastructure and services.
Another way of looking at this trend is that the geopolitical fragmentation and trade upheaval brought by the second Trump administration is accelerating a drive by governments, particularly in the EU and Asian nations, and to some extent in the UK to create competing alternatives in industries considered strategic where U.S.-headquartered global firms have dominated.
While it is in its early stages, there is a third trend emerging towards a growing emphasis on free trade amongst a coalition of willing partner nations who share a belief in the rules-based international trading system. This trend flows directly from the two primary objectives to raise both economic growth and economic resilience and security of supply. For the UK, that means removing trade barriers with the EU and other large and medium-sized rapidly developing economies that together drive 75 percent of global trade. Easier access to a far bigger market will enable the most competitive businesses to grow and achieve economies of scale, while exposure to wider competition will spur greater innovation, choice and productivity. It is the often the most innovative but smaller businesses that are held back by bureaucratic barriers to trade, unlike multinational incumbents whose scale can absorb the additional administrative burden.
III. Where Are We Going to Compete – And Where Not?
In business, a tried and tested approach to setting corporate or portfolio strategy involves looking at sectors, markets, segments, within the current portfolio and future option set, through two key lenses. One, what is the relative attractiveness of different sectors, markets or segments, in terms of growth and their potential for superior investment returns or value for a leader. Two, what is our competitive position and our ability to become an advantaged leader and win there. Combining these lenses, businesses make choices about which existing market leadership positions to protect and reinforce, which contested or emerging markets or segments to grow to leadership positions, and which challenged or less attractive markets or segments to divest.
This rigorous business approach to making portfolio choices translates directly to governments making industrial strategy choices for their country. Overall, this has been reasonably well understood by governments setting industrial strategies, which have tended to identify and prioritize sectors that are judged to be most attractive – because of their existing weight in the economy or their role in driving future productivity, innovation, and economic growth – and that are believed to play to the country’s relative strengths
However, looking forward, making these choices has become harder for governments, because of the expansion of the list of problems industrial strategies are meant to solve and of the opportunities they are meant to create in the new global geopolitical and trade era. That means that in practice, national governments are grappling with an expanding set of economic sectors deemed essential and requiring boosting that now encompasses at least 3 types of industries:
First, core supply side, infrastructure sectors, which have a disproportionate knock-on effect on the ability of the economy to raise productivity, innovation and growth. Such sectors include energy (in particular, renewable energy, grid capacity and battery storage capacity), transport (including, in particular, rail links), core digital and technology infrastructure (in particular, access for established businesses and new innovators alike to cloud, AI foundation models, and supercomputer capacity), and as the UK has recently argued, steel. The added complication is that these must now not only be developed to the point where the supply is readily available from a capacity and growth catalyst perspective, but also from a security of supply perspective and therefore not reliant on a few global corporations that are vulnerable to influence or intervention by foreign powers.
Second, high-growth industrial sectors that are fueled by new technologies and that represent a major future growth opportunity for an economy, including artificial intelligence, advanced materials and manufacturing, life sciences and biotech, and climate-tech (as well as, in a fragmenting geopolitical world, defense).
Third, sectors that, if they do not already fall into the first two buckets, represent a major global strength for the national economy such as, for the UK, the creative sector, financial services and broader professional services.
In the UK, this expanding scope has resulted in the current government proposing a focus on no less than 8 priority growth sectors in its first draft industrial strategy – advanced manufacturing, clean energy industries, creative industries, defense, digital and technologies, financial services, life sciences, and professional and business services[8] – and that is before being forced by shifting pressures to add steel and automotive industries to the list.
When faced with a plethora of opportunities and options, businesses have learned that not making difficult choices on where to invest and where not – firmly, quickly, with frank transparency about both the rationale and the consequences – ends up diluting resources across too many initiatives than can be supported by the funding, time, and effort available, resulting in competing less and less successfully in many spaces without winning and creating value in any. National governments today are discovering the same. For example, while the UK has prioritized life sciences and digital and AI as two of the country’s growth sectors, it was not able to support AstraZeneca’s planned investment in a major vaccine manufacturing plant and had to scrap planned investment in AI and technology innovation, including in national exascale and supercomputer capacity.
The good news is that, for medium-sized economies at least, there are at least two ways to tackle this problem of too little resource chasing too many industrial strategy opportunities.
The first is, regional specialization. For example, the UK’s Greater Manchester region has pre-empted the upcoming national industrial strategy by focusing on four of the potential eight national frontier sectors – advanced materials and manufacturing, health innovation and life sciences, digital and creative, and net zero – which build directly on the region’s strengths. This means the city-region can mobilize a full suite of resources and levers – private sector investment, university and research center R&D, local government support, the development of relevant skills and enabling infrastructure – against this smaller set of high-potential areas.
The second solution is simply, to use the power of competition to spur productive, private sector investment and innovation across multiple priority sectors at once, a point covered in the next section on “how to compete” in prioritized sectors.
IV. How Are We Going to Compete and Win? What Competitive Advantages Will We Build, Reinforce, Sustain, How?
Businesses think hard about how they are going to create, reinforce and renew their competitive advantages in their chosen markets.
If we treated the economy as a business portfolio and wanted to drive some of our industry sectors, we would naturally deploy those levers that work best to achieve that goal. Applying this corporate analogy to government, the core question becomes: what will it take for the country to build and sustain a competitive advantage in the priority sectors? There are three lessons that help inform the answer – if, like business, one looks at the evidence dispassionately and without ideology.
First, recognizing that competition is core to enabling a prioritized sector to become more competitive and productive. Second, encouraging competing alternatives that can challenge dominant incumbents in strategic sectors will assist the economy in becoming more resilient in the face of resurgent protectionism particularly where those incumbents are influenced by hostile or unreliable states. Third, it is essential to take a system view to building the competitiveness of prioritized sectors, ensuring that all other levers, including government policy levers, are mobilized alongside private sector investments in support of those prioritized industries.
A. Competition as the Core Ingredient
Any national strategy that aims to boost certain sectors in a country or region (outside natural monopolies) will be far more successful if competition is a critical ingredient – as Japan, Korea, and Germany demonstrated when promoting and supporting multiple competitors in their prioritized industries. Without competition, investment alone won’t make a prioritized industry more productive, innovative, and growing – as Europe discovered in the 1990s when white elephant Spanish regional airports had to be mothballed, or as China and the Soviet Union discovered over decades of unproductive investment and was demonstrated by Argentina’s failed import substitution policies. More recently, the UK re-discovered this lesson after heavy investment in a single South-North rail line that has ended up being serially delayed, over budget, and whittled down to a point where the route ended up with less rather than more capacity. Not only has this failed to grow productivity and effective capacity, worse, it siphoned off potential investment in transport links between cities and towns within regions that would have had a more positive impact on productivity and capacity, faster.
Investment without effective competition, whether through protection, unitary focus on national champions, or de facto capture of licensing by a monopoly provider, has resulted in debt write-offs, deteriorating productivity, and economic stagnation. Where markets are not contestable, monopoly incumbents avoid challenge and the need to innovate and become more productive. A sobering example is the U.S. commercial aerospace industry, where consolidation into one de facto monopoly provider resulted in the U.S. losing its lead in both technology and safety. Whichever market or period we look at, the evidence points to the fact that effective competition in industries and markets spurs innovation, enables the most productive players and entrants to grow, and brings about the exit of the most unproductive firms – all improving productivity and growth. As every citizen knows: when they have a choice they get better service, quality, and value, and where they don’t have choice, service quality and value are worse.
B. Economic Resilience Through Competition
The recent resurgent protectionism of the U.S. has coincided with increasing vulnerability of remaining “mid-sized” G7 sovereign governments to the demands of powerful global providers on whom governments have become reliant for critical national infrastructure and services.[9] In contestable markets this problem can be addressed through the enforcement of competition law, as the UK Competition and Markets Authority demonstrated in its intervention against Motorola Solutions Inc’s monopoly provision of mobile radio services to the UK’s emergency services.[10] However, reliance on a few dominant providers, and the associated exercise of market power, has become harder for governments to tackle in digital services such as cloud and productivity software where there is less effective competition. Stark evidence of this is the admission by senior government ministers in the UK and Europe that they must act “with a sense of humility” when dealing with global digital firms”[11] and that “need to be cautious with these digital corporations because we have no real alternatives to the offering by the American digital industry.”[12]
Countries now find that essential services are reliant on firms that are not only able to dictate terms but are also vulnerable to foreign sovereign intervention and can be used to threaten the economies of democratic nations even further. A live example is the negotiations between the UK and U.S. trading off U.S. trade tariffs, the UK creative sector’s copyright protection against scraping by AI firms, and the UK’s digital services taxes, whose role was to even the previously skewed competitive playing field between online and offline commerce.[13]
These developments underscore a growing call for European, UK and other G7 nations to bring competition and choice back into essential digital infrastructure and services. This has three implications for upcoming industrial strategies:
One, recognize that in many infrastructure sectors, government can achieve its goal without having to divert material tax resources. In most key infrastructure sectors such as transport and energy that are not natural monopolies, it will be competing operators, not government or state-championed single providers, that will deliver more capacity more productively. Governments can enable this simply by getting out of the way and letting competition do its work – in construction to build affordable homes, in renewable energy capacity, in battery storage and grid connections, and transport links within regional clusters. This means tackling the bureaucratic inertia and fragmented planning rules impeding new projects by willing competitors who stand ready to bring the additional investment, innovation and choice the country needs, as in the UK Luma and Hull trains did in rail – driving improvements in service, prices, demand, productivity and growth.
Two, actively favor diversity of suppliers in key sectors. Rather than relying on a small handful of firms who can dictate terms to suppliers, customers, and governments, encourage and enable investment across multiple competing providers when establishing, for example, small nuclear reactors, data centers, and advanced manufacturing facilities in different regions; including firms that are home grown or from trusted ally nations; and avoiding permanent lock-ins for supply beyond technology cycles, but rather locking in continued healthy competition amongst the first wave providers, based on relative performance, for the next generation of investment opportunities.
Three, bring more effective competition into public procurement, by streamlining the bureaucratic procedures and lock-ins that favor large monopolistic suppliers over more innovative entrants. In the UK this would also mean reducing government reliance for cloud services, key software and the like on one or two corporations and avoiding falling into that trap with the country’s hugely valuable NHS data. Having picked a set of industries or sectors where it wants to win, governments cannot allow themselves to pick winners within those industries.
C. Implementing a System View
For prioritized sectors to achieve their maximum potential, competition alone will not be sufficient. It will also require joined up policies that ensure businesses and their investors have easy access to relevant R&D and innovation capability; to workers with the right skills; to energy at an internationally competitive cost; and to the required transport and other enabling infrastructure. As the UK’s draft industrial strategy paper recognizes in theory, this requires system thinking. In practice, that systems thinking will require further tough trade-offs that have historically been challenging for governments in practice. The three most pressing ones are:
One, recognize that if within its prioritized sectors, an industrial strategy aims to support energy-intensive industries for economic growth or national security reasons, it must address any uncompetitive cost of key inputs for those industries, namely energy. As the UK has found, having a cost of electricity for industry that is 50 percent higher than in Germany and France, and multiple times the cost in the U.S. results in divestment, as we have seen in the case of the steel industry where the government was forced into emergency nationalization to preserve its virgin steel-making capacity.
Two, recognize that tax policy also plays a role in enabling or preventing effective competition. In the UK for example, one of the prioritized sectors is the creative industry, a historic strength. Yet today in entertainment or publishing, businesses that offer competing services face different tax or regulatory burdens (for example in the regulation of content and watersheds) depending on whether their business model is online or offline, broadcast or streamed, local or global. In such situations, system thinking would mean letting competition, not government tax or regulatory arbitrage, drive consumer choice and business success.
Three, use the industrial strategy as a catalyst to tackle unnecessary regulation. Applying system thinking, that would mean encouraging competition authorities to increase the share of the economy where rigorous competition enables the market to regulate itself as opposed to be subject to public regulations written by officials, or private regulation imposed by entrenched firms who restrict their businesses customers accessing inputs they need or reaching their customers. One example is the mandate given by the Netherlands government to the country’s Authority for Consumers and Markets (“ACM”) to recommend cuts in existing regulations on a regular basis.
V. Closing Observations
Being explicit about what problem we are solving, what opportunity we are creating, about our ambition. Making explicit choices about where we are going to compete and where not. Making explicit choices about how we are going to compete, about the levers we will bring together to build a competitive advantage. Recognizing that economic growth and prosperity come above all from growing productivity and innovation. Recognizing competition as a core ingredient, and that economic resilience requires more, not less, competition and choice. Adopting a system view to solutions that are coherent across all the levers that matter to the prioritized sectors, including government’s supply side, trade and tax policies.
To a business reader these may seem obvious lessons to follow. Yet they involve making challenging trade-offs that are difficult for elected governments in practice. They are nonetheless necessary. What could it take to cut through this difficulty? Continuing the analogy of learning from business, part of what it takes is mindset. First, getting good at identifying the problem to solve – requiring appetite for evidence and analysis, and the patience to understand the evidence. Second, in designing solutions, having the strategic courage to take a long-term horizon and learning to take a system view. And third, being prepared to lead by making hard choices, unambiguously, with a clear rationale based on evidence, against which the leadership team will hold itself accountable.
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[1] Former Chair of the UK Competition and Markets Authority.
[2] UK Government Department for Business and Trade, Invest 2035: the UK’s modern industrial strategy (November 24, 2024).
[3] Id.
[4] United States Government Executive Office of the President Executive Order 14036, Promoting competition in the American economy (July 9, 2021).
[5] UK Government Department for Business and Trade, Strategic Steer to the Competition and Markets Authority 2023 (November 23, 2023).
[6] UK Government Department for Business and Trade, Strategic Steer to the Competition and Markets Authority (February 13, 2025).
[7] Mario Draghi, The future of European competitiveness: Report by Mario Draghi (September 9, 2024).
[8] Invest 2035, supra note 2.
[9] James Titcomb, Tech will quit Britain over online safety crackdown, THE TELEGRAPH, Feb. 16, 2025.
[10] Press Release, Competition and Markets Authority, CMA wins appeal in emergency services case (January 30, 2025).
[11] Chris Blackhurst, Britain must treat tech giants like nation states, minister warns, THE TIMES, Nov. 12, 2024.
[12] Paola Tamma, Germany warns against EU hitting Big Tech in retaliation to, FINANCIAL TIMES, Apr. 11, 2025.
[13] Anna Gross and George Parker, UK looks at ways to soften impact of its digital tax on US tech groups, FINANCIAL TIMES, Mar. 24, 2025.