National Core Competencies and Dynamic Capabilities in Times of Crisis: Adaptive Regulation of New Entrants in Advanced Technology Markets

Abstract

The extent to which domestic industrial capabilities are essential in contributing to a Nations’ prosperity and national well being is the topic of long-standing debate. On the one hand, globalization and production outsourcing can lead to greater productivity, lower product costs, and gains from trade. On the other hand, national capabilities have long been a source of competitiveness and security during times of war and other crises. We explore the importance of domestic industrial capabilities during crises through a comparative case study of two countries - Spain and Portugal - to the sudden spike in demand for the manufacture of mechanical ventilators brought on by the COVID-19 pandemic. Both countries had to work within the framework of EU regulations, but had very different internal competencies upon which to draw in doing so. In addition, mechanical ventilators serve as a particularly interesting context for study because they involve high risk (loss of human life if incorrectly manufactured) and entering the market presents high entry barriers (including significant tacit knowledge in its production and use, and significant intellectual property embedded in proprietary software at large, established firms). To unpack the processes used by each country we leverage insights from 60 semi-structured interviews across experts from industry, healthcare workers, regulators, non-profit organizations, and research centers. We find that Spanish regulatory measures were more effective, resulting in 12 times more approvals. Although neither country is known for their mechanical ventilator production, instrumental in informing the Spanish regulatory and industrial responses was their internal knowledge base due to domestic experts and existing capabilities in ventilator production. We conclude by proposing new theory for how nations might identify important core competencies to enhance their dynamic (regulatory) capabilities in areas likely to be critical to their social welfare.

Keywords: Domestic Manufacturing; National Shortages; Crisis Resilience; Regulatory Adaptation; Innovation and Technology policy