What Scale is Appropriate for Import Substitution?

    Import substitution is practiced at several different levels:

International	At the international level, import substitution is normally aimed at reducing economic dependency.  International import substitution uses tools that are not available to regions:  tariffs, quotas, fiscal and monetary policy, and exchange rates.
Large, Diverse Regions	Here is where it is most cost-effective to begin local production involving significant economies of scale.  Diversity tends to attract entrepreneurs and entrepreneurial capital.
Heavy Importers	Regions that import a large percentage of their goods and services are prime candidates for import substitution.  These regions include frontier, peripheral, and underdeveloped areas.

 

What Procedures are Used?

    There are four main types of import substitution programs, with three commonly being used currently.  Check out the Links page for more examples of actual import substitution programs.
 

1. Information Sharing and Networking	Actions	identify imported inputs search for same inputs produced locally link suppliers and buyers - trade directories, exhibitions
	Advantages	takes advantage of existing opportunities yields cost savings for local businesses increases flexibility of supply chains engages local businesses
	Problems	harder to do for services business inertia - firms prefer current suppliers programs need visibility, effective marketing
	Examples	Oregon Marketplace Washington Marketplace Better Made in Britain Bureau Industrial Supplies Office, Queensland, Australia
2. Buy Local - Government Mandate	Actions	public sector commitment to buying locally - through bid procedures favoring local suppliers, budget mandates, or other means
	Advantages	mandates support of local businesses generates local growth and jobs relatively cheaply eventually can be self-financing from growth of regional tax base
	Problems	may protect and promote local inefficient businesses draws accusations of protectionism needs financing initially, self-financing only kicks in later with growth
	Examples	Buy Chicago
3. Buy Local - Voluntary Campaigns	Actions	media advertising local business coalition encouragement or advertising
	Advantages	inexpensive good visibility engages local businesses
	Problems	works better with tourism and consumer goods large purchasers are more cost-conscious sizeable firms and branch plants are less tied to local area
	Examples	Made in the USA Made in Pennsylvania Australian Tourism Bureau
4. Industry Targeting	Actions	analyze import substitution opportunities - quantitative economic analyses, expert opinion, surveys of industry supply sources provide information to entrepreneurs and/or existing businesses encourage industries or branch plants in region in import substitution sectors
	Advantages	thorough procedure engages local entrepreneurs or businesses generates information that might be useful for other purposes
	Problems	needs supply of capital and/or willing entrepreneurs negative aspects of industry and location incentives slow, laborious process
	Examples	Center for Economic Development, University of Alaska at Anchorage British Columbia Business Service Center

 

Examples of Import Substitution Programs
 

Program	Procedure	Organization	Key Features
Oregon Marketplace	information sharing and networking	State of Oregon	oldest state program in United States, begun in 1986  $3.5 million in import substitution created 1987-1990
Washington  Marketplace	information sharing and networking	State of Washington	run by local and regional economic development organizations  $3.7 million in import substitution created 1987-1990
Better Made in  Britain Bureau	information sharing and networking	United Kingdom,  federal government	runs local trade exhibitions and business directories  had enacted 9 local sourcing schemes by 1991  Kirklees and Wakefield shires (West Yorkshire, England):  £ 14 million in import substitution in first year, 1990
Industrial Supplies Office	information sharing and networking	Australia and New Zealand, federal level	industry supply networking  focus on Queensland, Australia
Buy Chicago	buy local mandate	City of Chicago,  Illinois	program suggested in 1987, not implemented  study by Sandro, 1993 shows self-financing, significant local growth inducement
Made in the USA	buy local campaign	United States,  non-profit	encourages American supplying and consumption  involved with policy creation and economic lobbying
Made in Pennsylvania	buy local campaign	associated with  State of Pennsylvania	information on Pennsylvania products and opportunities for consumers, businesses, entrepreneurs, and tourists
Australian Tourism Bureau	buy local campaign	Australia,  federal bureau	policy-oriented approach enhances international and domestic competitiveness of Australia's tourism industry
U. of Alaska Center for Economic Development	industry targeting	University of Alaska at Anchorage	performs economic analyses of opportunities in Alaska relays information to state government and entrepreneurs
British Columbia Business Service Center	industry targeting	British Columbia,  Canada	provides information on economic development strategies and entrepreneurial opportunities