<B>THE</B> Export processing Zone (EPZ) is dead ? long live industrialization. If what we understand by the EPZ is a model of industrialization based on the supply of cheap labour to investors in search of a manufacturing base which also guarantees ?flexibility? in the application of laws relating to labour and preservation of the environment for the production of basic products at the cheapest possible costs ? then indeed the EPZ is dead. Add to this that a jurisdiction like Mauritius also attracted investors with the promise of preferential market access to the European and American markets duty free and quota free. Clinically dead could be a more appropriate description of the actual state of affairs since the sector continues to consume resources which would otherwise be absorbed by other activities or be idle.

The EPZ has been given pre-eminence in this commentary about the actual state of our industrialization process because it has recently offered the most visible illustration of problems and challenges by which the sector seems overwhelmed. One must not forget, however, that even before the EPZ concept was introduced in Mauritius ? we had embarked on an import substituting industrialization process. Import substitution industries were the hallmark of conventional wisdom in the 1960?s and like many other developing countries Mauritius had adopted that model.

Unlike many other countries, however, import substitution has successfully survived the onslaught of the export driven model which was later to become the lynchpin of the development framework which accompanied structural adjustment programmes and which had meanwhile become the new conventional wisdom. It is noteworthy that in Mauritius, in spite of the almost exclusive attention devoted to export driven industrialization for decades, the import substitution sector has lived on to occupy a determining place in the economy of the country today. One need also note, however that the infant industry protection argument underpinning most import substituting industrialization has often resulted into firms which were so comfortable behind protective tariffs that they never grew out of their infantile state.

It is yet another proof of the all pervasive effects of globalization that these two models of industrialization which have for a long time been presented as two distinct approaches, each with its peculiar characteristics are both now being challenged by the onslaught of the forces of liberalization and globalization. On the one hand such events as the demise of the MultiFibre Agreement and China joining the WTO are sounding the death knell of ?preferential market access? while on the other the ?high peak? tariffs and non-tariffs barriers protecting local industries are being constantly brought down and challenged in multilateral and bilateral trade negotiations.

<B> Catalytic change</B>

Globalization and liberalization are the most obvious culprits which can be blamed for the sorry state of affairs which we have described up to now. The most visible consequence of the changed environment brought about as a result of these is the manifest maladaptation of many of the traditional operators of the free zone to the new prevailing order, resulting in the inevitable closure of factories. These are in fact moving to greener pastures presenting comparative advantages more in line with their functionality in the global supply chain of the products which they manufacture.

As far as import substituting industries are concerned, liberalization and globalization confront them with constantly falling tariffs resulting from multilateral and regional trade negotiations. The most ob-vious solution open to them is to improve their competitiveness and prepare themselves to export their products thus taking advantage of the opportunities of liberalization. Fortunately some of them seem to have seen the writing on the walls and have reacted very positively to the new situation. Import substituting industries are arguably in a less dramatic situation as compared to the EPZ in so far as timely action taken now may still allow them to take the steps necessary for surviving in the new environment.

Whether change comes in the form of violent upheaval or gradual entropy it is inevitable. Normal change in the environment is a factor with which companies and countries have to cope permanently through adjustments and tactical redeployment of resources. On the other hand an event is considered catalytic or foundation breaking if it shifts the external world in such a manner as to alter the strategic premises on which policy was defined and operations set up. It is the central contention of this paper that globalization and liberalization have brought about such catalytic change in the business environment in which Mauritius has to operate. It therefore calls for a radical review of the strategic foundations of the future of industrialization in the country and calls for innovative ways of coping with the new environment, i.e. a redefinition of our strategic positioning. Tinkering with the existing model will be less than helpful under such circumstances.

<B> Not a trade issue</B>

The biggest flaw in our search for a solution to our industrialization problems would be to treat the issue as a Trade Issue for which the solutions will be negotiated at multilateral or other forms of ?trade negotiations?. For all its being dubbed a ?development round? the Doha agenda continues to be dominated by issues of concern to the biggest trading blocks as has been amply proved by events in Cancun at the end of last year.

Trade negotiations are a very important component of the development strategy of any country, for without market access there would be no production (industry or services).

Excessive reliance on trade negotiations does, however, tend to shift the emphasis and resources away from the need to devise ways and means of making industry competitive enough to face even the most unfavourable conclusion at such negotiations thus applying the maxim that in matters of trade negotiations and industrial policy, we need to prepare for the worse while hoping for the best. In the final analysis, market access based on the premise that our goods are more competitive make it much easier for our trade negotiators to argue our case. For as long as the concern of developing countries was export of primary (tropical) products, market access was nearly about everything. Once a country moves into export of manufactured products, competitiveness becomes of the essence.

<B> The way forward-competitive advantage</B>

Improving competitiveness is one of the generic requirements of any effort to continue participating as a player in the liberalized world economy. And this is true independently of the actual strategies which a country chooses to drive its industrialization process.

Two perspectives on competitive advantage are that they result from either:

a) One?s position in the industry or b) one?s resources and capabilities.

When competitive advantage is based on resources and capabilities, its sustainability will depend on the ability to maintain the uniqueness of such advantages as compared to competitors. As mentioned earlier, Mauritius?s competitive advantage for the past thirty years has been of the latter kind (cheap labour, preferential access, good infrastructure, etc). For reasons which are well known, we shall henceforth find it very hard to compete on this basis with our upcoming competitors.

This therefore leaves us with the options of positioning ourselves by serving a defensible cost position or taking a differentiated position in the most attractive segments of the total market. Intuitively, based on the following factors:

? Our actual position on the experience curve of the industry;

? The cost of labour and other inputs;

? Our distance from markets;

? The very size of our firms, the preferred choice would seem to be a move towards a differentiated position in the most attractive segments of the market. As Mauritius moves from resource-based competitive advantage to developing a positioning competitive advantage, it shifts its expectations from international negotiations from market access (trade issues) to capacity building (development issues). In implementing this shift from one to the other, we have the following tools at our disposal:

? Choosing the generic strategies (as mentioned before ? low cost leadership or differentiation);

? Strategic positioning ? competitive mapping/positioning differently from competitors in the industry;

? Portfolio analysis ? understanding which products and market segments are most valuable;

? Core competitiveness ? developing activities supported by strongest competencies or skills, while reinforcing same through a looping process.

<B>Conclusion</B>

For a long time great management theories were predicated on the concept of a firm ?buffering? itself from the environment. May be this could explain the otherwise inexplicable inertia which has characterized Mauritian firms in the face of well advertised threats. It would seem that left to their own devices, firms prefer to stay in the comfort zone of routines and no change. One of the most important challenges facing policy makers for the sector may be to devise mechanisms (incentives?) which will kickstart the process of radical change, now inevitable, if manufacturing is to continue providing gainful employment and contribute substantially to economic development in the country.

<B>Factories are moving to greener pastures presenting comparative advantages more in line with their functionality in the global supply chain of the products which they manufacture.</B>