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Geopolitics
Forget the subsidy race: How smaller economies build export winners
Most countries cannot outspend the US or China. Five export winners, from Indonesia to Chile, show the art of the possible in industrial strategy.
Rapid read:
- Most countries cannot win a subsidy race with the US or China. They lack the tax money for big subsidy schemes, and their home markets are too small for tariffs to build firms that compete abroad.
- In Indonesia, Vietnam, Peru, Costa Rica, and Chile, success did not rest on import barriers or big handouts to single firms. Officials asked what stopped firms competing and cleared those obstacles.
- Six lessons stand out: see problems as a business would, don’t rely on bans or subsidies alone, let pioneers take the risk, use anchor investors to lift a whole cluster, attach strings to deals, and be ready to pivot.
Most countries cannot outspend the US or China, and their home markets are too small to protect. Five export winners, from Indonesia to Chile, show the art of the possible in industrial policy.
The US Congress set aside $52.7bn for one industrial program, the CHIPS Act, in 2022. That is more money than 109 countries collect in a year from all their taxes and other revenue. So, when politicians talk about industrial policy today – subsidies, tariffs, flagship programs – most of the world is watching a game it cannot afford to play.
And the game is getting bigger. Governments now launch twice as many industrial policy measures as they did in 2020. Since 2021, economies outside the G20 have never won more than a third of announced new greenfield foreign direct investment (FDI), a pot that reached nearly $1.4tn in 2025.
That leaves more than 170 countries with the same question: how do you nurture and support industries that win abroad without deep pockets or a big home market? Our new white paper with the World Economic Forum, Small Markets, Global Winners, looks at five places that did it. None got there mainly through awarding subsidies or raising import barriers. Firms worked out, step by step, what made them competitive, and governments cleared the obstacles firms could not clear alone.
Two walls
The first wall is money. Most governments do not collect enough tax to fund big subsidy schemes.
The second wall is market size. A tariff helps local firms only if it pushes a lot of sales their way. Kenya imported 4,618 products in 2025. Only nine were worth more than $250m. Block imports of almost anything else, and the business handed to local producers is too small to build an internationally competitive industry on.
Handing out subsidies without asking that question is like a doctor writing a prescription without carefully examining the patient.
Nice to have is not must have
The current conversation about industrial policy typically assumes companies follow state-furnished incentives. They often don’t. Business executives make choices, and a subsidy that pads profits may change nothing about where they build, hire, or invest.
When viewing apparent industrial policy successes abroad, officials rarely ask the question that matters: was this policy decisive in creating a firm that competes internationally? Nice to have is not the same as must have.
Handing out subsidies without asking that question is like a doctor writing a prescription without carefully examining the patient. The better question for a government is not what its firms need protection from. It is what stops them competing, and whether the state can fix it.
In the late 1990s, Costa Rica beat Mexico to win an Intel plant that assembles and tests chips.
What the winners did
We studied electric vehicles and their value chain in Indonesia, electronics and IT in Vietnam, high-value fruit exports in Peru, precision manufacturing in Costa Rica, and salmon aquaculture in Chile. We interviewed the protagonists: executives and officials who built those industries over time.
Six lessons stand out: two for governments, two for companies, and two for both working together.
1. See the problem the way a business would.
Costa Rica built its investment agency, CINDE, to talk to companies as one business talks to another. A board of businesspeople and academics runs it, which shields it from changes of government. Its staff deal directly with plant managers, not industry lobbies. And they keep working with firms after they arrive: most of Costa Rica’s foreign investment comes from companies already there that choose to expand.
2. Don’t expect bans or subsidies to do the job alone.
In 2014, Indonesia banned exports of raw nickel to force processing at home. Investment didn’t come, prices spiked, and the ban was relaxed in 2017. In 2020 it tried again, this time with a business-minded incentive package around the ban: industrial estates next to the mines and carefully crafted incentives for smelters. The smelters came, many of them Chinese.
3. Let pioneers take the risk.
In 2008–09, a Peruvian entrepreneur, Carlos Gereda, brought blueberry plants in from Chile. No subsidies, no government program. With Universidad Agraria La Molina in Lima, he planted several varieties side by side in a trial field. One variety, called Biloxi, did best. Gereda pitched it to Peru’s big fruit exporters, which could grow it at scale. Camposol took it up, others followed, and in less than 10 years, Peru became the world’s biggest blueberry exporter.
Chile’s salmon farming also started with a pioneer: Fundación Chile, a public–private platform set up with a $50m endowment to start export businesses. It acquired and turned an early US salmon venture into a Chilean company, Salmones Antártica, proved that farming salmon in Chile could make money, and sold it to Japan’s Nissui in 1988. Its rule for every venture: sell what works to private owners; take responsibility for what fails.
4. Leverage the role of anchor investors to lift the whole cluster.
In the late 1990s, Costa Rica beat Mexico to win an Intel plant that assembles and tests chips. The Costa Rican government refused Intel any special deal beyond the tax and customs breaks every company in its free trade zones already got, and Intel was reportedly won over by that refusal. Instead, the government promised the basics: trained technicians, electricity, cargo space at the airport, and help with customs and permits. Intel, in turn, helped the government’s technical colleges design the training courses. Those skills spread. Costa Rica’s medical device industry alone now has more than 70 companies, and some, like Boston Scientific, run research centers there, not just factories.
5. Agree on the plan and attach strings.
By 2021, only about 700 electric cars had been sold in Indonesia, in a car market of roughly a million. Tax cuts for buyers were not enough to persuade carmakers to build factories for so few customers. So, the government negotiated a deal: carmakers could import electric cars free of import duty and luxury tax in 2024 and 2025, but only if they built the same number locally in 2026 and 2027, backed by a bank guarantee the state could call on if companies fell short. The cars came first; the factories had to follow. Each firm bet its own money on its own forecast. BYD committed to a plant in West Java to make about 150,000 vehicles a year. By 2025, electric cars were about 18% of car sales.
6. Be ready to pivot.
In 2007, a virus swept through Chile’s salmon farms. Banks would keep lending only if practices changed, and the industry rebuilt itself around managing biological risk. Intel shows the other side: when it closed its Costa Rica assembly and test line in 2014, it expanded engineering, services, and research there instead of leaving.
How they got past the two walls
So how did these smaller economies get past the two walls? Not with money they did not have. Indonesia offered time-limited tax breaks backed by bank guarantees. Costa Rica won Intel by refusing it a special deal. And instead of hiding behind tariffs, Peru and Chile went after demanding buyers abroad, stocking northern supermarkets when producers there were out of season.
Subsidies were not absent. Vietnam gave foreign investors tax rates of 5–10% for 15 to more than 30 years. But in none of the above cases did success rest on import barriers or big handouts to single firms. The bigger difference was the question officials asked: not what their firms needed protection from, but what was stopping them from competing.
Not every recipe here will travel as there are plenty of bad calls companies and governments can make. But the ingredients are here. Winners grew in industries as different as cars, fruit, fish, medical devices, and software. The state can set the strategy, but business decides whether it works.
Outspending the giants was never an option for most countries. Just as well: big budgets are neither necessary nor sufficient. The real task of industrial strategy is dismantling the barriers that keep firms from entering markets and reaching scale, and that is the work of many years, not an electoral cycle. Overcoming those hurdles demands sustained engagement between the public and private sectors, and officials whose understanding of business goes beyond the textbook to the constraints firms actually face.
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