A nation’s competitiveness depends on the capacity of the nation’s individual firm’s operating within various industry clusters to continually innovate and upgrade at a pace faster than firm’s in competing nations. The nature and sophistication of local demand is an ingredient to stimulating innovation within local firms. Intense local competition can also lead to an advanced industry cluster, while government policies can also stimulate or stifle competition. The South African government introduced Broad Based Black Economic Empowerment (BBBEE) legislation commonly referred to as BEE as a means to stimulate the participation of the previously sidelined black population in the mainstream economy with the objective of upgrading the size and nature of local demand while reducing poverty and inequality. This study is exploratory in nature and investigates the notion that most black owned companies emerging under the period of this BEE legislation will collapse when the legislation is removed as they have not been exposed to unprotected competition. Insight drawn from the study was used to develop recommendations to key stakeholders.