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The Competitive Advantage of Nations

The Competitive Advantage of Nations

Michael E. Porter
1990
T3 855 pages · about 14h 15m to read Open Librarygoodreads

Summary

Porter extended his firm-level competitive strategy work to explain why particular countries become the home base for internationally successful firms in particular industries. The research covered ten nations and many industries over four years.

His central framework is the diamond, comprising four interacting determinants. Factor conditions, meaning not inherited resources but created and specialised factors such as skilled labour and research infrastructure. Demand conditions, where he argues that sophisticated and demanding home customers push firms to improve faster than complacent home markets do. Related and supporting industries, meaning the presence of internationally competitive suppliers and adjacent industries in the same location. And firm strategy, structure and rivalry, where he makes the counterintuitive claim that intense domestic rivalry, rather than national champions protected from competition, is what produces internationally competitive firms.

From this he derives an argument about clusters: competitive industries concentrate geographically because the four determinants reinforce each other locally, and the cluster rather than the firm or the nation is the correct unit of analysis. He also argues that government's role is to improve the determinants rather than to protect firms or pick winners.

The book is very long and the case material is exhaustive. Its influence on economic development policy has been enormous, and cluster policy is now standard practice worldwide. Economists have criticised the framework as unfalsifiable, as inconsistent with trade theory, and as derived from cases selected to fit. The empirical evidence that cluster policies work as intended is weak.

Key takeaways 7

  1. National competitive advantage in an industry arises from four interacting local conditions rather than from inherited resources or macroeconomic policy.
  2. Intense domestic rivalry produces internationally competitive firms, while protected national champions produce firms that cannot compete abroad.
  3. Demanding and sophisticated home customers push firms to improve faster than large but undemanding home markets do.
  4. Created and specialised factors, such as skilled labour and research institutions, matter far more than inherited endowments of land or basic labour.
  5. Competitive industries concentrate geographically because the determinants reinforce each other within a location, which makes the cluster the correct unit of analysis.
  6. Government should improve the determinants through education, infrastructure and standards rather than protect firms or select winners.
  7. Disadvantages in basic factors can produce advantage by forcing innovation, which is why resource-poor countries sometimes lead resource-intensive industries.

Who should read it

Executives choosing where to locate operations and policy readers assessing cluster and industrial strategy, treated as an influential framework rather than settled economics.

About Michael E. Porter

Bishop William Lawrence University Professor Emeritus, Harvard Business School; founder, Institute for Strategy and Competitiveness

Competitive Strategy and the five-forces framework are the primary source for industry analysis, and Competitive Advantage supplied the value-chain vocabulary the field still uses.

Harvard Business School, Institute for Strategy and Competitiveness

Michael E. Porter’s page →Harvard Business School →Institute for Strategy and Competitiveness →

Similar books 6

Chosen by shared topics, the entries that hold them, and the people who recommended both.

Cases in Competitive StrategyCases in Competitive Strategy
T4 Cases in Competitive Strategy
Michael E. Porter · 1983
Open LibraryGoodreads
Competition in Global IndustriesCompetition in Global Industries
T4 Competition in Global Industries
Michael E. Porter · 1986
Open LibraryGoodreads

Edited volume

Competitive AdvantageCompetitive Advantage
T1 Competitive Advantage
Michael E. Porter · 1985
Open LibraryGoodreads

The value chain: how to find where a firm's cost or differentiation advantage lies.

Competitive StrategyCompetitive Strategy
T3 Competitive Strategy
Michael E. Porter · 1980
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Techniques for Analyzing Industries and Competitors

Recommended by: Mohnish Pabrai, Bill Gurley, Jamie Dimon

On CompetitionOn Competition
T4 On Competition
Michael E. Porter · 1998
Open LibraryGoodreads

Collected HBR articles; expanded edition 2008

Redefining Health CareRedefining Health Care
T4 Redefining Health Care
Michael E. Porter, Elizabeth Olmsted Teisberg · 2006
Open LibraryGoodreads

Creating Value-Based Competition on Results

Where it sits in the reference 4

Michael E. Porter
Strategists
Management and Organisational Design
Business themes
Competitive strategy
Business themes
Geopolitics and national economic power
Economics

Topics

EconomicsBusiness and Management