The Competitive Advantage of Nations

The Competitive Advantage of Nations - An Article Summary per Michael Porter

Written for Thunderbird School of Global Management, Spring 2012

Summary

Interestingly, Michael Porter, an expert in corporate competitive strategy, examines the reasons why certain nations exceed and excel in certain groups of industries over others in “The Competitive Advantage of Nations”.  Porter goes far beyond the factors of production to explain why the Swiss excel in banking and the Americans in movies.  Prevailing thinking on the subject claims that factors like labor costs, interest and exchange rates, and economies of scale are the salient factors in determining national success.  Porter disagrees and demands that real competitive advantage is spurred by innovation applied to the “Diamond of National Advantage”.

Certain nations are capable of industry dominance when their nations have created and fostered favorable determinants including factor conditions (factors of production), demand conditions (home market demand levels and characteristics), related and supporting industries (strength of the value stream), and firm strategy, structure, and rivalry (typical corporate characteristics and amount of competition).  A nation is typically unable to achieve industry supremacy without a commitment to innovation in these determinants and will find it difficult to compete if one of the four are lacking.

Porter also defines the proper role of government, companies, and leadership in growing national advantage.  He falls in the middle of a nationalism and classical liberal approach to governance as he views the Japanese government, “at its best”, is a role model in fostering innovation and growth.  However, he notes that, “like government officials everywhere” the Japanese can become too involved and disruptive to innovation.  Companies, like governments, should focus on fostering internal innovation and its leaders should “believe in change” and continuous improvement.

Extend

With this approach, understanding the specific determinants that foster success in specific industry groups, it would be interesting to learn about which determinants foster success in more specific microcosmic skill sets, trades, thought processes, and more.  Porter’s current approach takes a grandiose look at entire nations of the world; it would seem evident that it would be important to certain people which areas of the world (and why) create the top electrical engineers, theories on physics, baseball players, etc.

Porter could extend his theory on national advantage to somewhat of a “regional advantage” approach that helps people define where and why the best of the best originate.  In short, it would seem that Porter’s Diamond might apply well to hotbeds of thought and skills – factor conditions, demand conditions, supporting industries, and strategy/structure/rivalry all seem to apply still.  Perhaps Porter’s theory applies so well because National Advantage can really be construed as human advantage on a large level.

So, to take this understanding of what fosters terrific results for nations in competitive industries, why not try to understand where companies, governments, non-profits, and educational institutions might look for the top talent in a specific skill set?