UK: Management Classics - A diamond geezer.

UK: Management Classics - A diamond geezer. - Competitiveness, it seemed is all things to all companies. In The Competitive Advantage of Nations, Michael E Porter claims its actually a national thing.

by Trevor Merriden.
Last Updated: 31 Aug 2010

Competitiveness, it seemed is all things to all companies. In The Competitive Advantage of Nations, Michael E Porter claims its actually a national thing.

How can you write about an issue that is almost impossible to define properly? This was the problem facing Harvard Business School's Michael E Porter on penning his classic book, The Competitive Advantage of Nations, published in 1990. 'What became clear to me ... was that there was no accepted definition of competitiveness,' he noted in the book's introduction. 'To firms, competitiveness meant the ability to compete in world markets with a global strategy. To many members of Congress, (it) means a positive balance of trade. To some economists, competitiveness meant a low unit cost of labour adjusted for exchange rates.' Because of this poor definition, Porter feared that too much energy was being wasted in the great competitiveness debate or, worse still, in solutions that were inappropriate and/or counterproductive.

Porter himself was no stranger to competition in its most basic sense, having started life as a highly successful athlete. He then competed and succeeded in the business world by setting up his own highly successful consulting firm, Monitor.

Porter became most aware of the confusion surrounding competitiveness in the mid-1980s when sitting on President Reagan's Commission on Industrial Competitiveness, which had been set up to look into American industrial policy following a lack of US competitiveness in the early 1980s. Hence, The Competitive Advantage of Nations gave Porter a chance to clarify the merits of the role of the nation state in the great competitiveness debate.

The book is pitched at three levels. First, as an inquiry into what makes national economies successful. Second, as a detailed study of 10 of the world's main economies: the UK, Denmark, Germany (then only West Germany), the US, Sweden, Singapore, South Korea, Switzerland, Italy and Japan.

Third, as a series of prescriptions on what countries can do to become more competitive.

Porter aims to resolve a paradox.

Companies and industries have become more globalised in scope and aspirations, suggesting that they have transcended the nation state in importance.

Yet, Porter discovers that the opposite is in fact true - fewer impediments to trade mean less shelter for uncompetitive firms and the nation takes on more significance as the source of pioneering and fostering skills and technology.

Porter developed a model known as 'the diamond of competitive advantage'.

The national diamond has four interconnecting forces, each of which result (at least in part) from the effect of government policy. The first represents factor conditions. These would once have included natural resources and a bottomless supply of labour but now tend to mean access to hi-tech communications, university research and the availability of experts in a particular field. The second diamond point represents the conditions of demand in a country - strong national demand for a product or service can give the industry a head start globally. The third is the impact of the related industries that often thrive around strong industries in a particular country. Says Porter: 'government policy has a role in shaping the breadth and international success of related and supporting industries in a nation.' The final point relates to the impact of government action on the strategy and structure of a firm, which can fuel growth and competitive strength, if organised correctly.

Using this model, Porter flew in the face of the fashionable theories at the beginning of the 1990s. 'I developed a strong conviction that the national environment does play a central role in the competitive success of firms.' With striking regularity, Porter wrote, firms from one or two nations achieve 'disproportionate worldwide success in particular industries. Some national environments seem more stimulating to advancement and progress than others. I became convinced that understanding the role of the nation in international competition would be as valuable for firms as it would be for governments.'

At 800 pages, the book looks more of a door-stopper than a show stopper.

However, with countless charts, cluster maps and tables, the reader was given the sense that here, at last, was a definitive book on the subject.

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