Beruflich Dokumente
Kultur Dokumente
in/uploads/files/1307519417632-competitive
%20advantage%20of%20nations.doc
The competitive advantage of nations by Michael porter
The central question in economics is why a nation becomes a home base for successful
international competitors in an industry? Hence why are firms in a particular nation able to
create and sustain competitive advantage against the best competitors? The answers to these
questions are of central concern to firms that must compete in the international markets.
These answers have implication to all firms in a country.
A nations standard of living in the long term depends on its ability to attain a high level of
productivity in the industries in which its firms compete. This rests on the firms capacity to
achieve improved quality or greater efficiency.
Changes in the nature of competition internationally have weakened the traditional
explanations of dominance of international trade. Some see national competitiveness as a
macroeconomic phenomenon while others see it as function of cheap and abundant labor.
Plenty of natural resources have also been expounded as one reason for competitiveness,
while some have looked it as an influence of government policy. Management practices have
also been put forward to explain competitiveness.
These conflicting explanations merit the asking of the question what is competitiveness? Is
a competitive nation:
1. one competitive in all industries
2. who has favorable exchange rate
3. ability of a nations industry to command high prices in markets
4. large positive balance of trade
5. rising share of world exports
6. one that creates jobs
7. low labor costs
The principal economic goal of a nation is to produce a high and rising standard of living for
its citizens. This ability depends on the productivity with which nations resources are
employed. Productivity is the value of output produced by a unit of factor input. This depends
on the quality and features of products and the efficiency with which they are produced.
National productivity determines the competitiveness of a nation.
Sustained productivity requires continuous up gradation of the economy. Thus nations firms
must relentlessly improve productivity in existing industries by raising product quality,
adding desirable features, improving production technology and boosting production
efficiency. It must also develop the capabilities required to compete in more and more
sophisticated industry segments, where productivity is generally higher. An upgrading
economy is thus one which has the capability of competing successfully in new and
sophisticated industries. The aim is to support high wages and command premium prices.
International trade and foreign investment provide opportunities to do so.
1. a nation can specialize in those industries in which its firms are relatively more
productive
2. no nation can be competitive in everything
3. International competition necessitates meeting of higher standards both in features
and in productivity.
4. a rising share of exports in increasingly sophisticated industries can support
productivity growth
Hence the core question is why nations are able to compete in sophisticated industries and
activities involving high productivity. To understand this, need is to concentrate on specific
retaining effective strategic , creative and technical control, the nation reaps the
benefits.
7. Competition is richer and reflects segmented markets, differentiated products,
technology differences and economies of scale. Quality, features and new product
innovation are central to advanced industries and segments. Hence competition is
dynamic and evolving. This means that improvement and innovation in methods and
technology are a central element to explain sustained competitive advantage.
Real issue:
1. How can one explain the ability of firms to continuously innovate and change
whereby they are able to increase the returns available through new products,
processes?
2. how can the theory have utility value to the practicing manager
Methodology:
1. conducted a four year study of ten important trading nations
2. study limited to ten nations because of time and resource constraints
3. these ten nations accounted for 50% of total world exports in1985
4. focus was on sophisticated industries and segments hold the key to rising productivity
5. nations chosen were ones that were already competing successfully in those industries
6. The study consisted of two parts:
7. Part 1: identify all of the industries in which nations firms are internationally
successful. Data sources were statistical data, supplementary published sources, and
field interviews. Includes service industries.
8. Defined international success by a nations industry as possessing competitive
advantage relative to the best world wide competitors. The measures chosen were ;
Presence of substantial and sustained exports to a wide array of nations
And /or significant outbound investment based on skills and assets created in
home country
The nation was treated as a home base if it was either a locally owned,
indigenous firm, or a firm that was managed autonomously though owned by a
foreign company or investors.
If a nations industry consisted largely of production subsidiaries of foreign
companies, the nation was not deemed competitive in that field.
9. cluster maps were used to map successful industries in each economy
10. Part 2 consisted of examination of the history of competition in particular industries to
understand the dynamic process of creation of competitive advantage.
11. For each nation sample of industries chosen was representative of most important
groups of competitive industries in the economy. The industries of significance were
which accounted for >20% of total exports of a country
12. All the industries selected were the ones in which the nation had a significant
international market position. Aim was to represent the entire economy.
13. Avoided industries highly dependent on natural resources. Included those industries
where technology was crucial.
14. Studied history of each industry to understand the basis for competitive advantage.
Each case study considered the entire global industry. Industries chosen were the
success cases for that country.
The competitive advantage of firms in global industries:
Comp
etitive
scope
Cost
leadership
differentiation
Cost focus
Focused
differentiation
Competitive advantage
Sources of competitive advantage:
1. how firms organize and carry out activities
2. strategy guides how these activities are performed
3. conceiving new ways to perform these activities confers competitive advantage
4. all activities are linked to form a value chain
5. managed linkages can be a source of competitive advantage
6. a value chain is embedded in an industries value system which includes all actors in
its field of business.
direction in which resources and skills are deployed, the goals of the persona in the acts, and
the pressures on firms to invest and innovate.
Chance
events
Factor
conditions
Demand
conditions
Governme
nt
Factor conditions:
1. Are inputs necessary to compete in any industry. A nations endowments of factors
plays a major role in gaining competitive advantage.
2. Important are the rate at which they are created, upgraded and made more specialized
to industries.
3. They includehuman resources, physical resources, knowledge resourcesthese
reside in universities, research labs, trade associations etc, capital resources, and
infrastructure.
4. a nations firms gain competitive advantage if they possess low cost or uniquely high
quality factors of the particulars that are significant to competition in a particular
industry.
5. Competitive advantage depends on how efficiently and effectively they are deployed.
These factors are mobile and mere possession of these do not confirm advantage for a
long time.
6. Advanced factors like research institutes, highly educated personnel etc, are more
significant for competitive advantage. However these are built on the basic factors.
Specialized factors are more important for competitive advantage. These require more
focused investments.
7. Significant and sustained competitive advantage is seen when both specialized and
generalized factors for a particular industry are present. The ability to continuously
generate these factors and upgrade them.
8. Innovations are the key to offset certain disadvantages due to non possession of
factors. Innovations are stimulated if a nations firm face trends in factor costs early.
Home demand conditions:
Three factors are important: composition, size and pattern of growth and mechanisms by
which a nations domestic preferences are transmitted to foreign markets.
Home demand composition is influenced by:
Mix and character of home buyer needs
Pressure from local customers to innovate
Stimulate
factor
creation
Factor
condition
s
Create and
stimulate
transferable
factors
Firm strategy,
structure and
rivalry
Demand
conditions
National challenges
Stimulate factor
creation
Related and
supporting
industries
Influences
priorities for
factor
creating
investments
Sophisticat
ed factor
creation
Factor
condition
s
Complimentary
pulls on
products
Firm strategy,
structure and
rivalry
Demand
conditions
National challenges
Stimulate image
creation, recognition
World class
related
industries
Related and
supporting
industries
Stimulate
factor
creation
Factor
condition
s
Firm strategy,
structure and
rivalry
Demand
conditions
National challenges
Stimulate factor
creation
Deepening
of support
industries
Create and
stimulate
transferable
factors
Related and
supporting
industries
Stimulate
new firm
creation
Factor
condition
s
Firm strategy,
structure and
rivalry
Demand
conditions
Early product
penetration feeds
entry
New entrants
emerge
Related and
supporting
industries