Competitive Advantage of Nations

Competitive Advantage of Nations

Author: Michael PorterPresenter: Wesley Shu

Prepared for EMBA, Feng-Chia University

All Right Reserved by Wesley Shu 2

Eroded Early Mover Advantages

• Customer relationship• Scale economies• Loyalty of distribution channels

All can be overtaken by competitors if not improved.


Global Competitiveness Report

• Composition of GCI

• GCI Ranking


Sustainability

The only way to sustain a competitive advantage is to upgrade it.


• Why companies capable of

innovation in some nations?• Why do they pursue improvements,?• Why are they able to overcome the

substantial barriers?


The Diamond of National Advantage

Firm Strategy, Structure, and Rivalry

DemandConditions

Related and Supporting Industries

FactorConditions


Factor Condition

Availability of resources and skills necessary for competitive advantage in an industry

e.g., Skilled Labor or Infrastructure


Demand Condition

Home market – the information that shapes the opportunities that companies perceive and the directions in which they deploy their resources and skills.


Related & Supporting Industries

The international competitiveness of supplier industries & other related industries


Firm Strategy, Structure, & Rivalry

The conditions governing how companies are created, organized, and managed, and the nature of domestic rivalry


Factor Conditions

A nation does not inherit but instead creates the most important factors of production to form the backbone of any advanced economy.


Factor Conditions

The rate and efficiency with which a nation creates, upgrades, and deploys the factors is more important than the volume.


Factor Conditions

A factor must be highly specialized to an industry’s particular needs to support competitive advantage.


Factor Conditions

Highly specialized factors come from world-class institutes that create and then upgrade them.


Factor Conditions

Selective disadvantages can prod a company to innovate and upgrade – e.g., high land costs, labor shortage, or the lack of local raw materials lead companies to innovating and upgrading to compete.


Factor Conditions - Disadvantage

The following conditions have to be met for disadvantage-advantage transformation to work:


Factor Conditions - Disadvantage

Signal companies and companies innovate in advance of rivalsFavorable conditions in other aspects of the diamondCompany commitment


Demand Conditions

• Home demand gives companies clear and early picture of emerging buyer needs

• Demanding buyers


Demand Conditions

The character of home demand is more significant than the size.


Characters of Demand Conditions

• Market segment is larger or more visible than in foreign countries.

• Buyers are more sophisticated.

• Buyers’ needs anticipate or even shape those of other nations


Characters of Demand Conditions

Exporting values and tastes as well as products


Related & Supporting Industries

Those who are internationally competitive can provide competitive production methods and trigger innovation and upgrading.



Corporate Structure &

Nature of

Domestic RivalryNationalCircumstances& Context

Firm Strategy


Firm Strategy, Structure, & Rivalry – Germany

Stric

tly hierarchical

organization &

management practices

with technical background

top managers

NationalCircumstances& Context

Technical Oriented Industries


Firm Strategy, Structure, & Rivalry – Italy

Family owned, medium

size companies with

sophisticated tasteNationalCircumstances& Context

Consumer goods & services



Domestic rivalry to stimulate competition, creating pressure on companies to innovate and improve


The Diamond as a System• The effect of one point often depends

on the state of others. E.g., sophisticated buyers & human resources

• Each point can reinforce others. E.g., domestic rivalry promotes improvement in all the other determinants.


The Diamond as a System• Nations are rarely home to just one

competitive industry – clusters of industries.


The Role of Government

• Catalyst and Challenger



But in politics, a decade is an eternity. Consequently, most governments favor policies that offer easily perceived short-term benefits, such as subsidies, protection, and arranged mergers – the very policies that retard innovation.



• Focus on specialized factor creation.• Avoid intervening in factor and

currency markets.• Enforce strict product, safety, and

environmental standards



• Sharply limit direct cooperation among industry rivals.

• Promote goals that lead to sustained investment

• Deregulate competition• Enforce strong domestic antitrust

policies


Focus on Specialized Factor Creation

• General factors rarely produce competitive advantage, e.g., secondary education system, broad national concern such as health care.

• Specialized apprenticeship programs, university research efforts linked with industries, private company investment ultimately create the factors that will yield advantage.


Avoid intervening in factor & currency markets

• E.g., lower factor cost• E.g., currency devaluation


Sharply limit direct cooperation among industry rivals

• Companies rarely contribute their best scientists and engineers to cooperative projects.

• Divert company attention and resources from proprietary research

• Value of cooperative research: Signal the importance of emerging technical areas


Company Agenda

• Create pressures for innovation• Seek out the most capable competitors

as motivators• Establish early-warning systems –

translate into early-mover advantages• Improve the national diamond


Company Agenda

• Welcome domestic rivalry• Globalize to tap selective advantages

in other nations• Use alliances only selectively• Locate the home base to support

competitive advantage


Improve the National Diamond

• Form clusters – work with its home-nation buyers, suppliers, and channels

• Take explicit steps to create specialized factors

Competitive Advantage of Nations

Economy & Finance

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