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The Competitive Advantage of Nations.

The Competitive Advantage of Nations. By Michael E. Porter. New York, The Free Press, 1990. 855 pp. $35.

If you want to be competitive, compete, rather than run from your competitors. This is the essential message of The Competitive Advantage of Nations. A metaphor from sports-the sphere in which competitiveness is most clearly defined-is instructive. A team can choose to play against a low standard of competition and accumulate an impressive won-lost record. To become true champions, however, the contests must be against the most powerful opponents.

The sports analogies to Michael Porter's subtle and extensive research are closer and easier than any reviewer deserves. First, the focus must be on the individual competitor-the industry or even firm-rather than some larger aggregate. In the athletic arena, the parallels are an emphasis on the abilities of the competing teams, rather than an analysis of the structure of the league.

In this regard, Porter prefaces his study with the observation that competition is won or lost in particular industries and "thousands of struggles in individual industries [determine] the state of a nation's economy and its ability to progress." In this view, he is opposed to those who assert it is primarily the nation that competes, and the result for each individual within it is determined by national attributes.

The need to face strong competition in order to improve finds expression in Porter's rejection of trade protection as a route to national advantage. Porter states, "Without competition, the protected industry will never emerge at all to become internationally successful."

Two points-the focus on private roles and the rejection of government protection-have made it easy to interpret Porter as "free market" or "antigovernment." This is true only in the sense that Porter is suspicious of the detailed regulation of business outcomes that is the objective of the worst industrial policy planners and the straw man of the worst laissez faire dogmatists.

In fact, Porter finds a significant role for the government similar to that of an athletic coach. The coach can add or detract from competitive advantage, but cannot run the race. Rather, the government's role is to press for higher performance (perhaps with rigorous product standards), to provide a well-defined training regimen, and to insist on the highest possible level of competition.

To be a positive force, the rising level of competition must, in turn, lead to a continuous process of improvement. For the athlete, this entails new, more rigorous practice sessions. For the economic competitor, it means a constant drive toward innovation and upgrading of products and production processes.

Porter's analysis of the need for continuous improvement in business competition also can be found today in the quality management literature. Constancy of purpose and continuous improvement are firmly registered among W. Edward Deming's widely cited 14 principles for quality improvement, and are paralleled in the writings of other quality management experts.

Competitive pressure and continuous innovation provide the dynamics of advantage. How they will be resolved is determined by what Porter calls the "diamond." The diamond is an integrated system of four principal determinants of national competitive success: Factor conditions, the condition of related and supporting industries, domestic demand conditions, and conditions affecting the creation, management, and rivalries of the domestic industry. The diamond is a theme that Porter returns to throughout the book and proves a good tool for simplifying his extremely detailed presentation of data and cases covering more than 100 industries and 10 countries through the evolution of post-World War II economic history.

A subtheme that many readers of this book may find grating is the condescending attitude Porter takes to the ability of economists to contribute much to understanding competitiveness. His attitude is unjustified and is derived from an oversimplified view of economics having developed only the factor endowments theory of comparative advantage and international trade. Porter should know that even undergraduate texts develop the proofs of differences in consumer tastes as a basis for trade-a concept that should have fit nicely in his view of demand conditions as one of the four facets of the diamond.

Some of his criticism is merited. Where this book makes a contribution is in describing the paths through which the business world actually evolves toward the solutions on an economist's blackboard. That evolutionary path is sniffed at as "quasi-dynamics" by the economics profession-thus there is barely enough work on it to fill a single footnote in Porter's discussion of the dynamics of national advantage. Reading the results of many months of sifting through mounds of data-and actually talking to the players-by Porter and his research team will help economists appreciate the importance of how an economy might actually get to where our theory says it should.

It is a long book, and full of subtle themes and variations. This message, however, runs clearly through it all:

Competitive advantage emerges from

pressure, challenge, and adversity,

rarely from an easy life. Selective factor

disadvantages, powerful local buyers,

stringent local needs, early

saturation, capable and international

suppliers, and intense local rivalry can

all be essential to creating and sustaining

advantage. Pressure and adversity

are powerful motivators for change and

innovation. A nation's firms succeed in

an industry because pressures are juxtaposed

with some advantages in responding

to them, such as sophisticated

local demand, a highly developed supplier

base, and specialized factor pools.

-Richard M. Devens, Jr.

Office of Employment and

Unemployment Statistics

Bureau of Labor Statistics
COPYRIGHT 1991 U.S. Bureau of Labor Statistics
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Author:Devns, Richard M. Jr.
Publication:Monthly Labor Review
Article Type:Book Review
Date:Jul 1, 1991
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