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Strategic Management Journal, Vol. 12, 535-548 (1991)
PORTER'S'COMPETITIVEADVANTAGEOF
NATIONS': AN ASSESSMENT
ROBERTM. GRANT
Management Department, CaliforniaPolytechnic State University, San Luis Obispo,
California, U.S.A.
Porter's Competitive Advantage of Nations is an important book which bridges the gap
between strategic management and international economics while contributing substantially
to both. Porter's analysis of the impact of national environment on international competitive
performance demonstrates the potential for the theory of competitive strategy to rescue
international economics from its slide into refined irrelevance, while simultaneously
broadening the scope of the theory of competitive strategy to encompass both the international
dimension and the dynamic context of competition. Nevertheless, the breadth and relevance
of Porter's analysis have been achieved at the expense of precision and determinancy.
Concepts are often ill defined, theoretical relationships poorly specified, and empirical data
chosen selectively and interpreted subjectively.
The Competitive Advantage of Nations is an management field as a whole. The book rep-
important book. Among Porter's books to date, resents a sharp departure from the objectives
it is the broadest in scope and the most ambitious and the approach of Porter's two previous
in intent. The book addresses a question which monographs, Competitive Strategy and Competi-
lies at the heart of economic and managerial tive Advantage. In addition to shifting the focus
science: 'Why do some social groups, economic of attention from the performance of the firm to
institutions, and nations advance and prosper?' the performance of the nation, the orientation
(Porter, 1990: xi).This is no new issue: the same of the analysis is positive rather than normative;
question stimulated Adam Smith's Wealth of the primary mission is a predictive and explana-
Nations in 1776 and has been a central theme tory theory of the international pattern of
motivating the development of economic science competitive advantage. In developing this theory,
since then. The purpose of this article is to assess Porter combines inductive and deductive analysis.
the extent to which Porter provides a satisfactory Beginning with established theories of competitive
answer to this question, and, in doing so, strategy and international economics, together
the contribution which the book makes to with ideas conceived during his membership
international economics and to strategic manage- on the President's Commission on Industrial
ment. Competitiveness, Porter's analytical framework
Before getting to grips with these substantive was developed through studying competitive
issues, it is clear from the outset that the book performance among 10 countries (United States,
signifies a milestone both in Porter's intellectual West Germany, Italy, United Kingdom, Sweden,
odyssey, and in the development of the strategic Switzerland, Denmark, Japan, Korea, and
Singapore), each involving between 5 and 19
industry cases. The book attests to the potential
Key words: internationalization, competitive advan- for inductive analysis to develop innovative,
tage, national level strategy. empirically-relevant theory, and to the insight
and richness of research which uses multiple, technology (broadly defined) are created and
comparativecase studies. maintained. Usually, though not always, much
sophisticated production takes place there.. .
The book also represents a partial redress The home base will be the location of many of
of the imbalance of trade between strategic the most productive jobs, the core technologies,
management and economics. The analytical and the most advanced skills (p. 19).
framework of strategic management has been
built upon concepts and theories importedfrom
economics, organization theory, and systems This view of the nation as a set of contextual
theory, with contributions from psychology, variables which influences the competitive per-
decision theory, and populationecology as well. formance of firms and industries has several
Porter himself has played a leading role in advantages from an analytic perspective. First, it
showinghow industrialeconomicscan be adapted permits Porter's analysis of industrial performance
and reorientated to offer practical, penetrating at the national level to draw upon recent
insights into the formulation of business and contributions to the theory of competitive advan-
corporatestrategy.In the CompetitiveAdvantage tage at the firm level. Chapter 2 restates the
of Nations, the primaryflow of ideas is in the strategic theory of competitive advantage within
opposite direction:Porter uses the concepts and an international context. Although well-known
theories drawn from strategic management to in the strategic management area, this analysis
extend and reformulate the theories of inter- offers powerful insights into the determinants of
national trade, direct investment, and economic national competitive performance. For example,
development. The ability to contributeto theo- the theory of international trade has been
retical development in a more mature and well- preoccupied with cost differentials as the basis for
developed discipline surely marks a coming-of- trade. Recognition that differentiation advantage
age for strategicmanagement. through quality, technological sophistication,
design, and product features is at least as
important a determinant of trade and overseas
THE THEORY investment, particularly between the indus-
trialized nations, is an essential ingredient of a
While the primaryobjective of the book is to richer and more predictively-valid theory.
explain why particular countries succeed in Second, it facilitates a dynamic approach to
particular industries, in Porter's analysis, it is the analysis of competitive performance at the
firmsratherthan nations which are the principal national level. These dynamic considerations
actors. The influence of the nation on the include the role of innovation in creating competi-
internationalcompetitive performanceof firms tive advantage, the role of imitation in eroding
occurs through the ways in which 'a firm's it, and need to upgrade the sources of advantage
proximate environment shapes its competitive if it is to be sustained over time.
success over time' (p. 29). The primaryrole of Finally, Porter's analysis of national competi-
the nation is the 'home base' which it provides tive performance encompasses both trade and
for the firm. Since firms typically develop direct investment. Exports and direct investment
within a domestic context prior to expanding are closely related both as substitutes and
internationally,the home base plays a key role complements, but their flows tend to be highly
in shapingthe identity of the firm, the character correlated and are driven by the same national
of its top management, and its approach to determinants including: 'national economic struc-
strategy and organization, as well as having a tures, values, cultures, institutions, and histories'
continuing influence in determining the avail- (p. 19). Hence, Porter does not distinguish
ability and qualitiesof the resourcesavailableto international competitive advantage based upon
the firm: direct investment from that based upon exports.
International competitive advantage is measured
by 'either the presence of substantial and
The home base is the nation in which the sustained exports to a wide array of other nations
advantages
essentialcompetitive of theenterprise
are createdand sustained.It is wherea firm's and/or significant outbound foreign investment
strategyis set and core productand process based on skills and assets created in the home
Competitive Advantage of Nations 537
investment in product innovation, sophisticated majority of Italy's woollen textile producers, for
labor skills, and process improvements is encour- example, are located in two towns. . . British
aged by a high level of domestic rivalry, at the auctioneers are all within a few blocks in
same time domestic rivalry is stimulated by London. . . Basel is the home base for all three
the availability of factors of production which Swiss pharmaceutical giants.' (pp. 154-155). Such
facilitate new entry, and by a domestic market proximity accelerates diffusion of innovation,
which is large, growing, and discerning. The facilitates investment in skills, and encourages
intensity of interaction between the four corners the development of supporting industries.2
of the diamond determines the extent to which
the national environment is conducive to inter- The economic development of nations
national success. The strength of interaction
depends upon two primary factors. The first is The final stage of Porter's analysis extends his
industry clustering. The creation of 'advanced theory of competitive advantage to explain
factors' such as technologies, sophisticated economic development within nations and
employee skills, design capabilities, and infra- national differences in prosperity and growth
structure is greatly facilitated by vertical and (Chapter 10). National prosperity, in Porter's
horizontal linkages between successful industries. analysis, is closely linked to the 'upgrading' of
The demand conditions created by successful competitive advantage. Sustained competitive
downstream industries encourages development advantage depends upon firms upgrading their
and upgrading by supplier industries, and entry by competitive advantages through innovation and
successful firms in related industries contributes to investment in 'advanced' factors of production.
strong rivalry. Tight clustering of successful At the national level, these processes enhance
industries was observed to be a characteristic of labor productivity and increase real income per
all the successful smaller nations, including head of population. In addition, upgrading
Switzerland, Sweden, Denmark, and Singapore, involves a changing national composition of
as well as Japan and Italy (Chapters 7 and 8). industries and activities. Firms lose competitive
By contrast, the relative decline of Britain as an position in the most price-sensitive industries as
industrial nation owes much to a failure to they develop more capital and technology-
maintain and build closely-related clusters: 'Bri- intensive industries. Within industries, firms move
tain's strong cluster of financial services and trade- towards more differentiated segments, they shift
related industries was highly self-reinforcing. In many of their lower-technology activities over-
industrial businesses, however, there has been a seas, and within their home bases concentrate
gradual unwinding of clusters, in which only on activities which require the highest levels of
pockets of competitive advantage remain.' skill and expertise. Porter identifies a four-stage
(p. 502). development process. The characteristics of each
The strength of interaction between the deter- are summarized in Table 1.
minants of national competitive advantage also
depends upon geographical concentration of the
industry. A general feature of successful industries THE CONTRIBUTION TO THE THEORY
within a country was their tendency to be located OF INTERNATIONAL TRADE AND
within particular cities and regions: 'The vast INVESTMENT
Factor conditions Basic factors of production (e.g. Canada, Australia, Singapore-, South
natural resources, geographical Korea before 1980
location, unskilled labor)
Investment Investment in capital equipment, and Japan during 1960s, S. Korea during
transfer of technology from overseas. 1980s large home market, acceptance
Also requires presence of and national of risks
consensus in favor of investment over
consumption
Innovation All four determinants of national Japan since late 1970s, Italy since early
advantage interact to drive the creation 1970s, Sweden and Germany during
of new technology most of the post-war period
Wealth Emphasis on managing existing wealth U.K. during post-war period; U.S.A.,
causes the dynamics of the diamond to Switzerland, Sweden, and Germany
reverse: competitive advantage erodes since 1980.
as innovation is stifled, investment in
advanced factors slows, rivalry ebbs,
and individual motivation wanes.
investment. By dispensing with the economist's 1980), and of the role of domestic demand in
fiction of trade being transactions which occur driving trade and the location of production
between countries ('Assume a two-country, two- through the product life cycle (Vernon, 1966).
commodity world. . . '), Porter is able to explore Whereas the earlier theories focused upon par-
an unprecedentedly broad range of national-level ticular aspects of the domestic market (its size,
influences upon firms' competitive performance and the existence of an early market for new
within world markets. As a result, Porter is products), Porter's theory identifies a broad
able to broaden and integrate many recent range of demand variables which influence the
contributions to the theory of international trade international competitive performance (including
as well as encompass many of the central themes the rate of growth of domestic demand, its
of more established theory. For instance, the segment composition, the sophistication of home
diamond framework assigns a prominent role customers, and the early saturation of the home
to a country's stock of productive factors in market).
determining competitive advantage in particular Probably the greatest departure which Porter
industries. Porter' contribution is the detail with makes from current theories of international
which he examines the characteristics of factors trade and investment is the emphasis which
of production, and his analysis of the determinants he places on dynamic aspects of competitive
of a country's stock of resources. Porter's detailed advantage. The central characteristic of inter-
analysis of the roles of education, infrastructure, nationally-successful firms and industries is their
technical knowledge, and the incentives provided commitment to internal investment in the prod-
by factor disadvantages, represents a considerable ucts, processes, and skills needed to continuously
advance on the simplistic theortical and empirical upgrade their sources of advantage. Hitherto,
analyses associated with traditional Heckscher- technlogy has played a minor role in trade theory
Ohlin models. and most models which incorporate it are of a
Similarly, Porter's discussion of the links 'technology gap' type where techology differences
between domestic demand conditions and between countries are exogenous (Krugman,
national competitive advantage extends prior 1990: 152-164). Porter's analysis of the competi-
analysis of the scale advantages associated with tive advantages of nations directs attention
a large home market (Grubel, 1967; Krugman, at national and industry-level influences upon
Competitive Advantage of Nations 541
problem is Porter's attempt to treat exports and generally conducive to competitive advantage in
outward direct investment as part of the same industries which make intensive use of such
phenomenon, and to ignore their complex inter- factors. However, in certain instances, it is
relationships. Thus, the competitive advantage disadvantages in the supply of basic factors
of British companies in publishing, accounting, which create incentives for upgrading competitive
and certain processed foods is revealed mainly advantage. Porter fails to clearly define the
in multinational growth which has made little conditions under which advantages in the supply
contribution to the upgrading of competitive of basic factors of production are an advantage,
advantagesin the domestic economy. and the conditions under which they are a
Lack of precision is also apparent in the disadvantage. Second, the relationship between
'nationaldiamond'framework.At its most basic, each corner of the diamond and national competi-
the diamond is a taxonomy for classifying the tive performance is complicated by the interac-
various national influences on firm and industry tions between the different variables. Chapter 4
competitiveness. Yet the categories overlap to analyzes how changes in each of the four corners
such a degree that it is not clear that the various of the diamond are influenced by each of the
influenceswould not be better representedby a other determinants, yet Porter acknowledges,
triangleor pentagon ratherthan a diamond. For 'In such an environment, cause and effect
example, role of supportingand relatedindustries relationships among the determinants become
in promoting competitive advantage appears to blurred.' (p. 179). Finally, determinacy is further
be largely through their effects on factor con- weakened by two-way relationships between each
ditions and demand conditions. Successful of four corners of the diamond and national
upstreamindustriesare a resource for domestic competitive performance. While Porter's model
firms, successful downstreamindustriesprovide seeks to explain national advantage in terms of
stimulatingdemandconditions, and horizontally- the four sets of determining variables, the
related industries contribute to factor creation dynamics of the system are such that competitive
through investment in skills and technology. performance has important influences on these
Some corners of the diamond become so all- variables. Thus, successful international perform-
embracingthat the variables included and their ance provides the finance and incentives for
relationshipsto national competitive advantage upgrading the sources of competitive advantage
are widely diverse. In particular, 'structure, (it may also engender complacency), promotes
strategies and rivalry' is an awkward catch-all the development of related and supporting
category which comprises 'national differences industries, raises the affluence and expectations
in management and practices and approaches, of domestic customers, and promotes rivalry by
. . .attitudes towards authority,. . . social encouraging new entry.
norms,. . . the orientation of firms towards The result is a theory which is gloriously rich
competing globally,. . . goals and motivations, but hopelessly intractable. The strength of the
. . .national prestige and priority, and domestic theory is its cogency in explaining the inter-
rivalry' (pp. 108-117). These variables do not national success of particular industries
form a coherent group nor are they related in (Chapter 5),4 the nature and pattern of competi-
similar ways to national competitive advantage. tive advantage in the services industry
Domestic rivalry is an industry-level variable (Chapter 6), and the patterns of national competi-
which is clearly defined and its relationshipto tive advantage among 8 of the 10 countries
pressure for improvement and innovation is included within the study (Chapters 7, 8, and 9).
precisely specified. Management training and The key weakness of the theory is in its predictive
practices,and employee attitudesand motivations power. Ambiguity over the signs of relationships,
on the other hand appear to be national the complexity of interactions, and dual causation
characteristicswhich relate to factor conditions. renders the model unproductive in generating
Indeterminacyof the relationshipsin the Porter
'diamond'modelstems from three sources. First,
some variables have an ambiguous impact on 4The case studies included in Chapter 5 are the German
printing press industry, the American patient monitoring
competitive performance. An abundant supply equipment industry, the Italian ceramic tile industry, and the
of highly productive factors of production is Japanese robotics industry.
Competitive Advantage of Nations 543
clear predictions. Porter's prescriptions in the the role envisaged by most proponents of a more
form of 'national agendas' (Chapter 13) are active industrial policy:
symptomatic of this predictive weakness. The
chapter establishes imperatives for each country, Many see governmentas a helper or supporter
most of which relate to the removal of impedi- of industry. Yet many of the ways in which
ments to the process of upgrading. But there is government tries to 'help' can actually hurt a
nation's firms in the long run. . . Government's
little prediction of how each country's industry role is as a pusher and challenger.There is a
pattern of competitive advantage is likely to vital role for pressure and even adversity in
evolve in terms of the industry clusters which the process of creating national competitive
will prosper, which will lose out to international advantage(p. 681).
competition, and what the implications of struc-
kxral change and differential rates of upgrading As a result, Porter suggests that policies
will be for national rates of economic growth. directed towards enhancing national competi-
tiveness often have effects which are the opposite
Policy recommendations of those intended. Table 2 contrasts some policy
implications arising from Porter's analysis of
The differences between Porter's theory of national competitive advantage with those of
national competitive advantage and the. existing conventional wisdom.
theory of international trade and investment are
highlighted by their respective public policy
implications. From an initial premise that govern- CONTRIBUTION TO THE THEORY OF
ment's aim is to maximize the level and growth COMPETITIVE STRATEGY
of the nation's living standard, Porter defines the
primary policy goal as: The primary contribution of The Competitive
Advantage of Nations is to the analysis of
to deploy the nation's resources (labor and international trade and investment, and, by
capital) with high and rising levels of pro- implication, to the economic development of
ductivity. . . To achieve productivity growth, an nations. At the same time, the book makes
economy must be continually upgrading.This
requiresrelentless improvementand innovation an important contribution to business strategy
in existingindustriesand the capacityto compete analysis. This arises from two sources. First,
successfullyin new industries(p. 617). Porter's integration of the theory of competitive
strategy with theory of international trade and
The appropriate role for government is to comparative advantage extends the analysis of
contribute to the conditions which are most strategy formulation to an international environ-
conducive to the upgrading of competitive advan- ment. Second, Porter's emphasis upon innovation
tage working through each of the four corners and 'upgrading' as central to the creation and
of the national diamond and taking actions which sustaining of competitive advantage represents
improve the interaction between these influences. further steps towards the reformulation of the
In some instances, the government can act strategy model within a dynamic context.
directly to augment the conditions for upgrading Strategy is a quest for superior performance
national competitive advantage-for example, through establishing a competitive advantage over
through investing in education, training and rivals. Competitive advantage is conventionally
infrastructure; in fiscal measures which encourage analyzed in terms of the selection of a strategy
private investment; and in encouraging the which matches a firm's resource strengths to
creation and dissemination of information. In the requirements for success in the market
general, however, government's influence is environment ('key success factors'). In a domestic
indirect, partial, and is only observable after a industry, firm's face a common environment and
substantial lapse of time. The policy prescriptions competitive advantage is primarily concerned with
which derive from Porter's analysis diverge from exploiting superior resources and capabilities.
conventional ideas about government policies to Internationalization of the strategy model has
promote national prosperity. Porter's view of the hitherto assumed that firms are faced with a
appropriate role of government is at odds with common global market environment, and the key
544 R. M. Grant
Table 2. Government policy and national competitiveness: Examples of differences between Porter and
conventional wisdom
strategic issues are exploitation of global scale environment. Even in the most globally-competi-
economies (Levitt, 1983), international cross- tive and homogeneous markets, the national
subsidization to squeeze domestically-based com- environment-as represented by the four corners
petitors (Hamel and Prahalad, 1985), and organiz- of the national diamond-continues to influence
ing in order to reconcile the benefits of globaliz- a firms' potential for competitive advantage and,
ation with those of national differentiation hence, its strategy formulation because of the
(Bartlett and Ghoshal, 1989). In Porter's view, influence of the proximate environment both on
the globalization of markets does not simply resource availability and on key success factors
transpose firms from a national to an international within its market environment. Two of Porter's
Competitive Advantage of Nations 545
national-level variables, factor conditions and the tage). By establishing a pivotal role for resources
presence of successful related and supporting and capabilities as sources of competitive
industries, are influential in determining a firm's advantage, Porter implicitly endorses the
resource strengths, while the other two, rivalry resource-based approach to strategy analysis
and home demand conditions, have their primary represented by the work of Barney (1986a)
influence upon conditions for success within the Dierickx and Cool (1989) and Rumelt (1984).
immediate market (see Figure 1). Porter's primary contribution to the analysis of
A consequence of Porter's introduction of the the role of resources in the determination of
national environment into the strategy framework competitive advantage and the formulation of
is increased emphasis on the role of resources strategy is to recognize that the firm's resource
and capabilities as determinants of competitive base is not simply a function of its own past
advantage. Porter's prior contributions to strategy investments, but is also determined by the
analysis concentrated upon the role of the conditions of resource supply and resource
industry environment in determining strategy creation within its environment. Although this
(Competitive Strategy) and the use of the value idea is hardly novel (Kogut, 1985), Porter's
chain as a vehicle for analyzing opportunities model is interesting because of the interaction
for competitive advantage and for configuring which occurs between firm-level and country-
a firm's system of activities (Competitive Advan- level sources of competitive advantage.
COMPETITIVE ADVANTAGE
?1T
Related and supporting industries
An even more significant departure of the and the speedy exploitation of environmental
strategy analysis in The Competitive Advantage changes. In addition to the national factors which
of Nations from that of Porter's prior books is promote innovation and upgrading-factors such
the shift from a static to a dynamic analysis of as domestic demand conditions and strong
competitive advantage. The greatest weakness of national rivalry which were discussed earlier-
Porter's prior strategy analysis was the steady- Porter also points to specific managerial actions
state concept of competitive advantage inherent at the level of the individual firm (pp. 584-606).
in his description of positions of cost and Most of these recommendations deal with two
differentiation advantage. This static analysis of sets of influences upon dynamic competitive
competitive analysis reflects a static concept of advantage: information and motivation. By maxi-
competition derived from the 'structure-conduct- mizing interchange with buyers, suppliers, and
performance' model of IO economics (Barney, firms in related industries, a firm can maximize
1986b). In The Competitive Advantage of Nations, the information and knowledge available within
Porter dispenses with this concept of competition its national cluster. By targeting customers which
as a static variable whose stength depends upon are the most sophisticated, demanding, and which
market structure, in favor of a Schumpeterian have the most difficult needs, a firm can help
concept of competition where competition is a establish leadership in quality and innovation.
process of dynamic change in which innovative By establishing performance norms on the basis
and imitative behavior is constantly creating and of the toughest regulatory standards and the
destroying positions of competitive advantage. performance levels of the most successful com-
The result is an analysis of competitive advantage petitors, opportunism and pressure for innovation
at the firm level which is dynamic in the sense can be maintained.
that competitive advantage is a consequence of A striking feature of these recommendations
change (pp. 45-53). Change may be exogenous is that many of them directly contradict prescrip-
through the emergence of new technologies, tions arising from the static analysis in Porter's
changing buyer needs, new industry segments, Competitive Advantage. Within the static indus-
shifting input supply conditions, or changes in trial organization model, strategy is a quest for
government regulations. In such cases, competi- monopoly rents which are achieved through
tive advantage accrues to firms which move locating within industries and segments where
early in exploiting the emerging opportunies. competition is weak, and by initiating changes in
Alternatively, change may be endogenous industry structure which moderate competitive
through innovation by firms. Once created, pressures. However, such conditions are also
competitive advantage is subject to erosion. A likely to blunt the incentives for dynamic competi-
firms's ability to sustain its competitive advantage tive advantage. Porter acknowledges the
depends upon the ease with which competitors revisionism of his new doctrine:
can duplicate the competitive advantage, the
number of distinct sources of advantage the firm These prescriptionsmay seem counterintuitive.
possesses, and the firm's ability to continually The ideal would seem to be the stability
upgrade its sources of competitive advantage. growingout of obedient customers,captive and
dependent suppliers, and sleepy competitors.
Porter's analysis of the process of upgrading Such a searchfor a quiet life, an understandable
competitive advantages through innovation and instinct, has led many companies to buy direct
the creation of more advanced factors of pro- competitorsor form alliances with them. In a
duction closely parallels Prahalad and Hamel's closed, static world, monopolywould indeed be
(1990) analysis of 'core competences'. the most comfortableand profitablesolution for
companies.
Porter's dynamic approach to competitive In reality, however, competition is dynamic.
advantage contains little that is new. Most of Firmswill lose to other firmswho come from a
these ideas about the creation and sustaining of more dynamicenvironment.Good managersare
competitive advantage have been put forward by alwaysrunninga little scared. They respect and
Dierickx and Cool (1989), Ghemawat (1986), study competitors. An attitude of meeting
challenges is part of organizationalnorms. An
Rumelt (1984; 1987) and others. Porter's contri- organizationthat values stabilityand lacks self-
bution to this analysis is primarily in exploring perceivedcompetition,in contrast,breedsinertia
the conditions which are conducive to innovation and creates vulnerabilities. Some companies
Competitive Advantage of Nations 547
maintain only the myth that they believe in been limited by the widening gulf between
competition. Success grows out of making the economic science which has retreated into irrel-
myth a reality. . . The aim in seeking pressure
and challenge is to create the conditions in which evant theoretical rigor, and superficiality of most
competitive advantage can be preserved. Short- policy prescriptions. The achievement of The
term pressure leads to long-term sustainability. Competitive Advantages of Nations is not just to
In global competition, the pressures of enter this gap, but to do so with an analysis of
demanding local buyers, capable suppliers, and international competitive performance of unprec-
aggressive domestic rivalry are even more
valuable and necessary to long-term profitability. edented scope. A single analytical framework
These drive the firm to a faster rate of progress provides a cogent explanation of competitive
and upgrading than international rivals, and lead advantage within industries which range from
to sustained competitive advantage and superior chocolate to auctioneering, and among countries
long-term profitability (pp. 586-587). as different as Sweden and Singapore. Moreover,
a critical strength of Porter's analysis is its ability
to span three levels of aggregation: the firm, the
CONCLUSIONS industry and the nation.
At all three levels, Porter offers new insights
Porter's Competitive Advantage of Nations into the determinants of competitive advantage,
addresses the central theme in the development but, it is at the intermediate level where Porter's
of the world economy during the past quarter- analysis offers the most striking advance over
century: internationalization. At the corporate prevailing knowledge. Porter's theory of how
level, growth in the volume of international national factors influence competitive advantage
transactions has transformed the competitive within individual industries extends well beyond
environment of firms: management faces greater current theories of competitive advantage based
risks, opportunities, and pressure for efficiency upon resource endowments and integrates and
and flexibility. At the industry level, inter- broadens contributons to trade theory based
nationalization has accelerated technical change, upon industrial organization and the product life
compressed product life cycles, and increased the cycle. Most important, however, is Porter's
geographical concentration of industries.5 At the emphasis upon dynamic determinants of competi-
national level, internationalization has greatly tive advantage particularly through innovation
increased disparities between nations in their and investment in more complex factors of
rates of economic development. Among the production.
industrialized nations, Japan, Italy, and Germany At the level of the firm, Porter's main
have achieved much more rapid progress than contribution is in integrating Schumpeterian
the United States, Canada, and Britain, while approaches to competition and resource-based
the economies of Eastern Europe have succumbed approaches to strategy within his analysis of
to creeping arthritis. Among non-industrialized competitive advantage. The resulting framework
countries, the disparities in growth rates between, suggests an emerging consensus within the stra-
on the one hand, Korea, Taiwan, Singapore, tegic management field. The hostility of some
Hong Kong, and Thailand, and, on the other strategic management researchers to Porter's
hand, those achieved by countries which appeared earlier work may be due, not so much to
during the 1950s to be the most promising opposition to economic concepts and theories per
candidates for future development (such as se, as to opposition to an equilibrium framework
Argentina, New Zealand, and Philippines) are which is incapable of addressing competition as
even more startling. a process of dynamic rivalry.
Our understanding of these phenomena has Least successful is Porter's analysis of economic
development at the national level. The problem
here seems to be that the further Porter gets
5 For example, in 1985, Japan accounted for 82 percent of
world exports of motorcycles and 81 percent of world exports from the micro-foundations of his theory, the
of VCRs; the U.S. accounted for 82 percent of world exports more difficulty he experiences in explaining
of photographic film and 79 percent of world exports of relationships between economic aggregates.
commercial aircraft and helicopters, Italy accounted for 57
percent of world exports of ceramic tiles, and South Korea Hence, despite the novelty and the appeal of
exported 52 percent of the world's black and white TVs. many of Porter's recommendations for govern-
548 R. M. Grant
ment policy, the persuasivenessof his prescrip- Barney, J. B. 'Types of competition and the theory
tions is limited by doubts as to whether his of strategy: Toward an integrative framework',
Academy of Management Review, 11, 1986b,
analysis is adequate in explaining economic pp. 791-800.
development at the national level. Bartlett, C. A. and S. Ghoshal. Managing across
More generally, the ambitious scope of the Borders: The Transnational Solution, Harvard Busi-
book inevitably means shortcomings both in ness School Press, Boston, MA, 1989.
theory, exposition, and empirical analysis. The Brander, J. 'Intra-industry trade in identical commodi-
ties', Journal of International Economics, 11, 1981,
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differentiatedforms, and in one table is repro- ness Review, 64, September-October 1986, pp.
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But these shortcomingsare trivial when com- a global strategy?', Harvard Business Review, 63,
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