The Competitive Advantage of Nations

Most discussions of the competitive success of nations look at aggregate, economy-wide measures like the balance of trade. Porter chose a different starting point, beginning with individual industries and competitors and building up to the economy as a whole. Nations do not compete in the marketplace—business firms do, and the performance of individual companies in particular industries in where competitive advantage is either won or lost. The home nation influences the ability of its firms to succeed in particular industries, with the success or failure of thousands of struggles in many industries determining the state of a nation’s economy and its ability to progress.

Porter and his research team studied ten important trading nations, including the three leading industrial powers (the United States, Japan, and Germany), plus other European and Asian countries chosen to vary widely in size, government policy toward industry, social philosophy, geography, and region. In every case, firms were found to be internationally competitive because of a set of conditions in the home country favorable to the development of their industry.

Four determinants interact to form a “diamond": firm strategy, structure, and rivalry; factor conditions (e.g., natural resources); demand conditions; and related and supporting industries. The “diamond” is further influenced by chance events and government action. There is no single set of national conditions favorable to all industries, a fact borne out by the detailed industry and country studies which constitute the bulk of the book. A final section presents the implications for company strategy, government policy, and the national agendas of the ten countries.

The argument is incisive and original, the evidence compelling—certainly any future work on national competitiveness will have to take this thought-provoking book into account. Porter’s approach did result in a very long volume, with considerable repetition as the theory was applied to each new situation. The preface acknowledges this, and many readers will prefer to follow one of the suggested shorter paths through the book. No one with a serious interest in the subject, however, should miss THE COMPETITIVE ADVANTAGE OF NATIONS.