Porter is a famous Harvard business professor. He conducted a comprehensive study of 10 nations to learn what leads to success. Recently his company was commissioned to study Canada in a report called "Canada at the Crossroads".
Porter believes standard classical theories on comparative advantage are inadequate (or even wrong).
According to Porter, a nation attains a competitive advantage if its firms are competitive. Firms become competitive through innovation. Innovation can include technical improvements to the product or to the production process.
B. The Diamond - Four Determinants of National Competitive Advantage
Four attributes of a nation comprise Porter's "Diamond" of national advantage. They are:
a. factor conditions (i.e. the nation's position in factors of production, such as skilled labour and infrastructure),
b. demand conditions (i.e. sophisticated customers in home market),
c. related and supporting industries, and
d. firm strategy, structure and rivalry (i.e. conditions for organization of companies, and the nature of domestic rivalry).
a. Factor Conditions
Factor conditions refers to inputs used as factors of production - such as labour, land, natural resources, capital and infrastructure. This sounds similar to standard economic theory, but Porter argues that the "key" factors of production (or specialized factors) are created, not inherited. Specialized factors of production are skilled labour, capital and infrastructure.
"Non-key" factors or general use factors, such as unskilled labour and raw materials, can be obtained by any company and, hence, do not generate sustained competitive advantage. However, specialized factors involve heavy, sustained investment. They are more difficult to duplicate. This leads to a competitive advantage, because if other firms cannot easily duplicate these factors, they are valuable.
Porter argues that a lack of... [continues]
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