Mrs Anthony

Topics: International trade, Economics, Comparative advantage Pages: 32 (11039 words) Published: December 2, 2012
The competitive advantage of nations: is Porter’s Diamond Framework a new theory that explains the international competitiveness of countries? A.J. Smit ABSTRACT
The focus of this article is to clarify the meaning of international competitiveness at the country level within in the context of Porter’s (1990a) thesis that countries, like companies, compete in international markets for their fair share of the world markets. At a country level, there are two schools of thought on country competitiveness: the economic school, which rejects Porter’s notion of country competitiveness, and the management school, which supports the notion of competitiveness at a country level. This article reviews and contrasts the theories pertaining to these two schools of thought with specific reference to trade theories and the ‘theory’ of the competitive advantage of nations originally advanced by Porter (1990a, 1997a, 1998b, 1998c, 2000). Although Porter’s Diamond Framework has been extensively discussed in the management literature, its actual contribution to the body of knowledge in the economic and management literature has never been clarified. The purpose of this article is to explain why Porter’s Diamond Framework is not a new theory that explains the competitiveness of countries but rather a framework that enhances our understanding of the international competitiveness of firms. Key words: Porter, Diamond Framework, international competition, competitiveness of countries, international business, national competitive advantage, country sources of competitive advantage

Prof. A.J. Smit is an Associate Professor of International Business, Graduate School of Business Leadership, University of South Africa. E-mail: Southern African Business Review Volume 14 Number 1 2010


A.J. Smit

“Today [South Africa] is part of a truly global economy. To maintain our standard of living, we must learn to compete in an ever tougher world market place. That’s why higher productivity and product quality have become essential. We need to move the economy into high-value sectors that will generate jobs for the future and the only way we can be competitive is to forge a new partnership between government and business” (Krugmann 1994a: 109). According to Krugman (1994a), this is the kind of statement one sees in academic journals and the popular press. It is also a statement that is popular among business people, journalists and management academics. It is a statement about the international competitiveness of countries. These kinds of statements are also propagated by the World Economic Forum in its Global Competitiveness Report (2008), which ranks countries in terms of their international competitiveness. Krugman (1994a: 7) claims that these kinds of statements and reports are “meaningless when applied to national economies”. According to Krugman (1991b, 1994a, 1994b, 1995a, 1995b, 1998), countries do not compete internationally. They are not like firms, competing with rivals in the global market place. Kohler (2006: 140) supports this belief that countries do not compete, because trade is a positive sum game and thus “a country’s welfare is ... determined by its absolute level of productivity and not by some international competitiveness rankings … In a trading world, productivity is magnified, in terms of its welfare potential by international exchange ...’’ However, international competitiveness of countries is an ever-growing concern for governments, firms as well as academic scholars (Ketels 2006). It is also one of the most misused and misunderstood terms in the popular press and academic literature today. Daniels (1991: 56) calls it “the elusive concept of national competitiveness”. According to him, there is no consensus on how to measure, explain and predict international competitiveness of countries, and “perhaps none is warranted”. This new interest in country competitiveness has opened up the debate on...
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