Porter's Competitive Advantage

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The Competitive Advantage
of Nations

Michael E. Porter

Harvard Business Review
90211

HBR
MARCH±APRIL 1990

The Competitive Advantage of Nations
Michael E. Porter

National prosperity is created, not inherited. It does
not grow out of a country's natural endowments, its
labor pool, its interest rates, or its currency's value,
as classical economics insists.
A nation's competitiveness depends on the capacity
of its industry to innovate and upgrade. Companies
gain advantage against the world's best competitors
because of pressure and challenge. They benefit from
having strong domestic rivals, aggressive home-based
suppliers, and demanding local customers.
In a world of increasingly global competition, nations have become more, not less, important. As the basis of competition has shifted more and more to
the creation and assimilation of knowledge, the role
of the nation has grown. Competitive advantage is
created and sustained through a highly localized process. Differences in national values, culture, economic structures, institutions, and histories all contribute to competitive success. There are striking

differences in the patterns of competitiveness in
every country; no nation can or will be competitive
in every or even most industries. Ultimately, nations
succeed in particular industries because their home
environment is the most forward-looking, dynamic,
and challenging.
These conclusions, the product of a four-year study
Harvard Business School professor Michael E. Porter is the author of Competitive Strategy (Free Press, 1980) and Competitive Advantage (Free Press, 1985) and will publish The Competitive Advantage of Nations (Free Press) in May 1990. Author's note: Michael J. Enright, who served as project coordinator for this study, has contributed valuable suggestions. Copyright

of the patterns of competitive success in ten leading
trading nations, contradict the conventional wisdom
that guides the thinking of many companies and national governments— and that is pervasive today in the United States. (For more about the study, see the
insert “ Patterns of National Competitive Success.” )
According to prevailing thinking, labor costs, interest rates, exchange rates, and economies of scale are the most potent determinants of competitiveness. In
companies, the words of the day are merger, alliance,
strategic partnerships, collaboration, and supranational globalization. Managers are pressing for more government support for particular industries. Among
governments, there is a growing tendency to experiment with various policies intended to promote national competitiveness— from efforts to manage exchange rates to new measures to manage trade to
policies to relax antitrust— which usually end up
only undermining it. (See the insert “ What Is National Competitiveness?” ) These approaches, now much in favor in both
companies and governments, are flawed. They fundamentally misperceive the true sources of competitive advantage. Pursuing them, with all their shortterm appeal, will virtually guarantee that the United States— or any other advanced nation— never

achieves real and sustainable competitive advantage.
We need a new perspective and new tools— an approach to competitiveness that grows directly out of an analysis of internationally successful industries,
without regard for traditional ideology or current intellectual fashion. We need to know, very simply, what works and why. Then we need to apply it.

1990 by the President and Fellows of Harvard College. All rights reserved.

Patterns of National Competitive Success
To investigate why nations gain competitive advantage in particular industries and the implications for company strategy and national economies, I conducted
a four-year study of ten important trading nations: Denmark, Germany, Italy, Japan, Korea, Singapore, Sweden, Switzerland, the United Kingdom, and the United
States. I was assisted by a team of...
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