Porter Diamond

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1. Reading for this Lecture
Porter M. (1990), The Competitive Advantage of Nations, Chapters 3&4

2. Why Location Matters
The ways that firms create and sustain competitive advantage in global industries provides the necessary foundation for understanding the role of the home nation in the process.

There are five premises we must understand relating to national advantage: 1)The nature of competition and the sources of competitive advantage differ widely among industries and industry segments. 2)Global competitors often perform some activity in the value chain outside their home country. The globalisation of competition does not negate the role of the home nation in competitive advantage but does change its character. 3)Firms gain and sustain competitive advantage in international competition through improvement, innovation and upgrading. Firms gain advantage initially through altering the basis of competition. They sustain it through improving it fast enough to stay ahead. As Schumpeter emphasised, competition is profoundly dynamic in character. The nature of economic competition is not “equilibrium” but a perpetual state of change. 4)Firms that gain competitive advantage in an industry are often those that, not only perceive a new market need or the potential of a new technology but move early and most aggressively to exploit it. The challenge is to go beyond simply recognizing differences in competitive advantage among nations to explain them.

3. The Determinants of National Competitive Advantage
Why do some nations achieve international success in a particular industry?

There are four broad attributes of a nation that shape the environment in which local firms compete that promote or impede the creation of competitive advantage.

1)Factor Conditions: The nation’s position in factors of production, such as skilled labour or infrastructure, necessary to compete in a given industry. 2)Demand Conditions: The nature of home demand for...
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