Porter’s Competitive Advantage Of Nations: Time For The Final Judgement?

Abstract

Porter’s (1990) Competitive Advantage of Nations (CAN) was heralded on publication as a book which could build a bridge between the theoretical literatures in strategic management and international economics, and provide the basis for improved national policies on ‘competitiveness’. This review of CAN draws on papers written since its publication to show that while it was enormously rich in its range and scope it fell far short of the claims made for it. That failure arose from a number of sources. Most fundamentally, there were elisions with respect to the object of the analysis which meant that explanations for productivity at national level became confused with explanations for industry level success in gaining market share. Second, there were fundamental misunderstandings of the factors which determine trade, particularly with respect to the principle of comparative advantage. Third, there were flaws in the methodology and mode of reasoning. Finally, the assertions which form the heart of CAN have been refuted. Sustained prosperity may be achieved without a nation becoming ‘innovation‐driven’, strong ‘diamonds’ are not in place in the home bases of many internationally successful industries and inward foreign direct investment does not indicate a lack of ‘competitiveness’ or low national productivity. Policy‐makers are left with a ‘laundry list’ on which to base simple SWOT‐type analyses of their economies, but there is no reliable guide to policy. Developing countries in particular are inadvertently encouraged to pursue policies which might be harmful. Porter generalized inappropriately from the American experience, while confusing competition at industry level with trade at national level. CAN’s failure suggests that academicians of international business would be well advised to revisit the elementary economics of trade and growth before venturing too boldly into the field of policy.

Localized advantage in a global economy: The case of Bangalore

“…Davies & Ellis, 2000). This finding adds to other studies that have found that firm success within a country may be driven by demand conditions in trading partners' countries (Espana, 2004;Rugman & D'Cruz, 1993;Rugman & Verbeke, 1993a, 1993b.…”

“…While Porter's model is now included in most standard texts in strategy and international business (e.g., Grant, 2001;Hill & Jones, 2004;Hodgetts, Luthans & Doh, 2005), and has been widely utilized in practice, it has been subject to substantial criticism at various levels (see Bellak & Weiss, 1993;Cartwright, 1993;Davies & Ellis, 2000;Dunning, 1993;Grant, 1991;Grein & Craig, 1996;Rugman, 1991;Rugman & Verbeke, 1993a, 1993b. 3 At a conceptual level, several scholars have critiqued the fundamental assumptions and assertions of the model.…”

“…Narula (1993) has argued that the model ignores evidence and developments in trade theory, while others have noted that it fails to incorporate the role of culture (Van Den Bosch & Van Prooijen, 1992a, 1992b and exchange rates (Daly, 1993). Davies and Ellis (2000) have commented on the lack of clarity and difficulty of measurement of the constructs, as well as the lack of specificity of the cause-effect relationships and their direction. For instance, it was argued that the "related and supporting industries" part of the diamond could also be considered part of "factor conditions."…”

Contrasting local responses to globalization: the case of volume yacht manufacturing in Europe

“…However, while recent empirical studies have shed new light on the structure and dynamics of cluster-like phenomena in particular industry sectors and geographic locations (Lorenzen 1998, Requier-Desjardins et al 2003, van Dijk and Sverrisson 2003), there has also been an increasingly polarized debate regarding the way in which the core concept has been developed and applied. Critics argue that proliferation of the clusters literature has brought with it a confusing variety of definitions, and a general lack of clarity over some of the key definitional parameters such as the drawing of spatial and sectoral boundaries.2 The 'diamond' framework had attracted particularly strong criticism, with detractors arguing that its conceptual limitations are a hindrance to empirical research, with potentially damaging effects on regional policies (Davies and Ellis 2000, Simmie 2002, Palazuelos 2005. More specifically, the framework is seen as conflating processes that operate at different spatial scales, and compressing the complex temporality of causal relationships:…”

“…The focus of the empirical study is on explaining differences in cluster dynamics; this allows us to assess the capacity of each conceptual framework to probe causal relationships over time and across multiple levels of analysis (cf. Davies and Ellis 2000: 1205-1206). …”