Porter’s ‘competitive Advantage of Nations’:

Porter’s (1990) ‘Competitive Advantage of Nations’ 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 the papers published in the following six years suggests that the book was enormously rich in its range and scope but that there were too many conceptual flaws, particularly of elision, for the theory to amount to more than a useful taxonomy. The research methodology was also flawed and subsequent empirical studies have tended on balance to refute the theory’s major assertions. 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. The claimed integration between international economics and strategic management rests upon a mistaken attempt to substitute ‘competitive advantage’ for ‘comparative advantage’. Policy-makers are left with a list on which to base simple SWOT-type analyses of their economies’ positions with respect to the competitiveness of different industrial sectors, but no reliable guide with respect to appropriate policies to pursue. Developing countries in particular are given considerable encouragement to pursue policies which may actually be harmful. Porter The Final Judgment? INTRODUCTION When The Competitive Advantage of Nations (hereafter CAN) was published in 1990 it triggered a wave of interest, as befits a major piece marking a significant development in the work of the world’s best known business academic (de Man, 1994). Much of that interest manifested itself in newspapers and popular magazines, and was of ephemeral value, being concerned to summarise the main points of the analysis and its implications for policy-makers. However, the academic literature also began to grow, first through more than 30 reviews and then in the form of nearly 50 published articles. The purpose of this paper is to re-assess the analysis presented in the book, in the light of that literature. PORTER’S ANALYSIS The main elements of the analysis in CAN have been incorporated into almost every popular undergraduate text on international business (Daniels and Radebaugh, 1994; Griffin and Pustay, 1995, pp. 96-99; Hill, 1994, pp. 137-141; Rugman and Hodgetts, 1995, pp. 420-425), to the point where their familiarity means that they need little repetition. Nevertheless, it is useful to set out their broad sweep in order to help interpret the sometimes complex and confusing debate which followed the book’s publication. Porter’s fundamental objective in CAN was nothing less ambitious than to elucidate the reasons why ‘some social groups, economic institutions and nations advance and prosper’ (Porter, 1990, p. xi). The social group with which he was most concerned was the nation, and he suggested that ‘the only meaningful definition of competitiveness at the national level is national productivity’ (p. 6). Having established that starting point, he then went on to argue that a nation is essentially an aggregation of industries, its economic performance is determined by the competitiveness of those industries and the appropriate level of analysis should therefore be the industry. A nation’s industries are then interpreted to be made up of those firms for whom the country is a ‘home base’ (p. 19). In some parts of the analysis, and Porter’s extensions of it (e.g. Porter, 1995) the focus shifts from the nation to a sub-national region or a city, but there is no doubt that the central concern is with the factors which make the people resident in one place more prosperous than those in another. (The emphasis on place is important in view of some of the confusions which have arisen within and