Competitive Advantage of Nations
country' (p. 25). An empirical benefit of thisinclusiveness is that Porter's model can beapplied as easily to national competitiveness inservices (where competitive success tends to bethrough multinational expansion by companiesrather than through exports) as it can to tangibleproducts.This view of the importance of nationalenvironments in firm success runs counter tomost prevailing thinking which emphasizes theincreasing dissociation of multinationals fromtheir home bases. The 'globalization' of marketsimplies the globalization of the strategies andstructures of multinational corporations (Levitt,
Even if nations retain a distinctivenesseither in customer preferences or in the conditionsof resource availability, to adjust to and exploitthese differences requires that firms shake offthe constraints of their 'home base' and moveeither towards a global orientation (Ohmae,1990) or a 'transnational' structure (Bartlett andGhoshal, 1989). Thus, while multinationalitypermits access to global scale economies andthe resource advantages available in differentcountries, this is quite consistent with Porter'sbasic proposition that national environmentsexercise a powerful influence on the competitiveadvantage of companies and industries. In thecase of multinational corporations, the notionthat the home base exercises a dominant nationalinfluence upon the company as a whole ismore contentious. However, casual observationsuggests that, with the possible exception of theShell Group, Unilever, and Nestle, all leadingmultinationals are strongly influenced by theirparent company's nationality. Indeed, Shell andUnilever, may be exceptions that prove the ruleto the extent that both possess dual nationality.
National influences on competitive advantage:the 'diamond'
Porter's theory of national competitive advantageis based upon an analysis of the characteristicsof the national environment which identifies foursets of variables which influence firms' ability toestablish and sustain competitive advantage withininternational markets (Chapter 3). These inter-acting determinants form what Porter refers toas the 'national diamond.' Since this 'diamond'framework forms the core of the book's theoreti-cal contribution, a brief description is warranted.
Factor endowments lie at the center of thetraditional theory of international comparativeadvantage. Porter's contribution here is to analyzein much greater detail the characteristics offactors of production, the processes by whichthey are created, and their relationship tofirms' competitiveness. He recognizes 'hierarchiesamong factors' distinguishing between 'basicfactors' (such as natural resources, climate,location, and demographics) and 'advanced fac-
(such as communications infrastructure,sophisticated skills, and research facilities).Advanced factors are the most significant forcompetitive advantage and, unlike factors whosesupply depends upon exogenous 'endowment',advanced factors are a product of investment byindividuals, companies, and governments. Therelationship between basic and advanced factorsis complex. Basic factors can provide initialadvantages which are subsequently extendedand reinforced through more advanced factors,conversely, disadvantages in basic factors cancreate pressures to invest in advanced factors.An example is the Italian steel industry's pioneer-ing of mini-mill technology as a response to thedisadvantages of the high capital costs, energy
and lack of raw materials. Similarly,expensive, difficult-to-fire labor provided impor-tant incentives for the development and adoptionof automated equipment in Germany, Sweden,and Japan. In analyzing the relationship betweenfactor conditions and national competitive advan-
Porter stresses the need to disaggregatefactors of production to a fine level. A fundamen-tal flaw of most empirical tests of factor-proportions theories of trade is their propensityto lump factors of production into broad catego-ries such as land, labor, and capital. Porterobserves that:One of the least aggregated trade studies,Leamer (1984), includes capital, three types oflabor, four types of land, coal, minerals, and
But even this level of aggregation is far toobroad to capture the differences among nationsthat lead to competitive advantage, (p. 782).The advanced factors which provide the mostenduring basis for competitive advantage tend tobe specialized rather than generalized whichinevitably implies a close interaction between