The Competitive Advantage of Nations 20 Years Later: The Cases of Sweden, South Korea and The USA

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The Competitive Advantage of Nations 20 years later: the cases of Sweden,

South Korea and the USA
Article in Competitiveness Review An International Business Journal incorporating Journal of Global Competitiveness · August 2014
DOI: 10.1108/CR-11-2012-0027
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Competitiveness Review
The Competitive Advantage of Nations 20 years later: the cases of Sweden, South Korea
and the USA
Timothy L. Wilson Lars Lindbergh Jens Graff
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To cite this document:
Timothy L. Wilson Lars Lindbergh Jens Graff , (2014)," The Competitive Advantage of Nations 20 years
later: the cases of Sweden, South Korea and the USA", Competitiveness Review, Vol. 24 Iss 4 pp. 306 - 331
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CR
24,4
The Competitive Advantage of
Nations 20 years later: the cases
of Sweden, South Korea and
306 the USA
Timothy L. Wilson and Lars Lindbergh
Umeå School of Business and Economics, Umeå University,
Umeå, Sweden, and
Jens Graff
Solbridge International School of Business, Woosong University, Daejeon,
Republic of Korea
Abstract
Purpose – The purpose of this paper is to reflect on some policy possibilities and outcomes for three
countries of interest suggested in Porter’s The Competitive Advantage of Nations.
Design/methodology/approach – This research was both exploratory and qualitative in nature
and utilized an in-depth case study approach of three major international economies reflecting
previous observations in The Competitive Advantage of Nations. Personal contemporaneous
observations of individuals in the countries of interest were complemented by current secondary
information. The three countries selected for analysis, South Korea, Sweden and the USA, reflected
different stages of development at the time The Competitive Advantage of Nations was published
and certainly different progress since then.
Findings – The Competitive Advantage of Nations advocated new, constructive and actionable
roles for government and business. These observations can now be tested after a reasonable time
of development. In terms of development, Korea would appear to be the star of the group; Sweden
has made strong progress in comparison with other members of the European Union. Although
there are areas of strength, the USA recently has lost much of the edge it had at the time of the
Advantage’s publication.
Research limitations/implications – Because this research was built on case studies, one has the
reservations common with that approach. On the other hand, case studies are acknowledged as useful
in the identification of important variables in situations in which there is little control over events in a
real-world context.
Practical implications – Countries must go their own way and find their own paths to success. In
some ways, directions are suggested by Schumpeter (1942/1975) and in others, by Porter (1990/1996).
Chance appears to have played a role in development in each instance, but government, seen as a fifth
determinant possibility by Porter, heavily affected outcomes in each instance.
Originality/value – Although relying heavily on Porter, results add insight into the development of
Competitiveness Review
economies over time.
Vol. 24 No. 4, 2014
pp. 306-331 Keywords Competitive advantage, USA, Policy, Sweden, South Korea, Country Issues,
© Emerald Group Publishing Limited Michael Porter, Purchasing Parity
1059-5422
DOI 10.1108/CR-11-2012-0027 Paper type Research paper
1. Introduction The Competitive
Nearly 25 years ago, Michael Porter (1990/1996) published his seminal text that has
stood the test of time as the starting place for discussing competitive advantage at
Advantage of
the international level. The book represented a six-year effort involving research Nations 20 years
teams in ten different countries whose work created the massive amounts of primary later
data on which the analyses resulted (Stonehouse and Snowdon, 2007). Its premise
was that in the modern global economy, prosperity is a nation’s choice (Porter, 1998, 307
p. xii) and national prosperity is created, not inherited (Porter, 1990, p. 73).
Consequently, it has been recognized that increasing global competition ensures
that nations have become more important and consequences result from the efforts
a country pursues to establish a favorable environment for business and conditions
constructed to promote productivity in its industries.
In this text, two key concepts were introduced – the four attribute model
(diamond) of forces that determine the position of a country and the clusters that
grow up to support dominant industries. Although the two key concepts represented
a major contribution to the understanding of national competitive advantage, the
text went a step further in advocating actionable roles for government and business
in pursuing competitiveness and prosperity (Porter, 1996, p. xiii). Further, it was
suggested that governments must strive to improve the business environment in
many ways, and in a manner untypical of texts of this type, observations were made
for each of the ten countries included in the analyses.
In this regard, Prasad (2011) recently has published a paper that reminds us that
we should continually question the completeness and relevance of popular models in
analyzing situations that present themselves. That paper is particularly relevant
insofar as it deals with Porter’s five factor model and its relationship with Porter’s
(1990) national diamond and Holfstede’s (1984) analysis of culture. It is suggested
that understanding requires a good grounding in behavioral sciences, particularly
history. Further, understanding the intensity of the different forces in Porter’s
models requires an in-depth analysis of the social fabric that surrounds the
industrial organization. The paper illustrated that this appreciation of the social
fabric is heightened by the knowledge of history and the resulting culture of the
society and economy that the researcher would be considering. It was concluded
that before a relevant model is constructed the researcher must delve into the social
history that will determine constituent behavior. It is only by this process that
models so constructed will be reasonably robust to stand the test of possible bias.
In this paper, we would like to follow Porter’s conviction that immersion in the
translation of theory to practice is important in learning (Porter, 1996, p. xiii) while
sustaining Prasad’s particular caution. In this context, the intent is not to upset the
approach of Porter, but rather to see how a collection of countries have done in the
25 years since the original analyses were made. The three countries selected for
study were South Korea, Sweden and the USA. South Korea is interesting because of
its acknowledged growth as an evolving economy. Sweden becomes relevant
because of its “third way” approach. In his reflections with Stonehouse and
Snowdon (2007, p. 269), Porter rejects the concept that a third way tradeoff between
economics and society exists – if one does exist among the countries studied,
however, it would be in Sweden (cf. Schumpeter, 1942/1975, p. 325). Finally, the US
selection is important because it still is the dominant global economy.
CR 2. Background
2.1 Porter’s diamond – the determinants of national advantage
24,4 The basis of the Porter model that relates to a nation’s success in a particular
industry lies in four broad attributes that shape the environment in which firms
compete (Porter, 1990/1998, pp. 71-130). These attributes are generally described as
a diamond that suggests the determinants of national advantage. In their original
308 form they are:
(1) Factor conditions. The nation’s position in factors of production, such as skilled
labor or infrastructure, necessary to compete in a given industry.
(2) Demand conditions. The nature of home demand for the industry’s product or
service.
(3) Related and supporting industries. The presence or absence in the nation of
supplier industries and related industries that are internationally competitive.

(4) Firm strategy, structure and rivalry. The conditions in the nation governing how
companies are created, organized and managed, and the nature of domestic
rivalry.
These determinants of national advantage shape the environment for competing in

particular industries. In the studies of particular industries, however, two other elements
in the environment were suggested to play a role – chance and government. Their
attributes are:
(1) Chance. Occurrences that have little to do with circumstances in a nation and are
often outside the power of firms and/or government to influence. Examples
include acts of pure invention, major technological discontinuities,
discontinuities in input costs, shifts in world financial markets, surges in
demand, decisions of foreign governments and war.
(2) Government. If there were to be a fifth determinant, it would be government (cf.
Porter, 1990/1998, p. 126). Within the model for competitiveness, however, the
role of government is seen as affecting the four determinants of advantage or
vice versa.
2.2 Stages of competitive development

Depending on the status of firms in industries within a country, Porter (545-573)[1]
posits a sequential development of national economies, that is if sources of
competitive advantage of firms tend to come from factor conditions, then the
country’s competitive position would be factor-driven. On the other hand, if
competitive advantage tends to come from each of the four determinants of
advantage, the economy would be innovation-driven. From this type of analysis,
three stages of development were described: factor-driven, investment-driven and
innovation-driven. As nations pass through the first three stages of development,
they can sustain a “dynamic process of upgrading national advantage”. They may
pass into a fourth stage, wealth-driven, which ultimately leads to decline (556) – the
problem being that the wealth cannot be sustained.
The sequence thus becomes: The Competitive
factor-driven ¡ investment-driven ¡ innovation-driven ¡ wealth-driven Advantage of
Nations 20 years
and various countries can be located within this continuum (see pages 566 and 685).
later
2.3 The status of the three countries circa 1990
At the time of The Competitive Advantage of Nations’ publication, events were in progress 309
that would shape the economies and competitiveness of the three countries. Perhaps the
most important of these events was the ascension of Mikhail Gorbachev to power in the
Soviet Union and the peaceful breakup of that country into member nations that he led.
Basically this dissolution dominated the political and economic landscape for the next
decade. Simultaneously, the seeds of formation were sown for the European Common
Market, subsequently the European Union, and then the Eurozone. China started its rise to
becoming the second largest economy in the world and the largest trading partner of many.
Technically, the Internet became generally available for use on desk-top computers that
began dominating not only commercial but also personal use. From this basic technology,
mobile devices evolved, which have dominated communication and entertainment.
Within this framework, South Korea continued its march toward becoming an
innovation-driven economy. The Korean economy has posted rapid rates of real
economic growth since embarking on a government-directed export-oriented
development strategy in the 1960s (Datamonitor: South Korea, 2004, p. 19):
Extremely high levels of capital accumulation backed by high saving rates and participation in key
growth markets such as consumer electronics, allowed for rapid industrialization. By the
mid-1990s Korea had been transformed into the third largest economy in Asia, earning its place
among the ranks of the so-called Asian tiger economies. Economic growth during the 1991-96
period averaged more than 7 per cent, while investment approached 40 per cent of GDP. However,
strong economic growth masked a number of structural weaknesses and emerging macroeconomic
imbalances. The external current account recorded an increasingly wide deficit during 1994-96, as
the economic boom sucked in imports. External indebtedness almost quadrupled between 1991
and 1996, as the private sector took advantage of the emerging markets investment boom of the
mid-1990s to expand investment on the back of cheap external finance. Government intervention in
the foreign exchange market and the traditionally strong export performance led the private sector
to project currency stability far into the future.
Sweden stumbled a bit during a currency exchange dilemma in the early 1990s, but
subsequently joined the European Union, although staying out of the common currency
agreement. It has managed to achieve the twin goals of a prosperous market-driven
economy and a generous welfare state (Datamonitor: Sweden, 2004, p. 19):
The high level of government expenditure supported by a heavy tax burden received a degree
of reform in the early 1990s in response to a currency and financial crisis and economic
recession. The deteriorating fiscal position was reversed, expenditure and taxes were reined in,
monetary policy put on a credible and sustainable footing and a number of structural reforms
introduced. The reform program combined with the global economic upturn heralded a
markedly improved economic performance over the course of the 1990s. Economic growth
averaged around 3 per cent, unemployment fell to under 4 per cent whilst inflation remained
inside the target range of 1-3 per cent.
At the time of publication, the USA had just come out of the “Reagan Revolution” and
was on its way to being the sole global superpower and a decade that featured the last
CR balanced budget in its history. Datamonitor (2004: USA) put this situation into
perspective. During the 1990s the USA was the star performer of the world economy,
24,4 turning in growth rates of upward of 4 per cent per year for much of the decade.
Unemployment fell to a level not seen since the 1960s, while inflation remained subdued.
A deft mixture of fiscal and monetary policy, in addition to the structural reforms of the
1980s, was credited with much of the improved performance. A number of exogenous
310 factors were also at play. In particular, the development and increased use of
information and communication technology allowed the realization of productivity
increases across the economy.
2.4 Country agendas

Porter (683) suggested that:
The central economic concern of every nation should be to […] upgrade so that firms achieve
more sophisticated competitive advantages and higher productivity. […] The role of the
nation’s government is to set policies that will provide the foundations of human resources,
science and technology, and infrastructure to allow upgrading.
Accordingly, he outlined agendas for selected country that did not suggest policies, but
raised issues:
The issues for each nation, as well as the ways of best addressing them, are unique. Each
nation has its own history, social structure, and institutions which influence its feasible
options. (That is) the issues for Korean companies and the Korean government are utterly
different for those facing Sweden […].
A digest of the initial status, perspective and reflections adapted from Porter (1990/1996)
for the three countries is shown in Table I.
2.4.1 South Korea. It was suggested that South Korea provided a striking example of
a country in the investment-driven stage of Porter’s map of evolution (566). Its initial
success was largely in apparel and resource-dependent goods. Subsequently:
[…] (t)he Korean government and Korean firms adopted the more risky course of limiting the
role of foreign multinationals, seeking to establish indigenous industries, and borrowing
heavily to finance aggressive investment. The result (was) the potential for sustained
upgrading of industry and far greater long-term prosperity.
Korea was seen as “providing a good illustration of the changes in policy and company
strategy necessary to move from the investment-driven to the innovation-driven stage”
in competitive evolution (686). Specific agenda recommendations that would support
continued evolution were:
• Firms must create and support high-quality institutions for specialized factor
creation and take on growing responsibilities for training and technology
development (686).
• Both the government and firms should refrain from the tendency to restrict the
adjustment of wages and the value of the currency (687).
• Government can no longer effectively play the capital allocation role as the
economy diversifies. Markets must widen access to capital to all promising
companies, not just the chaebol (687).
Country Characterization Status Perspective Outcome
South Korea Emerging country in 1970s and Striking example of a rapidly Substantial investments in education In 1980, South Korea’s GDP per
1980s. Factor driven that upgrading economy. and infrastructure, efforts to promote person was barely a quarter the
moved into investment driven Advantage from human exports and the elevation of level of Japan’s. It now is
in the 1980s (566-567) resources, company and international competitive success to poised to surpass it to become
managerial goals, fierce level of national priority are the fourth largest economy in
domestic rivalry (477) important stimuli to success (474) the East (Economist, 2012)
Sweden A nation with choices. Developed out of resource Factor costs, devaluation, limited Schumpeter (1942/1975, p. 325)
Presently innovation-driven, position in forest products home demand, unresponsive noted Sweden’s unique
but potentially turning back and mining. Advantage in education, faltering risk-taking and approach to economics and
toward investment-driven (566) sectors of historical individual bodes poorly for government. It has remained
competition (352) innovation and dynamism in loyal to that approach. In
industry (353) comparison to other EU
countries, doing
well – real growth in GDP for
2010 and 2011 was best in zone
(Barro, 2012)
The USA Early post-war winner. Continuation of self- Dangers inherent in complacency. The 1990s may be looked upon
Innovation-driven moving into reinforcing system creating Low level of capital investment, as the golden years in the
wealth-driven (566) and upgrading competitive disappointing productivity growth economy – the transition to
advantage in a range of and slow rate of per capita income technology-oriented industries,
industries developed earlier. problematic (307) the peace dividend and
Advantage from being an favorable policy drove growth
early mover and center of (Datamonitor, 2004)
innovation (306)
Source: Adapted from Porter (1990/1996)
and reflections
Advantage of Nations:
The Competitive
Table I.
initial status, perspective

311
later
Nations 20 years
Advantage of
The Competitive
CR • Korean consumers must become aware of and be exposed to the best products and
services available (687).
24,4
• Clusters of industries must form and deepen (688).
• Korean firms must upgrade their competitive advantages and learn to compete on
differentiation (688).
312 • For the benefit of the country, the role of the chaebol must move from the central
focus it has sustained to accommodate the presence of more independent
companies (689).
• Government must implement the resolve to maintain and widen free competition
(690).
• The prime role of government must shift from direct intervention to providing the
resource foundation for upgrading and creating a more challenging environment

in which firms compete (690).
2.4.2 Sweden. Sweden’s history includes an independent position through two world
wars and a policy bias directed toward equalitarian opportunities and improvements in
the social and economic improvement of its citizenry. Porter positioned it in the
innovation-driven stage in his map of evolution. It came out of World War II with the
ability to:
[…] enjoy a rapidly rising standard of living as firms extended competitive positions beyond
resource industries into transportation equipment, machinery, and other advanced industries
linked to established clusters. Sophisticated home demand, unusual interchange within
clusters, and high and rising human resource quality supported upgrading.
A slowing rate of improvement, however, could be associated with:
• periodic currency devaluations;
• low level of individual incentives and slow rate of new business formation; and
• the large state sector that tends to affect the allocation of human capital (569).
The text described Sweden’s challenge as one of avoiding a drift that would eventually
lead to a lower standard of living (700). Issues for firms and government included:
• Both government and industry must mount a broader program beyond currency
(de)valuation and electricity prices to extend competitive advantage (700).
• The pace of investment in Sweden must rise both by the state (education and
sponsored research) and industry (human resource development and technology –
700).
• Domestic demand conditions must be upgraded, and a better climate for new
business formation must be introduced (701).
• Over time the large public sector needs to be privatized (701).
• The culture that has encouraged modest aspirations by both individuals and
industry ought to be improved (702).
• The concept that benefit comes through industrial collaboration and a local
champion must be questioned.
• Sweden must widen the range of industries in which international success is The Competitive
achieved through new business formation – both by new firms and established
organizations (703).
Advantage of
• The home base of companies should be preserved (703).
Nations 20 years
• National values that have defined the Swedish culture will undoubtedly be later
questioned under increasing global competition (704).
313
2.4.3 USA. In assessing the US situation prior to 1990, Porter (571-572) suggested:
The USA achieved the innovation-driven stage in the decades before the turn of the century,
though it maintained a large proportion of trade based heavily on natural resources. […]
America provided a unique environment for innovation-driven advantage in many industries:
heavy investment in factor upgrading, trendsetting demand conditions, strong individual
motivation, an intense belief in competition, and leadership in importing supporting industries

such as electronics, plastics, machine tools and advertising […] Since then, however, America
has experienced an equally troubling loss of competitive advantage […] While American firms
sustain many competitive positions and new business formation remains healthy, there are
clear signs that upgrading of the USA economy is faltering.
With this situation, extensive issues were raised that would affect the competitive level
of the country:
• Both American firms and the US Government need a newer and richer view of the
underpinnings of national advantage (724).
• There is a need for higher educational standards for educational quality that
match or exceed those of other advanced countries. In particular, firms should play
a greater role in the training and continual upgrading of their workforce (725).
• US companies must sustain greater spending on R&D and specifically should
partner with the university system (726).
• Personal savings need to be boosted and the national debt reduced (728).
• Demand conditions must improve if US industry is to regain the knack of
innovation (728).
• A way ought to be found to bring investor, management and employee goals into
compliance (729).
• Company strategy requires a refocus on investment and innovation (731).
• A renewed commitment to competition is a pressing need (732).
• Trade policy must focus on unfair subsidies and trade barriers to allay a fairer,
freer situation (733).
• A return to historical values of individual initiative, education, competition,
long-term investment, tough regulation and free trade is long overdue (733).
3. Methodology
It is a challenge to determine a metric that captures the relative progress of countries’
competitive development. Frequently, purchasing power parity (PPP) is used because of
its availability (cf. World Bank, 2012) and that practice was followed here. For purposes
of this paper, however, an index was developed using this information that captured the
relative growth in PPP with a base year of 2000 (see Figure 1; Table II)[2]. For the three
CR 1.8
PPP/individual
Index South Korea +
24,4 1.7 +
1.6 Sweden
+ *
1.5 *
*
1.4 + x
314 1.3 *x
x x
+
United States
1.2 *
+ x
1.1
x*
1.0 +
‘90 ‘92 ‘94 ‘96 ‘98 ‘00 ‘02 ‘04 06 ‘08 ‘10
0.9 *
x
0.8 * +
*x +
0.7 * x*
Figure 1. x +
Relative growth in 0.6
+
GDP/individual, 0.5
1990 to 2011 +
0.4
South Korea Sweden The USA
1990 7,950 0.46 19,090 0.70 22,448 0.64

1992 9,600 0.56 19,130 0.70 23,707 0.68
1994 11,330 0.66 20,230 0.74 25,861 0.74
1996 13,430 0.78 22,170 0.81 28,276 0.81
1998 13,290 0.78 24,070 0.89 31,325 0.86
2000 17,110 1.00 27,270 1.00 34,902 1.00
2002 19,670 1.15 29,160 1.07 36,290 1.04
2004 21,690 1.27 32,490 1.19 39,837 1.14
2006 24,280 1.42 36,160 1.32 44,775 1.28
2008 26,890 1.57 41,000 1.50 46,453 1.33
2010 28,830 1.68 40,120 1.47 46,424 1.33
Table II. 2011 30,290 1.77 42,350 1.55 47,985 1.37
Selected data: current PPP
per capita and calculated Source: http://databank.worldbank.org/Data/Views/VariableSelection/SelectVariables.aspx (accessed 4
indices13 August 2012)
countries, Korea’s progress is startling. Over the 20 year period, it has gone from
figures about 75 per cent of Sweden and the US indices to approximately 40 per cent
higher. The data for Sweden and the USA practically track each other through most
of the 15 early years of the time series, with Sweden’s values marginally higher for
the past five years.
4. Observations
4.1 South Korea[3]
To put some things in perspective, Ali Gureli, a representative of the Turkish delegation to
the Yeosu Expo claimed that his country finds inspiration in Korea’s resiliency, which finally
earned the snowy city of Pyeongchang the rights to host the Winter Olympics, after its third The Competitive
attempt (KJAD, 2012e). He also suggested that Korea is placed in a fortunate region at the
moment with China, Russia, Central Asia, India, Southeast Asia, Japan:
Advantage of
Between 1992 and 2011, Korea’s trade with China increased 34-fold, from USD 6.4 billion to
Nations 20 years
USD 220.6 billion, China replaced the USA as Korea’s No. 1 trading partner in 2003 and Korea later
has become China’s third largest trading partner (excluding Hong Kong). (Hyuk-Jae et al.,
2012). 315
Korea has comparative advantage in understanding the needs of these markets. One
reason is that it has developed itself in just 60 years to be member of Organisation for
Economic Co-operation and Development (OECD) and is now a contributor of foreign
aid. A few years ago it was a receiver. Developing markets often praise the help they get
from Korea, when Korea puts in management and know-how:
• Porter’s first observation concerning Korea was that “Firms must create and
support high-quality institutions for specialized factor creation and take on
growing responsibilities for training and technology development” (686). In this
regard, the large Korean chaebols have established solid R&D departments and
allocated appropriate budgets for them, for example, Samsung, LG and Hyundai.
The government has also played a vital role in establishing research centers and/
or clusters, for example:
– The Korean Government has invested in the Daedeok Valley as the Silicon
Valley of Korea with many research institutions, e.g. nuclear energy, defense
technology, Korea Advanced Institute of Technology and Electronics and
Telecommunications Research Institute. The area employs 7,000 PhDs
(www.inter-actief.utwente.nl/studiereis/noodle/tour/tour-program/south-
korea/daejeon, 2012).
– Korea has six free economic zones specializing in different fields and located at
strategic places throughout the country. It offers incentives, such as
world-class logistics facilities, tax benefits, deregulation, effective support
systems and cash grants. Located between the big markets of China and Japan,
one billion people are accessible within a 3½ hours’ flight (http://fez.go.kr,
2012).
– The Korea Institute of Energy Technology Evaluation and Planning calls itself
the hub of low-carbon energy R&D in Korea. It was established in 2009 by the
Korean Government under the Energy Act to underpin development of
innovative new energy technologies and business models (http://ketep.re.kr,
2012).
– The Global Green Growth Forum (3GF) was established in Copenhagen,
Denmark, together with Korea and Mexico in relation to the visit of Korean
President Lee Myung-bak in May 2011. Its mission is to explore and demonstrate
how better collaboration among leading businesses, investors and key public
institutions can effectively realize the potential for long-term global, inclusive
green growth. The mission of the 3GF is “to explore and demonstrate how better
collaboration among leading businesses, investors and key public institutions can
effectively realize the potential for long-term global, inclusive green growth”
(www.globalgreengrowthforum.com, 2012).
CR • It was further noted that “Both the government and firms should refrain from the
tendency to restrict the adjustment of wages and the value of the currency” (687).The
24,4 government has an anti-inflation policy. It has “encouraged” larger companies to
refrain from price increases, and the central bank has kept the interest rate low. In July
2012, there were short strikes at Hyundai car factories, but only for some hours. On the
other hand, it seems that work does little to enrich the life of Koreans. They still take it
316 for granted that they have to tolerate anything in return for getting paid. Samsung
Economic Research Institute (SERI) (Sook-Hee, 2008) analyzed the International
Society Survey Program (ISSP) for 2005. It is an international survey conducted with
31 out of 43 ISSP member countries. SERI concluded that Koreans regard their jobs as
a means of livelihood with low degree of value of work and job satisfaction. They
scored low on “opportunities for skills improvement” and “interest in work”. They put
more value on the level of income, job stability and social reputation than their
personal aptitude when searching for new jobs. They also scored low on “Pride in their
jobs”.
• Importantly, it was recognized that “Government can no longer effectively play the
capital allocation role as the economy diversifies. Markets must widen access to capital
to all promising companies, not just the chaebol” (687). In this area, the Government
has taken initiatives to lessen the influence of chaebols. It is a hot issue up to the
presidential election in December 2012. Also, to support mom-and-pop shops, the
government, in 2012, introduced closing hours for big retailers (department stores and
big supermarket chains). They are forced to close two Sundays a month.
• In the domestic market, Porter wrote “Korean consumers must become aware of and
be exposed to the best products and services available” (687). Samsung Electronics has
experienced success with their mobile phones and tablets (Galaxy brand). Apple
iPhone was kept out of the market the first year or two, which by some analysts were
to the detriment of Samsung Galaxy’s introduction as competition sharpens R&D. On
a broader front, the Free Trade Agreement (FTA) with EU in 2011 and with USA in
2012 has exposed the Korean market to Western products at free market prices; for
example, the presence of Western cars is now more predominating.
• Pushing the idea of domestic development, clusters were seen as key and noted:
“Clusters of industries must form and deepen” (688). The Daedeok Valley strategy in
Daejeon follows this strategic suggestion (see point 1).
• Correspondingly, “Korean firms must upgrade their competitive advantages and learn
to compete on differentiation” (688). Success has been obtained across a number of
fronts[4].
The chairman of the largest chaebol in Korea, Samsung, has stressed that Samsung
Electronics must now focus on software and content and not only on making gadgets,
such as mobile phones and tablets. Also for TV, Samsung is now (2012) marketing
Samsung “Smart TV” heavily, where the TV can connect to the Internet. LG and
Samsung are leading in organic light-emitting diodetechnology with super clear
pictures. In a later quote, though, Samsung Electronics think that their foundry business
is central for their competitiveness (KJAD, 2012c). In consumer services, K-pop’s
popularity is a result of year-long planning and training of K-pop performers in training
programs of five to seven years before they go on stage. K-pop is becoming a music/ The Competitive
performance trend not only in Asia but all over the world (Min-Soo, 2012).
Importantly:
Advantage of
Overseas plant construction by Korean engineering companies has boomed since 2000 to
Nations 20 years
become a key export. Overseas plant orders accounted for 8 per cent of the nation’s total export later
in 2011, sharply up from 1.1 per cent in 2000. […]. Plant engineering involves design, materials
and equipment procurement, construction and project management […]. The series of orders 317
were based on networking with client companies and state owned institutions, understanding
of local customs and practices and management know-how […] […] Korean plant engineering
companies have exhibited a high level or process innovation in the Middle East and emerging
economies with value engineering, quality management and six sigma. The ability to integrate
and manage dispersed work sites also has been a contributor. (Won-So, SERI, 7 May 2012).
Korean companies’ drive to improve productivity is part of the answer, what the secret to
Korea’s strong export is (Jaechul, 2005). Korea increased their global competitive edge, not only
in the context of pricing, but also in the areas of technology, product quality and design.
Accordingly, Korea has maintained world-class quality competitiveness in semiconductors,
mobile phones, automobiles, ship building and steel industries. (Jaechul, 2005):
• Further, “For the benefit of the country, the role of the chaebol must move from the central focus
it has sustained to accommodate the presence of more independent companies” (689). The
Korean chaebols tend to function as clusters in a Porter context. They are conglomerates with
interests in many different industries, which support each other and benefit from this “family”
ownership. At the same time, this practice can be looked on negatively from Korean small and
medium enterprises (SMEs) who feel they are excluded from innovating – and maybe especially
from growth, when they have innovated something. In many cases, the chaebols have entered
their fields and trample down their businesses. The political climate up to the Presidential
Election, December 2012 is very much to “clip the wings” of the chaebols and promote formation
and engagement of SMEs. There have been several incidences of fraud and tax evasion from
chaebol family owners, and corruption is still a big issue in the Korean society. So is inequality.
There is (2012) a second bill pending that would restrict cross-ownership of chaebols and the
proliferation of family ownership of subsidiaries (KJAD, 2012a).
• Additionally, the “Government must implement the resolve to maintain and widen free
competition” (690). Korea is a worldwide leader in establishing FTAs, i.e. Chile (2004), Singapore
(2006), EFTA (2006), ASEAN (2007), EU (2011), USA (2012), Columbia (2012) and Mexico
(expected 2012). Further, FTAs are in the making with Turkey, China and Japan. The FTA with
Turkey will be the ninth FTA Korea will have signed. When the FTA is brought into force,
Turkey will be the forty-sixth country Korea has concluded an FTA with (http://Korea.net, 2012).
• Finally, “The prime role of government must shift from direct intervention to providing the
resource foundation for upgrading and creating a more challenging environment in which firms
compete” (690). Perhaps, this shift is seen best in education. Education of Korea’s youth is long
and intense through grammar schools, middle schools, high schools, colleges and universities
(KJAD, 2012f).
4.2 Sweden
In the two decades following the publication of Porter’s – The Competitive Advantage of
Nations’s major changes occurred in Sweden. In addition to the description in Section 2.3
above, Sweden experienced a severe financial crisis (1990-1994) due to a decline in the
real estate market and a run on the currency. Overnight interest rates rose to 500 per
cent, and the government eventually chose to devalue its currency to stem the run. A
second financial crisis developed in the late 1990s, which ran into the early 2000s with
CR the burst of the “IT bubble”. US firms, such as Netscape, drew a lot of attention.
Similarly, firms, such as Framfab, Icon, Medialab, Razorfish and Boo.com, grew and
24,4 were listed in Sweden. These firms differed from prior business ideas in terms of the
amount of investment in information technology, platforms and needs for large
databases. Firms thus strove for first mover’s advantage to be topmost in people’s
minds. A third financial crisis in 2008 emerged initially in the USA relating to the
318 housing bubble and also spread to Sweden. Sweden was hit hard for a time, but lessons
from the early 90s helped to limit the effects. Measures, such as introducing the concept
of a bank emergency function (Sw. “bankakuten”)[5] and doubling the deposit guarantee
(Sw. insättningsgaranti) were taken. Further, banks included more types of accounts
and forms of banks were extended. Nevertheless, the stock market dropped 57.8 per cent
between July 2007 and October 2008.
On the other hand, Sweden also has taken measures during the period to strengthen
its competiveness. For example, it developed and implemented a major fiscal (taxation)
reform, deregulated several markets and industries (cf. markets and industries, such as
taxi, mail distribution, pharmacy, electricity production and distribution and capital
markets) and privatized partly or entirely a number of companies.
Porter (1990) raised a number of concerns specifically with regard to Sweden:
• First, it was suggested “Both government and industry must mount a broader
program beyond currency value and electricity prices to extend competitive
advantage” (700). In the late 1980s, it became evident that there was a need for a
broader and more substantial change of the fiscal and taxation system in Sweden,
and thus the Social Democratic Party initiated such a reform (Sw. skattereformen).
The approach was implemented by the liberal coalition in 1991. The reform set a
maximum of the marginal tax at 50 per cent. At the same time, the tax base was
broadened. The tax system was also simplified and several taxes were abandoned.
However, shortly after an additional national tax was introduced, which raised the
rate by 5 per cent (Sw. värnskatten). At the same time, major changes were
introduced with regard to corporate taxes. Up to the reform, companies could
reinvest in the company without any tax consequences, while simultaneously
profit was taxed heavily. This changed with the tax reform, and it became more
tax-neutral between the different payouts from the firm. This pattern continued
with tax cuts for sole proprietorships and the abolishment of the inheritance (Sw.
arvsskatten) and gift taxes (Sw. gåvoskatten).
• Porter (700) argues that “the pace of investment in Sweden must rise both by the
state (education and sponsored research) and industry (human resource
development and technology”. Looking back, Sweden has developed in phases with
the breakthrough of industrialization (1850-1890), the breakthrough of the
industrial society (1890-1930), the peak of the industrial society (1930-1975), and
now during the last decades, the third industrial revolution and the breakthrough
of the service economy (1975-2010) (cf. Schön, 2010). Sweden considers itself to
have comparative advantages linked to natural resources, such as iron ore, wood
and oat, and it still has comparative advantages linked to these natural resources,
even though the products are now more refined and developed, such as steel and
paper pulp. Nonetheless, much has changed and several sectors were hit hard in
the transition from a more industrial to service-based economy. For example, the
textile industry was hit very hard and a substantial part of it moved abroad.
• The text recognized that “Domestic demand conditions must be upgraded and a The Competitive
better climate for new business formation must be introduced” (701). This
double-barreled assessment has been recognized on two fronts and largely treated
Advantage of
in the tax reforms referred to above. On the consumer side, leaving more money in Nations 20 years
the hands of the consumer slowly raised demand for both durables and later
non-durables over a large range of the population. Likewise, although in a more
complex manner, investments were freed up that not only deepened existing 319
businesses but diversified it as well.
• Porter further suggested that “Over time the large public sector in Sweden needs to
be privatized” (701) and a number of publicly owned firms have become partly or
entirely transferred into the private sector over the past two decades. The
privatization has often been accompanied by deregulation of the entire sector in
which the firms have been operating. Examples of sectors that have been
deregulated include the electricity market in 1996, taxi market (1990), the Post
Office (1993, Sw. Posten), the national railway (2009, Sw. SJ, Statens järnvägar), the
marketing of pharmacies (2009, Apoteket AB), the Swedish Motor-Vehicle
Inspection Company (2010, Sw. Bilprovningen). Other firms which have partly
been privatized include firms, such as Procordia, when it was listed 1990 on the
Stockholm Stock Exchange, Telia (2000), SSAB (1989), Vin & Sprit (100 per cent
owned by state until 1989 and sold in 2008 to French Pernod Ricard), Celsius (listed
1993). There are also examples of firms that might have been expected to be
privatized, but has not been privatized; for example, the Swedish Alcohol Retailing
Monopoly (Sw. Systembolaget). Other major changes include the increased
liberalization of capital markets in late 1980 and the shift of responsibility for care
of elderly, public housing and a substantial part of the health care in early 1990
from the state and county councils to the municipalities.
• Reflecting on Swedish culture it was suggested that it “has encouraged modest
aspirations by both individuals and industry and ought to be improved” (702). The
cultural aspects of individual behavior run deep. Swedes have a term for it
“jantelagen.” The concept reflects humility. When complemented, one looks down
at his/her shoes and says, “Oh it was not so good” or something similar. The
combination of globalization, urbanization and emigration have tended to change
this attitude, but change has occurred as suggested perhaps by attitudes of
university students who recognize how well they do in international competitions.
On the industrial level, perhaps it was Percy Barnevik who demonstrated without
a doubt that Swedes could be captains of industry. If further quantitative
information is required, each year a half dozen individuals end up on the listings of
wealthiest individuals in the world, which has to count for something.
• At a policy level, “The concept that benefit comes through industrial collaboration
and a local champion must be questioned”. Just as modesty tends to run deeply in
individual behavior referred to above, some sense of collaboration similarly
appears to prevail in industry. “Co-opetition”, defined as the situation where firms
tend to sometimes collaborate on the one hand while competing on the other, tends
to prevail in practice (Bengtsson and Koch, 1999). Bengtsson et al. (2010) have
identified cooperation between Renault and Volvo in the automobile industry and
Nokia, Sony Ericsson and Samsung in the mobile phone sector[6]. As long as
CR potential benefits seem to outweigh potential problems, this practice will prevail –
the prevailing attitude appears that the export dependency as high as 90 per cent
24,4 in some industries establishes the practicality of such practices.
• According to Porter “Sweden must widen the range of industries in which
international success is achieved through new business transformation - both by
new firms and established organizations” (703). Sweden has been a birthplace for
320 many successful and innovative product and service-based companies; for
example, Asea (now a part of ABB), Alfa Laval, Aga, Electrolux, Volvo, Astra
(now a part of AstraZeneca), Ericsson, H&M, Ikea, and during the past decade,
some new and interesting firms have emerged; for example, Spotify, Solvatten,
Skype, Peepoople and Wrapp[7].
• It was suggested that “The home base of companies should be preserved” (703).
Over time some of the companies present at the time of publication still have their
base in Sweden, whereas others only have some links there. With regard to
population, Sweden is a fairly small country with a commensurate economy,
which makes it almost necessary for the companies to operate abroad if they
choose to expand over time. This reality and the introduction of unrestricted
shares (1993), the deregulation of the currency market (1989) and the changes in
the law on corporate acquisitions (1992) made it easier for foreign investment into
Sweden, and thus some of the companies originating from Sweden still have their
base in Sweden, whereas others only have some links with Sweden. In the past few
years, we have seen major changes with regard to, for example, the car
manufacturing companies Volvo and Saab.
• With regard to values, it was asserted that “National values that have defined the
Swedish culture will undoubtedly be questioned under increasing global
competition” (704). The Swedish model, including the ideas related to
redistribution of income, egalitarianism, a profound concern for social welfare
cooperation instead of competition and a major role for the state remain a core
concept in the culture (cf. Lindbeck, 1997). Nevertheless, things seem to be
changing. The tight fiscal policy of the present conservative leaning government
has pushed the public sector’s share of GDP down to only just ⬎ 50 per cent
(Economist, 2012). Anders Borg, the Finance Minister, reportedly has ambitions to
get it below Britain’s. Without dumping the generous Swedish social model, the
government has tweaked it in the direction of lower taxes and smaller welfare
benefits. Borg calls this “reinforcing the work ethic”. Reinfeldt, the present Prime
Minister, talks simply of making work pay.
4.3 USA
The developments in the US economy since The Competitive Advantage of Nations’s
publication (1990) reminds one of the Biblical reference of Joseph and the seven[8] good
years in Egypt followed by seven years of famine (see Genesis 41). That is, the period
following the publication benefited from the peace dividend resulting from the cessation
of the cold war. The budget was balanced for the first time in a century. Welfare was
reformed, which led individuals to useful work (Brooks, 2012), and online companies,
such as Amazon.com, Dell Computers, eBay and Orbitz, flourished. If the Dot Com
bubble did not end this period of 2000 when the stock market dropped 70 per cent, then
the 9/11 attack in September 2001 surely did. The subsequent war on two fronts led to an The Competitive
immediate return to deficit spending, and things only seemed to get worse. The housing
bubble of 2006-2008 left individuals in bankruptcy, and the subprime loans made to
Advantage of
support mortgages produced the financial crisis of 2008. Consequently, the present has Nations 20 years
been characterized as a time in which: later
We live in an era of declining USA prestige and, it sometimes seems, declining competence. We
get into wars we then neglect to win. We have 1.5 per cent growth, 8.3 per cent unemployment 321
and 15.8 trillion of debt, and we may yet re-elect this president who presides over this
(Stephens, 2012).
With this situation, permit us to re-examine the recommendations that were made by
Porter to sustain the competitive level of the country at the time the book was published:
(1) It was suggested that “Both American firms and the USA government need a
newer and richer view of the underpinnings of national advantage (724)”. The
present state of uncertainty has led firms to become conservative in their
actions. Reportedly, firms are sitting on large cash holdings, which are unlikely
to be invested until clarification on regulations and taxation are clarified. At the
same time, practices, such as outsourcing, free trade and international
investments, tend to be demonized. The election of 2012 and its aftermath will be
interesting with regard to the views of the nation and any advantage it may
have.
(2) A need was described: “For higher educational standards for educational quality
that match or exceed those of other advanced countries. In was also suggested
that firms should play a greater role in the training and continual upgrading of
their workforce (725)”. Most international comparisons suggest that public
educational progress in the USA has not occurred. In fact, it may have fallen,
especially in the mathematics and science areas. In the OECD’s Programme for
International Student assessment rankings for 2009, the USA was thirty-first in
mathematics, the same rank as Portugal (Shultz and Hanushek, 2012).
Anecdotal evidence suggests the situation is severe at the local level – despite
spending $16,500 per pupil, the Highland Park School District in Michigan
found only 10 per cent of students were proficient in reading, none were
proficient in mathematics (Banchero and Dolan, 2012). Of course, it is still
possible to get quality educations at the upper-tier universities, but overall,
individuals are beginning to question the value of a university diploma and it
has been more common to speak of an educational bubble (cf. Economist, 2012),
that is easy credit has allowed students and their families to pay ever more and
colleges have raised fees to absorb the extra cash, but higher education has not
delivered extra value to match the extra costs. It is a situation that cannot
continue forever.
Porter also suggested that “Under these circumstances, firms must be involved
in supplying some education to their workforce”. Under normal situations this
necessity would apply, but the recession and drawn out recovery has changed
things. The government has stepped into the breach, but gauging the efforts has
been spotty – primarily because some programs do not monitor whether
participants are successful in jobs related to their training (Dugan and Scheck,
2012):
CR (3) It was observed that “USA companies must sustain greater spending on R&D
and specifically should partner with the university system (726)”. It is not clear
24,4 that this has occurred across the board. There have been areas, however, where
it has occurred, such as in prescription drugs. Pfizer, for instance, has signed 20
agreements with America’s best academic medical centers since 2010 (cf.
Economist, 2012). Nonetheless, the US growth of annual R&D spending has
322 been 3 per cent to 5 per cent in the past decade, down from a long-term historic
growth rate of 6 per cent to 8 per cent, which after taking into account expected
inflation of 2 per cent in 2012, America’s R&D investment growth essentially
has been flat. Corporate R&D is forecast to grow 3.8 per cent in 2012, one of the
strongest jumps in industrial R&D spending in the past decade, and US
spending is the global leader by far (Naik, 2011).
(4) Recently, personal savings in the USA tended to be low by global standards, but
Porter says they “need to be boosted and the national debt reduced” (728). Of
course, national debt has been increased to approximately 16 trillion over the 20
year period from The Competitive Advantage of Nations’ publication and
approximately 5 trillion in the past four years. Rather surprisingly, household
savings are said to have doubled to approximately 5 per cent during the
recession and recovery, even though passbook accounts are paying close to zero
interest (OECD, 2012).
(5) Consumer demand is seen as driving innovation, so it was asserted that
“demand conditions must improve if USA industry is to regain the knack of
innovation” (728). Domestic demand over the past five years has not increased
across the board due to the recession and sluggish recovery in which overall
unemployment has been about 15 per cent. Nevertheless, in some areas, such as
smartphones, demand has remained high and innovation has grown
accordingly. Estimated total sales across 2011 were 472 million or 31 per cent of
mobile communication device sales. This compares with figures for 2010 in
which year-on-year smartphone sales rose 58 per cent on an annual basis
(Brownlow, 2012).
(6) It was recommended that “A way ought to be found to bring investor,
management and employee goals into compliance” (729). The financial crisis of
2008 kind of muddled this approach. In fact, it might be argued that the
expedited bankruptcy of GM and Chrysler in 2009 may have changed the
ground rules. One might recall that the debt holders took their haircut,
stockholders lost their equity and were replaced by the automotive union and
the Treasury in the case of GM. Skousen (2009) in assessing that bankruptcy
asserted, “Bankruptcies are inherently unfair since everyone involved is going
to lose something. However, in prior years, at least the bankruptcy judge was
supposed to follow fairly strict predetermined guidelines about who gets
priority and who doesn’t. Now, even those guidelines, based in actual law, are
being discarded so that the judge can arbitrarily pick winners and losers.
Heretofore, the courts have always condemned any judicial action that was not
governed by written standards, applicable to all. Now all that is gone. The
Obama task force and the bankrupt auto companies have also maneuvered to
disallow all existing product liability claims from victims of defective cars.”
Clearly, investors’, management’s and employees’ roles are presently in a state The Competitive
of flux.
Advantage of
(7) Porter is as well known for strategy, as he is for composition, so when he says
“Company strategy requires a refocus on investment and innovation”, (731) one
Nations 20 years
tends to listen. One also might recall that Bill Clinton unseated George Bush in later
1992 by focusing on the domestic economy (It is the economy, stupid!) The
implication is that things were just not going well leading up to the early 1990s 323
when the text was published. Things went well through the 1990s on the basis
of IT technology, which was innovation-oriented with modest needs for
investment. With the break-up of the USSR and the accession of China, foreign
direct investment tended to grow at the expense of domestic uses of funds.
Mergers and acquisitions tended to dominate commercial strategy, i.e.
(Table III)
Then came too big to fail and Troubled Asset Relief Program (TARP) and the
associated financial disruption and survival as a strategy. Consequently, over
the past three or four years, strategy has become much more conservative with
companies more and more committed toward increasing dividends and
repurchase of stock. Surprisingly, technology companies, which we normally
think of as innovators, are the highest paying sector in the economy (Waggoner,
2012). Technology stocks now account for 14.22 per cent of the dividends paid
out by members of the Standard & Poor’s 500-stock index. Tech companies
rarely paid dividends in the 1990s. But now, 41 of the 71 tech stocks in the S&P
500 pay dividends, and the list is growing. Apple, for example, paid its first
dividend ever recently. Cisco, which started paying in March 2011, increased its
dividend recently – the second increase this year. Microsoft began paying in
2003. One reason for the move to dividends: cash. The other, of course, is lack of
viable projects. As of June, for example, Apple had $27.7 billion in cash. That is
more than the market capitalization of 391 members of the S&P 500. But tech
companies are still the dominant sector in buyback. Those buybacks will not
stop soon: Tech companies often buy back stock to pay out employee options.
As share prices rise, more of those options are worth cashing in.
Transaction value
Rank Year Acquirer Target (in billion USD)
1 2000 America Online Inc Time Warner 164.7

2 1999 Pfizer Inc Warner-Lambert Co 89.2
3 1998 Exxon Corp Mobil Corp 78.9
4 2006 AT&T Inc BellSouth Corp 72.7
5 1998 Travelers Group Inc Citicorp 72.6
6 2001 Comcast Corp AT&T Broadband & Internet Svcs 72.0
7 2009 Pfizer Inc Wyeth 67.3
8 1998 SBC Communications Inc Ameritech Corp 62.6
9 1998 NationsBank Corp BankAmerica Corp 61.6 Table III.
10 1999 Vodafone Group PLC AirTouch Communications Inc 60.3 Mergers and acquisitions
in U.S. commercial
Source: IMAA (Institute of Mergers, Acquisitions and Alliances), 2012 strategy
CR (8) In a text devoted to competitive advantage, one should not be surprised to read
that “A renewed commitment to competition is a pressing need” (732).
24,4 Competition indeed still exists in areas, such as smartphones where one supplier
may be at the top, whereas it can bottom out the next. Porter is suggesting that
US firms have lost that zeal. The Swedes have a term that may best describe the
present situation – globally as well as in the USA – “co-opetitition” (Bengtsson
324 and Kock, 1999). That is, firms sometimes compete, but other times cooperate.
Perhaps that is true, but perhaps we need a new term to capture the present
competitive situation that features avoiding direct competition[9], which Porter
now seems to favor, at least as Magretta (2012) suggests in her interpretation of
his work.
(9) Trade policy must focus on unfair subsidies and trade barriers to allay a fairer,
freer situation (733). The single most important development during the early
1990s, perhaps in the time since publication, may have been the establishment of
North American Free Trade Agreement (NAFTA). Amadeo (2012) on the topic
asserts “NAFTA has eliminated trade barriers, increased investment
opportunities, and established procedures for resolution of trade disputes. Most
important, it has increased the competitiveness of the three countries involved
on the global marketplace.” Nevertheless, it still gets criticism, particularly
during presidential campaigns. To date, a Free Trade Area of the Americas
agreement has not been reached, although an agreement with six Central
American countries has (Central America Free Trade Agreement – CAFTA).
The USA also has free trade agreements with 19 other countries and is a member
of the World Trade Organization, which is set up to settle disputes among
member nations. Recently, elements of protectionism seem to have surfaced.
Bush imposed tariffs on steel in 2002 to prevent dumping, and Obama was slow
to sign on to agreements with Columbia and Korea.
(10) Finally, Porter calls for “A return to historical values of individual initiative,
education, competition, long-term investment, tough regulation, and free trade is
long overdue” (733). The incumbent in the presidential election asserted that a
choice existed between the “failed policies of the past” and his approach to
policy. It thus appears to almost be a political statement to say that one agrees
with Porter. In defending capitalism, Murray (2012) writes, “Capitalism is the
economic expression of liberty”, and “Earning a living for yourself and your
family through your own efforts is the most elemental for of earned success”. To
paraphrase Moore (2012) who in apparent agreement suggested that Milton
Friedman, had he been alive today, would be an opponent of present
big-government policy.
5. Discussion
In her treatise on Understanding Michael Porter, Magretta (2012, p. 4) noted that at Bain
& Company[10], the firm where she eventually became a partner, “Porter’s books didn’t
just sit on everyone’s shelf. They were read, annotated, reread and applied”. So it has
been with us. In our individual re-readings of The Competitive Advantage of Nations
(Porter, 1990/1996), we could not help, but be impressed with the actionable roles that
were outlined for government and business in pursuing competitiveness and prosperity
for the countries of our individual interests – South Korea, Sweden and the USA.
Contrary to Magretta’s (2012, p. 183) observation, “Porter refuses to tell you what to do”, The Competitive
the suggestions in The Competitive Advantage of Nations are actionable[11]. It was thus
these actionable roles that formed the underpinnings of this paper as we reflected on
Advantage of
developments dating from the original publication of the text. Following Prasad’s Nations 20 years
reminder (2011), we questioned the completeness and relevance of Porter’s model in later
analyzing situations that present themselves. Results suggest that the text that initially
manifested itself as an approach to analysis now has become a primer on policy. 325
With regard our reflections, two countries, South Korea and Sweden, appeared to
have enhanced their competitive positions (see Figure 1), which one might suggest by
following the general suggestions identified by Porter. For instance, the latest forecasts
from the International Monetary Fund suggest that South Korea’s economy could
surpass that of Japan’s within five years (Economist, 2012). That would be a remarkable
turnabout. In 1980, South Korea’s GDP per person was barely a quarter the level of
Japan’s. In this instance, strategic policy choices have been made. For example,
substantial investments have been made in education and infrastructure, efforts have
been made to promote exports and the elevation of international competitive success to
the level of a national priority has been an important stimulus to success. Likewise,
Sweden has done well (Duxbury, 2012) – essentially by following the suggestions of
Porter. In its case, it has built a reputation for fiscal discipline since it suffered a financial
crisis in the early 1990s. Successive governments have since stuck to a target to post a
surplus of one per cent of GDP over any business cycle. The temptation to borrow to fuel
growth during the early 2000s meant Sweden was able to make its way through the
financial crisis with strong public finances, that is the government has not needed to
increase taxes as Spain has or to cut spending as in the UK.
A general observation of Korean business is that it has benefited a lot from help from
the World Bank and American subsidies and good will. It has copied products, services
and business procedures from other countries – especially Japanese and American
companies. Because of Koreans’ obsession of education most Koreans are highly
educated, not least in technology fields. The early adoption of IT technology and the
Internet has given Korea a vast push up the learning curve in this discipline, which has
given them competence in producing different kinds of electronic products and services,
such as mobile phones, computers, military equipment, TV and cars. Jeon (2008)
recommendation for Korea to depart from the “imitation and learning” paradigm of
using US and Japanese technology and techniques to become innovation-driven has
materialized. To reach the next phase, the “wealth-driven” phase Korea should increase
its efficiency of its R&D investments, pursue the rule of law, establishment of rational
conflict-resolving systems and improve its social safety net.
The USA, on the other hand, has not done so well (see Figure 1). The recent tendency
to demonize the very practices that would lead to a competitive advantage, such as
outsourcing and free trade, has had their impacts. Further, uncertainties in corporate tax
and health-care policies have had their impact on innovation and investment. Finally,
movement toward a European model of government has affected growth and
consequently employment after the recent recession. In summarizing these
observations, it is noted that Porter has recently coauthored two papers (Porter and
Rivkin, 2012a, 2012b)[12]. The summary of that research leading to those papers
suggests that the USA faces serious challenges. In short, “Too often, America’s leaders,
CR in government and business, have acted in ways that neutralize the country’s many
strengths”. Nevertheless, these authors were able to put a good face on the situation:
24,4
Yet we remain fundamentally optimistic about America’s economic future because the USA
retains profound strengths that are very difficult to replicate. America’s system of higher
education and its entrepreneurial community continue to be the world’s most powerful engine
of innovation, on which productivity growth ultimately depends. The USA has an open,
326 democratic society and a system of rewarding merit that attract much of the world’s best
talent. America’s sophisticated markets and institutions foster intense rivalry, spurring
companies to discover new routes to productivity. America’s firms are among the most ably
managed in the world, and its capital markets remain the most vibrant despite the financial
crisis. American society is more prone, without sentiment, to let more productive firms and
institutions drive out less productive ones, making the economy as a whole remarkably
dynamic and resilient. In many ways, the core of the USA economy remains strong.
Mitigating this optimism, however, is a sister article that suggests that the USA is not
being selected as a location for new global business locations (Porter and Rivkin, 2012b).
As they point out, a location decision is, in many respects, a referendum on a nation’s
competitiveness. In that regard, “high end activities have been a traditional strength of
the country, but today the USA is struggling to attract and retain them”. The (aforesaid)
research identified:
[…] two sets of avoidable causes. First are poor policies (emphasis added). The USA
government is failing to tackle weaknesses in the business environment that are making
the country a less attractive place to invest and are nullifying some of America’s most
important competitive strengths. The government has also failed to eliminate distortions
in the international trading and investment system that disadvantage the USA.
With regard to methodological contributions, the metric developed to identify each
country’s progress seems to reflect these qualitative observations (See Figure 1).
Specifically, South Korea is seen to grow rapidly over the period, Sweden as an
intermediate, solid performer and the USA as a nonperforming laggard. This index
is thus extended to colleagues as potentially useful in analyzing economic progress.
In terms of afterthought, if there is one critical determinant in affecting progress in
each of these three countries, it has been the role of government. In this regard, we are
somewhat in disagreement with the treatment in The Competitive Advantage of
Nations. Although this variable was seen as the possible fifth determinant in the original
treatment of competitive advantage (126), the author felt more comfortable relegating its
role to affecting the four determinants of advantage. Of course, the role varies with the
development situation. In a way, the pathway for positive development is much clearer
for an evolving economy (South Korea) than it is for a mature one (USA). It is not
necessarily a matter of activity. The Government of South Korea has been active and has
done well; Sweden, on the other hand, has been fairly neutral in its treatment. It would
appear that Porter and Rivkin’s (2012b) second paper on the USA, absolutely nails the
situation and thus making a similar judgment:
The USA government (emphasis added) is failing to tackle weaknesses in the business
environment that are making the country a less attractive place to invest and are nullifying
some of America’s most important competitive strengths. The government (emphasis added
again) has also failed to eliminate distortions in the international trading and investment
system that disadvantage the USA.
So where does this leave us? We look to the future and surmise that for the foreseeable The Competitive
timeframe, the policy suggestions for countries in The Competitive Advantage of
Nations will hold. It was a bold move to include them in the text, but as it turns out, these
Advantage of
assertions were amazingly perceptive as results here seem to indicate. In particular, Nations 20 years
government policies will be an important determinant in the growth of competitive later
advantage. In general, it will not be a matter of governments picking winners to support
that is important, but establishing policies that make the environment positive for all 327
industries that will deliver the goods – and that observation will hold for all countries
whether in the original 10 or not.
At this point in a paper, it is common to reflect on the weaknesses in the study and
comment on future work. The obvious weakness in this study is that three countries
were selected for analysis, and there were ten in the original study. We think, however,
that the range in selection was adequate for evaluation. Ten would have been better, but
it is doubtful that seven more would have changed the conclusion that the policy
suggestions in The Competitive Advantage of Nations captured the pathways for
success in the individual countries. Also, the development could be deeper. The one
thing that might be done that would be a real contribution would be to do what Magretta
(2012) did with the five factor model in “Understanding Michael Porter” for his
international model. She called that exercise a book length executive summary
(Magretta, 2012, p. 2). That would be a significant contribution for international
practitioners and academics. The other thing that might be considered in the extension
of this work would be to call on more viewpoints in treating the present and competitive
development of nations. This need/opportunity comes from two directions. First, one of
the reviewers was critical of the political/approach that was taken. Without getting into
detail, that observation caught us off guard. Nevertheless, it raises a need to hear other
voices – not only from northern Europe and the USA, but from other sources and
backgrounds. Second, our relationship with American Society for Competiveness (ASC)
implies an action orientation. It is thus proposed that at least some sessions at ASC
conferences in the future be considered, and preferably a special issue of our journal be
dedicated to the topic on a periodic basis. Theory development and measurement
evaluations are topics clearly in order, but more needs exist for more country
evaluations from more viewpoints. On the next to last page of his book on the Sciences
of the Artificial, Herb Simon (1996, p. 215) suggests that the notion of substituting a
process description for a state description is basic to the development of modern science.
Perhaps by working together, we may end up understanding one or the other when it
comes to national competitiveness.
6. Conclusions
The purpose of this paper was to reflect on some policy possibilities and outcomes for
three countries of interest suggested in Porter’s The Competitive Advantage of Nations.
This opportunity availed itself due to the issues recognized for a sample of countries in
the original publication (chapter 13). The recognition of these issues from individual
analyses represented a risk for the author is such an academic publication. This effort,
however, makes it possible to assess individual country’s competitive growth over
time – an extremely useful and perhaps timeless contribution. In general, the
recommendations from 1990 appear legitimate and the developments when followed are
very much in line with Porter’s recommendations. In terms of development, South Korea
CR would appear to be the star of the group. Porter’s diamond factors have forcefully played
together to reach its presently high state of development. Sweden has made strong
24,4 progress in comparison with other members of the European Union. Although there are
areas of strength, the USA recently has lost much of the edge it had at the time of the
Advantage’s publication. If there was a single surprise in the analysis here, it was the
dominating role that government has had on development.
328
Notes
1. Numbers in parentheses are the page numbers in Porter (1990/1994) from which the material
has been drawn.
2. Clearly, there will be trade-offs in using any single metric to capture a combination of relative
wealth and growth over any period of time. In the data utilized here, the index tends to
emphasize the growth aspect of progress. The year 2000 was selected as a base insofar, as it
is approximately midway between the publication year (1990) and the present (2011 – the last
year for which data were available).
3. The authors express appreciation in this sector from two interviews – Dilip Das, 2012,
Professor in International Economics, SolBridge and Jørgen Ørstrøm Møller, Professor in
International Economics, Singapore Management Institute. Of course all observations remain
our responsibility.
4. Note Korea moved from twenty-fourth to nineteenth in this year’s competitiveness ranking,
www3.weforum.org (accessed 5 September 2012).
5. The comments in parentheses in this section refer to the Swedish citation relating to the
specific legislation.
6. Johansson (2012, p. v) in writing on this topic has noted that “more than 50 percent of all
strategic alliances have been between competitors”.
7. (cf. www.sweden.se/eng/Home/Business/Reading/10-Swedish-companies-shaping-the-world/)
8. Biblical scholars allow that numbers given in Scripture may be intended to be approximate or
symbolic (Revell, 1994, 737).
9. Might we suggest “avoidetition” as an appropriate term describing this strategy?
10. For individuals unfamiliar with this firm, its homepage indicates Bain is one of the world’s
leading business consulting firms. They work with top executives to help them make better
decisions, convert those decisions to actions and deliver the sustainable success they desire.
They advise global leaders on their most critical issues and opportunities: strategy,
marketing, organization, operations, technology and mergers & acquisitions across all
industries and geographies. They have worked with the majority of the Global 500, thousands
of major regional and local companies and private equity funds representing 75 percent of
global equity capital. They have 48 offices in 31 countries around the world and assert that
their public clients have historically outperformed the stock market 4 to 1, www.bain.com/
about/index.aspx (accessed 28 August 2012).
11. It is noted in Margetta’s treatise: it was the five-factors model that was being observed.
12. In assessing the relevance of his work, Prof Porter wrote, “If The Competitive Advantage of
Nations is to achieve its ultimate purpose, my own research will be just a part of a much
broader agenda that unites macroeconomics, microeconomics, and the study of management
in an integrated understanding of competition and the influence on location” (xviii). Porter
indeed has retained his interest in his research, particularly US competitiveness and has The Competitive
updated that work. During the past year, that situation was examined with the help of a
diverse group of scholars, business leaders from around the world and the first-ever
Advantage of
comprehensive survey of Harvard Business School alumni. Nations 20 years
later
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Corresponding author
Timothy L. Wilson can be contacted at: tim.wilson@usbe.umu.se
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supplier industries and related industries that are internationally competitive.

These determinants of national advantage shape the environment for competing in

2.2 Stages of competitive development

2.4 Country agendas

Country Characterization Status Perspective Outcome

Source: Adapted from Porter (1990/1996)

initial status, perspective

resource foundation for upgrading and creating a more challenging environment

motivation, an intense belief in competition, and leadership in importing supporting industries

South Korea Sweden The USA

1990 7,950 0.46 19,090 0.70 22,448 0.64

1 2000 America Online Inc Time Warner 164.7

competitors in business networks”, Journal of Business and Industrial Marketing, Vol. 14

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