Addis Ababa University College of

Business and Economics

Department of Management
EMBA Program

Global Marketing and Competitive Strategy

Article Review on:

The competitive Advantage of Nations by Micheal E. Porter

Reviewers’ Group Members

1. Ermias Kifle GSE/8651/14
2. Girma Ali GSE/5446/14
3. Gizachew Alazar GSE/2797/14
4. Lelisa Markos GSE/8859/14
5. Lulae Kassahun GSE/0812/14

Submitted to: - Tewodros Wuhib (Ass. Prof.)

January 2023
 Contents

Bibliography ................................................................................................................... 1

Introduction .................................................................................................................... 1

Objectives ....................................................................................................................... 1

Procedure ........................................................................................................................ 2

Article Summary ............................................................................................................. 2

Critical Reflections ......................................................................................................... 6

Implication ...................................................................................................................... 6

Conclusion ...................................................................................................................... 6

References ...................................................................................................................... 7

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 Michael E. Porter (1990) Competitive Advantage of Nations

Harvard Business Review 68, no.2, pp. 71 – 91

March – April 1990

Bibliography

Dr. Michael Eugene Porter (Bishop William Lawrence University Professor) is an economist,

researcher, business strategist, author, advisor, speaker, and teacher. He is a professor at

Harvard Business School. Along with other authors, he published more than 20 books and 100

journals in the interest area of competitive advantage, strategy, economics theory, and others.

Introduction

The reviewers emphasized on arrangement and contents of the article, the applicability of the

research, the current condition of the market, government implication on competitive

advantage, and the role of companies in the process.

Objectives

 Identified that in the modern competitive marketplace, nations have their own

competitive advantages.

 Studied and forwarded the four major determinants of a national competitive

advantage that works as a system.

 Highlighted the role of government in national companies’ competitive advantage.

 Examined agendas of companies in order to achieve sustainable competitive advantage.

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Procedure

The researcher inserted two of his previous works into the article to show the determinants of

competitiveness in a nation, and one work from another scholar to clearly show how the

diamond works. “Patterns of National Competitive Success” is a study on patterns of

competitive success in ten leading trading nations by the researcher. The other is “What is

national competitiveness?” It is a theory developed by the same author to clearly depict the

competitiveness of a nation. The third study is “How the Diamond Works: The Italian Ceramic

Tile Industry” (by Michael J. Enright and Paolo Tenti) to show how competitive advantage

determinants work.

Article Summary

Competitive advantage is a condition or circumstance that puts a company in a favorable or

superior business position. Bases of competition intensively relying on the creation and

assimilation of knowledge, which aids in growing the role of the nation in a competitive

market. According to classical economic prosperity comes through labor pool, interest rates, or

currency’s value which were identified to be incorrect by Porter. He outlined that pressure and

challenge lead companies into a competition. Other issues outlined by him as input for national

competitive advantage are differences in national values, culture, economic structure,

institutions, and histories. If the home environment of the nation is the most forward-looking,

dynamic, and challenging, it will be easy to succeed in particular industries.

The author of this article carried out four years of research on ten leading trading nations to

assess the pattern of competitive success. The result went in contradiction to the conventional

wisdom that shapes the thinking of many companies and national governments. To approach

what is needed to know, what works and why; it needs to develop a new perspective and tools
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for competitiveness.

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Innovation is the core and fundamental act of a company to compete through new technology

and new ways of doing things. It can be a new product design, a new production process, a new

marketing approach, or a new way of conducting training. Two types of innovation can be

implemented to get a competitive advantage, one is incremental, which depends on the

accumulation of small insights, and involves ideas that are not new; the other is a new market

opportunity.

Companies that stop innovating and improving can easily be overtaken advantages inevitably

with those competitors making continuous improvements. The only way to sustain

competitiveness is not one-time innovation but rather to continuously improve and upgrade the

system.

Therefore, innovation and change are processes that are inevitably inseparable in global market

competition.

Another issue that the author outlined was why certain companies in certain nations ruthlessly

pursue improvements, more competitive sources of competitive advantage, and are capable of

consistent innovation. This lies in four attributes of a nation, attributes that individually and as

a system constitute the diamond of national advantage. The attributes were: Factor condition;

Demand Condition; Related and supporting industries; and Firm strategy, structure, and rivalry.

According to the study and the model, the factor of production which is skilled labor or

infrastructure; was created, not inherited by a nation to make an advanced economy. The factor

of production is deployed by a company to make a source of a competitive advantage which are

not simply basic factors such as a pool of labor or local raw materials; but it is highly

specialized to an industry’s particular needs, that is highly skilled human resources and

scientific base. Under

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certain conditions, disadvantages in the more basic factors can send signals to companies to

innovate and upgrade then convert factor disadvantages into a competitive advantage.

The second attribute, demand condition, plays a great role in a nation’s competitive advantage;

when domestic buyers are the world’s most sophisticated and demanding buyers for the

product or service, which provides a window into advanced customer needs. It provides an

advantage by forcing companies to respond to tough challenges.

The third broad determinant of national advantage is related and supporting industries.

Downstream industries are benefited due to the presence in the nation of related and supporting

industries that are internationally competitive. They get an advantage by delivering the most

cost- effective inputs in an effective, early, rapid, and preferential way. The advantage is based

on close working relationships, such as short lines of communication, quick and constant flow

of information, and ongoing exchange of ideas and innovations.

The fourth determinant assessed how companies are created, organized, and managed, and the

nature of the domestic rivalry to obtain a national competitive advantage.

In general, the four attributes that are the determinants of a national competitive advantage are

working as a system, which implies weakness in any one determinant will constrain an

industry’s potential for advancement and upgrading. Domestic rivalry and geographical

concentration have great power to transform the diamond into a system.

Concerning the role of government in nations’ competitive advantage, the author identified

two extreme views that are incorrect. The first view was those who think the government is an

essential supporter of industry to contribute directly to the competitive performance of

strategic or target industries and the other view was an operation of the economy under a free

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market. According to

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the author, the proper role of government should be as a catalyst and challenger to encourage

and push companies to raise their aspiration and move to higher levels of competitive

performance. Government policies that directly involve in competitive advantage process did

not succeed but those provide a conducive environment for companies to gain competitive

advantage. Another point raised in the article was that many governments make the same

mistakes in pursuit of national competitiveness, by providing policies such as subsidies,

protection, and arranged mergers, that offer easily perceived short-term benefits and retard

innovation. Therefore, the government should implement simple principles which play the

proper supportive role for national competitiveness – such as encouraging change, promoting

domestic rivalry, and stimulating innovation.

Here are some of the specific policy approaches, raised by the author, to guide nations’

competitive advantage: focus on specialized factor creation; avoid intervening in factor and

currency markets; enforce strict product, safety, and environmental standards; sharply limit

direct cooperation among industry rivals; promote goals that lead to sustained investment;

deregulate competition; enforce strong domestic antitrust policies; and reject managed trade.

Sustainable competitive advantages are achieved by companies themselves by understanding t

he central role of innovation that grows out of pressure and challenge. Here are some company

policies that support in order to control forces in the diamond to promote innovation and

upgrading: - create pressure for innovation; seek out the most capable competitors as

motivators; establish early warning systems; improve the national diamond, welcome

domestic rivalry; globalize to tap selective advantages in other nations; use alliances only

selectively; and locate the home base to support competitive advantage.

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Finally, the author put the role of leadership as a crucial element of competitive advantage in

today’s competitive market. He outlined as leaders should believe in change, innovate

organizations continuously, work to upgrade, and recognize the need for pressure and challenge.

Innovate, upgrade and change not just once, but

continuously!

Critical Reflections

The reviewers found the article well-written and organized. However, they stated that the work

would be better if supported by more empirical findings.

Another issue the reviewers found in the article was the author used product which is a more

generic term interchangeably with goods.

Implication

Since the competitive time for companies takes a long time, in pursuing national

competitiveness, governments shall depend on factors that bring long-term sustainable

competitive advantage for companies.

Companies themselves achieve a sustainable competitive advantage that needs their effort to

change, upgrade and innovate continuously. No need to expect governments policies such as

subsidies and protections which offer short-term benefits at the same time demote upgrading

and innovating

Conclusion

1. Any nation’s competitive advantage can only be obtained from consistent innovation
and

upgrading.
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 2. Porter’s Diamond Model can be used by businesses to help guide and shape

strategy regarding how to approach investing and operating in different national markets.

References

1. Michael E. Porter, 1990, The Competitive Advantage of Nations. Harvard Business

Review 68, No. 2, pp. 71-91