Advantage Of Nations

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3H Strategy & International Business Session 30: The Competitive Advantage of Nations - the Model The following notes are largely a summary of Porter’s model taken from his book - The Competitive Advantage of Nations. As such they can be read as a background to the class discussion. The Approach The principal economic goal of the nation is to produce a high and rising standard of living for its citizens. A nation’s standard of living is determined by its productivity - the value of the output produced by a unit of labour or capital based on: the quality & features of the product which affects prices the efficiency of production Traditional theories on national competitiveness seek to answer the wrong question. The critical question - not: Why do some nations succeed and others fail in international competition? but: Why are firms based in a particular nation able to create and sustain competitive advantage against the world’s best competitors in a particular industry or segment? Central to this creation and sustaining of advantage is, argues Porter, innovation. Innovation - Creating Advantage “Firms create competitive advantage by perceiving or discovering new and better ways to compete in an industry and bringing them to market, which is ultimately an act of innovation”: 3. improvements in technology 4. better methods / ways of doing things 5. product or process changes Sources of Innovation: 6. New technologies e.g. Japanese firms & medical imaging 7. New or shifting buyer needs e.g. American fast food & consumer demands for convenience & consistency 8. Emergence of new industry segment e.g. small Japanese lift trucks for general purposes 9. Shifting input costs or availability e.g. transport costs and global production 10. Changes in government regulation e.g. early U.S. financial deregulation & American firms’

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