Porter and National Competitive Advantage

Porter and National Competitive Advantage i. Introduction. Suggest answer to the question and outline how to validate your suggested answer by clarifying the analytical structure ii. Key Questions. Simply: this is not just a question about Porter. If you are thinking of outlining Porter and little else, please think again. Very briefly state what the concepts of national competitiveness and the diamond entail, which is naturally connected to the work of Porter. But the question is asking you to focus on critique.

Therefore, what are the key issues, debates and problems with the ideas about the Competitive Advantage of Nations and the national diamond? The second half of this synergic question suggests you employ other ideas and a lot of evidence within an analytical structure. iii. National competitiveness is not a theory but a check list that is a tautology. I. e. If you do certain economic activities well, you will do well economically. Or German chemical companies succeed because of Germany’s R&D base. But where did this base come from?

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Do they just appear in the diamond or do we have a theory of how differing factor and demand conditions arise? iv. Is there a lack of the historical dimension, supplied in part by Late Development Theory? How might this add to missing dimensions in Porter? v. Why does Porter downplay the role of the state, given the historical importance of the developmental state in industrialisation and improving national competitiveness? vi. Are factor and demand conditions purely national in their creation? Note Canada or Hong Kong, plus the role of the international economy and global webs.

How do we account for ideas about globalisation? vii. Conclusion The Essay should start with a description of porters diamond…. Porters Critics 1. Porter is highly reductionist trying to capture the immense complexity into a simple four pointed diamond. According to Durkheim, social science is a complex phenomenon that cannot be explained by simple correlation. Indeed the success of the Japanese in the Automobile Industry or the relative decline of the British Industrialisation cannot be attributed to existence or absence of four simple factors. . Porter explicitly refuses to factor the role of the state in determining the role of competitiveness of a nation. Porter sees the state as an influencer to the four primary determinants as depicted in Porter’s National Diamond. Gershenkron Theory of late development makes for this lacuna in Porters diamond. The theory of Late Development holds that latecomer nations adopt a different pathway to development distinct from early industrialised nations. Indeed the state can act as a substitute to both demand conditions and factor conditions.

Japan is a case in point. The government and the bank of Japan Instituted a convoy system where banks were encouraged to finance large scale capital intensive industries. The banks taking risks to further the cause of economic development would receive assistance and support if their investments failed. This has led the Japanese firm to be long termist with a focus on R&D. Korean Case * Crushed Unions * Encouraged Technology Imports * Technological Imports Subsidised * Foreign Engineers do not pay tax Korean Success in Automobile * The Hyundai Case …. Role of Government in early Industrialised nations In 1989 Germany accounted for 11% export of industrialised products. This was partly due to the role of government in training and education. Germany has a skilled labour force. Germans attent vocational training schools which are funded by the government. The employers are highly involved with the traning program. Students spend part of their training program in industry. Porter ignores the influence of history.

In reality, so far as I know there is no sociology worthy of the name which does not have a historical character. Historically, in America there has been a strong popular distrust of concentrated economic power, despite the American proclivity for creating large scale organisations. The Sherman Antitrust Act was passed as a result of public resentment against enterprises like the standard oil trust that had managed to corner a large proportion of the American oil market, and enforcement of the act was one of the populist hallmark of President Theodoare Roosevelt.

Political Populism was supplemented by a liberal economic ideology that believed that social welfare was maximized by vigorous competition, not by cooperation among large companies In Germany by contrast, there has never been a comparable distrust of size per se. German industries from the beginning were export oriented; their size was more often compared to the global markets they served rather than to narrow domestics ones. Unlike American firms, Whose competitive world often began and ended completely inside the United States, German Companies had a Much stronger sense of National Identity in a world of strong international competitiors.

Because they were export oriented the potential inefficiencies of domestic monopoly was minimized; large german firms were kept honest by large firms in other countries rather than by each other. Industrial cartels was institionalised in german with the german court upholding the enforceability of contract between firms in setting prices, output and market shares. The number of cartel increased in Germany from 4 in 1875 to 385 in 1905. For example in 1925, germany’s largest chemical companies including the giant Bayer, Hoechst and BASF merged into a single concern called IG Farbenindustrie.

The german chemical industrie at that time was the worlds largest and most advanced. 4. The factor and demand conditions are not purely national in their creation. In fact, the economies of all nations have evolved into “global webs,” becoming so intertwined, that the current measures of economic performance are no longer valid. Reich reexamines the age old debate on the origins of wealth and finds that in a knowledge based economy wealth originates from a strong, innovative, and skilled work force.

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