Michael Porter’s Competitive Advantage revisited

Nicholas J. O’Shaughnessy Judge Institute of Management Studies, University of Cambridge, UK

Re-affirms the validity of Michael Porter’s contribution to the discourse on competitive advantage, but suggests that his theory is weakened by its neglect of cultural factors and historical antecedents. Offers further amplification to his comments on the role of government, and reviews modern critics of Porter. Finally, summarizes succinctly the advice he would give to modern governments.

Management Decision 34/6 [1996] 12–20 © MCB University Press [ISSN 0025-1747]

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Introduction Since it was published, Michael Porter’s Competitive Advantage of Nations has become a work of great influence – not only in the world of ideas but also in the agenda of governments. The contribution is a significant one. But a subject so extensive could not possibly be covered in one book, and with a work so well noticed we are justified in subjecting its explanation to critical scrutiny. Our approach does not stand as a substitute for what Porter says; the criticism is not that he is in error, but that his thesis is incomplete. This discussion of methodology, culture, the role of history, politics, etc., is offered by way of a supplementary. The claim is that inattention to matters of culture and the cultural dynamic is Porter’s most important omission. Compared to this disregard of the explanatory power of the idea of culture, the other points that we explore – his neglect for example of the history – are useful but more peripheral aspects of the question: How can nations best compete? Another vein of criticism lies not in the claim that he ignores something but that he gives it insufficient attention, and this is particularly so in the case of industrial policy. What, then, are his claims? Porter says that “most theories of trade look solely at cost, treating quality and differentiated products in a footnote. A new theory must reflect a rich conception of competition that includes segmented markets, differentiated products, technology differences and economies of scale”. He argues that “a new theory must explain why firms from particular nations choose better strategies than those from others competing in particular industries”. He believes that “much traditional thinking has embodied an essentially static view focusing on cash efficiency due to factor scale advantages”. His sharpest area of stress is the importance of competitiveness, a theme he repeatedly returns to, and he thinks that “a new theory must make improvement and innovation in methods and technology a central element”. Fundamentally his question is: Why do particular industries (or industry segments) in particular nations obtain and

sustain a competitive advantage against competitors in the rest of the world?

It should be recognized that answering this question would not explain directly the competitive advantage of nations or the wealth of nations except in the trivial sense that if sufficient industries in a country were world leaders, the nation probably has something that gives it a general advantage. Porter sees four broad attributes as the attributes of the nation that is home to the internationally successful industry. They comprise: 1 Factor conditions: the nation’s position on factors of production, such as skilled labour or infrastructure, necessary to compete in a given industry. 2 Demand conditions: the nature of homemarket demand for the industry’s product or service. 3 Related and supporting industries: the presence or absence in the nation of supplier industries and other 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, as well as the nature of domestic rivalry. Porter is at pains to stress that the “diamond” factors form a system, that is, a set of interdependent parts that together form a unitary whole so that weaknesses in one part of the system can undermine the whole. There are even synergies from the clustering of suppliers, buyers and rivals in the home country, mainly in promoting efficiencies, specialization and innovation. That there are interdependencies cannot be denied but the importance for any particular industry would have to be established empirically. It is the same with all the other influencing factors mentioned by Porter. They are not so much factors as variables whose value can vary substantially as Porter often shows. In any case we have no means for predicting how a complex system like this will behave even when we fully understand all the various parts. Porter therefore provides an orienting model not an explanation of international success in the sense that the explanation fully

Nicholas J. O’Shaughnessy Michael Porter’s Competitive Advantage revisited Management Decision 34/6 [1996] 12–20

accounts for the success of each and every case. As far as Porter does provide a judgement as to what is always key, it is a belief in competition to provide the motivation to innovate and become top dog. But this is to assume that the achievement need will be part of the national culture. There can in fact be no one explanation that would prove adequate for all cases, since the cases are not tokens of each other. There can be no one adequate explanation, no more than there can be just one explanation of holes in the road. Because we can give one name to some set of events, e.g. international success, does not mean there must be merely one explanation. Moreover, he is insufficiently operational – what for example should be the balance between theoretic and vocational in higher education? It is a question of weighting factors and not merely reciting them. The role of the state itself is seen to work in some circumstances and not in others: he is reluctant to offer us higher level abstractions which are not platitudes, to give generalizable rules, retorting that so much is situation specific. He likes to construct lengthy and somewhat simplistic lists, though their comprehensiveness is admirable, each page a cornucopia of facts and factors, and there are 800 pages. But they are excessive and even repetitious.

Culture The key criticism of Porter is surely his inattention to the cultural dimension, a significant omission. While discussion by anthropologists, psychologists and sociologists as to what we mean by culture has been seemingly interminable, we may nevertheless view it as a universal frame of reference that influences everybody in a society. We do not seek to challenge his apparent view that nations, like individuals, have a distinctive national “character”, but his interpretation of them is simplistic. Thus the book is overly facile in its willingness to fall in with the national stereotypes, without the type of empirical support necessary for statistical generalization: the Germans are efficient and technically excellent, the Italians are superb designers, the Swiss are precise, etc. While he condemns the immobile models of industrial structure traditionally liked by treasuries and economists (though economists do now talk about organic models of industrial structure), he himself apparently views national culture as a changeless artefact. But though the idea of a national psyche may have dubious intellectual validity, if such an entity could be said to exist it would be

changeable. The Swiss for example, whom Porter so admires, had the highest percentage AIDS figures in the West. Will the Swedes continue to tolerate government consuming most of their income, as media expose them to the higher living standards of the more gently taxed? Or will Germany become increasingly a less hardworking society (like the English): ex-East Germany itself illustrates, in the well documented languor and lack of initiative of its workforce, how cultures can change. Or are the Japanese becoming more innovative technologically (there is increasing evidence that they are)? Though he does credit national culture with a certain amount of explanatory power, Porter tends to avoid discussing it in any depth. I would argue that the focus should be more on the entity of the nation-culture than on building lists of its gold medallion industries, though this may be awkward to achieve in a non-subjective way. But the attempt to explain industrial success exclusively on a disaggregated, industry-by-industry basis is inherently flawed. While seeking to avoid the trap of any stereotypical or superficial view of culture, it is perhaps pertinent to ask why certain cultures give rise to industrial excellence, why some people are more hardworking, flexible, entrepreneurial; value the theoretic more and seek education? How are these determinants of national competitive success produced, can government create them? The explanation for the success of key industries might be mainly located in national culture. Thus to seek to explain success by looking at particular constituent industries is important, but incomplete and lacking in depth. Hence, in one survey[1] 87 per cent of Japanese corporate (subsidiary) respondents gave “aggressive growth” or “market domination” as the goals (to be achieved by winning competitor’s customers), but only one-fifth of British companies, who tended to cite “maintenance” or the “prevention of decline” as their objectives. The UK’s apparent satisfaction with the lower end of the price range, which these studies illuminated, must surely have a cultural component – a national complacence perhaps. Porter has a technician’s interest in systems, and he also places a “good education”, whatever he might mean by that, at the core. But effective education owes much to prevailing social values; in certain societies, such as Hungary, the popular imagination is obsessed with education. Hungarian children are 30 months ahead of British at mathematics, and in Japan parents spend 30 per cent of their income on education. An obsession with quality is surely not merely a premeditated corporate strategy but also an emanation

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from culture. The question of why some cultures have this inherited dynamic is not a simple one and is really beyond the scope of this article. But clearly it must be to competitive advantage if the traditional culture, not the diktat of the state, teaches hard work, values education, respect for authority, and its national heroes include entrepreneurial and business leaders. Here, there is a sense of mission and coherence, and broad agreement on social goals: it is a question of shared values, shared norms[2]. Successful countries are such cultures: manifestly the more easygoing are less successful, but only in the narrowly economic sense. In his explanatory framework, Porter relegates culture to a secondary role. The wish to be first, best, is fired by national pride, a wish to strive that is shared by nearly everybody. Arguably there is in fact no universal formula for competitive advantage, only socialpolitical conditions which from time to time give rise to it. It could even be the case that competitive advantage is really based on the particular, and can never be general, that we reduce therefore to the proposition that everything is “culture” and that discussion of competitive advantage outside the idea of a culture is irrelevant if we seek public policy prescriptions, the only actually useful consequence of such a discourse. That, perhaps, is an exaggeration. Nonetheless it follows that to have a policy on competitive advantage we must scrutinize the dynamics of cultural change. How is it induced: indeed, is such an enterprise ever feasible? But to speak of cultural differences is not to make a divisive or bigoted statement. There is a downside to the competitive nation-culture: the social obloquy for example that attaches to poverty and failure, or social Darwinism. Singapore, with its tight social controls, government ordained and culturally reinforced, may be a miracle economy but it is not, necessarily, a desirable place to live. Thus, to say that there are extreme cultural differences between the nations is not to make a value judgement or a hierarchical one. The question is: what ultimate end are these things for? If economics were an absolute criterion of value, some cultures definitely would be much superior to others. Fortunately they are not. He is certainly aware of lengthening shadows, such as German weakness in newer fields like electronics, biotechnology, new materials, or the costs and distortions imposed by Sweden’s mammoth state bureaucracy. One would like to see more about the threats confronting the superstar economies, for they palpably exist. Otherwise the book becomes merely a historical retrospective rather than a perceptive insight into

situations as they unfold. Thus, their social climates may in future become more indifferent to enterprise if the most articulate are becoming divorced from direct involvement in the wealth creation process. Another issue is the quality of corporate leadership, surely critical as one determinant of competitive advantage. Korea and most especially Japan, have benefited here: but what will happen as this generation retires? And how will the superstars cope with markets that are becoming increasingly individual in focus, as people tire of being the nonentity customers of mass merchandising? How will their corporate bureaucracies cope with that more fluid situation? The goods we accumulate are a mode of articulating ourselves, and increasingly the message of that communication is “I am an individualist”, not “I am a participant in a mass consumption experience”.

Competitive advantage for developing countries Porter’s arguments are formed almost entirely with reference to developed countries. Optimal automation is unlikely to appeal to societies with an unemployment rate of 50 per cent. University education will mean little to countries where most of the population is illiterate. All his assumptions are therefore specific to the West: his theory would have to be radically reformulated to have relevance beyond. Unreliable or nonexistent transport and communications infrastructure[3] are only part of the problem; in many developing countries product quality standards do not approach the international norm – indeed, there is a complete ignorance of what they are. But the real problems are located in politics and culture. In particular, the bureaucracy[4] (sometimes indeed kleptocracy) has traditionally been looked to in developing countries as a means of employment. The problem of course is that this represents the optimally inefficient combination – not only is it a major cost for government, it also becomes a major cost for business through the high taxes needed to finance it, the corrupt levies it enforces, the favouritism it accords and the myriad rules it inflicts. He says nothing about the implications of the collapse of communism in Russia and Eastern Europe – forgivably, since these events occurred after the book was written. But clearly their consequences are far reaching and any update must give them space. Germany’s competitive advantage has certainly been diminished in the short-run by

Nicholas J. O’Shaughnessy Michael Porter’s Competitive Advantage revisited Management Decision 34/6 [1996] 12–20

the incorporation of 20 million sub-educated easterners.

History Porter neglects the role of historical causation, to the detriment of his overall thesis. In the case of Germany and Japan for example, there plausibly exists a direct connectedness between past militarism and present industrial supremacy. Militarism[5] contributed to industrial excellence by creating both a tradition of discipline in the labour force and leveraging highly technical demands on industry. In both those countries, we may speak of a national will to dominance expressed first militarily and then sought commercially; as nations mature, prosperity not militarism becomes the benchmark. (Is it cynical to point out that Porter’s three favourites, Italy, Germany and Japan, represent the old Axis?) Porter is not interested in this kind of suggestion, but if it helps us to explain competitive advantage it is relevant. Past memories of authoritarian autocracy are also relevant. The peasant under Frederick the Great of Prussia enjoyed much less liberty than his counterpart under King George of England[6]: but the habits consequent on freedoms enjoyed and evolved through many centuries have a downside as far as competitive advantage is concerned, unfashionable though it is to suggest this. For example, leadership becomes more a function of persuasion and cajolery. Thus each nation, too, has social-historical causalities specific to it alone. Hence Weiner, in his English Culture and the Decline of the Industrial Spirit[7], claims that a contributory factor to UK industrial decline was not the rigidity of their class barriers, as commonly believed, but their malleability. The German junkers, on the other hand, were a caste, not a class, so that the bourgeois had to remain for succeeding generations in business rather than escape, as the old English trader could, to the nirvana of country estates, feudal deference and (purchased?) patrician titles. Accumulated historical memories could also help explain the high degree of motivation and entrepreneurship in certain countries. Thus Taiwan, South Korea, Singapore, Hong Kong – all were artificial societies, forged in the crucible of anti-communist reaction. Taiwan was created by Kueomingtang exiles, South Korea survived a bitter civil war, Singapore grew after the cessation of communist insurgency in Malaysia, and half the population of Hong Kong were refugees from mainland China.

However, other historical causations that explain competitive advantage may be common among a group of successful nations, and we could seek to create a theory or model of competitive advantage out of such commonalities. One such shared benefit is the continuity of government of the same party for sustained periods. While there may be a downside to this – mediocrity and corruption – it does make for coherent and consistent policy. Business people can make predictions which will not be falsified by a change of government: decisions are made in a stable context. Thus, “Social Democrats ruled Sweden from 1936 to 1976, and Norway from 19351981 for most of the period. One Swedish Prime Minister (Erlander) lasted 23 years. In Japan the Liberal Democrats provided the same cohesion as the Christian Democrats in Germany and the Gaullist -Independents in the French Fifth Republic. Adenauer in Germany was in power for 14 years”[8].

Role of government State incompetence So often, government is inept in what it seeks to do. Indeed, Ronald Reagan made a political career out of recounting government wastage and excess; examples of this are numerous. The Pentagon spent £60m recently to retrain 2,000 military personnel as school teachers and class demonstrators[9], and waste is not only confined to national government: New York City public educational system spends 60 per cent of its budget on administration, with one administrator to every teacher. Notoriously of course, the state has proved inept at running industry itself – bureaucrats are incapable of making decisions about markets. Such sentiments as those above become a reflex of the 1980s. Ultimately, Porter attempts to reconcile an extended role for the state with what he sees as its admitted incompetence, and we are left with the admonition that the state has failed to understand and address the key determinants of competitive advantage. But while he is preoccupied with some contributors to competitive advantage, e.g. university research, he also disregards others; there is a vagueness, a lack of specificity. Porter himself would remove government from direct arbitrament in industry as far as possible. He sees it as the blundering adversary of business or, more nefariously, the bogus friend: “Much government policy aimed at ‘revitalizing’ industry has failed. It is doomed because it does not address the determinants of competitive advantage and is therefore not directed at the true cause of decline”.

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The text tends to ignore the nature and force of the many political imperatives that lead to a deviation away from state spending on key “factors” that might have aided in the creation of competitive advantage; a good example of this is the Common Agricultural Policy, massively subsidized directly from government and indirectly from the consumer (the average British family was paying out £11.80 weekly in subsidy)[10]. Like many such political imperatives its consequences are perverse, siphoning energy away from creation towards the sustenance of obsolescence and decay. Governments, pressured as they so often are by lobby groups, sometimes seem incapable of making the strategic choices necessary to support and sustain competitive advantage. It would, however, be wrong to suggest that Porter is a free market primitive. He recognizes that market forces do not operate in a vacuum, but that the taste preferences they articulate are themselves informed by learning, maturity and prosperity. He is concerned with posing the question: what is the proper role for the state? He sees the state as facilitator, not a licensing agent for the freest possible play of market forces. Therefore one obligation of the state must be to ensure that its producers and consumers are sophisticated: another reason why its main task is to educate and to train, or to ensure training. He perceives the state also as propagandist and cheerleader, illuminating the broad contours of national strategy. But this critical point could have been developed much further (the example he quotes is Japan, where government propaganda was so instrumental in encouraging quality control in the 1950s and robots in the 1970s). Rhetorical and symbolic strategies are, perhaps, as important as legislative ones.

What else can government do? More generally it is in the competence of government, through the symbolic and propaganda power Porter talks about, to damage the public estate – civil service, health care, education, and such – through its myopia, or to help it gain a share of the national talent commensurate with its importance for competitive advantage. Government can help stimulate an entrepreneurial climate – the failure of successive British governments to recognize this as a priority merely reinforced a chronic national ability to connect product inventiveness with commercialization. The British had television from 1929, well before the Americans[11]; the prototype comet jet airliner appeared in 1949[12], nine years before Boeing, while the TSR2 was the most advanced supersonic jet-fighter for years. Yet

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world-beating industries never grew from these early mover advantages (nothing in Porter could explain why, and to supply one would require a forensic dissection of society and culture which, deliberately or not, he fails to provide for this or any country). And national origins may cast an aura over a product and condition our perceptions; by extension, governments should therefore prepare brand support strategies for the nation. An example of this would be the encouragement of a vigorous national film industry whose output – national themes for international markets – created a strong global image for nation and product. In the 1970s government support enabled the Australian film industry to make internationallyattractive films with Australian themes, creating for the first time a mature international image of Australia that was not caricature. Before the Second World War, the Conservative British Government of Stanley Baldwin persuaded the Prudential Assurance Company to back Alexander Korda’s London Films[13], from which an internationally competitive film industry emerged and continued for three decades. Another role for government – more significant than Porter would allow and making him appear somewhat dated in this regard – also includes direction and support for the transport and communications infrastructure and the creation of an engaging, quality amenity environment for business to operate in. US public infrastructure spending went down from 2.3 per cent of GDP in the early 1970s to 1.3 per cent in the 1980s[14]. Business Week went as far as making the controversial claim that 50 per cent of the decline in productivity growth is attributable to public underinvestment[14]. The development of Canary Wharf in London[15], where government refused to sustain transportation infrastructure costs and therefore contributed to the failure of the project, is another case in point. By contrast, the Tyne Development Corporation is an example of what might be achieved by intelligent state involvement, with its successful Business Park and its ability to unlock private money[16].

Critics of Porter A line of recent critics, starting with Krugman[17], argue that Porter has misspecified the problem. To talk of “national competitiveness” is an abstraction that can give rise to erroneous government policies. Governments spend in the belief that they are helping macro industry and thereby national competitiveness, when the real problem is

Nicholas J. O’Shaughnessy Michael Porter’s Competitive Advantage revisited Management Decision 34/6 [1996] 12–20

located at the micro level, the individual firm and, in particular, its anachronistic managerial practices. It is not easy for grand strategy to really ameliorate this, so the debate assumes a government involvement – non involvement dimension. Thus British industry never managed a complete conversion from craft-based to American-style mass production, and neither have reached in Francis’s words “the epoch of mass customization, lean production and collaboratively networked keiretsu of Matsushita, Toyota and Mitsubishi[18]”. Francis, echoing Krugman, argues for … “the foolishness of blaming economic and social policies, cultural factors, or even short-termism in the City of London for the prime causes of national economic decline”. He argues that “the primary cause of poor domestic productivity is internal to industry itself ”, i.e. poor management practice[18]. Possibly echoing Olsen’s argument about distributional coalitions in The Rise and Decline of Nations[19], Francis claims organizations simply atrophy, their structures institutionalized. Practices are laid down at foundation and change little, leading to a decline in relative performance: “The problem of refurbishing the organizational architecture is immense, but it is this task, above all, that has to be done to improve a country’s competitive position”[18]. Core competences can deliver sustainable competitive advantage, but what of “the difficulty firms have in unlearning these competences”? And similarly with dominant logics, the shared schemas or mental paradigms. Francis speaks of “the importance of very specific innovations in management and organization and that these innovations are not tied to any specific national culture”. He argued that the Japanese have used competitive advantage in new product development to transform the game via specific organizational and managerial techniques “that enabled them to achieve such short and cheap lead times – principally concurrent engineering, teamworking, and project, or matrix management”, facilitating a strategy of product diversification and rapid replacement of models[18].

Lessons Porter offers A book on competitive advantage would remain largely an intellectual exercise unless it offered clear policy prescriptions to politicians and civil servants. As set forth by Porter, competitive advantage demands a sophistication of understanding from politicians and civil servants which, in many

cases, their training and experience have not prepared them for. What then will Porter tell the businessman about how to improve his business; what will he tell the politician or civil servant about what policies to pursue? Is he useful? Numerous universal propositions can be distilled from evidence which he himself fails to make explicit. These would constitute an idealized set of preconditions for national competitive success, though no country would ever be so blessed as to possess them all. Porter is coy about enunciating clearly, the victim of the immense detail he amasses, and yet it is this superstructure that practitioners want to see illuminated.

Excellence in state education Porter places at the core of his “factors”, his structural enhancers of competitive advantage, the pursuit of excellence in state education, quality universities, research which stresses the applied as well as the theoretic, and skills training which includes the theoretic as well as the applied.

University applied research But it is linkages with universities and university research that Porter particularly extols. Individual universities specialize in fields relating to the needs of local industries via specialized university research institutes, e.g. the packaging machinery institute of the University of Dortmund. Switzerland also has a strong tradition of university research and links with companies: “World-leading capabilities in chemistry helped give rise to the Swiss pharmaceuticals industry: Swiss companies are committed to research”. In Sweden also, university research contributes to the local scientific and technical base.

Training Generally “nations succeed in fields when they have well-developed (vocational) education systems” (e.g. engineering). This is true of services as well: “In services as in manufacturing, clusters tend to be associated with specialized schools or concentrations of strong university programmes in a field.” Germany has extensive apprenticeship programmes and company training. Such programmes seek to create a theoretical base from which to develop skills: for example, extensive degree schemes and apprenticeship programmes in optics, printing industry, vocational schools and sponsored university research. By contrast, the less tutored UK presence in the print market diminished significantly in the 1970s.

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Stable financing Porter laboriously stresses the need to protect companies from quarterly shareholder pressures and give them space to plan for the long term. Thus, in Japan, ownership of companies is predominantly held in institutions and to some extent by other companies that seek long-term appreciation and do not often trade shares: “Japanese managers were under little pressure to produce short-term results. Robots were often hard to justify on short-term cost savings alone.” He sees stable financing as a critical asset of his paradigm countries and a major weakness of Britain and America (qualified only by the AngloAmerican financial culture’s warm espousal of new business start-ups). One aspect he might have explored further is accounting convention, which is closely related to the social phenomena we have described and is in fact both a cause and an effect of them. Such accounting budgetary conventions would appear to have little relevance to competitive circumstances of the late twentieth century. For as one author (Colin New) has pointed out[20], AngloAmerican budgetary and accounting practices assume future conditions of stable market share, selling prices and costs: such assumptions clearly fail to take account of possible competitive actions, and investment proposals carry only those benefits that it has been possible to quantify easily. Characteristics of FMS and CAD/CAM systems – quality improvements, protection against wage inflation, space reductions of up to 70 per cent – are as New argues revenueenhancing rather than cost-reducing, and therefore regarded by accountants as highly subjective[20]. Traditional accounting prefers precision to accuracy, it would rather be precisely wrong than vaguely correct. An FMS capital expenditure proposal has a payback period of ten years, yet accountants expect payback within three years; systems have not yet caught up with realities of advance technology[20]: Companies give up extra profits in order to maintain an artificially high return on assets. Annual performance measures militate heavily against investment in new technology.

Differentiation Differentiation, upgrading and micro-segmentation appear to be key in many manufacturing strategies. Porter stresses that there are “two basic types of competitive advantage: lower cost and differentiation”. The Japanese opted for the mature strategy, differentiation. Japanese firms solidify their positions by creating a steady stream, or even a

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flood, of new models. Typically these are relatively standard products embodying a wide range of options or additional features, often produced with flexible manufacturing technology.

Automation From the mass of his evidence, advanced automation clearly emerges as another desirable precondition for manufacturing success. Every country which aspires to market leadership, and every industry, must assiduously seek and employ the best in manufacturing technology.

Sophisticated consumer demand Porter particularly stresses the importance of a mature and sophisticated home market as a pre-requisite of international competitive success. This is not a new insight, but he makes it a memorable one by incisive expression and case evidence. Thus “since the late 1960s the Japanese home market for product generation is often maturing while markets in other countries are still growing”.

Geographic clusters For Porter, geographic concentration plays a crucial role and he stresses it often in his concept of a cluster, by which he means a cluster-culture, i.e. a rich local ecology and intricate mesh. Benefits are reinforcing, with clusters as mutually supportive, all resourcing a common pool (from which all benefit) of specialized and related technology, information infrastructures and human resources. But he states the obverse: that the cluster participants can pull one another down (viz. the example of Lancashire cotton).

Engineers Porter attaches importance to the notion of drawing management cadrés from the ranks of trained engineers. Thus a high proportion of Japanese managers and Swedish and German managers are engineers; for German students, the most popular field of study is mechanical engineering. Thus engineering should have high social status and attract the best students at universities, engineers should dominate the boards of manufacturing companies. Many of the most talented people in a country – as in Japan, for example – should flow into manufacturing industry, a truism so obvious we are in danger of forgetting it. Since nations do not possess an infinite talent pool, this demands some government policy.

Further exhortations Information about industries and markets should be easily available; thus production

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and market share data are readily accessible for almost every Japanese industry. Porter would have time neither for the provincial prejudice that perceives a large service sector as parasitic, nor for these who airily affect not to worry about manufacturing decline on the grounds that they will be replaced by service sector jobs. He stresses the critical relationship between services and manufacturing. Both are equally important.

Conclusion This book popularized the idea of competitive advantage as the cornerstone of government policy: in doing so it performed governments, everywhere, a service. So much interest has been invested in The Competitive Advantage of Nations, so much attention has accrued to it, that its deficiencies should be understood as well as its merits appreciated. The danger with any populist universalist explanation is that it is accepted uncritically and applied mechanically. In our view, Porter ignores some of the important determinants of competitive advantage, his thesis of competitive advantage never transcends economics, and therefore encourages the belief that problems are soluble exclusively through economic policy measures. This is an imperfect view: it neglects the role of history, politics and culture in determining competitive advantage. What he says is impressively true within self-defined limits: but only part of the story. Yet the strengths of the book are many. It is richly descriptive, a harvest of striking examples, invaluable for the student or teacher of management. But because of this descriptive. texture, the prescriptive aspirations of the book are too often violated since the reasons for competitive success are so often seen to be specific. Then there are the subtlety of his insights. Like many, I had always assumed, for instance, that truculent unions and environmentalist pressure groups represented merely a cost, and a heavy one, to industry. But Porter has a facility for turning conventional explanations upside down – thus, Fiat had the most serious labour troubles of any car manufacturer; it was therefore wellmotivated to adopt robots and now possesses the most automated car plant in Europe. So the anthropology of competitive success is a complex one. Again, environmental regulations in Germany and Sweden led them to anticipate international consumer demand in car manufacturing, and even welfare socialism – astonishingly – is to an extent reconcilable with international competitive advantage, as

the case of Sweden for a long-time demonstrated. With many of Porter’s factors the point has been made, often and eloquently before. Why therefore repeat it? First, because of the wealth of case evidence he cites: second, because the book’s aspirations, sealed in its title, is towards the policy-making élite, and they cannot be told those things often enough; because the book is unique in offering a systematic explanation of competitive advantage rather than some analysis of desiccated components. He has the rare quality of wisdom, and this is a good book: which is why it is all the more important to understand its limitations. He has a capacity to demolish stereotypes, and he enables one to think more richly about enterprise. There is a grandness in the project, this attempt to create a global explanatory superstructure, and the book helps us to focus on what is critical in the acquisition of national competitive advantage. Therefore our commentary on limitations should not detract from the wealth of industrial economic theory that Porter manages to put across in the book. Not just abstractly, but with enlightening industry illustrations. Porter has a viewpoint about competition and how competitive success is achieved and this book is in the nature of illustrating that it has some basis in fact.

Notes and references 1 Saunders, J., Wong, V. and Doyle, P., “Japanese marketing strategies in the UK: a comparative study”, Journal of International Business Studies, Spring 1986. 2 See Tsurumi, Y., Multinational Management, Ballinger, Cambridge, MA, 1984, p. 85 onwards. 3 “The Vision of a New India”, Associated Chambers of Commerce and Industry of India, 1991, pp. 7-8. 4 See for example “A new economic order … our national priority”, Associated Chambers of Commerce and Industry of India, 1991. 5 See Acton, Lord, Lectures on Modern History, Macmillan, 1912. 6 See Thomson, E.P., The Making of the English Working Class, Pelican Books, 1968, for an account of how a working class agitator was invited to meet the cabinet of George III. 7 Weiner, M.J., English Culture and the Decline of the Industrial Spirit, 1850-1980, Penguin, Harmondsworth, 1985. 8 Johnson, P., A History of the Modern World, Weidenfeld and Nicolson, 1983. 9 Economist, 16 January, 1993. 10 See O’Shaughnessy, N.J. and Allington, N.F., Growing Insanity, Adam Smith Institute, 1987. 11 Bennett-Levy, M., TV Is King, MBL Publications, 1994.

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12 Foster, R., Innovation, Summit Books, New York, NY, 1986, p. 187. 13 Kulik, K., Alexander Korda, W.H. Allen, 1975. 14 Business Week, 6 April, 1992. 15 Independent on Sunday, 23 May, 1993. 16 Economist, 23 January, 1993. 17 Krugman, P., “A Dangerous Obsession”, Foreign Affairs, Vol 73 No. 2, March/April 1994, pp. 28-40.

18 Francis, A., “Improving the UK’s industrial competitiveness: do we know how and would we know if we were succeeding?”, RSA Journal, October 1995. 19 Olsen, M., The Rise and Decline of Nations, Yale University Press, New Haven, CT, 1982. 20 New, C., “UK Manufacturing: the challenge of transformation”, Cranfield Management Resource, May 1987.

Application questions 1 Is there a formula for achieving competitive advantage that can be applied equally well to all nations?

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2 What role should the state play in fostering competitive advantage? 3 How can the notion of competitive advantage aid management decision making?