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The Competitive Advantage of Nations

Michael E. Porter
Harvard Business Review




The Competitive Advantage of Nations

Michael E. Porter

National prosperity is created, not inherited. It does of the patterns of competitive success in ten leadingtrading nations, contradict the conventional wisdom
not grow out of a country's natural endowments, its

labor pool, its interest rates, or its currency's value, that guides the thinking of many companies and na-

tional governments— and that is pervasive today in
as classical economics insists.Anation'scompetitivenessdependsonthecapacity the United States. (For more about the study, see the

insert “ Patterns of National Competitive Success.” )
of its industry to innovate and upgrade. Companies

gain advantage against the world's best competitors According to prevailing thinking, labor costs, inter-

est rates,exchange rates, and economies of scale are
because of pressure and challenge. They benefit from

having strongdomestic rivals,aggressive home-based the most potent determinants of competitiveness. In

companies, the words of the day are merger, alliance,
suppliers, and demanding local customers.

In a world of increasingly global competition, na-strategic partnerships, collaboration, and suprana-

tional globalization. Managers are pressing for more
tions have become more, not less, important. As the

basis of competition has shifted more and more to government support for particular industries. Among

governments, there is a growing tendency to experi-
thecreation and assimilation of knowledge, the role of the nation has grown. Competitive advantage is ment with various policies intended to promote na-

tional competitiveness— from efforts to manage
created and sustained through a highly localized pro-cess. Differences in national values, culture, eco- exchange rates to new measures to manage trade topolicies to relax antitrust— which usually end up
nomic structures, institutions, and histories all

contribute to competitive success. There are striking only undermining it. (See the insert “ What Is Na-

tional Competitiveness?” )
differences in the patterns of competitiveness in

every country; no nationcan or will be competitive These approaches, now much in favor in both

companies and governments, are flawed. They funda-
in every or even most industries. Ultimately, nations

succeed in particular industries because their home mentally misperceive the true sources of competi-

tive advantage. Pursuing them,with all their short-
environment is the most forward-looking, dynamic, and challenging. term appeal, will virtually guarantee that the United

States— or any other advanced nation— never
These conclusions, the product of a four-year study

achieves real and sustainable competitive advantage.We need a new perspective and new tools— an ap-
Harvard Business School professor Michael E. Porter is the author
proach to competitiveness that grows directly out of
of Competitive Strategy (Free Press, 1980) and Competitive Ad-
an analysis of internationally successful industries,...
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