25 September 2015

This monthly selection of articles has been carried out by Philippe Gugler and Michael Keller, the Center for Competitiveness, University of Fribourg.

The entire selection, carried out since 2013, can now be consulted on the academic articles page of our web.

 

25 Years of "The Competitive Advantage of Nations"

By : Christian Ketels and Michael Kaspar Keller. Competitiveness Review, Vol. 25 Iss: 5, 2015.

Abstract : « In 1990, Michael Porter’s The Competitive Advantage of Nations was published. Porter had already established his name with Competitive Strategy (1980) and Competitive Advantage (1985), two books on industry analysis and company strategy that had become instant classics in their field. With The Competitive Advantage of Nations, Porter entered a new field and started to address an audience of government leaders and economists. As in the earlier two books, he offered them new conceptual tools that were intended to change not only how to think about competitiveness but how to mobilize effective action. It introduced the ‘diamond’ and the ‘cluster’ as critical tools to analyze and understand competitiveness. And it fore- shadowed a new model of economic development efforts, focused on developing existing strengths, on building competitive advantages, and based on public-private partnerships.

Twenty-five years later The Competitive Advantage of Nations has undoubtedly become a classic. It has been reprinted numerous times and in an ever growing range of languages. Its citation counts put it among the most widely spread economics books there are. For Porter maybe even more importantly, the ideas of this book have inspired and motivated public and private leaders in many countries and regions. They continue to be discussed, sometimes heatedly – what better indication of their relevance?

The purpose of this special edition of the Competitiveness Review is to contribute to the discussion of what lessons the book and the work it triggered holds today. There is no doubt that the questions Porter raised 25 years ago remain critical today; maybe even more so than ever. The recent Great Recession in the US and the European fiscal crisis that followed are a painful sign that macroeconomic engineering has failed as a driver of sustainable growth. And while globalization has proven a powerful tool to raise prosperity, there are increasing doubts that the structural transformation from agriculture to industry that it has enabled in many countries remains a viable path forward (Rodrik, 2015). What is left, then, is the hard work of creating business environments in which companies can emerge and continuously enhance their productivity and innovative capacity. It is exactly here that Porter’s competitiveness framework offers a perspective for fact-driven efforts to enhance a country’s or region’s ability to raise its sustainable prosperity over time. » [ABSTRACT FROM AUTHORS]

 

Creativity, clusters and the competitive advantage of cities

By : Roger Martin, Richard Florida, Melissa Pogue, and Charlotta Mellander. Competitiveness Review: An International Business Journal, Vol. 25 Iss: 5, 2015.

Abstract : « The article marries Michael Porter’s industrial cluster theory of traded and local clusters to Richard Florida’s occupational approach of creative and routine workers to gain a better understanding of the process of economic development.

Combining these two approaches, four major industrial-occupational categories are identified. The shares of U.S. Employment in each – creative-in-traded, creative-in-local, routine-in-traded and routine-in-local – are calculated and a correlation analysis is used to examine the relationship of each to regional economic development indicators.

Economic growth and development is positively related to employment in the creative-in-traded category. While metros with a higher share of creative-in-traded employment enjoy higher wages and incomes overall, these benefits are not experienced by all worker categories. The share of creative-in-traded employment is also positively and significantly associated with higher inequality. After accounting for higher median housing costs, routine workers in both traded and local industries are found to be relatively worse off in metros with high shares of creative-in-traded employment, on average.

The research is among the first to systematically marry the industry and occupational approaches to clusters and economic development. » [ABSTRACT FROM AUTHORS]

 

The Competitive Advantage of Nations: origins and journey

By : Robert Huggins and Hiro Izushi. Competitiveness Review, Vol. 25 Iss: 5, 2015.

Abstract : « The aim of this paper is to provide an understanding of the origins and journey of the fundamental ideas underpinning Michael Porter’s The Competitive Advantage of Nations as a means of assessing its influence.

Drawing on a reflection of the book’s text and associated works by Porter, the paper shows how Porter’s thinking evolved from his earlier writings, as well as how his ideas went through further periods of development following the publication of The Competitive Advantage of Nations.

The paper focuses on the emergence of Porter’s cluster theory and his growing acknowledgement of the role of innovation within processes of economic development. It shows how these concepts have provided a foundation for contemporary economic development practices. Also, the paper highlights how the fundamental concepts of Porter’s text have shifted from a unit of analysis focused on nations, to one where subnational regions are the primary analytical unit.

The paper concludes by suggesting that the nature of Porter’s conceptual insights is likely to ensure the long-term endurance of the fundamental lessons contained within The Competitive Advantage of Nations. » [ABSTRACT FROM AUTHORS]

 

The Competitive Advantage of Nations : 25 years - opening up new perspectives on competitiveness

By : Örjan Sölvell. Competitiveness Review: An International Business Journal, Vol. 25 Iss: 5, 2015.

Abstract : « With the publication of the Competitive Advantage of Nations (CAON) book in 1990, Professor Michael E. Porter opened up a whole new perspective competitiveness and clusters, including both new research avenues and new perspectives for practitioners and politicians. By questioning the traditional, more static and macroeconomic, views on competitiveness, he opened up for a new model of microeconomic drivers of long-run firm competitiveness. The new conceptual model, the Diamond model, pointed to the importance of healthy rivalry and dynamic clusters, in the proximate firm environment, as central to our understanding of how firms build sustainable competitive advantages in global markets.

To distinguish between short-term, more static, and long-term, more dynamic competitiveness of firms, and the competitiveness of nations and regions, the paper proposes a conceptualization into three inter-related concepts: competitiveness and innovativeness of firms, and attractiveness of nations and regions.

(This paper) summarizes 40 years of Professor Porter´s seminal research with a focus on the CAON project that began with the 1990 book on The Competitive Advantage of Nations The paper proposes three interrelated concepts to cover issues of competitiveness: Competitiveness (firm´s static advantages), Innovativeness (firm´s dynamic advantages) and Attractiveness (national/regional advantages). » [ABSTRACT FROM AUTHOR]

 

Competitiveness: from a misleading concept to a strategy supporting Beyond GDP goals

By : Karl Aiginger and Johanna Vogel. Competitiveness Review, Vol. 25 Iss: 5, 2015.

Abstract : « The article shows how the term competitiveness has been applied and adapted since Michael Porter made it respectable in economics, strategic management and consulting. We connect the concept with new developments in the theory of the firm, theories of growth and, finally, with Beyond GDP literature.

We distinguish between input competitiveness and output competitiveness, developing a set of indictors for both. We rank countries according to costs and structure capabilities (drivers of competitiveness) and according to economic, social and ecological performance (performance pillars). Finally, we explain outcome competitiveness by the individual drivers, using econometrics and principal component analyses.

Defining competitiveness as the ability of a country or nation to deliver Beyond GDP goals changes the policy conclusions drawn from the quest for competitiveness. Policies to reduce costs prove inferior relative to "high road strategies" built on skills, innovation and supporting institutions. Ecological ambition and social investment are not costs, but enablers of competitiveness for high-income countries.

Connecting the well-known term competitiveness with Beyond GDP goals is a new approach. It is very different from the old concept of cost competitiveness criticized heavily by Paul Krugman. Supplying a set of indicators to measure “low road" and "high road" competitiveness leads to important new policy conclusions. » [ABSTRACT FROM AUTHORS]

 

Theoretical and methodological advances in cluster research

By : Torger Reve and Amir Sasson. Competitiveness Review, Vol. 25 Iss: 5, 2015.

Abstract : « The paper assesses the dissemination of cluster ideas advanced in the “Competitive Advantage of Nations” and three subsequent national studies and the reasons for their substantial public policy impact in Norway.

The paper presents the theoretical and methodological novelties of each of the national studies, the inclusive study-organizing principle employed and public policy impact.

The papers finds that the dissemination of cluster thinking and the development of a successful cluster-based industrial policy in Norway is largely a function of the nature and extent of the cluster research efforts that took place in Norway. The national cluster research projects mobilized all the key industrial and governmental actors in a very effective way making studies both rigor and relevant. Due to advanced and demanding policy makers, the studies also evolved in terms of the theoretical models and methodologies employed.

The paper contributes by illuminating the direct and indirect impact of the “Competitive Advantage of Nations” on both academic endeavors and public policies in Norway and by explicating how studies that make it possible for academics and practitioners to work in tandem substantially affect public policy. » [ABSTRACT FROM AUTHORS]

 

Twenty years after the Porter report for Portugal

By : Vítor Gonçalves, Fernando Ribeiro Mendes, Idalina Dias Sardinha, and Ricardo Rodrigues. Competitiveness Review, Vol. 25 Iss: 5, 2015.

Abstract : « This paper discusses the contribution of the Porter Report toward increasing the competitiveness of the Portuguese economy and highlights the factors that affected its operationalization.

This paper considers the contributions of the Porter Report, entitled “Building the Competitive Advantages of Portugal”, presented in 1994, particularly with regard to the recommended clusters and public policies, as well as the assessment and warnings provided by Michael Porter in 2002; examining both in the present perspective.

Although Michael Porter, in 2002, made a critical judgment about the country’s evolution since the 1994 report, it is clear that, on the one hand, the recommended development model attracted high attention and had positive repercussion in academic and business circles, while on the other hand, some of the objectives were achieved, albeit at a slower pace than would have been desirable. Political and economic context and the time period are relevant for all technological and geostrategic changes, among others. The accuracy of the diagnosis and the development model proposed by Michael Porter is confirmed and the difficulty in its implementation is highlighted.

The analysis of the Portuguese evolution after Porter's recommendations is instrumental in understanding the competitiveness and development challenges faced by a small peripheral economy in the European integration process. Understanding these difficulties and successes is of utmost importance in improving the definition and in the implementation of policies focused on the competitiveness of countries and regions. » [ABSTRACT FROM AUTHORS]

 

The Central American competitiveness initiative

By : Niels Ketelhöhn , Roberto Artavia , Ronald Arce , Victor Umaña , (2015) "The Central American competitiveness initiative", Competitiveness Review, Vol. 25 Iss: 5, 2015.

Abstract : « This paper is a historical account of the process by which Michael Porter and INCAE Business School put together a regional competitiveness strategy for Central America that was officially adopted by the governments of five participating countries, and implemented through a series of Presidential summits that occurred between 1995 and 1999. The paper provides a unique case study on the adoption of the concepts put forth by Porter in his book “The Competitive Advantage of Nations “(1990) at the highest level of government. The study arrives at a series of practical implications for policy makers that are particularly relevant for the implementation of supra-national regional strategies.

The authors conduct an extensive literature review of 190 policy papers produced by INCAE Business School, that are used to recreated the historical evolution of the regional competitiveness strategy. The effect of Porter’s intervention is also assessed by comparing the main economic indicators of each participating country with those of 2005-2010. One of the authors was the main protagonist in the successful implementation of the strategy, and the paper relies partially on his accounts of events.

This study describes how economic policy in Central America was profoundly influenced by Michael Porter’s thinking in the second half of the 1990s. These policy changes promoted international competition of Central American clusters and firms, and opened the region for international investment and tourism. The region experienced important increases in its economic integration, its international trade, FDI attraction, and tourism investments and arrivals. GDP growth was accelerated in Honduras and Nicaragua.

Like all case studies, this study has limits related to the generalizability of its conclusions. Additionally, it is not possible to determine the precise nature of the relation between the implementation of the regional economic strategy based on the Michael’s Porter theory, and the impact on economic growth and integration, FDI attraction, and the evolution of exports.

The paper has several practical implications that relate to the design of regional economic strategies. First, it identifies policy areas that are more effective as part of regional strategies, and distinguishes them from those that should be resolved at the national level. Second, it suggest a process that can facilitate execution. Finally, it provides an example of the coordinating role that can be assumed by an academic institution such as INCAE.

The Central American Competitiveness Initiative provides a unique setting to study the implementation of competitiveness policy for several reasons. First, in all countries in Central America, Michael Porter’s diamond framework (1990) and cluster theory was officially adopted at the highest level of government. Second, in addition to their individual competitiveness strategies, all countries adopted a regional strategy for cooperation and economic integration. Finally, the Central American Competitiveness Initiative was founded on one of the first competitiveness think tanks of the world. » [ABSTRACT FROM AUTHORS]

 

Technology and costs in international competitiveness: From countries and sectors to firms

By : Giovanni Dosi, Marco Grazzi, and Daniele Moschella. Research Policy

Volume 44, Issue 10, Pages 1795–1814, 2015.

Abstract : « This paper examines the microfoundations of the determinants of international competitiveness. It does so within the broader “technology gap” perspective whereby wide technological and organizational differences ultimately shape the patterns of trade within sectors across countries and their dynamics. First, we take stock of the incumbent evidence on the relation between cost-related and technological competition at country and sectoral level. The overall picture indeed suggests that the countries’ sectoral market shares are mainly shaped by technological factors while cost advantages/disadvantages do not seem to play any significant role. But within any sector, within any country, firms widely differ. Hence the question: does this property apply also at a micro level? Here, we first propose a heuristic model based on a generalized Polya urn process yielding such a property and, then, empirically attempt to identify the underlying dynamics at the firm level using a large panel of Italian firms, over nearly two decades. Results show that also at micro level in most sectors investments and patents correlate positively both with the probability of being an exporter and with the capacity to acquire and to increase exports, whereas labour costs show a negative effect only in some sectors. The result is reinforced when separating the short- and long-run effects, highlighting the predominant impact of technological proxies and basically the irrelevance of wage costs. » [ABSTRACT FROM AUTHORS]