MBA Boost Porter's Chapter Summaries - Chapter 1: The Need for A New Paradigm

Table of Contents

Key Questions to Ask

Ask why firms in a particular nation can create and sustain competitive advantage instead of why some nations fail or succeed
A nation’s standard of living in the long-term depends on its ability to attain a level of productivity in the industries in which its firms compete
We lack a convincing explanation of the nation’s influence in the success of the firms located in that nation.

It is far form clear what the term “competitive” means to a nation
There are different arguments about what is it that affects competition including:
Macroeconomic phenomena
Function of a cheap/abundant labor
Differences in management practices
Possession of bountiful national resources
Government Policy

The principal economic goal of a nation is to produce high and rising standards of living. This depends on productivity = output value x unit labor
At the national level, competitive concept = national productivity because it has to continually upgrade itself.
International Trade allows for increased or threatened productivity
No nation can be competitive on everything
What is important for economic prosperity is national productivity. The pursuit of competitiveness is defined as trade surplus, a cheap currency or low unit labor costs. (These contain many traps and pitfalls.
The mix of industries exporting is more important than the average export share of the nation.
For competitiveness we must look at productivity and its growth rate, focusing on specific industries and segments.
Porter’s Central Task: Explain why firms in a nation can compete successfully against foreign rivals in particular segments and industries.
To achieve competitive success firms must have lower costs or products that command premium prices.
To sustain advantage they need to achieve more sophisticated advantages over time: productivity growth.

Comparative Advantage: nations all have equivalent technologies but differ in their endowment of so-called “factors” of production such as land, labor, natural resources, capital, etc.

Comparative advantage based on “factors” is not enough to explain trade patterns:

Changing Competition
Technological Changes – level of technology in different industries differs markedly between firms in different nations.
Comparable Factor Endowments
Globalization-Factors are available equally and globally

Fleeting Advantages – today, advantages can be fully overcome by competitors very quickly, due to the rapid tech changes among other.

Threads of a New Explanation – has to do with economies of scale and multinational’s success.

The search is for the decisive characters of a nation that allow its firms to create and sustain advantage in particular field
Companies are very dependent on a strong home nation because it is the source of skills and technology
The questions is how can firms gain advantage by changing constraints

Focused on gaining and sustaining competitive advantage in sophisticated industries and segments
In each nation, he identified all internationally successful firms, the history of competition in particular industries, export trends, and outbound foreign investment.