ABOUT THIS CONTENTChapter summaries from Porter's book, Competitive Advantage of Nations, used in my core MBA strategy class.
This chapter offers four case studies of different industries in different countries. It is particularly interesting reading if you are interested in the history of printing presses, patient monitors, ceramic tiles, or robotics. While each of these cases is distinct, there are some common broader processes at work.
Printing Presses (Germany)
Chalk one up for the Germans, they’re such engineers. Germany has 35% of the world market although they are now being strongly challenged by Japan. While the first printing press was developed by a German, Guttenberg, the English took this leadership during the industrial revolution. Fortunately for Germany a German, Koenig, went to England during this time and developed a new press (those Germans are so clever). When he had a hard time making a go of it in England, he returned to Germany where he received favorable government incentives. He also benefited from low cost labor (Germany was not quite the formidable economy that it is today), but the labor was unskilled. Koenig had to develop this workforce and he also developed a supporting industry, paper making. By the early 1820s Koenig had a good little thing going. He was selling presses to Germany as well as to his arch nemesis, England. What followed is a recurring theme for all these cases.
- Local competitors emerge and cluster (ex employees open up shop and a very concentrated industry develops)
- Intense competition for the local market (new innovations emerge)
- Supporting industries are developed (paper making, inks, typesetting)
- International expansion (local market not big enough for all these competitors)
- Consolidation of domestic competitors (response to international competitors)
All of this was supported by local advantages:
- steady supply of well trained engineers (government accredited schools and apprenticeship programs)
- sophisticated domestic market (exacting Germans)
- close interaction with supporting industries (inks, typesetting, paper making)
Patient Monitors (U.S.)
The US has 50% of the world’s market today. The history of patient monitors begins with the cardiograph in which Europe had the early lead. However, with leadership in new technological innovations and the development of solid state electronics, the U.S. took over the lead. Since U.S. medicine was not socialized many small competitors entered the market and there was a lot of competition. In the 60s and 70s U.S. medical procedures and practices were being introduced internationally, and along with it went patient monitors. Especially in the 70s, U.S. companies began to focus more on international markets. In addition, there was consolidation in the domestic market and the entrance of international competitors. The development of patient monitors follows closely the development of technology and software which has been led by the U.S. Today, there is much pressure to reduce health care costs leading to a strong demand for functional low cost monitors which has opened the door to some international competitors. The broad processes in the development of patient monitors is strikingly similar to the printing press.
- Initial leadership in technology
- Local competitors and intense competition
- Strength of supporting industries (technology in general)
- International markets focus
- Entrance of international competitors and consolidation of domestic companies
Again, this was all made possible by some local advantages and conditions:
- strong R&D in technology supported by the government
- early and sophisticated domestic demand
- high health care spending (health care not socialized)
- leadership in high technology
Ceramic Tiles (Italy)
Let’s drink a toast to little Italy which has 30% of the world’s ceramic tile production and 60% of ceramic tile exports. Aren’t those Italians stylish? Actually, the basis of Italy’s leadership lies not in the design or style aspects of tile but in its production methods. The industry is clustered around the town of Sassuolo along with the supporting industries of enamels, glazing, and production equipment. Ceramic tile grew out of the earthenware and crockery industry. During reconstruction after World War II, there was a huge demand for building materials, and the prevailing architecture and construction methods were well suited to ceramic tile (tradition of natural stone and use of concrete in buildings which makes a great substrate for tile). Italy did not enjoy many natural advantages in the early stages. For example, raw materials (white clay) and the production kilns were imported from the U.K. and Germany/U.S. respectively. Italy, however, developed the technology to use local red clay as a raw material and was soon building its own production equipment. A large and sophisticated local demand developed and many new entrants came in to fill the need leading to fierce competition. Supporting industries sprouted up and the geographic concentration led to technology transfer and information sharing among all participants. This led to new production techniques and a pressure to lower costs. With overcapacity in the domestic market, Italy looked overseas for new markets. Playing off of Italy’s other export businesses (like furniture and furnishings) the ceramic tile industry soon led the world. This was followed by some consolidation, and now Italy is being challenged by Spain in the ceramic tile industry. The same overall pattern is seen in the development of this industry. I won’t repeat it here or for robotics. Let’s go drink a nice Chianti instead.
Italy enjoyed some advantages that we have seen over and over:
- strong and sophisticated domestic demand
- existence of capital and skilled labor (began as private industry by some wealthy families in an area where there was an existence of mechanically trained labor force)
- development of strong supporting industries
Japan has 50% of the world’s production of robots, and surprisingly only 20% are exported. The rest are sold and used in Japan which is known for its sophisticated manufacturing techniques. The first robot was developed in the U.S. (not surprising due to leadership in technology) in the 50s. The Japanese licensed the technology (they like to do this don’t they?) from the U.S. in the late 60s for use in developing their manufacturing industry. As Japan concentrated on developing world class manufacturing capabilities, the development of the robot followed, and Japan has led ever since. I am not going to say much else about this industry. The overall patterns are essentially the same, and you’re probably thinking this is getting pretty monotonous already.
- Government incentives to develop manufacturing capability
- Huge sophisticated domestic demand
- Job security (no layoffs) practices leading to labor unions that aren’t concerned about robots displacing people