Porter’s Competitive Advantage Of Nations: Time For The Final Judgement?

Porter’s (1990) Competitive Advantage of Nations (CAN) was heralded on publication as a book which could build a bridge between the theoretical literatures in strategic management and international economics, and provide the basis for improved national policies on ‘competitiveness’. This review of CAN draws on papers written since its publication to show that while it was enormously rich in its range and scope it fell far short of the claims made for it. That failure arose from a number of sources. Most fundamentally, there were elisions with respect to the object of the analysis which meant that explanations for productivity at national level became confused with explanations for industry level success in gaining market share. Second, there were fundamental misunderstandings of the factors which determine trade, particularly with respect to the principle of comparative advantage. Third, there were flaws in the methodology and mode of reasoning. Finally, the assertions which form the heart of CAN have been refuted. Sustained prosperity may be achieved without a nation becoming ‘innovation‐driven’, strong ‘diamonds’ are not in place in the home bases of many internationally successful industries and inward foreign direct investment does not indicate a lack of ‘competitiveness’ or low national productivity. Policy‐makers are left with a ‘laundry list’ on which to base simple SWOT‐type analyses of their economies, but there is no reliable guide to policy. Developing countries in particular are inadvertently encouraged to pursue policies which might be harmful. Porter generalized inappropriately from the American experience, while confusing competition at industry level with trade at national level. CAN’s failure suggests that academicians of international business would be well advised to revisit the elementary economics of trade and growth before venturing too boldly into the field of policy.