Contents

Preface

l The Need for a New Paradigm

Conflicting Explanations Asking the Right Question

Classical Rationales for Industry Success The Need

for a New Paradigm Toward a New Theory of National

Competitive Advantage The Study A Broader

Concept of Competitive Advantage

PARTl

FOUNDATlONS

2 The Competitive Advantage of Finns in Global Industries

Competitive Strategy Competing Intemationally The

Role of National Circumstances in Competitive

Success

3 Determinants of National Competitive Advantage

Detenninants of National Advantage Factor Conditions

Demand Conditions Related and Supporting

Industries Firm Strategy, Structure, and

Rivalry The Role of Chance The

Role of Govemment The Detenninants in

Perspective

4 The Dynamics of National Advantage

Relationships Among the Determinants The Detenninants

as a System Clustering of Competitive Industries

The Role of Geographic Concentration The Genesis

and Evolution of a Competitive Industry The Loss of

National Advantage The Diamond in Perspective

PARTⅡ

INDUSTRIES

5 Four Studies in National Competitive Advantage

The German Printing Press Industry The American Patient

Monitoring Equipment Industry The italian Ceramic

Tile Industry The Japanese Robotics Industry

6 National Competitive Advantage in Services

The Growing Role of Services in National Economies

Intemational Competition in Services The Relationship

Between Services and Manufacturing National

Competitive Advantage in Services Case Studies in

the Development of Competitive Service Industries

PART III

NATlONS

7 Pattems of National Competitive Advantage:

The Eariy Postwar Winners

American Postwar Dominance Stable Switzerland

Sweden's Choices Renewing German Dynamism

8 Emerging Nations in the 1970s and 1980s

The Rise of Japan Surging Italy Emerging

Korea

9 Shifting National Advantage

The Slide of Britain Crosscurrents in America

Postwar Development in Perspective

10 The Competitive Development of National Economies

Economic Development Stages of Competitive

Development The Stages and the Postwar Economies

of Nations Postwar Economic Progress in

Perspective

PART IV

IMPLlCATlONS

11 Company Strategy

Competitive Advantage in Intemational Competition The

Context for Competitive Advantage Improving the

National Competitive Environment Where and How

to Compete Tapping Selective Advantages in Other

Nations Locating the Home Base The Role of

Leadership

12 Govemment Policy

Premises of Govemment Policy Toward Industry

Govemment Policy and National Advantage

Govemment's Effect on Factor Conditions

Govemment's Effect on Demand Conditions

Govemment's Effect on Related and Supporting

Industries Govemment's Effect on Firm Strategy

Structure, and Rivalry Govemment Policy and the

Stages of Competitive Development Targeting

Govemment Policy in Developing Nations The Role

of Govemment

13 National Agendas

The Agenda for Korea The Agenda for Italy The

Agenda for Sweden The Agenda for Japan

The Agenda for Switzerland The Agenda for Germany

The Agenda for Britain The Agenda for the

United States National Agendas in Perspective

Epilogue

Appendix A. Methodology for Preparing the Cluster Charts

Appendix B. Supplementary Data on National Trade Pattems

Notes

References

Index

1

The Need for a New Paradigm

why do some nations succeed and others fail in intemational competition?

W This auestion is perhaps the most frequently asked economic question

of our times. Competitiveness has become one of the central preoccupations

of govemment and industry in every nation. The United States is an obvious

example, with its growing public debate about the apparently greater eco-

nomic success ofother trading nations. But intense debate about competitive-

ness is also taking place today in such "success story" nations as Japan

and Korca.' Socialist countries such as the Soviet Union and others in

Eastem Europe and Asia are also asking this question as they fundamentally

reappraise their economic systems.

Yet although the question is frequently asked, it is the wrong question

if the aim is to best expose the underpinnings of economic prosperity for

either firms or nations. We must focus instead on another, much narrower

one. This is: why does a nation become the home base for successful intema-

tional competitors in an industry? Or, to put it somewhat differently, why

are firms based in a particular nation able to create and sustain competitive

advantage against the world's best competitors in a particular field? And

why is one nation often the home for so many of an industry's worid

leaders?

How can we explain why Germany is the home base for so many of the

worid's leading makers of printing presses, luxury cars, and chemicals?

Why is tiny Switzeriand the home base for intemational leaders in pharmaceu-

ticals, chocolate, and trading? Why are leaders in heavy trucks and mining

equipment based in Sweden? Why has America produced the preeminent

intemational competitors in personal computers, software, credit cards, and

movies? Why are Italian firms so strong in ceramic tiles, ski boots, packaging

machinery, and factory automation equipment? What makes Japanese firms

so dominant in consumer electronics, cameras, robotics, and facsimile ma-

chines?

The answers are obviously of central concem to firms that must compete

in increasingly intemational markets. A firm must understand what it is

about its home nation that is most crucial in determining its ability, or

inability, to create and sustain competitive advantage in intemational terms.

But the same question will prove to be a decisive one for national economic

prosperity as well. As we will see, a nation's standard of living in the

long term depends on its ability to attain a high and rising level of productivity

in the industries in which its firms compete. This rests on the capacity of

its firms to achieve improving quality or greater efficiency. The influence

of the home nation on the pursuit of competitive advantage in particular

fields is of central importance to the level and rate of productivity growth

achievable.

But we lack a convincing explanation of the influence of the nation.

The long-dominant paradigm for why nations succeed intemationally in

particular industries is showing signs of strain. There is an extensive history

of theories to explain the pattems of nations' exports and imports, dating

back to the work of Adam Smith and David Ricardo in the eighteenth

century. it has become generally recognized, however, that these theories

have grown inadequate to the task. Changes in the nature of intemational

competition, among them the rise of the multinational corporation that not

only exports but competes abroad via foreign subsidiaries, have weakened

the traditional explanations for why and where a nation exports. While

new rationales have been proposed, none is sufficient to explain why firms

based in particular nations are able to compete successfully, through both

exporting and foreign investment, in particular industries. Nor can they

explain why a nation's firms are able to sustain their competitive positions

over considerable periods of time.