The Competitive Advantage Of Nations

In Part 3 of the book, Porter outlines two main objectives. The first is “to explain the patterns of international success and failure in a number of important national economies” (282). The related second objective is to explain why the industries in certain nations have been able to upgrade and have not in others. The ability to upgrade in advanced industries is the key to competitive advantage and national economic success. By addressing both issues, Porter looks to give a broader account of national competitive advantage over time and the forces underpinning it. In this chapter, he focuses on the four nations that were “early winners” after World War II.

The first, and most obvious, of these nations is the US. The US was already a pre-eminent industrial power before World War II but in the decades that followed gained unrivalled international leadership in a staggering range of industries—including semiconductors and computers, automobiles and aircraft, chemicals and plastics, consumer goods, and entertainment and leisure products—for a variety of reasons. The US enjoyed plentiful natural resources of land and minerals as well as a strong industrial base. However, the war gave it a unique advantage by crippling its rivals in Europe and Japan. American firms could ascend to international positions with little or no foreign competition. Furthermore, American consumers were affluent. In contrast, those in Europe were still concerned with necessities. This allowed the US to become “the first mass consumption society” (299) and significantly increased home demand, especially in consumer goods and entertainment. Therefore, US firms in these areas had a great advantage.

The second nation that Porter looks at is Switzerland. Despite its small size and population—and its having been a poor nation up until the 19th century—Switzerland became one of the world’s richest nations after the war. Indeed, by the 1960s, Switzerland had the world’s highest per capita income. In addition, it was a world leader in pharmaceuticals, textiles, processed food products, optical instruments, speciality chemicals, and banking and business services. Before the war, Switzerland already enjoyed many real and potential advantages. These included a central European location, a highly educated and disciplined workforce, a multilingual population, cultural diversity, and a small home market that forced firms to look abroad for business. The war allowed these factors to become major competitive advantages because, as in the US, Swiss industry escaped the destruction that affected the major powers of Europe. It also benefited from an influx of talent due to fleeing immigrants. Additionally, its neutral status in the war meant that “Swiss companies [we]re politically acceptable in nations where firms from others [we]re not” (327-28). For all of these reasons, Swiss firms could more easily internationalize than rivals and establish world-leading positions.

The third nation Porter examines is Sweden. Although less successful than Switzerland, Sweden is similarly a small nation which punched considerably above its weight after World War II and has therefore enjoyed high per capita income. It enjoys world-leading positions in the materials and metals, forest products, and transportation sectors. Like Switzerland, it benefited from being neutral in World War II, which helped it preserve both its industrial base and amiable relations with its European neighbours. A key to Swedish success has been the selective factor disadvantage in its climate, its exceptionally cold and long winters, high wages and benefits, and long distances between resources and cities. These factors have encouraged innovation in heating and energy conservation, automation to compensate for labor costs, and logistics sophistication and innovation.

The last nation that Porter looks at is Germany. Despite being devasted by World War II and losing half of its land area, containing many of the most advanced parts of its industrial base, Germany “rebounded quickly” (355) after the war. In fact, German export performance in manufacturing in the post-war decades exceeded even that of the US and Japan. International advantage was particularly strong in metalworking and associated machinery, printed materials and printing machinery, industrial machinery, and optical products. This was partly due to the reassertion of traditional German strengths. German universities had traditions that made them some of the world’s best, especially in science and engineering, where they produced more doctorates per capita than the US. This created a strong culture of research and innovation, which resurfaced after the war. In addition, Germany’s technical colleges excelled because they enjoyed considerable prestige compared to technical colleges in the UK and US. These colleges were also tied to local rather than central government, meaning that they catered to local industry needs. Combined, these factors ensured that the German workforce continued to enjoy a specifically skilled and highly motivated workforce, particularly in technical areas. This greatly benefited German industry.