Annex 2: Porter's Approach: The Competitive Advantage of Nations
Porter 1990 (page 72 ff) identifies four broad classes of capabilities that he considers important for a nation to be a desirable home base for competing in an industry:
- Factor conditions: the nation's position in the inputs needed to compete - factors of production, such as skilled labour, knowledge resources, natural resources or infrastructure, necessary to compete in a given industry. He sees the most important of these as created rather than inherited.
- Demand conditions: sophisticated and substantial home demand for the industries' product or service, pressuring businesses to innovate earlier and faster than their rivals, and allowing them to exploit economies of scale and learning. Arguably, New Zealand's small size makes this quite difficult to achieve. (Many New Zealand companies have instead tapped directly into sophisticated overseas demand – e.g., Rakon, Buckley Systems, and so on).
- Related and supporting industries (i.e., industries that can share activities in the value chain, such as distribution channels, or that can share proprietary skills): the presence or absence in the nation of supplier industries and related industries that are internationally competitive. (Many New Zealand high tech businesses are one of a kind and have little if any supporting infrastructure. F&P Healthcare, Rakon, Vega, Buckley systems, Wellington Drive Technologies, Obo, Ibex, Phitek are examples).
- Business strategy, structure and rivalry: the conditions in the nation governing how companies are created, organised, and managed, and the nature of domestic rivalry.
He considers that nations succeed in particular industries because their home environment is the most dynamic and the most challenging, and it stimulates and prods businesses to upgrade and widen their advantages over time.
To these capabilities, Porter adds chance and government. Within the latter he cites anti-trust policy to promote and shape domestic rivalry (minimal in many key New Zealand sectors), regulation which shapes home demand, investment in education to change factor conditions, and government purchases to stimulate related and supporting industries.
When the Porter framework was applied to New Zealand in 1991, the study found that very few New Zealand industries had developed the multiple sources of competitive advantage needed to upgrade New Zealand's comparative advantage (Crocombe, Enright and Porter 1991, Chapter 5).
While some things have changed since then, there seems little reason to doubt that Porter's broad conclusions about New Zealand still hold.
Back to Top