Michael E Porter - the Theory of National Competitive Advantage - Uk

In his Theory of National Competitive Advantage, Michael E. Porter, "generally recognized as the father of the modern strategy field" (Institute for Strategy and Competitiveness, 2009), deals with the competition of regions and nations and their sources of economic prosperity (Institute for Strategy and Competitiveness, 2009). He found that the UK lags many other advanced nations in terms of competitiveness, especially regarding the levels of productivity and prosperity (institute for strategy and competitiveness, 2009).

Public discussions about the UK´s competitiveness are characterized by pessimism, a missing overall strategic perspective and the performance gap with its key competitors United States, Germany and France is in the centre of attention (ISC: UK competitiveness: moving to the next stage, 2003).

This essay will present some of Porter's most striking arguments on the UK's weak position, will then point out some positive trends and give useful guidelines to improve the competitive position of the UK.

In order to understand competitive advantage at the national level, Porter defines as follows:

A nation's prosperity depends on its competitiveness, which is based on the productivity with which it produces goods and services. Sound macroeconomic policies and stable political and legal institutions are necessary but not sufficient conditions to ensure a prosperous economy. Competitiveness is rooted in a nation's microeconomic fundamentals—the sophistication of company operations and strategies and the quality of the microeconomic business environment in which companies compete.

(Institute for Strategy and Competitiveness, 2009)

For the purpose of evaluating a nation's competitiveness, Porter has elaborated his so called "diamond model". It consists of 6 inter-related determinants shaping the business environment by either promoting or impeding the creation of competitive advantage.

Porter attributes the UK's weak competitive position in the world economy to growing disadvantages in each part of the national diamond and says that weaknesses in one industry hurt others as well. He says that "the UK has been losing competitive advantage since well before the second world war". (Porter, 1998, p.482) The postwar period was characterized by high unemployment, low growth in productivity and per capita income and thus resulted in pressure on living standard. In this way, the UK was overtaken by other advanced nations. (Porter, 1998) Precisely, "the UK lacks national competitive advantage in forest products, most areas of textiles/apparel, office products, telecommunications equipment, consumer electronic products, transportation equipment, mechanically based consumer products such as watches and in most machinery industries." (Porter, 1998, p.494)

When implementing the diamond on the UK, there are also positive aspects to mention, but it is evident that the disadvantages overweigh. First of all, there is a lack of rivalry which hinders local firms from competing and upgrading their performance in terms of productivity. Demand conditions are eroding due to falling income. According to Porter (1998, p.497), ‘"the inability of the British economy to support a rapidly rising standard of living has meant that the salaries of skilled scientists and other highly educated personnel in Britain are well below those in other advanced nations." In this respect, the average British consumer is also described as a less demanding and less sophisticated buyer which results in acceptance and existence of poor service and substandard quality. (Porter, 1998)

In terms of factor (input) conditions, one of the major problems of the UK economy are weak labour force skills. The UK's educational system lags badly behind that of other nations. (Porter, 1998) The reasons for this are amongst others that top-quality education is limited to a few and less students go on to higher education than in other advanced nations. The studies are less practically oriented, teachers less qualified and there is little training in math and science. In addition, there is no apprenticeship system that is as well developed as the one in Germany. In this way, standards and with it childrens'performances have fallen. Also resulting from this, managers in Britain are much less likely to have college or university degrees in comparison to other advanced nations. Furthermore, there is little investment in training in order to compensate the weak educational system. (Porter, 1998) It was found out that less than 1 % of firm revenues are invested in training. (The Smith Institute, 2006)

Employer demand for skills is low and although many of them report that they have skill gaps, two-thirds of them did not train their personnel