The Relationships Between Michael Porter's Theory of Competitiveness and Economic Development of Nations, Regions, and Cities and the Economics of Innovation

Extract

Eighteen years ago in his masterpiece “The Competitive Advantage of Nations” Michael Porter developed a model to analyze the competitiveness and economic development of nations, regions, and cities, a model that is still a milestone in this field of enquiry. In this work I will try to show how that theory about competitiveness is related with some important aspects of economics of innovation, also in the light of the already visible effects of globalization.

Introduction

I will first explain the effects of globalization as Kotler identified them in the last edition of his best-seller; then I will briefly resume the main concepts of Porter’s theory of competitiveness, showing two examples of how his national view of industrial systems can help in the understanding of success of nations; therefore I will report some contributions from the economics of innovation that do not want to exhaustively resume the findings of the work of Antonelli but only show how some of them can be related with the strategic view on firms definitely imputable to Porter and his followers. In the conclusions I will identify the role of governments and institutions as an engine for growth and innovation, along with the role of competitors and the research of competitiveness within a national system but with a global perspective.

Globalization

Many authors, from many studying fields, say that nowadays we are in the era of post-globalization, that’s to say that it is already possible to see the main results of this process:

• technological progress has gained impressive rates;

• competition is no longer exclusively local-national;

• the marked development of ICT has increased the need and the usage of information as a competitive tool;

• the Internet has an unexpected (at least up to the last century) development which essentially empowers the customer giving him:

o access to information, the ability to more carefully manage decision-making processes;

o global vision, as a round the clock accessibility of information;

o networking abilities, the customer aggregation occurs naturally around shared interests, experiences and skills;

o experimentation and activism attitudes.

Globalization also brought with itself shorter product life cycles and the awareness for environmental issues. Even if Porter’s model was developed in 1990 I will show in the next paragraphs how it is of actuality in the description of the main factors which increase competitiveness and economic development of nations, regions, cities, and, primarily, companies.

Porter’s main findings

The key theme emerging from Porter’s model was that a company that is successful in global markets has previously been successful in a local market characterized by intense competition. In particular he identified four main factors that have to be considered:

• organizational conditions, the ability of a nation to transform its natural resources and infrastructures into competitive advantage;

• demand conditions, as the presence of a number of sophisticated customers in a product or sectors;

• related and supporting sectors, as the presence of suppliers and “knowledge makers” who speed up the innovation process;

• companies’ strategy, structure, and competitive system, the way in which companies’ business activities are organized and managed and the intensity of local competition.

I would underline the presence of exogenous and endogenous factors, company related and nation related necessary conditions: moreover, the most important thing is that only the interactions between this network of factors and actors allow the growth of a nation, of a region, of a city, of a company. And as Porter said the presence of one or more of this factor is not enough by itself to reach consistent results, if the network which linked them is not effectively developed, as I will show in the next paragraph.

Two examples

The first example is that of Sweden and its very good development between the eighties and nowadays: the presence of natural resources like forest trees certainly helped it but one of the most long-term horizon and fair governments of the world was able to push on some levers to reach the world wide known results. I’m