Page 225 - Global Political Economy_Understanding The International Economic Order

CHA PTER E IGHT
domestic firms in ways that either facilitate or obstruct development
ofcompetitive advantage in certain industries. According to Porter,
several aspects ofa national economy are particularly important: the
national culture and its influence on the purpose ofeconomic activi-
ties, the status ofcapital and labor, the nature ofeffective demand,
the condition ofsupporting industries, and the industrial structure of
the economy. These several factors, Porter argues, determine domestic
competitive conditions, and those conditions in turn influence the in-
ternational competitiveness ofparticular sectors ofthe economy.
Using specific industrial sectors as the units ofanalysis rather than
the individual firm or the national economy as a whole, Porter dem-
onstrates that an economy with a competitive advantage in a particu-
lar sector invariably has several strong firms in that sector. Intense
domestic competition among these oligopolistic firms confers on them
their strong competitive position in international markets. Thus, for
Porter, the competitive advantage ofJapanese firms in automobiles
and consumer electronics is explained by the supercompetitiveness of
the domestic market. This supercompetition in Japan has been con-
centrated on winning market share rather than profit maximization,
and is carried out primarily through product innovation, application
oftechnology to productive processes, and great attention to quality
control rather than through the price competition characteristic of
American firms. Intense oligopolistic competition at the domestic
level, Porter concluded, provided a better explanation ofthe interna-
tional competitiveness ofJapanese firms in certain sectors than did
any other factor, certainly more than possible corporate collusion or
government interventionist policies.
As a good economist, Porter eschews the importance ofthe nation
itself as a factor in international competitiveness. However, in fact
Porter is talking about the importance of differences in national poli-
cies as an explanation ofinternational competitiveness. Although it
was not his intention, Porter actually demonstrates that national gov-
ernments do play an important role in helping or thwarting the efforts
offirms to create competitive advantage. Government policies can
and do support or hinder the supply-and-demand factors affecting
the success ofparticular sectors. Furthermore, governments can pro-
tect infant industries from international competition until they are
strong enough to compete on their own, and they can also foster
technological innovation through support for R & D, assist domestic
firms to gain access to foreign technology, and protect proprietary
knowledge from foreign competitors. In short, a government can take
a long-term perspective and establish policies that foster a favorable
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