gb2 - National Competitive Advantage Harvard professor...

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National Competitive Advantage Harvard professor Michael Porter has proposed the most recent trade theory: The theory of national competitive advantage of industries. This theory explains why certain industries are competitive on a global scale. It is the first theory to integrate firms, industries, and nations in order to explain global competitiveness. According to Porter, four factors determine the global competitiveness of an industry. (This theory is called the “diamond” theory, because Porter presents these four factors in a diamond shape, as shown above.) These four factors are as follows: 1. Country factor endowments: As Heckscher-Ohlin theory suggests, some industries are globally competitive because countries are endowed with superior factors of production. For example, Saudi Arabia has a lot of oil, so its oil industry is competitive. 2. Domestic demand conditions: An industry is globally competitive when domestic demand is tough. For example, Americans demand high quality, so American movies are very competitive worldwide. The domestic
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