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National competitive advantage is an assessment of a nation’s ability to participate competitively in international markets. Some nations have more advantages than others, for a variety of reasons. To promote economic growth, governments can identify their strengths and weaknesses and play upon them to increase their national competitive advantage. One of the most popular assessment frameworks for this purpose was developed by economist Michael Porter.
Some national competitive advantage comes from resources. These include not just natural resources, but also human capital, like people with particular talents. Nations may be able to grow their resources to increase their competitive edge. For example, founding a university to promote the sciences would lead to more scientists, who would create a new resource for the country to use. The more resources a country has, the more it can compete.
Ability to innovate is another factor. Nations that actively promote and support innovation may experience more success in global markets. As with resources, this can increased through a variety of means by the government. For example, a nation could adjust patent laws to encourage companies to develop new products for the open market, or it could fund endeavors that are likely to bear fruit if provided with support.
Supporting industries are also a key component of national competitive advantage. In the sciences, for example, scientific researchers need chemical suppliers, manufacturers of instruments, and other industries to support their work. Without a connected network of businesses providing products and services, individuals with skills or innovative companies, wouldn’t be able to participate fully in the market. Thus, part of the development of national competitive advantage may involve the promotion of service and support industries.
Local market demands and pressures can also play a role. Some markets promote innovation and development, while others are more stagnant in nature. In a country where the technology industry is highly competitive, for example, tech companies are driven to constantly improve and innovate. This, in turn, makes the company more competitive on the international market because it may bring new technology to market faster than competitors. Internal pressures shape the outward presentation of the economy by creating an incentive for growth and development.
Michael Porter proposed a diamond of these four key traits that could be compared, contrasted, and assessed to determine national competitive advantage. Standardized systems allow for the creation of easily-compared performance measurements. Rankings created with such systems can provide information about how countries stand with respect to each other from year to year.