Traditional economic theory states that a country ‘inherits’ a comparative advantage over other countries in particular industries because of the natural resources that it enjoys.
Natural resources include not only land and mineral deposits, but also the labour force and size of the population.
Michael Porter challenged the traditional theory of comparative national advantage in his book “The Competitive Advantage of Nations”. He put forward a different theory of national competitive advantage, known as Porter’s Diamond.
Porter argued that the national domestic market plays an important role in creating competitive advantage for companies on a global scale.
In Nigeria for example, there has been a low competition in Nigerian products due to the inferior quality of products produce by Nigerian industries. This has impacted negatively on Nigerian market which foreign products are more patronise than the home made products.
Companies operating in a strong domestic market can develop competitive strengths. A typical example is Japan for electronics products. They can then build on the strength of their ‘home base’ to extend their business operations into other countries, where their competitive advantage will also apply and help them towards success.
Porter argued that a country could create factors that give its firms (business entities) a “comparative competitive advantage” over firms in the same industry in other countries. Comparative competitive advantage for a country (or region) means that business entities in the country (or region) can compete successfully and effectively against business entities in the same industry but operating in another country (or region).
When a country enjoys a comparative competitive advantage in a particular industry, there will be a concentration of businesses in the country operating in the industry or in supporting industries.
Porter argued that a key to national or regional supremacy in a particular industry is the ability to innovate. Nigerian firms and industries must innovate to remain successful: we must encourage innovation in our industries and increase patronage of our home made product in order to retain a national comparative advantage.
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