Porter's model of national competitive Essay Example | Topics and Well Written Essays - 2250 words

Porter's model of national competitive - Essay Example Governments team up with business institutions to device strategies that will guarantee a competitive edge against rivalry countries. Porter’s diamond framework has linked firms, industries, and nations together to explain international competitiveness of countries. However, the model has failed to capture support from the economic school of thought and relies on management theories. This can be explained in terms of international competitiveness at the firm level. Changing patterns of globalization of the world economy, world trade, and dissemination of technology have changed international competitiveness at the firm level. Emphasis on competition among firms in world markets has renewed interest in international competitiveness of countries. This paper focuses on explaining whether or not countries compete internationally as depicted in Porter’s model. This paper explains theories underlying the economic and management schools of thought. The first section gives an o verview of trade theory that gives reasons for differences between economists and management specialists on international competitiveness of countries. These theories also provide the basis for Porter’s diamond theory. The second section examines porter’s framework under the context of economic trade theories. Porter utilizes logical reasoning instead of mathematical economic models to describe different trade theories. This makes it possible for policy-makers to understand the Diamond Framework that can be used to enhance international competitiveness of countries. The last section draws generalizations about the validity of the model. Adam Smith’s theory in 1876 of absolute advantage was the first attempt to explain reasons behind free international trade between countries (Smit, 108). According to Smith, a country can enhance its prosperity by specializing in goods and services in which it has absolute cost advantage over other country (Smit, 108). A country can also improve its prosperity by importing goods and services in which it has absolute cost advantage. Smith’s theory explains why countries can increase their welfare through imports and simultaneously selling goods and services in international markets. Adam smith viewed trade as a positive sum game when developing this theory. This theory contradicts the 16th century mercantilists’ viewpoint of trade as a zero sum game where countries have to export