Now beyond its eleventh printing and translated into twelve languages, Michael Porter's The Competitive Advantage of Nations has changed completely our conception of how prosperity is created and sustained in the modern global economy. Porter's groundbreaking study of international competitiveness has shaped national policy in countries around the world. It has also transformed thinking and action in states, cities, companies, and even entire regions such as Central America.

Based on research in ten leading trading nations, The Competitive Advantage of Nations offers the first theory of competitiveness based on the causes of the productivity with which companies compete. Porter shows how traditional comparative advantages such as natural resources and pools of labor have been superseded as sources of prosperity, and how broad macroeconomic accounts of competitiveness are insufficient. The book introduces Porter's ?diamond,? a whole new way to understand the competitive position of a nation (or other locations) in global competition that is now an integral part of international business thinking. Porter's concept of ?clusters,? or groups of interconnected firms, suppliers, related industries, and institutions that arise in particular locations, has become a new way for companies and governments to think about economies, assess the competitive advantage of locations, and set public policy.

Even before publication of the book, Porter's theory had guided national reassessments in New Zealand and elsewhere. His ideas and personal involvement have shaped strategy in countries as diverse as the Netherlands, Portugal, Taiwan, Costa Rica, and India, and regions such as Massachusetts, California, and the Basque country. Hundreds of cluster initiatives have flourished throughout the world. In an era of intensifying global competition, this pathbreaking book on the new wealth of nations has become the standard by which all future work must be measured.

Michael E. Porter

Contents

Introduction

Preface

Chapter 1 Competitive Strategy: The Core Concepts

THE STRUCTURAL ANALYSIS OF INDUSTRIES

Industry Structure and Buyer Needs

Industry Structure and the Supply/Demand Balance

GENERIC COMPETITIVE STRATEGIES

Cost Leadership

Differentiation

Focus

Stuck in the Middle

Pursuit of More Than One Generic Strategy

Sustainability

Generic Strategies and Industry Evolution

Generic Strategies and Organizational Structure

Generic Strategies and the Strategic Planning Process

OVERVIEW OF THIS BOOK

PART I PRINCIPLES OF COMPETITIVE ADVANTAGE

Chapter 2 The Value Chain and Competitive Advantage

THE VALUE CHAIN

Identifying Value Activities

Defining the Value Chain

Linkages within The Value Chain

Vertical Linkages

The Buyer's Value Chain

COMPETITIVE SCOPE AND THE VALUE CHAIN

Segment Scope

Vertical Scope

Geographic Scope

Industry Scope

Coalitions and Scope

Competitive Scope and Business Definition

The Value Chain and Industry Structure

THE VALUE CHAIN AND ORGANIZATIONAL STRUCTURE

Chapter 3 Cost Advantage

THE VALUE CHAIN AND COST ANALYSIS

Defining the Value Chain for Cost Analysis
Assigning Costs and Assets

First Cut Analysis of Costs

COST BEHAVIOR

Cost Drivers

The Cost of Purchased Inputs

Segment Cost Behavior

Cost Dynamics

COST ADVANTAGE

Determining the Relative Cost of Competitors

Gaining Cost Advantage

Sustainability of Cost Advantage

Implementation and Cost Advantage

Pitfalls in Cost Leadership Strategies

STEPS IN STRATEGIC COST ANALYSIS

Chapter 4 Differentiation

SOURCES OF DIFFERENTIATION

Differentiation and The Value Chain

Drivers of Uniqueness

THE COST OF DIFFERENTIATION

BUYER VALUE AND DIFFERENTIATION

Buyer Value

The Value Chain and Buyer Value

Lowering Buyer Cost

Raising Buyer Performance

Buyer Perception of Value
Buyer Value and the Real Buyer

Buyer Purchase Criteria

Identifying Purchase Criteria

DIFFERENTIATION STRATEGY

Routes to Differentiation

The Sustainability of Differentiation

Pitfalls in Differentiation

STEPS IN DIFFERENTIATION

Chapter 5 Technology and Competitive Advantage

TECHNOLOGY AND COMPETITION

Technology and The Value Chain

Technology and Competitive Advantage

Technology and Industry Structure

TECHNOLOGY STRATEGY

The Choice of Technologies to Develop

Technological Leadership or Followership

Licensing of Technology

TECHNOLOGICAL EVOLUTION

Continuous Versus Discontinuous Technological Evolution

Forecasting Technological Evolution

FORMULATING TECHNOLOGICAL STRATEGY

Chapter 6 Competitor Selection

THE STRATEGIC BENEFITS OF COMPETITORS

Increasing Competitive Advantage

Improving Current Industry Structure

Aiding Market Development

Deterring Entry

WHAT MAKES A "GOOD" COMPETITOR?

Tests of a Good Competitor

"Good" Market Leaders

Diagnosing Good Competitors

INFLUENCING THE PATTERN OF COMPETITORS

Damaging Good Competitors in Battling Bad Ones

Changing Bad Competitors into Good Ones

THE OPTIMAL MARKET CONFIGURATION

The Optimal Competitor Configuration

Maintaining Competitor Viability

Moving toward the Ideal Competitor Configuration

Maintaining Industry Stability

PITFALLS IN COMPETITOR SELECTION

PART II COMPETITIVE SCOPE WITHIN AN INDUSTRY

Chapter 7 Industry Segmentation and Competitive Advantage

BASES FOR INDUSTRY SEGMENTATION

Structural Bases For Segmentation

Segmentation Variables

Finding New Segments

THE INDUSTRY SEGMENTATION MATRIX

Relationships Among Segmentation Variables

Combining Segmentation Matrices

INDUSTRY SEGMENTATION AND COMPETITIVE STRATEGY

The Attractiveness of a Segment

Segment Interrelationships

Segment Interrelationships and Broadly-Targeted Strategies

The Choice of Focus

The Feasibility of New Segments to Focus On

The Sustainability of a Focus Strategy

Pitfalls and Opportunities for Focusers and Broadly-Targeted Competitors

INDUSTRY SEGMENTATION AND INDUSTRY

DEFINITION

Chapter 8 Substitution

IDENTIFYING SUBSTITUTES

THE ECONOMICS OF SUBSTITUTION

Relative Value/Price

Switching Costs

Buyer Propensity to Substitute

Segmentation and Substitution

CHANGES IN THE SUBSTITUTION THREAT

Substitution and Overall Industry Demand

Substitution and Industry Structure

THE PATH OF SUBSTITUTION

Segmentation and the Substitution Path

Substitution Forecasting Models

SUBSTITUTION AND COMPETITIVE STRATEGY
Promoting Substitution

Defense Against Substitutes

Industry Versus Firm Substitution Strategy

Pitfalls in Strategy Against Substitutes

PART III CORPORATE STRATEGY AND COMPETITIVE ADVANTAGE

Chapter 9 Interrelationships among Business Units

THE GROWING IMPORTANCE OF HORIZONTAL STRATEGY

INTERRELATIONSHIPS AMONG BUSINESS UNITS

TANGIBLE INTERRELATIONSHIPS

Sharing and Competitive Advantage

The Costs of Sha…