Porter argues that a nation's competitive advantage comes from 4 interlinked factors: factor conditions, demand conditions, related and supporting industries, and firm strategy/rivalry. Together these form a "diamond" shape that represents the national environment that influences industry success. Bangladesh ranks 106 out of 133 countries in global competitiveness due to weaknesses in basic requirements like infrastructure/education, and efficiency/innovation factors like higher education and technological readiness. To achieve higher income levels, Bangladesh needs to redirect investment towards these areas, though it will take time to realize returns, requiring long-term strategic planning over short-term gains.

1. Competitive Advantage
of
Nations

2. Factors of Advantage
inheritance
• As per traditional economic theory following
are the factors of comparative advantage for a
region or a country:
1. Land
2. Location
3. Natural resources (minerals, energy etc.)
4. Labor
5. Local population (size)

3. Are They ?
• Land : A disadvantage can be an advantage as
Japan has shown with the paucity of land
and natural resources through
innovation (miniaturization and
productivity).
• Labour : It is not the number but the quality that
matters. Quality has to be created. Besides it
is now a mobile factor.
• Capital : Has no nationality. Moves to locations of
competitive advantage such as FDI.

4. Competitive Advantage
• According to Porter sustained industrial growth
has hardly been built on the basic inherited
factors.
• The competitive advantage of a nation is the
outcome of 4 interlinked advanced factors and
activities in and between companies within
clusters*
* Geographic concentration of interconnected businesses,
suppliers, and associated institutions in a particular field

5. Competitive Advantage
• PORTER argued that a nation can create new
advanced factor endowments such as skilled
labor, strong technology and knowledge base,
government support, and culture.
• He used a diamond shaped diagram as the basis
of a framework to illustrate the determinants of
national advantage. The diamond represents the
national playing field that the countries establish
for their industries.

6. In search of competitiveness
Q. How does a nation become the home base for a
successful industry such as
- Sweden for heavy trucks
- America for personal computers
- Italy for ceramic tiles and
- Japan for consumer electronics
- Switzerland for pharmaceutical and dairy
products

7. Paradoxes
#1. Strong currency and high wages are detriments to competitive advantages.
Germany and Switzerland suffer from the disadvantages of high wages and
strong currency. Yet they enjoys enviable competitiveness in automobile and
pharmaceutical.
#2. Negative balance of payment is a deterrent.
The US has negative balance of payment. So has some west European countries
that enjoy competitive advantage in many manufacturing industries while the US
rules the software.
#3. Unstable politics is a deterrent.
Italy in spite of unstable politics and high wages has many competitive
industries in small machinery, luxury automobiles and fashions.

8. Porter’s Diamond

9. The Diamond
#1. FACTOR CONDITIONS
-a country creates its own important factors such as skilled
resources and technological base.
-these factors are upgraded / deployed over time to meet
the demand.
-local disadvantages force innovations, new methods and
hence comparative advantage.

10. The Diamond
#2. DEMAND CONDITIONS
-a more demanding local market leads to national advantage.
-a strong trend setting local market helps local firms anticipate
global trends.
#3. RELATED AND SUPPORTING INDUSTRIES.
-local competition creates innovations and cost effectiveness.
-this also puts pressure on local suppliers to lift their game.

11. Diamond
#4. FIRM STRATEGY , STRUCTURE AND RIVALRY
- local conditions affect firm strategy.
- local rivalry forces firm to move beyond basic
advantages.
• THE GOVERNMENT
- to encourage
- to stimulate
- to help to create growth in industries

12. Competitiveness
Ranking
• Bangladesh ranks # 106 among 133 world
economies as per WEF Global Competitiveness
Report 2009.
• The rank is compiled from an aggregate of 12
parameters divided into 3 broad categories;
- Basic requirements
- Efficiency enhancers
- Innovation factors

13. Ranking
GCI
• The global competitive index measures how
productively a country uses available
resources.
• Overall rank of Bangladesh is #106 against
In- #49, Sl- #79,
P- #101, N- #125.

14. A. Basic Requirements
- Institution
- Infrastructure
- Macro-economy
- Health & education
• Overall :
B- #108, N- #119, P- #114, S- #89
• Health & Education :
B- #105, N- #106, P- #113, S- #38

15. B. Efficiency Enhancers
- Higher education and training
- Goods market efficiency
- Labor market efficiency
- Financial market sophistication
- Technological readiness
- Market size
• Overall :
B- # 97, N- #125, Pak- # 92, S- #74
• Higher Education & Training :
B- #129, N- #124, Pak- #118, S- #64

16. C. Innovation & Sophistication Enhancers
- Business sophistication
- Innovation
• Overall :
B- #114, N- 129, P- #84, S- #44
• Innovation :
B- #122, N- 130, P- #79, S- #46

17. Summary
GCI
• Income thresholds for stages of development in terms of GDP per capita
(US$)
- Stage 1: Factor driven < $ 2,000
Transition from Stage 1 to Stage 2 : 2,000–3,000
- Stage 2 : Efficiency driven $ 3,000– 9,000
Transition from Stage 2 to Stage 3 : 9,000–17,000
- Stage 3 : Innovation driven > $ 17,000

18. HRD
Redirection
• As we get closer to the Vision 2021 goal of a middle
income country it is necessary to re-examine the
relevance of each of the three stages of
development.
• Performance in many of the areas are primarily
dependent on the quality of human resources e.g.
higher education, technological readiness and
business sophistication where Bangladesh position
is weak.
• Investment in these areas take time for fruition.

19. HRD
Redirection
• The government has now revived the 5-year plans
with the 6th five-year plan for 2010-2015 (5th five-
year plan 1997-2002).
• This is a welcome intervention to go beyond the
obsession with poverty (PRSP).
• A strategic plan at times has to forego short-term
gains in favour of long-term position.

20. HRD
Redirection
• Our present inability to meet the current needs in
almost all sectors of economy, is an outcome of
hesitance in planning.
• “Health services in bad shape, 33000 posts of
public health professionals vacant” (Star, 27
February 2010).

21. HRD
Quotes
• “… we need allocation of 8% of GDP for bringing
qualitative change in the education sector” ..Education
Minister (Star, 1 Mar 2010).
• Beyond everything else, we must tame the population
growth that now stands at 164.4 million, up from 156
million a decade back, as per UN Population Fund
(UNFPA) report 2010,
• The population growth “has gone up from the still
publicized 1.4% per annum to well above 2%” (Star, 1
Mar 2010).