CRITICAL ANALYSIS

According M. Porter National competitiveness has become one of the central preoccupations of government and industry in every nation. Some see national competitiveness as a macroeconomic phenomenon, driven by variables such as exchange rates, interest rates, and government deficits. More recently, the argument has gained favor that competitiveness is driven by government policy: targeting, protection, import promotion, and subsidies. And a final popular explanation for national competitiveness is differences in management practices, including management-labor relations. The only meaningful concept of competitiveness at the national level is productivity. The principal goal of a nation is to produce a high and rising standard of living for its citizens. The ability to do so depends on the productivity with which a nations labor and capital are employed. Productivity depends on both the quality and features of products and the efficiency with which they are produced. Productivity is the prime determinant of a nations long run standard of living; it is the root cause of national per capita income. The productivity of human resources determines employee wages; the productivity with which capital is employed determines the return it earns for its holders. Porter states that the only meaningful concept of competitiveness at the national level is national productivity (p. 6). By productivity, Porter does not mean total factor productivity necessarily. To Porter, a nation is productive if it is constantly upgrading towards more sophisticated industry segments. Porter argues that it is high productivity jobs that translate into national productivity, that it, is the rate of productivity growth which is key and this can only be understood at the industry level . By high productivity jobs, Porter does not necessarily mean high tech jobs. Porter carefully distinguishes between "high tech" and what he means by sophisticated industries. Sophisticated industries are those which are innovation driven, constantly upgraded with rising wages and skills. Porter states that agriculture and resources can be and have been sophisticated industries. A nations standard of living depends on the capacity of its companies to achieve high levels of productivity and to increase productivity over time. Sustained productivity growth requires that an economy continually upgrade itself. A nations companies must relentlessly improve productivity in existing industries by raising product quality, adding desirable features, improving product technology, or boosting production efficiency. Moreover, the Diamond Model of M Porter of Competitive Advantage of Nations offers a model to understand the competitive position of nations in global competition. As a rule Competitive Advantage of Nations has been the outcome of 4 interlinked advanced factors and activities in and between companies in clusters. These interlinked advanced factors for Competitive for countries or regions in Porters Diamond framework are:

1. Factor Conditions Porter argues that the key factors of production or specialized factors are created, not inherited. Specialised factors of production are skilled labor, capital and infrastructure. Non-key factors or general use factors, such as unskilled labor and raw materials, can be obtained by any company and hence, do not generate sustained competitive advantage. However, speciaised factors involve heavy, sustained investment. They are more difficult to duplicate. This leads to competitive advantage, because if other firms cannot easily duplicate these factors, they are valuable. 2. Demand Conditions The nature of home-market demand for the industrys product or service. The more demanding the customers in ana economy, the greater the pressure facing firms to constantly improve their competitiveness via innovative products, through high quality. 3. Related and Supporting Industries The presence or absence in the nation of supplier industries and other related industries that are internationally competitive. Spatial proximity of upstream or downstream industries facilitates the exchange of information and promotes a continuous exchange of ideas and innovations. 4. Firm Strategy, Stucture and Rivalry The conditions in the nation governing how companies are created, organized, and managed, as well as the nature of domestic rivalry. The world is dominated by dynamic conditions, and it is direct competition that impels firms to work for increases in productivity and innovation. The role f government in Porters Diamond Model is acting as a catalyst and challenger it is to encourage or even push companies o raise their performance, stimulate early demand for advanced products, focus on specialized factor creation and to stimulate local rivalry by limiting direct cooperation and enforcing anti-trust regulations. The points of the diamond are also self-reinforcing: they constitute a system. The two elements, domestic rivalry and geographic concentration, have especially great power to transform the diamond into a system-domestic rivalry because it promotes improvement in all other determinants and geographic concentration because it elevates and magnifies the interaction of the four separate influences. The role of domestic rivalry illustrates how the diamond operates as a self-reinforcing system. Vigorous domestic rivalry stimulates the development of unique pools of specialized factors, particularly if the rivals are all located in one city or region. Domestic rivalry also promotes the formation of related and supporting industries. Another effect of the diamonds systematic nature is that nations are rarely home to just one competitive industry; rather the diamond creates an environment that promotes clusters of competitive industries. Competitive industries are no scattered helter-skelter throughout the economy but are usually linked together through vertical(buyer-seller) or horizontal(common customers, technology; channels) relationships.

The role of government Governments proper role is a catalyst and challenger; it is to encourage or even push companies to raise their aspirations and move to higher levels of competitive performance, even though this process may be inherently unpleasant and difficult. Government plays a role that is inherently partial, that succeeds only when working in tandem with favorable underlying conditions in the diamond.

Porter comes from an industrial organization background; thus it is firms that compete and export-- economic growth and international trade are the outcomes of a competitive struggle among competing firms. The national environment--the interplay of the four factors--is crucial in shaping firms ability to compete. An advantage based on a windfall of nature--oil, the conditions for wine production or a supply of low wage labor--are to Porter, obvious and uninteresting determinants of growth and trade. In fact, Porter appears to feel that resource endowments are obstacles to growth. Thus a "lack of basic factors can be a comparative advantage" (p. 82), or "a disadvantage in basic factors force firms into seeking higher order strategies" (p. 82). ~Porter extols the fact that Japan and Switzerland grew despite natural resources into a view that they grew because of the absence of resources.

APPLICATION TO MAURITIUS The Textile Industry

Mauritius has been enjoying competitive advantage in the textile industry for a certain period of time. The depreciation of Mauritian Rupee vis--vis the European Currencies (that is, the currencies of its main trading partners) has helped in maintaining the industrys competitiveness. The firms efforts have shown positive results and employment has risen within the clothing sector. In spite of major readjustments, the textile industry remains the main manufacturing base of the economy and still dominates the MEPZ. Consequently, the Mauritian Textile Industry clearly provides a favorable setting for assessing Porters determinants of national competitive advantage. In addition, researchers have found that all textile Multinational Enterprises in the MEPZ, with the exception of one, have contributed towards upgrading skills in providing training, both in-house and overseas, to employees. They also state that majority of textile MNEs in the MEPZ were stated as greenfield investments as opposed to acquisitions. The Tourism Industry

Moreover, Mauritius benefit from competitive advantage in the tourism industry. The attractive climate and numerous beaches have proved a blessing in the development of a third pillar in the economy. Porter posits that to form the backbone of any advanced economy, a nation does not inherit but instead creates the most important factors of production such as skilled human resources(Porter,1990). This point seems to be most applicable in terms of the factor conditions aspect of the tourism diamond. One of the main contributions of tourism industry to the local economy is expansion of the Hotel School of Mauritius, which was initially set up with funds fro UNDP, ILO and the French government (1971).

Foreign Direct Investment Multinationl enterprises (MNEs) have contributed significantly both o the development of the MEPZ and tourism. The MEPZ was able to attract FDI in the early 190s due to the preferential access agreement it had with the EU and USA. The most significant agreement for local industrial development was the privileged, duty-free access granted to textiles and clothing products shipped to the EU market following the signing in 1975 of the Lome Convention (now the Cotonou agreement). This duty free preferential access was an important factor in attracting significant foreign investors from Germany, UK, France, China, etc. The investors profited from an abundant cheap literate, bilingual labour supply and from loose labour legislations.

LIMITATION

Porter's Competitive Advantage of Nations is an important but ultimately unsatisfactory analysis. As a whole the analysis is insufficiently theoretical and not empirically rigorous. The analysis of international competitiveness needs to better incorporate the scientific work of international economics, especially the lasting relevance of the theory of comparative advantage.

Culture
The key criticism of Porter is his inattention to the cultural dimension, a significant omission. While discussion by anthropologists, psychologists and sociologists as to what we mean by culture has been seemingly interminable, we may nevertheless view it as a universal frame of reference that influences everybody in a society. We do not seek to challenge his apparent view that nations, like individuals, have a distinctive national character,but his interpretation of them is simplistic.

Competitive advantage for developing countries

Porters arguments are formed almost entirely with reference to developed countries. Optimal automation is unlikely to appeal to societies with unemployment rate of 50 per cent. University education will mean little to countries where most of the population is illiterate. All his assumptions are therefore specific to the West: his theory would have to be radically reformulated to have relevance beyond. Unreliable or nonexistent transport and communications infrastructure[3] are only part of the problem; in many developing countries product quality standards do not approach the international norm indeed, there is a complete ignorance of what they are. But the real problems are located in politics and culture. In particular, the bureaucracy[4] (sometimes indeed kleptocracy) has traditionally been looked to in developing countries as a means of employment. The problem of course is that this represents the optimally inefficient combination not only is it a major cost for government, it also becomes a major cost for business through the high taxes needed to finance it, the corrupt levies it enforces, the favouritism it accords and the myriad rules it inflicts.

History Porter neglects the role of historical causation, to the detriment of his overall thesis. In the case of Germany and Japan for example, there plausibly exists a direct connectedness between past militarism and present industrial supremacy. Militarism[5] contributed to industrial excellence by creating both a tradition of discipline in the labour force and leveraging highly technical demands on industry. In both those countries, we may speak of a national will to dominance expressed first militarily and then sought commercially; as nations mature, prosperity not militarism becomes the benchmark. (Is it cynical to point out that Porters three favourites, Italy, Germany and Japan, represent the old Axis?) Porter is not interested in this kind of suggestion, but if it helps us to

explain competitive advantage it is relevant.

State incompetence So often, government is inept in what it seeks to do. Indeed, Ronald Reagan made a political career out of recounting government wastage and excess; examples of this are numerous. . Notoriously of course, the state has proved inept at running industry itself bureaucrats are incapable of making decisions about markets. Such sentiments as those above become a reflex of the 1980s. Ultimately, Porter attempts to reconcile an extended role for the state with what he sees as its admitted incompetence, and we are left with the admonition that the state has failed to understand and address the key determinants of competitive advantage. But while he is preoccupied with some contributors to competitive advantage, e.g. university research, he also disregards others; there is a vagueness, a lack of specificity. Porter himself remove government from direct arbitrament in industry as far as possible. He sees it as the blundering adversary of business or, more nefariously, the bogus friend: Much government policy aimed at revitalizingindustry has failed. It is doomed because it does not address the determinants of competitive advantage and is therefore not directed at the true cause of decline. Critics of Porter A line of recent critics, starting with Krugman[17], argue that Porter has misspecified the problem. To talk of national competitiveness is an abstraction that can give rise to erroneous government policies. Governments spend in the belief that they are helping macro industry and thereby national competitiveness, when the real problem is located at the micro level, the individual firm and, in particular, its anachronistic managerial practices. It is not easy for grand strategy to really ameliorate this, so the debate assumes a government involvement non involvement dimension.