Faculty and Research

The Competitive Advantage of Nations and Regions

Michael E. Porter continues to extend his study first reported in The Competitive Advantage of Nations. Porter has published books and studies of other countries, states, and cities, including Canada, New Zealand, Portugal, the Commonwealth of Massachusetts, and India. A book on Japan (with visiting professor Hirotaka Takeuchi), tentatively titled The Two Japans, is expected to be completed in 1999.

Porter is extending his microeconomics-based theory of competitiveness in a variety of ways. He is exploring the shifting role of various microeconomic influences as a nation's economy becomes more advanced, and the relationship between macroeconomic conditions and microeconomic conditions in development.

Porter's examination of the problems of early-stage economic development includes research with Pankaj Ghemawat on India, as well as studies on Central American, South American, and Asian countries.

Porter is also conducting statistical research on the microeconomic foundations of economic development. An initial paper "The Microeconomic Foundations of Economic Development" (in The Global Competitiveness Report 1998, Geneva, Switzerland: World Economic Forum, 1998) examines the role of microeconomic variables in explaining per capita income differences among 52 countries. A paper with Mariko Sakakibara (UCLA) examines the link between domestic rivalry and international competitive success in a sample of Japanese industries.

Porter is also conducting research into appropriate forms of economic cooperation within regions (including countries), for which a major project involving the presidents of seven Central American nations is serving as a laboratory.

Clusters and Competition

Porter is conducting ongoing research on the theory of clusters, or geographic concentrations of interconnected companies and institutions in a particular field. This work includes further development of cluster theory and its implications for management and public policy (see On Competition, Boston: Harvard Business School Press, 1998 and "Clusters and the New Economics of Competition," Harvard Business Review, November-December 1998). Porter is also conducting statistical research on the incidence, growth, and decline of clusters in the U.S. economy. With Claas van der Linde of St. Gallen University in Switzerland, he is also conducting a meta-study of clusters drawn from almost 350 known studies of individual clusters.

National Innovative Capacity and the Ideas Production Function

Joint research with Scott Stern (MIT) is exploring the determinants of innovative capacity across countries using time series/cross-section data ("Measuring the "Ideas" Production Function: Evidence from International Patent Output," draft working paper, July 1998). Using international patenting as a weighting variable, Porter and Stern have devised an index of national innovation capacity. The data has also been employed to directly estimate critical parameters of the ideas production function, a central element in economic growth theory.

Sustainable Inner-City Economic Development

Michael E. Porter is using the framework he developed in The Competitive Advantage of Nations to examine the economic development problems in distressed inner-city areas. He seeks to understand the potential of inner-city businesses, government policies, and private-sector initiatives to contribute to sustainable economic development. Porter's project has yielded a series of articles (see "The Competitive Advantage of the Inner City," Harvard Business Review, May-June 1995) and led to the development of a private-sector organization called the Initiative for a Competitive Inner City, which is catalyzing inner-city development efforts across the nation.

Environmental Policy and Competitiveness

Michael E. Porter has been exploring (with Claas van der Linde of St. Gallen University, Switzerland) the relationship between environmental regulation, industry competition, and international competitiveness. He finds that many forms of environmental pollution reflect inefficient resource utilization and poorly developed technology, suggesting that better environmental performance is often consistent with enhanced competitiveness. This perspective recasts the role of governmental regulation, highlighting the importance of regulatory and corporate approaches that foster innovation and improve resource productivity rather than simply abate or prevent pollution

Capital Markets, Investment, and Competition

Michael E. Porter's research into issues of capital allocation, first published in the report 'Capital Choices,' is the basis for continuing research that examines how U.S. capital markets distort competitive behavior and investment. A report to the Competitiveness Policy Council, 'Lifting All Boats,' contains recent research and policy recommendations.

Competitive Strategy

Porter is engaged in a major new body of work on the theoretical foundations of competitive positioning and the underpinnings of sustainable competitive advantage. This research highlights the distinction between positioning and operational effectiveness; the fundamental role of differences in company activities in positioning; and the central importance of tradeoffs in delivering different types of customer benefit to the sustainability of differences in positioning; the role of fit among a firm's activities (or activity systems); competitive advantage and sustainability; and the relationship between strategy, organizations, and incentives.

He is exploring his ideas in theoretical papers, mathematical models, and company studies. An early discussion of this body of work appears in "What is Strategy?", Harvard Business Review, November-December 1996 and Activity Systems as Barriers to Imitation," Harvard Business School Working Paper #98-066.

Porter's next book on strategy, focusing on these ideas, is nearing completion.

Michael Porter and Anita McGahan are completing a series of statistical papers on the sources of company and industry profitability. Based on large new database on the profitability of U.S. business segments between 1981 and 1994, their research examines topics such as the relative importance of industry; business segment positioning; corporate parent effects on superior or lagging profitability; the persistence of profit differences over time; and how high and low performers differ along such dimensions.