A nation attains competitive advantage through competitive firms and firms and industries become competitive through innovation. It is the pressure and the challenge of competing against the best in the world that brings out the best in a nation in terms of competition and the creation of a sustainable competitive advantage. An abundance of inherited factors can only undermine the competitive advantage of a nation. (Porter E.M., 1990)
Nations will be able to achieve short-term success but never will be able to achieve a true and sustainable competitive advantage. Porter says that a new set of perspectives and tools are required, a kind of an approach to national competitiveness that has been derived through the direct analysis of successful international companies and not a result of traditional economic ideologies and current intellectual trends. The simple question that needs to ask and solved is “what works, why, it works and how it works?” After finding solutions to these “what, why and how” it’s just a matter of applying them. (Porter E.M., 1990)
Hence this paper delves with the ideas and theories of M.E. Porters on national competitive advantage. His concept of clusters, the diamond model and as well as the role of the MNEs and FDIs in the culmination of a nation’s competitive advantage.
The geographic concentration of interconnected industries, service providers, specialized suppliers, and the other associated institutions in a particular sphere or a field that are present in a nation or within a region are known as clusters. Clusters arise and grow because they increase the productivity with which the companies can compete. These clusters are linked by the interdependence in providing a related category of products and services (Porter E. M, 1990). Due .to the close proximity of the clusters both in terms of their activities and geography, the constituents of clusters enjoy a number of economic benefits culminating from positive location and precise externalities.