Prof Michael Porter is considered to be the most influential thinker in the world of business over the last 30 years. He has developed fundamental concepts in areas of management such as strategy, competitive advantage, value chain and clusters. His work escalated from a micro level, which sought to explain business competitiveness, to a framework context that refers to the competitiveness of nations.
The following is an exclusive interview with Professor Porter conducted by Albertina Navas, a journalist from Ecuador, when he was the feature speaker at the Arthur Lok Jack Graduate School of Business's Distinguished Leadership and Innovation (DLIC) 2011 Conference held in the Hyatt Regency Trinidad hotel in Port-of-Spain.
Q: Porter, your competitive strategy model, represented in the Diamond that bears your name, which was originally applied at the business level, is now the framework that explains the competitiveness of regions and nations. Based on the factors that you indicate for a country's competitiveness, how do you think China should move from the "made in China" model to "invented by China." In other words, how should it move from being a manufacturing economy to one that is innovation-based, in order to be competitive in the long term?
A: China is very quickly building innovation systems and infrastructures and is generating pools of scientists and technologists, in addition to which it is developing many research activities and is strengthening its university system. I am certain that China is moving rapidly toward an innovation economy. The real problem is that China is not playing by the rules. On the contrary, it is following various policies that are creating distortions that affect other countries, for example, in matters associated with intellectual property. There are Chinese companies that use intellectual property in an unfair manner, they do not pay author's royalties nor do they pay for user licences. Due to its size, China is exerting pressure on foreign companies to carry their research centres to that country and from there they could have access to the Chinese market. In several different ways, China is breaching the principles of the World Trade Organisation (WTO) and the global economic community.
I believe that China will begin to suffer severe problems in the context of a global economy. It is undoubtedly progressing, but the way in which it is doing so is damaging companies in other countries. Therefore, the international community must initiate dialogue with China so that it could, hopefully, begin to create fair competition with the rest of the world. This reminds me a little about the case of Japan during the eighties. At that time, Japan was creating substantial concern in other countries over the protectionism that it was promoting, but years later; Japan changed many of its policies and was once again part of the world economy. Now Japan no longer instils fear as an economy, it is simply an important member of the international economic community.
Q: During the conference, Competitiveness and Development, on several occasions you stressed that a fundamental role of governments in the competitiveness of their countries is to encourage private companies to boost their productivity and improve their efficiency. To what extent is this concept applicable to realities that are politically unstable, are prisoners of economic uncertainly and suffer serious problems of corruption, as is the case in some Latin American countries?
A: Corruption is one of the most destructive situations for developing countries since it breaks the natural link between success and productivity. Corruption makes you think that success can be achieved by breaking the system or asking for special favours, and that is totally contrary to competitiveness. It is clear that countries that cannot control corruption are marooned, they don't grow, they don't progress, they are inefficient and have poor public policies. Now, with respect to instability, I believe that we must be aware that it is a condition that will always exist. There will always be changes; there will always be problems stemming from natural disasters or financial crises, etc. The only way to manage all of this is, precisely, by generating competitiveness and productivity so as to be able to react quickly when these scenarios arise. We must stop thinking that the day would come when everything would be stable and secure. We must understand that this condition of continuous change is the only thing that will lead us to face the economic future with competitiveness strategies.
Q: In some of your public interventions years ago, you were asked about the Internet being a source of competitive advantages. Your argument usually is that although the Internet seems to establish new game rules, at the end of the day, the old rules of competition will resurface and nullify the status of the Internet as a source of competitive advantage on its own. In light of the evidence of the great success of Internet-based business, such as Google, Twitter and Facebook, do you maintain that position?
A: Definitely. The Internet on its own is not the creator of competitive advantage in any of these cases. The point is the way in which the Internet was used as a tool for creating products and services that did not exist previously. If we look at it closely, the competitive advantage was not the Internet, but rather the way in which the intelligent people who were behind that business decided to use this technology to be more productive. My opinion on this matter is that the Internet is not a competitive advantage by itself, but instead the advantage lies in using this tool innovatively so as to generate value. Therefore, the Internet does not generate value only for companies that are based on this technology, but for any type of company ranging from automobile companies to those providing financial services. The Internet is merely technology, while competitive advantage is a unique way of developing tools, such as this technology for example, in order to create distinctive advantages. If we focus on the examples that you cited, Google's business is different from that of Facebook and, in turn, they both differ from Amazon. Each one uses the technology in a different way.
What is authentic is not the technology, but rather the way in which each company uses said technology.
Also, I have stopped quite a bit to reflect on the role of co-operation in the society with the concept of shared value, which you mentioned in an earlier question. What I'm trying to do, and if there's anything that I am proud of it's that my ideas have been disseminated extensively. What I'm doing now is moving toward new areas, but there is always a link between some and others. My contribution was, first of all, to focus on highly complex issues such as competition, from an extremely simple perspective, with an approach that helped managers to take decisions. Those were the 4 forces or the value chain and I have encountered complicated issues like the competitiveness of nations. I believe that this is important, having seen things from a perspective that is more systemic, more extensive, since we academics are sometimes guilty of being very profound, yet very narrow in our reflections.