According to Porter, the prosperity of a nation cannot be inherited. It takes the effort of professional men and women to mold the prosperity of any country (73). The author adds that the national endowment of a country does not contribute to the prosperity of a nation. To some extent, this can be true, bearing in mind that effort, knowledge, and skills are required to turn national endowments into prosperity.
Nonetheless, if a country is poorly endowed in terms of resources, it can be practically impossible for such a nation to experience prosperity. Therefore, the author should have considered the role played by resources in the process of attaining national prosperity. As a matter of fact, Sigalas and Economou are of the view that the competitive advantage of a nation is largely dependent on the pool of resources that are available for production (73).
It is indeed true that the levels of performance and profitability of a country also rely on the ability of a state to improve the performance of its industries. The challenges and pressures experienced by companies in the marketplace are similar to those that individual countries face on a regular basis. In fact, it is the challenges and pressures that usually strengthen the overall performance of an institution.
Porter also posits that the local processes of production are quite competitive. As a result, local industries are in a position to compete favorably with other global players. Whereas this may be applicable to some level, it is vital to mention that countries across the world can best compete with other rivals when highly externalized processes are related to the quantity and quality of production at the local level. Even if companies have strong domestic rivals, external competition is still an invaluable yardstick for measuring performance index. Needless to say, it takes effort and resilience for a nation to remain competitive with other global rivals.
On the other hand, competitive advantage has been analyzed by Espana using two alternative theories. For example, the author uses a specific case study of an aircraft manufacturer in Brazil to support the arguments presented in the paper. Even though Embraer Company was initially established with the aim of boosting national security, it eventually became a major profitable enterprise.
In order to correlate the various competitive advantage theories, the author has managed to explicitly trace down the history of Embraer since the time it was privatized. Espana observes that one of the ways national enterprises can be made profitable is privatization (503). The author also points out that the performance of national enterprises can be improved by creating partnerships. The economy of scale theory described by the author is indeed applicable in the case of Embraer. The latter enterprise has turned out to be profitable largely because of operating on a large scale. It has accrued the benefits that usually accompany the production of goods and services in large quantities.
Espana notes that the market share gains can contribute towards the economies of scale. However, this claim may not apply uniformly across the board, especially when a firm operates below its capacity. Worse still, the gains derived from the market share are not restricted to large scale operations. In other words, economies of scale are mainly restricted in the productive output of a firm, according to the arguments presented by Johnson and Busbin (153).
If economies of scale are discussed in terms of the market share gains, then it is still appropriate for economists to argue in terms of the scale of production. As a matter of fact, individual industries can hardly enjoy favorable market gains if the state of internal operations is poor.
Krugman strongly believes that comparative advantage has deep underlying issues that even professional economists have not discovered (131). The author observes that it is selfish for an economist to claim that he or she fully comprehends the comparative advantage principles. Since professional economists have been advocating for free trade, it is a clear indication that there is a missing link between the expected benefits of comparative advantage and the concept of free trade. However, the concept of free trade has not been fully expounded by the author.
It is also interesting to mention that there has been a growing debate among economists regarding the benefits of international trade. Generally, it is expected that any form of international trade should bring economic benefits. International trade can also flourish only in the presence of strong comparative advantage. It is factual that comparative advantage is a broad concept and therefore should not be taken as a simple business idea (Krugman 132).
There are myriads of powerful interests that tend to compete with the aspect of comparative advantage. Nonetheless, the free trade concept can still be defended, bearing in mind that international trade has unique benefits that are accrued among trading partners. Perhaps, the most important underlying issues that should be addressed in international trade is the protection of domestic industries. There are several cases whereby local industries have suffered due to the influx of cheap and international goods from trading partners. In any case, comparative advantage should be beneficial to all trading partners.
Krugman is pessimistic that it can be practically cumbersome to defend the proposed benefits of free trade. However, we should appreciate the fact that free trade is a healthy business undertaking that has been spoiled by politics. It is a common trend to see countries engage in a war of words through politicking. Free trade has been politicized in several quarters because of the perceived economic advantages that competing countries may derive. The international trade theory expounded by the author is quite inadequate in describing the friction that has always existed between the concepts of free trade and comparative advantage.
It is the duty of individual member countries that participate in international trade to protect their respective domestic economies. For example, local industries should not be left to grapple with the stiff international competition. Krugman argues that there is no need for individual trading partners to flourish external economies at the expense of the domestic markets.
As it stands now, the fast-growing economies have adopted strategic trade policies with the aim of capturing large market shares. For example, the state of competition in the global markets has significantly changed over the years. There are markets that experience imperfect competition, and therefore, key players find it difficult to balance between risks and gains associated with such markets. Although Krugman has attempted to compare and contrast some of the emerging arguments on free trade, it remains unclear whether comparative advantage represents a complete trading model (134).
Works Cited
Espana, Juan. “Explaining Embraer’s Hi-Tech Success: Porter’s Diamond, New Trade Theory, or the Market at Work? Journal of American Academy of Business 4.1/2 (2004): 498-504. Print.
Johnson, Julie and James, Busbin. “The Evolution of Competitive Advantage: Has Virtual Marketing Replaced Time-Based Competition?” Competitiveness Review, 10.2 (2000): 153. Print.
Krugman, Paul. “Is free trade passĂ©?” The Journal of Economic Perspectives 1.1 (1987): 131-144. Print.
Porter, Michael. “The Competitive Advantage of Nations”. Harvard Business Review, 68.2 (1990): 73-89. Print.
Sigalas, Christos and Victoria Pekka Economou. “Revisiting the Concept of Competitive Advantage.” Journal of Strategy and Management 6.1 (2013): 61-80. Print.