ABSTRACT
Why do some regions or nations have a competitive advantage in some industries? A nation or region’s local environment of factor conditions, demand conditions, related industries, and firm strategy, structure and rivalry can be a source of competitive advantage (Thomas 1989; Porter 1990). This immediately raises a simple but important question: if some environments are better sources of competitive advantage than others, how do such environments come about? In other words, what are the origins and evolution of environments that are conducive to competitive firms? Just as important is why and when such a competitive advantage can be lost. The answers to these questions are critical to firms’ strategy and public policy formulation, and have been the subject of considerable research (Thomas 1989; Porter 1990). Porter (1990), for example, suggests that the environment often starts with an advantage in one of three determinants – factors of production, related and supporting industries, and demand conditions – and sets a process in motion in which other determinants assume greater roles, signalling the beginnings of a winning environment. Over time, the determinants reinforce each other, culminating in an environment that is the source of competitive advantage. For example, Sweden’s speciality in the steel industry grew initially out of deposits of iron ore of low phosphorus content in Sweden (Porter 1990).
