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Good OM Reading: Michael Porter on Restoring U.S. Competitiveness

November 5, 2012

“Michael Porter has influenced more executives –and more nations– than any other business professor on earth,” writes Fortune (Oct.29, 2012), in a story on the 65-year old Harvard scholar. Porter’s newest article, with Jan Rivkin, in the same Fortune issue, called What Business Should Do to Restore U.S. Competitiveness, is critical reading for OM professors.

Porter and Rivkin write: “America’s feeble economy reminds us every day that our global competitiveness is in trouble.” Whose fault is that?  One camp holds that national competitiveness is the responsibility of policymakers, not business leaders, who need to focus on running their companies. The opposite camp says companies owe loyalty to the country that supports them, and executives who move American jobs overseas are Benedict Arnold CEOs. “Both positions are deeply flawed, reflecting simplistic views of how competition and economies really work,” say the authors.

They  explain that the U.S. is competitive to the extent that firms operating here can compete successfully in the global economy while supporting high and rising living standards for the average American. Doing one without the other means we aren’t really competitive. A high-wage economy like the U.S. can achieve both only by being a highly productive location, one where firms can create innovative, distinctive products and produce them efficiently.

“Managers must run their U.S. operations well,” they write. ” This means positioning U.S.-based activities to draw on unique American strengths.” For instance, La-Z-Boy has avoided head-to-head competition with low-wage Asian furniture manufacturers by emphasizing the customization and faster delivery that its U.S. location and worker skills make possible.

But running U.S. operations well does not always mean staying at home, they add. Going overseas often improves competitiveness by allowing U.S. companies to penetrate foreign markets. U.S. multinationals that expand faster abroad also tend to grow faster in America. And well-run companies do bring activities back to America as costs rise overseas and managers feel offshoring’s hidden costs, such as lower foreign worker productivity, quality problems, and loss of intellectual property.

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