In more recent years, some new scholars have come up with a new interpretation of untrained. There are too many, but we're going to focus on one created by one of the most influential management scholars. Which is the case of Michael Porter from Harvard Business School. [MUSIC] What did he say? He basically believed that in order to understand why some countries have industries that are better than other countries. We need to see the interplay of different attributes of the countries. Because, as we know, okay, a country might have comparative advantages in one industry and trades with another one. But for somebody like Porter and many other scholars, they have thought, okay. But if this is true how come that, let’s say, the United States imports cars from China, but it also exports cars to China? Germany exports a bunch of cars to China and imports cars from China. Trade is not just like a one-way street of product. So here is when we are going to try to understand what he calls the attributes that nations have. That allowed us to understand why some countries are better than others in some industries. So let's look at some of the attributes that Michael Porter talked about in his theory. He talks about four attributes that a nation should have in order to develop a successful industry. The first one is what he calls home demand conditions. By this, he says, yeah, we need a demand, but not any kind of demand. I mean, there is always different kinds of demands. But he talks, a country would need what he calls a sophisticated demand. Meaning, segment, a large segment of the population that knows the difference between a good product and a bad product. Has the income to decide which product they're going to buy. And in this way, they can generate pressures on corporations to improve the quality of whatever they are producing. This is the first point of the four attributes, the first one of the four attributes that he talks about. The second attribute is what he calls firm strategy, structure, and rivalry. What he means here is the conditions that lead firms to develop certain capabilities in order to compete with each other. But we need a particular scenario, particular institutional conditions that create this possibility. So basically, the existence of several big firms, several sophisticated firms that compete with each other and lead to a competitive process. The third attribute that Porter talks about is the existence of related and supporting industries. You cannot, let's say, create a car industry if you don't have a glass industry or a steel industry around. Or the infrastructure to bring the components to this car industry. So if there are related industries around, then it's more possible that the rivalry between the particular set of firms will be more efficient. If there is the existence of this set of related industries. And the fourth element, or the fourth attribute that Porter talks about is what he calls factor conditions. By this he means two things. The first is what he calls basic factors. Which are things like natural endowments, like primary products, climate, these kinds of things. I mean, the kind of characteristics that a country has because nature blessed that country with those characteristics. And he says those are important, but, unfortunately, many countries have focused just on those ones. Because then he talks about the advanced factor conditions. Which are an educated population, existence of research and development facilities, or existence of infrastructure. You can have all the natural resources you want. But if you don't have these other factors present, he believes a country will not eventually become good at doing something. Let's illustrate this with some particular places to have this clear. This is a kind of theory that has been used to understand the existence of clusters. For example, let's look at Silicone Valley in the state of California in the United States, in the Western Coast of the United States. This is a place in which many of the most important Internet corporations exist. But there are other elements around these industries. There are important education centers, such as the University of California at Berkley or Stanford University. Those two centers certainly provide a lot of well educated people. And they can be in touch with these corporations in those times. Infrastructure in that area of the world is wonderful if your point is to develop the information technology industry. You just have all the basic things that are necessary for that, provided by other government spending in the area. The government has also invested heavily in that area of the world in the defense industry. So then we have a demand existing there. By the American government buying this type of research, by these firms located in Silicon Valley. So this cluster is created by the interplay of all these four attributes in this area of the world. And Michael Porter also used this theory to understand the rise of a small country that should be poor and was poor, but is not poor. Which is the case of Singapore. It was poor in the 1960s, and now it's a highly developed country. In his viewpoint, the success of Singapore was because they managed to create these attributes by government action. That created demand conditions, created a transparent legal system that permitted better competition between firms. And also invested and created a sophisticated labor force and consumer base. And this is something that, eventually, when he visited Singapore and he saw what had been done there. Then there was a point to question the previous theories that explained international trade. [MUSIC]
