8 The European Business Review July - August 2013 Strategy By Adrian T H Kuah, Mark Esposito & Terence Tse Competitive Advantage Rewired Is competitive advantage still an appli- cable concept so many years after its introduction? Our research demon- strates that competitive advantage remains relevant, and that it is the primary driver of firm and regional competitiveness. In rediscovering the need to embrace the opportunities offered by a strong localisation strat- egy, our article aims to offer a fresh, adapted and practical view of opportu- nities beyond externalities as a source of competitive advantage. T he localisation of industry is not a new concept. For years, companies located in a cluster have benefitted from the intangible ben- efits associated with clusters. In fact, more than a hundred years ago, Alfred Marshall observed: ‘Localised industry gains a great advantage from the fact that it offers a constant market for a skill … The mysteries of the trade become no mysteries; but are as it were in the air, and children learn many of them unconsciously’. 1 At about the same time, the 1900 US Census recorded fifteen areas of industry con- centration, as Paul Krugman pointed out: ‘Collars and cuffs, localized in Troy, New York; leather gloves, localized in the two neighboring New York towns of Gloversville (sic) and Johnstown; shoes, in several cities in the northeastern part of Massachusetts; silk goods, in Paterson, New Jersey; jewelry, in and around Providence, Rhode Island; and agricultural machinery, in Chicago’. 2 In 1990, Michael Porter found that the cre- ation of national competitive advantage in a particular industry does not occur by chance. He observed prominent economic clusters, such as the London Financial Centre and Silicon Valley, dominating particular industries on the world map. Porter defined a cluster as “a geographically proximate group of interconnected companies and associ- ated institutions in a particular field, linked by commonalities and comple- mentarities”. Interestingly, the industrial concentrations he discussed in 1990 remain relevant and highly contempo- rary today. Why is location the preamble of competitive advantage? As Porter argues, competitive advan- tages arise from the value-creating prop- ositions of a firm or a country. Such propositions may emerge from the firm’s (or country’s) management of its competitive strategy for competition or its value-creating activities. Competitive advantage can also be derived from rare, unique and heterogeneous resources, which can be translated into capabilities that offer value to both the firm and its customers. Resources other than those originating from the firm may be derived from the locality. For example, tacit and industry-specific knowledge are viewed as resources available to incumbents in clusters. A high-quality environment – in terms of its factor conditions, its demand conditions, the presence of In 1990, Michael Porter observed prominent economic clus- ters, such as the London Financial Centre and Silicon Valley, dominating particular industries on the world map.