national diamond

8/3/2019 National Diamond

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National DiamondFrom Wikipedia, the free encyclopedia

This article provides insufficient context for those unfamiliar with the subject. Please helpimprove the

articlewith agood introductory style.(October 2009)

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because it lacksinline citations. Pleaseimprovethis article by introducing more precise citations. (April2010)

Strategic analysis typically focuses on two views of organization. The industry-view and TheResource-Based

View(RBV). These views analyse the organisation without taking into consideration relationship between the

organizations strategic choice (i.e.Porter generic strategies) and institutional frameworks. The National

Diamond'is a tool for analyzing the organizations task environment. The National Diamond highlights that

strategic choices should not only be a function of industry structure and a f irms resources, it should also be a

function of the constraints of the institutional framework. Institutional analysis (such as the National Diamond)

becomes increasingly important as firms enter new operating environments and operate within new institutional

frameworks.

Michael Porter's National Diamond framework resulted from a study of patterns ofcomparative

advantageamong industrialized nations. It works to integrate much of Porter's previous work in his

competitivefive forcestheory, hisvalue chainframework as well as his theory ofcompetitive advantageinto a

consolidated framework that looks at the sources of competitive advantage sourcable from the national context.

It can be used both to analyze a firm's ability to function in a national market, as well as analyse a national

markets ability to compete in an international market.

It recognizes four pillars of research (factor conditions, demand conditions, related and supporting industries,

firm structure, strategy and rivalry) that one must undertake in analysing the viability of a nation competing in a

particular international market, but it also can be used as a comparative analysis tool in recognising which

country a particular firm is suited to expanding into.

Two of the aforementioned pillars focus on the (national)macroeconomicsenvironment to determine if the

demand is present along with the factors needed for production (i.e. both extreme ends of thevalue chain).

Another pillar focuses on the specific relationships supporting industries have with the particular

firm/nation/industry being studied. The last pillar it looks at the firm's strategic response (microeconomics) i.e.

its strategy, taking into account the industry structure and rivalry (seefive forces). In this way it tries to highlight

areas of competitive advantage as well as competitive weakness, by looking at a companies/nations suitability

to the particular conditions of a particular market.
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A graphical representation of Porter's National Diamond

Contents

[hide]

1 Principles

2 Components

o 2.1 Factor Endowment

o 2.2 Related and Supporting Industries

o 2.3 Demand Conditions

o 2.4 Strategy, Structure and Rivalry

o 2.5 The role of government

3 Criticism

4 See also

5 References

Principles

For analyzing national competitiveness, we need to focus upon firm performance. The role of the national

environment is providing a context within which firms develop their identity, resources, capabilities, and

managerial styles.

For a country to sustain a competitive advantage in a particular industry sector requires dynamic

advantage: firms must broaden and extend the basis of their competitive advantage

by innovationand upgrading. The dynamic conditions that influence innovation and the upgrading are far

more important than initial resource endowments in determining national patterns of competitiveness.

Components

The four different components of the framework are:

Factor Endowment
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Related And Supporting Industries

Demand Conditions

Strategy, Structure, And Rivalry

Factor Endowment

Factor Endowment can be categorized into two forms:

"Home-Grown" resources

Highly specialized resources

For example, in analyzing Hollywood's preeminence in film production, Porter has pointed out the local

concentration of skilled labor, including the different schools of film (UCLA&USC) in the area. Also, resource

constraints may encourage development of substitute capabilities; Japan's relative lack of raw materials has

spurred miniaturization andzero-defectmanufacturing.

Related and Supporting Industries

For many firms, the presence of related and supporting industries is of critical importance to the growth of that

particular industry. A critical concept here is that national competitive strengths tend to be associated with

"clusters" of industries. For example,Silicon Valleyin the USA andSilicon Glenin the UK aretechno

clustersof high-technology industries which includes individual computer software & semi-conductor firms. In

Germany, a similar cluster exists around chemicals, synthetic dyes, textiles and textile machinery.

Demand Conditions

Demand conditions in the domestic market provide the primary driver of growth, innovation and quality

improvement. The premise is that a strong domestic market stimulates the firm from being a startup to a slightly

expanded and bigger organization. As an illustration, we can take the case of Germany which has some of the

world's premier automobile companies likeMercedes,BMW,Porsche. German auto companies have

dominated the world when it comes to the high-performance segment of the world automobile industry.

However, their position in the market of cheaper, mass-produced autos is much weaker. This can be linked to a

domestic market which has traditionally demanded a high level of engineering performance. Also, the transport

infrastructure of Germany, with itsAutobahnsdoes tend to favor high-performance automobiles.

Strategy, Structure and RivalryNational performance in particular sectors is inevitably related to the strategies and the structure of the firms in

that sector. Competition plays a big role in driving innovation and the subsequent upgradation ofcompetitive

advantage. Since domestic competition is more direct and impacts earlier than steps taken by foreign

competitors, the stimulus provided by them is higher in terms of innovation and efficiency. As an example,

theJapanese automobile industrywith 8 major competitors
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(Honda,Toyota,Suzuki,Isuzu,Nissan,Mazda,Mitsubishi, andSubaru) provide intense competition in the

domestic market, as well as the foreign markets in which they compete.

The role of government

The role of government in Porter's Diamond Model is "acting as a catalyst and challenger; it is to encourage -or even push - companies to raise their aspirations and move to higher levels of competitive performance " .

They must encourage companies to raise their performance, stimulate early demand for advanced products,

focus on specialized factor creation and to stimulate local rivalry by limiting direct cooperation and enforcing

anti-trust regulations.

Criticism

Criticism on Porter's national diamond model resolves around a number of assumptions that underlie it. As

described by Davies and Ellis:

"sustained prosperity may be achieved without a nation becoming 'innovation-driven', strong 'diamonds' are not

in place in the home bases of many internationally successful industries and inward foreign direct investment

does not indicate a lack of 'competitiveness' or low national productivity".

Porter generalised from the American case; for developing countries the model may be wrong.

Porter's Four Corners ModelFrom Wikipedia, the free encyclopedia

Porters four corners model is a predictive tool designed byMichael Porterthat helps in determining

acompetitors course of action. Unlike other predictive models which predominantly rely on a firms

currentstrategyand capabilities to determine future strategy, Porters model additionally calls for an

understanding of whatmotivatesthe competitor. This added dimension of understanding a competitor's internal

culture, value system, mindset and assumptions help in determining a much more accurate and realistic

reading of a competitors possible reactions in a given situation.

Contents

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1 The Four Corners

2 Strengths

3 Use in competitive intelligence and strategy

4 See also

5 References

6 Further reading

[edit]The Four Corners

Motivation Drivers

This helps in determining competitor's action by understanding their goals (bothstrategicandtactical) and their

current position vis--vis their goals. A wide gap between the two could mean the competitor is highly likely to

react to any external threat that comes in its way, whereas a narrower gap is likely to produce a defensive

strategy. Question to be answered here is: What is it that drives the competitor? These drivers can be at

various levels and dimensions and can provide insights into future goals.

Motivation Management Assumptions

Theperceptionsandassumptionsthe competitor has about itself and its industry would shape strategy. This

corner includes determining the competitor's perception of its strengths and weaknesses, organization culture

and their beliefs about competitor's goals. If the competitor thinks highly of its competition and has a fair sense

of industry forces, it is likely to be ready with plans to counter any threats to its position. On the other hand, a

competitor who has a misplaced understanding of industry forces is not very likely to respond to a potential

attack. Question to be answered here is: What are competitor's assumption about the industry, the competition

and its own capabilities?

Actions Strategy

A competitor's strategy determines how it competes in the market. However, there could be a difference

between the company's intended strategy (as stated in the annual report and interviews) and its realized

strategy (as is evident in its acquisitions, new product development, etc.). It is therefore important here to

determine the competitor's realized strategy and how they are actually performing. If current strategy is yielding

satisfactory results, it is safe to assume that the competitor is likely to continue to operate in the same way.

Questions to be answered here are: What is the competitor actually doing and how successful is it in

implementing its current strategy?

Actions Capabilities
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This looks at a competitor's inherent ability to initiate or respond to external forces. Though it might have

themotivationand the drive to initiate a strategic action, its effectiveness is dependent on its capabilities. Its

strengths will also determine how the competitor is likely to respond to an external threat. An organization with

an extensive distribution network is likely to initiate an attack through its channel, whereas a company with

strong financials is likely tocounter attackthrough price drops. The questions to be answered here are: What

are the strengths and weaknesses of the competitor? Which areas is the competitor strong in?

[edit]Strengths

Considers implicit aspects of competitive behavior

Firms are more often than not aware of their rivals and do have a generally good understanding of their

strategies and capabilities. However, motivational factors are often overlooked. Sufficiently motivated

competitors can often prove to be more competitive than bigger but less motivated rivals. What sets this model

apart from others is its insistence on accounting for the "implicit" factors such as culture, history, executive,

consultants, and boards backgrounds, goals, values and commitments and inclusion of management's deep

beliefs and assumptions about what works or does not work in the market.[1]

Predictive in nature

Porter's four corners model provides aframeworkthat ties competitor's capabilities to their assumptions of the

competitive environment and their underlying motivations. By looking at both a firm's capabilities (what the firm

can do) and underlying implicit factors (their motivations to follow a course of action) can help predict

competitor's actions with a relatively higher level of confidence. The underlying assumption here is that

decision makers in firms are essentially human and hence subject to the influences of affective and automatic

processes described byneuroscientists.[1]

Hence by considering these factors along with a firm's capabilities,

this model is a better predictor of competitive behavior.

[edit]Use in competitive intelligence and strategy

Despite its strengths, Porter's four corners model is not widely used in strategy and competitive intelligence. In

a 2005 survey by theSociety of Competitive Intelligence Professionals's (SCIP) frequently used analytical

tools, Porter's four corners does not even figure in the top ten.[2]

However this model can be used in competitive analysis and strategy as follows:

Strategy development and testing: Can be used to determine likely actions by competitors in response to the

firm's strategy. This can be used when developing a strategy (such as for a new product launch) or to test this

strategy usingsimulationtechniques such as a business war game.

Early warning

The predictive nature of this tool can also alert firms to possible threats due to competitive action.
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Porter's four corners also works well with other analytical models. For instance it complementsPorters five

forcesmodel well. Competitive Cluster Analysis of industry products in turn complements Four Corners

Analysis.[3]

Using such models that complement each other can help create a more complete analysis.

http://www.quickmba.com/strategy/global/diam

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http://www.valuebasedmanagement.net/methods_porter_diamond_model.html
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national diamond

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