National Competitive National Competitive Advantage: Porter’s Advantage: Porter’s

DiamondDiamond

National Competitive National Competitive Advantage: Porter’s Advantage: Porter’s

DiamondDiamond

PRESENTED BY : SANJAY PRESENTED BY : SANJAY NAVADIYA NAVADIYA

PRESENTED BY : SANJAY PRESENTED BY : SANJAY NAVADIYA NAVADIYA

National Competitive Advantage: National Competitive Advantage: Porter’s DiamondPorter’s Diamond

Porter and his team studied 100 industries in 10 nations.

Michael Porter of Harvard Business School believed that existing theories of international trade told only part of the story.

The results of the research were published in the 1990 book, The Competitive Advantage of Nations.

Why is one nation more productive in an industry than another?

What promotes or impedes the creation of competitive advantage?

Porter hoped to explain why a nation achieves international success in a particular ______________________.

Porter’s thesis is that four attributes determine a nation’s competitive advantage, and they shape the environment in which local firms compete.

Firms are more likely to succeed in industries where these attributes are most favorable.

Michael Porter

Determinants of Determinants of National Competitive AdvantageNational Competitive Advantage

Related and Supporting Industries: The presence or absence in a nation of supplier industries or related industries that are nationally competitive.

Factor Endowments:

A nation’s position in factors of production, such as skilled labor or infrastructure necessary to compete in a given industry.

Firm Strategy, structure and rivalry:

The conditions in the nation governing how companies are created, organized, and managed and the nature of domestic rivalry.

Demand Conditions:

the nature of home demand for the industry’s product or service.

FS

FE

R&S I

DC

Factor EndowmentsFactor Endowments

Taken from Heckscher-Olin theory;

They provide an _________________________ advantage

Natural resources

Climate Location

Demographics

Basic factors:

Porter recognizes a hierarchy among factors.

Disadvantages in basic factors can create pressure to invest in advanced factors. »

These factors are naturally endowed.

Factor EndowmentsFactor Endowments

Technology base

These factors are the product of development by individuals, companies, and / or governments.

Advanced factors:

Infrastructure Skilled labor

Government can affect factor endowments through subsidies, policies toward capital markets, policies toward education, etc.

Supports the basic factors, to bring continued success.

More likely to lead to competitive advantage.

Demand ConditionsDemand Conditions

Home demand can prove the impetus for upgrading competitive advantage:

Firms are typically more sensitive to the needs of their closest customers.

Therefore, sophisticated and demanding customers in the home market pressure firms to improve:

Government regulations and product standards can influence demand conditions positively or negatively.

Related and Supporting IndustriesRelated and Supporting Industries

One of the most pervasive findings of Porter’s study was that

successful industries within a country tend to be grouped into

__________________ of related industries.

Investments in advanced factors of production by related and supporting industries can spill over into an industry, making it more competitive internationally.

Switzerland: Dye-industry Pharmaceuticals

Sweden: Specialty-steel Fabricated-steel-products

U.S.: Semiconductor-industry Personal-Computers

Government regulation can have an impact upon supporting and related industries.

Firm Strategy, Structure and RivalryFirm Strategy, Structure and Rivalry

Porter makes two important points:

1. Nations are characterized by different “management ideologies” which can help or not help build a competitive advantage.

2. Strong domestic competition forces firms to constantly improve efficiency to increase profit and gain market share, also making them better international competitors.

Makeup of Top

Management

Results in:

Improved manufacturing

processes. Improved designs. Short-term strategies. Lost competitiveness in

engineering-based industries.

Government influences firm rivalry through capital market regulation, tax policy, and antitrust laws.

External Factors Influencing National External Factors Influencing National CompetitivenessCompetitiveness

Factor

Endowments

Demand

Conditions

Related and

SupportingIndustries

Firm strategy,

Structure, and

Rivalry

Evaluating Porter’s TheoryEvaluating Porter’s Theory

If Porter is right, countries should be exporting from industries where the four ‘diamond’ components are favorable.

Countries will import goods from industries where some or all the “diamond’ components are missing.

It’s too soon to tell if Porter’s theory will prove out.

Each of the theories discussed explains something about the pattern of international trade, and in many respects complement each other.

Summary - Summary - Three Implications for BusinessThree Implications for Business

1. Location implications:

From the profit standpoint it makes sense to disperse production activities to countries where they can be performed most efficiently.

2. First-mover implications:

It pays to invest substantial financial resources in building a first-mover, or early-mover, advantage.

3. Policy implications:

Promoting free trade is generally in the best interests of the home-country, although not always in the best interests of the firm.

Business should urge governments for investments in education, infrastructure and basic research, and to adopt policies that promote strong competition.

There are three main implications from the material discussed: