porters-diamond..ppt

To explain on the basis on Porters Diamond, why some nations succeed and others fail in International Competition!

A case of the Korean Economy based on Porters Diamond

INTRODUCTION Qno.# 1

PORTERS DIAMOND MODEL

PORTERS DIAMOND EXPLANATIONDEMAND CONDITIONSFACTOR ENDOWMENTSSUPPORT INDUSTRIESFIRM STRATEGY,RIVELRYGOVERNMENTCHANCE

PORTERs PREDICTIONS

PORTERs CRITICISM

Qno.# 2 CASE Information and Telecommunication - Korea's Competitive Advantages

Acc to Heckscher-Ohlin theory and Comparative Advantage theory

E.g. A nation uses its resources very productively BUT HOW?

Above theories give only Partial Explanation to the Question.

Porters Diamond Model is used to solve this puzzle

Developed in 1990, by Michael Porter of the Harvard Business School.

Porter theorizes 4 Broad attributes Factor Endowment, Demand conditions, Related/Support industry, Firm Strategy and rivalry.

Additional Variables that influence are Government and Chance Source: http://www.quickmba.com/strategy/global/diamond/Source: Charles W. L. Hill & Arun K. Jain, International Business, Fifth Edition, 2006, TATA McGraw-Hill

Why do some fail? The diamond is mutually reinforcing

Home country Demand plays an important role

Enables better understand the needs and desires of the customers

It shapes the attributes of domestic ally made products and creates pressure for innovation and quality

E.g. 1Italian ceramic Industry after the world war IIThere was a postwar housing BOOM !!Consumers wanted cool floors because of Hot climatic conditions

Source: Charles W. L. Hill & Arun K. Jain, International Business, Fifth Edition, 2006, TATA McGraw-HillSource: John D. Daniels & LeeH. Radebaugh, International Business, Ninth Edition, 2003, Pearson Education

E.g. 2Japans knowledgeable buyers of cameras made that industry to innovate and grow tremendously

E.g. 3Local demand for cellular phones in scandinavia made nokia and ericson to invest in that in other developing nations.

E.g. 4The French wine industry. The French are sophisticated wine consumers. These consumers force and help French wineries to produce high quality wines.

Source: http://www.quickmba.com/strategy/global/diamond/

BASIC FACTORS Natural resources, climate, location and demographics

ADVANCE FACTORS Communication Infrastructure, skilled labour, Research facilities and so on.

Basic factors can provide only an initial advantageThey must be supported by advanced factors to maintain success

E.g.Choice of tile to meet customer DemandChoice of italy as production locationWood is less available and expensive than tilesMost of the Advanced factors were available within ItalySource: John D. Daniels & LeeH. Radebaugh, International Business, Ninth Edition, 2003, Pearson Education

E.g. 2

Japan a country which lacks arable land and mineral deposits.

Large pool of engineers - very vital for a manufacturing industry.

Japan has high priced land and so its factory space is at a premium.

Source: http://www.quickmba.com/strategy/global/diamond/Source: Charles W. L. Hill & Arun K. Jain, International Business, Fifth Edition, 2006, TATA McGraw-Hill

Benefits of investment in advanced factors by Suppliers and related industries can spill over

Creates clusters of supporting industries, thereby achieving a strong competitive position internationally.

E.g.The enamel production unit was available.The glazes production was also favourable.These two were the main composition of producing tiles.This reduces the Transportation cost.Source: http://www.quickmba.com/strategy/global/diamond/Source: Charles W. L. Hill & Arun K. Jain, International Business, Fifth Edition, 2006, TATA McGraw-Hill

E.g. 2Switzerlands success in pharmaceutical industry is closely related to its international success in technical dye industry.

E.g. 3Swedish strength in fabricated steel industry is the reason for development in the Sweden's specialty steel industry

Source: http://online.sfsu.edu/~yywong/Porter1990HBR.pdf

Long term corporate vision (Strategy) is a determinant of success

Ability of the companies to develop and sustain a competitive advantage requires the 4th attribute.

Presence of domestic rivalry improves a companys competitivenessE.g.Low entry barriers to market in the tile industryRivalry became very intense Breakthroughs in both product and process technologies

Source: John D. Daniels & LeeH. Radebaugh, International Business, Ninth Edition, 2003, Pearson Education

E.g. 2Germany tends to have hierarchical management structures composed of managers with strong technical backgrounds and Italy has smaller, family-run firms.

E.g. 3Japan has high priced land and so its factory space is at a premium

This lead to just-in-time inventory techniques

(Japanese firms cant have a lot of stock taking up space, so to cope with the potential of not have goods around when they need it

They innovated traditional inventory techniques).

Source: http://online.sfsu.edu/~yywong/Porter1990HBR.pdfSource: John D. Daniels & LeeH. Radebaugh, International Business, Ninth Edition, 2003, Pearson Education

Chance Events such as major innovations, can reshape industry structure

Government Policies Can detract from or improve national advantage

Regulation can alter home demand conditions

Government investment in education can change factor endowment.

E.g. 1991 US Govt Tariff on Japanese imports of LCD screensAPPLE and IBM Protested stronglyJapan The low cost LCD manufacturerIncrease the LCD screens as well as Laptops in the global market Reduce the Market Share.Source: www.nsf.gov/sbe/srs/s4495/conten3d.htm

Countries should be exporting products from those industries where all four components of the diamond are favorable.

while importing in those areas where the components are not favorable.


Government can influence on any four components of the diamond.

Porter developed this paper based on case studies and these tend to only apply to developed economies.


Analysis of Koreas Competitive Advantage with Michael E. Porter's Diamond Framework

Korea - New developed countries - Information and Telecommunication. Information and TelecommunicationKorea's Competitive Advantages (2002)

High computing and Internet penetration rate since 1998.

Large user base of Internet - sophisticated internet usage

IT effectively used - individual level, Business & government sectors

The competitive market situation in online shopping malls and rapid, expansive development in wireless internet service

Forcing market players - higher quality service at cheaper to users.

Hence Strategic use of IT is demanded due to the intensified market environment

Source: www.weforum.org/site/homepublic.nsf/Content/Global+Information+Technology+Report+2001-2002

Korean governments effort to develop IT industry - Privatization and Market Deregulation in Telecommunication market

Encouraged fair market competition in Telecommunication market

Resulting in lower price ,better quality, better service and created favorable business environments for business.

E-commerce exceeded 45 billion USD and

Projected a growth rate of 9% per year.)Source: www.weforum.org/site/homepublic.nsf/Content/Global+Information+Technology+Report+2001-2002

Korean Government- continuous effort - Korean IT policies - Improvement in IT infrastructure,- Facilitating the usage of information technology,- Favorable environment for development of IT industry

Over 90% of nation area is wired with broadband internet network

IT workforce in Korea accounted for 447,000 (2.1% of total workforce).

Overall level of education in Korea is relatively high

Korean government support educational institutions related to IT skills

Supply of quality of IT workforce is expected to increased.Source: http://www.ips.or.kr/ncr/index.aspSource: www.outsourcing-service-india.com

DaeDeok Valley- an important IT cluster -Attracts foreign investment

Several joint research and development projects with well-known foreign companies and universities.

The geographical location of Korea - Close to Central China can be regarded another factor for IT advantages.

Through export of CDMA technology- solid network among the south Asian nations is established.

These factors will enhance the national IT competitiveness for sure.

Conti..Source: http://www.ips.or.kr/ncr/index.aspSource: www.outsourcing-service-india.com

Korea has secured leading position in semiconductor market especially for DRAM (Dynamic Random Access Memory) - DDR RAM and SD RAM

Korea is United States most significant trading partner

Cheap and Quality Hardware production units available.

IT Enabled Services like BPOs and KPOs Yantram Solutions

Korea ranks itself in top manufacture in LCD and Mobile phone, example LG group, Samsung group, Doosan Group, DiaBell.

Korea - the leading position in IT related production

Source: http://www.bsau.org/Source: http://corsairmemory.com/products/twinx10255.htm

Korea - the leading position in all IT related production

The proactive effort - R&D and market expansion, as well as government support are expected.

Korean government plans to extend its financial support for R&D especially in 10 core technologies

Initiated several huge project with private sectors

Source: http://www.bsau.org/Source: http://corsairmemory.com/products/twinx10255.htm

Korea - favorable business environments - for venture firm through- Quick registration process,- Lower entry barriers in IT industry, - Lower cost using telecommunication infrastructure, - Diverse capital resources - Government supports

These activities result in huge number of small, medium-sized venture company in IT industry

And Hence it leads to severe domestic rivalry because of market competition.

Encourages the continuous development of Innovative technology and improvement of business models in business sectors. Source: www.technology.gov/reports/korea/korea.pdf

"Competitive Advantage of Nations" Michael E. Porter, March~April, 1990 HBR Download available at http://online.sfsu.edu/~yywong/Porter1990HBR.pdf (2) "Global Information Technology Report 2001~2002" from World Economic Forum at www.weforum.org/site/homepublic.nsf/Content/Global+Informat ion+Technology+Report+2001-2002 (3) "Asia's New Tech Competitors" at www.nsf.gov/sbe/srs/s4495/conten3d.htm (4) "National Competitiveness Analysis " from the Institute of Industrial Policy Studies - http://www.ips.or.kr/ncr/index.asp (5) www.outsourcing-service-india.com (6) http://www.bsau.org/ (7) http://corsairmemory.com/products/twinx10255.htm (8) www.technology.gov/reports/korea/korea.pdf (9) http://www.quickmba.com/strategy/global/diamond/

(1)Charles W. L. Hill & Arun K. Jain, International Business, Fifth Edition, 2006, TATA McGraw-Hill

(2) John D. Daniels & LeeH. Radebaugh, International Business, Ninth Edition, 2003, Pearson Education

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porters-diamond..ppt

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