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An Evaluation Of Porters Diamond As A Means Of Explaining Why Some Countries And Industries Have Competitive Advantage Over Others

1618 words - 7 pages

As internationalisation of the world economy continues to gather pace all aspects of management have to be seen in a global context. This is especially true for corporate strategy. Even if an organization does not plan to import or to export directly, management has to look at the international business environment, as it will inevitably have an affect on their business activities. They have to consider how the actions of competitors, buyers, sellers, new entrants or providers of substitutes goods may influence the domestic market. Porters (1985), Five Forces Model allows management to analyse the industry in which they operate, and thus they can develop their corporate strategy in line with ...view middle of the document...

Each country has its own particular set of factor conditions; hence, in each country will develop those industries for which the particular set of factor conditions is optimal. This explains the existence of so-called low-cost-countries (low costs of labor), agricultural countries (large countries with fertile soil), or the start-up culture in the United States (well developed venture capital market).Porter points out that these factors are not necessarily nature-made or inherited. They may develop and change. Political initiatives, technological progress or socio-cultural changes, for instance, may shape national factor conditions. A good example is the discussion on the ethics of genetic engineering and cloning that will influence knowledge capital in this field in North America and Europe.2. Related and Supporting IndustriesØ The existence or non-existence of internationally competitive supplying industries and supporting industries.One internationally successful industry may lead to advantages in other related or supporting industries. Competitive supplying industries will reinforce innovation and internationalization in industries at later stages in the value system. Besides suppliers, related industries are of importance. These are industries that can use and coordinate particular activities in the value chain together, or that are concerned with complementary products (e.g. hardware and software). For example, there are many indigenous SME's in the Irish software industry. Such companies support the multinationals that have located here.3. Firm Strategy, Structure, and RivalryØ The conditions in a country that determine how companies are established, are organized and are managed, and that determine the characteristics of domestic competitionIn this part of the diamond cultural aspects play an important role. In different nations, factors like management structures, working morale, or interactions between companies are shaped differently. This will provide advantages and disadvantages for particular industries.Typical corporate objectives in relation to patterns of commitment among workforce are of special importance. On a global scale, this has been receiving increased attention recently as recruitment and retention of high caliber employees proves more difficult. They are heavily influenced by structures of ownership and control. Family-business based industries that are dominated by owner-managers will behave differently than publicly quoted companies.Porter argues that domestic rivalry and the search for competitive advantage within a nation can help provide organizations with bases for achieving such advantage on a more global scale.4. Home Demand ConditionsØ Describes the state of home demand for products and services produced in a country.Home demand conditions influence the shaping of particular factor conditions. They have impact on the pace and direction of innovation and product development. According to...

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