Marisa Lauri Ride the subway, walk down a busy downtown street, or attend a lecture at a local university. If you take a moment to look around, you will notice the rich cultural diversity of our cities.
Even if an organization does not plan to import or to export directly, management has to look at an international business environment, in which actions of competitors, buyers, sellers, new entrants of providers of substitutes may influence the domestic market.
Information technology is reinforcing this trend. Michael Porter introduced a model that allows analyzing why some nations are more competitive than others are, and why some industries within nations are more competitive than others are, in his book The Competitive Advantage of Nations.
This model of determining factors of national advantage has become known as Porters Diamond. It suggests that the national home base of an organization plays an important role in shaping the extent to which it is likely to achieve advantage on a global scale.
This home base provides basic factors, which support or hinder organizations from building advantages in global competition. Porter distinguishes four determinants: Factor Conditions The situation in a country regarding production factors, like skilled labor, infrastructure, etc.
These factors can be grouped into human resources qualification level, cost of labor, commitment etc. They also include factors like quality of research on universities, deregulation of labor markets, or liquidity of national stock markets.
These national factors often provide initial advantages, which are subsequently built upon. 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 lowcost-countries low costs of laboragricultural countries large countries with fertile soilor 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.
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.
A typical example is the shoe and leather industry in Italy. Italy is not only successful with shoes and leather, but with related products and services such as leather working machinery, design, etc. Home Demand Conditions 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 Porter, home demand is determined by three major characteristics: Porter states that a country can achieve national advantages in an industry or market segment, if home demand provides clearer and earlier signals of demand trends to domestic suppliers than to foreign competitors.
Related and Supporting Industries The existence or non-existence of internationally competitive supplying industries and supporting industries. Firm Strategy, Structure, and Rivalry The conditions in a country that determine how companies are established, are organized and are managed, and that determine the characteristics of domestic competition Here, 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.
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.
Porters Diamond has been used in various ways.Increasingly, corporate strategies have to be seen in a global context. Even if an organization does not plan to import or to export directly, management has to look at an international business environment, in which actions of competitors, buyers, sellers, new entrants of providers of substitutes may influence the domestic market.
The Porter Diamond, properly referred to as the Porter Diamond Theory of National Advantage, is a model that is designed to help understand the competitive advantage nations or groups possess due to certain factors available to them, and to explain how governments can act as catalysts to improve a country's position in a globally .
The Competitive Advantage of Nations. In this + page work, Michael Porter introduces his diamond of national advantage and its self-reinforcing nature.
He then applies the diamond to examples in both manufacturing and service industries, and uses the value chain to explain the growing role of services.
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Over products are available exclusively through NDC authorized distributors. Now beyond its eleventh printing and translated into twelve languages, Michael Porter’s The Competitive Advantage of Nations has changed completely our conception of how prosperity is created and sustained in the modern global economy.
Porter’s groundbreaking study of international competitiveness has shaped national policy in countries around the world.