National Competitiveness: Porter's National Competitiveness Model and American Automobile Industry - Term Paper Example

? National Competitiveness Contents Porter's National Competitiveness Model 3 American Automobile Industry 4 Factor Conditions/Endowment 4 Domestic Demand Condition 5 Supporting Industries and Structure 6 Firm strategy, structure and rivalry 6 Reference 8 Porter's National Competitiveness Model The most recent theory known as the “theory of national competitive advantage of industries” popularly known as the “diamond theory”, coined by Michael Porter and is presented in a diamond shape diagram. The theory mainly focuses on analyzing the reasons as to why certain industries within a nation tends to be competitive internationally (Peng 135). In the study of “national competitive advantage” Porter has identified four factors of national environment which tend to have important impact on the global competitiveness of the companies located in the country. The four factors are, factor endowments, domestic demand condition, related and supporting industries and structure, strategy and rivalry among firms (Hills and Jones 248). Figure 1: Diamonds Theory (Source: Peng 135) According to Porter, the above four factors constitute the diamond which is referred to as a jointly reinforcing scheme and therefore the competitive advantage of the firm depends on the favorability of the diamond for the specific industry in which the firm belongs (Misra and Yadav 83). The paper talks about the automobile industry in America and is analyzed with the help of Porter's “National Competitiveness Model” or the Diamond Theory. American Automobile Industry Factor Conditions/Endowment As stated in Porters Diamond Model, factors refer to the types of resources which are necessary for the industry and they are physical resources, human resources, capital resources, knowledge resources and other infrastructure. The nation tends to gain advantage where the factors are accepted and well mixed. The factor condition is further divided into two, natural and advanced factors (Walker 178). The automobile industry includes those companies which are involved in marketing, production and also maintenance of automobiles. As per the US Bureau of Labor Statistics, the automobile sector had employed about 700,000 workers in 2011. The labor dynamics affects the employment level in industries such as plastics and steel manufacturing. The American automobile industry has been experiencing upward pressure with respect to wages and a downward pressure on benefits and is competing with other strong economies for skilled labors. In the recent global financial turmoil which has also affected US, the automobile sector is unlikely to support comfortable living for the working class affecting the industry’s ability to attract skilled workers, thus having negative impact on the competitive advantage (Basu, “What Factors Affect the Labor Supply and Demand for the Automobile Industry?”). However in the 20th century, the American automotive industry had maintained prominence in the domestic economy. The American auto industry had sprouted from Henry Ford and currently in its blooming stage. But the issue with workers remained the same (Wall 8). Domestic Demand Condition The home demand condition plays an important role in national competition as it tends to gain competitive advantage only if the demand from the domestic customers forces the industry to carry out innovation, lead the global market and gain profit. The US is in the process of recovery and the automobile sector has been contributing to a large extent. In 2012, the annual sales for automobiles along with light truck amounted to 14.8% higher compared to previous years (Spross, “The Comeback of the U.S. Auto Industry”). America is a developed country with growing population which means that the industries are developed and has entered the matured stage. Retail sales in the US are boosted by demand from automobiles along with gasoline prices restricting the customers to spend on other goods. Some of the major automobile makers reported that the sales of cars increased 19.9% despite higher gas price. According to analysts the demand for automobiles are high because of wide range of fuel efficient models and , small cars which has helped spur the domestic demand for automobiles and thus accelerate the industry. With respect to fuel efficiency, consumers are spoilt for choice, making it tough for them not to purchase because of high gas price (Vlasic, “Gas Prices Rise, but So Do Auto Sales”). In addition as the Americans are demanding more number of fuel efficient vehicles, the automakers are facing issues on keeping up with the demand. Thus it can be indicated that the demand for car and automobiles are relatively high in Americans and the consumers. But according to a car shopping website, car purchased by the age group of 18 to 34 years has dropped by 30% and that is mainly due to social shifts. Therefore, making the American automobile industry competitive against the global automobile industry and with companies like General Motors, Ford and others the demand for small and fuel efficient cars remains to be strong and growing at a faster rate, allowing the country to compete on a global basis. Supporting Industries and Structure The third determinant, according to Porter is related and supporting industries. This refers to the international competitive industries of a particular nation which cluster together. If the supporting industries are competitive internationally, there is higher possibility for domestic industries to be successful. The automobile industry is tied to the auto component industry through financial arrangements and alliances. In the current global automobile industry, the raw materials and components are sourced globally indicating the low importance of national competitive supplier industry. However, after manufacturing the automotive industry depends upon the transportation and communication industries (Sardy and Fetscherin, “Related and Supporting Industries”). The automotive industry of the U.S tends to generate lot of freight with supporting vehicles and delivering the finished products across the country. The supply chain in the automobile industry faces major challenges because of various factors such as rising cost of commodity, capacity, low quality level and supply distribution (KPMG, “Supply chain spotlight”). Firm strategy, structure and rivalry The last attribute of the National Competitive Advantage or the Porters Diamond Model refers to the intensity of rivalry within the nation. Porter had pointed two important factors. Firstly, different nation are characterized by various ideologies of management which might or might not be beneficial in building national competitive advantage. Secondly, strong connection tends to exist between domestic rivalry and creation of competitive advantage in a particular industry. The intense rivalry induces the companies to innovate and find ways to improve efficiency and making them better competitors both domestically and internationally (Hills and Jones 249). The American automobile industry has been recovering from the economic downturn, and growth from this industry has greatly contributed to the recovery process. The American automobile industry has introduced efficient fuel cars in order to fight back with the rising cost of fuel, and as a result there has been increased sale in the automobile industry and the demand for small and fuel efficient cars are rising steadily. Thus the strategy which the American automobile industries have adopted is that of introducing fuel efficient cars and attracting the consumers despite the high fuel price. In America competition is high as amongst big companies such as General Motors, Ford and Chrysler. With globalization, many other brands such as Volkswagen have entered the American automobile market, intensifying the rivalry further (Ghosal 5). In the current scenario, many small cars tend to rule the market as the American customers are demanding fuel efficient cars hence, the industry can be termed as competitive. Therefore based on the national competiveness model imposed by Porter, it can be concluded that the American automobile industry tends to be attractive in certain ways and of late has been recovering steadily from the financial crises. The four attributes of the Diamond Theory are favorable, making it successful in the global automobile industry. Reference Basu, Chirantan. What Factors Affect the Labor Supply and Demand for the Automobile Industry? Small Business, 2013. Web. 31 January 2013. Ghosal, Vivek. Competition and Innovation in the US Automobile Market. CESifo Group, 2010. Web. 31 January 2013. Hills, Charles, and Gareth Jones. Strategic Management Theory: An Integrated Approach. US: Cengage Learning, 2009. Print. KPMG, Automotive Industry Outlook Survey. KPMG, 2012. Web. 31 January 2013. Misra, Sanjay, and P. K. Yadav. International Business: Text And Cases. India: PHI Learning Pvt. Ltd, 2009. Print. Peng, Mike, W. Global Business. US: Cengage Learning, 2008. Print. Sardy, Marc, and Marc Fetscherin. A Double Diamond Comparison of the Automotive Industry of China, India, and South Korea. Rollins College, 2009. Web. 31 January 2013. Spross, Jeff. The Comeback Of The U.S. Auto Industry. Think Progress, 2012. Web. 31 January 2013. Vlasic, Bill. Gas Prices Rise, but So Do Auto Sales. New York Times, 2012. Web. 31 January 2013. Walker, Gordon. Modern Competitive Strategy. NY: McGraw-Hill International, 2004. Print. Wall, Taylor A. Saving America's Automobile Industry: The Bailouts of 1979 and 2009, An Overview of the Economic Conditions, Factors for Failure, Government Interventions and Public Reactions. Claremont McKenna College, 2010. Web. 31 January 2013. Read More