Analysis of Porter's Five Forces Model - Term Paper Example

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The author of this paper examines Porter’s emphasis on the four determinants (the Diamond) of the national competitive advantage such as factor conditions, demand conditions, related and supporting industries, and firm strategy, structure, and rivalry. …
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Analysis of Porters Five Forces Model
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Download file to see previous pages Porter's theoretical postulates on national competitive advantage have been critically examined by many authors. Egan (1995) suggests that Porter's focus on a specific country's success in international trade in one particular industry is of importance due to the fact that there is the untiring accent of the often superior model that the customer comes first. 
Porter's arguments on factor conditions go to the other extreme as well. He proposes that a lack of resources would not act as a barrier to development, Eg. Switzerland, Singapore like countries. His demanding conditions are equally loaded with such positivity as a complicated domestic market and its implications in guaranteeing a competitive edge in international markets to the country concerned. Eg. the wine industry of France. His related and supporting industries argument parenthetically emphasizes the technology-related benefits (Rao, & Holt, 2005). The spill-over effects of main industries lead to the creation of supporting industries and next to the cyclical effect goes on and on to bring about a very positive outcome in competitive advantage, Eg. Italy's leather shoe industry. Finally, his firm strategy, structure, and rivalry related posture focus on capital markets, individuals' career choices, management structures and strategic competitive environment in domestic markets.
Competitive advantage in international trade is defined as "the nation's capacity to entice firms (both local and foreign) to use the country as a platform from which to conduct business" (Paulson, & Wilber, 2002). The sectoral strength /weakness analysis of a nation's economy to determine competitive advantage in international trade by Porter is a revolutionary idea which gathered some more drive during the post-1998 period. Whereas many economists have doubted the efficacy of Porter's conceptual framework of the "diamond of national competitiveness" basically owing to its many shortcomings in structural consistency, others agree that its theoretical underpinnings have stronger relevance to modern international trade context.
Factor conditions, like Porter, defined them, not only refer to mere physical resources such as land, labor, and capital but also to some key or specialized factors which are being continuously created as against being inherited (Murmann, 2003). For example, the firm continuously innovates and produces a specialized set of resources such as capital, skilled labor and infrastructure. After all, such specialized resources cannot be copied by rivals - the resource-based view of the firm and leadership.
Porter also discusses non-key or non-specialized resources such as unskilled labor. According to him, they fail to create a permanent competitive advantage because they are not endowed with those difficult-to-duplicate characteristics that are inherent in specialized resources. He argues that a lack of resources would not be altogether a disadvantage to a nation. Assuming that a certain nation lacks substantial resources to compete effectively in international markets, there is still a chance that the country would benefit from this factor-centric disadvantage. In the first place, such countries have no alternative but to innovate continuously. This process leads to a level of competitive advantage in international trade (Kilduff, & Chi, 2007). ...Download file to see next pagesRead More
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