National Competitive Advantage - Research Paper Example

 National Competitive Advantage Introduction Globalization has created new business opportunities for business organizations. It has significantly increased the economic standards for many countries. Despite these challenges, countries can survive in the business environment only through the application of innovative and creative business strategies. Competitive advantage has been defined as the ability of organizations to maintain market share and domination against rivals. National competitive advantage refers to the strategic domination of certain countries against less developed countries. Michael Porter proposed the theory of competitive advantage in order to explain the success of certain industries. The Diamond Model consists of four attributes which are interlinked and interrelated with each other. These four attributes must be present in order to ensure rapid growth and development in the industrial sector. Porter stated that national competitive advantage is based upon the application of smart and prudent strategies. Flexible, agile, and reliable government policies will assist in the creation of advanced industries. Other variables like productivity, quality, knowledge base, innovation, and creativity were identified as enhancing the competitive edge of nations. This research paper will explain the four attributes of the Diamond Model. It will analyze the impact of four attributes on national policy. Background Previous theories related to industrial development and production focused on the availability of human and material resources. However these theories were considered to be flawed because of their linear and simplistic line of reasoning. Most developing countries have abundant material and human resources, yet they have failed to improve economic standards of living. Porter sought to address these concerns by proposing the theory of competitive advantage. National strategy is based upon the application of smart and prudent methods. Governments should have clear and precise goals which encourage investment and business growth. Porter argued that labor intensive industries lead to the production of low level products and services (Suneja, 2002: Pg 113). Competitive advantage helps in knowledge acquisition, quality, innovation, and productivity. It creates highly efficient and effective industries that can eventually target the international market. Process of Competitive Advantage Porter assumed that competitive advantage occurs in a systematic and methodical manner. An organization focuses on a single process or attribute in order to develop its capabilities. The systematic amalgamation of natural, technological, and human attributes helps create a competitive advantage for the entire industrial sector. Premium products spurred by consumer demand help to create improved standards of living. A growing domestic market helps sustain the entire industrial sector. Eventually the organization will export its products into neighboring markets. Competitive advantage is a multifaceted and multidirectional process. Management might skillfully allocate and distribute resources for a particular outcome (Suneja, 2002: Pg 120). They should have a proactive and dynamic philosophy that makes accurate forecasts in the business environment. Monitoring and performance appraisal systems help to determine the success or failure of business policy. A successful industrial sector helps to stimulate the national economy of certain states. Countries like the United States, Germany, and Japan have been able to accomplish competitive advantage due to their reliable, flexible, and agile business processes. Porter’s Diamond Model Michael Porter stated a viable and robust model to assess the ability of countries to maintain competitive edge as opposed to other countries. The Diamond Model proposes a number of variables help determine the success of some countries. The presence or absence of these variables helps determine the ability of the country to compete in the global business environment (Suneja, 2002: Pg 119). Governments can devise smart and prudent strategies in order to produce superior outcomes. Industrial development can be fostered through the promotion of flexible and agile business policies. Factor Conditions Productivity and output help to create high levels of efficiency and effectiveness in specific sectors. Factor conditions refer to a set of variables that help to augment manufacturing and production in different sectors of the economy. The technical capabilities and competencies of the work force are included in the factor conditions (Suneja, 2002: Pg 121). Raw materials, minerals, etc help industries in fabricating finished products and goods. This section of the Diamond model involves the infrastructure and investments that are vital for the creation of a viable industrial base. These conditions are unique and innovative for every country. An industrial base is developed based upon the presence of various resources. Agricultural countries are likely to have fruitful and abundant soil for growing cash crops. Other countries might have cheap labor that leads to the creation of labor intensive industries. These factors are acquired in a systematic and methodical manner. A steady process of knowledge acquisition helps organizations to develop specific competencies and capabilities. Home Demand Conditions This attribute of the Diamond model is concerned with the domestic desire for local products and services. Home demand conditions help to develop high levels of innovation and creativity. Organizations will manufacture products that are according to industry requirements and customer trends (Suneja, 2002: Pg 125). These conditions also develop if local organizations are able to prevent foreign penetration in the home market. The rapid growth and capacity of domestic products helps to stimulate development in the local sector. The advent of premium products in the local market helps to increase economic standards of living. It assists in the development of flexible and robust industrial sectors. Related and Supporting Industries Michael Porter proposed that national competitive advantage can be attained if successful organizations expand into related and supporting industries. Knowledge, resources, capital, and expertise obtained by a single industry help to stimulate other sectors. An efficient network of suppliers, manufacturers and distributors is created through creativity and innovation (Suneja, 2002: Pg 130). Related industries can also utilize the same supply chain system in order to manufacture auxiliary and supplementary products. Italy’s shoe and leather industry has managed to augment its growth by moving into industries like leather design and leather working machinery. Upstream and downstream industries help the industrial sector to diversify its product line. Competitive advantage thus enables organizations to achieve product diversification which is beneficial when demand for certain products fluctuate in the business environment. Firm Strategy, Structure, and Rivalry Porter argued that local organizations must have innovative business strategies and systems. The corporate culture helps to formulate smart and prudent strategies. Mission statement must be clear while corporate objectives should help to reinforce organizational commitment and dedication. Management styles will assist certain industries because they will be based upon cultural norms and principles (Suneja, 2002: Pg 136). Organizational structure also plays a critical role in the success of national competitive advantage. Rivalry and competition act as powerful forces of innovation and change in the business environment. Proactive and dynamic management policy helps to provide timely and reliable services to clients. Impact of Diamond Model on National Policy Michael Porter stated that governments play a critical role in the development of industries. This is accomplished through the proper application of four attributes that stimulate performance and excellence. Tax structure helps provide revenues for governments while fostering growth in nascent industries. Appropriate educational policies can be utilized to create a talented and qualified work force (Suneja, 2002: Pg 140). Governments should adhere to free market systems in order to stimulate efficiency and effectiveness. Protectionism only creates inefficient and obsolete industries that are not concerned with novelty and ingenuity. The four attributes are interlinked and interrelated with each other when formulating national policy. One attribute can have a decisive influence on the other factors. An example is that factor conditions can only improve if there is serious competition in the business environment (Suneja, 2002: Pg 141). The diamond model fluctuates according to the conditions of the business environment. National policy should therefore be continuously updated and audited. Governments can formulate flexible policies depending upon the rapidly changing business environment. Each section of the diamond helps to develop a multifaceted and multidirectional business environment. These sections reflect the critical factors for growth and success. The abundance of human and material resources can help to act as a catalyst for development. Porter identifies knowledge acquisition as the key factor that helps to create competitive advantage. A systematic and methodical approach of localization assists in the creation of valuable expertise and competencies. Another variable utilized was productivity which is defined as the worth of yield formed by manual labor and money. Products must be attractive and alluring to consumer segments in order to ensure rapid growth. A productive work force helps to create superior wages and working conditions. Employers also enjoy the fruits since productivity and output are augmented (Suneja, 2002: Pg 140). Quality is an important indicator of productivity because it helps to provide tangible and intangible benefits to consumers. The assimilation of technology helps to streamline and automate the business process. Industries rapidly gain competitive advantage by their transition to advanced levels of production and manufacturing. Swedish companies like Volvo and AGA began to focus on automobile safety due to heightened consumer awareness and conscious. Another example is that of American machine tool industries that have been attracted towards the US defense industry. Porter believed that governments must encourage research and development. An innovative feature enables the industrial sector to enjoy limited monopoly and success. This is because rivals will be able to emulate the innovative product through mass production and manufacturing (Suneja, 2002: Pg 144). Governments might need to relocate production facilities or access new markets. Innovation is a continuous process which is interlinked and interrelated with research and development. An innovative industrial sector diversifies into various product lines in order to maintain improvement and quality. It focuses on using existing advantages to take move into new markets. Constant process of innovation and creativity help to create high levels of innovation and creativity. A cost and differentiation strategy can be selected by governments in formulating national policy. A cost based strategy helps to devise robust business initiatives based upon reducing operational expenses and maximizing revenue. A differentiation strategy seeks to acquire competency and expertise in niche markets. The organization will emphasize on its core competencies rather than addressing the general consumer segment. Further business strategy should apply intricate and complex management and business structures. A free market system helps to stimulate growth and competition. Government restrictions hinder the ability of organizations to accomplish superior productivity and output. Conclusion Competitive advantage is a term used to describe the ability of organizations to outperform and surpass the business activities of rivals. National competitive advantage refers to the ability of countries to sustain high levels of economic growth and development. Michael Porter proposed the theory of competitive advantage to explain the variables that are necessary for success in the global business environment. Previous theories focused on natural and labor resources as providing competitive advantage for countries. Porter rejected this line of reasoning by emphasizing on productivity, innovation, quality, and knowledge acquisition. The successful manipulation of various attributes would help to create competitive advantage for the industrial sector of countries. The Diamond Model consists of four attributes that help explain competitive advantage. Factor conditions refer to the successful application and implementation of human, material, capital, and technological resources for productivity and output. Home demand conditions refer to the increased requirement for local products and services. Industries that provide tangible and intangible benefits to domestic consumers will register high levels of growth and development. Related and supporting industries refer to the auxiliary and supplementary services that are created due to a single industrial sector. Firm structure, strategy, and rivalry help organizations devise appropriate management and business principles. These principles determine business objectives, marketing strategies, research and development, and taking advantage of new business opportunities. The four attributes help to create innovative and creative business strategies. Research and development is enhanced in a systematic and methodical manner. Quality helps to create high technology goods while application of technology can streamline and automate business processes. Governments help to stimulate local industries by focusing on flexibility, reliability, and agility. They help to create educational policies that create a talented and skilled work force. References Suneja, Vivek, (2002). Policy issues for business. Sage Publications Ltd. Read More