Modern Business in Comparative Perspective - Essay Example

Modern Business in Comparative Perspective Table of Contents Table of Contents 2 Introduction 3 Critical Evaluation of Porter’s Diamond Model 4 National Competitiveness as per Porter’s Diamond Model 6 Late Development Theory and Missing Dimensions in Porter 7 Porter Downplay the Role of the State, Given the Historical Importance of the Developmental State in Industrialisation and Improving National Competitiveness 8 Factor and Demand Conditions Purely National in Their Creation 9 Conclusion 11 References 12 14 Introduction Michael Porter developed an economic model recognized as Diamond Model. The model has been described in the book ‘The Competitive Advantage of Nations’. This model examines the factors based on which an organization in its domestic nation has the ability to expand operations with better expansion opportunity on a global context (Davies & Ellis, 2000). In the present day, it is difficult for the companies to compete due to globalization for which companies are identified to conduct operations in overseas nations. Porter expected to create a base for emerging national policies on effectiveness. The model has been formulated by Porter with due consideration of trade theories. In this regard, Porter has devised the model based on different factors that include resources, cost and infrastructure among others and accordingly, the model developed is important to have an extensive understanding of competition relating to market segment, product differentiation and technological changes. Porter also recommended that the model would explain about the procedures with the assistance of which organizations are able to perform operations effectively and competitively. In this context, Porter while formulating the model conduct an examination in ten countries such as the US, Germany, Denmark, South Korea, Britain, Italy, Sweden, Switzerland, Japan and Singapore. This type of model helps in recognizing the elements of competitive advantage of the countries. Subsequently, diamond model makes a structure, which determines the rules of competition in a sector and marks the important role to be played for attaining the long-term effectiveness (Bakan & Dogan, 2012). In this regard, the essay intends to explain the concept of Porter’s diamond model and national competitive advantage as well as the key issues and problems in relation to competitive advantage of nations. Critical Evaluation of Porter’s Diamond Model Porter’s diamond model is a type of economic model, which is established by Michael Porter in the book The Competitive Advantage of Nations, where he explains the reason of competitiveness of particular businesses in specific nations. Porter analyzed and formulated the model based on two parts. Initially, the analysis has been conducted on ten important nations that include the US, Germany, Denmark, South Korea, Britain, Italy, Sweden, Switzerland, Japan and Singapore in order to develop a map based on which organizations can conduct operations for their success. Second analysis is the dynamic process through which competitive advantage can be accomplished. Among the ten nations, the US, Japan and Germany are identified to have leading industries and others nations represent a variety in terms of population size and policies of government towards industry, geographical size and locations (Neven & Droge, 1998.). The six factors of Porter Diamond model is the significant tool for the analysis of competitiveness such as ‘factor condition’, demand condition’, related and supporting industries’, ‘government’ and ‘chance’. Factor conditions include different factors such as human, capital, information resources as well as infrastructure. In the home market, demand condition helps the companies to produce a competitive advantage where the buyers of sophisticated home market create the pressure to firms to innovate faster and to produce more advanced products than the competitors. Related and supporting industries are helpful to generate cost-effective inputs, which are important for the improvement and for industrialization. Firm strategy, structure and rivalry are one of the factors of diamond model, which organizes a basis for the competitiveness. Government is an important factor and is recognized to affect production factor, demand condition as well as the competition among the firms. The factors are connected to each other and generate a situation where innovation and improved competitiveness can be occurred (Mehrizi & Pakneiat, 2008). Porter’ Diamond Model Source: (Mehrizi & Pakneiat, 2008) The above pictorial representation depict six factors of Porter’s diamond model, which are important for achieving the competitive advantage of an industry based on which such industry is able to attain competitive advantage through innovation (Mehrizi & Pakneiat, 2008). Companies are able to adopt innovation by using new and advanced technologies. Innovation can be displayed in a ‘new product design’, ‘new production process’, ‘new marketing approach’ and ‘new way of directing the training’. In this context, innovation generates competitive advantage by observing the new market opportunities. Innovation is important in international trade based on which companies are able to meet the expected needs of domestic as well as overseas market segments. Information plays a vital role in the innovation and development process, which is to be collected from market research. In recent years, national competitiveness has turn into the central concerns of government as well as industry in every nation (Porter, 1990). National Competitiveness as per Porter’s Diamond Model Michael Porter established a comprehensive approach to national competitiveness, which is recognised as diamond model. In diamond model, Porter analyses the competitiveness of a country as well as a business. The two fundamentals for a good competitiveness theory are that the theory should be inclusive towards variables such as natural resources or labour and the theory should be active to describe the changing environment of national competitiveness, which cannot be well explained by the classical theories such as ‘absolute advantage’ and ‘comparative advantage principles’. Porter’s diamond model is identified to be based on both of the conditions essential for a theory (Cho & Moon, 2005). This model consists of six factors, which are important for national competitiveness as well as to achieve competitive advantage. The model implies that national competitiveness does not depend on resources or currency assessment, but it can be made by grouping choices of strategy along with determinants of Porter’s diamond model. National competitiveness is the capability of nations to enhance the economic as well as social welfare for the people through dynamic and determined contribution in the global market. The affluence of a nation depends on the attractiveness of the same. The several Porter’s determinants of national competitiveness are ‘government’, ‘chance’, ‘factor condition’ and ‘demand condition’, ‘related and supporting industries and firms’, ‘strategies and rivalry’. These determinants are different from each other, but are essential for national competitiveness. Factor condition, which is included in factor of production such as land, natural resources human resources are needed for competitive advantage. Young people benefit from the growth of an economy, because the productivity of young people is more as compared to others. Demand condition is also an important determinant for national competitiveness. There should be local market demand for the product before that particular product is distributed to other countries, as local market demand is important to learn how industry can be successful. Generally, demand condition depends on the size of the home demand, pattern of growth and number of buyers. Buyers play a vital role for the demand of the product as well as demand in the local market. Porter’s diamond model is also essential for the national competitiveness as well as the improvement of the national business system (Pawar & Veer, 2013; Recklies, 2011). Late Development Theory and Missing Dimensions in Porter Late development theory is important for the development of the international community. The theory covers the development of the community, industry and child among others. This theory or study delivers the basic consciousness of central themes and theoretical issues in the economic history. It helps to develop the knowledge and awareness of the students, which is not possible through the Porter’s model. Therefore, it is a limitation of Porter’s diamond model. Development theory assesses the information of development or provides the information about how industry can be developed. Porter’s model explains the reason of competitiveness of some nations and businesses, which is different from the development theory. Development theory is also helpful for the development of bank, government agencies and non-government agencies among others (Willis, 2005). Child development is possible through some stages or periods of development such as ‘namely’, ‘infancy’, ‘early childhood’, ‘pre-school age’, ‘school age’ and among others, which are not included in the Porter’s model. This theory contains the basic requirements, which are needed for the improvement and the purpose of this theory to provide the accurate knowledge and awareness for future development and future growth of the industry as well as businesses. However, Porter’s model does not contain this type of development, which is a missing dimension of Porter’s model. Both theories are different from each other, because development model generate the idea for future development and Porter’s model generates the idea of national competitiveness. Both the theories are important for the development and competitive advantage of an industry as well as a community. Development theory is also important for the development of mind. The aspects of theory of mind are needed for development of adolescence, because this age is vital age for everyone (Vetter, 2013). Another missing dimension of Porter’s diamond model is the effect of national culture. National culture is a useful factor, which impacts the national competitiveness. Factor conditions and demand conditions are not related to the purely national, which is the discrepancy of Porter’s model, as this model is based on the economic development and national competitiveness of a country. Porter’s model is not related to the political as well as economic environment, but development theory is associated with the political and economic environment for the development of industry and community (Astarlioglu, 2012). Porter Downplay the Role of the State, Given the Historical Importance of the Developmental State in Industrialisation and Improving National Competitiveness Globalization means an increase of economic growth rates as well as it also discloses the competitive pressure of firms and economies. Porter in his analysis highlights the role of the state regarding the importance of the development in industrialization and national competitiveness. State plays an important role to enhance national competitiveness and industrialization. State plays the crucial role to increase the economic growth in numerous countries, which are important for the development of industrialization. The system of science and technology is also essential for improving the national competitiveness. State ensures an increase in the economic growth rate in the less develop countries through the development policy (Edigheji, 2010). Porter addresses that a state or national government should focus on the less development countries rather than developed countries to enhance the national competitiveness. For the development of industrialization, Porter suggested that government or state should influence the factor and demand conditions, because these two factors are very important for the national competitiveness. Demand condition is essential for the local demand of the product, so that the product can be easily exported to the foreign countries. In the diamond model, Porter addresses the six important determinants for achieving the competitive advantage and national competitiveness. States have to play an important role to implement these six determinants for the development of industrialization. State should influence the industry to improve the potential power to compete with the competitors to attain the competitive advantage (Martin, n.d.). Research & Development (R&D) base or support of the state should be more advanced and useful for improving the national competitiveness for the successfulness of an industry. States should focus on the effective policy to influence the attractiveness of an industry of less developed countries. States should also make some important changes, which can be effective for the development of industrialization. Global trade or globalization is another important aspect for national competitiveness. State pose new experiments for industrial as well as economic policy in developed countries for the better development of industrialization and competitive advantage (Kaplinsky, 1998). Factor and Demand Conditions Purely National in Their Creation Factor and demand condition are not purely national in their creation, which is the disagreement of the Porter’s diamond model. If both belong to purely national aspects, then it will be more benefited for Porter’s analysis. Factor and demand conditions are essential for achieving competitive advantage as well as national competitiveness. Demand condition belongs to the local demand of the products prior the products are transferred to a foreign country. Canada and Hong Kong have strong position in the global economy for their effective performance in achieving the competitive advantage. Canada and Hong Kong are two strong countries among the 10 countries, which are examined by Porter for ascertaining the national competitiveness (Gereffi, 2013). Globalization means the increase of economic growth rate and national competitiveness. Globalization can be possible through export, business expansion or trade to a foreign country. However, before exporting the product to a foreign country for trade that particular product should have local market demand and popularity. Local market demand is necessary for the popularity of a product. Multinational enterprise (MNE) also plays an important role for globalization as well as competitive advantage (Yamao & Fenwick, 2006). MNEs and Foreign Direct Investment (FDI) are the two way for the emergence of the market segment. These two are important factors for international market to improve the national competitiveness. Japan, Netherland and European countries form a strong home market for the national competitiveness. MNEs help in improving an organization of a host country, which is essential for competitive advantage and national competitiveness. Canada attracts FDI from many years for the development of the industrialization. FDI is required for the less developed countries to increase the economic growth rate of the country. MNEs and FDI influence Small and Medium Sized (SME) firms for obtaining better competitive advantage in the local markets. These two are helpful for emerging the market segment, which is one of the advantages of globalization as well as national competitiveness (Rugman, 2007) Conclusion From the above discussion, it can be comprehended that Porter’s diamond model is one of the important models, which contain national competitiveness of a country. This model observes the reason that some nations and industries within a nation are more competitive than the other nations and industries. Porter’s analysis of this model has been conducted on the basis of two factors that include analysis of nation and dynamic process. In this regard, ten nations are analyzed with the aim of ensuring that industries are having better competitiveness. Additionally, dynamic process has been adopted to achieve the competitive advantage. The six necessary determinants of this model important for national competitiveness include factor condition, demand condition, government, chance, supporting industries and rivalry. It can be observed that factors condition includes land, human and natural resources. On the other hand, demand condition is based on local market demand of a product. These two conditions are not related to the purely national. It has been recognized that government or state influences the factor and demand conditions for the competitive advantage. Innovation can generate competitive advantage by adopting the new market prospects. From the above discussion, it can be concluded that development theory is a theory, which provides information of the several stages relating to organizational development, child development as well as mind development. Development theory and Porter’s model is not same and there is some missing dimension in Porter’s model. The influence of national culture is one of the missing dimensions of Porter’s diamond model. Respectively, it can be ascertained that in the present globalized business scenario, organizations are needed to conduct operation with competitiveness for sustainability. In the respect, the diamond model is an effective tool based on which an industry can conduct operations effectively on a global context. References Astarlioglu, M., 2012. Moderating Effect of Porter’s Diamond Framework between Firm Strategies and Export Performance: A Conceptual Model. EUL Journal of Social Sciences, pp. 35-64. Bakan, I. & Dogan, F. I., 2012. Competitiveness of the Industries Based on the Porters Diamond Model: An Empirical Study. Competıtıveness of the Industrıes, Vol. 11, Iss. 3, pp. 441-45. Cho, S. D. & Moon, C. H., 2005. National Competitiveness: Implications for Different Groups and Strategies. International Journal of Global Business and Competitiveness, Vol. 1, No. 1, pp. 1-11. Davies, H. & Ellis, P., 2000. Porter’s ‘Competitive Advantage of Nations’: Time for the Final Judgment. 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