The UK, the US, Japan, Germany and China National Competitive Advantage - Case Study Example

National Competitive Advantage Table of Contents National Competitive Advantage Table of Contents 2 Introduction 3 Theory revisited: Porter’s modelof National Competitive advantage. 4 Comparison between UK, US, Japan, Germany and China 5 Summarising the analysis 8 Conclusion: Critics of Porter’s model 9 Reference 10 Bibliography 13 Introduction In today’s competitive business environment gloablisation is taking place at a rapid rate; trading barriers have been diminished as organisations are increasing their cross border transactions. More and more organisations are looking forward to expand their businesses in foreign countries which would fetch them a competitive advantage in the long run. However before going for any expansion in any foreign country, the organisation would need to select the country of its choice. The selection would, however, depend on the competitive advantage of the business environment in those respective nations. The necessity has given birth to this report. The report starts by specifying the need of competitive advantage analysis of different nations. For the analysis, five different countries have been considered including UK, US, Japan, Germany and China. An in depth analysis would be done to compare these countries by using Porter’s model of National Competitive Advantage. Analysis has been carried out to evaluate if the model of National Competitive Advantage adequately accounts for the variations in national business systems and the respective economic performance. A summary of all these analysis have been provided to get a better insight of the facts and comments with which the conclusion is inferred. The conclusion considers further necessary research works on this topic with a critic on the same, which are required to be carried put in near future. Overall the report aims to investigate into the implicational domain of Porter’s National Competitive Advantage model through a comprehensive comparison of the competitive advantage of those five countries. Theory revisited: Porter’s model of National Competitive advantage. As argued by Michael E. Porter, any nations can create competitive advantage by endowing it with new economic factors and providing a conducive business environment. Porter introduced a diamond shaped can be better written diagram to exemplify the determining factors of national competitive advantage. The framework provides the national business environment that has been established for their industries. The success of a nation in achieving the proper business environment for a particular industry depends on four broad attributes, which promote the creation of competitive advantage (Porter, 1990). The attributes are articulated below with a brief discussion on each of the factors. Factor Conditions These factors consider the conditions in a country to enhance the production, as skilled labours, infrastructures which are relevant to a specific industry. All these production factors can be segmented into different resources including human resources (labour cost, qualification and experience level), material resources, capital resources and infrastructure (Recklies, 2001). These conditions also consider determinants like research quality in the universities, deregulation of the labour market, liquidity state of the national stock exchange. So, different countries can have excellence or better environment in several distinct factors related to the specific industries. Demand Conditions These conditions describe the demand for the products produced and the services offered in the country. The demand conditions are the influential factors involved to shape up specific factor conditions. With reference to Porter, there major characteristics are the determinants for the demand presiding in the country (Recklies, 2001). Related and Supporting Industries The presence of supplier and other supportive industries for a particular industry can make any country to be competitive enough in the global market. This means that one successful industry in country can lead to other related or supportive industries (Recklies, 2001). These successful supportive industries would add value in the value chain to reinforce innovation and success. Firm Strategy, Structure and Rivalry Studies have revealed that a nation can have different conditions governing the creation, organisation and management of the companies. The nature of rivalry in a country is also an influential factor to shape up the status of the national business and economic environment. Comparison between UK, US, Japan, Germany and China This analysis part takes each and every factor described in Porter’s model of National Competitive advantage and for each of them comparison has been carried out for the business and economic environments of the above mentioned countries. At last the whole comparative analysis has been summarised to have a better insight into the aspects. Factor Conditions Innovation has been the strength of Unite States and hence the nation is quite rich in science, technology, research and development. Japan, too, has made its presence in the space of research and developments. China is also trying to ride the ladder. The big firms in China like Datang, Huawei are shaping up their core competence based on their intensive R&D (Gao, 2002). However, still now, China’s strength lies in the reverse engineering of the existing products. The evidence lies in the fact that US is the holder of highest number of patents, next comes Japan. Germany and UK respectively have followed the row. China has scored lowest with 26.97 % of the number of patents, held by United States (Porter, 2009). Regarding the availability of labour force, as in 2009, China has the highest number of labours worldwide. United States, too, has quite a large labour force and is ranked fourth in labour force figure. Among these five countries, United Kingdom possesses the lowest number of skilled labour force (Central Intelligence Agency, 2009). China is known for its low cost of labour; that is the reason the country is able to produce cheap products mainly for the outside markets. The weakness of Germany lies in its inflexible labour market. US capital markets is one of the leading capital markets worldwide, however the market has been affected by the current uncertainty during the recession time. The economy is quite decentralised in there with lot more flexibility and dynamism in the US economy (Porter, 2009). UK is also known as the leading global trading power (Central Intelligence Agency, 2010). In UK, the government is mostly supporting the organisations and has reduced the public ownership to a great extent. Even in Germany, the government has introduced stabilisation efforts and tax cuts to supports the industries in there. One of the most important competitive advantage of Japan is the nation is taking an active part in the enhancement of the local infrastructure (Porter, 2002). Demand Conditions Germany has a demanding domestic market which has created a positive business and economic environment in the respective country. The country has huge demand for machineries, vehicles, textiles, metal and manufacturing stuffs. The country ranked third in its export amount to the other countries (Central Intelligence Agency, 2010). UK market has a huge demand for fuels, manufactured goods, chemicals, beverages, tobacco and food stuffs. The reserve of oil, coal and other natural gas resources in UK are declining, giving a raise to the energy demand (Central Intelligence Agency, 2010). US imports capital good like computers, motor vehicle parts, and electric power machinery and telecommunication equipments. So US market has a good demand for all these products. Apart from these, the market for automobiles and other consumer goods is also large enough to have more demand in these domains. Japan is technologically enriched and has huge demand for the technical products. Apart from it has an enlarged market of machinery and equipments, chemicals, fuels, food stuffs and textiles. China also has a huge market for electrical and other machineries, fuels and organic chemical. As the population in China is much more than the other countries, the market is spreading quickly in that country. Related and Supporting Industries China has been the host of large number of industries including mining and ore processing, iron, steel, textiles, electronics goods, automobiles, air craft, satellites and other commercial space launch vehicles (Central Intelligence Agency, 2010). Japan is very much involved in nurturing local suppliers and attracting investments from new suppliers (Porter, 2002). Japan is one of the leading, largest and technologically advanced motor vehicle producers. Apart from these the country has one of the best electronic equipments, chemical, textiles and processed food industries. All these industries have the potential to be the base of some new industries in those respective countries. Germany is one of the leading producers of iron core, steel which can be the base of many companies which use iron as their raw materials. These companies can include machinery producing companies or companies involved in manufacturing parts of vehicle parts. UK is a leading power in the production of machinery tools, railroad equipments, metals, chemicals and consumer goods. United States is much enriched with its production of petroleum, steel, chemicals and mining etc. So companies, using petroleum as their raw materials, can get better resources in Unites States. Firm Strategy, Structure and Rivalry Unites States is a place for entrepreneurs. As more and more countries are looking at US to expand their business the rivalry is quite high with and decentralised structure. China and Japan, both are developing countries and their pace of growth is on higher side. No doubt that the global companies are looking at these regions to make the most out of these markets. As a consequence the regional markets are getting highly competitive. The business environment is crucial to enhance the competition. However, recent economic downturn has encouraged rivalry in several industries in different regions. Due to recent downturn, the automobile industry in Germany has seen a drastic decline in their product demands. This has raised a rivalry among the players in that industry, which has led to drastic cost cutting as well as providing discounts to the customers. So not only the business environment, even the economic environment of the countries can shape up the strategy and rivalry of the firms in that respective regions. Summarising the analysis China and Japan has been the recent attractions in the global business market as these nations have enhanced their competitive advantage to attract more and more industries to their countries. Both the countries have been the leading industry sector in electronics equipments. Japan’s strength lies in its innovation, private investment, local infrastructure, enriched research and educational institutions and trade associations. China has got its biggest strength in its cost effective business environment. Innovation, Entrepreneurship, free competitive environment, decentralisation of the economy has led United States to be the host of dynamic and flexible business environment. However there are certain factors, which can go against the country. These include the unnecessary business costs and highly complex tax systems. UK has been the host of many financial services and other companies for its enhanced trading environments. The classic weakness of Germany is in its inflexible labour market, limited capital markets and the long licensing procedures (Federal Ministry of Economics and Labour, 2004). On the other hand the strength of Germany lies in the automobile companies, well trained labour market, demanding domestic market and competent research institutes (Federal Ministry of Economics and Labour, 2004). However both the countries need to work on their respective weaknesses. The classic weakness of Germany is in its inflexible labour market, limited capital markets and the long licensing procedures (Federal Ministry of Economics and Labour, 2004). Conclusion: Critics of Porter’s model A recent study has argued that flawed government policies can arise due to the abstraction provided in Porter’s model. The governments can mistakenly consider the macro factors as the only factors behind the success of an industry and ma introduce policies to support the same. However the root can be placed at its micro level, within the individual firm or precisely in its managerial practices (O’Shaughnessy, 1996). Porter’s diamond model of National Competitive advantage does not consider the issues, which may arise in the micro level. Hence the government, even, is undecided between the issue of involvement and non involvement. Blaming the economic, social and government policies is abundant, if the industry specific issues do not get resolved. Some innovations such as the innovations regarding the organisational and managerial structural have nothing to do with the national culture, but still these are crucial while zeroing down on a specific country. Reference Central Intelligence Agency. March 4, 2010. Country Comparison :: Labor force. [Online]. Available at: https://www.cia.gov/library/publications/the-world-factbook/rankorder/2095rank.html [Accessed on March 24, 2010]. Central Intelligence Agency. March 4, 2010. United Kingdom. [Online]. Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/uk.html [Accessed on March 24, 2010]. Central Intelligence Agency. March 4, 2010. Germany . [Online]. Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/gm.html [Accessed on March 24, 2010]. Central Intelligence Agency. March 4, 2010. Japan. [Online]. Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/ja.html [Accessed on March 24, 2010]. Central Intelligence Agency. March 4, 2010. China. [Online]. Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html [Accessed on March 24, 2010]. Central Intelligence Agency. March 4, 2010. United States. [Online]. Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/us.html [Accessed on March 24, 2010]. Federal Ministry of Economics and Labour. 2004. Economic Report. [Pdf]. Available at:http://www.isc.hbs.edu/pdf/Wirtschaftsbericht-2004-english.pdf [Accessed on March 24, 2010]. O’Shaughnessy, J., N. 1996. Michael Porter’s Competitive Advantage revisited. [Pdf]. Available at:http://www.business.ulster.ac.uk/intlbusiness/courses/bmg900m1/OShaughnessy.pdf [Accessed on March 24, 2010]. Porter, E., M. April15, 2009. The Competitive Advantage of Nations, States and Regions. Available at:http://www.isc.hbs.edu/pdf/20090415_AMP.pdf [Accessed on March 24, 2010]. Porter, E., M. December 4, 2002. Can Japan Compete? [Pdf]. Available at:http://www.isc.hbs.edu/pdf/Japan_12-04-2002.pdf [Accessed on March 24, 2010]. Porter, E., M. 2010. Competitiveness in the Post Crisis Era: The Strategic Agenda for the UK. [Pdf]. Available at:http://www.isc.hbs.edu/pdf/2010-0222_Global_Investment_Conference.pdf [Accessed on March 24, 2010]. Recklies, D. October, 2001. Porter’s Diamond – Determining Factors of National Advantage. [Pdf]. Available at: http://www.themanager.org/pdf/diamond.pdf [Accessed on March 24, 2010]. Bibliography Porter, E., M. On Competition. United States: Harvard Business Press, 1998. Dicken, P. Global Shift:mapping the changing contours of the world economy. London: Sage Publications Ltd, 2007. Porter, E., M. The Competitive Advantage of Nations. London: Macmillan, 1990. Read More