Porter and National Competitive Advantage - Assignment Example

Economic Project By Economic Project Porter and National Competitive Advantage i. Introduction The National competitiveness advantage focuses on the Global Market and the fight nations put in order to prosper amidst stiff competition. The competition propel the need for efficiency and innovation through R & D with the purpose of increasing market shares by offering competitive prices of quality products to consumers (Berger, 2008. p. 92). This is achievable through differentiation and penetration strategies with backup of invested resources, thus individual nations should focus on their strength and pursue the course. Competitiveness of nation is treated like a business entity and his success depends on the ability of the nation to attract, sell and make profit. The competitive advantage is propelled by the existence of the four corner model of the diamond which must all be present (i.e the factor conditions, demand conditions, supporting relevant industries and strategy models) (Grant, 1991. p. 538). The view of Yetton et al (1992.p. 90) offers a critic to the assumption of the diamond as a force behind competitive advantage of countries with relevant example of New Zealand and Canada. Assumption of diamond model is the presence of factors condition, which will include the basic factors that other nations can easily replicate thus reducing competitive advantage of a nation. For example, Porters take the assumption that factors revolve around technology and expertise, however with R & D, technology are easy to imitate and therefore may fail a sustainable competitive advantage. An example may be the U.S current oil production, which is hurting the Russian economy (Isidore, 2015). Another example is the U.S free trade, which saw China increase market share by bringing cheap product into the country (Palmer, 2012). The accusation against China is its currency manipulation to propel competitive advantage (Preeg, 2003. p. 267). If we take this example, we see that U.S though has strong technology and expertise it is actually falling behind track as China is threatening to become superpower state and offers product with low price. The demand factor assumes that high demand in the local market will lead to expansion to the global market however; this may not be entirely true since some product have low local demand leading to strategies to look for market in the foreign market. Example is the introduction of NAFTA to help export surplus agriculture trade that U.S was producing which had low local demand. The conclusion of Yetton et al (1992.p. 118) is of the view that Porters diamond theory is has no sufficient ground to address national competitiveness since it assumes that nations can be treated as corporations thus is more appropriate for firms than nations. The theory lacks tangible proof and the theory lacks dynamic approaches for other nations since the original focus was on the EU and U.S firms, which had prior diamond setting in place. ii. The report gives the insight of view that Supported and those that criticized the diamond theory. The supporters of the diamond theory saw that a nation could only perfect the local practice in the global market. For example, Mexico is one of the largest quality coffee producer who also practice a culture of coffee drinking for over 300 years (Everage, 2013). We can underpin its performance in the coffee global market to its local culture. When nations behave like companies they strive for growth and competitive advantage, which is achievable through R& D. Competitive advantage is seen as having a superior stand over competitors in aspect of quality product for competitive price that is timely delivered to the consumers (Li, et al, 2006. p. 111). To achieve this there is need for efficiency that will enable lean supply chain network. The U.S is known for its high corporate tax, which led corporates to migrate to countries with competitive tax. This was a strategy to increase competitive advantage, which other nations exhibited through low priced products like China. Low tax benefit is increased competitive advantage due to increased local competiveness (Hodge, 2011. p. 3). This examples support the diamond theory of competitive advantage whereby nations must operate like firms in the global market. By doing this, governments must equally provide incentives to promote local growth consequently leading to expansion in other foreign countries (M E Porter, 1990, ). Countries are also increasing the R & D to increase competitiveness. Technology is changing with an increasing rate and currently it no long holds sustainability for competitive advantage for example the mobile technology and automobile. The changing rate of models is increasing the cost of operation for organization, which must invest in a continuous and rapid innovation failure to which it will lack responsiveness to the changing market trends. Consequently, we see nations taking the initiative to promote technology and innovation incentives in order to maintain competitive advantage. However, some of the basic factors include climate and unskilled labor (Moon et al, 1998. p. 141) but technology is continually affecting the climate for example the global warming which is threatening competitiveness especially with an increased scarcity of raw materials. The result may be reduced labor force in a bid for strategizing for lean supply chain management. With consumer with low purchasing power, a nation may seek to lower their price to fit the needs of the impoverished. The consequence may be poor quality leading to low competitive advantage since as much as consumer seek low priced product they want quality. China has known reputation for poor quality (Ming, 2013) and unscrupulous deals like currency manipulation yet it affords to have huge market share in the global market (Leung et al, n.d). Low priced is considered a short-run form of competitive advantage since many other countries can also lower their price. However, quality is a long-terms sustainable competitive advantage. iii. National competitiveness is not a theory but a checklist that is a tautology. Yetton et al (1992.p. 118) claims that the so-called theory on National competitiveness and the diamond model lacks sufficient evidential support and the model was design for countries already with the diamond model in place and equally lacks dynamic strategies of dealing with challenges. The diamond model for national competitiveness can therefore fall under checklist to guide nations and firms on strategies to increase competitiveness in the global market. China boost of economic growth yet it does not focus on quality but low priced and despite the poor quality consumers are buying their products. The current global warming and technological advancement has enhanced the decrease in jobs in major economies. The purchasing power is reduced and China has come with a solution to offer affordable priced commodities to consumers already burdened with high standard of living. These changes the overall meaning of competitive advantage, which should be high quality product for competitive pricing, delivered promptly. U.S though has invested in R & D has high corporate tax, which may hinder local investment thus companies may shift manufacturing and investment to countries with competitive corporate tax that will allow them to offer competitive price in the global market. The research conducted by Porter in 1980s showed German, U.S and Japan to be leading states with economical muscle in the global market (Porter, 1990. p. 76). However, the current trend has shift and China is threatening to become a super power state (Ma, 2014). This means that China handled its economic activities well to get to its current state. BBC news reported that Germany is a country with workers working for lesser hours yet it boost of strong economy and yet it remains the best in the EU region. Their children equally spend fewer hours in the classroom (Anderson, 2012). This shows that there is more than the diamond model than R & D of nations. Germany balances the social and work environment hence energizing its citizen to provide efficiency in their operations. Porters diamond model lacked in committing policy makers in dealing with challenges hence the Germany use the application of the “TOWS Matrix” in its bid to maintain survival tactics of competitive advantage (Weihrich, 1999.p.2). The Matrix factors revolutionize how nations can cope with challenges they faced due to evolving global market this help to address dynamics of nations that Diamond model fails to address. iv. Late development theory Porter’s assumption is that the diamond theory will help to enhance competitive advantage of a nation. However critics view competitive advantage as lacking meaning especially when focused is on national competitiveness (Lall, 2001.p. 1503). The history of early development shows that nations were increasingly forming trade block to promote International market and to utilize their resources to as a means of developing themselves. Canada for example developed an immigration policy to increase human labor to help it grow its economy. There was also minimum competition. The case study of China, which has experience late development to becoming the world leading economy (Lo, 2003. p.7) emulates the gap left by Porters theory. His research had shown that Japan, Germany and U.S to be leading in economic strength Yet China is surpassing them. Germany has employed the TOWS Matrix to address challenges it was facing and currently has strong economy. The missing dimension in Porters model is failure to provide a discourse, which can be used to formulate policies to help steer growth. Germany for example provides less working hours for his citizens yet it has not interfered with their competitive advantage (David & Ellis, 2000. p. 7). v. The downplay of Porters on the role of state Porters is of the assumption that government should refrain be catalyst and refrain from involving in industry development (Porter, 1990.p. 86). Government may interfere with industry development through policies and handout (aid) which may result to detrimental effects. However, the government should steer economic growth. This is in conflict with the early development whereby governments had active role to play in shaping the future of industries through policies. For example, the current U.S corporate tax is too high thus affecting competitive advantage (Hodge, 2011). Government has a role to ensure the success of local industries. The purpose of Multinationals Corporation is creating new market in new locations. This may involve a new strategy like incorporating the culture of the indigenous in their marketing strategies. vi. Globalization and market conditions Factor and demand conditions are not purely national in their creation because as globalization takes place, companies may opt to venture into different market. In the case of Hong Kong, the businesses run are largely influenced by economic factors in other countries such as Canada, USA and Europe (H G Schroter, 2005). Here, companies owned by western companies have moved their production stations to Hong Kong, China, since the cost of production is considerably lower than that in Europe. It emerges that the factors are not purely nationalistic. Vii. Conclusion The diamond’s model assumes that there purely based on the laws of demand and supply. However, current globalization issues pose a different platform here the models sometimes, do not apply. Since the basic factors are largely based on the land, energy and the infrastructure of a country, the cost of production can largely vary in relation to the basic factors of n that country (Chandler, 2009). The case of China and The USA are elaborate examples. It can therefore be concluded that in the current world, Question 2 There is some faded light on how global multinationals and TNCs are because of the differences in the rate at which they make direct foreign investments and their returns. Below is a discussion that gives light to the afore-mentioned argument, reveals the power that various influencers of cross-border trade have and reviews literature on the transnational corporations and globalization in general. Porter gives light on the notion of national clusters and the geographical locality of business and how they fit with the ideas of globalization and footloose international capital (Teece, 1996). Porter asserts that globalization has brought about the expansion and diversity of businesses across the globe. Reich also asserts that globalization has not yet taken root in all countries, given the different levels of technologies that exist in different countries. Similarly, Ohmae claims that there is a negative impact brought about by globalization such as foreign exchange risks whereby businesses operating in foreign countries face loses due to difference in currency strengths. For example, Tetra Pak trades in Africa and they get very high returns because of the currency weaknesses inherent but greater resources (Mahoney, 2009). Not all multinationals are truly global, considering the fact that some still have not exploited trade in other foreign countries fully. Some multinationals have not really diversified their operations because they have limited their operations to specific regions of the world. According to Rugman, some multinationals such as Unilever have invested more into Europe and Asia. This is ascribed to the fact that these continents are endowed with enough and skillful human labor (Morgan, 2005). Transnational corporations have greater control of cross-border commerce because of a number of reasons. However, the main reason as to why they have greater control is that they have a huge financial standing that enables them to meet even strict international business regulations. Foreign Direct Investment continues to grow because of the increased globalization and viability of businesses in foreign countries. Further, the TNC subsidiaries are replacing the exports from their home country because of their increased investments I the home country and large share of the respective home markets. Lastly, inter-trade is becoming increasingly important because of the need to exchange the different resources endowed in different countries (Chesbrough, 2006). Footloose industry businesses are international to a high extent because they cannot be tied down by factors such as location or transport. The extent to which they can be controlled by the nation states is low simply because most of these industries are high-tech, meaning that every nation would want such business in their region so as to improve technologically. Comparative to TNCs, footloose are weaker because of the higher financial standing that’s exhibited by TNCs as compared to the footloose industry. These ideas are related to international division of labor in that whereas TNCs are concerned with main global consumer goods, footloose industry is concerned with technology products as Ohmae states (Dicken, 2003). The advantages that TNCs and other international businesses accrue from the operating in specific nations highly influence their operations. This is because the larger the advantages these TNCs and international businesses get such as cheap labor and customer loyalty, the better their financial standings become and hence more business operation enhancement. World Trade Organizations and other Intergovernmental Organizations play an important role in international business in that they provide standard regulations and agreements between countries that enhance international trade. Similarly, international chambers of commerce play an important role in the international business because they also come up with friendly and favorable business regulations. This is similar to standards agencies and other NGOs (Coe, 2008). The paradox that trade and FDIs occur because national systems and clusters have varying strengths and specializations that raise productivity but require exchange is true. This is ascribed by the fact that in order to improve productivity, the clusters and national systems need to do exchanges that will facilitate full exploitation of resources because of specialization. In conclusion, it is true that TNCs and other multinationals have become global, considering the fact that globalization has made it easy to make Foreign Direct investments. In order to promote the international and cross-border commerce, IGOs, WTOs, international chambers of commerce, standard agencies and other NGOs are involved in cross-border regulations and trade (Hesse, 2004). Question 3 Governments have the ability to influence their economic relations through various ways such as promotion of free trade areas, reduction of tax and other cost regulations, protectionism and other industrial policies. However, there are factors such as technology, R & D policies, IGOs, WTOs and free trade agreements that have reduced the level to which governments can regulate their economic relations. The discussion below gives light on the above-mentioned scenarios (DEMAIN, 1999). Market based policies and globalization has constrained the ability of governments to influence their national economies. Market based policies are those policies that are developed by bodies such as international chambers of trade, standard agencies, IGO, and WTOs. These policies cut across all the international businesses carried out in various countries. Despite of the prevailing conditions in a certain nation, there are market based policies that cannot be changed or bent by governments in control of their economies. Similarly, globalization has brought about the free trade area whereby cross-border trade takes place easily, leading to either massive benefits or adverse effects. The effect of such effects is that it becomes quite hard for governments to control their economies (PUBLICATION, 2013). Protectionism and non-market policies have declined in usage because of a number of reasons. To start with, these methods of regulating cross-border business do not take into consideration, certain factors such as the advantages that a nation can accrue as a result of international trade. It follows that the methods were never effective since they have not evidently worked for any country. As a matter of fact, they have led to the reduction in the business strength of nations. WTO, IGOs and free trade agreements play a key role in regulating economic relations between different states. They do this by establishing agreeable policies and trade regulations that govern trade between different states and in the making, they effectively control cross-border (Low, 2011). Education and training policies cannot be said to have very substantial outcomes but this is however, not exhaustive. Offering education such as business, entrepreneurial and innovative knowledge gives people a background from which they can establish their own businesses and thrive therein. Further, it is education that sees the key business people thrive to greater heights, to extents of doing cross-border trade. Similarly, training has positive impacts on the subjects on which it’s carried on. For instance, investors get trained on the effective business strategies to employ say, in carrying out foreign direct investments. Therefore, it’s right to say that education and training have positive outcomes in the business world (Alfred Dupont CHANDLER, 2009). Technology and R & D policies have gained importance over time because of the advantages that they have proved to present to trade. Firstly, technology is key in business in that technology allows for effective communication, decision making processes, human resource management and other key management practices. Additionally, technology enhances more production with the same existing resources. Similarly, R & D policies enhance the embracement of new ideas that when incorporated in business, lead to increased performance. It is therefore, right to affirm that the two have increasingly become important because of the benefits that they present (M A Witt, 2008). Industrial policy and developmental state in the major cause of the difference that’s occurring between states. This is linked to the fact that various industrial policies of different countries coupled up with their respective developmental states lead to different outcomes. The reason as to why this scenario is existent is because different nations have different approaches to making of their industrial policies and developmental states. However, their use has declined because of their negative impact on diversity and openness to new, more viable performing trade practices (S A Hipsher, 2007). In conclusion, the protectionism and non-market policies have been unveiled to be ineffective, not to mention their effect on the level to which governments can regulate their economic relations. Further, education and training have been seen to have positive impact on trade, either within borders or across borders because of the knowledge and skills that they impart onto business heads. It is also worth to note that technology and R & D policies have become more important because of the positivity in terms of economic impact that they possess. Lastly, industrial policies and developmental states are the reasons for the differences between the economic states and relations between different states. Question 4 Chandler was a scholar who came up with a number of theories and postulations regarding management of corporate organizations. One of the theories he passed along was the strategy follows structure theory that shows the relationship between strategy and structure. However, there are other topics such as level-dependent management that vary from chandler’s model, yet they give an understanding to other nations and more recent management trends (S.Kuznets, 1996). Chandler’s theory ‘Theory follows structure’ (1962) is the theory that shows the relationship between strategy and structure. Chandler says that a given structure gets created so that a particular corporate strategy can be applied, with regard to the specific structure in order to attain certain goals. He goes further to assert that national patterns of managerial enterprise arise from the nature of the business structures that are developed and the corresponding strategies that are employed in return. The national patterns of managerial enterprises are highly dependent on the trending corporate structures that are created and therefore, Chandler asserts that it is through the structures that the national patterns arise. In the 20th century, such kind of understanding was important because of the need to structure business organizations into structures that favor easy management styles and patterns (D.C.North, 1990). This is attributed to the fact that in the 20th century, the corporate world was undergoing a revolution in terms of management strategies and styles that were cropping up. In effect, there was need to improve the management styles being used and hence chandler’s theory was crucial. Chandler’s analysis is best suited to the U.S and to the decades before the 1980s. This is because the U.S is the nation that underwent remarkable changes in terms of corporate structures, dating back to the decades before the 1980s (Chandler, 2009). 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