Porter's Model of National Competitive Advantage in Explaining Workings and Achievements of Nation - Essay Example

International competitiveness of different countries is a great concern on governments and organizations. Countries do their best in order to ensure that they remain competitive in the international market. The interest on the competitiveness of countries has led to debates on the understanding and the true meaning of the international competitiveness of different countries. The purpose for the debates is due to the assumptions that underlie the theories of management that the competitiveness of firms may be transferred to countries. This was popularized by porter according to his diamond framework. Corporate strategies should be looked at from a global context. In spite of any given organization not having any plans of exporting or importing any goods directly. The management team of the organization is supposed to consider the international environments. This is because the action that the different organizations make on such issues as the competitors, sellers, buyers, substitute providers and the persons joining the market usually have a great influence on the domestic market (Noe, 2012). Michael porter came up with a model that may be used to analyze the reasons as to why some nations may be more competitive compared to others and some given industries may be more competitive within a nation compared to others. This model may be used as a factor of determining national advantage and it is mostly referred to as the Porter’s diamond. The model suggests than an organizations national home base plays a great role in defining the extent that the organization is likely to be successful in the global scale as well as having a competitive advantage. The home base is able to provide some basic factors that may act as support for success and may at time hinder some organizations in building advantage grounds in a global competition. This model distinguishes four different determinants. The first determinant is the factor condition. This is the situation in a given country based on the factors of production such as infrastructure and skilled labor which may be relevant to make the country competitive in some industries. These factors may be placed in groups that include human resources, material resources, knowledge resource, infrastructure and capital resources. These factors also include research quality done by universities, liquidity of the national stock market or deregulation of the labor market. These factors may provide some advantage in the market and may act as a competitive advantage. The second condition is the home demand conditions. This condition describes the amount of home demand that the services and products produced in a given country are demanded within the country. The demand at home may influence the factor conditions. It helps shape the direction that the product development and innovation take. This model states that the demand within a country may shape the competitiveness of the country in the global market. The third condition is the supporting and related industry. When a country has one industry that is successful, it may reinforce internationalization and innovation in the industry at a later stage on the value system (Wilfred, 1997). Both the supplying industries and the related industries play a great role in a country’s competitiveness. These industries may coordinate some given activities together in the market, especially those that are related, which will in turn offer competitive advantages (Starbuck, 2008). The last condition is the structure, strategy and rivalry of the firm. In different nations, some factors such as management structures, interaction between companies and working morale may be shapes differently. This may provide some disadvantages and advantages for particular industries. The objective of different organizations and the commitment of the employees are of great importance. These factors are influenced by the control and ownership of the organization. The competition between industries in a country is of importance since it provides an equivalent base in the global market. The critics of Porter’s diamond as a system that is interactive may be viewed from two different perspectives. These two perspectives include the management view and from an economic point of view. Criticisms of the home diamond by the management view suggest that it does not take into consideration the largest trading partners of a country. It may not be applicable to the smaller nations in the world and it ignores roles played by the multinational organizations that influence the success and competitiveness of different nations in the world’s market (Wilfred, 1997). There have been suggestions that the diamond should include the attributes that the largest partners in trading of a country have. Within the double diamond approach, it is demonstrated that the competitive strength of a country depends on the foreign and domestic diamonds. Management of different domestic firms should ensure that they put into consideration both diamonds in order to become and remain competitive in the global market. The approach of double diamond has led to the generalization of the multiple diamonds and double diamond approaches and may be viewed as an adjustment and extension of the earlier single diamond model. The extensions made different attempts of explaining competitiveness on a global level of less industrialized or smaller countries. Criticisms from this point of view look at the Porter’s diamond as having a thesis or countries competing against themselves (Huggins, 2011). The Porter’s view about the new trade and the traditional theories are not adequate to the patterns of modern trade has been able to result to more criticism from the economists point of view. They ague that the diamond model may be so general since It tries to make explanations on all the aspects of competition and trade which lead to it ending up to explain nothing. They argue that it is not able distinguish between facts, conjectures, theorem and hypotheses and as a result it is not able to proceed in proving its points. The irony in it is that it is very general which makes it to be accepted generally in the literature of management. The contribution of the work of porter was to explain the different patterns of investment and trade in the economy of the world better than those theories that were already in place that concerned investment and international trade. The view described by this theory contrast with the view of other theories. Specifically, they criticize the analysis of Porter and say that it is not satisfactory since it has no core theory. His theory does not have the power of prediction and it contains a partial equilibrium which may lead to misinterpretation of new and traditional theories. The relationships that national welfare, competitiveness, exports, trade and productivity are wrongly interpreted and misunderstood. On the other hand, whereas the new and trade theories explain trade, these theories do not give an explanation of the factors that determine different international country’s competitiveness. Porter also developed his study based on studies which tend to apply to the developed countries only. The diamond model does not explain the different ways in which countries that are not developed may achieve an improvement in the global market. His studies do not advice less developed countries on the different ways to develop and get to the level of the already established countries. It helps the developed countries understand the different ways to invest on their recourses to become competitive in the global market. There is ample evidence that show that the diamond model is greatly influenced by different factors that are outside the country (Blanchfield, 2011). There are differing factors in which demand conditions arise. There are different bases according to the theory that may make a country competitive in the global market. There are different factor that provide a base for a country to improve in its activities and national competitiveness. The major base that a country may have is having a large presence of industries in an area. When a country has a good presence of industries, it may have an increase in the supply of some very important factor of improving and becoming successful in the global market. They may get factors such as training and this is to their advantage since the trained personnel mean higher returns and it may have less risks of lacking workers. A country with good industries may use this as a base to improve their competitiveness in the market. This is because the more the industries improve in their productions and trades, the more their competitiveness improves. This may leads to a country gradually improving in its activities such as its exports and imports and may end up being among the best such as Germany (Fizel, 2012). When different industries come together, the base they form for a country is very strong. The government should as well play its part in supporting these industries. When the industries come together, they help in supporting each other and improve the quality of production. Once the quality of goods and service are good, the exports of the goods and services will as well improve. The government on the other hand plays an important role in improving a country’s competitiveness in the global market. The different industries in a country are supposed to be financed by the government so as to boost their production rate. An example of a successful and competitive country is Germany. It is a competitive country in the global market. This is because it is able to combine different economic activities which make it do well economically. This base of performing well came about by smaller industries coming together and motivating each other to improve. These led to the production of better services and production of quality goods (Amecon, 1992). The competitiveness of a country is also determined by the national factors. These factors include the demand conditions, support from other industries and the support from the government. For a country to be successful, it should have a strong base. It should acquire all the resources that its industries need in order to gain a sustainable competitive advantage. How these resources are utilized with the different industries determine the competitive advantage that the country will get. The resources obtained by the country are mostly tradable in the markets unless the market has more power over the resources. The resources that a country has may be the competitive advantage on the market. The resources should be fully utilized to form a strong base for a country to be competitive in the global market. In the latest work of Porter, it focused on an approach that was more micro with the regard he had on the diamond framework. In this theory, he was able to shift his emphasis to productivity of the different location which may boost firm’s competitiveness. A country should use these location to boost their production since higher production yields greater levels of welfare. This does not mean that a country shall automatically become competitive internationally. This is because that kind of production is a domestic type of production which is not related to international competitiveness. This theory tries to explain how countries may use these competitive advantages to improve on their competitiveness (Robbins, 2005). The state and government play a great role in the competitiveness of any country. The modeling of a country’s trade in an oligopolistic market has resulted to countries placing industrial targets where the government policies may play a great role. At such time, the government policies may be able to shift profits to a domestic organization from a foreign firm. This may result to a country getting national gain and profits at the other countries expense. Since this model support the mercantilist idea, they were able to make this idea argumentative in a policy perspective. It was able to strengthen the different countries compete for a fair share of the world market. The governments of these countries play a great role in ensuring that it is possible and that their countries have been able to get their share. This shows that the government plays a part in the international trade. The government helps in ensuring that different firms are able to access the global market. Once they are able to join the market, the government offers different kinds of support to ensure that the firms remain competitive for better returns. The condition of factors and demand are not purely national. This is because demand may be both national and local. Local demand helps the industry in a country grow. The increase in demand helps the industries grow to grater heights. The more the industries grow, the easier they are able to be internationally recognized. This leads to demand increase from other countries and makes the country get into the global trade easily. The conditions of factor and demand may not be considered to be purely national (Botten, 2008). Economic globalization may be accepted generally in order to imply the independence in growth of economic and location units across regions and countries. The changes in technology and increase in significance of the multinational enterprises (MNEs) may often be cited as being the primary forces of that drive this process. The MNEs play a great important in global trade and encourages the flow of knowledge across borders. It is very important to take note that MNEs have a number of options in which different types of innovations develop and how they are able to diffuse across the national borders and among which the FDI is one of the options. The other ways in which knowledge flow in international levels include licensing, trade, international technologies, cross patenting activities and scientific collaboration. The reason as to why a number of countries and governments would like to attract FDI includes the flow of information. If a government attracts inward FDI, it may be able to receive a lot of information about the market at a faster rate. This may help it react quickly to any changes in the markets and may be a source of a lot of profits. Information about the market is one of the key factors of a successful international trading and attracting inward FDI would encourage this (Taussig, 1997). There are different theories that exist which suggest different ways in which a country may be successful in the international markets. Porter’s diamond theory was one of the theories that describe how countries may use their resources in order to gain an advantage in the competitive global market. This model may be used to determine the national advantage of a given country. The model emphasizes on having a strong base for trading. A strong base may helps a country in becoming successful and have a competitive advantage over other countries. The theory suggests that the base may contain factors such as resources and great investment. Porter’s work was criticized by a number of researchers. They emphasized that Porter’s work was too general. It was argued that he was not able to give enough fact and that his facts were too general. They also argue that his work was based on already developed countries. He did not consider the less developed countries and what they should do to be competitive as well and join the world market. Most countries are interested in inward FDI so as to get information about global market easily. Information plays a great role in ensuring that a country remains successful in a global market. The different theories play different roles in explaining international market. Bibliography AMECON., MARITIME ENGINEERING TRAINING RESEARCH CENTRE, VICTORIA. DEPT. OF MANUFACTURING AND INDUSTRY DEVELOPMENT, & MARITIME TECHNOLOGY 21ST CENTURY CONFERENCE. (1992). Maritime technology 21st century: 1992 conference : book of proceedings. BLANCHFIELD, D. S. (2011). Management encyclopedia. Detroit, Mich, Gale. http://find.galegroup.com/gvrl/infomark.do?type=aboutBook&prodId=GVRL&eisbn=9781414487397&version=1.0. BOTTEN, N. (2008). Management Accounting Business Strategy. Burlington, Elsevier Science & Technology. http://public.eblib.com/EBLPublic/PublicView.do?ptiID=548885. DESS, G. G. (2012). Strategic management: text and cases. New York, McGraw-Hill/Irwin. FIZEL, J., GUSTAFSON, E., & HADLEY, L. (1999). Sports economics current research. Westport, Conn, Praeger. http://public.eblib.com/EBLPublic/PublicView.do?ptiID=494809. HUGGINS, R., & IZUSHI, H. (2011). Competition, competitive advantage, and clusters: The ideas of Michael Porter. Oxford, Oxford University Press. NOE, R. A., & NOE, R. A. (2012). Human resource management: gaining a competitive advantage. New York, McGraw-Hill Irwin. ROBBINS, S. P., & COULTER, M. K. (2005). Management. Upper Saddle River, NJ, Pearson Prentice Hall. STARBUCK, W. H., HOLLOWAY, S., WHALEN, P. S., & TILLEMAN, S. G. (2008). Organizational learning and knowledge management. Cheltenham, Glos, UK, Edward Elgar Pub. TAUSSIG, F. W. (1997). International trade. New York, Macmillan. Read More