Porters Model on National Competitiveness - Essay Example

? National competitiveness affiliation National competitiveness Porter’s model on national competitiveness is convincing enough to the fact he presented in his arguments. His approach in determining the national competiveness difference in countries he uses factors that can be proved by proper analysis of the international market (Siggel, 2006). The countries he mentioned as the global leaders in competitive advantage have been proven to be leading in exports across the entire global. These are the United States, Japan and Germany. These claims can be greatly supported by international business analysts. The claims are based on the total percentage of the entire exports across the entire globe and their relation to the three nations (Hill, 2009). This is an evidence of how Porter created a convincing analysis on his view on national competitiveness. In explaining the national business systems, Porter analyses national business systems by reviewing their input in the global market. He argues that the more exports a nation make the more significance it has in the global market(Thompson, 2004).This way of reviewing national business systems is preferable when comparing the output of nations in the global market. According to Thompson (2004) this method may be however, biased since not all national business systems are based on exports. The author further argues that they are nations with greater G.D.Ps and have very stable economic systems and they have less input in the international market (Thompson, 2004). In using porter’s way of analysis such nations lacks the international standard of competitive advantage. This assumption has created a Porter system that only recognizes the financial stable nations on the global market (Uchida & Cook, 2005). Porter uses the national diamond to show the influence of nations to their local companies. The influence and pressure from a nation will be a great determinant on whether or not the organizations attain an international competitive advantage. Nations provide support and resources to specific countries which then generate outstanding products and income. However, analysts argue that this diamond structure is usually biased depending on mutual agreement by both parties. For instance, an organization may enter into a deal with a government to share a certain percentage of their profits in exchange for support and resources. In such a scenario the market becomes unbalanced (Smit, 2010). However, this strategy is used by states to strengthen their international market significance. In an argument by Smit (2010) the greater the significance in the international market the greater income through partnerships and revenues. The author further argues that, state governments use the national diamond to help the nation gain greater competitive advantage in the international market. This automatically raises the economic status of an organization. In support of the national diamond strategy, Porter claims that it improves specialization and the quality of goods produced in a country (Schott, 2004). He gave an example with Denmark and its influence in the global market in terms of export of insulin. The Danish government has significantly alleviated the production of insulin and treatment of diabetes in the country. It has provided resources, diplomatic and economic support for this project (Peng, 2009). The impact of this move is significant to the whole industry. Denmark is the leading exporter of insulin in the globe. Minus the support from the government this achievement would not have been possible (Peng, 2009). In Holland there is a premier research institute which focuses on cultivation, shipping and packaging of flowers. This project is almost a sole project of the Holland government that is supplied with resources and labor from the body. After this intervention Holland has become the leading exporter of flowers in the globe (Salvatore, 2002). This shows how great significance government support is on an organization. However, Porter argues that the national diamond system kills innovation and creation of new ideas (Smit, 2010). This is because the supported these organizations are supplied with more than enough resources and raw materials. Additionally, there is the supply of ample labor and quality labor incentives. This makes access to labor not a hard factor to achieve. With such easy exposure, Porter argues that the organization only focuses on the end and not the means (Schott, 2004). On the other hand, organizations with no government support have both invention skill and remarkable creativity but lack the exposure to gain an international competitive advantage. Regardless of this shortcoming the national diamond system has propelled thousands of companies to international success. National competitiveness cannot be determined by generalization of trade factors. Each nation has its own way in which its national competitiveness in determined. In an argument by Porter (2004) national competitiveness is greatly influenced by the international trading standards. However, internal practices are also greatly determinants of the level of national competitiveness of a nation. The success of internal practices also differs in different nations. For instance, a nation like Germany has high wage levels for its human resources which are greatly attributed to its success in the international market. Comparing Germany to nations like Mexico and India, which have low wage levels for its human resources and still struggle to gain significance in the international market. According to Schott (2004) if Mexico and India raise their national wage level to a level at which Germany is, the two nations would be facing a severe economic crisis. The same sentiments are reiterated by Sigel (2006) who argues that the level at which a nation can range its internal economic status should be well formulated on the both the history and current economic situation of the nation. To support his argument, he argues that nations like Germany have been in the international market since the end of the Second World War. On the other hand India has been barely active in the international market. This difference creates the gap between the successes in the economy between the two nations. In regards to German chemical companies, their based on national diamond strategy, internal economic strategies and their long existence in the national market (Salvatore, 2002). According to Shott (2004), German chemical companies are viewed as government’s projects. This makes them have access to extra resources and raw materials. This fact has made the companies outstanding figures in the country’s economy. The nation greatly depends on the exports made by these organizations to raise their annual G.D.P. According to Hill (2009) this fact has made the German government inclined to provide support for these companies. In words by the World Economic Forum (2008) the base set by the government on these companies is strong enough to ensure the chemical companies gain a much superior international competitive advantage over their competitors. The author further argues that the fact the companies have cemented the international market significance as leading exporters has made the companies gain global recognition in the global market. This on itself is a base set by the quality of products supplied by German chemical companies. Additionally, the success of these companies can be greatly attributed to the internal economical power of Germany. Germany is one of the financial superpowers in Europe a fact attributed to their high cost of wage compensation. This increases the level of performance of local companies and hence creating competition. The competition created helps the manufacturing of the nation more quality based and creative (Uchida & Cook, 2005). This then creates a well developed industrial nation that has gained a greater competitive advantage in the international market. The late development theory lacks dimension in the current market (Uchida & Cook, 2005). In the late dimension theory success of a nation was usually measured by the ability of the nation to have a successful internal market. The theory disregarded the significance of nations in the international market. Additionally, the theory does not consider the economic relationships created by nation (Siggel, 2006). According to Siggel (2006) the late development theory never recognized the efforts of the national diamond. The author further argues devoid of the national diamond the success of nations in the global market would be impossible. Comparing this to Porter’s theory, the theory needs more amendments to counter the arguments presented by Porter. Porter’s theory has a greater significance than the late development that it recognizes all angles of efforts by nations to gain international competitive advantage. Additionally, Porter’s theory has numerous ways of analyzing national competitiveness. This is different from the late development theory which measured national competitive only by internal economic situation of nations. The same argument is shared by Hill (2009) who argues that the late development theory does not recognize the growth of the international market. The author further argues that using the late development theory the international market is a worthless factor to consider when measuring national competitiveness in a country (Hill, 2009). However, the theory was of great significance in creating economic stable nations. The theory focused more on how organizations in a specific country gained competitive advantage over other organizations. The theory created internal markets that were highly competitive. This promoted creativity and innovation among these countries. This led to significant growth of local markets. According to Porter (2004) the theory also ensured original ideas were retained by original creators. Minus the international exposure original ideas remained under the control of the creators. This is different from Porter’s theory which has great exposure to the international market which means nations may suffer from imitation. This can be proven by the situation of the current market which has one original idea manufactured on a product then there are thousands imitations of the same product. With the late development theory created national competitive that was based on firm internal support. This enabled companies to gain local acceptance before they could venture into the international market. In an argument by Smit (2010) this created more stable international based organizations that could compete fairly and competitively. However, the author further argues that this further narrowed the international market. Regardless of his support on national diamond, Porter disregards the influence of nations in influencing the success of organizations (Salvatore, 2002). Porter argues that regardless of the support companies get from their governments, it takes the running of an organization to acquire competitiveness. The participation of governments is only for provision of resources and raw materials. According to Thompson (2004) this is the first step of the production process. Other involved processes have the same significance in creating an organization. For instance, an organization requires good management, an effective human resource team and an organization culture that focuses on excellence. These are factors that cannot be influenced by the governments apart from the provision of ample labor. However, he recognizes the impact of governments on the success of companies. Porter acknowledges that minus the influence of state governments many organizations in the international market would not have the success they have today. For instance, German Chemical companies depend greatly on the influence of the German government. This is because the influence of the nation in the international market is very significant. Smit (2010) also argues in support of these sentiments by saying that companies in the United States have a higher possibility of gaining a greater competitive advantage than companies in lower economic levels nations like Mexico. This fact has made nations be the basic base of many international based companies. The role of international economy is mainly to determine the level at which globalization is effecting the world. The international economy has grown over the years and this fact has been greatly attributed to the increase in the levels of globalization. Porter (2004) argues that growth of the international market is the best determinant of the growth in globalization. Globalization ideas should be based on how well they improve the status of the international market. The author further argues that international economy is a tool that describes on how well the international market is becoming competitive. In the case of MNEs success greatly depends on their ability to adjust in a new market and venture into it (Peng, 2009). He Further argues that analysts argue that MNEs are usually solo projects and do not require support from other institutions to have success in their operations (Peng, 2009). Many MNEs are usually considerate to their amount of resources they have before they can expand their investment. However, in some cases governments have the obligation to participate in the support of MNEs (Thompson, 2004). This due to the fact that they feel inclined to support the growth of small and medium business: a strategy that raises the economic status of the different markets MNEs are located. References Hill, C. (2009). International Business: Competing in the Global Market Place. New York: McGraw-Hill Irwin. Peng, M. (2009). Global Business. South-Western: Cengage Learning. Porter, E. (2004). ‘Building the microeconomic foundations of prosperity: findings from the business competitiveness index: The Global Competitiveness Report 2003–2004. Oxford University Press: New York. Salvatore, D. (2002). International Economics, 3rd edition. New York: Macmillan. Schott, P. (2004). ‘Across-product versus within-product specialization in international trade’, Quarterly Journal of Economics, 119(2): 647. Siggel, E. (2006). ‘International competitiveness and comparative advantage: a survey and a proposal for measurement’, Journal of Industrial Trade and Competition, 6: 63–66. Smit, A. J. (2010). The competitive advantage of nations: is Porter’s Diamond Framework a new theory that explains the international competitiveness of countries? Southern African Business Review 14 (1) Thompson, E.R. (2004). ‘National competitive advantage and the roles of economic and political freedom: evidence from Hong Kong’, Public Choice, 120: 401–437 Uchida, Y. & Cook, P. (2005). ‘The transformation of competitive advantage in East Asia: an analysis of technological and trade specialization’, World Development, 33(5): 701–728. World Economic Forum. (2008). Global Competitiveness Report (2006–2007). Geneva: Switzerland. Read More