Diamond Model of Porter - Essay Example

This paper will explore the manner in which the diamond model, developed by Porter is able to explain the differences in the business systems of leading economies. This paper would also examine the comparative economic performance of the identifi9ed nations, and the extent in which other approaches and ideas can be used for purposes of explaining them. Porter (1990) was able to introduce the diamond model of national competitive advantage for purposes of providing an explanation on the reasons which make a number of countries to be more competitive, in comparison to other countries. Furthermore, this model was introduced for purposes of providing an explanation of the reasons that make a variety of business systems within a particular economy to be more competitive (Mcgrath, 2013). This model, developed by Porter gives a proposal that the national home base of a given industry plays a crucial task in achieving a competitive advantage on a wide scale. This home base, of the given industry would make a contribution on some essential factors that will help in supporting the business systems within the industry, to build an effective and efficient strategy that can help them compete efficiently on a global perspective. Porter (1990) manages to identify four major determinants that play a role in making a country to achieve a national competitive advantage. He thereafter makes a conclusion that by combining these four determinants within a given economy or country, then, they would provide a big influence on the competitive ability of the business systems that are located within the economy under consideration. In defending his points, Porter (1990) explains that a competitive industry would take the nature of a specialized cluster of industries that are found at home. These clusters are able to correlate with each other through vertical relations. Examples include managing to integrate with suppliers. Clusters are also able to correlate with each other, through horizontal relations (Peng, 2009). Horizontal relationships normally occur through distribution channels, technology, skills, and customers. Through these specialized clusters, Porter (1990) explains that a given economy would manage to develop a business system that has the capability of achieving a competitive advantage over its rivals, hence leading to economic success. The automobile industry of Japan and the semiconductor industry of United States to the diamond model of Porter (Tallman, 2009). This is because they are able to create a unique business system. Furthermore, these two industries are able to achieve a competitive advantage within their economies, over other rival industries (Cho & Moon, 2000). Factor condition refers to the position of a country, in regard to the factors of production that enables companies to have the capability of competing within a particular industry. Examples include the infrastructure, or the skills that are available within a given industry. These factor conditions normally provide a given country or economy some initial advantages. Jackson, Hitt & Denisi (2003) explains that every country or economy normally possess a given factor condition, which makes it have the capability of developing industries or business systems. A good example is Japan, which has a large number of engineers. This is clearly seen on the large number of graduates who have specialized in engineering, coming out of Japanese universities. This means that Japan has enough human resource personnel, who can work in the manufacturing and production industries of Japan. Porter (1990) therefore explains that the factor conditions of a given economy or country must not necessarily be made by nature, and this is because they normally changes from time to time. These changes normally occur because of government policies, and the nature of competition within the identified industries. The conditions of domestic demand also play a role in the creation of a specific factor condition that has the capability of affecting the manner which innovation occurs, and the development of a specific product. Porter (1990) manages to explain that the domestic demand of a specific product lies on three major characteristics. One of these characteristics is a mixture of the needs and wants of the consumers. This means that for any production that is produced, the products under consideration must have the capability of meeting the various needs and wants of the target customers. It is only by meeting these needs and wants that the products would manage to achieve a competitive advantage within a given economy (Tallman, 2009). The second characteristic of domestic demand is based upon the demands by consumers for companies to produce high quality products, and this is by establishing a high standard that these products must meet. An example is on the Japanese consumers, who value products that can save space (Stimson, Stough & Roberts, 2006). This made the nation to be one of the leading producers of compact products in the world. On the other hand, American consumers value of long distance products, made the nation to have a competitive advantage in the production of large truck engines, which have the capability of covering very long distances. The third characteristic is that an industry would achieve a competitive advantage in a market segment that is very important in their domestic industry. An example is in Japan where its automobile industry is very important to its people, hence the development of multinational companies such as Toyota, Nissan, etc. Another country is Taiwan, and it is a leading exporter of computer and semi-conductor products (Ricken & Malcotsis, 2011). This is because Taiwan has managed to pursue an aggressive investment in this industry of the computer and semi-conductor products. The semi-conductor and computer manufacturing industry in Taiwan is very important, and this is a sector that the Taiwanese government has heavily invested in. As a result, Taiwan has managed to distinguish itself as a top producer of semi-conductors, integrated circuits, and computers products and accessories. Bulcke, Verbeke & Yuan (2009) explains that the Semiconductor Manufacturing Company of Taiwan and the United Microelectronic Company are the largest producers of semi-conductors and electronic products in the world. These are Taiwanese companies that have managed to achieve this objective, because of a great support from their domestic consumers, and the government of Taiwan. It is important to explain that in each of these characteristics, the size of the domestic market is not important. However, what matter is the extent in which the domestic market is able to encourage innovation (Vasudeva, 2000). A large domestic market that has the capability of meeting all these three conditions will be able to achieve an international competitiveness of its products. This means that its products would be able to out-compete the products of other companies, manufactured from other countries. Porter further explains that a supportive and related industry is the one which has the capability of achieving success on a global perspective, and also create some advantages to other companies offering the same services and products (Zhou, 2011). The industries that are found within a given economy, will manage to achieve success internationally, only if a cluster of industries exists in their domestic market or economy. These industries must either be linked through an horizontal or vertical relationship amongst the distribution channels, suppliers, and customers. A good example is in Denmark, a country that has managed to create a cluster in home products, and other health care products. The structure of an organization, rivalry, and strategies are some of the conditions that play a role in determining the manner which business organizations are managed, shaped and the way they deal with domestic competition within their economies. Furthermore, the most dominant culture that exists within an economy also plays a significant role in determining the success or failure of a business organization (Reiner, 2009). For instance, each dominant economy normally have a cultural trait that plays a significant role in determining the manner in which a business is structured, the morale of the workforce, and the manner in which companies are able to interact with one another. This has the capability of creating specific benefits to the business industry, and the nation at large (Reinert, Rajan, Glass & Davis, 2009). Take for example in Japan. The automobile industry in this country is very strong, and very competitive. The country has seven multi-national companies that fiercely compete with each other, and they are owned by the Japanese people. These companies are Honda, Toyota, Subaru, Mazda, Nissan, Suzuki, and Mitsubishi. These companies are engaged in a fierce competition, with the intention of controlling the Japanese market, and the international auto-mobile market (Porter, 2008). Because of a fierce domestic competition, these automobile companies are forced to be innovative, and hence develop a cutting edge technology that can make them to achieve a competitive advantage over their rival companies (Hong, 2008). Because of innovation and development of a cutting edge technology, these companies would manage to survive the kind of competition that they are facing each other. In Japan, their high number of engineers laid emphasis on improving their manufacturing process. An example is Toyota, one of the most successful Japanese auto makers. The company came up with the principles of lean manufacturing, in the 1990s (Nilsson & Rapp, 2004). Through this principle of lean manufacturing, the management of Toyota focused on anything that had the capability of adding value to its manufacturing process, while eliminating any process that could lead to the waste of the resources of the organization. This policy has managed to transform Toyota as the leading auto-maker in the world. Cho & Mun (2013) explains that the United States only has two businesses operating in its auto-mobile industry. These businesses are General Motors, and Ford. This is because of the merger of Daimler Chrysler. Because of these few number of American automobile businesses, competition is not very stiff in this market, in comparison to the kind of competition that is found in the Japanese automobile industry. Therefore, for purposes of surviving, Japanese auto-mobile companies have invested heavily in United States, with the intention of controlling their market share. Porter (1990) further explains that there are two other components that play a role in determining the competitiveness of a particular industry. This is in addition to the four components identified earlier. The first component is the aspect of chance. The events that occur out of chance have the capability of shaping the economy of a country. For instance, the oil shock of the 1970s and 80s, was able to upgrade the Japanese automobile and other industries. Another component is the role of national governments in influencing competition (Morschett, Schramm-klein & Zentes, 2010). Governments have the capability of developing policies that its industries should follow, for purposes of creating advantages and enabling the industries under consideration to be profitable, and become competitive all over the world. An example is the bailout of General Motors, and AIG insurance by the American government, during the 2008 global financial crisis. This was with the intention of making these companies to be competitive again, and protecting them, from going bankrupt. Another example is on the governmental policies of South Korea, Taiwan, Singapore and Hong Kong which stressed on the need of developing a free economy, with specialization on the manufacturing industry (Piepenburg, 2011). This has enabled these countries to be highly industrialized and well developed. Porter (1990) manages to explain that domestic competition, education, automation, and training are the major factors that can make the industry of a given nation to achieve a competitive advantage over its rivals. However, Porter undermines the role of history in determining the competitive advantage of a particular industry. Ahlstrom & Bruton (2010) therefore explains that Porter provides an incomplete explanation on how countries or leading economies are able to achieve a competitive advantage over their rivals. For instance, the diamond model was able to emerge after an examination of the historical origins and activities of about 100 industries (Paul, 2011). However, to effectively do this, the necessary data are needed for analysis and thorough examination. However, the references produced in this respect could not be used in efficiently analyzing the industries under consideration. The four reference quoted by Porter includes articles from the German printing press, the Japanese robotic industry, the Italian ceramic industry, and the American patient monitoring industry. These only provided sketches instead of a detailed analysis of the industries under consideration. Porter) therefore neglects the role of history in his diamond model. For instance, in the case of Japan and Germany, there is a connection between their past military activities, with their current domination of their industries. Militarism has made a contribution in the creation of a highly disciplined labor force in Germany and Japan. However, it is important to explain that a particular historical event of a country normally determines its character and culture. Porter (1990) agrees that national culture plays an important role in shaping the competitive ability of an industry. However, Betz (2011) explains that this concept of culture is under-representation in the analysis that is given or depicted in the Diamond model. For purposes of explaining the importance of the national culture of a given state in enhancing its competitive ability, there is a need of combining the cultural dimension theory developed by Hofstede, and the diamond model developed by Porter. After carrying out a thorough research, Hofstede was able to come up with the four dimensions that shape the national culture (Piepenburg, 2011). These dimensions are individualism vs. Collectivism, power distance, uncertainty avoidance, and masculinity vs. femininity (Piepenburg, 2011) . These four cultural dimensions play an influential role in understanding the concepts of uncertainty (Piepenburg, 2011). Uncertainty has the capability of contributing to the competitive advantage of a given nation, and this is because it would encourage the concept of risk taking. Furthermore, the manner in which organizations and people are able to deal with uncertainty in their business environment is an important dimension, under the cultural dimension theory, developed by Hofstede (Piepenburg, 2011). In conclusion, the diamond model developed by Porter does not efficiently explain the reason why leading countries are competitive. This is because it neglects in providing an explanation on the role of history in the development of these economies. Furthermore, the diamond model does not extensively talk about how national culture shapes these industries, and it only concentrates on how culture manages to influence the relations between the industries within an economy. The best approach was to integrate the Hofstede cultural dimension theory, with the diamond model, for purposes of explaining how culture plays a role in promoting the competiveness of a given industry or nation. Despite the existence of these criticisms against the diamond model, there are a number of positive ideas contained in it. One, is the role of innovation in promoting the competitiveness of a business organization. Porter argues that because of increased competition within a given industry, companies would be forced to innovate, for purposes of achieving a competitive advantage over their rivals. Another advantage is their explanation on the role of government in promoting the growth of industries within an economy. Porter is right when he asserts that without governmental support, then industries operating in the country would not be able to compete efficiently and effectively with similar industries in the world. Bibliography: Top of Form AHLSTROM, D., & BRUTON, G. D. 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