The Characteristics and Performance of the Business Systems of Major Economies - Essay Example

PORTERS MODEL OF NATIONAL COMPETITIVE ADVANTAGE IN EXPLAINING THE CHARACTERISTICS AND PERFORMANCE OF THE BUSINESS SYSTEMS OF MAJOR ECONOMIES Name Course Code Professor’s Name Date Introduction The paper will seek to explore the way the Peters diamond model presents an explanation of the occurrence of the various national business systems. In addition, it will also explain how they are in terms of comparative economic performance for each nation and the extent in which such ideas and approaches may be of value to the concerned economies. Porter invented the diamond model of the national competitive advantage with the objective of presenting an explanation for the competitiveness advantages currently taking place in various countries through the available business ventures in them (Raczkowski and Schneider, 2013). For this reason, the model suggests that the nationhood of a homemade industry has a significant role in making the business venture achieve its advantage globally. The value of the nationhood to the industry is responsible for the development of the primary factors that enhances the support for the organizations in achieving the advantages available in the global completion (Pejko, 2014). Determinants of Achieving National Competitive Advantage Porter noted that there are four determinants of reaching the national competitive advantage. The four determinants, however, operate under the influence of the country of operation added with the competitive strengths of the firms. In this instance, Porter presents an argument that states that the competitive industries may take the form of unique clusters of the nation based firms (Rowe, 2009). Clusters have some correlations with the customers, technology, skills, the distribution channels and many more. The availability of these clusters will make the nations come up with business systems that also will lead to the competitive advantage and the realization of the economic success as a whole. An example, in this case, is the Japans automobile industry and the US semiconductor industry. The two industries have the linkage to the Porters diamond model in their operation that in this instance assists them in the creation of the unique business systems and the competitive advantages over other industries. Factor Condition Factor condition defines a nation’s position on the factors of production that is useful for competition through a given field of industry of operation such as the case of the skilled labour or infrastructure. Consequentially, the national factors enhance the provision of the pre advantages for the nation. As a result, each nation has a certain factor condition that, in this case, makes it favourable for the growth and the development of business systems and industries (Tallman, 2009). For instance, majority of Japans engineers that has a vast representation in the graduate engineers forms the principal contributors to the Japans success in various fields of production and manufacturing industries in the country. Porter in this instance notes that the factors of conditions must not be in their nature made or be inherited for the cause of the changes and expansion in production activities with time (Rice and Habbershon, 2007). Home Demand Conditions Home demand conditions determine the creation of particular, specific factor conditions that further dictate the way of carrying out the innovation and the advancement of the development of a particular product. As result, the argument that Porter presents in his case is that home demands rely on three principal features. For instance, he first notes the characteristic of the mixture of customers needs and wants (Zeng, 2012). After that, he identifies the demanding buyers available in the home base that always have the opportunity of pressurizing the companies to meet their high standards of expectations. A vivid example, in this case, is the consumers of Japan who has a preference for the value of limiting the space that lead to the creation of compact products. In addition, the Americas longer distances also played a role in the competitive advantage in the market segments that are, in this case, more of the value at home than any other place. In each of the occasions, the size of the home market is not important. However, the level to which such size factors contribute towards innovation is the significant factor in this instance. A well-built home market has the capability to sustain the mentioned three conditions and, as a result, will be of much importance to the international competition in the business sector (Reinert, Rajan, Glass and Davis, 2009). Related and Supporting Industry The instance, in this case, occurs in a situation where one successful manufacturing company in the global world can come up with the advantages in the same manufacturing companies. As result, a nation through its available industries will find themselves being in a prime position to compete on the international scale. For instance, in a case where there are so many industries in the home based economy operating on the same line of production elements. The instance is that there are the supply and distribution channels in reaching or tapping the intended customers available in the market. An example, in this case, is the Denmark that has various clusters in sectors of the economy such as health and the home made products. On the same note, Germany relies on chemicals and the United States with its semiconductor industry (Suehiro and Gill, 2008). The Firm Structure, Strategy and Rivalry The three elements above define the conditions that govern the shaping, management and the way the businesses handle the domestic rivalries in their countries of operation. Cultural composition is significant in influencing the environment of operation of business activities in a nation in most of the occasions. For instance, there are various cultural traits in each country that, in this case, dictates the structure, the morale of the workers, social interactions of a business venture in a country. As a result, cultural traits may either come with the creation of benefits to the business venture or also come with the reverse of the same. An example, in this case, is the Japans automobile industrys rivalry that looks so strong due to the presence of the seven major players in the industry. Some of these companies are the Toyota, Honda, Nissan, Mitsubishi, Suzuki, Mazda, and Subaru all which compete for the dominance of the Japans automobile industrys market share. As result, these companies through their urge to outwit each other in the market. The instance is that every time they do come up with more and advance new technologies, products, and management practices for the sake of survival and also profit maximization in the field. Most of these companies aim further to thwart full force towards competing each other out of the market system. As a result, these companies recruit highly qualified engineers who are at the same time creative and innovative in their minds and ideologies for the benefit of the operation the companies at a large in the automobile sector (Zhou, 2011). On the same note, United States has only two automobile industries; Ford and General Motors after the merger with the Daimler Chrysler. As result, United States, experience no domestic competition when compared with Japan that has several of the companies in the industry. However, due to international trading activities taking place in the two countries, United States, in this case, faces stiff competition from the Japan Automobile industry as well. The two companies in the United States need also to come with strategies that counter enable them counter the stiff completion from the Japans technology. There should ensure that they evade the threat to their existence in the business sector as earlier as possible (Steers and Nardon, 2014). On top of the identified four conditions, Porter highlights that there are still other two significant components. He adds that these components have a role in influencing the way the nations compete and also shift their competitiveness position while the same time is changing the diamonds model. Consequentially, the availability of probabilities creates the option of various impacts on many nations such as the case of the shocks in the oil production that contributed towards the upgrading of the Japanese oil industry (Porter, 2014). Role of Government in Competition Government, for instance, plays a role in the determination of the modern trends of competition in many nations. For instance, it is the same governments that formulate the policies in a nation that have the ways of promoting competitive advantages in business operations (Zhou, 2011). As a result, it enables the industries available in a nation to come up with strong and comprehensive strategies that can contribute towards the success of the business ventures. A scenario, in this case, is the policy from the government of Korea and Japan countries that enabled the creation of success in many fields of the economy in the two nations. Similarly, Porter also notes that governments can lead to the success of the competitive advantages. The instance is, however, possible, through ensuring that there is the presence of high levels of the potentiality in the performance of a particular product and the ethic in production. In addition, it should also entail advising for proper reasoning and negotiations amongst the suppliers and the buyers of a commodity within the domestic levels (Lutolf-Carroll and Pirnes, 2014). Opportunities Identification Porter’s diamond model may be useful to many nations in the identification of the available opportunities. At the same time, it may be of significant help to them to utilize the home based advantages in generation of the competitive advantages for the overall competition with others in the global market levels. A look in the case of Japan presents that the country derives its success primarily from the automobile industry in the country. Early in the 1970s, the country enjoyed the benefits of labour advantages, strong network of suppliers and a readily available customers’ market which enabled the industry to gain competitive advantage over other nations (Lundvall, 2010). In this case, Porter manages to win the audience by insisting on the need for training, education, and domestic competition, automation as the major key players or the determinants of competitive advantage. However, Porter does not see the essence of history, politics and culture as the determinants of in determining competitive advantage. As a result, the problem does not get its complete solution. As a result, he offers an incomplete solution which shows other ideas necessary for the explanation of the cause of the various business systems and comparative economic performance in nations (Frederking, 2010). Limitations to Porter’s Diamond Model Diamond conditions came after the evaluation of the history of over one hundred industries. However, there was no such real analysis that could give the accurate picture of what the model presents today for the application. Similarly, none of the references or the acknowledgments has the suggestion for the reason of the availability of the past histories of the hundred companies used in designing the model (De Kluyver, 2010). Porter used the German printing press, American patient monitoring industry, Italian ceramic tile industry and the Japanese robotics industry to quote the four histories in his research work of coming up with the diamonds model. The use of these sources is just but sketches that only give the illustrations instead of conducting the test to validate the theories put forward in the diamond model. There is also the need to ensure that the philosophy of the competitive advantage to go past the elements of the business management. In addition, the model fails to answer some basic questions or even give their possible solutions (Bulcke, Verbeke and Yuan, 2009). Porter’s diamond model gives the description of the suitable environment where the firms may have completion with the inclusion of all the business systems and the comparative economic performance. However, the model fails to touch on the issues of the cultural influences in the business operations to a great depth. The model is in fact in agreement that culture indeed plays a significant role in the determination of the competitive advantage of a business venture (Boschma, Kloosterman and Lambooy, 2005). However, the model fails to factor in the impact of the national culture through its descriptive framework. National culture, for instance, dictates the relationship that exists between the related supportive industries from different sections of the world. As result, there is a need to combine Porters diamond model with the dimensions from the national culture perspective so as to give much value of the importance of the national culture in the competitive advantage (Boschma, Kloosterman and Lambooy, 2005). Researchers conducted previously gives out the four dimensions of national culture as individualism and collectivism and the large or small power distance. Others are the strong or weak uncertainty avoidance and masculinity, and the femininity. The essence of these four dimensions is to help in the understanding of the hidden idea of the uncertainty that also determines the roles of the theories of the business environment. As a result, it may lead to the nations competitive advantage. National culture, in this case, which the Porters diamond fails to cover, dictates the way people and the organizations manage to cope with the uncertainties in their existing environments (Beer and Evans, 2010). Conclusion In summary, Porters diamond model of the national competitive advantage, for sure, fails completely to give clear details for the occurrence of the inequalities in the national business systems. In addition, it also includes their comparative economic performances within the different nations and their industries. In addition, the model further fails to give the considerations and the explanation of the impacts of culture, history and globalisation on the economic success of a nation and the variations of business systems. Reference List Beer, A. and Evans, H. 2010. The Impacts of Automotive Plant Closure. London: Routledge. Boschma, R., Kloosterman, R. and Lambooy, J. 2005. Learning From Clusters. Dordrecht, Netherlands: Springer. Bulcke, D., Verbeke, A. and Yuan, W. 2009. Handbook on Small Nations In The Global Economy. Cheltenham, UK: Edward Elgar. De Kluyver, C. 2010. Fundamentals of Global Strategy. [New York, N.Y.] (222 East 46th Street, New York, NY 10017): Business Expert Press. Dunford, M. and Greco, L. 2011. After the Three Italies. New York, NY: John Wiley & Sons. Earl, L. and Gault, F. (2006). National Innovation, Indicators and Policy. Cheltenham, UK: Edward Elgar. Frederking, J. 2010. Comparative Cost Advantage and Factor Endowment. München: GRIN Verlag GmbH. Lundvall, B. 2010. National Systems of Innovation. London: Anthem. Lutolf-Carroll, C., LLP, W. and Pirnes, A. 2014. From Innovation to Cash Flows. Hoboken, N.J.: Wiley. Pejko, E. 2014. Current Issues of Science and Research In The Global World. [S.l.]: Crc Press. Porter, M. 2014. Competitive Advantage of Nations. [S.l.]: Free Press. Raczkowski, K. and Schneider, F. 2013. Economic Security Of Business Transactions. Oxford: Chartridge Books Oxford. Reinert, K., Rajan, R., Glass, A. and Davis, L. 2009. The Princeton Encyclopedia Of The World Economy. Princeton: Princeton University Press. Rice, M. and Habbershon, T. 2007. Enterpreneurship The Engine Of Growth. Westport CO: Prager. Rowe, J. 2009. Theories Of Local Economic Development. Farnham, England: Ashgate. Steers, R. and Nardon, L. 2014. Managing in the Global Economy. Hoboken: Taylor and Francis. Suehiro, A. and Gill, T. 2008. Catch-Up Industrialization. Singapore: NUS Press in association with Kyoto University Press. Tallman, S. 2009. Global Strategy. Chichester, West Sussex: John Wiley & Sons. Zeng, D. 2012. Advances in Computer Science and Engineering. Berlin, Heidelberg: Springer Berlin Heidelberg. Zhou, Q. 2011. Applied Economics, Business and Development. New York: Springer. Read More