The Concept of Internationalisation and Porter's Diamond Model - Literature review Example

Strategic Management and Introduction Managers struggle every day to ensure that their organizations have a competitive advantage over the others involved in the same line of work. The success of the company relies on the effectiveness of the organizational strategy alongside other factors. There are several analytical processes that can be used to analyse the effectiveness of the organizational strategy in order to gain competitive advantage. These analytical processes include Yips Drivers of Internationalisation, Porter’s Diamond, and McKinsey’s 7-S Framework. Porter’s Diamond Michael porter developed the diamond model in his book, ‘The Competitive Advantage of Nations’, where he aimed at determining and explaining why particular industries perform better than others in particular locations. The diamond model uses groups, which entail of small industries and compares the relation between the competitiveness of one company with the performance of the others. According to Sadler (2003), there are two steps that make up the porter analysis. The first step entails identifying and putting the most successful industries in groups. The industries are chosen from ten of the most important nations in trade around the world. The next step involves studying the competition behaviors especially, the completion history of the selected industries. The main aim here is to come up with a suitable strategy through which the organization will achieve the completion advantage. The model utilizes the use of historical analysis to gain competitive advantage. The Porter diamond is made up of six different factors, which include government, chance, demand conditions, related and supporting industries, strategy and structure of the firm and rivalry, and factor conditions. Factor conditions entail physical resources, capital resources, human resources, knowledge resources, and infrastructure. Specialized resources are often detailed for an industry and significant for its competitiveness. Factor disadvantages can be compensated through the creation of specific resources. Companies can use demand conditions to create competitive advantage. This is accomplished when urbane home market customers pressure the firms for more innovative and advanced products, better than those of the competitors. The third factor that is used to determine competitiveness is firm strategy, structure and rivalry. These entail the ways through which companies are created and managed towards the achievement of the set goals. Rivalry inside the company is significant because it pressures the individuals to be innovative, while at the same time the company’s competitiveness is upgraded. The next factor is the related and supporting industries. These industries can produce cost-effective inputs that are vital for innovation and internationalization. The industries also take part in the process of upgrading, hence motivating other companies in the chain to start innovating. The government can also be used as a factor to determine the level of competitiveness of a company. It is mainly used to control conditions of supply of important production factors, level of competition between firms and also, the conditions of demand in the home market. These interventions by the government can occur either at the local level, the regional level, the national or the international level. The last factor is chance events. These are events that occur outside of a firm’s control. Chance events create gaps in which some companies gain competitive advantage and others lose. The diamond model requires all the six factors to interact with each other and create conditions where innovation and competitiveness takes place (Sadler 2003). McKinsey’s 7-S Framework The McKinsey 7S Framework is another model use in management. Robert H. Waterman, Jr. who is a business consultant, and Tom Peters developed it back in the 1980s. The 7S stands for systems, style, strategy, skills, shared values, structure and staff. The model is used to carry out organizational analysis as a tool that evaluates and monitors changes inside the organization. The model is based on a theory that states that the seven elements must be aligned and mutually reinforcing in order for any organization to be successful. Therefore, the model can be used to identify what needs to be adjusted in the organization in order to boost performance, or to maintain the organizational alignment and performance at its best or during other types of change. The model is useful in the understanding of the relationship between different elements of the organization. Therefore, it is instrumental when applying change in terms of restructuring, organizational merger, change of leadership, new processes among others. The main goal of a company adopting the McKinsey 7S Framework is to evaluate the current position of the organization in relation to the goals intended to be achieved. The seven elements are categorized into two groups: hard elements and soft elements. Hard elements include strategy, structure and systems. The soft elements include skills, shared values, style and staff. Hard elements are easier to define as compare to soft elements. The management can easily influence them. They include strategy statements, reporting lines and organizational charts, formal processes and IT systems. On the other hand, soft elements are more difficult to describe. They are mostly influenced by culture and are less tangible. However, the soft elements are as significant to the organization’s success as hard elements are. Strategy entails the plan devised for the purpose of maintaining and building competitive advantage over the competitors. The structure represents the actual structure of the organization from the top management down to the junior staff. It specifies who reports to whom in running of the organization. The style stands for the style of leadership adopted for the running of the organization. The fifth S is the systems, which represent the daily activities and procedures that all the staff members of the organization engage in to get the job done. Shared values are the organization’s center values. The skills represent the capabilities of the workforce of the company. Shared values are placed at the middle in the model. This means that the values are central to the development of other elements. The creator of the company, created the company based on these values. A slight change of the shared values affects the other elements of the model. The 7S model is important but it should be applied with the right knowledge, experience and skills. Yips Drivers of Internationalisation In order to determine the degree of internationalization within the economy, four categories of drivers must be analyzed. These four categories of drivers include costs, markets, competitive and government (Elango 2011).The competitive driver category is concerned with exports and imports, competitors and also interdependence of countries. The cost globalization drivers include economies of scale and scope, sourcing, the experience curve, logistics, product life cycle and development costs. The government globalization drivers include trade policies, technical standards, competitors owned by the government, customers owned by the government, marketing regulations and Host government concerns. The market globalization divers include customer needs, marketing, customers and channels, and leading countries (Elango 2011). Samsung Electronics Samsung Electronics Company is a global electronics company based in South Korea. The company was formed from the Samsung Group and is accountable for over 70% of the revenues collected by the group. The company has been leading in information technology since 2009. It has registered high sales volume hence the high revenues. The company has assembly plants based in over 80 countries around the world. The total number of employees working for Samsung is about 370 000 (Pederson 2010). Kwon OH-Hyun has been the CEO of the company since the year 2012. Some of the major activities that the company performs is the manufacturing of electronic components, for example, flash memory, lithium-ion batteries, chips, semi-conductors among others, which are used by other companies such as Apple and Nokia. The company had shifted from the production of consumer electronics to other components in the past. Currently, the company is the world’s leading producer of mobile phones and smartphones. The introduction of Samsung Galaxy devices has been the main fuel for the large success of the company. The company is also produces and sells tablet computers, which are known as the Samsung Galaxy Tabs and are Android-powered. Since 2002, Samsung has been the world’s leading company in the production of LCD panels and also televisions since 2006. Samsung overtook Apple Inc. and became the largest technology company in the world back In the year 2011. The company was established in 1969 in South Korea as Samsung Group. It specialized in products such as televisions, radios, refrigerators, washing machines and air conditioners. In 1970, another subsidiary was established between Samsung Group and Japan’s NEC Corporation with the aim of manufacturing audiovisual devices and other home appliances (Pederson 2010). Samsung electronics started its productions a very long time ago and entered a market that was already dominated by other brands. The first mobile phone by Samsung was launched in 1988. At the time, sales were extremely law and this was because of Motorola’s competition. In the 1990s, Motorola had a market share of over 60 percent as compared to Samsung’s 10 percent (Beamish 2000). Samsung also, had difficulties when trying to deliver high quality mobile phones than those of its competitors. In 1995, Samsung changed its strategies from consumer products manufacturing to component manufacturing. This was aimed at first understanding how products were made before coming back to the market. Samsung’s main objective was to become the leading and largest technology company. In 2005, Samsung Electronics overtook Sony and became the world’s twentieth-largest and most popular brand to be used by consumer. This was the first time ever that Samsung had overtook Sony. By the year 2007, Samsung Electronics was already the second-largest mobile phone maker after overtaking Motorola (Pederson 2010). This was before overtaking Apple Inc. in 2011 to lead the market. Samsung Electronics had also overtaken Hewlett-Packard to become the world’s largest technology company. The porter’s diamond model can be used to determine the competitive advantage of Samsung Electronics over the performance of other companies in the telecommunication business. First, the company was more successful than its competitors due to several factors such as availability of resources and the right skills; Samsung electronics also had sufficient information that enabled the management to make the right decisions on how to utilize the resources and skills. For a company to be successful, the goals of each individual must align to the organizational goals, and this was the case in Samsung Electronics. There was also pressure to be more innovative so as to capture the market at a high speed. Samsung Electronics utilized the factor conditions in the diamond model through the use of its physical resources, capital resources, human resources, knowledge resources and infrastructure, which was readily available. All the resources that were available to Samsung, gave the company advantage over other companies, which had to first source for operational resources. When the company decided to shift away from manufacturing consumer products, it started sponsoring major events as a method of promoting the brand so as not to be forgotten by the consumers. The organizational structure from the top levels down to the junior staff represented the structure in the diamond model. The running of the company by the management and formulation of both the short term and long term organizational goals represented the firm’s strategy. Home-based rivalry is seen between employees as they compete to be more creative and innovative. The more innovative the employees are, the better competitive position the company gets over its competitors. Demand conditions in South Korea also acted in favor of Samsung Electronics since the company is based there. Whenever the company came up with a new product, it was first launched in South Korea before it could be distributed to other parts of the world. Most of Samsung’s products were innovative and therefore acceptable in the market. However, not all products were accepted y the market. This forced the company to remanufacture the products in more innovative ways than that of the competitors. For instance, the main competitor of Samsung Electronics is Apple Inc. If Apple Inc. launched a very innovative smartphone in the market, customers of Samsung Electronics would demand for a better and more innovative smartphone than that of Apple Inc. the related and supporting industries factor takes effect when for example the Android operating system used in Samsung’s galaxy phones and galaxy tabs is upgraded to a new, better and more innovative version. This will force Samsung to improve their creativity and design more innovative phones that will utilize the capabilities of the new operating system to maximum. This is always the case at Samsung Electronics as after every few months, a new Android-OS is released. This is then followed by a release of a new and more innovative galaxy phone, note or tab. The government also plays a vital role in the market. The government may impose high taxes on imported goods so as to encourage the use of locally produced products. The local company here will gain a competitive advantage in the local market over other competitors. For instance, the government of South Korea may impose high taxes on imported products in favor of local products produced by local companies such as Samsung Electronics. The last factor in the diamond model is the chance events. Chance events constitute of all the events that occur outside a firm’s control and end up creating gaps, in which some companies gain competitive advantage and others lose. For example, Samsung Electronics was recognized and awarded as one of the global top-ten leading companies in greenhouse gas emissions control. Being the only Asian company in the list of the top-ten companies, it attracts several investors around the region. However, the chance events are rare and do not have a huge impact on the competitive advantage of one company to the performance of the others (Jeffs 2008). The McKinsey 7S Framework is a management tool that can be used to monitor change in the organization. The strategy entails all the organizational plans put in place for the purpose of maintaining and building competitive advantage over the competitors. Samsung’s strategy entailed shifting from producing consumer products to producing components for other companies until they fully understood how to get the market. The strategy worked since Samsung was one of the companies registering the lowest sales back in the 90s and it is the leading company in telecommunications industry. The structure entails the actual organizational structure. This helps maintain effective running of operations and continuous production. In the case of Samsung, the organizational structure was not a major concern. The leadership style in Samsung was a major factor that led to the overall success of the company. A company can only make the high amounts of revenue being made by the company only if it has good leaders. The staff also constituted to the success of Samsung. For this level of success, the staffs have to be totally committed and loyal to the company. Keeping the staff happy also attracts more innovative and creative minds to the company, which turns out to be an advantage over the competitors (Paul 2003). The company systems, when aimed at full optimization of costs for high quality deliver and maximum profits, can also lead to the success of a company. In real cases, it is however difficult to balance the three. Customers require better quality than that being offered by the competitors. Producing high quality products, means using high quality resources, which is very expensive. The company here ends up making little profits since they cannot increase the selling prices for profit maximization. The products should not be too expensive for the customers. Shared values are the core values, which govern the direction that the organization takes. Shared values unite all the other factors that help in the achievement of organizational goals. In terms of the Yips Drivers of Internationalization, Samsung Electronics utilized the four categories of drivers effectively. The competitive driver category is the most effective driver in the case of Samsung Electronics. The main objectives of the company were to get ahead of the competitors. The driver is efficient in giving the management perfect knowledge of the competitors, the local and international markets and also the relationship between countries. With this knowledge, a company like Samsung can be able to formulate a strategy that will enable it to realize its goals. The cost driver helps to efficiently manage the costs involved in all the company’s operations (Paul 2003). Without proper management of costs, Samsung cannot reach the level of returns they currently get. Operations in the organization should also be carried out at the minimum possible costs. The government can also use its drivers to control the level of competition in the market. In order for Samsung to get ahead of other companies in the industry, it had to conform to all government regulations and policies. Government drivers include trade policies, technical standards, competitors owned by the government, customers owned by the government, among others. The market driver is also an important driver if the company has to gain competitive advantage over the competitors. Conclusion The implementation of various strategic analysis models can help an organization to evolve and gain a competitive advantage over the others. However, the models should be implemented with care so as not to use a model that conflicts with the strategic goals of the organization. Other factors should also be considered for effective running of the organization. References SADLER, P. (2003). Strategic management. Sterling, VA, Kogan Page.  WHITLA, PAUL. (2003). Globalisation in service industries.The Hong Kong Polytechnic University. SKARE, R. (1993). The concept of internationalisation and Porters Diamond model.Stavanger, Høgskolesenteret i Rogaland. PEDERSON, J. P. (2010). International directory of company histories.Volume 108 Volume 108.Detroit, Mich, St. James Press.  JEFFS, C. (2008). Strategic management. Los Angeles, SAGE.  DAVID, F. R. (2005). Strategic management: concepts and cases. Upper Saddle River, N.J., Pearson Prentice Hall. BIRKINSHAW, J. M. (2004). Strategic management.Cheltenham, UK, Edward Elgar Pub. WILLIAMS, K. (2009). Strategic management. New York, N.Y, DK Pub.  SALONER, G., SHEPARD, A., & PODOLNY, J. M. (2001). Strategic management. New York, John Wiley. BEAMISH, P. W. (2000). Asia-Pacific cases in strategic management. Boston, Irwin/McGraw-Hill. BARNEY, J. B., & HESTERLY, W. S. (2008). Strategic management and competitive advantage: concepts and cases. Harlow, Prentice Hall. DESS, G. G., LUMPKIN, G. T., & EISNER, A. B. (2014). Strategic management: text and cases. B. ELANGO. (2011). Does market context impact payoffs to internationalization?European Business Review. 23, 434-453. STRATEGIC MANAGEMENT SOCIETY.(2007). Strategic entrepreneurship journal.Hoboken, NJ, Wiley InterScience.  Read More