Post on 18-Aug-2015
Theory of National Competitive Advantage
The theory attempts to analyze the reasons for a nation’s success in a particular industry
Porter studied 100 industries in 10 nationsPostulated determinants of competitive advantage of a
nation were based on four major attributes Factor endowments Demand conditions Related and supporting industries Firm strategy, structure and rivalry
Porter’s Diamond
Success occurs where these attributes exist
More/greater the attribute, the higher chance of success
The diamond is mutually reinforcing
Factor Endowments
Factor endowments: A nation’s position in factors of production such as skilled labor or infrastructure necessary to compete in a given industryBasic factor endowmentsAdvanced factor endowments
Basic Factor Endowments
Basic factors: Factors present in a countryNatural resourcesClimateGeographic locationDemographics
While basic factors can provide an initial advantage they must be supported by advanced factors to maintain success(Advanced Factors enable a speedier transformation of Basic Factors??)
Advanced Factor EndowmentsAdvanced factors: The result of
investment by people, companies, and government are more likely to lead to competitive advantage If a country has no basic factors, it must invest in
advanced factors
Advanced Factor Endowments
CommunicationsSkilled laborResearchTechnologyEducation
Demand Conditions
Demand:creates capabilities creates sophisticated and
demanding consumers
Demand impacts quality and innovation
Related and Supporting Industries
Creates clusters of supporting industries that are internationally competitive
Must also meet requirements of other parts of the Diamond
Firm Strategy, Structure and RivalryLong term corporate vision is a
determinant of successManagement ‘ideology’ and structure of
the firm can either help or hurt youPresence of domestic rivalry improves a
company’s competitiveness
Porter’s Theory-Predictions
Porter’s theory should predict the pattern of international trade that we observe in the real world
Countries should be exporting products
from those industries where all four components of the diamond are favorable, while importing in those areas where the components are not favorable
Implications for Business
Location implications:Disperse production activities to countries where they
can be performed most efficientlyFirst-mover implications:
Invest substantial financial resources in building a first-mover, or early-mover advantage
Policy implications: Promoting free trade is in the best interests of the
home country, not always in the best interests of the firm, even though many firms promote open markets
Implications for Strategy of Individual Firms ???
Group presentations based on handout!