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Table of Contents
Table of Contents...................................................................................................2 1. The diamond model by Michael Porter ..............................................................3 1.1 Introduction.................................................................................................. 3 1.2 Diamond model Theory ..............................................................................4 1.2.1 Factor Condition.....................................................................................4 1.2.2 Demand conditions.................................................................................5 1.2.3 Firm strategy, structure and rivalry........................................................5 1.2.4 Related and supported industries...........................................................6 1.2.5 The role of Government..........................................................................6 1.3 Criticism of the framework...........................................................................7 1.4 Practical Example.........................................................................................7 1.5 Conclusion.................................................................................................... 8
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According to Quick MBA (2011), each of the individual points on the diamond as a whole affect four ingredients that lead to a national comparative advantage and these ingredients have been listed as: 1) the availability of resources and skills, 2) information that firms use to decide which opportunity to pursue with those resources and skills, 3) the goals of individuals in companies and 4) the pressure on companies to innovate and invest. According to Smit (2010), Porter also proposed two other factors in addition to the above mention four and they are government policy and change that support and complement the system of national competitiveness but do not create lasting competitive advantages.
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According to Smit (2010), the basic factors such as unskilled labour, raw materials, climatic conditions and water resources are inherited and required little or no new investment to be utilized in the production process and advanced factors are created and upgraded through reinvestment and innovation to specialized factors which according to Porter from the basis for the sustainable competitive advantage of a country. According to Value Based Management (2011), contrary to the conventional wisdom Porter has argued that the key factors of production have to be created and that they are not inherited and the specialized factors of production are skilled labours, capital and infrastructure and the non-key factors or general use factors, such as unskilled labour and raw materials can be obtained by any company and hence do not generate sustained competitive advantage but somehow the specialized factors involved heavy, sustained investment and thus they are more difficult to duplicate which leads to a competitive advantage as other firms cannot easily duplicate these factors making the factors valuable. According to Recklies (2001), an example of this is the discussion on the ethics of genetic engineering and cloning that will influence knowledge capital in this field in North America and Europe.
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believed that domestic rivalry forces firms to be cost competitive, to improve quality and to be innovative. According to Recklies (2001), The conditions in a country that determine how companies are established are organized and are managed and that determine the characteristics of domestic competition. According to Value based Management (2011), the explanation of firm strategy, structure and rivalry is that the world is dominated by dynamic conditions and it is direct competition that impels firms to work for increases in productivity and innovation.
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products performance, safety or environmental standards or encouraging vertical co-operation between suppliers and buyers on a domestic level etc (Recklies, 2001).
Related and supporting There were large number of related and supporting industries with industries good technologies and the best example for this will be the that there are good miniaturized components since there is less space in
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Japan. Rivalry Domestic rivalry in the fax machine industry located in Japan has pushed innovation and this has resulted in a rapid cost reduction of the machines. The state owned telecom company, NTT has changed its cumbersome approval requirement for each installation to a more general type approval as an act of government support to the industry.
Role of Government
(Source: QuickMba, 2011). The Indian software industry is an example which can explain the theory of comparative advantage. India appears to be the best location of choice for people, according to Kogut (1997) and the caveat, according to Smit (2010) is said to be India has a comparative advantage in the software industry, this does not imply that a firm that relocatesits software development to India will gain with respect to the international competitiveness in software development. The industry based in India is more important than that is based in USA and so has attracted the best resources within India and to work in USA as a software engineer is relatively lower paid job compared to the earning potential in the more advanced electronic industry ad for India the pay is high and this attracts only the best resources. This proves that India has a comparative advantage over USA in the software Industry.
1.5 Conclusion
Literature review of Porter Diamond Model suggests that it is related to trade and international competition at a country level. The theory suggests that the gain that comes from trade is due to specialization which is due to the comparative advantage or the economies of scale (Smit, 2010). According to Smit (2010), Comparative advantage arises as a result of country differences and explains inter industry trade, whereas trade between countries in similar industries is explained by internal and external economies of scale.
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References
Porter, M.E. 1980. Competitive Strategy: Techniques for Analyzing Industries and Competitors.New York: Free Press. Porter, M.E. 1985. Competitive Advantage: Creating and Sustaining Superior Performance.New York: Free Press, London: Collier Macmillan. Porter, M.E. 1990a. The Competitive Advantage of Nations. New York: Free Press, MacMillan. Porter, M.E. 1990b. Why nations triumph, Fortune, 12 March: 94. Porter, M.E. 1997a. New strategies for inner-city economic development, Economic Development Quarterly, 11(1): 1128. Porter, M.E. 1997b. Location, knowledge creation and competitiveness, In Monisha, D.(ed.), Proceedings of Academy of Management Symposium on Knowledge Capitalism: Competitiveness Re-evaluated. Boston, MA. Porter, M.E. 1998a. Competitive Advantage: Creating and Sustaining Superior Performance,with a new introduction. New York: Free Press. Porter, M.E. 1998b. Clusters and the new economics of competition, Harvard Business Review, 76(6): 7790. Porter, M.E. 1998c. The Competitive Advantage of Nations. New York: Free Press, MacMillan. Porter, M.E. 1999. Michael Porter on competition, Antitrust Bulletin, 44(4): 841 880. Porter, M.E. 2000. Location, competition, and economic development: local clusters in a global economy, Economic Development Quarterly, 14(1): 1535. Porter, M.E. 2003. The economic performance of regions, Regional Studies, 37: 549578. Porter, M.E. 2004. Building the microeconomic foundations of prosperity: findings from the business competitiveness index, In Sala-i-Martin, X. (ed.), The Global Competitiveness Report 20032004. Oxford University Press: New York. Stone, H.B.J. & Ranchhod, A. 2006. Competitive advantage of a nation in the global arena:a quantitative advancement to Porters diamond applied to the UK, USA and BRICnations, Strategic Change, 15: 283294.
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Peng, M.W. 2009. Global Business. South-Western Cengage Learning. Ketels, C.H.M. 2006. Michael Porters competitiveness framework: recent learnings and new research priorities, Journal of Industrial Trade and Competition, 6: 6366. Teece, D.J. 1996. Firm organization, industrial structure, and technological innovation, Journal of Economic Behavior and Organization, 31(2): 193. Waverman, L. 1995. A critical analysis of Porters framework on the competitive advantage of nations, In Rugman, A., Van den Broeck, J. & Verbeke, A. (eds), Research in Global Strategic Management: Volume V. Beyond the Diamond. Greenwich, CT: JAI Press. Rugman, A.M. & Verbeke, A. 1993. The double diamond model of internationalcompetitiveness: the Canadian experience, Management International Review, Special Issue, 33: 1739. Rugman, A.M. 1990. Global Corporate Strategy and Trade Policy. London New York: Routledge. Smit, A. 2010. The competitive advantage of nations: is Porters Diamond Framework a new theory that explains the international competitiveness of countries?, Southern African Business Review Volume 14 Number 1, 105 Recklies, D. 2001, Porters Diamond Determining Factors of National Advantage, available at: www.themanager.org, accessed on: 18th April 2011. QuickMBA 2011, Porters Diamond of National Advantage, available at: www.quickmba.com, accessed on 17th April 2011. Value Based Management 2011, Diamond model Porter on Nations, available at: www.valuebasedmanagement.net, accessed on 18th April 2011. Kogut, B. 1997. Regional networks and markets, In Monisha, D. (ed.), Proceedings of Academy of Management Symposium on Knowledge Capitalism: Competitiveness Reevaluated. Boston, MA.
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