Trends in Global Marketing Strategies
This article review is done for the course of Trends in Global Marketing Strategies. The purpose of this work is to analyse Michael Porter’ s model of national diamond and study the determinants affecting the competitive advantage of nations. First we summarise Porter’s article and after that five other articles closely related to the model. In this work we focus on the development of the model from the early 90′ s. 2 Reviews of the Articles 2. 1 Competitive Advantage of Nations by Michael Porter
In the article “Competitive Advantage of Nations” Michael Porter represents his model, which goal is to clarify the determinants of national competitive advantage. The writer refers to the model as the national diamond. The model is based on four country-specific determinants and two external variables. This framework was developed through studying competitive performance among 10 countries each evolving several industrial cases. The first of the country specific determinants is factor conditions, which mean the nation’s factors of production, such as skilled labour or infrastructure.
According to the author the most important factors of production are those that involve sustained and heavy investment and are specialized. He also says that nations can succeed in industries where they are particularly good at factor creation. The second determinant is demand conditions meaning the nature of home-market demand for the industry’s product or service. Porter argues that the composition and character of the home market has a very significant effect on how companies perceive, interpret, and respond to buyers needs.
According to Porter, nations gain competitive advantage in industries where the home demand gives their companies a clearer and earlier picture of emerging buyer needs, and where demanding customers pressure companies to innovate faster and achieve more sophisticated competitive advantages than their foreign competitors. The third determinant of the diamond is related and supporting industries. This factor focuses on the presence or absence in the nation of related and supporting industries that are internationally competitive.
Porter says that internationally competitive home-based suppliers create advantages in downstream industries in several ways. First, they deliver the most cost-effective inputs in an efficient, early, rapid and sometimes preferential way. Secondly, home-based related and supporting industries provide in innovation and upgrading an advantage based on close working relationships. The benefit for the nation’s companies is greatest, when the suppliers themselves are global competitors.
Home-based competitiveness in related industries also provides the same benefits. The fourth determinant includes firm strategy, structure and rivalry. According to Porter, national circumstances and context create strong tendencies in how companies are created, organized, and managed, as well as what the nature of domestic rivalry will be. He says that competitiveness in a specific industry results from convergence of the management practises and organizational models favored in the country and the sources of competitive advantage in the industry.
He stresses the difference in managerial systems and divergence in the goals that companies and individuals seek to achieve. The determinant also includes individual motivation to work and expand skills is important for competitive advantage. He sees outstanding talent as a scarce resource of any nation. A nation’s success largely depends on, after Porter, the types of education its talented people choose, where they choose to work, and their commitment and effort. Rivalry is also a part of the fourth determinant.
Porter says that the presence of strong local rivalry is a final, and powerful stimulus to the creation and persistence of competitive advantage. He argues that most national champions are uncompetitive, although heavily subsidized and protected by their government. He sees government as a distorting factor in a competition in that kind of cases. According to Porter, domestic rivalry, like any rivalry, creates pressure on companies to innovate and improve. Local competitors push each other to lower costs, improve quality and service, and create new products and processes.
He sees local rivalries often going beyond pure economic or business competition and becoming intensely personal. Local rivalries compete for market share, but also for people, technical excellence and “bragging rights” as he says. Two external variables consist of government and chance. According to Porter government’s proper role in his model is as a catalyst and challenger. It should encourage or even push companies to raise their aspirations and to move to higher levels of competitive performance, even though process may be inherently unpleasant and difficult.