Introduction and wants). The pace and character of

Introduction

Professor Michael Porter’s (1990) work on
Competitive Advantage of Nations is greatly influential yet tendentious (Davies
and Ellis, 2000) which evoked considerable interest and eager debates that were
met with contrasting views. This essay will find out why so much emphasis was
placed on the diamond framework by concluding the concept of Porter’s Diamond
alongside his theory and framework, and lastly the academic criticism this
model has attracted.

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

 

Porter’s
Competitive Advantage of Nations

Porter’s
“national diamond” which recognized a set of six factors—factor conditions; demand conditions; related
and supporting industries; and firm
strategy, structure and rivalry; chance
and government; and cluster (Davies and Ellis, 2000)—is a framework to analyze
why some nations and industries are more competitive than others (Lynn and
Wang, 2013). Instead of striving to the become a conqueror in all industries
and eventually exhibiting weakened results, nations can reach global
competitiveness by concentrating firstly on the industrial sectors, which offer
the ideal possibility of success (Porter, 1990).

 

Factor Conditions

Godfrey (2015) states
that factor conditions are the nation’s key position in factors of production—skilled labour or infrastructure, required
to engage in a particular industry. These conditions can additionally be split
into two groups—basic factors (e.g. climate,
natural resources and location); and advanced
factors (e.g. graduate engineers and, information and communications
infrastructure). According to Porter (1990), the outcome of an all-out effort
instead of succeeded by nations are known as advanced factors, and they are the
most irreplaceable production factors in today’s knowledge economy.

 

Demand Conditions

According to Porter (1990), home demand is decided by three key
characteristics—the tools
that transport domestic preferences
to foreign markets; their scope and growth rate, and their mixture (mix of
customers’ needs and wants). The pace and character of development and transformation by a
nation’s firms can be created
by demand conditions inside a nation. It is the character of the home demand rather than the size
that makes a difference.
Home demand conditions impact the forming of a particular factor conditions and are the key to
global prosperity.

 

Related and Supporting Industries

The existence or absenteeism in the nation of
globally competitive
supplier and related industries
is a crucial factor. Advantages may be ushered by one globally successful industry to other in
supporting or corresponding
industries. Globally competitive supplier industries in a nation assist firms to recognize new opportunities and technique
to register advanced technology,
frequently through existing coordination instead of just supplying early,
efficient, swift and sometimes advantageous entrance to the most cost-effective
inputs.

 

Firm Strategy, Structure and Rivalry

Firm strategy, structure and rivalry involved
the stress on
organizations to innovate and invest, which emerge from aggressive
domestic competitiveness; and a match between the objectives of the workers, managers and owners
and the sources of competitive advantage in a specific industry (Huggins and
Izushi, 2011/2012). Geographic
concentration—in Porter’s (1990) view, enhances the intensity of domestic competitiveness. The disposition
of domestic competitiveness and rivalries has an elementary influence on the global
competitiveness of a nation’s organization.

 

Chance and Government

Chance events are discontinuities that permit
shifts in competitive position. Unconventional establishments allowed in new
players who take advantages of the opportunities surfacing from a reshaped
industry framework, which are outside the control of governments and organizations (e.g.
wars, radical innovations, unexpected
oil price rises, and revolutions). Short-term benefits provided through
protection and subsidies from government intervention only generate an additional
request for government aid in the industry. The government has insufficient
power to generate advantages on its own although it can increase the odds of acquiring a competitive
advantage.

 

Cluster

According to Porter (2000), a cluster refers to a
geographically proximate
group of affiliated establishments and interconnected corporations in a specific field, connected by
complementarities and commonness
serving individual segments of an industry. From Porter’s view, the four
elements of the Diamond is a coherent productive structure, which is the most efficient
and noticeable in a
cluster (Snowdon and Stonehouse, 2006). Cluster impact competitiveness in various ways
which boost competitiveness
and innovation. More
efficient access to the workforce, information, and specialized suppliers are permitted through the geographical concentration of
businesses.

 

Criticism

In accordance with Michael Porter’s work of competitive advantage alongside the
‘diamond’ concept and his thoughts regarding how nations ought to compete, there were
varied responses.
Numerous authors
have scrutinized his thesis
and disprove a number of
his ideas. Porter’s diamond model does not include
international business activity in the form of multinational enterprises
(MNEs). This absence has been criticized by numerous authors, of whom Dunning appears to have best apprehended
the key ideas.

According to (Dunning, 2001),
MNEs activities in a nation or business do differ over time, in which it will affect
the elements of the Diamond. The capabilities of MNEs could
be affected by the positioning of diamonds of the foreign nations in which they
manufacture, which could ultimately impact the capabilities of the home
countries and competitiveness of the resources (Dunning, 1993). According to
Dunning, the domestic influences on the diamond should be deemed as only an
exceptional case of
the global influences
which is the other way around from Porter’s, as he is left with the perception
that Porter regards the global influences on the diamond as an ‘add-on’ to the
domestic influences.

Porter’s Diamond failed
to apprehend that for
small, open trading
economies, their
own home Diamond is less relevant than the Diamond of their target markets, as
businesses earn most of their revenues outside their home country (Rugman
and D’Cruz, 1993). As quoted from Brouthers and Brouthers (1997), “the
Double-Diamond and Multiple-Diamond methods of calculating a country’s
competitive advantage are superior to Porter’s Single-Diamond method” for small
countries.

Porter claimed that domestic
firms experience a procedure of market share destruction and decrease due to
the lack of ability to safeguard their own markets, in which inbound foreign direct
investment (FDI) does not increase domestic competition exceptionally. However, China’s present-day
development deduced that the country’s success has been accredited to inward FDI—according to Liu
and Song (1997), who adopted Dunning’s (1995) extension of the Porter model, which adds ‘multinational
business activity’ as a factor
of competitive advantage. A further disagreement of Porter framework is concerned with his belief
that outward FDI is an indication of competitive strength in a country’s industry
whereas inward investment suggests that ‘the procedure of competitive
up-grading is not completely healthy’ (CAN, p. 671).

According
to Reich (1990) and Waverman (1995), the diamond and its four corners are so extensive and so
general that it tries to describe
all features of competition and trade, and incorporate everything which might contribute to success, but ends up recognizing
almost nothing of
importance and explaining nothing. In contrary to Porter’s theory, the nation
state no longer represents the base for a MNEs or business, and there are
no specific grounds on why a multinational require a home base. National
clusters have already evolved into transnational ones—where firms can source
factors, seek related and supporting industries, and meet demand and rivalry in
“clusters” that cross national borders (Rugman, 1992, 1993).

Critics argued that the significance of geographic vicinity might
be more restricted
than proposed and has been overemphasized in the model (Penttinen, 1994), partially
due to the
geographical scale of production which differs amongst industries and is bound to cross national borders
and not fixed (Jacobs,
1995). As mentioned by Krugman (1991), it is stated that countries do not compete globally as
they are not like firms, rivalling with competitors in the global market place.
Daly (1993), in common
with Eilon (1990), Gray (1991) and Waverman (1995), adopted the market share illustration
of competitiveness, and has applied export shares as the dependent variable, backing
by Porter’s own practice. They refute Porter’s opinion that wages and exchange rates and are insignificant
in the determination of competitiveness and found proof to back up the idea that export shares are
affected by exchange labour costs. Developing countries can disregard all four
stages illustrated by
Porter as they can mimic or bring in the business system and technology which thus
far exists in other developed nations. For an instance, due to the favourable exchange
rates policy and low wages, China was able to benefit and gain a cost advantage strategy and expand
their capacity by managing new products in their home country.

 

Conclusion

To conclude, the six attributes of Porter’s
Diamond either obstruct or promote the forming of competitive advantages of nations,
firms and clusters. All conditions need to be existent and beneficial for an
industry within a country to achieve global dominance. Developments in national
economies have a very powerful impact on a firms’ competitiveness, and there is
no competitive national economy without competitive firms, there is very little
connection between the two (economics and firms) lines of research (Chikan,
2008). According to Krugman (1994), countries, however, “do not go out of business”, which
makes the whole idea of national competitiveness “elusive”. The obsession
with competitiveness is both undesirable and dangerous, and competitiveness is
an insignificant word when administered to national economies.

References

A.D.Chandler (1994), “The Competitive
Performance of U.S. Industrial Enterprise since the Second World War”,
Business History Review 68

Brian Snowdon and George Stonehouse (2006). Journal of International Business Studies,
Palgrave Macmillan Journals, Vol. 37, No. 2, pp. 163-175

Brouthers, K. D., & Brouthers, L. E.
(1997). Explaining national competitive advantage for a small European country:
A test of three competing models. International Business Review, 6(1), 53-70.

Chikan, A, (2008). “National and firm competitiveness: a general research model”,
Competitiveness Review: An International Business Journal, Vol. 18 Issue: 1/2,
pp.20-28

Daly, D. J. (1993). ‘Porter’s Diamond and
Exchange Rates’, Management International Review, 2, 119-134.

Davies, H. and P.D. Ellis (2000). “Porter’s ‘Competitive Advantage of
Nations’: Time for a final judgment?,” Journal of Management Studies, 37(8):
1189-1213.

Dunning, J. H. (1993). ‘Internationalising
Porter’s diamond’, Management International Review, 2, 7-15.

Dunning, J.H. (1995). ‘Commentary/point,
Think again Professor Krugman: competitiveness does matter’, International
Executive, 37(4): 315

Dunning, J. H. (2001). The eclectic (OLI)
paradigm of international production: past, present and future. International
journal of the economics of business, 8(2), 173-190.

Eilon, S. (1990). ‘On competitiveness’,
Omega: International Journal of Management Science, 20, i-iv.

Godfrey, R. (2015). Strategic
Management: A Critical Introduction. Routledge

Gray, H. P. (1991). ‘International
Competitiveness: A Review Article’ The International Trade Journal, V, 503-
517.

Huggins, R. and Izushi, H. (2012). Competition,
Competitive Advantage, and Clusters. OUP Oxford. pp.10

Jacobs, D. (1995) Alle clusters groot en
klein, in D. JACOBS and A.P. DE MAN (Eds) Clusters en Concurrentiekracht: Naar
een Nieuwe Praktijk in het Nederlandse Bedrijfsleven. Alphen aan den Rijn: Samsom
Bedrijfsinformatie bv.

Krugman, P.R. (1991). ‘Myths and realities of
US competitiveness’, Science. 254: 811.

Krugman, P. (1994). ‘Competitiveness: A Dangerous
Obsession, Foreign Affairs, 73, 2, 28-44.

Lynn, D. and Wang, T. (2013). Emerging market
real estate investment. Hoboken, N.J.: Wiley.

Penttinen, R. (1994). Summary of the Critique on Porter’s Diamond Model: Porter’s Diamond
Model Modied to Suit the Finnish Paper and Board Machine Industry, ETLA
Discussion Paper No. 462. Helsinki: The Research Institute of the Finnish
Economy.

Porter, Michael E. (1990). The
competitive advantage of nations. New York: Free Press. Print.

Reich, R. (1990). ‘But now we’re global’,
Times Literary Supplement, Aug. 30, 925-926.

Robert Huggins and Hiro Izushi (2011/2012). Competition, Competitive
Advantage, and Clusters: The Ideas of Michael Porter (Oxford: Oxford University
Press), pp. 303, p/b,

Rugman, A. M. (1992). ‘Porter takes the wrong turn’, Business Quarterly,
56, 3, 59-64.

Rugman, A. M. and J. R. D’Cruz (1993). ‘The “Double Diamond” Model of
International Competitiveness: The Canadian Experience’, Management
International Review, 2, 17-39.

Waverman, L. (1995). ‘A critical analysis of
Porter’s 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.