IntroductionProfessor Michael Porter’s (1990) work onCompetitive Advantage of Nations is greatly influential yet tendentious (Daviesand Ellis, 2000) which evoked considerable interest and eager debates that weremet with contrasting views. This essay will find out why so much emphasis wasplaced on the diamond framework by concluding the concept of Porter’s Diamondalongside his theory and framework, and lastly the academic criticism thismodel has attracted. Porter’sCompetitive Advantage of NationsPorter’s”national diamond” which recognized a set of six factors—factor conditions; demand conditions; relatedand supporting industries; and firmstrategy, structure and rivalry; chanceand government; and cluster (Davies and Ellis, 2000)—is a framework to analyzewhy some nations and industries are more competitive than others (Lynn andWang, 2013). Instead of striving to the become a conqueror in all industriesand eventually exhibiting weakened results, nations can reach globalcompetitiveness by concentrating firstly on the industrial sectors, which offerthe ideal possibility of success (Porter, 1990). Factor ConditionsGodfrey (2015) statesthat factor conditions are the nation’s key position in factors of production—skilled labour or infrastructure, requiredto engage in a particular industry. These conditions can additionally be splitinto two groups—basic factors (e.
g. climate,natural resources and location); and advancedfactors (e.g. graduate engineers and, information and communicationsinfrastructure). According to Porter (1990), the outcome of an all-out effortinstead of succeeded by nations are known as advanced factors, and they are themost irreplaceable production factors in today’s knowledge economy. Demand ConditionsAccording to Porter (1990), home demand is decided by three keycharacteristics—the toolsthat transport domestic preferencesto foreign markets; their scope and growth rate, and their mixture (mix ofcustomers’ needs and wants).
The pace and character of development and transformation by anation’s firms can be createdby demand conditions inside a nation. It is the character of the home demand rather than the sizethat makes a difference.Home demand conditions impact the forming of a particular factor conditions and are the key toglobal prosperity. Related and Supporting IndustriesThe existence or absenteeism in the nation ofglobally competitivesupplier and related industriesis a crucial factor. Advantages may be ushered by one globally successful industry to other insupporting or correspondingindustries.
Globally competitive supplier industries in a nation assist firms to recognize new opportunities and techniqueto register advanced technology,frequently through existing coordination instead of just supplying early,efficient, swift and sometimes advantageous entrance to the most cost-effectiveinputs. Firm Strategy, Structure and RivalryFirm strategy, structure and rivalry involvedthe stress onorganizations to innovate and invest, which emerge from aggressivedomestic competitiveness; and a match between the objectives of the workers, managers and ownersand the sources of competitive advantage in a specific industry (Huggins andIzushi, 2011/2012). Geographicconcentration—in Porter’s (1990) view, enhances the intensity of domestic competitiveness.
The dispositionof domestic competitiveness and rivalries has an elementary influence on the globalcompetitiveness of a nation’s organization. Chance and Government Chance events are discontinuities that permitshifts in competitive position. Unconventional establishments allowed in newplayers who take advantages of the opportunities surfacing from a reshapedindustry framework, which are outside the control of governments and organizations (e.g.
wars, radical innovations, unexpectedoil price rises, and revolutions). Short-term benefits provided throughprotection and subsidies from government intervention only generate an additionalrequest for government aid in the industry. The government has insufficientpower to generate advantages on its own although it can increase the odds of acquiring a competitiveadvantage.
ClusterAccording to Porter (2000), a cluster refers to ageographically proximategroup of affiliated establishments and interconnected corporations in a specific field, connected bycomplementarities and commonnessserving individual segments of an industry. From Porter’s view, the fourelements of the Diamond is a coherent productive structure, which is the most efficientand noticeable in acluster (Snowdon and Stonehouse, 2006). Cluster impact competitiveness in various wayswhich boost competitivenessand innovation. Moreefficient access to the workforce, information, and specialized suppliers are permitted through the geographical concentration ofbusinesses. CriticismIn accordance with Michael Porter’s work of competitive advantage alongside the’diamond’ concept and his thoughts regarding how nations ought to compete, there werevaried responses.Numerous authorshave scrutinized his thesisand disprove a number ofhis ideas.
Porter’s diamond model does not includeinternational business activity in the form of multinational enterprises(MNEs). This absence has been criticized by numerous authors, of whom Dunning appears to have best apprehendedthe key ideas.According to (Dunning, 2001),MNEs activities in a nation or business do differ over time, in which it will affectthe elements of the Diamond.
The capabilities of MNEs couldbe affected by the positioning of diamonds of the foreign nations in which theymanufacture, which could ultimately impact the capabilities of the homecountries and competitiveness of the resources (Dunning, 1993). According toDunning, the domestic influences on the diamond should be deemed as only anexceptional case ofthe global influenceswhich is the other way around from Porter’s, as he is left with the perceptionthat Porter regards the global influences on the diamond as an ‘add-on’ to thedomestic influences.Porter’s Diamond failedto apprehend that forsmall, open tradingeconomies, theirown home Diamond is less relevant than the Diamond of their target markets, asbusinesses earn most of their revenues outside their home country (Rugmanand D’Cruz, 1993).
As quoted from Brouthers and Brouthers (1997), “theDouble-Diamond and Multiple-Diamond methods of calculating a country’scompetitive advantage are superior to Porter’s Single-Diamond method” for smallcountries.Porter claimed that domesticfirms experience a procedure of market share destruction and decrease due tothe lack of ability to safeguard their own markets, in which inbound foreign directinvestment (FDI) does not increase domestic competition exceptionally. However, China’s present-daydevelopment deduced that the country’s success has been accredited to inward FDI—according to Liuand Song (1997), who adopted Dunning’s (1995) extension of the Porter model, which adds ‘multinationalbusiness activity’ as a factorof competitive advantage. A further disagreement of Porter framework is concerned with his beliefthat outward FDI is an indication of competitive strength in a country’s industrywhereas inward investment suggests that ‘the procedure of competitiveup-grading is not completely healthy’ (CAN, p. 671). Accordingto Reich (1990) and Waverman (1995), the diamond and its four corners are so extensive and sogeneral that it tries to describeall features of competition and trade, and incorporate everything which might contribute to success, but ends up recognizingalmost nothing ofimportance and explaining nothing. In contrary to Porter’s theory, the nationstate no longer represents the base for a MNEs or business, and there areno specific grounds on why a multinational require a home base.
Nationalclusters have already evolved into transnational ones—where firms can sourcefactors, 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 mightbe more restrictedthan proposed and has been overemphasized in the model (Penttinen, 1994), partiallydue to thegeographical scale of production which differs amongst industries and is bound to cross national bordersand not fixed (Jacobs,1995). As mentioned by Krugman (1991), it is stated that countries do not compete globally asthey are not like firms, rivalling with competitors in the global market place.Daly (1993), in commonwith Eilon (1990), Gray (1991) and Waverman (1995), adopted the market share illustrationof competitiveness, and has applied export shares as the dependent variable, backingby Porter’s own practice. They refute Porter’s opinion that wages and exchange rates and are insignificantin the determination of competitiveness and found proof to back up the idea that export shares areaffected by exchange labour costs.
Developing countries can disregard all fourstages illustrated byPorter as they can mimic or bring in the business system and technology which thusfar exists in other developed nations. For an instance, due to the favourable exchangerates policy and low wages, China was able to benefit and gain a cost advantage strategy and expandtheir capacity by managing new products in their home country. ConclusionTo conclude, the six attributes of Porter’sDiamond either obstruct or promote the forming of competitive advantages of nations,firms and clusters. All conditions need to be existent and beneficial for anindustry within a country to achieve global dominance. Developments in nationaleconomies have a very powerful impact on a firms’ competitiveness, and there isno competitive national economy without competitive firms, there is very littleconnection between the two (economics and firms) lines of research (Chikan,2008). According to Krugman (1994), countries, however, “do not go out of business”, whichmakes the whole idea of national competitiveness “elusive”. The obsessionwith competitiveness is both undesirable and dangerous, and competitiveness isan insignificant word when administered to national economies. ReferencesA.
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