Porter's Diamond - National Competitive Advantage

Questions

• Why do countries trade the products and services they do?
• What are the advantages and disadvantages to this specialized development?
• What is the role of government in developing a national competitive advantage?
• What do you think about Porter's model? Is it still relevant?

FACTOR ENDOWMENTS OR FACTORS OF PRODUCTION

• Inputs necessary to compete in an industry
• Labor
• Land
• Natural Resources
• Capital
• Infrastructure

Factors can be
BASIC

• Natural resources
• Labor

ADVANCED

• Digital communications
• Highly educated workforce

GENERAL

• Highway system
• Supply of debt capital

SPECIALIZED

• Skilled personnel in specific industry

Questions

Which factors are more important for competitive advantage? Why?

Factors - implications

• Develop advanced and special abilities when lack the basic factors?
• Country can create own important factors - skilled labor and technology
• What factors you have are often less important than how you use them
• Disadvantages in factors often force innovation which can lead to an advantage
• Why could China's mass access to labor be a bad thing/
• Is there an advantage to the US highly skilled and highly paid workforce?

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DEMAND CONDITIONS

Nature of home demand for industry's product or service
Size - lead to scale efficient production
Efficiency - lead to domination of industry in other countries
Specialized demand - lead to carry over in other countries

• Swiss - tunneling equipment
• Japan - compact quiet air conditioners

Questions
What advantages do the US and Japan get from their home demand? Why?
What are the implications for China?

Demand Implications

• Local demand larger than others - concentration by company which leads to advantage
• Demanding local market leads to advantage
• Trend-setting local market leads to advantage - ability to anticipate global trends
• Implications for China - awakening the Dragon

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RELATED AND SUPPORTING INDUSTRIES

• Strengthen the potential for cost efficiencies and innovation
• Italy - leader in shoe because of leather-processing; leather working machinery and design
• Japan - cameras and copiers

Related - Implications

• Proximity increases range of inputs available in a single location
• Efficient economies of scare for suppliers
• Resources created from interaction - information flow, employee pooling, specialized and tacit knowledge
• Enhanced social networks - informal friendships and information flows

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FIRM STRATEGY, STRUCTURE, AND RIVALRY

• Conditions governing how companies are created, organized, and managed and the nature of domestic rivalry.
• strategies and structures influenced by country

Questions
What differences are there in strategy and structure based on country?
Why is in country rivalry helpful?

Firms - Implications

• Local conditions impact strategy and structure which impact type of firm.
• In Five Force Model industry more attractive if less rivalry. However in long run more rivalry is better because it puts pressure on forces to innovate and improve.
• Local rivalry pushes beyond basic advantage in factors
• Self-reinforcing

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GOVERNMENT ROLE

• Encourage companies to raise performance -strict product standards
• Would US government putting in place higher mpg standards have helped the US auto industry?
• Stimulate early demand for advance products
• Focus on specialized factor creation
• Stimulate local rivalry

Question
What does this suggest govt role should be in promoting "green energy"?