2MICHAEL PORTER…Originator of the THEORY OF NATIONAL COMPETITIVE ADVANTAGE
3Michael Porter’s Theory of National Competitive Advantage/Porter’s Diamond published in 1990 was based on a study of 100 firms in 10 developed nationsPorter questions how Switzerland and Japan could become success stories without assumed prerequisits
4a sizeable demand from sophisticated consumers, FACTORS, which MICHAEL PORTER BELIEVED EXTENDED BEYOND NATURAL ENDOWMENT, INCLUDE….a sizeable demand from sophisticated consumers,an educated and skilled workforce,intense competition in the industrythe existence of related and supporting suppliers
5Porter also discusses external influences such as government and chance demand conditions: A company facing a more competitive environment will strive to make itself more efficientFactors of production are nothing more than the inputs to compete in any industry, such as Labour, arable land, natural resources, capital, and infrastructureThese are clearly important but PORTER now believes they are less vital to success than before.
6Factors most important to competitive advantage in most industries, especially in the industries most vital to productivity growth in advanced economies, are not inherited but are created within a nation, through processes that differ widely across nations and among industries
7Porter’s diamond framework GovernmentStructure of Firms and RivalryFactor ConditionsDemandConditionsChanceRelated and Supporting IndustriesAdapted from Michael E. Porter, The Competitive Advantage of Nations(New York,: Free Press, 1990, pg. 72)
8Factor conditions These include: the quantity, skills, and cost of the personnel;the abundance, quality, accessibility, and cost of the nation’s physical resources such as land water, mineral deposit, timber, hydroelectric power and fishing grounds;the nation’s stock of knowledge resources, including scientific, technical, and market knowledge that affect the quantity and quality of goods and services;the amount and cost of capital resources that are available to finance industry;the type, quality, and user cost of the infrastructure, including the nation’s transportation system, communications system, healt-care system, and other factors that directly affect the quality of life in the country.
9Demand conditions These include: the composition in the home markets as reflected by the various market niches that exists and buyer sophisticationsthe size and growth rate of the home demand;the ways through which domestic demand is internationalized and pulls a nation’s products and services abroad
10Related and supporting industries These include:the presence of internationally competitive supplier industries that create advantages in downstream industries through efficient, early, or rapid access to cost-effective inputsinternationally competitive related industries that can coordinate and share activities in the value chain when competing or those that involve complementary products.
11Firm strategy, structure, and rivalry These include:the ways in which firms are managed and choose to compete;the goals that companies seek to attain as well as the motivations ot their employees and managers;the amount of domestic rivalry and the creation and persistence of competitive advantage in the respective industry.
12The role of chanceChance events can nullify the advantages of some competitors and bring about a shift in overall competitive position because of developments such as:new inventions;significant shifts in world financial markets or exchange rates;discontinuities in input costs such as oil shocks
13The role of governmentGovernment can influence all 4 of the major determinants through actions such as:subsidies;education policies;the regulation or deregulation of capital markets;the establishment of local product standards and regulations;the purchase of goods and service;tax laws;antitrust regulation.
14ConclusionsModern models of national competitiveness prefer to use firms as units of analysisFactor endowment matters lessGovernmental policies should be providing beneficial environment rather than spend resources by picking winnersTheories of national competitiveness do not account for power relations between states