National Competitiveness Drives Global Advantage in 10 Countries - Essay Sample

Introduction

Michael Porter alleges that the USA's dominance in exporting medical equipment, software, and movies; Japan in computerized machinery and electronics; Italy in home furnishings and fabrics is not accidental. Porter's assertions epitomize the national competitiveness concept that reveals the fact that wealth is created rather than inherited. In all the ten countries that Porter and his colleagues scrutinized they realized that organizations gained a competitive global advantage by increasing productivity, exploiting innovation, and capitalizing on their distinctive national character and history. Porter's initial work experience in Reagan's Commission on Industrial Competitiveness gave him an opportunity that enabled him to have a comprehensive view of the government's role. Porter assumes that government is a challenger and pusher rather than an institution that issues subsidies to safeguard industries. In the Book, Competitive Advantage of Nations, Porter emphasizes that competition and renewed effort are fundamental factors that empower firms to gain a global advantage (Porter, 1990). He questions policies that might hinder competition and recommends the endorsement of American antitrust regulations to eradicate monopolistic mergers. Porter's Diamond Model was designed so that ordinary readers, policymakers, economists, and business executives can exploit its competitive advantage factors to suit their countries' needs.

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Porter's in-depth understanding in economics prompted him to expound on competitive advantages of nations from a microeconomic perspective. Porter was able to correlate business strategy and industrial economic views. He claimed that an organization's competitiveness was influenced by return on investment; however, a state's competitiveness replicates productivity, which is measured by the products' value rather than volume. Porter argues that depreciating currency values obliges a country to be more competitive. But, he claims that declining wages in an economy indicate lack of competitiveness. Therefore, the ultimate productivity factor of an economy is characterized by the productivity of firms in a specific economy. The sophistication of organizations defines their productiveness while determining the competition and business environment in which the firms compete. In The Competitive Advantage of Nations, Porter sought to clarify the ideal business environment that can boost firms to attain successively higher productivity and achievement levels (Sasine, 1991). He acknowledged four key factors that formed Porter's Diamond Model of National Competitive Advantage.

Porter's Diamond Model of National Competitive Advantage

Factor Conditions

Factor conditions in a specific country refer to human, capital, and natural resources available. Some states are endowed with natural resources as such, the oil reserves in Saudi Arabia. Likewise, human resources are meant to create factor conditions, for example, scientific knowledge expertise, excellent infrastructure, and skillful labor force. Porter alleges that 'created' factor conditions are vital as opposed to 'natural' factors conditions that are readily available (Grant, 1991). The 'created' factor conditions should be upgraded continuously through the acquisition of new ideas and enhancement of skills. The competitive advantage arises from the establishment of world-class institutions that promote specific factors and continually upgrade them. Therefore, countries excel in industries that they are exceptionally good at developing factor conditions.

Factors are either advanced or basic, specialized or generalized. A viable competitive advantage in a specific industry is generated by advanced and specialized factors, for instance, a particular technology for that business. Generalized and basic factors are easily reproduced and generally inherited rather than being transformed, such as raw materials (Davies & Ellis, 2000). Insufficiency of basic resources often forces a firm to be innovative while abundancy of essential supplies encourages enterprises to be inefficient and complacent.

Demand Conditions

Local demand has a significant impact on how favorable industries in a specific nation operate. A large market presents numerous challenges; but, creates chances to prosper and enhance an organization. The existence of classy demand conditions from local clients compels firms to improve quality and foster innovative ideologies. Striving to fulfill the domestic market's demands propels organizations to develop and gain comprehensive perceptions into the likely future needs of consumers globally (Davies & Ellis, 2000). Countries have a competitive advantage in businesses where local customers give firms an early or clear impression of emerging consumer needs. Demanding customers do exert pressure on companies to devise appropriate innovation mechanisms that guarantee sustainable competitive advantages compared to their foreign competitors.

The scope of the local demand is vital to global success. Therefore, the characteristic of the domestic demand has a substantial influence that determines the difference rather than the demand's size. Demanding and sophisticated local buyers help businesses foresee buyers' needs to design satisfying products that will empower organizations to compete globally (Porter, 1990). An insignificant domestic demand might inspire companies to explore international markets and pursue a universal strategy to satisfy deficiencies in local demand conditions.

Related and Supporting Industries

A majority of firms rely on supplier companies to obtain raw materials, spare parts, and to exchange information. If an organization's supply chain system is productive, a business will produce high-quality goods that will enable them to thrive in the global and local market. Consequently, companies will foster innovation, productivity, and efficiency. The firms that share similar technologies, consumers, distribution channels, and provide comparable commodities are complementary. The presence of complementary businesses offers a foundation for focal industries to excel. Firms that often depend on partnerships and alliances to produce high-quality goods for their consumers are usually more competitive (Waverman, 1995). Suppliers play a fundamental role in improving innovation through the provision of high-quality and efficient inputs. They enhance the communication process by providing timely feedback. A country's organizations benefit most if the suppliers are global competitors. However, it might take years or decades of investments and hard work to establish strong supporting and related businesses that empower local firms to produce products that are competitive in the global market. Once a nation has succeeded to establish supporting and related industries the entire region benefits from their presence. As a result, startups and established firms cluster to share concepts and stimulate innovation.

Firm Strategy, Structure, and Rivalry

A country's social attitudes and norms towards business determine the way companies are managed and organized. The political and social environment have a discrete influence on the type of industries that are suitable in a particular nation (Grant, 1991). Therefore, businesses will probably flourish in nations with practices, structures, and strategies that create a conducive national environment that is suited to promote competitiveness.

The nature of domestic rivalry and competition has a significant effect on the global competitiveness of a country's firms. Local competitors provide an essential stimulus to persistence and creation of competitive advantage as domestic rivalries transform from business competition to personal rivalry. The struggle to secure social status, talented employees, and a considerable market share result in stiff domestic competition (Porter, 1990). The local rivalry and competition contribute to domestic industries producing high-quality goods that can compete against commodities produced by foreign firms.

Domestic competition terminates shared advantages that arise from being in the same geographical region, compelling industries to undermine their national subsidiaries to develop sustainable strengths. Porter argues that geographic concentration amplifies the magnitude of domestic rivalry (Porter, 1990). Domestic competition is instrumental to global competitiveness as it obliges business to devise unique capabilities and strengths. The intense domestic competition has forced companies to be innovative to retain their competitive advantage and compete in foreign markets easily.

Government and Chance

Chance exemplifies discontinuities that promote competitive shifts, for instance, technological trends. Government interventions through subsidies provide short-term advantages that destabilize dynamism and innovation among the businesses creating the need for legal protection. The government should serve as a challenger and catalyst to stimulate domestic rivalry and promote innovation. Besides, it should concentrate on specific factors conditions, such as good healthcare, educational system, and national infrastructure. The government should integrate Porter's model to foster dynamic national competitiveness to create development chances that are wealth-driven, innovation-driven, investment-driven, and factor-driven (Waverman, 1995). Therefore, Porter's Diamond Model exemplifies the government's potential role in nurturing an innovation-driven economy.

Porter's Diamond Model was devised so that entrepreneurs, legislators, and economists can utilize its competitive advantage factors to suit their countries' needs. He recognized four key elements that facilitated Porter's Diamond Model of National Competitive Advantage. A shortage of basic resources often compels a firm to be innovative while abundancy of essential supplies encourages enterprises to be inefficient and complacent. The competitive advantage arises from the establishment of world-class institutions that promote 'specialized' factors and continuously upgrade them. Demanding consumers do exert pressure on companies to develop appropriate innovation mechanisms that guarantee sustainable competitive advantages compared to their foreign competitors. Firms that often depend on partnerships and alliances to produce high-quality goods for their customers are usually more competitive and unique. Industries will probably flourish in nations with practices, structures, and strategies that create a conducive national environment that is suited to promote competitiveness. The government should endorse Porter's model to foster dynamic national competitiveness to create development chances that are wealth-driven, innovation-driven, investment-driven, and factor-driven.

References

Davies, H., & Ellis, P. (2000). Porter's competitive advantage of nations: Time for the final judgement? Journal of Management Studies, 37(8), 1189-1214. doi: 10.1111/1467-6486.00221

Grant, R. (1991). Porter's 'competitive advantage of nations': An assessment. Strategic Management Journal, 12(7), 535-548. doi: 10.1002/smj.4250120706

Porter, M. (1990). The competitive advantage of nations. Retrieved 9 August 2019, from https://hbr.org/1990/03/the-competitive-advantage-of-nations

Sasine, R. (1991). The competitive advantage of nations (review). SAIS Review, 11(2), 221-222. doi: 10.1353/sais.1991.0035

Waverman, L. (1995). A critical analysis of Porter's framework on the competitive advantage of nations. Beyond The Diamond, 5, 67-95. doi: 10.1016/s1064-4857(95)05004-3