Post on 03-Apr-2018
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National Competitiveness
in Global Economy
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MICHAEL PORTEROriginator of the
THEORY OF NATIONAL COMPETITIVE
ADVANTAGE
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Michael Porters Theory of National
Competitive Advantage/Porters
Diamondpublished in 1990 was based ona study of 100 firms in 10 developed
nations
Porter questions how Switzerland and
Japan could become success stories
without assumed prerequisits
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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 industry
the existence of related and supporting
suppliers
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Porter also discusses external influences such asgovernment and chance demand conditions:
A company facing a more competitive environment willstrive to make itself more efficient
Factors of production are nothing more than the inputsto compete in any industry, such as Labour, arable land,natural resources, capital, and infrastructure
These are clearly important but PORTER now believesthey are less vital to success than before.
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Factors 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 acrossnations and among industries
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Porters diamond framework
Government
Chance
Structure of
Firms and
Rivalry
Related and
Supporting
Industries
Demand
Conditions
Factor
Conditions
Adapted from Michael E. Porter, The Competitive Advantage of Nations
(New York,: Free Press, 1990, pg. 72)
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These include:1. the quantity, skills, and cost of the personnel;
2. the abundance, quality, accessibility, and cost of the nations
physical resources such as land water, mineral deposit, timber,
hydroelectric power and fishing grounds;
3. the nations stock of knowledge resources, including scientific,
technical, and market knowledge that affect the quantity and
quality of goods and services;
4. the amount and cost of capital resources that are available to
finance industry;5. the type, quality, and user cost of the infrastructure, including
the nations transportation system, communications system,
healt-care system, and other factors that directly affect the
quality of life in the country.
Factor conditions
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Demand conditions
These include:
1. the composition in the home markets as reflected by the
various market niches that exists and buyersophistications
2. the size and growth rate of the home demand;
3. the ways through which domestic demand is
internationalized and pulls a nations products andservices abroad
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Related and supporting industries
These include:
1. the presence of internationally competitive supplier
industries that create advantages in downstream industriesthrough efficient, early, or rapid access to cost-effective
inputs
2. internationally competitive related industries that can
coordinate and share activities in the value chain whencompeting or those that involve complementary products.
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Firm strategy, structure, and rivalry
These include:
1. the ways in which firms are managed and choose to
compete;2. the goals that companies seek to attain as well as the
motivations ot their employees and managers;
3. the amount of domestic rivalry and the creation and
persistence of competitive advantage in the respectiveindustry.
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The role of chance
Chance events can nullify the advantages of some
competitors and bring about a shift in overall competitive
position because of developments such as:
1.new inventions;
2.significant shifts in world financial markets or
exchange rates;
3.discontinuities in input costs such as oil shocks
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The role of government
Government can influence all 4 of the major determinants
through actions such as:
1. subsidies;2. education policies;
3. the regulation or deregulation of capital markets;
4. the establishment of local product standards and regulations;
5. the purchase of goods and service;6. tax laws;
7. antitrust regulation.
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Conclusions
Modern models of national competitiveness prefer to
use firms as units of analysis
Factor endowment matters less
Governmental policies should be providing beneficialenvironment rather than spend resources by picking
winners
Theories of national competitiveness do not accountfor power relations between states