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Competitive Advantage of Nations

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Competitive Advantage of Nations

  1. 1. Competitive Advantage of Nations Author: Michael Porter Presenter: Wesley Shu Prepared for EMBA, Feng-Chia University
  2. 2. Eroded Early Mover Advantages <ul><li>Customer relationship </li></ul><ul><li>Scale economies </li></ul><ul><li>Loyalty of distribution channels </li></ul><ul><li>All can be overtaken by competitors if not improved. </li></ul>
  3. 3. Global Competitiveness Report <ul><li>Composition of GCI </li></ul><ul><li>GCI Ranking </li></ul>
  4. 4. Su stainability <ul><li>The only way to sustain a competitive advantage is to upgrade it. </li></ul>
  5. 5. <ul><li>Why companies capable of innovation in some nations? </li></ul><ul><li>Why do they pursue improvements,? </li></ul><ul><li>Why are they able to overcome the substantial barriers? </li></ul>
  6. 6. The Diamond of National Advantage Firm Strategy, Structure, and Rivalry Demand Conditions Related and Supporting Industries Factor Conditions
  7. 7. F a ctor Condition <ul><li>Availability of resources and skills necessary for competitive advantage in an industry </li></ul><ul><li>e.g., Skilled Labor or Infrastructure </li></ul>
  8. 8. Demand Condition <ul><li>Home market – the information that shapes the opportunities that companies perceive and the directions in which they deploy their resources and skills. </li></ul>
  9. 9. Related & Supporting Industries <ul><li>The international competitiveness of supplier industries & other related industries </li></ul>
  10. 10. Firm Strategy, Structure, & Rivalry <ul><li>The conditions governing how companies are created, organized, and managed, and the nature of domestic rivalry </li></ul>
  11. 11. Factor Conditions <ul><li>A nation does not inherit but instead creates the most important factors of production to form the backbone of any advanced economy. </li></ul>
  12. 12. Factor Conditions <ul><li>The rate and efficiency with which a nation creates, upgrades, and deploys the factors is more important than the volume. </li></ul>
  13. 13. Factor Conditions <ul><li>A factor must be highly specialized to an industry’s particular needs to support competitive advantage. </li></ul>
  14. 14. Factor Conditions <ul><li>Highly specialized factors come from world-class institutes that create and then upgrade them. </li></ul>
  15. 15. Factor Conditions <ul><li>Selective disadvantages can prod a company to innovate and upgrade – </li></ul><ul><li>e.g., high land costs, labor shortage, or the lack of local raw materials lead companies to innovating and upgrading to compete. </li></ul>
  16. 16. Factor Conditions - Disadvantage <ul><li>The following conditions have to be met for disadvantage-advantage transformation to work: </li></ul>
  17. 17. Factor Conditions - Disadvantage <ul><li>Signal companies and companies innovate in advance of rivals </li></ul><ul><li>Favorable conditions in other aspects of the diamond </li></ul><ul><li>Company commitment </li></ul>
  18. 18. Demand Conditions <ul><li>Home demand gives companies clear and early picture of emerging buyer needs </li></ul><ul><li>Demanding buyers </li></ul>
  19. 19. Demand Conditions <ul><li>The character of home demand is more significant than the size. </li></ul>
  20. 20. Characters of Demand Conditions <ul><li>Market segment is larger or more visible than in foreign countries. </li></ul><ul><li>Buyers are more sophisticated. </li></ul><ul><li>Buyers’ needs anticipate or even shape those of other nations </li></ul>
  21. 21. Characters of Demand Conditions <ul><li>Exporting values and tastes as well as products </li></ul>
  22. 22. Related & Supporting Industries <ul><li>Those who are internationally competitive can provide competitive production methods and trigger innovation and upgrading. </li></ul>
  23. 23. Firm Strategy, Structure, & Rivalry Corporate Structure & Nature of Domestic Rivalry National Circumstances & Context Firm Strategy
  24. 24. Firm Strategy, Structure, & Rivalry – Germany Strictly hierarchical organization & management practices with technical background top managers National Circumstances & Context Technical Oriented Industries
  25. 25. Firm Strategy, Structure, & Rivalry – Italy Family owned, medium size companies with sophisticated taste National Circumstances & Context Consumer goods & services
  26. 26. Firm Strategy, Structure, & Rivalry <ul><li>Domestic rivalry to stimulate competition, creating pressure on companies to innovate and improve </li></ul>
  27. 27. The Diamond as a System <ul><li>The effect of one point often depends on the state of others. E.g., sophisticated buyers & human resources </li></ul><ul><li>Each point can reinforce others. E.g., domestic rivalry promotes improvement in all the other determinants. </li></ul>
  28. 28. The Diamond as a System <ul><li>Nations are rarely home to just one competitive industry – clusters of industries. </li></ul>
  29. 29. The Role of Government <ul><li>Catalyst and Challenger </li></ul>
  30. 30. The Role of Government <ul><li>But in politics, a decade is an eternity. Consequently, most governments favor policies that offer easily perceived short-term benefits, such as subsidies, protection, and arranged mergers – the very policies that retard innovation. </li></ul>
  31. 31. The Role of Government <ul><li>Focus on specialized factor creation. </li></ul><ul><li>A void intervening in factor and currency markets. </li></ul><ul><li>E nforce strict product, safety, and environmental standards </li></ul>
  32. 32. The Role of Government <ul><li>S harply limit direct cooperation among industry rivals. </li></ul><ul><li>P romote goals that lead to sustained investment </li></ul><ul><li>D eregulate competition </li></ul><ul><li>E nforce strong domestic antitrust policies </li></ul>
  33. 33. Focus on Specialized Factor Creation <ul><li>G eneral factors rarely produce competitive advantage, e.g., secondary education system, broad national concern such as health care. </li></ul><ul><li>S pecialized apprenticeship programs, university research efforts linked with industries, private company investment ultimately create the factors that will yield advantage. </li></ul>
  34. 34. Avoid intervening in factor & currency markets <ul><li>E .g., lower factor cost </li></ul><ul><li>E .g., currency devaluation </li></ul>
  35. 35. Avoid intervening in factor & currency markets <ul><li>E .g., lower factor cost </li></ul><ul><li>E .g., currency devaluation </li></ul>
  36. 36. Sharply limit direct cooperation among industry rivals <ul><li>C ompanies rarely contribute their best scientists and engineers to cooperative projects. </li></ul><ul><li>Divert company attention and resources from proprietary research </li></ul><ul><li>Value of cooperative research: S ignal the importance of emerging technical areas </li></ul>
  37. 37. Company Agenda <ul><li>Create pressures for innovation </li></ul><ul><li>Seek out the most capable competitors as motivators </li></ul><ul><li>Establish early-warning systems – translate into early-mover advantages </li></ul><ul><li>Improve the national diamond </li></ul>
  38. 38. Company Agenda <ul><li>W elcome domestic rivalry </li></ul><ul><li>G lobalize to tap selective advantages in other nations </li></ul><ul><li>Use alliances only selectively </li></ul><ul><li>Locate the home base to support competitive advantage </li></ul>
  39. 39. Improve the National Diamond <ul><li>F orm clusters – work with its home-nation buyers, suppliers, and channels </li></ul><ul><li>T ake explicit steps to create specialized factors </li></ul>