Competitive Advantage Of Nations Analysis

INTRODUCTION

The Competitive Advantage of Nations, authored by Michael Porter has been an influential work that has also drawn controversy. His work highlights a framework which identifies the success factors of specific industries and of how they contribute to national prosperity.

This essay will present and explain Michael Porter’s work and his usage of the ‘diamond’ as a management tool in supplementing his theory. An earlier segment of this essay will describe briefly, The Competitive Advantage of Nations. This segment will highlight Michael Porter’s general view on what defines national prosperity and his perception of national competitive advantage. This will be followed by an explanation of the ‘diamond’ of national competitive advantage,

Presented below, are the six elements of the diamond of national competitive advantage:

FACTOR CONDITIONS

Porter (1990) explains that to support competitive advantage, a factor must be greatly specialised to an industry’s specific needs, for example, an optic-specialised scientific institute, or a venture capital pool to fund software firms. This concept rests on the premise that the scarcity of the factor raises the difficulty for foreign competition to imitate.

A nation must create the factor, for example, Denmark has two specialised hospitals studying and treating diabetes; it is also the world’s leader in insulin exports (Porter, 1990).

DEMAND CONDITIONS

Nations achieve competitive advantage in industries where the home demand provides a clearer and earlier image of upcoming buyer needs to companies. Demanding buyers force firms to innovate faster, thus achieving more sophisticated competitive advantages than foreign competitors. The magnitude of home demand is less important compared to its character, and must be specific to the domestic market, for example, hydraulic excavators used for construction in Japan which are less renowned in foreign markets (Porter,

Governments intervene in the form of subsidies; protection provides short-term benefits and weakens industry innovativeness and dynamism, thus increasing demand for government assistance. The government should be a catalyst and competitor to spur domestic competition, enhance innovation and concentrate on specialised factor-creation, for example, a solid education system, strong national infrastructure and healthcare (Porter, 1990).

THE DIAMOND IN A CLUSTER

A cluster is a geographically proximate assembly of interrelated firms and organisations in a specific field, connected through commonalities and complementarities responsible for different sections of an industry (Porter, 2000).

Porter (1990) believes that due to a cluster’s productive framework, the diamond’s elements are more observable and operational in it and thus, a cluster triggers innovation and competition.

According to Snowdon and Stonehouse (2006), innovation is more opportune and easier to understand in a cluster. Clusters act as a convention where discussions are more rational and attentive towards specific challenges encountered by firms, allowing policy-makers to appropriately address