PORTERS DIAMOND MODEL

Presented by:

RITU GUPTA

INTRODUCTION OF PORTERS DIAMOND MODEL

It analyze why particular industry becomes competitive in particular locations. Determining factors of national advantage has become known as National Diamond model . It suggests that national home base of an organization plays an important role in shaping the extent to which it is likely to achieve advantage on a global scale.

ROLE OF HOME BASE

A competitive firm can choose from a number of trade, contractual, and investment modes of foreign market entry Porter introduced a model the diamond model Focuses on 4 central aspects of the home baseFactor conditions Demand conditions Related & supporting industries Firm strategy, structure, & rivalry

THE HOME BASE DIAMOND

THE PORTER DIAMOND

FACTOR CONDITIONS
A country creates its own factors such as skilled resources & technological base. The stock of factors at a given time is less important than the extent that they are upgraded & deployed. Local disadvantages in factors of production force innovation. This innovation often leads to a national comparative advantage.

DEMAND CONDITIONS
When the market for a particular product is larger locally than in foreign markets, the local firm devote more attention to that product than foreign firms. A more demanding local market leads to national advantage. A strong trend setting, local market helps local firms anticipate global firms.

RELATED & SUPPORTING INDUSTRIES

Can produce inputs which are important for innovation and internationalization. Supplying industries in the home base has several advantages in downstream industries Efficient, early, rapid, and sometimes preferential access to the most cost-effective inputs Ongoing coordination Innovation and upgrading A competitive domestic supplier industry is better than relying on well-qualified foreign suppliers.

FIRM STRATEGY, STRUCTURE, AND RIVALRY

Local conditions affect firm s strategy. High local rivalry results in less global rivalry. Local rivalry forces firms to move beyond basic advantages that the home country may enjoy, such as low factor costs.

PORTER DIAMOND INTERACTIONS

THE DIAMOND AS A SYSTEM

The effect of one point depends on the others. For example, factor disadvantages will not lead firms to innovate unless there is sufficient rivalry. The diamond also is a self-reinforcing system. For example, a high level of rivalry often leads to the formation of unique specialized factors.

GOVERNMENTS ROLE
Encourage companies to raise their performance. Stimulate early demand for advanced products. Focus on specialized factor creation. Stimulate local rivalry by limiting direct cooperation & enforcing antitrust regulations.

APPLICATION TO THE JAPANESE FAX MACHINE INDUSTRY

Japanese factor conditions : Japan has a relatively high number of electrical engineers per capita. Japanese demand conditions : the japanese market was very demanding because of the written language. Large number of related & supporting industries with good technology, for example, good miniaturized components since there is less space in Japan.

CONTDuu..

Domestic rivalry in japanese fax machine industry pushed innovation & resulted in rapid cost reductions. Govt. support : NTT (the state owned telecom company) changed its cumbersome approval requirements for each installation to a general type approval.

PHILIPPINE CALL CENTRE INDUSTRY

Key advantages of the Philippine :Abundance of low cost American English speaking labor force Means of diversifying geo-political risk Cheap telecommunication cost

FACTOR CONDITIONS IN ASEAN CONTEXT

Low manufacturing activity created ASEAN countries dependence on service related industries. Less of industrial activity has created presence of skilled labor in ASEAN Less presence of natural resources led to migration to non-natural resources. Good presence of English speaking labor.

DEMAND CONDITIONS IN ASEAN CONTEXT

The local customers demand high level of customer service which in turn has created an environment within firms to delight their customers. The high reliability on service sector is one of the main reason for creating a customer led environment.

RELATED & SUPPORTING ACTIVITIES IN ASEAN CONTEXT

Potential technology spillovers, & availability of skilled forces at lower cost The early liberalization & entry of multi-national companies in the region has led to developing a work force used to US style of working culture.

FIRM STRATEGY STRUCTURE & RIVALRY IN ASEAN CONTEXT

While countries such as Singapore attract investments into infrastructure, countries such as Philippines is likely to attract investments into highly dynamic computer & service industries. The ASEAN countries follow relatively flat management structure not hierarchical based. The rivalry of BPO companies in a small concentrated area of ASEAN would benefit from fierce competition & lead to spur innovation.

GOVERNMENTS ROLE IN ASEAN CONTEXT

Establishment of free trade zone by 2010. Encouragement of free movement of peoples. Tax rebates & smooth legal steps in start ups Recognition of infrastructure, quality standards & environmental standards.