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1.

To explain on the basis on Porters


Diamond, why some nations succeed
and others fail in International
Competition!
2. A case of the Korean Economy based on
Porters Diamond

1.

INTRODUCTION Qno.# 1

2.

PORTERS DIAMOND MODEL

3.

PORTERS DIAMOND EXPLANATION


A.
DEMAND CONDITIONS
B.
FACTOR ENDOWMENTS
C.
SUPPORT INDUSTRIES
D.
FIRM STRATEGY,RIVELRY
E.
GOVERNMENT
F.
CHANCE

4.

PORTERs PREDICTIONS

5.

PORTERs CRITICISM

6.

Qno.# 2 CASE Information and Telecommunication


- Korea's Competitive Advantages

Acc to Heckscher-Ohlin theory and Comparative Advantage


theory
E.g. A nation uses its resources very productively
HOW?

BUT

Above theories give only Partial Explanation to the Question.


Porters Diamond Model is used to solve this puzzle
Developed in 1990, by Michael Porter of the Harvard
Business School.
Porter theorizes 4 Broad attributes Factor Endowment,
Demand
Source: http://www.quickmba.com/strategy/global/diamond/
conditions,
industry,
Firm
Strategy
and
Source: Charles W.Related/Support
L. Hill & Arun K. Jain, International
Business, Fifth
Edition,
2006, TATA McGraw-Hill

IN
B
M
T
CO ED AC
P
M
I

E
M
N
R
E
V NT
O
G

N
BI
M
T
CO ED C
PA
IM

Why do some fail?

The diamond is mutually reinforcing

CH

CE

Home country Demand plays an important role


Enables better understand the needs and desires of the
customers
It shapes the attributes of domestic ally made products and
creates pressure for innovation and quality
E.g. 1
Italian ceramic Industry after the world war II
There was a postwar housing BOOM !!
Consumers wanted cool floors because of Hot climatic
conditions
Source: Charles W. L. Hill & Arun K. Jain, International Business, Fifth Edition, 2006, TATA McGraw-Hill
Source: John D. Daniels & LeeH. Radebaugh, International Business, Ninth Edition, 2003, Pearson Education

E.g. 2
Japans knowledgeable buyers of cameras made that
industry to innovate and grow tremendously
E.g. 3
Local demand for cellular phones in scandinavia made
nokia and ericson to invest in that in other developing
nations.
E.g. 4
The French wine industry. The French are sophisticated
wine consumers. These consumers force and help French
wineries to produce high quality wines.
Source: http://www.quickmba.com/strategy/global/diamond/

BASIC FACTORS Natural resources, climate, location and


demographics
ADVANCE FACTORS Communication Infrastructure, skilled labour,
Research facilities and so on.
Basic factors can provide only an initial advantage
They must be supported by advanced factors to maintain success
E.g.
Choice of tile to meet customer Demand
Choice of italy as production location
Wood is less available and expensive than tiles
Most of the Advanced factors were available within Italy
Source: John D. Daniels & LeeH. Radebaugh, International Business, Ninth Edition, 2003, Pearson Education

E.g. 2

Japan a country which lacks arable land and mineral deposits.

Large pool of engineers - very vital for a manufacturing


industry.

Japan has high priced land and so its factory space is at a


premium.

Source: http://www.quickmba.com/strategy/global/diamond/
Source: Charles W. L. Hill & Arun K. Jain, International Business, Fifth Edition, 2006, TATA McGraw-Hill

Benefits of investment in advanced factors by Suppliers


and related industries can spill over
Creates clusters of supporting industries, thereby
achieving a strong competitive position internationally.
E.g.
The enamel production unit was available.
The glazes production was also favourable.
These two were the main composition of producing
tiles.
This reduces the Transportation cost.
Source: http://www.quickmba.com/strategy/global/diamond/
Source: Charles W. L. Hill & Arun K. Jain, International Business, Fifth Edition, 2006, TATA McGraw-Hill

E.g. 2
Switzerlands success in pharmaceutical industry is
closely related to its international success in
technical dye industry.
E.g. 3
Swedish strength in fabricated steel industry is the
reason for development in the Sweden's specialty
steel industry
Source: http://online.sfsu.edu/~yywong/Porter1990HBR.pdf

Long term corporate vision (Strategy) is a determinant


of success
Ability of the companies to develop and sustain a
competitive advantage requires the 4th attribute.
Presence of domestic rivalry improves a companys
competitiveness
E.g.
Low entry barriers to market in the tile industry
Rivalry became very intense
Breakthroughs in both product and process technologies

Source: John D. Daniels & LeeH. Radebaugh, International Business, Ninth Edition, 2003, Pearson Education

E.g. 2
Germany tends to have hierarchical management structures
composed of managers with strong technical backgrounds and
Italy has smaller, family-run firms.
E.g. 3
Japan has high priced land and so its factory space is at a premium
This lead to just-in-time inventory techniques
(Japanese firms cant have a lot of stock taking up space, so to cope
with the potential of not have goods around when they need it
They innovated traditional inventory techniques).

Source: http://online.sfsu.edu/~yywong/Porter1990HBR.pdf
Source: John D. Daniels & LeeH. Radebaugh, International Business, Ninth Edition, 2003, Pearson Educati

Chance Events such as major innovations, can reshape industry


structure
Government Policies Can detract from or improve national
advantage
Regulation can alter home demand conditions
Government investment in education can change factor endowment.
E.g.
1991 US Govt Tariff on Japanese imports of LCD screens
APPLE and IBM Protested strongly
Japan The low cost LCD manufacturer
Increase the LCD screens as well as Laptops in the global market Reduce the
Market
Share.
Source:
www.nsf.gov/sbe/srs/s4495/conten3d.htm

Countries should be exporting


products from those industries where
all four components of the diamond
are favorable.
while importing in those areas where
the components are not favorable.
Source: John D. Daniels & LeeH. Radebaugh, International Business, Ninth Edition, 2003, Pearson Education

Government can influence on any


four components of the diamond.
Porter developed this paper based on
case studies and these tend to only
apply to developed economies.

Source: John D. Daniels & LeeH. Radebaugh, International Business, Ninth Edition, 2003, Pearson Education

Information and
Telecommunication
Korea's Competitive Advantages (2002)

Analysis of Koreas Competitive


Advantage with Michael E. Porter's
Diamond Framework

Korea - New developed countries Information and Telecommunication.

High computing and Internet penetration rate since 1998.


Large user base of Internet - sophisticated internet usage
IT effectively used - individual level, Business & government
sectors
The competitive market situation in online shopping malls
and rapid,
expansive development in wireless internet service
Forcing market players - higher quality service at cheaper to
users.

Source:
www.weforum.org/site/homepublic.nsf/Content/Global+Information+Technology+R
Hence
Strategic
use of IT is demanded due to the intensified

Korean governments effort to develop IT industry Privatization and Market Deregulation in


Telecommunication market
Encouraged fair market competition in
Telecommunication market
Resulting in lower price ,better quality, better service
and
created favorable business environments for
business.

Source: www.weforum.org/site/homepublic.nsf/Content/Global+Information+Technology+R
E-commerce
exceeded 45 billion USD and

Korean Government- continuous effort - Korean IT policies


- Improvement in IT infrastructure,
- Facilitating the usage of information technology,
- Favorable environment for development of IT industry
Over 90% of nation area is wired with broadband internet
network
IT workforce in Korea accounted for 447,000 (2.1% of total
workforce).
Overall level of education in Korea is relatively high
Korean government support educational institutions related
to IT Source:
skills http://www.ips.or.kr/ncr/index.asp
Source: www.outsourcing-service-india.com

Conti..

DaeDeok Valley- an important IT cluster -Attracts foreign


investment
Several joint research and development projects with wellknown
foreign companies and universities.
The geographical location of Korea - Close to Central China
can be
regarded another factor for IT advantages.
Through export of CDMA technology- solid network among
the
south Asian nations is established.
Source: http://www.ips.or.kr/ncr/index.asp
Source: www.outsourcing-service-india.com

These factors will enhance the national IT competitiveness

Korea has secured leading position in semiconductor market


especially for DRAM (Dynamic Random Access Memory) DDR RAM
and SD RAM
Korea is United States most significant trading partner
Cheap and Quality Hardware production units available.
IT Enabled Services like BPOs and KPOs Yantram Solutions
Korea ranks itself in top manufacture in LCD and Mobile
phone,
example LG group, Samsung group, Doosan Group,
DiaBell.
Source: http://www.bsau.org/
Source: http://corsairmemory.com/products/twinx10255.htm

Korea - the leading position in all IT related production


The proactive effort - R&D and market expansion, as
well as
government support are expected.
Korean government plans to extend its financial
support for R&D
especially in 10 core technologies
Initiated several huge project with private sectors
Source: http://www.bsau.org/
Source: http://corsairmemory.com/products/twinx10255.htm

Korea - favorable business environments - for venture firm


through
infrastructure,
-

Quick registration process,


Lower entry barriers in IT industry,
Lower cost using telecommunication
Diverse capital resources
Government supports

These activities result in huge number of small, mediumsized


venture company in IT industry
And Hence it leads to severe domestic rivalry because of
market
competition.
Source: www.technology.gov/reports/korea/korea.pdf

(1) "Competitive Advantage of Nations" Michael E.


Porter, March~April, 1990 HBR Download available at
http://online.sfsu.edu/~yywong/Porter1990HBR.pdf
(2) "Global Information Technology Report 2001~2002" from World
Economic Forum at

www.weforum.org/site/homepublic.nsf/Content/Global+Informat
ion+Technology+Report+2001-2002
(3) "Asia's New Tech Competitors" at
www.nsf.gov/sbe/srs/s4495/conten3d.htm
(4) "National Competitiveness Analysis " from the Institute of
Industrial Policy Studies - http://www.ips.or.kr/ncr/index.asp
(5) www.outsourcing-service-india.com
(6) http://www.bsau.org/
(7) http://corsairmemory.com/products/twinx10255.htm
(8) www.technology.gov/reports/korea/korea.pdf
(9) http://www.quickmba.com/strategy/global/diamond/

(1) Charles W. L. Hill & Arun K. Jain, International Busin


Fifth Edition, 2006, TATA McGraw-Hill
(2)

John D. Daniels & LeeH. Radebaugh, Internatio


Ninth Edition, 2003, Pearson Education