“Critically discuss to what extent Porter’s Diamond is a useful concept in explaining home and host location strategies of international business?”
The Porter’s diamond model is used for explaining the competitive advantage which some of the nations or certain groups of companies have available to them. This edge benefits them in the business operations and hence leads towards operational excellence of the organizations. Porter’s diamond model is used excessively for analyzing the role of the nations and the organizations operating in the particular industry and further formulate the strategies which ease competition. This theory proposed by Porter helps in proactively measuring competition and the challenges which may arise for the organization in the near future. This requires hat strategies are forms for making the resources available and cater the customers which come from different areas. This requires explaining globalization and the strategies formed for dealing with globalization (Stone & Ranchhod, 2006).
In this essay a discussion will be presented in the form of a discursive essay which will elaborate the controversies associated with the model and the effectiveness of the applicative method in today’s competitive business environment. This will show the significance of application of the model in the business environment today and at the same time it will address the key issues related to the topic. The understanding point of view of the model will be developed on the basis of its application in today’s business environment and the methods which are adopted for dealing with globalization.
The key issues of the Porter’s Diamond framework
The Porter’s diamond model is based on the classification of some key components which may also be considered as a proactive approach. Using this model the firm can develop a strategy and structure for defining a model which may help in dealing with the competition. Beside this by using the model the demand condition of the product and the measure which are adopted by the related supporting industries can also be formed and structured. This model also helps in dealing with all the problems in a proactive manner (Aktouf, 2008).
The basic aim of the diamond model is presenting a discussion which demonstrates that the countries can become competitive even though they possess all the natural elements or not. The model discusses that the governments seek for mutual benefits and the engage all the existing companies and organizations into competition so that the overall performance of the economy can improve (Smit, 2010). The Porter’s diamond framework has been presented below.
The framework emphasizes on four major factors which are (Rugman & Verbeke, 1993):
- Strategic and rival position of the organization
- Analyzing the demand conditions in the industry
- Presence of the related or the supporting industries in the environment
- Analyzing the factor conditions
All the four factors are linked together on the basis of the investment which is available to a particular company and the competition between the rivals which are operating in the industry. The complete analysis of the business scenario is based on the understanding of this model. This includes placing high quality, specialized inputs within the systems. The human resource, capital resources, physical, administrative, information and technological infrastructures along with the easy availability of the natural resources are all critical components which are required to be assessed for the formulation of the strategies (Smit, 2010). The better the availability of the resources available with the local suppliers in the form of clusters within the industry provides the measures for assessing the industry performance. This also enables in developing an understanding of meeting the demand of the local customers and anticipating the demand of the foreign customers which propose the future growth aspects within the organization. Making the resources available requires utilizing the globalization of business and collaborating with the vendors located on different geographical location. This finishes the problems associate with the lack of available resources (Hodgetts, 1993).
Several researchers and analysts have studied the application of the model (Smit, 2010). Some of them suggest that the application of the model is useful whereas some consider that there are discrepancies in the model (Smit, 2010). Studies show that the application of the model is more efficient in the developing nations whereas some think that the model fails to represent a clear and accessible picture of the model (Smit, 2010). Some researchers also say that for analyzing the role of the economy at a national level a more rigorous and systematic approach was required. In some of the cases the work of porter is considered as being much more strategically positioned which ultimately leads to the development and advancement of the entire industry within a specified business environment (Stone & Ranchhod, 2006).
The criticism of the model is mainly on the facets which describe the strategies which the firms form in dealing with competition. At the same time the discussion of the domestic rivalry and the international competition shows an increase in the role of the government on the other hand forms a basis of criticism (Rugman & D'cruz, 1993). The role of the government is mentioned but has not been elaborated for its application. Different forms of the studies showed that in some of the countries the role of the factors discussed in the model do not exist. The role of the multinational enterprises in the global economy relates to the transitional forms of the business activities. The other factor is that the role of the culture has been vaguely discussed and shows very little impact on the competitive edge on the company. The diamond framework is also considered to be static by different authors because it also fails to address the role of the technology in the progress of competition within the industry (Smit, 2010).
While different factors have been omitted by Porter in designing the framework still some of the researchers consider the application of the model very useful in the developing nations. This model is considered essential for analyzing the resources which are available for the companies and assessing the competition within the industry (Stone & Ranchhod, 2006). Using this approach the demand can be measured and the profitability which the entire industry in a particular regions or economy can be assessed (Grant, 1991). This is exactly why this model is considered as an essential tool for the growth of the economy through igniting competition between the companies so that they grow for the benefit of the national interest. Connecting the vendors located in different geographical regions and globalization aspects has not been demonstrated in the model (Smit, 2010).
The list of examples of the companies which have used this model and promoted the national interest accordingly is very large. This model has been applied in turkey at the national level for developing an understanding of effectiveness of the model at the national level. This model had a positive analysis and it benefited the industry widely (Öz, 2002).
The model has also been applied on various other levels from which industry based application show its relatedness in the Automobile industry (Cho, 1994; Cho, Moon, & Kim, 2009). In this industry segment the model was applied effectively in the developing industries. The application of the model in the different industry segments showed that the economies like that of China developed with lower level of education and possessed more unskilled labor force which hindered the growth (Wu, 2006).
The application of the model has also been done by the National Industries Company of Saudi Arabia (NIC, 2013). On the national level this model was applied which helped in developing competently in a region which was oil rich and structure the strategies which lead towards growth. Appropriate utilization of the resources and the establishment of a strategic business model which promotes competition can be observed in this industry (NIC, 2013). This motivates the industries for competition and find the places where the required resources can be found at the best rates.
The analysis shows that the use of the Porter’s diamond model is mainly for the benefit of the national interest. The economies can use this model for promoting competition within the local organizations operating in a particular industry segment. This provides a chance for the economy to grow and overcome all the discrepancies or lack of availability of resources which exist within the system. The porter diamond framework proposes the extensive use within the industries and nations. The actual contribution of this model helps in analyzing the competitive advantage available to a nation within a particular industry. Appropriate application of the model suggests that the individual companies must align themselves towards industry growth keeping in mind the national interests which the government wishes to accomplish. Besides this the model discusses that the firms must make the resources available. This new practice connects the vendors from across the globe with the companies which seek low cost for acquiring a competitive advantage. This leads to economic development and growth.
In this essay an argument has been presented which shows the use and application of the model and the arguments which have been placed by various researchers for the development and application of the model for acquiring a competitive edge. Practical examples which have aided to the industrial development have also been shown. On the basis of this study the applicative use of the model and its significance in the industry is shown. The different aspects which have been studied show the use of the model at national level and increasing the competition level between the organizations so that economic goals and objective can be acquired.
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