THE COMPETITIVE ADVANTAGE OF NATIONS. By: Michael E. Porter

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1 THE COMPETITIVE ADVANTAGE OF NATIONS By: Michael E. Porter

2 COMPETITIVE ADVANTAGE Define Competitive Advantage Nation Competitiveness Determinants of competitiveness How Companies Succeed in International Markets : Serving an ignored market segment Recognizing new market opportunity Competitive advantage through innovation Continuous Improvement

3 EARLY MOVER ADVANTAGE Have benefit Not forever Why? Dynamic Rivals To Sustain... Upgrade Adopt a global approach to strategy Making existing advantage obsolete

4 THE DIAMOND OF NATIONAL ADVANTAGE Consists of four broad attributes: Factor Conditions Demand Conditions Related and Supporting Industries Firm Strategy, Structure, and Rivalry Essential ingredients for achieving international competitive success

5 THE FOUR ATTRIBUTES Factor conditions Position in factors of production Export goods in factors that are well equipped Does not inherit but instead creates important factors of production - Skilled human resources - Scientific base

6 THE FOUR ATTRIBUTES Demand conditions Nature of home-market demand for industry s product or service Having home demand conditions - Larger or more visible in domestic markets Sophisticated and demanding buyers whom - Pressurize company to meet high standards Respond to tough challenges Export values, tastes to the rest of the world

7 THE FOUR ATTRIBUTES Related and Supporting Industries Presence of supplier and other related industries that are internationally competitive - Deliver cost-effective inputs in efficient and preferential way Close working relationship - Locate near each other - Influence suppliers technical efforts - Test sites for R&D work

8 THE FOUR ATTRIBUTES Firm Strategy, Structure, and Rivalry How companies are created, organized and managed Nature of domestic rivalry Seek to achieve different goals Success depends on: Competitive in activities that people depend on Presence of strong local rivals Talented people s choice of education and commitment

9 THE FOUR ATTRIBUTES Domestic Rivalry Most important Domestic Competition is wasteful Encourage potential companies to tackle foreign competitors Creates pressure on companies Lead to : - Advancement - Attract new rivals to the industry

10 The Role of Government Employing a host of policies to contribute directly to the competitive performance.. Or Economy should be left to the workings of invisible hand Catalyst, challenger, to encourage, even to push Portman: Govt. policies that succeed are those that create an environment in which companies can gain competitive advantages rather than those that involve government directly in the process, except in nations early in the development process

11 The Role of Government Role #1: Focus on Specialized Factor Creation Pri / Sec Education System Basic Infrastructure Research in Health Care Specialized Apprenticeship Programs Research Activities in Universities Trade Association Activities Private Investment of Company Role #2: Avoiding Intervening in Factor and Currency Market

12 The Role of Government Role #3: Enforce Strict Pdt, Safety & Environmental Standards Improve Qty, Upgrade Technology Role #4: Sharply Limit Direct Cooperation Among Industry Rivals Basic product and process research Only indirect cooperative research, channeled through indept org. Should only constitute a modest portion of company s overall research program

13 The Role of Government Role #5: Promote Goals that Lead to Sustained Investment Long-term tax incentives Long-term capital gains Role #6: Deregulate Competition Role #7: Enforce Strong Domestic Anti-Trust Policies opposing or intended to restrain trusts, monopolies, or other large combinations of business and capital, esp. with a view to maintain and promote competition: antitrust legislation.

14 The Role of Government Role #8: Reject Managed Trade Orderly marketing agreement Voluntary restraint agreement

15 Company Policies Pressure & Challenge Policy #1: Create Pressures for Innovation Policy #2: Seek Out the Most Capable Competitors as Motivators

16 Company Policies Policy #3: Establish Early-Warning System Investing all emerging new buyers or channels Find and serve buyers with anticipated needs Bring some outsiders into management team Maintain ongoing relationships with research centres Policy #4: Improve the National Diamond Yamaha, Kawai, Suzuki

17 Company Policies Policy #6: Globalised to Tap on Selective Advantages in Other Nations Adopting global perspective > Creating competitive advantages Underpinnings of competitiveness present at home Aim: Upgrade home-based capabilities, foreign activities are supplementary Policy #7: Use Alliances only Selectively Costs Temporary, Non-core activities

18 Company Policies Policy #8: Locate the Home-Base to Support Competitive Advantage Circumstances in home nation must support innovation