Why does a nation becomes home base of any industry?
• Like Germany for car manufacturing.
Every country can be good at something and here we have four factors which will determine the country’s competitive advantage.
Diamond analyse the national competitive advantage.
Certain countries have diamonds which are called national competitive advantage.
For Example:
– Italy = Designing
– Germany = Engineering
– Sweden = Furniture
– Greece = Tourism
Every country could be good at something so is Porter’s diamond model there are four areas which will determine whether that country have any competitive advantage or not.
It will answer the following questions:
1. Why does a nation becomes home base of any industry?
– Like Germany for car manufacturing.
2. Why are firms able to create and sustain competitive advantage against the world’s best competitors of other country?
1) Factor Condition:
Factor condition includes nation’s production resources like infrastructure land, minerals, capital, human resources.
It also found that countries with factor disadvantage were forced to innovate and they still can gain competitive advantage.
2) Demand Condition:
The first thing that is needed here is home demand. To have competitive advantage for any industry there must be strong home demand for that product or service.
The more home demand grow the greater pressure comes to company to innovate and to improve.
And this demand condition can create competitive advantage for nation over time.
3) Related & Supporting Industries:
Success of the industry can be due to its suppliers or related industries within that nation.
Example:
Sweden is global leader in paper because of its supported by network of related industries like packaging, chemicals, wood processing
4) Firm Strategy, Structure and Rivalry:
To be competitive,
– Strategy is important
– Corporate structure is important
– Competition is important
– An example where Porter’s Diamond can be used to explain a regional advantage is in Germany’s luxury high power car manufacturing industry, for brands such as Audi.
– The car manufacturing industry in German has a regional advantage because it satisfies the four key factors in Porter’s Diamond. With firm strategy and rivalry, we see that there is strong rivalry amongst lots of car manufacturers and so they compete intensely and keep developing more innovative and quality products.
– There are certain demand conditions amongst the homebuyers. In parts of Germany, there are no speed limits, so the sophisticated homebuyers want more powerful cars. Consequently, the industry aims to cater for this particular need by developing innovative engines.
– There are also related and supporting industries such as the iron and steel industry which provide materials for car manufacturers, high level of education and training in the workforce, banks for capital, component suppliers and IT infrastructure.
– There are also factor conditions, which include skilled engineers from renowned German universities and the government’s focus on scientific research, which helps to push the car manufacturing industry.
– The government has played a major role in creating the regional advantage as it supported and funded scientific research and launched the construction of more roads and canals in the 19th century. By, satisfying all these factors in Porter’s Diamond it, therefore, helps to explain why Germany’s luxury high power car manufacturing industry has a regional advantage.
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