Competitive Advantage of Nations Author: Michael Porter Presenter: Wesley Shu Prepared for EMBA, Feng-Chia University
Oct 29, 2014
Competitive Advantage of Nations
Author: Michael PorterPresenter: Wesley Shu
Prepared for EMBA, Feng-Chia University
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Eroded Early Mover Advantages
• Customer relationship• Scale economies• Loyalty of distribution channels
All can be overtaken by competitors if not improved.
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Global Competitiveness Report
• Composition of GCI
• GCI Ranking
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Sustainability
The only way to sustain a competitive advantage is to upgrade it.
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• Why companies capable of
innovation in some nations?• Why do they pursue improvements,?• Why are they able to overcome the
substantial barriers?
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The Diamond of National Advantage
Firm Strategy, Structure, and Rivalry
DemandConditions
Related and Supporting Industries
FactorConditions
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Factor Condition
Availability of resources and skills necessary for competitive advantage in an industry
e.g., Skilled Labor or Infrastructure
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Demand Condition
Home market – the information that shapes the opportunities that companies perceive and the directions in which they deploy their resources and skills.
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Related & Supporting Industries
The international competitiveness of supplier industries & other related industries
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Firm Strategy, Structure, & Rivalry
The conditions governing how companies are created, organized, and managed, and the nature of domestic rivalry
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Factor Conditions
A nation does not inherit but instead creates the most important factors of production to form the backbone of any advanced economy.
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Factor Conditions
The rate and efficiency with which a nation creates, upgrades, and deploys the factors is more important than the volume.
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Factor Conditions
A factor must be highly specialized to an industry’s particular needs to support competitive advantage.
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Factor Conditions
Highly specialized factors come from world-class institutes that create and then upgrade them.
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Factor Conditions
Selective disadvantages can prod a company to innovate and upgrade – e.g., high land costs, labor shortage, or the lack of local raw materials lead companies to innovating and upgrading to compete.
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Factor Conditions - Disadvantage
The following conditions have to be met for disadvantage-advantage transformation to work:
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Factor Conditions - Disadvantage
Signal companies and companies innovate in advance of rivalsFavorable conditions in other aspects of the diamondCompany commitment
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Demand Conditions
• Home demand gives companies clear and early picture of emerging buyer needs
• Demanding buyers
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Demand Conditions
The character of home demand is more significant than the size.
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Characters of Demand Conditions
• Market segment is larger or more visible than in foreign countries.
• Buyers are more sophisticated.
• Buyers’ needs anticipate or even shape those of other nations
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Characters of Demand Conditions
Exporting values and tastes as well as products
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Related & Supporting Industries
Those who are internationally competitive can provide competitive production methods and trigger innovation and upgrading.
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Firm Strategy, Structure, & Rivalry
Corporate Structure &
Nature of
Domestic RivalryNationalCircumstances& Context
Firm Strategy
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Firm Strategy, Structure, & Rivalry – Germany
Stric
tly hierarchical
organization &
management practices
with technical background
top managers
NationalCircumstances& Context
Technical Oriented Industries
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Firm Strategy, Structure, & Rivalry – Italy
Family owned, medium
size companies with
sophisticated tasteNationalCircumstances& Context
Consumer goods & services
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Firm Strategy, Structure, & Rivalry
Domestic rivalry to stimulate competition, creating pressure on companies to innovate and improve
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The Diamond as a System• The effect of one point often depends
on the state of others. E.g., sophisticated buyers & human resources
• Each point can reinforce others. E.g., domestic rivalry promotes improvement in all the other determinants.
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The Diamond as a System• Nations are rarely home to just one
competitive industry – clusters of industries.
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The Role of Government
• Catalyst and Challenger
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The Role of Government
But in politics, a decade is an eternity. Consequently, most governments favor policies that offer easily perceived short-term benefits, such as subsidies, protection, and arranged mergers – the very policies that retard innovation.
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The Role of Government
• Focus on specialized factor creation.• Avoid intervening in factor and
currency markets.• Enforce strict product, safety, and
environmental standards
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The Role of Government
• Sharply limit direct cooperation among industry rivals.
• Promote goals that lead to sustained investment
• Deregulate competition• Enforce strong domestic antitrust
policies
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Focus on Specialized Factor Creation
• General factors rarely produce competitive advantage, e.g., secondary education system, broad national concern such as health care.
• Specialized apprenticeship programs, university research efforts linked with industries, private company investment ultimately create the factors that will yield advantage.
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Avoid intervening in factor & currency markets
• E.g., lower factor cost• E.g., currency devaluation
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Avoid intervening in factor & currency markets
• E.g., lower factor cost• E.g., currency devaluation
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Sharply limit direct cooperation among industry rivals
• Companies rarely contribute their best scientists and engineers to cooperative projects.
• Divert company attention and resources from proprietary research
• Value of cooperative research: Signal the importance of emerging technical areas
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Company Agenda
• Create pressures for innovation• Seek out the most capable competitors
as motivators• Establish early-warning systems –
translate into early-mover advantages• Improve the national diamond
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Company Agenda
• Welcome domestic rivalry• Globalize to tap selective advantages
in other nations• Use alliances only selectively• Locate the home base to support
competitive advantage
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Improve the National Diamond
• Form clusters – work with its home-nation buyers, suppliers, and channels
• Take explicit steps to create specialized factors