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The Competitive Advantage of Nations/ Diamond Model

Michael E. Porter presented by Yawen Cheng and Orkhan Lazimov
by

Carmen Amaya

on 20 February 2013

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Transcript of The Competitive Advantage of Nations/ Diamond Model

The Competitive Advantage of Nations/Diamond Model
Michael E. Porter Presented by Yawen Cheng and Orkhan Lazimov
20 September 2011, International Business Relations Contents Introduction. -Michael E. Porter -the book of "The Competitive
Advantage of Nations"(1990) Methodology. What is national competitiveness? Diamond Model - the Diamond of National Advantage - the Diamond as a system
- the role of the government The Company Agenda The Role of Leadership Conclusion Michael Porter - is recognized as a father of modern strategy field - core field: competitiveness, competitive strategy - author of 18 books and over 125 articles - received six McKinsey Awards for the best HBR article of the year - the most cited author in business and economics - one of the hottest (international) consultants to firms & governments The Book of "The Competitive Advantage of Nations" - written in 1990
- analyzed why nations gain competitive advantage in particular industries. Methodology - 10 leading trading nations with wide range of characteristics and circumstances (50% of total world exports) - base years 1971, 1978 and 1985 - conducted for four years with 30 local researchers In each nation, study consisted of two parts What is national competitiveness? Only meaningful concept of competitiveness at the national level Productivity Porter interprets... Productivity it is not what industries a nation competes in that matters for prosperity, but how productively it competes in those industries Technology-and skill-intensive industries are crucial to raise productivity The productivity of domestic industries is fundamental to competitiveness (the importance of a favorable home base) The public and private sectors play different but interrelated roles in creating a productive economy So, try to be productive in everything you do! Use allicances only selectively Selective advantages in other nations Domestic rivalry National diamond Create pressures Company Agenda policies to achieve comperative advantage Competitors as motivators Early-warning system home base Related and
Supporting
Industries Firm Strategy,
Structure and
Rivalry Factor Conditions Demand Conditions Determinants of National Competitive Advantage ( Michael E. Porter ) Classical doctrine ( Adam Smith, David Ricardo ) " A nation will export those goods that make most use of the factors with which it is relatively well endowed" Factors of Production ( standard economic theory ) labor, land, natural resources,capital, infrastructure - will determine the flow of trade Seoul National University, Graduate School of International Studies, Factor Conditions. Basic factors do not constitute an advantage in knowledge-intensive industries Nations succeed in industries where they are particularly good at factor creation Disadvantages can become advantages! Gain Competitive
Advantage Larger or more
visible domestic
market "early warning
indicators" Domestic buyers
are sophisticated
& demanding Related and supporting Industries Internationally competitive advantage home-based
suppliers create advantages in downstream industries
in several ways. 1. They deliver the most cost-effective inputs 2. They provide in innovation and upgrading- an advantage
based on close working relationships The Italian Footwear Cluster "Shoe producers interact with leather manufacturers
on new styles and manufacturing techniques and learn
about new textures and colors of leather" "The nation's companies benefit most when the suppliers themselves, are global competitors." Home-based competitiveness in related industries provides similar benefits A home-based related industry provides a source of entrants who will bring a novel approach to competing Competitiveness in a specific industry results from
convergence of the management practices and organizational modes " No one managerial system is universally appropriate- notwithstanding the current fascination with Japanese management" Company goals reflect the characteristics of national capital markets and the compensation practices for managers Individual motivation to work and expand skills is also important to competitive advantage. Outstanding talent is a scarce resource in any nation Nations tend to be competitive in activities that people admire or depend on- activities from which the nation's heroes emerge. Kim Dae-jung 하면 된다 Rivalry The presence of strong rivals is a final, and powerful stimulus to the creation and persistence of competitive advantage Domestic Rivalry creates pressure on companies to innovate and improve Domestic rivals push each other to lower costs, improve quality and service, and create new products and processes Geographic concentration magnifies the power of domestic rivalry The more localized the rivalry, the more intense.
And the more intense, the better Italian jewelry
companies are
located around two towns,
Arezzo
and Valenza Po. Having been tested by fierce domestic competition,
the stronger companies are well equiped to win abroad Diamond as a System The Role of Government The Role of Government (Basic Principles) - encourage change - promote domestic rivalry - stimulate innovation The Role of Government( specific policy approaches) - focus on specialized factor creation
- avoid intervening in factor and currency markets
- enforce strict product, safety and environmental standards
- sharply limit direct cooperation among industry rivals
- promote goals that lead to sustained investment
- deregulate competition
- enforce strong domestic antitrust policies
- reject managed trade The Role of Leadership Summary & Conclusion Leader believe in change They energize their organizations to innovate continously They recognize the importance of their home country
as integral to their competitive success and work upgrade it Most important, leaders recognize the need for pressure and challenge They are prepared to sacrifice the easy life for difficulty and ultimately, sustained competitive advantage National Prosperity is created Education, Innovation and Upgrading are the best tools for gaining
competetive advantage Porter: nations succeed in particular industries because their home environmenr is the most forward-looking, dynamic and challenging Natural resource curse nations, particularly oil producing countries, should define their position on the diamond model and try to develop non-oil sectors by enhancing their education, innovating and upgrading their industries (clusters)
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