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Understanding Porter's National Competitive Advantage in Global Corporate Strategy

This article delves into Michael Porter’s theory of national competitive advantage, highlighting key issues in international business decisions. It discusses how firms can wisely create value to enhance profitability through low-cost and differentiation strategies. By focusing on specialized factors, demanding customers, and the interplay of related industries and firm dynamics, businesses can position themselves effectively in global markets. The diamond model's elements—factor conditions, demand conditions, supporting industries, and firm strategy—illustrate how competition and collaboration lead to industry success.

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Understanding Porter's National Competitive Advantage in Global Corporate Strategy

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  1. International Business Global Corporate Strategy: Porter’s theory of national competitive advantagein industries

  2. Global Corporate Strategy • The key issues: • What are the big decisions in international business? • How do we make them wisely for our firms?

  3. Value Creation • The way to increase profitability is to create more value • The amount of value a firm creates is measured by the difference between its costs and the value that consumers perceive in its products • Michael Porter states that there are two basic strategies for creating value • Low-cost strategy suggests that a firm has high profits when it creates more value for its customers and does so at a lower cost • Differentiation strategy focuses primarily on increasing the attractiveness of a product (getting customers to think it’s different and better than competitors’)

  4. But to create value, you must think about who you’ll work with • Porter’s study of national competitive advantage provides the business contextfor the big decisions

  5. Porter says industries succeed when they can… • innovate, • upgrade, constantly offering more and better to customers

  6. Therefore, industries succeed where 4 factors are favorable

  7. Factor conditions • Not the factors economists used to care about (Labor, land, capital, etc.) • Specialized factors that people create • Labor with specialized skills • Unique resources (phone systems built for Strategic Air Command in Omaha, Neb.) • Innovations to cope with a weakness can produce long-term strength • Dutch bringing flowers indoors to cope with bad weather

  8. Demand conditions (at home) • Demanding customers in the home market lead to competitive industries • If local customers need innovations, you can often sell those innovations in the world market • Germans need washing machines with powerful spin cycles due to damp weather • They sell them elsewhere

  9. Related and supporting industries • Good local suppliers repeatedly help you innovate

  10. Firm strategy, structure, and rivalry • Strategy: Ambitious firms become world leaders • Structure: Industries succeed where local norms are in tune with industry needs • Italian shoe makers benefit from preference for family firms in Italy • German appliance firms gain from preference for big, disciplined organizations

  11. Rivalry: To succeed internationally, you need strong local competition • When local competitors do better than you, “you get mad” • Pressure on firms in the local environment contributes to success

  12. The 4 elements in the diamond work together as a system Each element can contribute to making the other elements strong

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