Diamond of National Competitive Advantage
Explain the diamond of national competitive advantage theory. Then explain how the existence of the four (4) favorable conditions does not guarantee that an industry will develop in a given locale. Include discussion of how chance and government could have a negative impact on the character of a national diamond.
Diamond of National Competitive Advantage Theory
According to Michael Porter, classical trade models on competitive advantage always fail to highlight the reason behind trade conducted across nations adequately. Hence, this creates a gap in their model that necessitates an answer. The model is referred to as a diamond since all the parameters that play a crucial role in international business competition resemble diamond points (Vlados, 2019). The theory is designed to enable small-sized corporate to comprehend their competitive position in the international markets. Porter mainly presumes that a business’s competitiveness is linked with other businesses’ performance. Besides, other attributes are tied in the value-added link over a long distance to the original market.
In the model, Porter uses the notion of a cluster of identical products group whereby there is substantial pressure. The corporate in a particular cluster stimulate one another to increase productivity, enhance business results, and foster innovation. Also, they have an edge that they can move effectively on the global market, and they can sustain their presence and handle international rivalry. This model suggested that the country’s home base of a firm plays a critical role in the creation of an edge on an international scale. Hence, the parameters support a country or company in the international markets; nevertheless, at other times, they can hinder it from building a competitive advantage within the global market. Through the model, a company originating from a particular nation can comprehend how it can translate national advantage into a global power.
Additionally, the determinant factor used in this theory includes factor condition, which is the situations linked to the production attributes such as human resources, infrastructure, and natural resources that are essential for competition in a given industry. Besides, they can be utilized to establish an internationally competitive position. Another factor is related and support industries, which denotes that a market is often effective in the regions where suppliers and linked industries thrive. Competitive suppliers reinforce innovation and internationalization, plus the effectiveness of a single firm implies the success of the support companies, and they inspire one another to manufacture complementary products (Vlados, 2019). Another factor is the home demand conditions, which represent the conditions such as economies of scale, home market size, and transportation costs. The fourth condition is the strategy, structure and rivalry, which states that the difference between cultural practices within a company concerning management and employee morel can provide an organization with an opportunity to develop in the international markets. Parameters such as grand subsidies, good infrastructure, and incentives have been established to have a massive advantage to the firm success.
Existence of four favourable conditions and the firm’s success
The existence of the four favorable conditions does not always guarantee success since, despite the four advantaged factors, other factors should be considered. Parameters such as ambitions impact the firm’s success since every organization is ambitious about the future, the development they want to achieve and the objective of being recognized globally because of higher market shares. Nevertheless, such ambitions without adequate resources are not viable; they can only be attained if they can be sufficiently financed. Another factor is reliable data. A lack of reliable information can result in implementing improper strategies (Vlados, 2019). The correct information regarding the condition of the target location is essential for the firm’s sustainability.
Chance and government can adversely impact the national diamond
Chance and government can substantially result in adverse influence on the character of national diamonds due to their nature. For example, chance events are shocks that can lead to certain negative consequences because of their drastic change. For instance, venturing not information technology has suddenly made certain nations become competitive, an aspect that is shocking. Another such factor is terrorism, a human cause, though it greatly influences the nation’s diamond as it would have security challenges. Government has certain attributes that result in poor competition in the country; for instance, the inflationary monetary factor can increase the cost of capital. Thus, some regulations, like the divergence of resources in a given department, could lead to a national company’s slow development if they are not competent in the field (Porter, 2021). Hence, government and chance can create advantages and challenges to the nation’s competitive edge.