Porters diamond-1215441271533531-8

1. To explain on the basis on “Porter’s Diamond”, why some nations succeed and others fail in International Competition!

2. A case of the Korean Economy based on Porters Diamond…

1. INTRODUCTION – Qno.# 1

2. PORTER’S DIAMOND MODEL

3. PORTER’S DIAMOND EXPLANATIONA. DEMAND CONDITIONSB. FACTOR ENDOWMENTSC. SUPPORT INDUSTRIESD. FIRM STRATEGY,RIVELRYE. GOVERNMENTF. CHANCE

4. PORTER’s PREDICTIONS

5. PORTER’s CRITICISM

6. Qno.# 2 CASE – Information and Telecommunication - Korea's Competitive Advantages

• Acc to Heckscher-Ohlin theory and Comparative Advantage theory

• E.g. A nation uses its resources very productively… BUT HOW?

• Above theories give only Partial Explanation to the Question.

• Porter’s Diamond Model is used to solve this puzzle

• Developed in 1990, by Michael Porter of the Harvard Business School.

• Porter theorizes 4 Broad attributes – Factor Endowment, Demand conditions, Related/Support industry, Firm Strategy and rivalry.

• Additional Variables that influence are Government and Chance

Source: http://www.quickmba.com/strategy/global/diamond/Source: Charles W. L. Hill & Arun K. Jain, International Business, Fifth Edition, 2006, TATA McGraw-Hill

GOVERNMENT

CHANCE

COMBINED

IMPACT

COMBIN

ED

IMPACT

Why do some fail? The diamond is mutually reinforcing

• Home country Demand plays an important role

• Enables better understand the needs and desires of the customers

• It shapes the attributes of domestic ally made products and creates pressure for innovation and quality

E.g. 1• Italian ceramic Industry after the world war II• There was a postwar housing BOOM !!• Consumers wanted cool floors because of Hot climatic conditions

Source: Charles W. L. Hill & Arun K. Jain, International Business, Fifth Edition, 2006, TATA McGraw-HillSource: John D. Daniels & LeeH. Radebaugh, International Business, Ninth Edition, 2003, Pearson Education

E.g. 2• Japan’s knowledgeable buyers of cameras made that industry to

innovate and grow tremendously

E.g. 3• Local demand for cellular phones in scandinavia made nokia and

ericson to invest in that in other developing nations.

E.g. 4• The French wine industry. The French are sophisticated wine

consumers. These consumers force and help French wineries to produce high quality wines.

Source: http://www.quickmba.com/strategy/global/diamond/

• BASIC FACTORS – Natural resources, climate, location and demographics

• ADVANCE FACTORS – Communication Infrastructure, skilled labour, Research facilities and so on.

• Basic factors can provide only an initial advantage• They must be supported by advanced factors to maintain success

E.g.• Choice of tile to meet customer Demand• Choice of italy as production location• Wood is less available and expensive than tiles• Most of the Advanced factors were available within Italy

Source: John D. Daniels & LeeH. Radebaugh, International Business, Ninth Edition, 2003, Pearson Education

E.g. 2

• Japan a country which lacks arable land and mineral deposits.

• Large pool of engineers - very vital for a manufacturing industry.

• Japan has high priced land and so its factory space is at a premium.


• Benefits of investment in advanced factors by Suppliers and related industries can spill over

• Creates clusters of supporting industries, thereby achieving a strong competitive position internationally.

E.g.• The enamel production unit was available.• The glazes production was also favourable.• These two were the main composition of producing tiles.• This reduces the Transportation cost.


E.g. 2• Switzerlands success in pharmaceutical industry is closely related

to its international success in technical dye industry.

E.g. 3• Swedish strength in fabricated steel industry is the reason for

development in the Sweden's specialty steel industry

Source: http://online.sfsu.edu/~yywong/Porter1990HBR.pdf

• Long term corporate vision (Strategy) is a determinant of success

• Ability of the companies to develop and sustain a competitive advantage requires the 4th attribute.

• Presence of domestic rivalry improves a company’s competitiveness

E.g.• Low entry barriers to market in the tile industry• Rivalry became very intense • Breakthroughs in both product and process technologies


E.g. 2• Germany tends to have hierarchical management structures composed of

managers with strong technical backgrounds and• Italy has smaller, family-run firms.

E.g. 3• Japan has high priced land and so its factory space is at a premium

• This lead to just-in-time inventory techniques

• (Japanese firms can’t have a lot of stock taking up space, so to cope with the potential of not have goods around when they need it

• They innovated traditional inventory techniques).Source: http://online.sfsu.edu/~yywong/Porter1990HBR.pdfSource: John D. Daniels & LeeH. Radebaugh, International Business, Ninth Edition, 2003, Pearson Education

• Chance Events such as major innovations, can reshape industry structure

• Government – Policies – Can detract from or improve national advantage

• Regulation can alter home demand conditions

• Government investment in education can change factor endowment.

E.g. • 1991 – US Govt – Tariff on Japanese imports of LCD screens• APPLE and IBM – Protested strongly

– Japan – The low cost LCD manufacturer– Increase the LCD screens as well as Laptops in the global market – Reduce the Market Share.

Source: www.nsf.gov/sbe/srs/s4495/conten3d.htm

• Countries should be exporting products from those industries where all four components of the diamond are favorable.

• while importing in those areas where the components are not favorable.


• Government can influence on any four components of the diamond.

• Porter developed this paper based on case studies and these tend to only apply to developed economies.


• Analysis of Korea’s Competitive Advantage with Michael E. Porter's Diamond Framework

• Korea - New developed countries - Information and Telecommunication.

Information and Telecommunication

Korea's Competitive Advantages (2002)

• High computing and Internet penetration rate since 1998.

• Large user base of Internet - sophisticated internet usage

• IT effectively used - individual level, Business & government sectors

• The competitive market situation in online shopping malls and rapid, expansive development in wireless internet service

• Forcing market players - higher quality service at cheaper to users.

• Hence Strategic use of IT is demanded due to the intensified market environment

Source: www.weforum.org/site/homepublic.nsf/Content/Global+Information+Technology+Report+2001-2002

• Korean government’s effort to develop IT industry - Privatization and Market Deregulation in Telecommunication market

• Encouraged fair market competition in Telecommunication market

• Resulting in lower price ,better quality, better service and created favorable business environments for business.

• E-commerce exceeded 45 billion USD and

• Projected a growth rate of 9% per year.)

Source: www.weforum.org/site/homepublic.nsf/Content/Global+Information+Technology+Report+2001-2002

• Korean Government- continuous effort - Korean IT policies - Improvement in IT infrastructure,- Facilitating the usage of information technology,- Favorable environment for development of IT industry

• Over 90% of nation area is wired with broadband internet network

• IT workforce in Korea accounted for 447,000 (2.1% of total workforce).

• Overall level of education in Korea is relatively high

• Korean government support educational institutions related to IT skills

• Supply of quality of IT workforce is expected to increased.Source: http://www.ips.or.kr/ncr/index.aspSource: www.outsourcing-service-india.com

• DaeDeok Valley- an important IT cluster -Attracts foreign investment

• Several joint research and development projects with well-known foreign companies and universities.

• The geographical location of Korea - Close to Central China can be regarded another factor for IT advantages.

• Through export of CDMA technology- solid network among the south Asian nations is established.

• These factors will enhance the national IT competitiveness for sure.

Conti..

Source: http://www.ips.or.kr/ncr/index.aspSource: www.outsourcing-service-india.com

• Korea has secured leading position in semiconductor market especially for DRAM (Dynamic Random Access Memory) - DDR RAM and SD RAM

• Korea is United States most significant trading partner

• Cheap and Quality Hardware production units available.

• IT Enabled Services like BPOs and KPOs – Yantram Solutions

• Korea ranks itself in top manufacture in LCD and Mobile phone, example – LG group, Samsung group, Doosan Group, DiaBell.

• Korea - the leading position in IT related production

Source: http://www.bsau.org/Source: http://corsairmemory.com/products/twinx10255.htm

• Korea - the leading position in all IT related production

• The proactive effort - R&D and market expansion, as well as government support are expected.

• Korean government plans to extend its financial support for R&D especially in 10 core technologies

• Initiated several huge project with private sectors

Source: http://www.bsau.org/Source: http://corsairmemory.com/products/twinx10255.htm

• Korea - favorable business environments - for venture firm through- Quick registration process,- Lower entry barriers in IT industry, - Lower cost using telecommunication infrastructure, - Diverse capital resources - Government supports

• These activities result in huge number of small, medium-sized venture company in IT industry

• And Hence it leads to severe domestic rivalry because of market competition.

• Encourages the continuous development of Innovative technology and improvement of business models in business sectors.

Source: www.technology.gov/reports/korea/korea.pdf

(1) "Competitive Advantage of Nations" Michael E. Porter, March~April, 1990 HBR Download available at http://online.sfsu.edu/~yywong/Porter1990HBR.pdf (2) "Global Information Technology Report 2001~2002" from World Economic Forum at www.weforum.org/site/homepublic.nsf/Content/Global+Informat ion+Technology+Report+2001-2002 (3) "Asia's New Tech Competitors" at www.nsf.gov/sbe/srs/s4495/conten3d.htm (4) "National Competitiveness Analysis " from the Institute of Industrial Policy Studies - http://www.ips.or.kr/ncr/index.asp (5) www.outsourcing-service-india.com (6) http://www.bsau.org/ (7) http://corsairmemory.com/products/twinx10255.htm (8) www.technology.gov/reports/korea/korea.pdf (9) http://www.quickmba.com/strategy/global/diamond/

(1) Charles W. L. Hill & Arun K. Jain, International Business, Fifth Edition, 2006, TATA McGraw-Hill

(2) John D. Daniels & LeeH. Radebaugh, International Business, Ninth Edition, 2003, Pearson Education

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