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Puplished in26 Mar 2020 No Comments. 550 Views
Porter’s Framework:  4 factors cause companies to be more competitive than others.

Porter’s Framework: 4 factors cause companies to be more competitive than others.

Porter’s Framework: It is also known as the Theory of National Competitive Advantage of Industries. It is diamond-shape framework that focus on explaining the reasons why certain industries are capable of competing on the international level within some countries while other industries not; also why certain companies are always capable of creation while others not?   Porter says that the company ability to compete on an international level depends mainly on a number of interconnected location advantages of certain industries at different countries;

which are:  Strict strategy, production factors, demand conditions, relevant industries and their support. If the surrounding circumstances are collaborative, it will force the company toward creativity and innovation all the time and will make it able to compete on the international level in order to face the largest global competitors In this article, the four main factors for national competitive advantage will be explained; in addition to two variants that are often included at Porter’s Framework which are:  Government role and Chance. Both formulate a national environment where companies are generated and learn how to compete.

  The strategy of company, structure and competition:

The national context- within it the companies work largely- limits how to start, organize and administrative companies It effects on the strategy and its formulation. In addition, the local competition is the base of the international competitiveness because this forces the company to develop unique and sustainable abilities and benefits. As the competition is more intense, the companies are pushed more towards innovation and enhancing to keep its competitive advantage, so in turn stay in the competition. Finally, those competitive advantages will help companies during their international insertion. A very good example on this is the Japanese automobile industry; there are many tough competitors among Nissan, Honda, Toyota, Suzuki, Mitsubishi, Subaru. So, because of the strong competition among them, they become able to compete internationally.

factor conditions”

The “factor conditions” at certain countries refers to the current natural, capital and human resources. Some countries, for example, are very rich with their natural resources as fuel (such as Saudi Arabia); this why Saudi Arabia is one of the largest fuel exporters all over the world. As for the human resources and its role at competition, we mean by this the factors stimulating the international competitiveness such as skilled worker, good infrastructure, stable foundation of knowledge. In respect of the aforementioned, Porter tackles into, “through Porter’s Framework” the importance of the created factors specially compared with the existed natural factors. Thus the process of enhancing the “factor conditions” should be continuous to develop new skills, and obtain knowledge. The competitive advantage is created at the first place by the means of international institution that create customized factors; then work on developing it. Therefore, countries achieve great success when their industries well-develop their “factor creation”.

Demand Conditions

Locally, local demand largely affects what are the favorable industries within a particular country. As for the bigger “global” market this means more challenges, but it also creates opportunities for growth to become better as a company. Demand conditions for local customers is a driving force for the companies towards growth, innovation and quality improvement, because demand conditions result in more efforts made to satisfy the local market. This could ultimately drive companies to widen their new horizons and perhaps gain early insights into the future needs of not only local customers but cross-border clients. Therefore, nations thus gain a competitive advantage in industries when the conditions of local demand are clear in the sense that the local customers of companies give a clearer or earlier image of the emerging needs or are emerging. In other words, they are thus implicitly demanding to pressure companies to innovate faster and to achieve more sustainable competitive advantages than their foreign competitors.

The relevant supportive industries:

The presence of relevant and supportive industries provides the foundation on which anchor industries can be surpassed within specific countries. As we have witnessed with the value network, companies often rely on alliances and partnerships with other companies related to or supporting their basic industries in order to create additional value for customers and become more competitive. Especially partnerships with suppliers, as it is a crucial to strengthen innovation through more efficient and higher-quality inputs, and the ability to create feedback in a timely manner

The benefit of national companies is maximized when these same suppliers are in fact global competitors, but it is not that easy. It often takes years (or even decades) of hard work and investments to create a broad base of companies or alliances of strong related and supportive industries that help Local companies to be able to compete globally, however, once these factors are in mind and employed in the right place, the region or the entire nation can benefit from its existence.

As for the two variable elements in the Porter model that have a significant impact on the development of the four factors mentioned above, they are:

Government:

The role of the government in the Porter model is described as both “the catalyst and Identity element of competition”, and as such it appears that Porter does not believe in the free market as the government leaves everything in the economy, however, but this necessarily means that Porter sees the government as a beneficial essential supportive of industries Governments cannot create competitive industries. Only companies can do that. Instead, governments have a critical role to play in encouraging companies to push them to raise their aspirations and move to higher levels of competitiveness. This can be done by stimulating early demand for Advanced products (demand factors), Focusing on the creativity of specialized factors such as infrastructure, the education system and the sector, and promoting local competition by imposing antitrust laws and encouraging change, the government can thus help develop the four factors mentioned above in the way that industries in a particular country should benefit and increase their competitiveness, whether at the national or global level.

Chance / coincidence:

Porter did not write anything about chance or luck in his papers originally, but , the opportunity role is often included in Porter’s diamond model as a possibility that external events such as war and natural disasters can affect positively or negatively on a particular country or industry; this  means that  Porter’s diamond model includes random events that begin to appear where and when basic scientific breakthroughs occur, and these events are outside the control of the government or individual companies, for example, the increased border security resulting from the terrorist attacks of September 11 on the United States led to undermine imports from Mexico,

Which had a large effect on two Mexico sources; the interruptions that are a result of chance may be advantages for some companies and disadvantages for the others; also, it can enable some companies to get competitive positions and make others to loss their one. No one can control such factors, but at least it can be monitored in take necessary decisions that enable of adapting with various market conditions

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