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Porter’s Diamond
Home Previous Syllabus Level 2 - Corporate Strategy, Ethics & Governance Archive by Category "Porter’s Diamond"

Category: Porter’s Diamond

Level 2 - Corporate Strategy, Ethics & GovernancePorter’s DiamondPrevious Syllabus

May 2018 Q6 c.

Demand conditions in the home market is one of the four factors in the Porter’s Diamond Model used for analysing the international environment before formulating an international strategy. The home market determines how firms perceive, interpret and respond to buyer needs.
Required:
Explain THREE home conditions that may put pressure on firms to innovate and provide a launch pad for global ambitions. (6 marks)

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  • There are no cultural impediments to communication.
  • The segmentation of the home market shapes a firm’s priorities: companies will be successful globally in segments which are similar to the home market.
  • Sophisticated and demanding buyers set standards. If the home market sets high standards, achieving these high standards will put a firm in a strong position to be competitive on the international market.
  • Anticipation of buyer needs: If consumers needs are expressed in the home market earlier than in the world market, the firm benefits from experience.
  • The rate of growth. Slow growing home markets do not encourage the adoption of state of the art technology.
  • Early saturation of the home market will encourage a firm to export.                                                                   (Any 3 points)

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Level 2 - Corporate Strategy, Ethics & GovernancePorter’s DiamondPrevious Syllabus

May 2017 Q4 a.

Persiba IT Limited (PIL) started operations 10 years ago in Ghana providing a wide range of information technology solutions to diverse clientele. Mr. Quainoo, the chief executive officer (CEO) of the company, recently has been contemplating venturing into other West African markets to take advantage of untapped opportunities. This is also to strengthen competitive position of PIL since Ghanaian market growth is beginning to slow down and competition is getting keener.
At the 2016 second quarter Board meeting, the CEO tabled his proposal for consideration and board’s input before the document was finalized. During the Board discussions Prof Amartey, who lectures Corporate Strategy, suggested to the CEO to use Porter’s Diamond of national advantage to assess competitive advantage of the other West African countries the company intends to enter. Prof. Amartey also mentioned to the CEO that companies that compete in the global market place typically face two types of competitive pressures: pressures for cost reductions or global integration and pressures to be locally responsive.
The cost reduction-local responsiveness dilemma shapes and results in four basic international strategies – international, global, multidomestic, and transnational – which the CEO should consider in making the choice.
Required:
Discuss how the FOUR factors in the Porter’s Diamond of national advantage determine competitiveness of the other West African countries on the global stage.                                                                                                                                (8 marks)

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  • Factor Conditions/Endowments – The first dimension in Porter’s model is the factors of production. This dimension refers to the inputs necessary to compete in any industry – labour, land, natural resources, capital, and infrastructure (such as transportation, postal, and communication systems). There are basic factors (for example, natural and labour resources) and advanced factors (such as digital communication systems, technological and scientific know-how and a highly educated workforce). Other production factors are generalized (highway systems and the supply of debt capital) and specialized (skilled personnel in a specific industry, such as the workers in a port that specialize in handling bulk chemicals).
    Advanced factors tend to give countries more competitive advantage than the basic factors of production. If a country has both advanced and specialized production factors, it is likely to serve an industry well by spawning strong home-country competitors that also can be successful global competitors. Since West African countries are more endowed in basic factors of productions and less endowed in advanced factors they are likely to be less competitive when compared to other advanced economies such as Japan, United States, France, etc.
  • Demand conditions – refer to the demands that consumers place on an industry for goods and services. Consumers who demand highly specific, sophisticated products and services force firms to create innovative, advanced products and services to meet the demand. This consumer pressure presents challenges to a country’s industries. But in response to these challenges, improvements to existing goods and services often result, creating conditions necessary for competitive advantage over firms in other countries.
    Countries with demanding consumers drive firms in that country to meet high standards, upgrade existing products and services, and create innovative products and services. The conditions of consumer demand influence how firms view a market. This, in turn, helps a nation’s industries to better anticipate future global demand conditions and proactively respond to product and service requirements.
  • Related and supporting industries – enable firms to manage inputs more effectively. For example, countries with a strong supplier base benefit by adding efficiency to downstream activities. A competitive supplier base helps a firm obtain inputs using cost-effective, timely methods, thus reducing manufacturing costs. Also, close working relationships with suppliers provide the potential to develop competitive advantages through joint research and development and the ongoing exchange of knowledge.
    Related industries offer similar opportunities through joint efforts among firms. In addition, related industries create the probability that new companies will enter the market, increasing competition and forcing existing firms to become more competitive through efforts such as cost control, product innovation, and novel approaches to distribution. Combined, these give the home country’s industries a source of competitive advantage.
  • Firm Strategy, Structure, and Rivalry – Rivalry is particularly intense in nations with conditions of strong consumer demand, strong supplier bases, and high new entrant potential from related industries. This competitive rivalry in turn increases the efficiency with which firms develop, market, and distribute products and services within the home country. Domestic rivalry thus provides a strong impetus for firms to innovate and find new sources of competitive advantage.
    This intense rivalry forces firms to look outside their national boundaries for new markets, setting up the conditions necessary for global competitiveness. Among all the points on Porter’s diamond of national advantage, domestic rivalry is perhaps the strongest indicator of global competitive success. Firms that have experienced intense domestic competition are more likely to have designed strategies and structures that allow them to successfully compete in world markets.

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