National Diamond
From Wikipedia, the free encyclopedia
 |
The introduction to this article provides insufficient context for those unfamiliar with the subject. Please help improve the article with a good introductory style. |
Strategic analysis typically focuses on two views of organization. The industry-view and The Resource-Based View (RBV). These views analyse the organisation without taking into consideration relationship between the organizations strategic choice (i.e. Porter generic strategies) and institutional frameworks. The National Diamond' is a tool for analyzing the organizations task environment. The National Diamond highlights that strategic choices should not only be a function of industry structure and a firms resources, it should also be a function of the constraints of the institutional framework. Institutional analysis (such as the National Diamond) becomes increasingly important as firms enter new operating environments and operate within new institutional frameworks.
Michael Porter's National Diamond framework resulted from a study of patterns of comparative advantage among industrialized nations. It works to integrate much of Porter's previous work in his competitive five forces theory, his value chain framework as well as his theory of competitive advantage into a consolidated framework that looks at the sources of competitive advantage sourcable from the national context. It can be used both to analyze a firms ability to function in a national market, as well as analyse a national markets ability to compete in an international market.
It recognizes four pillars of research (factor conditions, demand conditions, related and supporting industries, firm structure, strategy and rivalry) that one must undertake in analysing the viability of a nation competing in a particular international market, but it also can be used as a comparative analysis tool in recognising which country a particular firm is suited to expanding into.
Two of the aforementioned pillars focus on the (national) macroeconomic environment to determine if the demand is present along with the factors needed for production (i.e. both extreme ends of the value chain). Another pillar is focused the specific related an supporting industries to the particular firm/nation/industry being studied. The last pillar it looks at the firm's strategic response (microeconomic) i.e. its strategy, taking into account the industry structure and rivalry (see Five Forces). In this way it tries to highlight areas of competitive advantage as well as competitive weakness, by looking at a companies/nations suitability to the particular conditions of a particular market.
Contents |
[edit] Principles
- For analyzing national competitiveness, we need to focus upon firm performance. The role of the national environment is providing a context within which firms develop their identity, resources, capabilities, and managerial styles.
- For a country to sustain a competitive advantage in a particular industry sector requires dynamic advantage: firms must broaden and extend the basis of their competitive advantage by innovation and upgrading. The dynamic conditions that influence innovation and the upgrading are far more important than initial resource endowments in determining national patterns of competitiveness.
[edit] Components
The four different components of the framework are:
- Factor Conditions
- Related And Supporting Industries
- Demand Conditions
- Strategy, Structure, And Rivalry
[edit] Factor Conditions
Factor conditions can be categorized into two forms:
- "Home-Grown" resources
- Highly specialized resources
For example, in analyzing Hollywood's preeminence in film production, Porter has pointed out the local concentration of skilled labor, including the different schools of film (UCLA & USC) in the area. Also, resource constraints may encourage development of substitute capabilities; Japan's relative lack of raw materials has spurred miniaturization and zero-defect manufacturing.
[edit] Related and Supporting Industries
For many firms, the presence of related and supporting industries is of critical importance to the growth of that particular industry. A critical concept here is that national competitive strengths tend to be associated with "clusters" of industries. For example, Silicon Valley in the USA and Silicon Glen in the UK are techno clusters of high-technology industries which includes individual computer software & semi-conductor firms. In Germany, a similar cluster exists around chemicals, synthetic dyes, textiles and textile machinery.
[edit] Demand Conditions
Demand conditions in the domestic market provide the primary driver of growth, innovation and quality improvement. The premise is that a strong domestic market stimulates the firm from being a startup to a slightly expanded and bigger organization. As an illustration, we can take the case of Germany which has some of the world's premier automobile companies like Mercedes, BMW, Porsche. German auto companies have dominated the world when it comes to the high-performance segment of the world automobile industry. However, their position in the market of cheaper, mass-produced autos is much weaker. This can be linked to a domestic market which has traditionally demanded a high level of engineering performance. Also, the transport infrastructure of Germany, with its Autobahns does tend to favor high-performance automobiles.
[edit] Strategy, Structure and Rivalry
National performance in particular sectors is inevitably related to the strategies and the structure of the firms in that sector. Competition plays a big role in driving innovation and the subsequent upgradation of competitive advantage. Since domestic competition is more direct and impacts earlier than steps taken by foreign competitors, the stimulus provided by them is higher in terms of innovation and efficiency. As an example, the Japanese automobile industry with 9 major competitors (Honda, Toyota, Suzuki, Isuzu, Nissan, Mazda, Mitsubishi, Subaru & Datsun) provide intense competition in the domestic market, as well as the foreign markets in which they compete.
[edit] See also
[edit] References
- Robert M Grant (1991), Porter's Competitive Advantage of Nations: An Assesement, Strategic Management Journal, 12:535-48
- Robert M Grant (2005), Contemporary Strategy Analysis, Blackwell Publishing
- Kenichi Ohmae (1985), Triad Power: The Coming Shape of Global Competition, New York: Free Press
- Michael E. Porter (1990), The Competitive Advantage of Nations, New York: Free Press
