Ch-2 Biz envo(diamond model)

Question 1

what are the factors that create a comparative competitive advantage for a country over the other countries? outline-

Answer 1

This is explained by porter’s diamond model.

There are four inter-related elements:

• Favourable factor conditions
• Related and supporting industries
• Demand conditions in the home market
• Firm strategy, structure and rivalry

Question 2

Explain favourable factor conditions that create the comparative competitive advantage.

Answer 2

factors
Factors are economic factors of production such as labour, land and capital

factor conditions
The conditions with regard to one or more factors of production.

Factor conditions can be divided into two categories
1. basic factors
Participation in decision-making by more individuals is encouraged. such as land and climate.

2. Advanced factors
   Advanced factors are factors that are ‘created’ and developed over time. Unlike basic factors, they are not ‘inherited’ and do not exist naturally. A country might be successful at developing particular factors that make it
   easier for companies to compete more successfully.
   for example
   -Labour skills and knowledge
   -Technological resources
   -Infrastructure

A country might suffer from a disadvantage in a factor of production compared with other countries. It can overcome this ‘factor disadvantage’ by innovating.

Question 3

Explain the cluster

Answer 3

A cluster is a concentration of inter-connected companies in the same geographical region. It
consists of companies in the same industry, and also specialized suppliers and service providers to the industry. There may also be firms in related industries: for example, if a region has a competitive advantage in the manufacture of plastics, there may also be a concentration of firms in the electronics, engineering and oil refining industries.

Question 4

what are the factors that create a comparative competitive advantage for a country over the other countries? outline-

Answer 4

This is explained by Porter’s diamond model.

There are four inter-related elements:

• Favourable factor conditions
• Related and supporting industries
• Demand conditions in the home market
• Firm strategy, structure and rivalry

Question 5

how related and supporting industries create a comparative competitive advantage of the business?

Answer 5

When supporting industries are highly competitive, costs are reduced and innovation occurs continually. Some of the benefits of lower costs and innovation in a supporting industry (or related industry) are passed on to
business entities in industries that the supporting industry serves.

Porter argued that the competitive benefits of an innovative supporting industry (or related industry) are greater when firms in the supporting industry are themselves strong competitors in global markets.

existence of strong R&D can also create innovation in the industries.

Question 6

how demand conditions in the local market can lead to the comparative competitive advantage of the business over the other business in Global market

Answer 6

strong demand in local markets, particularly when this demand is sophisticated and
discerning can help to make local firms more competitive in global markets.

*When local demand is strong, local firms will give more attention than their foreign competitors to the needs of the local customers.

*This will help to make local firms more innovative and competitive

*When local firms sell their products in global markets, the innovation and competitiveness created in local markets will help them to succeed internationally.

*Innovation in local markets will help local firms to anticipate changes in global demand.

Question 7

what is the role of Firm strategy, structure and rivalry in creating comparative competitive advantage?

Answer 7

Strategy
Firms and their owners might have different ideas about investment strategy. short term investment in US which lead to computer innovation vs Long term investment in Switzerland

Management structure
the management structure in larger companies is formal and hierarchical while In other
countries, many companies are family-run businesses.

Rivalry
rivalry between local firms is also important in maintaining national or regional competitive
advantage. This is because rivalry forces producers to innovate and keep looking for ways of meeting customer needs better than their competitors.

Question 8

what are the criticism on the Porter’s diamond model?

Answer 8

It is more relevant to companies in advanced economies than to companies in countries with developing economies.

The diamond model does not consider the role of the multinational company, which locates production operations in different countries across the world.