Session 12 - National Competitive Advantage & Industry Clusters Flashcards
1
Q
What does Porter’s Diamond Model of National Competitive Advantage attribute a nation’s competitive advantage in a particular industry or sector to?
A
1) Factor Conditions
2) Demand Conditions
3) Related & Supporting Industries
4) Firm Strategy, Structure, & Rivalry
2
Q
What are Factor Conditions (Porter’s Diamond Model)?
A
- The nation’s position in factors of production such as the skilled labour or infrastructure required to compete in a particular industry.
- May also include inherited factors such as land and natural resources, the most important factors are the knowledge resources a country creates, and is able to continuously upgrade, that relate to a given industry.
3
Q
How do Factor Conditions contribute to the Netherlands’ success in the horticulture sector?
A
- Home to world-class research institutions that specialize in the cultivation, packaging, and shipping of fresh flowers
- The Greenhouse Horticulture business unit of Wageningen University & Research
- Expertise and infrastructure for the packaging and transportation of flowers is also highly developed and geographically concentrated in the Netherlands
4
Q
What are Demand Conditions (Porter’s)?
A
- Refers to the nature of home-market demand for an industry’s product or services.
5
Q
Explain why demand conditions are crucial to a country’s success in a given industry
A
- When home country consumers are highly sophisticated and demanding in a particular sector, this places greater pressure on local firms in that sector to innovate and ensure high quality and quick responsiveness to trends.
- When such firms later extend their offerings to the global market, they have already reached a standard of meeting the expectations of the world’s most demanding consumers at home; this in turn provides such firms a competitive edge over firms from other nations who have had “less demanding” consumers at home.
6
Q
Give an example of a country that thrives as a result of demand conditions, explain.
A
- Italy, fashion sector
- Few countries are more demanding on style and quality than Italian consumers. The emphasis on fashion, art, and beauty in Italian life has strong historical roots
- Home to many of the world’s leading fashion designers, textile producers, and clothing firms.
- Italian clothing companies have a natural advantage when competing globally as their home market consumers have pushed them to be at the front of the fashion curve in both quality and trend awareness—as many fashion trends themselves often originate in Italy, Italian firms have early market signals to embrace these trends in their product offerings
7
Q
What are Related & Supporting Industries (Porter’s)?
A
- Refers to the presence of globally competitive firms in supplier industries or other related industries.
8
Q
Explain why Related & Supported industries are important.
A
- If a firm can access quality supply and other related parts of its value chain in close geographic proximity, this provides significant competitive advantage over seeking such inputs on the global market
- Close geographic proximity allows supplier and buyer firms to give each other rapid feedback and channel new developments and market trends into innovation and production
9
Q
Give an example of a country/industry which has prospered because of their related & supporting industries.
A
- Italy–footwear
- Industry benefits from the fashion-consciousness of Italian consumers discussed above under demand conditions. It is also an excellent example of an industry in which quality and innovation are driven by strong related and supporting industries
- Shoe producers are able to interact regularly with leather manufacturers, and learn about new colours and textures of leather early in their design cycle.
- Leather manufacturers in turn gain early insight into fashion trends.
10
Q
What is firm strategy, structure, & rivalry (Porter’s)?
A
- Refers to the conditions within a nation that govern how firms are created, organized, and managed, as well as the degree of domestic rivalry
11
Q
Explain the implications firm strategy, structure, & rivalry has on a nation.
A
- A nation’s history and culture imprint values and preferences on its organizations that are reflected in firms’ structures and management approaches.
- The competitive rivalry in a firm’s home country also plays a role in developing competitive advantage
- Strong domestic competition places pressure on firms to innovate in both product and processes, to optimize productivity and efficiency, and to hire and train the best people.
- Firms that have faced tougher competition at home are stronger when they expand to international markets and face global competition
12
Q
How has firm strategy, structure, and rivalry impacted German firms?
A
- German firms have traditionally been characterized by clear structure, well-developed control processes, and formality, with top managers frequently having technical backgrounds
- Excels in engineering-oriented industries such as optics, chemicals, and complex machinery such as high-performance automobiles, where products demand precision manufacturing and a highly disciplined management control system.
- National preferences in governance structure also plays a key role in shaping the strength of different industries
- Banks are a substantial portion of the nation’s shareholders, with shares being held for long-term appreciation rather than annual return
13
Q
Given what we know about German firms’ strategy, structure, & rivalry, what environment are they well-suited to?
A
- Well-suited to companies in mature industries that focus on ongoing R&D investment and long-term growth rather than short-term return
14
Q
Explain the United States’ general firm strategy, structure, & rivalry. What environment is it well-suited to? How does it differ from German firms?
A
- The more risk-taking, short-term focused United States lies at the opposite extreme, with a significant pool of venture capital, and widespread trading of public companies, with individual shareholders focused on short-term share price growth.
- Well-suited to innovation-intensive industries such as software and biotechnology where new ideas and venture capital can be paired into the rapid rise (or fall) of individual shareholder value.
15
Q
Consider Switzerland–what particular industry are they successful in? Why?
A
- Pharmaceutical Industry
- Although Switzerland has a small domestic pharmaceutical market, it holds a strong position as one of the world’s leading players in the pharma industry
- Intense rivalry among the over 250 pharma companies based in Switzerland, including Swiss giants such as Novartis and Hoffman-LaRoche, has contributed to Switzerland’s leading worldwide position in this sector.
- Firms that have faced tougher competition at home are stronger when they expand to international markets and face global competition
