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competitive advantage See Also sustainable competitive advantage comparative advantage pluralism market economy value proposition distinctive

competency economic rent economic value economic value

added wealth creation capability dynamic capability resource view of strategy positional view of strategystrategic thinking firm theory of advantage thinking competitive advantage factors advantage thinking strategic factor market enterprise

value capability ability resource VRIN Framework Definition Competitive advantage is what enables a business organization to thrive. It is the objective of strategy. It is the combination of elements in the business model which enables a business to better satisfy the needs in its environment, earning economic rents in the process. Resource-based vs. positional view of advantage --

In the realm of strategy, there are roughly two views of the basic source of competitive advantage, the resource-based view and the positional view. The first sees the capabilities of the firm as its primary source of advantage while the latter contends that position within an industry is the source of advantage. Michael Porter is associated with the positional view. Gary Hamel and C. K. Prahalad are associated with the resource view. The resource based view has tended to dominate strategy since the late 1980s with the attention placed on capabilities, core competencies, distinctive competencies, dynamic capabilities, and organization evolution. As dominant companies also shape industries, there is the possibility that resources shape position as well. See positional view of strategy and resource view of strategy.

Advantage

and

sustained

advantage (Barney,

1991)

--

A firm has a competitive advantage when it is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors. A firm has a sustained advantage when it is implementing a value creating strategy not simultaneously being implemented by any current or potential competitors and when these other firms are unable to duplicate the benefits of this strategy. A firm enjoying a sustained competitive advantage may experience these major shifts in the structure of competition, and may see its

competitive advantages nullified by such changes. However, a sustained competitive advantage is not nullified through competing firms duplicating the benefits of that competitive advantage. To have the potential of sustained competitive advantage, a firm resource must have four attributes -

it must be valuable, in the sense that it exploit opportunities and/or neutralizes threats in a firm's environment

it must be rare among a firm's current and potential competition it must be imperfectly imitable. This can be due to three reasons: 1) the ability of a firm to obtain a resource is dependent upon unique historical conditions, 2) the link between the resources possessed by a firme and a firm's sustained competitive advantage is causally ambiguous, or 3) the resource generating a firm's advantage is socially complex, such as cultural factors that enable a unique synergy amongst managers.

there cannot be strategically equivalent substitutes for this resource that are valuable but neither rare but neither rare or imperfectly imitable.

These attributes of firm resources can be thought of as empirical indicators of how heterogeneous and immobile a firm's resources are and thus how useful these resources are for generating sustained competitive advantages. Note that physical resources are not on the list. Physical technology, even complex physical technology, is generally imitable. Finally, sustainable advantage most likely cannot arise from a formal planning process, but is due to emergent strategy.

Demand-based

perspective

of

competitive

advantage --

Adner and Zemsky (2007) present an analysis of sustainable competitive advantage emphasizing the demand-side factors. In particular, the effects of decreasing marginal utility and consumer heterogeneity across market segments is shown to affect the sustainability of competitive advantage through shifts in consumer willingness to pay. Competitive advantage definition -- The authors define competitive advantage as superior value creation -- with the firm's ability to sustain competitive advantage equivalent to its ability to sustain added value.

The demand-side drivers are 1) marginal utility from performance improvements, 2) consumer taste for quality, and 3) the extent of consumer heterogeneity. At the level of firm resources, competitive advantage erodes not only because imitation undermines the uniqueness of resources, but also because consumer valuation of firm differences declines due to effects of decreasing marginal utility. At the level of firm positions, strategic heterogeneity is shown to be rooted not only in differences between firms' internal resources but also in the extent of consumer heterogeneity in the firms' demand environment.

The

Principle

of

Competitive

Advantage --

Success is based on inventing an offering that addresses a real scarcity in the world, charging a price for it, and inventing a way of making it available that is cheap enough to leave a high margin. -- Kees van der Heijden, Back to basics: exploring the business idea, Strategy & Leadership, 29.3, 2001

Sources

of

Competitive

Advantage --

Differentiation that commands an attractive price or a structurally lower cost to produce a non-differentiated -- Porter product.

Specialization and capabilities (Kay, 2004) -

Specialization -- Specialization, with its division of labor, produces economies of scale. Specialization can overrun its usefulness, such as when seeking further scale becomes a disadvantage, as was the case for Ford in the first half of the 20th century. As firms have often reached and exceeded the limits of specialization in providing value, they have shifted to capabilities.

Capabilities -- Capabilities, intrinsic capabilities, or distinctive capabilities include secrets of value, established business networks, brands, general management skills, engineering competency, innovation which is not easily copied or ongoing innovation which is not easily caught up with. Unique capabilities provide an opportunity to provide unique value and receive the gains from providing that value.

Indicator

of

Competitive

Advantage --

A business organization with a competitive advantage is more profitable than its rivals while this profitability exceeds its cost of capital. Profits in excess of the cost of capital are called economic rent. Sustained economic rents are prima facie evidence of a competitive advantage.

Elements of Competitive Advantage -

Uniqueness - finding unique opportunities and solutions is about imagination, insight, foresight, and the courage to pursue it. Unique is new, different, but most important of all, untested and unproven. By the time a unique solution is validated as profitable, it is no longer unique for the next company. Also, if it is a unique business model or business capability, it is likely unapproachable, in the short-term, by competitors.

Strategic Focus - Strategic focus comes about from marrying distinctive competency and purpose to form a superior value proposition. Strategic focus is about developing a longer view of competitive advantage with a combination of purpose, competency, and value proposition. This creates an internal environment that has the confidence and implicit support to continue to perfect and develop that focus through creating stronger competencies and further perfecting the value proposition.

Strategic Intent/Vision/BHAGs - Strategic intent challenges and guides the organization to achieve the unachievable by having a clear focus on outlandish objectives which require the development of new capabilities to achieve.

Innovation - Innovation is inventiveness put into profitable practice. In an evolving economy, the business organization must innovate at a rate that meets or exceeds its environment in order to sustain a competitive advantage.

Continual Innovation - Making innovation as an ongoing process on all fronts. Democratic Principles - Democratic principles are needed to fully engage the active participation of diverse thinkers from across the organization. Broad and diverse participation improves innovation.

Strategic Management as a self-improving learning process - Strategic management must become, amongst other things, a learning and self-improvement process for the organization.

Dynamic Capabilities - Sustainable competitive advantage is ultimately based on dynamic capabilities, the capability to produce and utilize new capabilities on a continuous basis.

John

Kay;

competitive

vs.

comparative

advantage --

Competitive advantage is an absolute advantage of a business organization to offer greater value to its customers. Businesses should seek to find their competitive advantage, as opposed to their comparative advantage. They should focus on what they can do better than any other business. This may be something different than what they are best at doing. This maximizes the value of a business's economic function.

Porter's Environmental

framework determinants

for of

competitive advantage (Porter,

advantage 1991) --

Firms create and sustain competitive advantage because of the capacity to continuously improve, innovate, and upgrade their competitive advantages over time. Upgrading is the process of shifting advantages throughout the value chain to more sophisticated types, and employing higher levels of skill and technology. Successful firms are those that improve and innovate in ways that are valued not only at home but elsewhere. Competitive success is enhanced by moving early in each product or process generation, provided that the movement is along a path that reflects evolving technology and buyer need, and that early movers subsequently upgrade their positions rather than rest upon them. In this view, firms have considerable discretion in relaxing external and internal constraints. Four broad attributes of the proximate environment of a firm have the greatest influence on its ability to innovate and upgrade. These attributes shape the information firms have available to perceive opportunities, the pool of inputs, skills and knowledge they can draw upon, the goals that condition investment, and the pressures on the firm to act. The environment is important in providing the initial insight that underpins competitive advantage, the inputs needed to act on it, and to accumulate knowledge and skills over time, and the forces needed to keep progressing.

Factor conditions -- general, specialized, generic, local, global, natural resources, labor Firm strategy , structure, and rivalry -- intensity of competition, susceptibility to substitutes, actual rivalry, potential rivalry

Demand conditions -- customer demands, sophistication, fickleness Related and supporting industries -- suppliers, customers, synergy, dependency

Early (1960s) answers to the determinants of a firm's success (Porter, 1991) -

internally consistent set of goals and functional policies that collectively define the business's position in the market

this internally consistent set of goals and policies aligns the firm's strengths and weaknesses with the external (industry) opportunities and threats -- aligning the company with its environment

a firm's strategy be centrally concerned with the creation and exploration of its so called distinctive competencies -- unique strengths a firm possesses.

Solving the cross-sectional problem of strategy, getting to an operational understanding of competitive advantage (Porter, 1991) --

The cross-sectional problem refers to having the understanding of what underpins a competitively advantageous position in an industry. Success requires the choices of -

a relatively attractive position given industry structure the firm's circumstances the positions of competitors, and bringing all the firm's activities into consistency with the chosen position.

Competitive advantage grows out of discrete activities. A firm's strategy is manifested in the way it configures and links the many activities in its value chain relative to its competitors. Discrete activities are part of an interdependent system in which the cost and effectiveness of one activity can be affected by the ways others are performed. These interdependencies are

called linkages. Knowing this still does not operationalize competitive advantage. For that, the competitive advantage drivers of the activities must be identified.

Drivers of competitive advantage in an activity -

scale cumulative learning in the activity linkages between the activities and others the ability to share the activity with other business units the pattern of capital utilization in the activity over the relevant cycle the activity's location the timing of investment choices in the activity the extent of vertical integration in performing the activity institutional factors affecting how an activity is performed such as government regulations the firm's policy choices about how to configure the activity independent of other drivers

Solving the longitudinal problem of strategy, getting to an operational understanding of competitive advantage (Porter, 1991) --

The cross-sectional solution solves the problem of achieving a desirable, competitively advantageous, position. That leaves the longitudinal problem of getting to advantage again and again, even initially. There are two factors at work here -- initial conditions and managerial choices. Since initial conditions have come about from past managerial choices, ultimately the longitudinal problem is solved only by managerial choices. This requires management that is competent to achieve a competitive advantage. Their strategic thinking, strategic management framework, and strategic management process execution are key factors of management's strategic management competency.

Rumelt's

framework

for

competitive

advantage

See firm theory of for Rumelt's explanation of competitive advantage in the context of his strategic theory of the firm.

Competitive

advantage

factors --

For an in depth list of competitive advantage factors to stimulate activity design, seecompetitive advantage factors.

Measuring

Competitive

Advantage --

See enterprise value and the Barney reference there http://www.createadvantage.com/glossary/competitive-advantage

The Diamond model of Michael Porter for the Competitive Advantage of Nations offers a model that can help understand the competitive position of a nation in global competition. This model can also be used for other major geographic regions.

Traditionally, economic theory mentions the following factors for comparative advantage for regions or countries:

A. Land B. Location C. Natural resources (minerals, energy) D. Labor, and E. Local population size.

Because these factor endowments can hardly be influenced, this fits in a rather passive (inherited) view towards national economic opportunity.

Porter says sustained industrial growth has hardly ever been built on above mentioned basic inherited factors. Abundance of such factors may actually undermine competitive advantage! He introduced a concept of "clusters," or groups of interconnected firms, suppliers, related industries, and institutions that arise in particular locations.

As a rule Competitive Advantage of nations has been the outcome of 4 interlinked advanced factors and activities in and between companies in these clusters. These can be influenced in a pro-active way by government.

These interlinked advanced factors for Competitive Advantage for countries or regions in Porters Diamond framework are:

1. Firm Strategy, Structure and Rivalry (The world is dominated by dynamic conditions, and it is direct competition that impels firms to work for increases in productivity and innovation)

2. Demand Conditions (The more demanding the customers in an economy, the greater the pressure facing firms to constantly improve their competitiveness via innovative products, through high quality, etc)

3. Related Supporting Industries (Spatial proximity of upstream or downstream industries facilitates the exchange of information and promotes a continuous exchange of ideas and innovations)

4. Factor Conditions (Contrary to conventional wisdom, Porter argues that the "key" factors of production (or specialized factors) are created, not inherited. Specialized factors of production are skilled labor, capital and infrastructure. "Non-key" factors or general use factors, such as unskilled labor and raw materials, can be obtained by any company and, hence, do not generate sustained competitive advantage. However, specialized factors involve heavy, sustained investment. They are more difficult to duplicate. This leads to a competitive advantage, because if other firms cannot easily duplicate these factors, they are valuable).

The role of government in Porter's Diamond Model is "acting as a catalyst and challenger; it is to encourage or even push companies to raise their aspirations and move to higher levels of competitive performance. They must encourage companies to raise their performance, stimulate early demand for advanced products, focus on specialized factor creation and to stimulate local rivalry by limiting direct cooperation and enforcing anti-trust regulations.

Porter introduced this model in his book: The Competitive Advantage of Nations, after having done research in ten leading trading nations. The book was the first theory of competitiveness based on the causes of the productivity with which companies compete instead of traditional comparative advantages such as natural resources and pools of labor. This book is considered required reading for government economic strategists and is also highly recommended for corporate strategist taking an interest in the macro-economic environment of corporations.

Overview of The Competitive Advantage of Nations (The Diamond Model) - Porter is a famous Harvard business professor. He conducted a comprehensive study of 10 nations to learn what leads to success. Recently his company was commissioned to study Canada in a report called "Canada at the Crossroads".

- Porter believes standard classical theories on comparative advantage are inadequate (or even wrong).

- According to Porter, a nation attains a competitive advantage if its firms are competitive. Firms become competitive through innovation. Innovation can include technical improvements to the product or to the production process.

The Diamond Four Determinants of National Competitive Advantage Four attributes of a nation comprise Michael Porter's "Diamond" of national advantage. They are:

1. Factor conditions (i.e. the nation's position in factors of production, such as skilled labour and infrastructure), 2. Demand conditions (i.e. sophisticated customers in home market), 3. Related and supporting industries, and 4. Firm strategy, structure and rivalry (i.e. conditions for organization of companies, and the nature of domestic rivalry).

Factor Conditions Factor conditions refers to inputs used as factors of production such as labour, land, natural resources, capital and infrastructure. This sounds similar to standard economic theory, but

Porter argues that the "key" factors of production (or specialized factors) are created, not inherited. Specialized factors of production are skilled labour, capital and infrastructure.

"Non-key" factors or general use factors, such as unskilled labour and raw materials, can be obtained by any company and, hence, do not generate sustained competitive advantage. However, specialized factors involve heavy, sustained investment. They are more difficult to duplicate. This leads to a competitive advantage, because if other firms cannot easily duplicate these factors, they are valuable.

Porter argues that a lack of resources often actually helps countries to become competitive (call it selected factor disadvantage). Abundance generates waste and scarcity generates an innovative mindsssssssssset. Such countries are forced to innovate to overcome their problem of scarce resources. How true is this?

Switzerland was the first country to experience labour shortages. They abandoned labourintensive watches and concentrated on innovative/high-end watches.

Japan has high priced land and so its factory space is at a premium. This lead to just-in-time inventory techniques (Japanese firms cant have a lot of stock taking up space, so to cope with the potential of not have goods around when they need it, they innovated traditional inventory techniques).

Sweden has a short building season and high construction costs. These two things combined created a need for pre-fabricated houses.

Demand Conditions Michael Porter argues that a sophisticated domestic market is an important element to producing competitiveness. Firms that face a sophisticated domestic market are likely to sell superior products because the market demands high quality and a close proximity to such consumers enables the firm to better understand the needs and desires of the customers (this same argument can be used to explain the first stage of the IPLC theory when a product is just initially being developed and after it has been perfected, it doesn't have to be so close to the discriminating consumers).

If the nation's discriminating values spread to other countries, then the local firms will be competitive in the global market.

One example is the French wine industry. The French are sophisticated wine consumers. These consumers force and help French wineries to produce high quality wines. Can you think of other examples? Or counter-examples?

Related and Supporting Industries Porter also argues that a set of strong related and supporting industries is important to the competitiveness of firms. This includes suppliers and related industries. This usually occurs at a regional level as opposed to a national level. Examples include Silicon valley in the U.S., Detroit (for the auto industry) and Italy (leather-shoes-other leather goods industry).

The phenomenon of competitors (and upstream and/or downstream industries) locating in the same area is known as clustering or agglomeration. What are the advantages and disadvantages of locating within a cluster? Some advantages to locating close to your rivals may be;

- potential technology knowledge spillovers, - an association of a region on the part of consumers with a product and high quality and therefore some market power, or - an association of a region on the part of applicable labour force.

Some disadvantages to locating close to your rivals are:

- potential poaching of your employees by rival companies and - obvious increase in competition possibly decreasing mark-ups.

Firm Strategy, Structure and Rivalry Strategy - Capital Markets

Domestic capital markets affect the strategy of firms. Some countries capital markets have a long-run outlook, while others have a short-run outlook. Industries vary in how long the long-run is. Countries with a short-run outlook (like the U.S.) will tend to be more competitive in industries where investment is short-term (like the computer industry). Countries with a long run outlook (like Switzerland) will tend to be more competitive in industries where investment is long term (like the pharmaceutical industry).

- Individuals Career Choices Individuals base their career decisions on opportunities and prestige. A country will be competitive in an industry whose key personnel hold positions that are considered prestigious. Does this appear to hold in the U.S. and Canada? What are the most prestigious occupations? What about Asia? What about developing countries?

Structure Porter argues that the best management styles vary among industries. Some countries may be oriented toward a particular style of management. Those countries will tend to be more competitive in industries for which that style of management is suited. For example, Germany tends to have hierarchical management structures composed of managers with strong technical backgrounds and Italy has smaller, family-run firms.

Rivalry Porter argues that intense competition spurs innovation. Competition is particularly fierce in Japan, where many companies compete vigorously in most industries. International competition is not as intense and motivating. With international competition, there are enough differences between companies and their environments to provide handy excuses to managers who were outperformed by their competitors.

The Diamond as a System - The points on the diamond constitute a system and are self-reinforcing.

- Domestic rivalry for final goods stimulates the emergence of an industry that provides specialized intermediate goods. Keen domestic competition leads to more sophisticated consumers who come to expect upgrading and innovation. The diamond promotes clustering. - Porter provides a somewhat detailed example to illustrate the system. The example is the ceramic tile industry in Italy. - Porter emphasizes the role of chance in the model. Random events can either benefit or harm a firm's competitive position. These can be anything like major technological breakthroughs or inventions, acts of war and destruction, or dramatic shifts in exchange rates. - One might wonder how agglomeration becomes self-reinforcing - When there is a large industry presence in an area, it will increase the supply of specific factors (ie: workers with industry-specific training) since they will tend to get higher returns and less risk of losing employment. - At the same time, upstream firms (ie: those who supply intermediate inputs) will invest in the area. They will also wish to save on transport costs, tariffs, inter-firm communication costs, inventories, etc. - At the same time, downstream firms (ie: those use our industry's product as an input) will also invest in the area. This causes additional savings of the type listed before. - Finally, attracted by the good set of specific factors, upstream and downstream firms, producers in related industries (ie: those who use similar inputs or whose goods are purchased by the same set of customers) will also invest. This will trigger subsequent rounds of investment.

Implications of The Competitive Advantage of Nations for Governments The government plays an important role in Porter's diamond model. Like everybody else, Porter argues that there are some things that governments do that they shouldn't, and other things that they do not do but should. He says, "Governments proper role is as a catalyst and challenger; it is to encourage or even push companies to raise their aspirations and move to higher levels of competitive performance"

Governments can influence all four of Porter's determinants through a variety of actions such as;

- Subsidies to firms, either directly (money) or indirectly (through infrastructure).

- Tax codes applicable to corporation, business or property ownership. - Educational policies that affect the skill level of workers. - They should focus on specialized factor creation. (How can they do this?) - They should enforce tough standards. (This prescription may seem counterintuitive. What is his rationale? Maybe to establish high technical and product standards including environmental regulations.)

The problem, of course, is through these actions, it becomes clear which industries they are choosing to help innovate. What methods do they use to choose? What happens if they pick the wrong industries?

Criticisms about The Diamond Model Although Porter theory is renowned, it has a number of critics. Porter developed this paper based on case studies and these tend to only apply to developed economies.

Porter argues that only outward-FDI is valuable in creating competitive advantage, and inbound-FDI does not increase domestic competition significantly because the domestic firms lack the capability to defend their own markets and face a process of market-share erosion and decline. However, there seems to be little empirical evidence to support that claim.

The Porter model does not adequately address the role of MNCs. There seems to be ample evidence that the diamond is influenced by factors outside the home country.

References http://www.valuebasedmanagement.net/methods_porter_diamond_model.html http://pacific.commerce.ubc.ca/ruckman/competitiveadvofnations.htm

http://vectorstudy.com/management-theories/diamond-model

http://mro.massey.ac.nz/bitstream/handle/10179/1543/02_whole.pdf

[PDF] Competitive Advantages and Strategic Information Systems ccsenet.org/journal/index.php/ijbm/article/download/.../524

Diamond model From Wikipedia, the free encyclopedia

The Porter diamond[1] The diamond model is an economical model developed by Michael Porter in his book The Competitive Advantage of Nations,[2] where he published his theory of why particular industries become competitive in particular locations.[3]Afterwards, this model has been expanded by other scholars.

Contents [hide]

1 Porter analysis 2 Criticism 3 Double diamond model 4 See also 5 References [edit]Porter analysis The approach looks at clusters, a number of small industries, where the competitiveness of one company is related to the performance of other companies and other factors tied together in the value-added chain, in customer-client relation, or in a local or regional contexts.[2] The Porter analysis was made in two steps.[2] First, clusters of successful industries have been mapped in 10 important trading nations.[2] In the second, the history of competition in particular industries is examined to clarify the dynamic process by which competitive advantage was created.[2] The second step in Porter's analysis deals with the dynamic process by which competitive advantage is created.[2] The basic method in these studies is historical analysis.[2] The phenomena that are analysed are classified into six broad factors incorporated into the Porter diamond, which has become a key tool for the analysis of competitiveness:

Factor conditions are human resources, physical resources, knowledge resources, capital resources and infrastructure.[2] Specialized resources are often specific for an industry and important for its competitiveness.[2] Specific resources can be created to compensate for factor disadvantages.

Demand conditions in the home market can help companies create a competitive advantage, when sophisticated home market buyers pressure firms to innovate faster and to create more advanced products than those of competitors.[2]

Related and supporting industries can produce inputs which are important for innovation and internationalization.[2] These industries provide cost-effective inputs, but they also participate in the upgrading process, thus stimulating other companies in the chain to innovate.[2]

Firm

strategy,

structure

and

rivalry constitute

the

fourth

determinant

of

competitiveness.[2] The way in which companies are created, set goals and are managed is important for success.[2]But the presence of intense rivalry in the home base is also important; it creates pressure to innovate in order to upgrade competitiveness.[2]

Government can

influence

each

of

the

above

four

determinants

of

competitiveness.[2] Clearly government can influence the supply conditions of key production factors, demand conditions in the home market, and competition between firms.[2] Government interventions can occur at local, regional, national or supranational level.[2]

Chance events are occurrences that are outside of control of a firm.[2] They are important because they create discontinuities in which some gain competitive positions and some lose.[2]

The Porter thesis is that these factors interact with each other to create conditions where innovation and improved competitiveness occurs.[3] [edit]Criticism In his famous book, The Competitive Advantage of Nations, Porter studied eight developed countries and two newly industrialized countries (NICs). The latter two are Korea and Singapore. Porter is quite optimistic about the future of the Korean economy. He argues that Korea may well reach true advanced status in the next decade (p. 383). In contrast, Porter is less optimistic about Singapore. In his view, Singapore will remain a factor-driven economy (p. 566) which reflects an early stage of economic development. Since the publication of Porter's work, however, Singapore has been more successful than Korea. This difference in performance raises important questions regarding the validity of Porter's diamond model of a nation's competitiveness. Porter has used the diamond model when consulting with the governments of Canada[4] and New Zealand.[5] While the variables of Porter's diamond model are useful terms of reference when analysing a nation's competitiveness, a weakness of Porter's work is his exclusive focus on the 'home base' concept. In the case of Canada, Porter did not adequately consider the nature of multinational activities.[6] In the case of New Zealand, the Porter model could not explain the success of export-dependent and resource-based industries.[7] Therefore, applications of Porter's home-based diamond require careful consideration and appropriate modification.

In Porter's single home-based diamond approach, a firm's capabilities to tap into the location advantages of other nations are viewed as very limited. Rugman[8] has demonstrated that a much more relevant concept prevails in small, open economies, namely the 'double diamond' model. For example, in the case of Canada, an integrated North American diamond (including both Canada and the United States), not just a Canadian one, is more relevant. The double diamond model, developed by Rugman and D'Cruz,[9] suggests that managers build upon both domestic and foreign diamonds to become globally competitive in terms of survival, profitability, and growth. While the Rugman and D'Cruz North American diamond framework fits well for Canada and New Zealand, it does not carry over to all other small nations, including Korea and Singapore. [edit]Double diamond model Porter (p. 1)[2] raises the basic question of international competitiveness: "Why do some nations succeed and others fail in international competition?" As its title suggests, the book is meant to be a contemporary equivalent of the wealth of nations, a new-forged version of Adam Smith's opus.[10] Porter argues that nations are most likely to succeed in industries or industry segments where the national 'diamond' is the most favorable. The diamond has four interrelated components: (1) factor conditions, (2) demand conditions, (3) related and supporting industries, and (4) firm strategy, structure, and rivalry, and two exogenous parameters (1) government and (2) chance, as shown above. This model cleverly integrates the important variables determining a nation's competitiveness into one model. Most other models designed for this purpose represent subsets of Porter's comprehensive model. However, substantial ambiguity remains regarding the signs of relationships and the predictive power of the 'model'.[11] This is mainly because Porter fails to incorporate the effects of multinational activities in his model. To solve this problem, Dunning,[12] for example, treats multinational activities as a third exogenous variable which should be added to Porter's model. In today's global business, however, multinational activities represent much more than just an exogenous variable. Therefore, Porter's original diamond model has been extended to the generalizeddouble diamond model[13] whereby multinational activity is formally incorporated into the model. Firms from small countries such as Korea and Singapore target resources and markets not just in a domestic context, but also in a global context (Global targeting also becomes very important to firms from large economic systems such as the United States). Therefore, a

nation's competitiveness depends partly upon the domestic diamond and partly upon the 'international' diamond relevant to its firms. The figure on the left side shows the generalized double diamond where the outside one represents a global diamond and the inside one a domestic diamond. The size of the global diamond is fixed within a foreseeable period, but the size of the domestic diamond varies according to the country size and its competitiveness. The diamond of dotted lines, between these two diamonds, is an international diamond which represents the nation's competitiveness as determined by both domestic and international parameters. The difference between the international diamond and the domestic diamond thus represents international or multinational activities. The multinational activities include both outbound and inbound foreign direct investment (FDI). In the generalized double diamond model, national competitiveness is defined as the capability of firms engaged in value added activities in a specific industry in a particular country to sustain this value added over long periods of time in spite of international competition. Theoretically, two methodological differences between Porter and this new model are important. First, sustainable value added in a specific country may result from both domestically owned and foreign owned firms. Porter, however, does not incorporate foreign activities into his model as he makes a distinction between geographic scope of competition and the geographic locus of competitive advantage.[14] Second, sustainability may require a geographic configuration spanning many countries, whereby firm specific and location advantages present in several nations may complement each other. In contrast, Porter [2][15] argues that the most effective global strategy is to concentrate as many activities as possible in one country and to serve the world from this home base. Porter's global firm is just an exporter and his methodology does not take into account the organizational complexities of true global operations by multinational firms.[16] Porter's narrow view on multinational activities has led him to underestimate the potential of Singapore's economy. Porter (p. 566)[2] argues that Singapore is largely a production base for foreign multinationals, attracted by Singapore's relatively low-cost, well-educated workforce and efficient infrastructure including roads, ports, airports, and telecommunications. According to Porter, the primary sources of competitive advantage of Singapore are basic factors such as location and unskilled/semi-skilled labor which are not very important to national competitive advantage. In fact, Singapore has been the most successful economy among the NICs. Singapore's success is mainly due to inbound FDI by foreign multinational enterprises in Singapore, as well as outbound FDI by Singapore firms in foreign countries.

The inbound FDI brings foreign capital and technology; whereas outbound FDI allows Singapore to gain access to cheap labour and natural resources. It is the combination of domestic and international diamond determinants that leads to a sustainable competitive advantage in many Singaporean industries. Multinational activities are also important in explaining Korea's competitiveness. The most important comparative advantage of Korea is its human resources which have been inexpensive and well-disciplined. However, Korea has recently experienced severe labor problems. Its labour is no longer cheap and controllable. Major increases in the wages in Korea were awarded to a newly militant labour force in 198790, which lifted average earnings in manufacturing by 11.6 per cent in 1987, 19.6 per cent in 1988, 25 per cent in 1989 and 20.2 per cent in 1990.[17] Korea's wage level is now comparable to that of the United Kingdom, but the quality of its products has not kept pace. For the last several years, Korea's wage increases have been significantly higher than those in other NICs and three or four times as high as those in other developed countries.[18] Faced with a deteriorating labor advantage, Korean firms have two choices: (1) go abroad to find cheap labor; (2) enhance their production capabilities by introducing advanced technology from developed countries. In both cases, the implementation of these choices requires the development of multinational activities. To sum up, multinational activities are very important when analyzing the global competitiveness of Korea and Singapore. In fact the most important difference between the single diamond model[2]and the generalized double diamond model[13] is the successful incorporation of multinational activities in the latter.

Positioning (marketing) From Wikipedia, the free encyclopedia In marketing, positioning is the process by which marketers try to create an image or identity in the minds of their target market for its product, brand, or organization. Re-positioning involves changing the identity of a product, relative to the identity of competing products.

De-positioning involves attempting to change the identity of competing products, relative to the identity of your own product. The original work on positioning was consumer marketing oriented, and was not as much focused on the question relative to competitive products as on cutting through the ambient "noise" and establishing a moment of real contact with the intended recipient. In the classic example of Avis claiming "No.2, We Try Harder," the point was to say something so shocking (it was by the standards of the day) that it cleared space in your brain and made you forget all about who was #1, rather than making some philosophical point about being "hungry" for business. The growth of high-tech marketing may have had much to do with the shift in definition towards competitive positioning. Contents [hide]

1 Definitions 2 Brand positioning process 3 Product positioning process 4 Positioning concepts 5 Measuring the positioning 6 Repositioning a company 7 See also 8 References 9 External links [edit]Definitions Although there are different definitions of brand positioning, probably the most common is: identifying a market niche for a brand, product or service utilizing traditional marketing placement strategies (i.e. price, promotion, distribution, packaging, and competition). Positioning is also defined as the way by which the marketers create an impression in the customers mind.

Positioning is a concept in marketing which was first introduced by Jack Trout ( "Industrial Marketing" Magazine- June/1969) and then popularized by Al Ries and Jack Trout in their bestseller book "Positioning - The Battle for Your Mind." (McGraw-Hill 1981) This differs slightly from the context in which the term was first published in 1969 by Jack Trout in the paper "Positioning" is a game people play in todays me-too market place" in the publication Industrial Marketing, in which the case is made that the typical consumer is overwhelmed with unwanted advertising, and has a natural tendency to discard all information that does not immediately find a comfortable (and empty) slot in the consumers mind. It was then expanded into their ground-breaking first book, "Positioning: The Battle for Your Mind," in which they define Positioning as "an organized system for finding a window in the mind. It is based on the concept that communication can only take place at the right time and under the right circumstances (p. 19 of 2001 paperback edition). What most will agree on is that Positioning is something (perception) that happens in the minds of the target market. It is the aggregate perception the market has of a particular company, product or service in relation to their perceptions of the competitors in the same category. It will happen whether or not a company's management is proactive, reactive or passive about the on-going process of evolving a position. But a company can positively influence the perceptions through enlightened strategic actions. A company, a product or a brand must have positioning concept in order to survive in the competitive marketplace. Many individuals confuse a core idea concept with a positioning concept. A Core Idea Concept simply describes the product or service. Its purpose is merely to determine whether the idea has any interest to the end buyer. In contrast, a Positioning Concept attempts to sell the benefits of the product or service to a potential buyer. The positioning concepts focus on the rational or emotional benefits that buyer will receive or feel by using the product/service. A successful positioning concept must be developed and qualified before a "positioning statement" can be created. The positioning concept is shared with the target audience for feedback and optimization; the Positioning Statement (as defined below) is a business person's articulation of the target audience qualified idea that would be used to develop a creative brief for an agency to develop advertising or a communications strategy. Positioning Statement As written in the book Crossing the Chasm (Copyright 1991, by Geoffrey Moore, HarperCollins Publishers), the position statement is a phrase so formulated:

For (target customer) who (statement of the need or opportunity), the (product name) is a (product category) that (statement of key benefit that is, compelling reason to buy). Unlike (primary competitive alternative), our product (statement of primary differentiation). Differentiation in the context of business is what a company can hang its hat on that no other business can. For example, for some companies this is being the least expensive. Other companies credit themselves with being the first or the fastest. Whatever it is a business can use to stand out from the rest is called differentiation. Differentiation in todays over-crowded marketplace is a business imperative, not only in terms of a companys success, but also for its continuing survival. [edit]Brand positioning process Effective Brand Positioning is contingent upon identifying and communicating a brand's uniqueness, differentiation and verifiable value. It is important to note that "me too" brand positioning contradicts the notion of differentiation and should be avoided at all costs. This type of copycat brand positioning only works if the business offers its solutions at a significant discount over the other competitor(s). Generally, the brand positioning process involves: 1. Identifying the business's direct competition (could include players that offer your product/service amongst a larger portfolio of solutions) 2. Understanding how each competitor is positioning their business today (e.g. claiming to be the fastest, cheapest, largest, the #1 provider, etc.) 3. Documenting the provider's own positioning as it exists today (may not exist if startup business) 4. Comparing the company's positioning to its competitors' to identify viable areas for differentiation 5. Developing a distinctive, differentiating and value-based positioning concept 6. Creating a positioning statement with key messages and customer value propositions to be used for communications development across the variety of target audience touch points (advertising, media, PR, website, etc.) [edit]Product positioning process Generally, the product positioning process involves:

1. Defining the market in which the product or brand will compete (who the relevant buyers are) 2. Identifying the attributes (also called dimensions) that define the product 'space' 3. Collecting information from a sample of customers about their perceptions of each product on the relevant attributes 4. Determine each product's share of mind 5. Determine each product's current location in the product space 6. Determine the target market's preferred combination of attributes (referred to as an ideal vector) 7. Examine the fit between the product and the market. [edit]Positioning concepts More generally, there are three types of positioning concepts: 1. Functional positions

Solve problems Provide benefits to customers Get favorable perception by investors (stock profile) and lenders

2. Symbolic positions

Self-image enhancement Ego identification Belongingness and social meaningfulness Affective fulfillment

3. Experiential positions

Provide sensory stimulation Provide cognitive stimulation

[edit]Measuring the positioning Positioning is facilitated by a graphical technique called perceptual mapping,

various survey techniques, and statistical techniques like multi dimensional scaling, factor analysis, conjoint analysis, and logit analysis.

[edit]Repositioning a company In volatile markets, it can be necessary - even urgent - to reposition an entire company, rather than just a product line or brand. When Goldman Sachs and Morgan Stanley suddenly shifted from investment to commercial banks, for example, the expectations of investors, employees, clients and regulators all needed to shift, and each company needed to influence how these perceptions changed. Doing so involves repositioning the entire firm. This is especially true of small and medium-sized firms, many of which often lack strong brands for individual product lines. In a prolonged recession, business approaches that were effective during healthy economies often become ineffective and it becomes necessary to change a firm's positioning. Upscale restaurants, for example, which previously flourished on expense account dinners and corporate events, may for the first time need to stress value as a sale tool. Repositioning a company involves more than a marketing challenge. It involves making hard decisions about how a market is shifting and how a firm's competitors will react. Often these decisions must be made without the benefit of sufficient information, simply because the definition of "volatility" is that change becomes difficult or impossible to predict. Positioning is however difficult to measure, in the sense that customer perception on a product may not tested on quantitative measures