PORTERS DIAMOND MODEL

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RITU GUPTA

INTRODUCTION OF PORTERS DIAMOND MODEL 
It analyze why particular industry becomes competitive in particular locations. Determining factors of national advantage has become known as National Diamond model . It suggests that national home base of an organization plays an important role in shaping the extent to which it is likely to achieve advantage on a global scale.

ROLE OF HOME BASE A competitive firm can choose from a number of trade. contractual. structure. and investment modes of foreign market entry Porter introduced a model the diamond model ‡Focuses on 4 central aspects of the home baseFactor conditions Demand conditions Related & supporting industries Firm strategy. & rivalry .

THE HOME BASE DIAMOND .

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THE PORTER DIAMOND .

FACTOR CONDITIONS A country creates its own factors such as skilled resources & technological base. . This innovation often leads to a national comparative advantage. Local disadvantages in factors of production force innovation. The stock of factors at a given time is less important than the extent that they are upgraded & deployed.

the local firm devote more attention to that product than foreign firms.DEMAND CONDITIONS When the market for a particular product is larger locally than in foreign markets. A more demanding local market leads to national advantage. . A strong trend setting. local market helps local firms anticipate global firms.

and sometimes preferential access to the most cost-effective inputs ‡Ongoing coordination ‡Innovation and upgrading A competitive domestic supplier industry is better than relying on well-qualified foreign suppliers. early. rapid.RELATED & SUPPORTING INDUSTRIES Can produce inputs which are important for innovation and internationalization. Supplying industries in the home base has several advantages in downstream industries ‡Efficient. .

. Local rivalry forces firms to move beyond basic advantages that the home country may enjoy. STRUCTURE.FIRM STRATEGY. High local rivalry results in less global rivalry. AND RIVALRY Local conditions affect firm s strategy. such as low factor costs.

PORTER DIAMOND INTERACTIONS .

THE DIAMOND AS A SYSTEM The effect of one point depends on the others. a high level of rivalry often leads to the formation of unique specialized factors. The diamond also is a self-reinforcing system. factor disadvantages will not lead firms to innovate unless there is sufficient rivalry. . For example. For example.

Stimulate local rivalry by limiting direct cooperation & enforcing antitrust regulations. .GOVERNMENTS ROLE Encourage companies to raise their performance. Stimulate early demand for advanced products. Focus on specialized factor creation.

Japanese demand conditions : the japanese market was very demanding because of the written language. good miniaturized components since there is less space in Japan.APPLICATION TO THE JAPANESE FAX MACHINE INDUSTRY Japanese factor conditions : Japan has a relatively high number of electrical engineers per capita. for example. . Large number of related & supporting industries with good technology.

CONTDuu. . Domestic rivalry in japanese fax machine industry pushed innovation & resulted in rapid cost reductions. support : NTT (the state owned telecom company) changed its cumbersome approval requirements for each installation to a general type approval.. Govt.

PHILIPPINE CALL CENTRE INDUSTRY Key advantages of the Philippine :Abundance of low cost American English speaking labor force Means of diversifying geo-political risk Cheap telecommunication cost .

. Good presence of English speaking labor. Less of industrial activity has created presence of skilled labor in ASEAN Less presence of natural resources led to migration to non-natural resources.FACTOR CONDITIONS IN ASEAN CONTEXT Low manufacturing activity created ASEAN countries dependence on service related industries.

The high reliability on service sector is one of the main reason for creating a customer led environment. .DEMAND CONDITIONS IN ASEAN CONTEXT The local customers demand high level of customer service which in turn has created an environment within firms to delight their customers.

& availability of skilled forces at lower cost The early liberalization & entry of multi-national companies in the region has led to developing a work force used to US style of working culture. .RELATED & SUPPORTING ACTIVITIES IN ASEAN CONTEXT Potential technology spillovers.

The ASEAN countries follow relatively flat management structure not hierarchical based. countries such as Philippines is likely to attract investments into highly dynamic computer & service industries. . The rivalry of BPO companies in a small concentrated area of ASEAN would benefit from fierce competition & lead to spur innovation.FIRM STRATEGY STRUCTURE & RIVALRY IN ASEAN CONTEXT While countries such as Singapore attract investments into infrastructure.

.GOVERNMENTS ROLE IN ASEAN CONTEXT Establishment of free trade zone by 2010. Tax rebates & smooth legal steps in start ups Recognition of infrastructure. quality standards & environmental standards. Encouragement of free movement of peoples.

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