PORTER’S DIAMOND MODEL- GERMANY

Porter's diamond model suggests that there are inherent reasons why some nations, and industries within nations, are more competitive than others on a global scale. The argument is that the national home base of an organization provides organizations with specific factors, which will potentially create competitive advantages on a global scale. Porter's model includes 4 determinants of national advantage, which are shortly described below: Factor Conditions Factor conditions include those factors that can be exploited by companies in a given nation. Factor conditions can be seen as advantageous factors found within a country that are subsequently build upon by companies to more advanced factors of competition. Factors not normally seen as advantageous, such as workforce shortage, can also be seen as a factor potentially strengthening competitiveness, because this factor may heighten companies' focus on automation and zero defects. Some examples of factor conditions:
   

Highly skilled workforce Linguistic abilities of workforce Rich amount of raw materials Workforce shortage

Demand conditions If the local market for a product is larger and more demanding at home than in foreign markets, local firms potentially put more emphasis on improvements than foreign companies. This will potentially increase the global competitiveness of local exporting companies. A more demanding home market can thus be seen as a driver of growth, innovation and quality improvements. For instance, Japanese consumers have historically been more demanding of electrical and electronic equipment than western consumers. This has partly founded the success of Japanese manufacturers within this sector. Related and Supporting Industries When local supporting industries and suppliers are competitive, home country companies will potentially get more cost efficient and receive more innovative parts and products. This will potentially lead to greater competitiveness for national firms. For instance, the Italian shoe industry benefits from a highly competent pool of related businesses and industries, which has strengthened the competitiveness of the Italian shoe industry world-wide. Firm Strategy, Structure, and Rivalry The structure and management systems of firms in different countries can potentially affect

This work is limited to the German market because there are differences between other national markets dependent on their technological advance. To realize this. companies may build up capabilities that can act as competitive advantages on a global scale. and to assess which countries are most likely to be able to sustain growth and development. By using Porter's diamond.Commerce in Germany: The turnover of e-commerce is still growing. which has resulted in advantages within industries such as engineering. Likewise. For instance an emerging nation like Argentina had a growth of 32 percent in the last 12 months in the e-commerce sector and the German market. German economic analysts expect a growth of another 10 percent for 2010 . and whether or not the conditions found in the home country are able to create competitive advantages on a global scale. Finally. companies need web designers and online marketers. and which of these factors may be exploited to gain global competitive advantages. In comparison. Companies need to sell their products online in order to stay competitive. This tool identifies the key factors that could have an impact on industry competition and whether it is worth entering market or not (Porter.3) is still valid. business leaders may analyze which competitive factors may reside in their company's home country. It is used to acquire the awareness about the attractiveness for further research. which is almost thirty years old. demographical factors and cultural backgrounds. Companies have to have a good knowledge about their environment but it is not the only model to make decisions. but also a well structured online shop which can be found in search engines. Danish firms are oftentimes more flat and organic. in which leaders may use the model to analyze whether or not the home market factors support the process of internationalization. The E. 1980.33). and act as a barrier in the generating of global competitive advantages such as innovation and development. . which leads to advantages within industries such as biochemistry and design. This external analysis tool was created to cover a wide range of influences affecting an industry. But in today´s online environment it is not only enough to offer their products on the internet. Home markets with less rivalry may therefore be counterproductive. 1980. German firms are oftentimes very hierarchical. business leaders may use this model to asses in which counties to invest. is chosen in order to prove that it is still working with a modern industry like the web design industry. p. if rivalry in the domestic market is very fierce. as a high industrial nation had a growth of only 11 percent The model of Porter’s five. There is still a lot of money involved but is it really worth going into this market? This piece of work analyses the German web design industry by using the strategic management tool of the five forces from Michael E. Porter. p. Many essential factors have changed in the last thirty years and it has to be proved if the principle “The state of competition in an industry depends on five basic competitive forces” (Porter. Business leaders can also use the Porter's diamond model during a phase of internationalization.competitiveness.

self-employed or part-time web designers who all offer the same product for privates. so there is a constant entry of new competition into the market to cover the high demand of web pages.Intensity of rivalry In November 2009 there were more than 13 million . Every web page uses the same standard and has almost the same buttons to standardize it for the users. the result is always the same. the success or the strategy. In an atomic competition a seller would immediately lose all buyers. A principle of the web design industry is that you have to have a well optimized web page for the search engines like Google. There is no space for experimental programming. if he changes the price. In addition to that Germans also use . A lot of time is not needed to create web pages but is needed to optimize their own one.and . because an agency does not have many employees or expensive goods. Besides they have to fight for every new customer. each of them possess a very low market share. They can compare prices and services very easily through the internet. Bargaining power of buyers . Although there are many competitors with very few market shares. Yahoo or MSN. The market is still growing and the financial risks are low. Those who try to launch an innovative web page lose users to other pages which maintain the standards. They have to compete in other ways. There is an uncountable amount of agencies. They have no core competences to distinguish them from others in their industry. Although there are differences in the quality and the way of programming a web page. so web designers work in an almost perfect competition. An intensive discussion of established operators suggests the possibility of efficient electronic processes to identify as a template for your own e-shop. There is still a growth of about 10 percent each year.com. They cannot compete on the product. Furthermore customers do not make decisions due to barriers they have in a market outside the internet. So they have neither social responsibility nor materialistic factors to lose. The exit barriers are low as well. the intensity of rivalry is a weak force. because of the extremely high competition. More than 80 percent of the web designers do Benchmarking observing key competences like the corporate design. They have very low entry barriers because the threshold resources are only a computer and informatics knowledge. Potential customers have a transparent market where they can choose the company they want. All of these web pages are created by web designers who often have private intentions to put a profile of them in the internet but the majority have commercial intentions.It often takes half a working day to optimise a web page for the Google results. either.de-domains registered in Germany. Web designers do not have the choice to compete on price. There are neither infrastructural obstacles nor problems to get information for them. In this environment the most important competence is that people find your business in the search engines and that your own web page presents a good overview of your work.net-domains for their web pages. small companies or whole enterprises just in Germany.

Normally they have a lack of the right understanding of important technical aspects of a web page. The amount of separate pages is higher. Appendix 2) 2. retailers. But within the group of business customers you also have to differentiate between those who only want a company presentation on the internet and those who want a complete online shop with thousands of products. Another solution for them is to use a home page construction set software which often costs less than 40 € The second group contains companies which only want a portal for presenting themselves like small factories. if the price rises too high. lawyers or associations. They ask for different designs or technical support. It is not vital for the buyers to have this product so they can cancel the project easily. These business customers have a greater awareness of what they want. Most of the agencies say that customers can negotiate the price. but also marketing knowledge to sell the products to their customers online. Non-commercial customers who want to use a web page for personal reasons like their own biography or their wedding do not have the power to negotiate with the agencies. p. But their bargaining power is limited as well. In general it is said that the more complex the web page is. Agencies not only need informatics knowledge. The higher the price of the web page and the higher the internet knowledge of the customers. as well as the agency’s needs to convince the customer with their competences. because one third of the web designers have fixed prices for their services and those who let you negotiate only give only small discounts. the stronger is this force. so they compare competitors and their prices. Companies who wish to have an online shop or other complicated internet applications where the user interacts with the system have bargaining power. They often do not compare different market players and their services or prices. A failure in this area means a loss of money. In the service sector there are slight differences and agencies have more scope than self-employed web designers. 2009.13 – 15. This is the high price segment and requires a lot of informatics knowledge and experience from the agency. (Fischer. There is a transparent market without switching costs and brand identity for the customers and furthermore there is a buyer concentration in the same amount like a firm concentration. Business customers negotiate on service. The product they want is more complex than the previous. they have higher demands on the design and the textures and their pages need regular updates. the more bargaining power the customer has. The buyers of a web page could be private or business customers.There are three groups of customers. Nevertheless agencies cannot charge a high price because in comparison to other online services a private web page is a low involvement product.3 Bargaining power of suppliers . The involvement is high because the customers have to have a good knowledge of what they want and need. Instead of a professional wedding page they could create their own page in one of the social media portals like Facebook for uploading their stories and photos. but in fact there is only a small range.

therefore the possibility to cut costs is only given on a limited scale. The most common form of advertising for them is Google Adwords. 2. but the whole market adopts Google’s prices. rent. A web design agency is not dependent on a certain location of its office like advertising agencies which need to be centrally located in a city in order to be findable since the acquisition of customers mostly works online. For building up a new web design company there is only little tangible capital required. The rent neither is an important factor. p. (Digital Media Trends. p. so the suppliers of them do not play a big role.and software. Most of the required capital is intangible for instance knowledge and experience. There are other possibilities to place adverts on the internet. but the experience is needed to put it into practice. The cost advantage of experienced market players is only reflected in the existing soft. but in an online business you only have costs for office supplies. The knowledge is easily available in blogs and books.74) Another entry barrier is the brand identity which is an important factor. As you can only decrease costs per piece slightly by using already existing templates. Web designers have to make a great effort to spend money for advertising in order to sell their products. 2004. electricity or office supplies is as high as in private households. because they do not spend enough money on them and normally it is easy to switch. economies of scale do not play a role for a web designer. Google is the most important tool for companies selling online. so the production of a web page only has fixed costs (except personal costs). 2009. There are two types of important costs: On the one hand hard. Most of these costs are insignificant in comparison with the benefits of the product. hard. Customers do not have the same brand awareness like in other businesses. (Fischer. 2009) Suppliers are not able to bargain with the web designers.and hardware they have.Web designers sell virtual products. The power of suppliers is limited because the different computers are substitutes of their selves and prices are transparent. but if in the e-commerce business . so they set the price and it has to be accepted.and software like computers or new programs. Suppliers do not have any power or influence on these costs because the ordered quantity of furniture.40-41) In a classical business there are needs of raw materials and supplies. The main resources for a web page are time and knowledge and the fix costs are low. All the other suppliers are extremely weak. These are the most significant costs in this sector. (McKay and Marshall. (see Appendix 1) On the other hand there are advertisement costs.4 Threat of entry A newcomer has the same costs in producing a web site as those who are established in this sector. None of these costs are directly related to the product. In addition to that agencies buy these things normally once every few years. Prices have decreased during the last ten years and there are many different sellers of computers. running costs and advertising. office furniture. Only Google advertisements represent a strong force.

Actually. The turnover of e-commerce is not only increasing. 2009. because you are demonstrating competence and trust. books and magazines as well as institutions where you can spend leisure time. They already made the mistakes which new entrants still have to make. p. but nowadays it is still possible building up your own business without great capital efforts but with a great time and knowledge investment. (Schäfer-Mehdi. Technology goes on and web designers have to keep their informatics knowledge up to date.75) In figure 2 you see an outline about the other possible substitutes. It is also a noteworthy obstacle that web designers who stay in the business for years already have good positions in the search engines and new entrants have to make a great effort to drive them out of these positions. 2004. Established firms have an advantage in the experience they gained. Figure 2: Substitutes of a web site But a web site is a relatively young product which lately has started to be a substitute for those products.47) Another substitute of a web page is the mobile internet. (Chaffey et al. But this is just a niche movement which really cannot compete with a modern online shop. p. In the ecommerce you can only survive if everyone creates links to each other. (Fischer. p. but also the possibilities of online leisure time activities.there is a need of a good online reputation.153) On the contrary.5 Threat of substitutes A substitute is a product with similar features to the initial product. In . p.333) It has become more difficult in the last five years to enter the web design industry. The buyer propensity of the classical shops is decreasing and even inexperienced people have started to buy online. but it is also useful to identify substitutes. In a perfect competition the market share of each participant is so small that it is not worth fighting for. 2009. so you have to present references as well as evidence that you are able to optimize a customers’ web site in search engines. 2006. (McKay and Marshall. They have to contemplate a lot of small matters which can improve a customer’s web page. p. 2007.506-510) An advantage for new market player is that they do not have to expect retaliations from existing agencies. thus a community was created on the internet where web designers help each other and give hints to new ones. The more you help for free. and as a result a countermovement is emerging where people wish to have again a haptic experience. Mostly everything from everyday life can be done online. because customers start demanding that a web page has to be accessible with their mobile or blackberry. The existing companies continue improving their positions as well. (Lipsay and Christal.. the more clients you can acquire. In this context replacements for commercial web sites are other shops where you could buy the same product. the model of the diversification steps is to amplify own product portfolio. (see Appendix 1) 2. so the entrants are obliged to work much harder than the existing competition when they start up.

At the moment is not a real danger given that the mobile net drives the internet out of business. the bargaining power of customers or suppliers and the threat of substitute products or services According to Porter. The outcome of his analysis framework is a structured industry view that provides the required knowledge to make a positioning strategy. demanding better quality or better service. the retailers and the end-consumers. and how they affect the industry. Web designers have to convince their potential clients purchasing their own web page to meet their marketing objectives. but in all the five forces that shape the industry He emphasizes that the awareness of these forces can help a company stake out a position in its industry that is less vulnerable to be attacked. (Team23 GbR. In the huge portals like Facebook or Twitter they can install an interactive page with communication features. Powerful buyers.7% with a rising tendency. the five forces are essential to be aware of. so future online shopping will take place on the way. if not impossible.November 2009 the mobile internet already had a market share of 1. The social platforms are only interesting for those who go without an online shop. To establish a good and competitive strategy for dealing with the five forces. and each fashion company needs to convince both groups of the . not to mention and in some way make use of Porter’s five forces. influenced by the threat of new entrants. and he was the first to categorize industries and the first researcher to deal with the concept industry. because it is the industry structures that drive the competition in the long run. which give rise to the competitive forces The bargaining power of buyers has great effect on the attractive value of a market. when creating a strategy to gain competitive advantages in an industry . Many have commented on his model. a company needs to understand how the forces work in the industry. market shares are gained when the forces are taken into account in strategic planning. Porter’s five forces examines the level of competition in an industry. Before entrepreneurs think about contracting an agency they also have the choice to buy home page software where they can build up their own web site according to the modularity. Fashion Industry An industry is a group of firms that offer a product or class of products that are similar and are close substitutes for one another According to Porter. It has to be seen as a complement. hence creating competitive advantages . retailers or endconsumers can gain more value by forcing down prices. The switching costs are enormously high because they have to change from a free product to a paid product and the advantages are not apparent right now. When analysing an industry it is hard. Competition in an industry is not manifested only in competitors. all at the expense of industry profitability. 2009) The last substitute worth mentioning is the social platforms where companies and privates can present themselves without having their own web page. There are two kinds of buyers. Penetration of the North-German market is only possible if the Germans want to buy. every industry has a set of fundamental economic and technical characteristics. Lastly. Porter has created a highly useful concept for examining industries. hence for those who do not want to spend much money anyway. and it has been the object of debate since its release in 1979.

It can be hard to obtain market shares. The Danish fashion companies are often not in a position to bargain about prices and delivery time. changing delivery times or limiting quality or services (Porter. If there are many suppliers. The threat of new entrants to an industry bring new capacity and a desire to gain market share that puts pressure on prices. 2008). 2009). E. Fashion manufacturers are often situated in Eastern or Southern Europe or in Asian countries such as China. The buyers can play the companies in the industry of against each other. especially when supply exceeds demand.uniqueness of its products. are in in a much stronger position to bargain and require special services: .. costs and the rate of investment necessary to compete In this case. India and Bangladesh where labour is inexpensive (Company A. and the suppliers do not depend on them for their revenues. Rye. the individual Danish fashion brands need the right agents to create the right contacts to the right people. For instance. a dress from a Danish fashion brand versus a dress from a German or French brand Substitute products reduce the profitability of an industry by limiting the price that can be charged. New entrants will try to penetrate the market if the industry is considered attractive and has high profits or growth. because the companies are small and independent. on the other hand. An assessment of the competitive form of the industry can give a good impression of the accessibility of the market. because the threat of substituting products can be very strong and more crucial than the competing companies in the industry. Large companies like H&M. demanding lower prices and better service. The threat of substitute products is alternative products that perform the same or a similar function. But substituting products can be of a more broad kind. if new entrants have difficulties finding distribution channels or communicating their image out to consumers. to get their clothes on the market. which consumers benefit from. where the prices on fashion items have been reduced heavily and sales periods are extended to make sure everything is sold . the entrance barriers are generally considered as low The bargaining power of suppliers concerns the manufacturers of the fashion clothing. Powerful suppliers can capture higher revenues by charging higher prices. It is important to take the relative price of these substituting products into consideration. The buyers’ size and the possibility of substituting products are factors that enhance the buyers’ negotiation power and small companies in a fragile financial state may have trouble refusing any kind of order. as seen during the financial crisis. such as electronics. as in the fashion industry. travels etc. new entrants could be another fashion industry’s entrance such as the Spanish or English fashion industry. But penetration also depends on the accessibility of the market.g. Substituting products affect prices and profit.

Sign up to vote on this title
UsefulNot useful