2. Does Porter Fail to Explain How the Factor and Demand Conditions That Mould a Nation’s Corporate Strategies, Business Structures, and Industrial Clusters Are Established? What Other Theories and Evidence Might Assist Such an Explanation?

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  • Topic: Business cluster, The Nation, Competitiveness
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2. Does Porter fail to explain how the factor and demand conditions that mould a nation’s corporate strategies, business structures, and industrial clusters are established? What other theories and evidence might assist such an explanation?

Porter explains what factor and demand conditions are, but he fails to explain how they are established. He defines then, and explains them in detail, but lack the most important aspect, which is how they are established. A theory like this is not of much use without the information about the way one can gain these advantages. Porter is always greatly praised for his great work in the management field and he does deserve some of this praise, but if he doesn’t manage to explain himself fully then maybe he is not as great as many people think. I will be going through Porter’s theory of national competitiveness and the diamond as well as the theory of national clusters. I will also then look at criticisms of Porter including Reich’s global webs and Dicken’s general criticism. To be able to determine if Porter fails to explain how factors and demand conditions that mould a nation’s corporate strategies, business structures, and industrial clusters are established one first must understand his general theories on national competitiveness which tie in with his diamond. The determinants of national competitiveness and the 4 corners of the diamond are factor conditions, demand conditions, related and supporting industries, and firm strategy, structure, and rivalry. Factor conditions are “the nation’s position in factors of production, such as skilled labour or infrastructure, necessary to compete in a given industry.” (Porter, 1990) Demand conditions are the demand for the certain product or service in the home market. Related and supporting industries relates to the amount of supplier industries within the nation as well as other similar industries that are competitive on the international scale. Finally, Firm strategy, structure, and rivalry refer to “The conditions in the nation governing how companies are created, organized, and managed, and the nature of domestic rivalry.” (Porter, 1990) Below you can see Porter’s Diamond with the added aspect of government. It just shows the importance of the government in the development of national competitive advantage and how it has a role in every aspect of the diamond.

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Porter states that these “determinants, individually and as a system, create the context in which a nation’s firms are born and compete: the availability of resources and skills necessary for competitive advantage in an industry; the information that shapes what opportunities are perceived and the directions in which resources and skills are deployed; the goals of the owners, managers and employees that are involved in or carry out competition; and most importantly, the pressure on firms to invest and innovate.” (Porter, 1990) Competitive advantage is gained ultimately when the “home environment is the most dynamic and the most challenging.” (Porter, 1990) This in turn stimulates the firms to improve and expand their advantages over time. (Porter, 1990) Logically, Porter states that “Nations are most likely to succeed in industries or industry segments where the national “diamond”,…., is the most favorable.” (Porter, 1990) Not all firms will necessarily do well if the country has a good diamond. If it is very dynamic it could cause a problem for some firms because they might not all have access to the same skilled works or resources as other firms. In a very dynamic industry it is a kind of first come first serve. The firms that act quickly will be able to pick up the skilled labour and high quality resources. The firms that do perform well on a national level will then most likely prevail on the international level as well for the reasons just stated, being labour and resources. Another important aspect of nation competitiveness is that...
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