Critically examine how useful the ‘sector matrix’ framework is for analysing demand and supply linkages in all industries. Use two contrasting examples
In recent years several frameworks have been developed for analyzing product markets and competitive advantages of companies. Many academic authors have tried to explain what gives competitive advantage in certain industries and how companies inside these industries should restructure in order to achieve greater profitability. This essay is firstly going to discuss the advantages of Porter Value Chain concept and its similarities to the Commodity Chain frameworks developed by Gereffi. Secondly the essay will contrast their concepts with the sector matrix frame work of Froud and explain which of these three framework analysis is more appropriate for analyzing supply and demand linkages in different industries. Car and apparel industry examples will be used to contrast the advantages and disadvantages of the different frameworks. Porter Value Chain framework was developed my Michael Porter in 1985 as “basic tool for diagnosing competitive advantage and finding ways to create and sustain it.”( Froud, J.Johal, S. Leaver, A. and Williams, K.2006, p. 101). The concept of Value Chain describes a company as a combination of two types of activities. The first type is primary activities such as inbounds logistics, operations, outbound logistics, marketing and sales, and service. The second type is support activities which are firm infrastructure, human resource management, technological development and procurement. All the nine activities described by Porter are interconnected and add value to the final product. His framework analyses a company assuming that it exists in the boundaries of a single country. According to Porter a firm should analyze its position in the market and its strengths and weakness inside the Five Forces Model, and then use the value chain framework to find opportunities for developing competitive advantage inside its internal structure. According to him, competitive advantages depend only on the structure of the company and the appropriate relationship between the primary and support activities. Value Chain Framework starts with the supply side of the company .There raw materials are delivered in the form of inputs which are then processes and transformed into outputs to the demand side. Inside the company the products pass through the different processes which add value to the final product and reach the customer .As inputs move one step forward in the Value Chain, money from customers goes one step backward, thus creating a linear relationship between supply and demand. Gereffi s Commodity Chain framework is another way of analyzing competitive advantage and improving financial performance. Commodity Chain refers to all the different process in designing, manufacturing, marketing and distribution of a product. Gereffi’s concept is influenced by the effects of globalization and global economy movements. Globalization is the increasing integration of international economies and interdependence between countries in terms of politics and trade. The process of globalization makes the international trade more open and provides access to new labour markets and new customers. This process enables companies to gain competitive advantage by using cheaper labour and more effective supply and distribution network. Commodity Chain Framework is appropriate for analyzing cost advantage in transnational companies who outsource the production of their goods in one market and sell their products in another. By using cheap labour these companies can gain major competitive and cost advantage in the rising global competition. Gereffi defines two types of network depending on power dominance – producer driven and buyer driven. In a producer driven chain, large global manufacturers control the supply of the products and distribution networks. For example, the car...
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