“Critically discuss to what extent Porter’s Diamond is a useful concept in explaining home and host location strategies of international business? Illustrate your answer with references to at least two case companies”
The main aim of International business is to build and sustain competitiveness for economic value creation in both domestic and overseas markets (Besanko et al. 2007). Internalisation business theory however has a variety of models that can identify the environmental analysis of specific countries. These models are used for companies to internationalise and find the right location(s) overseas by taking; institutional, cultural fit and success opportunities into consideration. These models also give in-depth information on locations that the companies have chosen. A very well-known framework is the Porter’s Diamond which was found by Michael Porter in 1990. This report will discuss the advantages and disadvantages to determine a company’s home and host location decision by analysing two high street retailers – French E.Leclerc and UK’s Sainsbury’s. Porter’s Diamond Model (1990: 73 ) states that nation’s competiveness depends on the capacity of its industry to innovate and upgrade this however depends on the productivity level of the nation. From a company’s point of view a national competitive advantage means that it would have to depend on the nation to implement a home base to improve their existing products and services such as; technology, features, quality as well as being able to compete with international industries. Therefore, the advantage of this model is that it identifies the four factors that develop the essential national environment where companies are born, grow and as mentioned above sustain competitive advantage (Porter,1990:78). The idea of this model is useful because it allows organisations to carry out the necessary research and identify which countries would be good enough to internationalise. As you can see from the Porters Diamond diagram the first factor is the factor condition, this factor is about production such as land, raw materials, capital infrastructure etc. these are not inherited, but developed and improved by a nation for instance skilled labour (Porter, 1990:79). In order to sustain competitive advantage it will depend on the factor creation ability. For instance, E.Leclerc started as a small rented warehouse “Leclerc established a chain of outlets across the country, single-handedly changing the landscape of shopping in France”(www.independent.co.uk) Abstracted from Keith Points
The second factor is demand condition this is the existence of sophisticated and demanding customers that pressure companies to develop new products that meets the increasing buyer’s needs (Porter, 1990:82). Thus, companies set a strong trend and surpass buyer’s expectations by innovating. This actually was the case of Leclerc when pioneering in 1956 the “hypermarket” concept allowing customers to buy “from groceries and petrol to clothing and jewellery as well as holidays, all at competitive prices” ( www.independent.co.uk). However, mature demand and saturated markets should be an encouragement to innovate. According to Retail Detail, last year French consumers’ purchasing power declined for the first time in three decades (www.anxietyindex.com). Leclerc took this into consideration and introduced a comparison website, app and in-store devices to prove its lowest price claims; “We are the least expensive”. The following factor is related and supporting industries, which represents the presence of e.g. capable supplies, also competitive on a global scale (Porter,1990:82). This means that companies are as strong as its business environment. Without strong suppliers it can become very hard for a firm to compete at a competitive level. However it’s not just strong supplies but also the communication, coordination and the combined development that makes them competitive. Nevertheless those...
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