project
MB0053-INTERNATIONAL BUSINESS MANAGEMENT
Q.1 Discuss porter’s diamond model for international trade.
Explain the model with diagram.
ANS.1 Porter’s diamond model
In 1990, Michael Porter analyzed the reason behind some nations’ success and others’ failure in international competition. His thesis outlined four broad attributes that shape the environment in which local firms compete and these attributes promote the creation of competitive advantage. They are explained as follows:
Factor endowments – Characteristics of production were analyzed in detail. There are basic factors like natural resources, climate, and location and so on and advanced factors like communications infrastructure, research facilities.
Demand conditions – The role of home demand in improving competitive advantage is emphasized since firms are most sensitive about the needs of their closest customers. For example, the Japanese camera industry which caters to a sophisticated and knowledgeable local market. Relating and supporting industries – The presence of suppliers or related industries is advantageous since the benefits of investment in advanced factors of production spill over to these supporting industries. Successful industries within a country tend to be grouped into clusters of related industries. For example Silicon Valley. Firm strategy, structure and rivalry – Domestic rivalry creates pressure to innovate, improve quality, and reduce costs which in turn helps create world-class competitors.
He said that these four attributes constituted the diamond and he argued that firms are most likely to succeed in industries where the diamond is most favorable. He also stated that the diamond is a mutually reinforcing system and the effect of one attribute depends on the state of others. For example, favorable demand conditions will not result in a
Q.1 Discuss porter’s diamond model for international trade.
Explain the model with diagram.
ANS.1 Porter’s diamond model
In 1990, Michael Porter analyzed the reason behind some nations’ success and others’ failure in international competition. His thesis outlined four broad attributes that shape the environment in which local firms compete and these attributes promote the creation of competitive advantage. They are explained as follows:
Factor endowments – Characteristics of production were analyzed in detail. There are basic factors like natural resources, climate, and location and so on and advanced factors like communications infrastructure, research facilities.
Demand conditions – The role of home demand in improving competitive advantage is emphasized since firms are most sensitive about the needs of their closest customers. For example, the Japanese camera industry which caters to a sophisticated and knowledgeable local market. Relating and supporting industries – The presence of suppliers or related industries is advantageous since the benefits of investment in advanced factors of production spill over to these supporting industries. Successful industries within a country tend to be grouped into clusters of related industries. For example Silicon Valley. Firm strategy, structure and rivalry – Domestic rivalry creates pressure to innovate, improve quality, and reduce costs which in turn helps create world-class competitors.
He said that these four attributes constituted the diamond and he argued that firms are most likely to succeed in industries where the diamond is most favorable. He also stated that the diamond is a mutually reinforcing system and the effect of one attribute depends on the state of others. For example, favorable demand conditions will not result in a