Porter's Diamond Model Case Study1 [PDF]

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   The Diamond Model of Michael Porter for the competitive advantage of Nations offers a model that can help understand the comparative position of a nation in global competition. The model can also be used for major geographic regions. ë Michael E. Porter argued that a nation can create new advanced factor endowments such as skilled labor, a strong technology and knowledge base, government support, and culture. Porter used a diamond shaped diagram as the basis of a framework to illustrate the determinants of national advantage. This diamond represents the national playing field that countries establish for their industries. ë

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    p
p has been the outcome of 4 interlinked advanced factors and activities in and between companies in these clusters. These can be influenced in a proactive way by government. These interlinked advanced p
p
p  
  for countries or regions in Porters Diamond framework are: 1. 
 


  (The world is dominated by dynamic conditions, and it is direct competition that impels firms to work for increases in productivity and innovation)

Ê. 3 
pp (The more demanding the customers in an

economy, the greater the pressure facing firms to constantly improve their competitiveness via innovative products, through high quality, etc) 3.   
p
  (Spatial proximity of upstream or downstream industries facilitates the exchange of information and promotes a continuous exchange of ideas and innovations) 4. p
pp (Contrary to conventional wisdom, Porter argues that the "key" factors of production (or   
p) are created, not inherited. Specialized factors of production are skilled labor, capital and infrastructure. "Non-key" factors or   

p, such as unskilled labor and raw materials, can be obtained by any company and, hence, do not generate sustained competitive advantage. However, specialized factors involve heavy, sustained investment. They are more difficult to duplicate. This leads to a competitive advantage, because if other firms cannot easily duplicate these factors, they are valu  


 
   



 
 

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 The car market in South Korea is too small on its own to sustain indigenously. ë Therefore in order to take advantage of scale economies it was necessary to target the global market in order to generate additional sales. ë The above factor was also necessary to remain competitive in a tough industry. ë South Korea enjoys various competitive advantage in this tough automobile industry. ë

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 ntense rivalry in the domestic auto industry ensure that the carmakers and auto parts manufactures focus on continuous improvement of their products. ë The firm has targeted global market to attain economies of scale needed to remain competitive in the global industry and also to increase sales. ë Since the auto industry is extremely capital intensive firm has to seek economies of scale to remain profitable. ë

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South Korea has highly demanding customer therefore the firm has to produce superior quality products in order to satisfy its customers. ë Given the intense rivalry in the domestic industry the firm has to focus on continuous improvement of their products. ë The company in order to internationalize focused on Quality which it regarded crucial for their survival. ë

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 jnother major step to improve quality was geographical diversification which can bring advantage to the firm. ë The firm launched several distribution centers and marketing subsidiaries at locations worldwide. ë To ensure control over the manufacturing and marketing HMC has internalized much of its international operations. ë HMC had entered into various collaborative ventures in R&D,manufacturing,design and other value adding activities. ë

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The country has a sizeable workforce of knowledge worker who help drive innovation on design,features,production and product design. ë Wages in South Korea are lower than in many advanced economies which helps to keep cost down this is another advantage which the firm enjoys. ë The country has a high saving rate and hence has received substantial inward foreign investment and hence is net exporter. ë The government policy to import raw material and technology at expense of consumer good has encouraged saving and investment which has lead to increase supply of capital. ë

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