Porter Analysis
The approach looks at clusters, a number of small industries, where the competitiveness of one company is related to the performance of other companies and other factors tied together in the value-added chain, in customer-client relation, or in a local or regional contexts. The Porter analysis was made in two steps. First, clusters of successful industries have been mapped in 10 important trading nations. In the second, the history of competition in particular industries is examined to clarify the dynamic process by which competitive advantage was created. The second step in Porter's analysis deals with the dynamic process by which competitive advantage is created. The basic method in these studies is historical analysis. The phenomena that are analysed are classified into six broad factors incorporated into the Porter diamond, which has become a key tool for the analysis of competitiveness:
- Factor conditions are human resources, physical resources, knowledge resources, capital resources and infrastructure. Specialized resources are often specific for an industry and important for its competitiveness. Specific resources can be created to compensate for factor disadvantages.
- Demand conditions in the home market can help companies create a competitive advantage, when sophisticated home market buyers pressure firms to innovate faster and to create more advanced products than those of competitors.
- Related and supporting industries can produce inputs which are important for innovation and internationalization. These industries provide cost-effective inputs, but they also participate in the upgrading process, thus stimulating other companies in the chain to innovate.
- Firm strategy, structure and rivalry constitute the fourth determinant of competitiveness. The way in which companies are created, set goals and are managed is important for success. But the presence of intense rivalry in the home base is also important; it creates pressure to innovate in order to upgrade competitiveness.
- Government can influence each of the above four determinants of competitiveness. Clearly government can influence the supply conditions of key production factors, demand conditions in the home market, and competition between firms. Government interventions can occur at local, regional, national or supranational level.
- Chance events are occurrences that are outside of control of a firm. They are important because they create discontinuities in which some gain competitive positions and some lose.
The Porter thesis is that these factors interact with each other to create conditions where innovation and improved competitiveness occurs.
Read more about this topic: Diamond Model
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