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Porter's Diamond, AAA, & CAGE

Porter's Diamond Model analyzes national competitive advantage based on firm strategy/rivalry, factor conditions, demand conditions, and related/supporting industries. Germany's luxury car industry benefits from strong engineering education, venture capital, government research focus, and supplier industries like steel and IT. Consumer demand is driven by preferences for powerful, technologically advanced vehicles. The AAA framework outlines three generic international strategies: adaptation tailors products to local markets; aggregation achieves economies of scale through regional or global operations; and arbitrage exploits differences rather than adapting. Whether a company adapts, aggregates, or exploits arbitrage depends on factors like branding/advertising intensity and research/development requirements. The CAGE distance framework

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Irish June Tayag
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233 views10 pages

Porter's Diamond, AAA, & CAGE

Porter's Diamond Model analyzes national competitive advantage based on firm strategy/rivalry, factor conditions, demand conditions, and related/supporting industries. Germany's luxury car industry benefits from strong engineering education, venture capital, government research focus, and supplier industries like steel and IT. Consumer demand is driven by preferences for powerful, technologically advanced vehicles. The AAA framework outlines three generic international strategies: adaptation tailors products to local markets; aggregation achieves economies of scale through regional or global operations; and arbitrage exploits differences rather than adapting. Whether a company adapts, aggregates, or exploits arbitrage depends on factors like branding/advertising intensity and research/development requirements. The CAGE distance framework

Uploaded by

Irish June Tayag
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Porter’s Diamond,

AAA, & CAGE


Jeanne Ester Gonzales
Irish June Tayag
INB610 GMB
Porter’s Diamond Model of National Competitive Advantage

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Porter’s Diamond Model of National Competitive Advantage

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Germany’s luxury high power car manufacturing industry

FIRM STRATEGIES, FACTOR RELATED AND


CHANCE DEMAND
STRUCTURE AND SUPPORTING GOVERNMENT
CONDITIONS CONDITIONS
RIVALRY INDUSTRIES
• Exposure to potentially • Strong rivalry among • Existence of specialist • Some parts of Germany • Iron and steel industry • Tightening emission
higher auto tariffs the top German car engineering education have no speed limits (Germany is the largest norms
between the U.S., brands (Volkswagen, • Venture capital seeking • Sophisticated steel producer in the • Provision of higher
China and Europe Merc, BMW, Audi, to invest in technology homebuyers want EU and the seventh incentives and
• Pandemic/ Natural Porche, Tesla etc.) startups more powerful cars largest in the world) subsidies to the owners
disasters • German companies • Government’s focus on (style, power, and • IT industry (Siemens; of these vehicles
puts high premium on scientific research advanced telematics) SAP) • Construction of roads
customer satisfaction • Shifting consumer • Banking industry (road connectivity
• Competes on the basis preferences from (Deutsche ) index was 93.5 (rank 6)
of product/service sedan to SUVs • Component suppliers
excellence not on the • Demand for high level (Bosch)
basis of price of comfort and safety
features
• Next-generation smart
mobility technologies,
• Growing trend of
electric luxury vehicle

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AAA Global Strategy Framework
AAA highlights three generic international
strategies to global value creation.

Adaptation Aggregation Arbitrage

Tailoring Achieving Exploiting


products or economies of differences
components to scale or scope rather than
suit local through regional adapting to
preferences or or global them
requirements efficiencies
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Adaptation Aggregation

Variation Economies of scale


Focus Economies of scope
Externalization Adjusting to Overcoming
differences Differences
Design
Innovation

Exploiting
Differences

Arbitrage
Performance Enhancement
Cost Reduction
Risk Reduction
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Which “A” strategy should a company use?
▸ Heavy on branding & advertising (ex. food companies)
▹ Adaptation
A A
▸ Lots of research & development (ex. pharmaceutical firms)
▹ Aggregation
▸ Labor-intensive industries (ex. apparel manufacturers) A
▹ Arbitrage
P&G’s AAA Strategy
▹ Adapts locational R&D and creating autonomous mini-P&G branches in
each location.
▹ Added an element of aggregation and created a matrix organization
structure to focus on creating synergy across regional business units and
product lines.
▹ Arbitrage - outsourcing activities that are invisible to the final consumer.
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CAGE DISTANCE FRAMEWORK

Cultural Distance Administrative Distance Geographic Distance Economic Distance

• Different languages • Absence of colonial ties • Physical remoteness • Differences in consumer incomes
• Different ethnicities; • Absence of shared • Lack of a common border • Differences in costs and quality of
lack of connective ethnic monetary or political the following:
Attributes or social networks association • Lack of sea or river access • Natural resources
creating
• Size of country • Financial resources
distance • Different religions • Political hostility • Human resources
• Different social norms • Government policies • Weak transportation or • Infrastructure
communication links • Intermediate inputs
• Institutional weakness • Information or knowledge
• Differences in climates

(a) Products have high- (a) Products have high (a) Products have a low (a) Nature of demand varies with
linguistic content. government involvement. value-of-weight or bulk ratio. income level.
Industries (b) Products affect (b) Products are fragile or (b) Economies of standardization or
or cultural or national perishable. scale are important.
products identity of consumers.
affected (c) Communications and (c) Labor and other factor cost
by (c) Product features connectivity are important. differences are salient.
distance vary in terms of size,
standards, or packaging. (d) Local supervision and (d) Distribution or business systems
operational requirements are different.
(d) Products carry are high.
country-specific quality (e) Companies need to be
associations. responsive and agile. 8
Why are UK, Canada,
Mexico, and Puerto Rico
profitable?
While South Korea,
China, Brazil, Argentina,
and Germany
unprofitable?

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Emerging markets can have greater distances
because these countries lack many of the
specialized intermediaries that make institutions
like financial markets work.

Institutional Voids - Absence of key specialized


intermediaries found in the markets of finance,
managerial talent, and products, which otherwise
reduce transaction costs.

How to avoid Institutional voids?


1. Adapt to its business
2. Change the institutional context
3. Stay away
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