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Porter's Diamond Model Case Study1

1. The Diamond Model of Michael Porter helps understand a nation's competitive advantage by analyzing four interlinked factors: factor conditions, demand conditions, related and supporting industries, and firm strategy/rivalry. 2. For South Korea's automobile industry, intense domestic rivalry has pushed firms to continuously improve products. Targeting the global market helped achieve economies of scale needed to compete globally and increase sales. 3. South Korea also benefits from knowledgeable workers supporting innovation, lower wages, high savings/investment, and policies importing technology over consumer goods.

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2K views11 pages

Porter's Diamond Model Case Study1

1. The Diamond Model of Michael Porter helps understand a nation's competitive advantage by analyzing four interlinked factors: factor conditions, demand conditions, related and supporting industries, and firm strategy/rivalry. 2. For South Korea's automobile industry, intense domestic rivalry has pushed firms to continuously improve products. Targeting the global market helped achieve economies of scale needed to compete globally and increase sales. 3. South Korea also benefits from knowledgeable workers supporting innovation, lower wages, high savings/investment, and policies importing technology over consumer goods.

Uploaded by

amitkpat
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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ë 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.
js a rule V  

 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 pro-
active 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  
   
 
 

 
  
Π 
    
 
    
 
 


ë 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.
w
    
ë 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.
3
 

ë 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 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.
w    
ë 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.
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