Porter’s Diamond Essay
Nowadays, the global economy is developing faster and faster. Many countries start to pay much attention to the international competitiveness. More and more people start to research how to build up the high competitiveness in international industry. And some scholars put forward some theories to support the international industry. For example the Michael Porter diamond Model. First of all, this paper is going to introduce the Michael Porter diamond theory. Secondly, analyse this theory in details and discuss what the usefulness and defect are for the international industry.
Thirdly, this paper is going to explore the how this theory is going in Chinese construction industry. At last, this paper is going to make a conclusion and give some suggestion for the Michael Porter diamond Model theory. The introduction of the Michael Porter diamond Model The Michael Porter diamond Model was put forward by Professor Michael Porter, who is working in the American Harvard Business School. Porter’s diamond model is used to analyse why some industries in a country has the strong competitiveness in the world. Michael thinks that if a country’s industry got the high competitiveness, it depends on four factors (Grant, 1991).
Factor conditions, demand conditions, related and supporting industries and firm strategy, structure and rivalry. The first factor conditions can be divided into the primary factors of production and advanced factors of production. The former means natural resources, climate and geographic location. The latter means artificial higher technology. The second demand conditions mean domestic demand structure and the international market pressure. The third are related and supporting industries. It means the competitive industries are not independent, they are supplied and supported by upstream.
The forth are firm strategy, structure and rivalry. It means the way in which companies are created, set goals and are managed is important for success. In the pressure of competition, the enterprise is going to innovate in order to upgrade competitiveness. In addition, there are two variables in this theory: the government and chance. These two factors also have a large affect the international competitiveness of a country’s industry (Porter, 1990). The chance is uncontrollable, at the same time, the government’s policy is important as well. So Potter thinks these six factors are affecting a country’s international industrial competition.
The usefulness and defect of Porter’s diamond theory Porter’s diamond system is a dynamic system (Cho, 1994). It emphasized the factors of the creative ability in competitive industries are more important than simple elements (Porter, 1990). In the first of the factor, factor conditions, compare with other comparative advantage theories, porter’s diamond theory does not put forward any innovation. However, this theory analysed factor conditions more specifically. It separated factor conditions on primary factors and advanced factors (Davies & Ellis 2000). Primary factors included in natural resources, climate and unskilled workers.
Advanced factors included in modern communication facilities, higher education manpower, knowledge system, proprietary technology, and university research institutes. In Most industrial competitive advantages, the primary factors are in the decline, at the same time, the created and professional senior elements are more important than natural primary factors (Grant, 1991). If enterprises want to obtain a high level of competitive advantage, it has to depend on advanced factors. On the other hand, in the potter’s diamond model, each factor influences each other in the process of ascension in competitive advantage.
Potter diamond theory, the strategic structure of the enterprise will be influenced by the related and support industries factors, when the related industries and support industry changes, the strategic structure will be affected (Moon, HC & Peery, Jr. , NS, 1995). On the other hand, when the factors of production and the domestic demand factors changes, the industry’s structure and strategy will also be affected and consequently changes. When these factors influence with each other, the government also played a key role in porter’s diamond theory.
The government makes the related policy to protect the related industries and prevent excessive monopoly, and to maintain competition between industries (Rugman & D’Cruz 1993). In addition, government’s regulation can improve production factors, such as infrastructure construction, to maintain a normal and stable development for the industries and its supporting, related industries. On the other hand, the government also can manufacture opportunities. Accidental opportunities factors can influence the production factors and demand factors changes in the whole industry (Narula, R 1993).
Therefore, Porter’s diamond model theory is a dynamic system. If one of the factors changed, the other factors are going to be changed. Therefore, The Porter Diamond Theory is a unique competition theory; it broke the other traditional theory. The Porter Diamond Theory is a unique competition theory; it broke the other traditional theory. It goes with a dynamic structure to analyze a country’s industrial competitiveness. Porter’s Diamond Model, which bridges the gap between strategic management and international economies, features a huge progress in the development of management theories (Grant 1991).
The Porter Diamond Theory strengthens the relationship between corporate strategy and international competitiveness. It expounded the relationship between the six factors and international competitiveness. Another major breakthrough of porter’s diamond theory is it elaborated the government is an important factor for competition advantage. Government’s policy decides enterprise development strategies and protects enterprise’s development. This allows establishing a partnership between the government and enterprises (Krugman, PR, 1994).
Porter’s diamond theory is a new method to understand the competitiveness of a country and regional. Now it has become an indispensable part of international business thinking. however, the porter’s diamond model theory still got defect. After many scholars research, the porter’s diamond model theory is truly suit for the developed and big countries. Especially, it is in America, UK and somewhere else. However, if apply it in some small countries or developing countries, it will not be so good. Some countries, they got small scale economy, they only rely on exporting and resource industry.
They do not have any technology elements. How they create their competitive advantage. According to porter said:” we have shied away from the industry which highly depends on natural resources. ”(Porter, 1990) therefore, for these countries, the porter’s diamond model theory does not give a good method to analyse. The application of this theory in Chinese construction industry The first is the factor conditions. To potter’s point of view of China’s construction industry, the primary factor is more abundant, the construction market is lack of advanced factors.
China has plenty of cheap labour resources, these primary factors help Chinese construction industry develop rapidly in the past 30 years. It is also the main competitiveness of Chinese enterprises in international market (Moore, T, 2012). However, on the other hand, Chinese contractors in the international market competition, is lack of proficient that get the knowledge of international market rules. In the senior elements of technical system and proprietary standards, China’s construction industry in the past practice of the domestic market has accumulated a lot of new technology.
It starts to get more competitiveness in international market. However, compare with western countries, the technology of Chinese construction industry is still difficult to get high competitive advantage in the international market (Jacobson, C, 2011). The second is the demand conditions, in Chinese construction industry, the building speed and efficiency got the high competitive advantage. Because in the Chinese construction market, most of the developers are strict with the building speed and efficiency. It Makes Chinese construction enterprises in the construction organization and speed has a strong implementation capacity.
However, the Chinese domestic construction market is in a vigorous situation, most of the Chinese developers focus on the domestic construction market. It makes the Chinese construction market cannot adapt to the rules and requirements in international construction market (Jin, B, Li, G & Chen, Z, 2007). on the other hand, Chinese construction is still weak at designing and procurement, even enterprises got highly competitive advantage in domestic market, cannot adapt well to the needs of the international market.
The third is related and supporting industries, Chinese construction industry directly related industries, including design consulting, construction materials, electrical and mechanical equipment, construction machinery and professional contracting. These industries only have a strong competitive advantage in the domestic market, in international market, these industries generally lack of international competitive advantage. These industries are restricted by business model, norms and cultural. Some related industries, they lack of international certificate (Jin, B, Li, G & Chen, Z, 2007).
The forth is firm strategy, structure and rivalry. At present, in China, mismanagement of the company, the system is unreasonable and unclear strategy is widespread. Although Chinese construction market is very competitive, this high intensity competition does not bring any new management and new technology to demotic market. So In terms of internationalization, Chinese construction company strategy, structure and competition are difficult to adapt to the requirements of the international market competition (Jin, B, Li, G & Chen, Z, 2007).
The fifth is chance. Chinese construction market has a lot of opportunity. As a big and developing country, Although Chinese construction industry reflects lack of international competitiveness in other factors, but China is one of the fastest growing countries in the world at present. China definitely got more chances and space than other developed countries. Now, more and more overseas countries invest in China, Chinese construction industry is developing very fast to get a high international competitive advantage. The sixth is government.
Chinese construction industry is more subject to government influence. Current building management system in China is relatively backward; it is not only far away from the objective laws of the construction project, also does not help the industry develop the international competitive advantage (Wei, HK & Wu, LX, 2002). In addition, the Chinese government protect domestic market really hard, the government isolates foreign markets from domestic, domestic contractors is difficult to feel the competitive pressure from foreign contractors.
This will affect the competitiveness of the construction industry in China (Wei, HK & Wu, LX 2002). Conclusion Porter’s diamond theory is a new method to understand the competitiveness of a country and regional. Now it has become an indispensable part of international business thinking. This article explained the basic principles of the Porter Diamond Theory, as well as analyzed the interaction between each factor of the Porter Diamond Theory and analyzed the usefulness and defect of this theory.
Potter diamond theory is able to analyze a country’s international competitive advantage very well; however, it also ignores a number of important factors. In some small countries or developing countries, Porter’s Diamond Theory will reflect a lot of inadequacies. The Porter Diamond Theory is a very unique and very advanced theory, but the theory is incomplete and needs to be improved. After this, the article use the Porter Diamond Theory to the construction industry in China, analyzed the current situation of Chinese construction industry and the advantages and disadvantages in international competition.
Subject: Strategic management,
University/College: University of Arkansas System
Type of paper: Thesis/Dissertation Chapter
Date: 3 October 2016
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