The document discusses Michael Porter's theory of national competitive advantage known as the "Diamond of National Advantage". The theory proposes that four attributes influence competitive advantage: factor conditions, demand conditions, related and supporting industries, and firm strategy/rivalry. It argues that a nation's competitiveness depends on how these attributes interact and reinforce each other in a system. Specialized factors, sophisticated buyers, related industries, and domestic rivalry are especially important for sustaining competitive advantage over time.

1. Competitive Advantage of Nations Author: Michael Porter Presenter: Wesley Shu Prepared for EMBA, Feng-Chia University

2. Eroded Early Mover Advantages Customer relationship Scale economies Loyalty of distribution channels All can be overtaken by competitors if not improved.

3. Global Competitiveness Report Composition of GCI GCI Ranking

4. Su stainability The only way to sustain a competitive advantage is to upgrade it.

5. Why companies capable of innovation in some nations? Why do they pursue improvements,? Why are they able to overcome the substantial barriers?

6. The Diamond of National Advantage Firm Strategy, Structure, and Rivalry Demand Conditions Related and Supporting Industries Factor Conditions

7. F a ctor Condition Availability of resources and skills necessary for competitive advantage in an industry e.g., Skilled Labor or Infrastructure

8. Demand Condition Home market – the information that shapes the opportunities that companies perceive and the directions in which they deploy their resources and skills.

9. Related & Supporting Industries The international competitiveness of supplier industries & other related industries

10. Firm Strategy, Structure, & Rivalry The conditions governing how companies are created, organized, and managed, and the nature of domestic rivalry

11. Factor Conditions A nation does not inherit but instead creates the most important factors of production to form the backbone of any advanced economy.

12. Factor Conditions The rate and efficiency with which a nation creates, upgrades, and deploys the factors is more important than the volume.

13. Factor Conditions A factor must be highly specialized to an industry’s particular needs to support competitive advantage.

14. Factor Conditions Highly specialized factors come from world-class institutes that create and then upgrade them.

15. Factor Conditions Selective disadvantages can prod a company to innovate and upgrade – e.g., high land costs, labor shortage, or the lack of local raw materials lead companies to innovating and upgrading to compete.

16. Factor Conditions - Disadvantage The following conditions have to be met for disadvantage-advantage transformation to work:

17. Factor Conditions - Disadvantage Signal companies and companies innovate in advance of rivals Favorable conditions in other aspects of the diamond Company commitment

18. Demand Conditions Home demand gives companies clear and early picture of emerging buyer needs Demanding buyers

19. Demand Conditions The character of home demand is more significant than the size.

20. Characters of Demand Conditions Market segment is larger or more visible than in foreign countries. Buyers are more sophisticated. Buyers’ needs anticipate or even shape those of other nations

21. Characters of Demand Conditions Exporting values and tastes as well as products

22. Related & Supporting Industries Those who are internationally competitive can provide competitive production methods and trigger innovation and upgrading.

23. Firm Strategy, Structure, & Rivalry Corporate Structure & Nature of Domestic Rivalry National Circumstances & Context Firm Strategy

24. Firm Strategy, Structure, & Rivalry – Germany Strictly hierarchical organization & management practices with technical background top managers National Circumstances & Context Technical Oriented Industries

25. Firm Strategy, Structure, & Rivalry – Italy Family owned, medium size companies with sophisticated taste National Circumstances & Context Consumer goods & services

26. Firm Strategy, Structure, & Rivalry Domestic rivalry to stimulate competition, creating pressure on companies to innovate and improve

27. The Diamond as a System The effect of one point often depends on the state of others. E.g., sophisticated buyers & human resources Each point can reinforce others. E.g., domestic rivalry promotes improvement in all the other determinants.

28. The Diamond as a System Nations are rarely home to just one competitive industry – clusters of industries.

29. The Role of Government Catalyst and Challenger

30. The Role of Government But in politics, a decade is an eternity. Consequently, most governments favor policies that offer easily perceived short-term benefits, such as subsidies, protection, and arranged mergers – the very policies that retard innovation.

31. The Role of Government Focus on specialized factor creation. A void intervening in factor and currency markets. E nforce strict product, safety, and environmental standards

32. The Role of Government S harply limit direct cooperation among industry rivals. P romote goals that lead to sustained investment D eregulate competition E nforce strong domestic antitrust policies

33. Focus on Specialized Factor Creation G eneral factors rarely produce competitive advantage, e.g., secondary education system, broad national concern such as health care. S pecialized apprenticeship programs, university research efforts linked with industries, private company investment ultimately create the factors that will yield advantage.

34. Avoid intervening in factor & currency markets E .g., lower factor cost E .g., currency devaluation

35. Avoid intervening in factor & currency markets E .g., lower factor cost E .g., currency devaluation

36. Sharply limit direct cooperation among industry rivals C ompanies rarely contribute their best scientists and engineers to cooperative projects. Divert company attention and resources from proprietary research Value of cooperative research: S ignal the importance of emerging technical areas

37. Company Agenda Create pressures for innovation Seek out the most capable competitors as motivators Establish early-warning systems – translate into early-mover advantages Improve the national diamond

38. Company Agenda W elcome domestic rivalry G lobalize to tap selective advantages in other nations Use alliances only selectively Locate the home base to support competitive advantage

39. Improve the National Diamond F orm clusters – work with its home-nation buyers, suppliers, and channels T ake explicit steps to create specialized factors