The Diamond Of National Advantage And Its Significance In Shifting The Role Of Nations In The Creation And Assimilation Of Knowledge

The fundamental of competition has shifted significantly to the creation and assimilation of knowledge hence, role of the nation has grown.

1. Assuming you are strategy and policy expert for your country, you are required to apply Diamond of National Advantage and critically discuss how your country can attract and retain Foreign Direct Investments (FDI). 

2. As a policy and strategy advisor in your country, critically discuss four basic policies that government should adopt to enhance the capacity of its industries to innovate and upgrade.

The Diamond of National Advantage and its Significance

Classical theories used in global and international trade depicts comparative advantage to factors endowed in a country that it is fortunate to inherit. (Adams, 2012) Such endowment includes the size of population, land, vast natural resources and labor. (Porter, 2008) argued that a country can create fresh factor endowments such as government support, modern technology, skilled labor, and a robust knowledge base. Therefore, Porter used a diagram, which is diamond shaped, as the basis of support to his arguments. The framework has been used to explain the various national playing field that different countries have established for their industry’s success. The points used in the diamond solely affect four key ingredients that normally lead to a country’s comparative advantage. These include the available skills, information, and intensive resources that are used by organizations to decide which opportunities to follow, the goals of various entities in companies and the pressure on those businesses to invest and innovate. (Porter, 2008)

As a policy and strategy expert, one would reiterate and affirm the diamond’s framework in that firms gain competitive advantage under certain conditions. Three conditions have been set up in the theory. These include if a home base out rightly allow accumulation of skills and assets if goals of managers, owners, and employees owners possess the intense commitment and sustained investment and in companies where the home base can afford better information and insight into various products and process needs. Therefore, this would create a fundamental shift in the creation and assimilation of useful knowledge by nations to gain more advantage in foreign direct investments. (Boyes and Melvin, 2014)

Standard economic theories attribute production factors such as labor, land, skilled or unskilled resources, income capital, and infrastructure in determining the course of trade. (Hatti, Singer and Tandon, 2013) Factor conditions, as explained in the diamond of national advantage, relates a countries position in these factors which are essential to compete in any industry. These production factors can be arranged in a hierarchy where on the lowest level we have basic and generalized factors such as unskilled labor and raw materials, while specialized and advanced factors such as educated and motivated labor, are on the higher level. (Van Den Bulcke, Verbeke and Yuan, 2010) Therefore, one can argue that advanced and specialized factors are vital for sustained and heavy investment in a given industry. Porter argues that having a general high school or college education does not entirely represent a competitive advantage in the modern global competition but what is important are factors which are highly focused to an industry’s specific wants and needs. These factors are uncommon and difficult to imitate and also require continuous investment to be initiated. (Hatti, Singer and Tandon, 2013)

Shifting the Role of Nations in the Creation and Assimilation of Knowledge

Competitive advantage results after the creation of specialized factors by leading institutions and then continue working in their upgrade. (Boyes and Melvin, 2014) As a strategy and policy expert, one would argue that the stock of factors by themselves are not what is important in the sophisticated and advanced economies but how efficiently they can be created, deployed and upgraded in the specific industries. A nation can, therefore, attract and retain foreign direct investments by encouraging its companies to position themselves in the market in innovation and upgrade before its foreign rivals. This active rivalry creates pressure and company goals hence initiating a driving force in the innovative process leading to constant commitment in the industry. (Huang et al., 2015) In order to do this, however, favourable conditions should be present elsewhere in the diamond’s framework.

A well versed domestic and international market is a significant component in producing competition. Corporations that encounter sophisticated domestic markets tend to trade superior produce because of the high demand for quality and the close proximity to customers tend to enable the firms to recognize the desires and wants of the customers. (Huang et al., 2015) A nation can attract extensive foreign direct investments by gaining a competitive gain in industries where the home-based demand in a nation presents their companies with a clearer and vibrant picture of developing and trending buyer needs. A demanding pressure from the buyers can also create pressure for companies to transform faster and achieve a better competitive advantage than the competing external rivals. (Jaffe and Nebenzahl, 2011) Therefore, demand conditions relate to the demand of the home market for the industry’s services and products.

Demand conditions in the local market are of less value if domestic preferences cannot be transferred to other nations. A country can only anticipate international trends if the state’s values are vastly spreading. A nation would indeed attract foreign investments by exporting their values and preferences through the media, by training non-nationals, by positive political influence and through overseas activities of their citizens and domestic companies. (Lloyd and Vautier, 2014)Therefore, as a strategy expert, one would advise a nation that by transferring domestic partialities to foreign markets will not only benefit the general market growth but will also be key for small and vulnerable economies that are too small to secure a high growth rate in the home market.

Related and auxiliary industries denote the presence or absences of a supplier industry and other significant related businesses that are globally competitive. (Jaffe and Nebenzahl, 2011)The presence of a global competitive home-based supplier creates an advantage in downstream companies in numerous ways such as offering the most economical method of input delivery and close relationships in the working environment. The countries’ companies tend to benefit more if the suppliers themselves are mostly global competitors. Therefore, home-based competitiveness in other industries that are related tends to provide the same benefits as with suppliers where there is a smooth flow of information and increased speed on the rate of innovation and upgrading. (Rezaee, 2016)

Michael Porter's Diamond of National Advantage

The nature of national rivalry and the context in which firms are created and organized is constituted by a firm’s strategies, structure, and rivalry. (Lloyd and Vautier, 2014) The goal of the industry’s owners, their management and employees also play a vital role. One would, therefore, encourage a nation’s increase in competitiveness and effectiveness in a specific industry through its convergence in organization practices, favoured organization styles, and the institution of government policies that influence firm’s operation through its favourable taxation policies hence encouraging long-term investments. Porter argues that different management styles are incorporated in various industries. The best style of management and individual motivation in working and expanding skills also plays an important role in competitive advantage. Therefore, the context in business varies among countries and domestic advantage rises from a respectable match amongst choices in the context and the sources in an industry regarding competitive advantage. (Porter, 2008)

Industrial policies of a country are strategic efforts to enhance and encourage the development or growth of the manufacturing industry or other sectors of the economy. One method the government would enhance the capability of its industries to upgrade and innovate is by proving an enabling environment. The cornerstones of ensuring this would be to provide investment incentives which include, provision of allowances in investment, general liberalization of the economy and provision of target infrastructure. (Aronson and Schwartz, 2014) The government should also help in the technological acquisition, an improved market for local products, institute public procurement policies that increase public sector purchase of domestic products and provide a wide dissemination of information of local and export, markets using its agencies. The government should also undertake a comprehensive review of all regulatory acts that restrict and impede the operations of these industries. Such acts include the employment act, building code act, and licensing requirement acts. (Pen?alver, 2011)

Lack of credit has been acknowledged as one of the major restraints facing the growth and upgrading of industries. The government should propose policies such as the credit policy to alleviate this problem. This policy stipulates that the flow of funds to the local companies could be increased by, deregulating and liberalizing the financial sector, assisting with obtaining of foreign loans for local industries and shouldering the related risks in foreign exchange, and by exploring the possibilities of establishing export insurance schemes which will increase local exports. The government can also increase the training of local entrepreneurs which will be facilitated through changes in legislation such as amendment in the act of industrial training which will allow banks to commence training of domestic clients using the levy. Finally, the government can review some restrictive requirements, procedures and regulations that reduce the flow of funds to these sectors hence making it more flexible to accommodate the needs of domestic industries. (Pen?alver, 2011)

Role of demand conditions in creating competition

Non-financial promotional policies play a significant role in the growth, innovation, and upgrade of local industries. These policies constitute programmes such as guidance, marketing, and training in technical issues, marketing, and product design. These services are required by local enterprises for their entry, productivity, upgrade, and survival. The government should promote technical and managerial enhancing policies and market improving policies that increase the supply of entrepreneurs, colleges and other teaching institutions in introducing entrepreneurship learning in their programmes. It can also undertake market surveys to identify openings for products development, growth, and variation in the local sector. (Warnecke, 2014)

The society’s attitudes toward business play a role in the willingness of competent entrepreneurs in responding to profitable opportunities. The government should institute favourable gender-related policies that encourage the effectiveness of women in business. In some societies, female entrepreneurs or other women face cultural barriers in undertaking business activities outside their home. (Aronson and Schwartz, 2014) A nation should propose policies to rectify such situations. This includes the public education and recognizing women as role models, review of laws on ownership and inheritance of land and rights of women, and the compilation of a database ascertaining the level of women involved in local businesses, including their successes and difficulties. This will help in the development of an appropriate support structure for them hence encouraging growth, innovation, and upgrade of industries in the country.

References

Adams, F. (2012). Industrial policies for growth and competitiveness. Lexington, MA [etc.]: Heath, pp.4-14.

Aronson, J. and Schwartz, E. (2014). Management policies in local government finance. Washington, D.C.: Published for the ICMA University by the International  City/County Management Association, pp.65-87.

Boyes, W. and Melvin, M. (2014). Fundamentals of economics. Mason, Ohio: South-Western  Cengage Learning, pp.10-14.

Hatti, N., Singer, H. and Tandon, R. (2013). Foreign direct investments. New Delhi: Indus,  pp.23-49.

Huang, K., Dyerson, R., Wu, L. and Harindranath, G. (2015). From Temporary Competitive Advantage to Sustainable Competitive Advantage. British Journal of Management, 26(4), pp.617-636.

Jaffe, E. and Nebenzahl, I. (2011). National image & competitive advantage. [Frederiksberg]: Copenhagen Business School Press, pp.23-45.

Lloyd, P. and Vautier, K. (2014). Promoting competition in global markets. Cheltenham, UK: E. Elgar, pp.21-65.

Pen?alver, M. (2011). Brazil, industrial policies and manufactured exports. 1st ed. Washington, D.C.: World Bank, pp.34-54.

Porter, M. (2008). Competitive advantage. New York: Free Press, pp.26-45.

Rezaee, F. (2016). Key Determinants of Success to Achieve Sustainable Competitive Advantage (SCA). Archives of Business Research, 4(6), pp.10-16.

Van Den Bulcke, D., Verbeke, A. and Yuan, W. (2010). Handbook on Small Nations in the Global Economy. Cheltenham: Edward Elgar Pub., pp.13-30.

Warnecke, S. (2014). International trade and industrial policies. [Place of publication not identified]: Palgrave Macmillan, pp.27-34.