EITR Summative Assessment Case Study

EITR Summative Assessment Case Study

Porter’s Examination of International Competiveness (Diamond Framework)

Porter’s model attempts to theorise what determines the competitiveness of and industries and thereby nations that engage in global trade (Smit 2010). Though this line of examination Porter places a significant emphasis on development on national economic traits that filters through to corporate behaviours and institutions that create competitive behaviours upon the global economic stage. Where other competitiveness trade theories base their assumptions on factors of production and product development (such as the product life cycle (Hymner 1960)).

The development of the innate advantages are nurtured through national culture, institutions and market dynamics that determine the level of competitiveness that the firm/industry/nation can imply on world markets and trade. In this vein Porter tries to examine the rise of modern economies, MNEs and their associated success in the understanding of how nations become more competitive (Ketels 2006).

EITR Summative Assessment Case Study

“Japanese auto manufacturers had developed capabilities and resources
far more sophisticated than their US counterparts. In the end, this would translate to both cost advantages (for smaller cars in the order of 10 per cent) and differentiation advantages (increased mileage and quality of the product). This would go for Toyota but also for Nissan, Honda and the other car manufacturers. During the 1980s, US auto firms put on a very strong lobby in Washington that led to severe trade barriers for Japanese car imports. This only led to the Japanese carmakers setting up plants in the USA and transplanting their capabilities, into unknown territory in the South; not the old cluster in Detroit. By using the Diamond model, Porter would point to factors such as quality and specialization of factor conditions, fierce rivalry in the backyard of Japanese auto makers, sophisticated buyers and access to dynamic clusters of interlinked industries (Porter et al., 2000). The notion of competitiveness was now turned into a dynamic one, emphasizing tough policy, factor disadvantages (expensive energy, expensive steel input, etc.) and meticulous demand specifications (spotless finish of the product, fuel efficiency, safety features, etc.).” Sölvell (2015: 476)

EITR Summative Assessment Case Study

The international competition at the firm level has changed markedly of the prior decades because of changing patterns of world trade, globalisation and advances in technology have given rise of the transnational organisation (Smit 2010).

“It is the first multilevel theory to realistically connect firms, industries and nations, whereas previous theories only work on one or two dimensions”. Hill (2009: 193)

However, Porter’s approach hasn’t been accepted universal and there exists contrasting views on the application and accuracy of Porter’s theory. Economists such as Krugman (1996) state that countries do compete internationally as firms. Similarly, Kohler (2006:140) states:

“A country’s welfare is…determined by its absolute level of productivity, in a trading world productivity is magnified by international exchange”.

So the debate that is raised within the economic literature is the notion of competiveness, how its defined in the realm of national boundaries. Further how New Trade theory that addresses level-industry trade within the confines of economies of scale and specialisation with government policy to shift trade specialisms potentially overrides Porter’s Diamond Framework.