Internationalising Porters Diamond Essay Example for Free

Internationalising Porters Diamond Essay This article Internationalising Porters Diamond argues that Porter underestimates the significance of the globalization of production and markets in his work about competitive advantage of nations. Dunning says that there is increasing interaction and networking cross-borders. He argues that the cross-border value added activities by multinational companies have influence indirectly and directly on each of the components of the diamond of national competitive advantage. In the article Dunning tries to analyse how globalization of economic activity affects the competitive advantages of individual nation. The article also explores the nature and form of networking and how recent technological developments and regional interactions have increased the interdependence of economic activity between the leading industrial nations in the world. Dunning thinks that the significance of globalization for individual country will depend on how important international transactions are (compared to national transactions), the kinds of assets and products are traded and the modality of international economic involvement. He distinguishes six features of the global economy, which are the following: 1. In global economy value generating assets are increasingly taking the form of created assets (e. g. human capital). The competitive advantages of countries are coming to depend on the countries ability to effectively use and increase these assets. 2. These assets are intangible and firm or ownership specific and do not belong to country. 3. The role of multinational enterprises (MNEs) is increasing. This is because it is in the interest of domestic domicile firms to use the created assets and to generate new assets in a foreign country, or to acquire assets e. g. by acquisition or alliance, by using foreign domiciled firms. 4. Increasing part of the assets of firms of a particular country is either acquired from or are located in another country. The crowing cross-border networking through strategic alliances, international subcontracting and other cooperative arrangements is further undermining the concept of national firm specific diamonds. 5. The role of government needs to be re-evaluated as a result of globalization of the world economy. 6. Increasing competition between countries over the same resources and markets. Considering these points almost all the factors in on Porters domestic diamond have to be reconsidered. The pattern of the diamonds of countries will differ according to the extent and form of the involvement of the country in question in the global economy. Dunning argues that Porter put too little emphasise on the international influence and underestimated the influence of the MNEs. Dunning suggests that the national diamond should be replaced with supernational diamond because of the increasing integration between countries. In this case, national political borders become meaningless and the competitive advantage of a country can be influenced by factors outside a countrys home diamond. The principle is the same, but the geographical constituency has to be established on different criteria when taking about the supernational diamond. 2. 4 The Double Diamond Model of International Competitiveness: The Canadian Experience by Alan Rugman and Joseph DCruz The point of view in this article is that Porters diamond framework explains the success of US, Japanese, and EC-based multinational corporations, but it is not applicable to small, open, trading economies. Rugman and DCruz show that Porters home country diamond does not explain Canadas international competitiveness. Also some other researchers have noticed this problem when trying to apply Porters model to e. g. New Zealand, and Korea. Rugman and DCruz argue that the over 90 % of the worlds nations potentially cannot be modelled by the Porter diamond. The authors suggest that substantial modifications of the Porter framework are required to analyze the nature of Canadas successful resource-based multinationals, foreign subsidiaries and institutional arrangements, such as the Canada-US Free Trade Agreement. In order to do this Rugman and DCruz present a new double diamond framework. In this model Rugman and DCruz propose that since Canada in already economically highly integrated with U. S. , it should use The North American diamond when trying to determine or improve Canadas international competitiveness. This means that Canadians should view the U. S. market as a home market, not just an export market. Canadian owned multinationals have competitive advantages derived from attributes of the U. S. or other foreign diamonds, rather than the Canadian diamond alone. It is also said in the article that each country needs to set its own home-country diamond against the relevant triad diamond. In general, most Asia-Pacific nations will set theirs against Japan. Canada, Mexico, Latin America, and most Caribbean countries will consider theirs against the US diamond. European nations outside of the EC will set theirs against the EC. The authors also criticise that the elements used in Porter model are hardly new or unexpected. The only contribution is bringing them together. Rugman and DCruz criticise the data and how it is presented. The main points were Porter flaws according to Rugman and DCruz is the narrow definition that he applies to foreign direct investments (FDI) and the flawed understanding of the nature of two way FDI (ignoring the role of inbound foreign direct investment). They also criticise how Porter handles imports and exports and multinational activities. According to them their double diamond framework would treat these above-mentioned attributes more correctly. 2. 5 Porters Competitive Advantage revisited by Nicholas J.   Shaughnessy The article, Porters Competitive Advantage revisited, written by Nicholas J. Shaughnessy gives new views to Porters book Competitive Advantage of Nations. The author agrees on some issues with Porter but he also presents criticism. According to  Shaughnessy, the key criticism of Porter is his inattention to the cultural dimension, which the author sees as a significant omission. The author argues that Porter i s work is overly facile in its willingness to fall in with the national stereotypes without the type of empirical support necessary for statistical generalization. In the article Oi Shaughnessy sarcastically says that Porter views national culture as changeless artifact. He continues by saying that even though Porter credit national culture with certain amount of explanatory power; Porter tends to avoid discussing it in any depth. Shaughnessy also discovers that the role of history in a specific country is neglected. The second significant criticism covers developing countries. Oi Shaughnessy says in the article that Porters arguments are formed almost entirely with reference to developed countries. The author argues that, for instance, university education is not very significant factor in countries where most of the population is illiterate. He continues by addressing that the real problems in developing countries are located in politics and culture. The third point of criticism is the role of government. The author argues that in the Porters work lacks of specificity. While some contributors to competitive advantage e. g. university research are well defined, Porter disregards others. From Oi Shaughnessy point of view it seems that Porter wants to remove government from direct arbitrament in industry as far as possible. He also thinks that Porter seems to ignore the nature of the many political imperatives that lead away from state spending on key factors that might have aided in the creation of competitive advantage. As an example of this Shaughnessy uses agriculture, which is in many cases heavily subsidized directly from government and indirectly by customers. He argues that governments are often pressured by lobby groups. That is a reason why governments are sometimes incapable of making the strategic choices necessary to support and sustain competitive advantage. Shaughnessy sees that Porters book is a significant piece of work, but it also has its limitations. According to the author of the article the subject is so extensive that it cannot be covered in one book. He also says that the criticism of Porters book is not that Porter has made an error, but that his thesis is incomplete. Shaughnessy is worried that any populist universalist explanation is accepted uncritically and applied mechanically. He thinks Porters view encourages the belief that problems are soluble exclusively through economic policy measures. Oi Shaughnessy wants to reverse that view by emphasizing the role of history, politics and culture in determing competitive advantage.