PORTER ’ S COMPETITIVE ADVANTAGES OF NATIONS THEORY

Practical work Please explain your decision, using Porter’s diamond. (6 points) You are going to develop your production in the foreign country on the base of your subsidiary.  Please, compare the competitive environment in Russia and other country and substantiate your choice.  2. Please explain your decision, using Porter’s diamond. (6 points) You are going to expand your sales operations to the foreign country on the base of your subsidiary.  Please, compare the competitive environment in Russia and other country and substantiate your choice.   Students have a right to choose the area of production/services and two countries.

COMPETITIVE ADVANTAGES OF NATIONS ACCORDING TO PORTER ’ S THEORY effective use of all resources available.

BASIC DETERMINANTS OF COMPETITIVENES 1. Factor conditions. 2.Demand conditions. 3. Related and supporting industries. 4. Firm strategy, structure and rivalry.

Factor Conditions:  Labor (qualified and non-qualified)  Natural resources, land;  Capital  Technology and Knowledge Base  Infrastructure Factors:  Non-key or general use  Specialised (more difficult to duplicate)

Demand Conditions.  Quantitative and Qualitative Characteristics  Consumers and Industrial Demand Sophisticated domestic market – important element.

Porters Determinants of National Competitive Advantage Related & Supporting Industries Availability & Quality of local suppliers State & development of clusters State Force Major Demand Conditions Home country may support scale efficient operations by Itself The level of sophistication of home demand Pressure from local buyers to upgrade Factor Conditions Basic Factors (Land, Labor) Advanced Factors (Highly educated workforce, digital communications) Generalized Factors (Capital, infrastructure) Specialized Factors (Skilled personnel) Firm Strategy, Structure & Rivalry Intensity of local rivalry Extend of corporate investment

“ Diamond ” as a System Non-key factors as a base for the specialised Concentration of factors depends on the demand Internal competitiveness is a motivation for the better use of factors

Factor Stage Comparative advantage, virtually all internationally successful industries in the nation draw their advantage from basic factors of production eg natural resources, favourable growing conditions, or abundant and inexpensive pool of labour. Compete on the basis of price. Technology is drawn largely from other nations and not created.

Investment Driven Stage Standardized, price sensitive products technology, usually obtained overseas is a little dated but is increasingly not just applied, but improved on. Intense domestic competition and early stages of internationalization Successful industries are those where the nation has strong home demand Government may play a leading role in facilitating and undertaking investment.

Innovation Driven Stage Diamond interaction Reliance on higher-order factors Compete in differentiated industry segments Government's role more limited in this stage as the appropriate signals emanate from the private sector. Most effective policies indirect e.g. stimulating more advanced factors, preserving domestic rivalry, improving the quality of domestic demand.

Wealth Driven Stage Drift and ultimate decline, due to: ebbing rivalry focus on preserving rather than improving position lobbying to insulate position through government protection