Question

Introduction to International Business

1) Explain using suitable examples Michael Porter’s National Competitive Advantage Theory.

Here I have given all the 6 points, please elaborate according to the points given below. a short paragraph will do for each point.

• Factor endowments – basic factors and advanced factors

• Demand conditions – Sophisticated and demanding buyers in the home market drives companies to be competitive

• Related and supporting industries – the existence of supporting industries that provide the inputs to industries that give a nation competitive advantage in a certain industry

• Firm Strategy, structure, and rivalry – Strategic decisions made by the firm that that effects its future competitiveness. Competitiveness between domestic rivals enhances global competitiveness. Eg Toyota vs Honda, Mercedes vs BMW

• Role of government – Government policies, tariffs, import/export regulations

• Chance events – terrorists attacks, natural disasters, technological breakthroughs.

Guide:

Michael Porter’s theory of National Competitive Advantage explains why some countries are leaders in the production of certain products. For example, Japan is known for its automobile industry and USA is known for its technology.

Porter believes that are four key factors that determines a country’s competitiveness in a certain industry and also two other factors that also play an important role in country’s industry that has a competitive advantage.

What are these six factors? Using appropriate examples to explain these factors.

Answer 1

1. Michael Porter's National Competitive Advantage theory expands on the basic international trade theory. It is alsoPorter claims is that there are advanced factor endowments, the nations can pursue in order to give them competitive advantages in international trade. Some of the advanced factor endowments are firm strategy, structure and rivalry, related supporting industries, demand conditions and factor conditions. This is the Porter's Five forces model of business strategy.    2. Demand conditions refer to the size and nature of the consumer base for products, which also leads to innovation and product improvement. Increase in dynamic consumer markets will demand and promotes a need to differentiate and innovate which leads to a great market scale for businesses. Some examples of demand conditions are market size, market growth rate and market sophistication. 3. Related and supporting industries in Porter's theory correspond to the suppliers and customers who will be able to represent their threats or opportunities in the five forces model. This will help to expand the business by analysing the threats and opportunities in the market. Related and supporting industries are inputs for a country, which runs its success. Example, raw material from fabric suppliers in  China helps to drive the success of the Mylan fashion Industry. 4. Strategic decision are made by the higher level management and are related to the contribution to the organizational objectives and goals. Strategic decisions will help the firm to achieve its competitiveness. The benefits of having a strong domestic rivals helps the firm in competing globally. Example Toyota vs Honda . If you compare them to their rivals, Toyota they knock them out and toyota are generally the best brands for their resale values even after many years of usage. Honda, their engines are very well built and so reliable due to low repair costs. They are compartively competitive and their strategies will determine their success.

5. The role of government policies influence national advantage of competitiveness. The government policies of the country paves way for various imports, exports and tariffs. It encourages trade policies which will help in more production in the country. Example of a government policies are export taxes, export subsidies and import quotas.

6. Chance events like terrorist attacks, natural disaster, technological breakthroughs also has a great impact on the country's competitiveness. They are sudden unplanned happenings which makes the economy to pause for a period of time. It will take time for the economy to revive back and implement new strategies for global competitiveness.