Faculty of Business and Management

International Business Management

Assignment

Year 2016

Lecturer: Allan Tan Ee Ming

Name Student ID Batch

Saw Bee Kee B140088C BMK-14C1

Lee Hao Yan B140119C BMK-14C1

Ngo Yen Han B140133C BMK-14C1

Scenario

Q1 T Company manufactures ceramic tiles for floors, kitchens and bathrooms. Until recently, its
international competitive advantage depended partially on favorable government policies in IY-
the country where its manufacturing plants are located. The national debt caused by excessive
government borrowing and spending in the years leading up to 2010 however, has caused IY’s
government to reign back on its spending and so the energy subsidy and help with R&D that the
tile industry used to enjoy have been removed. T Company will now have to rely on other
sources of competitive advantage.

Required:

With reference to Porter’s diamond model, describe the key determinants of international
competitive advantage that T Company may need to depend on to sustain its competitive position
in international markets.

Answer

The Diamond model of Michael Porter, explained that there are four sources that can affect the
global competitiveness of companies located in particular countries like IY. It includes four key
elements:

 Factor conditions

 Demand conditions

 Firm strategy, structure and rivalry

 Related and supporting industries

Porter created a model linking these four sources in a diamond and argued that firms are most
likely to succeed in industries or industry segments in which the four sources are favorable. He
also argues that the sources in the diamond form a mutually reinforcing system in which the
effect of one determinant or source is dependent on the state of the others.
The four sources that T Company may need to depend on can be characterized as follows:

Factor conditions

There are two kinds of factor conditions - the basic factors of production such as land, labor,
capital and materials; and advanced factors such as technological, managerial skills and physical
infrastructure. Many of the advanced factors of production are acquired by firms over a period of
time. For example, in the tile industry, process innovations in the kiln firing process and the
development of sophisticated marketing campaigns to attract overseas buyers have been
important ingredients in the success of some tile manufacturers.

Disadvantages can become advantages only under certain conditions. First, they must send
companies proper signals about circumstances that will spread to other nations, thereby
equipping them to innovate in advance of foreign rivals. Switzerland, the nation that experienced
the first labor shortages after World War 2, is a case in point. Swiss companies responded to the
disadvantage by upgrading labor productivity and seeking higher value, more sustainable market
segments. Companies in most other parts of the world, where there were still enough workers,
focused their attention on other issues, which resulted in slower upgrading. The second condition
for transforming disadvantages into advantages is favorable circumstances elsewhere in the
diamond-a consideration that applies to almost all determinants. To innovate, companies must
have access to people with appropriate skills and have home-demand conditions that send the
right signals. They must also have active domestic rivals who create pressure to innovate. For
example, U.S consumer-electronics companies, faced with high relative labor costs, chose to
leave the product and production process largely unchanged and move labor-intensive activities
to Tai Wan and other Asian counties. Instead of upgrading their sources of advantage, they settled
for labor-cost parity.

Demand conditions

This conditions can create pressure for innovation and quality. Domestic demand pressures in
countries like IY may have been especially relevant in forcing companies like T to improve their
competitiveness. Porter claims that the more sophisticated and demanding domestic customers
are, the more competitive the domestic firms are likely to be. Powerful and knowledgeable
retailers with large showrooms can add to the pressure to innovate. Home-demand conditions
help build competitive advantage when a particular industry segment is larger or move visible in
the domestic market than in foreign markets. The larger market segments in a nation receive the
most attention from the nation’s companies; companies according smaller or less desirable
segments a lower priority. A good example is hydraulic excavators, which represent the most
widely used type of construction equipment in the Japanese domestic market-but which comprise
a far smaller proportion of the market in other advanced nation.

Related and supporting industries

Related and supporting industries is important to the competitiveness of T Company. This

includes suppliers and related industries. They help T Company’s international competitiveness
become powerful. Therefore, T Company can lead the IY country in the tile industry in part
when other suppliers in IY country deliver the most cost-effective inputs in an efficient such as
supply high-tech and stainless machinery to T Company.

If T Company locate nearby its suppliers, it can quickly to exchange its ideas and innovations
with them. Therefore, T Company has the opportunity to influence its suppliers’ technical efforts,
such as upgrading the material-handling machine to accelerate the manufacturing process.
Moreover, T Company can also gain lower cost inputs and energy costs from its suppliers as the
location is very close each other. The most important is these suppliers can easily to understand
the needs of T Company when it need special machine and technology used in the manufacturing
process. Thus, these suppliers help to facilitate the efficiency and competitiveness of T Company
in international markets.

The presence of related and supporting IY industries can help in the export drive. Therefore, T
Company can begin advertising in IY country and foreign home-design and architectural
magazines, publications with wide global circulation among architects, designers, and
consumers. The enhanced awareness strengthened the quality image of IY country and T
Company’s tiles.

Firm strategy, structure and rivalry

This element in the Porter Diamond model includes how companies are organized and managed,
their objectives and the nature of rivalry in the home market. The way in which companies are
established, set goals and are managed is critical to success on international markets. However,
also the presence of intense rivalry makes companies competitive: it creates pressure. Local
rivals push each other to lower costs, improve quality and services, and create new products and
processes. This triggers companies to innovate in order to maintain and upgrade competitiveness.
Therefore, T Company just competing with the strongest competitors at IY country is the
preparing stage to compete successfully at the international market. For instance, Toyota and
Honda in Japan would not be such successful brands if they did not have to compete against each
other. Then, T Company under constant pressure from competition at IY country is the best way
to sustain its competitive position by developing news of product and process innovations such
as rapid manufacturing process.

The strategy and structure of a company is influenced by managerial system, especially cultural
aspects play an important role in this. Regions, provinces and countries may differ greatly from
one another and factors like management, working morale and interactions between companies
are shaped differently in different cultures. For example, in USA companies tend to be structured
individualism in organization and management practices. In this country, upper/middle managers
make individual decisions. However, Swedish management is decentralized and democratic. The
rationale is that better informed employees are more motivated and perform better. Therefore, T
Company should according to culture of IY country and people’s management styles to operate
its business, which is suit to its strategy and structure.
Moreover, outstanding talent is a scarce resource in any nation. Individual motivation to work
and expand skill is important to T Company to sustain its competitive advantage in international
markets. If T Company wants to success, it must depend on a pool of skilled workers and
technicians, including design personnel and production specialists.

Conclusion

In the conclusion, Michael Porter’s diamond model are very useful in helping T Company to
sustain advantage and use the advantage to help the company to against international
competition. If the company use the correct strategy, it will help the company maintain the
advantage to survive in international business environment. If T Company didn’t use the correct
strategy, it will cause the company make a huge loss. To prevent that happening, T Company
have to study well in Michael Porter’s diamond model to against the international competition in
the world wide. Porter's argument is that countries like IY can achieve international success in
the tile industry as a function of the combined effects of these four sources. Porter also contends
that government can influence each of the four components in the diamond either positively or
negatively by pursuing appropriate policies and that chance factors such as oil price shocks,
earthquakes, floods or the sudden discovery of a major energy saving process which can also
play a role. As part of the tile industry in IY country it follows that T Company may benefit from
the positive interaction of the four sources of national competitive advantage noted above or
suffer from their absence.
References

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