National and Corporate competitiveness
In any economy all Corporations operate within a macro economic, social, political cultural systems. These differ from country to country regarding the role of markets
even in the era of globalization. That is the role of market and government interventions in the market differs from country to country. However in the era of globalization and trade liberalization most countries allow market forces to determine economic affairs to a greater extent.
In the 21st century the technological developments became more rapid compared to the previous centuries particularly in the information technology. This to some extent has an impact on changes in business practices and business models and enabled companies to embark business on a global scale and the ability to co-ordinate activities and to share information on real time and plan international operations and the emergence of international capital flows as well the emergence of multinational corporations and transnational corporations operating in many countries. In addition the liberalization of trade and the dismantling of trade barriers increased trade between countries. It also changed the nature of competition. That is the competition became dynamic than static in nature. For example e-commerce, business networks, alliances, joint ventures and changes in decision about inbound logistics, outbound logistics, when where to produce at what scale, marketing and sales, distribution channel strategies to gain cost leadership, differentiation and focus became vital as competitive strategy for sustainable profitability in the long-term by corporate entities of small, medium and large enterprises.
In the context of nations governments is to provide a stable economic and political environment and prudent regulation of the financial system and build social as well as improve knowledge base and skill development and provide a stable social climate so that market can work efficiently and attract capital and allocate capital efficiently where the economy can reap the maximum benefit and continue to upgrade its competitive potential by technological innovation and investment in research and development which address the ability to improve the efficiency and productivity and quality of its products and service on a continuous basis. That is the government can encourage innovation in the private sector by private public partnership in research and development and commercialization and provide incentives and fiscal measures for that to happen.
In addition it can encourage entrepreneurship in the private sector so that the economy as whole encourages new branch of industries to emerge and provide a dynamic business environment. In addition the nations can improve its competitive potential by investing in physical infrastructure developments like roads and rail network. Communication
networks, energy and electricity infrastructure and assist in the development and application of information technology in small and medium firms to improve their productivity and competitiveness. These initiatives are vital for particularly to developing countries at various stages of development to participate as quickly as possible in international trade opportunities as well to gain competitive potential to enable to increase their standard of living and the quality of life in general for the majority of citizens and reduce income disparities. In summary the role of government is provide an environment in terms of regulation. Institutional structure and policy initiatives in micro and macro economic level to enable corporations to make economic decisions and facilitates to have the possibility to enhance its productivity, provision of quality human resources, provide and improve the physical and communication infrastructure and above all to assist corporations to continually gain competitive advantage by reforming its processes and products and innovate new process and products on a continual basis and provide rules for effective corporate governance to be socially responsible.
In essence the role of government in this era of globalization is to provide the corporations a dynamic market environment where technical progress and innovation takes place in a dynamic manner to continually upgrade their competitive edge in industries and sectors, which has the maximum benefit as an economy as whole.
In addition it can make the labor market more flexible to improve the productivity and the cost competitiveness of firms and their fore contribute to sustainable profitability of enterprises of all sizes and control inflationary pressures. This is also vital to gain
competitive advantage to become more cost effective and there fore improve their ability to compete dynamically in an international market place.
Corporate competitiveness depends on the corporation internal strengths and weaknesses and the opportunities and threats it faces in its immediate microenvironment as well as the opportunities and threats faced by the macro environment. In other words the competitive advantage a corporation depends on its strategic planning and its effective implementation. That is the corporations business model must able to develop appropriate and effective strategies analyzing its competitive forces, from new entrants, substitutes, supplier bargaining power, intensity of rivalry of existing corporations in an industry, consumer bargaining power as well as recognizing the dynamic nature of market in the contemporary global market environment and the role of government and regulation and the environmental and social impact of its operations particularly if the corporation is operating on a regional or global level.
That is the corporations competitive advantage comes in general from cost leadership, differentiation and focus by continually innovating new processes and products using appropriate inbound logistics, outbound logistics, marketing and sales strategies and determination of where to locate operations and when to produce and the level of co-ordination, which will give cost leadership and quality of its products and services comparable to its competitors to earn profits sustainable in the long-term in a socially responsible manner.
The business model can be based on Porters five forces model, which considers economic competitive factors on a static manner, which is a sever limitation to develop strategies and to consider the dynamic nature of competition and the value of alliances and networks as well as joint ventures as a strategic option and e-commerce initiatives to upgrade or gain competitive advantage. As well it can also use balance scorecard, which is financial and non-financial to measure performance in critical indicators of performance which determines its competitive strength or potential compared to other firms in the industry and identify weaknesses and develop strategies to upgrade those performance deficiencies and to innovate new processes and its ability to innovate and commercialize new products on a continual basis, which is competitive in price and quality compared to its competitors.
In addition it must also have a organizational culture which recognizes the importance of environmental issues and social responsibility as well the importance of sustainable development principles as a guide to its policy formulation and decision making processes to meet regulatory standards and increase the potential to self-regulation rather than to be regulated by government regulation, which may be very costly and may erode competitive advantage compared to other industries and firms who are more socially responsible particularly operating in an international basis.
2. Companies, not countries compete. (Porter) Explain the Porter model
and use it to discuss whether the characteristics of a country in which it is located have any effect on a company’s international competitiveness
Porter model bases corporation’s strategies by studying the external environments opportunities and threat. (http://www.themanager.org/pdf/p5f.pdf). Porter has identified five forces that shape every industry and every market. (http://www.themanager.org/pdf/p5f.pdf).
According to Porter these five competitive forces determined the intensity of competition and there fore the profitability and attractiveness of an industry. (http://www.themanager.org/pdf/p5f.pdf ). In Porters model the objective of corporate strategy must be to revise these competitive forces that improves the position of an organization or corporation. (http://www.themanager.org/pdf/p5f.pdf). In Porter’s view analyzing these five forces and information derived from this analysis management can decide how to use some characteristics to gain competitive advantage. (http://www.themanager.org/pdf/p5f.pdf ).
The five forces in Porters model are threat of new entrants, bargaining power of suppliers, bargaining power of consumers, threat of substitutes and competitive rivalry within the industry. (http://www.themanager.org/pdf/p5f.pdf).
In porters view the bargaining power of suppliers is high when few large suppliers dominate the market, no particular substitutes for inputs, the customers for the suppliers are fragmented, the switching costs to one supplier to the next is high, suppliers integrating forward in order to obtain higher prices and margin. (http://www.themanager.org/pdf/p5f.pdf ).
In Porter’s model the bargaining power of customers is high when there is concentration of buyers, the supplying industry comprise a large number of small operators, supplying industry operates with high fixed cost, the product is undifferentiated and can be replaced by substitutes, switching to alternative product is relatively simple and not costly, customers have low margins and price sensitive, they can produce the product themselves, the product is not strategically important to the customer, the customer is aware of the cost of the product, possibility the customer integrating backwards. (http://www.themanager.org/pdf/p5f.pdf).
The threat of new entrants is high according to porters model depends on the extent of barriers of entry. They are economies of scale, high initial investment and fixed cost, cost advantage of existing players due to experience curve effects of depreciated assets, brand loyalty of customers, protected intellectual like patents and licenses, scarcity of important resources such as qualified expert staff, access to raw materials is controlled by existing players, distribution channels are controlled by existing players, existing players have close customer relations, high switching costs for customers, legislation and government action. (http://www.themanager.org/pdf/p5f.pdf).
In Porter’s model the threat of substitutes is determined by brand loyalty of customers, close customer relations, switching costs of customers, relative performance of substitutes in terms of price, current trends. (http://www.themanager.org/pdf/p5f.pdf).
According to Porter’s model the rivalry between existing firms will be likely to be high when there are many players of about the same size, players have similar strategies, there much mare differentiation between players and their products and there fore more price competition, low market growth rates and barriers for exit is high. (http://www.themanager.org/pdf/p5f.pdf).
The Porter’s model can be used to determine industry attractiveness as it provides insights about profitability and there fore supports to enter in to an industry or exit from an industry. As well the model can be used to compare the impact of these five forces on the organization and the competitors. Competitors may have different options to react to changes in competitive forces dependent on their resources and competencies and may change the structure of the whole industry. (http://www.themanager.org/pdf/p5f.pdf).
In this manner the Porter model enables the organization corporate planning and strategy development to gain competitive advantage. In combination with drivers PEST-analysis five forces Porter’s analysis can reveal the future attractiveness of industry. Expected political, technological, economic and socio-demographic changes can affect the five competitive forces and thus affects the industry structures. In this regard tools such as scenarios may determine potential changes in competitive forces. (http://www.themanager.org/pdf/p5f.pdf). If organization can analyze using the Porter’s model the current and future state of competitive force the management can develop options to influence these forces their organizations interest. (http://www.themanager.org/pdf/p5f.pdf).
However the organization must be aware of industry-specific
Models will limit options to compete effectively. (http://www.themanager.org/pdf/p5f.pdf). But the organizations industry-specific strategies change the impact of competitive forces on the organization. In Porters model in this respect in influencing the power of five forces it has an objective to reduce the power of competitive forces by appropriate strategies so that it can change the impact of these competitive forces to its advantage and gain a competitive edge in the industry. For example if one uses the Porters model to reduce the bargaining power of suppliers depending on its resources and competencies of its managers and staff it may pursue strategies such as partnering, supply chain management, supply chain training, increase dependency of suppliers, build knowledge of supplier cost and methods, and take over of suppliers or a combination of strategies which suits its internal strengths and organizational resources. (http://www.themanager.org/pdf/p5f.pdf).
The corporations must aware that Porter’s model has some major critiques in its value to develop strategies and options in its own and base their strategies only on the Porter model. The critiques of Porter model are that it does not recognize the new entrants and other industries may completely change business model, entry barriers and relationship along the supply chain within short time and the Porter model do not give any advise for preventive action. (http://www.themanager.org/pdf/p5f.pdf). As well the Porter model is based on achieving competitive advantage in an industry does not take in to consideration the value of strategic alliances, electronic linking of information of all companies along the supply chain, virtual-networks and others. (http://www.themanager.org/pdf/p5f.pdf).
Overall the limitation of Porter’s model arises from the fact it do not account for new business models and the dynamics of the market in the current market environment. (http://www.themanager.org/pdf/p5f.pdf). There fore it is necessary the corporations must be using other models as well in conjunction with Porter’s model to develop strategies and must not rely heavily on the Porters model in its own because the company may not consider other strategies and preventive strategies recognizing the dynamic nature of competition in the current market conditions and use of or changes in business model used in other industries and by new entrants to compete effectively in an international arena and the consideration of environmental issues, cultural issues and government regulation to enter in to new markets and to use alliances, virtual networks and electronic linking of companies along the supply chain as strategies to improve their competitiveness in a global market place which is dynamic in nature.
As discussed above in the Porters model a countries economic, political, technological and social factors affect the structure of industries and the quality of its resources in terms of human capital managerial ability, entrepreneur culture, which determines productivity and cost structure and quality as well as to effectively respond to market changes in a timely manner. Even if the company identifies strategies using the Porter model it must be able to have the resources as explained above and competencies to implement such strategies. This capacity is dependent on the countries predominantly dependent on the economic social, political and culture of a country. As the structure of an industry is affected by these factors and the competitive forces and there fore it may affect the attractiveness of industry and the long-term profitability of an industry and there fore a companies profitability within an industry. As the country affects the future potential state of five competitive forces in a dynamic manner it affects certainly the competitiveness of a company. That is the characteristics of a country affect the competitiveness of a company applying the Porters model.
In summary competitive nature of an industry in the current global market environment is dynamic in nature. As the technological advances will become rapid the every countries macro environment also will become more dynamic and unpredictable in the future. Nations and corporations must continually monitor the external environment and continually review their strategies is vital in these dynamic environment and to use a variety of models to develop strategies sand review these models on a continual basis for its value for the corporations long-term profitability and competitive advantage is vital. Countries must be able to create conducive environment for private sector to compete effectively and continually reform their economic, political and social institutional structure and governance local and international is vital for the market system to work efficiently and resources are allocated to industries and sectors which will bring maximum benefit and to improve its productivity and potential for further technical and social progress so that processes are innovated and products are innovated on a continual manner to enhance competitiveness of the companies and also as a country.
The country also must provide efficient physical infrastructure, cost effective energy supply, information and communication network, investment in knowledge and research and development, provision of skilled force, stable financial and economic system so that the corporations have the quality resources in terms of technology and quality human resources so that they can reap the maximum competitive advantage in a dynamic market place. In addition to become more competitive it must reform the labor market to become more flexible to improve productivity and three fore become more competitive in cost terms in dynamic market conditions.
As discussed above the Porter model at least as an initial step in analyzing the competitive forces will shed insight in to the strategic options to enhance competitiveness. However further preventive strategies have to be developed, as the market place is dynamic and use other business models to further analyze the external situations scenarios so that it can develop a comprehensive strategy, which is more effective, and there is more probability of success.
In addition it must also be aware of environmental issues like global warming and other environmental issues and must act as a socially responsible manner in international market to be competitive. The corporations must also consider value chain analysis to become more cost leaders; differentiation of its products in terms of price and quality compared to its competitors and develop strategies by appropriate configuration in terms of inbound logistics, outbound logistics, marketing and sales and the level of co-ordination, which meet the above objectives and contribute to competitive advantage particularly for corporations involved n international business and industries. As well the strategies must be compatible with a corporations strength I terms of internal resources and competencies so that they can reap the maximum benefit and the realization of such benefits.
In additions the corporations must become more flexible to meet customer needs quickly as possible and must have a culture of innovation and product quality and customer service to meet customer needs more effectively than the competitors and change is welcome in an organization.
As well the corporations can be seen by the public at large if they have a effective corporate governance system and ethical practices which is essential to build an image of a socially responsible citizen and it may attract customers and can build a lasting relationship which can be a competitive edge as social and environmental issues are vital particularly operating in developing countries.
There fore it can be argued the Porter Model has some value in developing effective strategies if the management of corporations also use other complementary models to analyze further and refine their strategies to gain competitive advantage and recognize the dynamic nature of markets and improve its processes and products continually and adopt strategies to improve its productivity by improving its human resources, innovative potential, cost reduction strategies and the flexibility of the organization in response to the changes external environment and manage risks effectively to maximize profitability on a long-term basis and improve its growth potential. In addition it can be concluded that the country characteristics certainly have an effect on the competitiveness because the political, social, economic, cultural and technological factors affect and change the industry structure and there fore the competitiveness of that industry and the corporations operating in these industries and there fore the attractiveness of the industry and affect the profitability on a long-term and there fore its international competitiveness As well the country can affect the productivity and cost structure of company and their ability to innovate and there fore affect the international competitiveness.
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