1.

2. 3.

To explain on the basis on Porters Diamond, why some nations succeed and others fail in International Competition!

A case of the Korean Economy based on Porters Diamond

4.

INTRODUCTION Qno.# 1

PORTERS DIAMOND MODEL

PORTERS DIAMOND EXPLANATION

• • • DEMAND CONDITIONS

• • • FACTOR ENDOWMENTS

• • • SUPPORT INDUSTRIES

• • • FIRM STRATEGY,RIVELRY

• • • GOVERNMENT

• • • CHANCE

PORTERs PREDICTIONS

PORTERs CRITICISM

Qno.# 2 CASEInformation and Telecommunication-Korea's Competitive Advantages

5.

Acc toHeckscher-Ohlin theory and Comparative Advantagetheory

E.g.A nation uses its resources very productivelyBUT HOW ?

Above theories give onlyPartial Explanation to the Question.

Porters Diamond Model is used to solve this puzzle

Developed in 1990, byMichael Porterof the Harvard Business School.

Porter theorizes 4 Broad attributes Factor Endowment, Demand

conditions, Related/Support industry, Firm Strategy and rivalry.

Additional Variables that influence areGovernment and Chance

Source:http://www.quickmba.com/strategy/global/diamond/ Source : Charles W. L. Hill&Arun K. Jain,International Business,Fifth Edition, 2006, TATA McGraw-Hill 6. Why do some fail?The diamond is mutually reinforcing GOVERNMENT CHANCE COMBINEDIMPACT COMBINEDIMPACT 7.

Home country Demand plays an important role

Enables better understand the needs and desires of the customers

It shapes the attributes of domestic ally made products and creates pressure for innovation and quality

E.g. 1

Italian ceramic Industry after the world war II

There was a postwar housing BOOM !!

Consumers wanted cool floors because of Hot climatic conditions

Source : Charles W. L. Hill&Arun K. Jain,International Business,Fifth Edition, 2006, TATA McGraw-Hill Source:John D. Daniels & LeeH. Radebaugh,International Business,Ninth Edition, 2003, Pearson Education 8.

E.g. 2

Japans knowledgeable buyers of cameras made that industry to innovate and grow tremendously

E.g. 3

Local demand for cellular phones in scandinavia made nokia and ericson to invest in that in other developing nations.

E.g. 4

The French wine industry. The French are sophisticated wine consumers. These consumers force and help French wineries to produce high quality wines.

Source:http://www.quickmba.com/strategy/global/diamond/ 9.

BASIC FACTORS Natural resources, climate, location and demographics

ADVANCE FACTORS Communication Infrastructure, skilled labour, Research facilities and so on.

Basic factors can provideonly an initial advantage

They must be supported by advanced factors to maintain success

E.g.

Choice of tile to meet customer Demand

Choice of italy as production location

Wood is less available and expensive than tiles

Most of the Advanced factors were available within Italy

Source:John D. Daniels & LeeH. Radebaugh,International Business,Ninth Edition, 2003, Pearson Education 10.

E.g. 2

Japan a country which lacks arable land and mineral deposits.

Large pool of engineers - very vital for a manufacturing industry.

Japan has high priced land and so its factory space is at a premium.

Source:http://www.quickmba.com/strategy/global/diamond/ Source : Charles W. L. Hill&Arun K. Jain,International Business,Fifth Edition, 2006, TATA McGraw-Hill 11.

Benefits of investment in advanced factors by Suppliers and related industries can spill over

Creates clusters of supporting industries, therebyachieving a strong competitive position internationally.

E.g.

The enamel production unit was available.

The glazes production was also favourable.

These two were the main composition of producing tiles.

This reduces the Transportation cost.

Source:http://www.quickmba.com/strategy/global/diamond/ Source : Charles W. L. Hill&Arun K. Jain,International Business,Fifth Edition, 2006, TATA McGraw-Hill 12.

E.g. 2

Switzerlands success in pharmaceutical industry is closely related to its international success in technical dye industry.

E.g. 3

Swedish strength in fabricated steel industry is the reason for development in the Sweden's specialty steel industry

Source:http://online.sfsu.edu/~yywong/Porter1990HBR.pdf 13.

Long term corporate vision (Strategy) is a determinant of success

Ability ofthe companies to develop and sustain a competitive advantage requires the 4 thattribute.

Presence of domestic rivalry improves a companys competitiveness

E.g.

Low entry barriers to market in the tile industry

Rivalry became very intense

Breakthroughs in both product and process technologies

Source:John D. Daniels & LeeH. Radebaugh,International Business,Ninth Edition, 2003, Pearson Education 14.

E.g. 2

Germany tends to have hierarchical management structures composed of managers with strong technical backgrounds and

Italy has smaller, family-run firms.

E.g. 3

Japan has high priced land and so its factory space is at a premium

This lead to just-in-time inventory techniques

(Japanese firms cant have a lot of stock taking up space, so to cope with the potential of not have goods around when they need it

They innovated traditional inventory techniques).

Source:http://online.sfsu.edu/~yywong/Porter1990HBR.pdf Source:John D. Daniels & LeeH. Radebaugh,International Business,Ninth Edition, 2003, Pearson Education 15.

Chance Events such as major innovations, can reshape industry structure

Government Policies Can detract from or improve national advantage

Regulation can alter home demand conditions

Government investment in education can change factor endowment.

E.g.

1991 US Govt Tariff on Japanese imports of LCD screens

APPLE and IBM Protested strongly

• Japan The low cost LCD manufacturer

• Increase the LCD screens as well as Laptops in the global market Reduce the Market Share.

Source:www.nsf.gov/sbe/srs/s4495/conten3d.htm 16.

Countries should be exporting products from those industries where all four components of the diamond are favorable.

while importing in those areas where the components are not favorable.

Source:John D. Daniels & LeeH. Radebaugh,International Business,Ninth Edition, 2003, Pearson Education 17.

Government can influence on any four components of the diamond.

Porter developed this paper based on case studies and these tend to only apply to developed economies.

Source:John D. Daniels & LeeH. Radebaugh,International Business,Ninth Edition, 2003, Pearson Education 18.

Analysis of Koreas Competitive Advantage withMichael E. Porter's DiamondFramework

Korea- New developed countries -Information and Telecommunication .

Information and Telecommunication Korea's Competitive Advantages (2002) 19.

High computing and Internetpenetration rate since 1998 .

Large userbase of Internet - sophisticated internet usage

IT effectively used -individual level, Business& government sectors

The competitive market situation in online shopping malls andrapid,

expansive development in wireless internet service

Forcing market players -higher qualityservice atcheaper to users.

HenceStrategic use of IT is demandeddue to the intensified market

environment

Source:www.weforum.org/site/homepublic.nsf/Content/Global+Information+Technology+Report+2001-2002 20.

Koreangovernments effortto develop IT industry -

Privatization and Market Deregulationin Telecommunication market

Encouraged fair market competition in Telecommunication market

Resulting inlower price ,better quality, better serviceand

created favorable business environments for business.

E-commerce exceeded45 billion USDand

Projected agrowth rate of 9%per year.)

Source:www.weforum.org/site/homepublic.nsf/Content/Global+Information+Technology+Report+2001-2002 21.

Korean Government- continuous effort - Korean IT policies

- Improvement in IT infrastructure,

- Facilitating the usage of information technology,

- Favorable environment for development of IT industry

Over 90% of nation areais wired with broadband internet network

IT workforce in Korea accounted for 447,000 ( 2.1% of total workforce ).

Overalllevel of educationin Korea is relatively high

Korean government support educational institutions related to IT skills

Supply ofquality of IT workforceis expected to increased.

Source:http://www.ips.or.kr/ncr/index.asp Source:www.outsourcing-service-india.com 22.

DaeDeok Valley-an important IT cluster - Attracts foreign

investment

Severaljoint research and developmentprojects with well-known

foreign companies and universities.

Thegeographical location of Korea- Close to Central China can be

regarded another factor for IT advantages.

Throughexport of CDMA technology -solid network among the

south Asian nationsis established.

These factors will enhance the national IT competitiveness for sure.

Conti.. Source:http://www.ips.or.kr/ncr/index.asp Source:www.outsourcing-service-india.com 23.

Korea has secured leading position in semiconductor market

especially forDRAM (Dynamic Random Access Memory) - DDR RAM

and SD RAM

Korea isUnited Statesmost significant trading partner

Cheap and Quality Hardware production units available.

IT Enabled Services like BPOs and KPOs Yantram Solutions

Korea ranks itself in top manufacture in LCD and Mobile phone,

example LG group, Samsung group, Doosan Group, DiaBell .

Korea - the leading position in IT related production

Source:http://www.bsau.org/ Source:http://corsairmemory.com/products/twinx10255.htm 24.

Korea - theleading position in all IT related production

The proactive effort- R&D and market expansion , as well as

government support are expected.

Korean government plans to extend itsfinancial supportfor R&D

especially in 10 core technologies

Initiated several huge project with private sectors

Source:http://www.bsau.org/ Source:http://corsairmemory.com/products/twinx10255.htm 25.

Korea - favorable business environments- for venture firm through

-Quick registration process,

-Lower entry barriers in IT industry,

-Lower cost using telecommunication infrastructure,

-Diverse capital resources

-Government supports

These activities result in huge number of small, medium-sized

venture companyin IT industry

And Hence it leadsto severe domestic rivalrybecause of market

competition.

Encourages the continuous development ofInnovative technology

and improvement of business models in business sectors.

Source:www.technology.gov/reports/korea/korea.pdf 26. 27.

"Competitive Advantage of Nations" Michael E.

Porter, March~April, 1990 HBR Download available at

http://online.sfsu.edu/~yywong/Porter1990HBR.pdf

(2) "Global Information Technology Report 2001~2002" from World

Economic Forum at

www.weforum.org/site/homepublic.nsf/Content/Global+Informat

ion+Technology+Report+2001-2002

(3) "Asia's New Tech Competitors" atwww.nsf.gov/sbe/srs/s4495/conten3d.htm

(4) "National Competitiveness Analysis " from the Institute of

Industrial Policy Studies-http://www.ips.or.kr/ncr/index.asp

(5)www.outsourcing-service-india.com

(6)http://www.bsau.org/

(7)http://corsairmemory.com/products/twinx10255.htm

(8)www.technology.gov/reports/korea/korea.pdf

(9)http://www.quickmba.com/strategy/global/diamond/

28. (1) Charles W. L. Hill&Arun K. Jain,International Business, Fifth Edition, 2006, TATA McGraw-Hill (2)John D. Daniels & LeeH. Radebaugh,International Business, Ninth Edition, 2003, Pearson Education 29. 30.