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¶ … USAID and Porter's Diamond

USAID

The United States AID program (USAID) was launched in the immediate aftermath of World War II. It was originally presented not as USAID but rather as the Marshall Plan and the Truman Administration's Point Four Plan, according to the Web site www.USAID.gov. The U.S. sent an enormous amount of food and aid to war-torn Europe to help the struggling communities get back on their feet. According to the U.S. National Archives & Records Administration, many nations in Europe faced "famine and economic crisis" and in the interest of "political stability and a healthy world economy," the U.S. proposed to "rebuild the continent."

Secretary of State George C. Marshall had given a commencement speech at Harvard University in 1947, calling for a massive aid program to Europe. In 1948 Congress passed the Economic Cooperation Act and hundreds of planeloads of food and supplies were flown in to Europe. As a result of his leadership Marshall was awarded a Nobel Peace Prize.

The Foreign Assistance Act was signed into law in 1961 and shortly thereafter President Kennedy created USAID by executive order. Today USAID is a program that is the main U.S. assistance program to the developing world; USAID (according to www.usaid.gov) supports: a) economic growth, agriculture and trade; b) global health; and c) "democracy, conflict prevention and humanitarian assistance." The five regions of the world where USAID provides assistance include: Sub-Saharan Africa; Asia; Latin America and the Caribbean; Europe and Eurasia; and the Middle East.

As of June 2009, USAID claimed "working relationships" with over 3,500 American companies and over 300 private volunteer organizations. In its effort to encourage economic growth and trade, USAID has the following components: a) "Business Enabling" (helps countries "lower the costs and risks of doing business"); b) upgrading commercial legal systems (USAID helps reform laws, revise policies); c) improving business regulation (with cooperation from the World Bank's "Doing Business" program); d) promotes the development of "diverse and healthy institutions" in order to help countries build projects to help the poor (www.usaid.gov).

USAID emphasizes the building of partnerships in education as well as business and government. In fact USAID partners with the Higher Education for Development (HE'd) that has access and interacts with "…six major higher education associations… [representing] more than 4,000 colleges and universities" (www.usaid.gov). Within the 4,000 colleges and universities are "Historically Black Colleges and Universities" (HBCUs). The USAID has provided advocacy and training for educational growth, research and support and training in 60 developing countries. The partnerships with educational institutions in developing nations -- including those with 190 U.S. colleges and universities -- have the following goals:

a) Increase the quality of teacher training; b) "enhance the administration of higher education and workforce institutions"; c) help agricultural productivity and improve the management of natural resources; d) improvement of workforce skills along with economic productivity; e) "enhance good governance and the rule of law"; d) increase nutrition and health in communities, in particular reduce the impact of AIDS & HIV; and e) "foster the effective application of Internet and communications technology" (www.usaid.gov).

Michael E. Porter's Macro Theory / Diamond Theory

Michael Porter, Professor of Business at Harvard Business School, is noted for his publication the Competitive Advantage of Nations (Porter, 1990, p. 77). Within that work, Porter offers "The Diamond of National Advantage" and breaks it down into four components. One, "Factor Conditions" reviews the success of a nation's production (how effective is the skilled labor and the infrastructure in terms of the ability to compete in the industry); two, "Demand Conditions" speaks to the "home-market demand for the industry's product or service"; the third component of his diamond is "Related and Supporting Industries," which alludes to the presence or absence in that particular nation of "…supplier industries and other related industries that are internationally competitive"; and the fourth is "Firm Strategy, Structure, and Rivalry" (how companies are created, how they are organized and managed, along with the "nature of domestic rivalry") (Porter, 1990, p. 77).

Porter asserts that each of these four diamond points describes "essential ingredients" that lead to achieving "international competitive success" (p. 77). That success, according to Porter's diamond, relies on resources being available and skills being available in order to have competitive advantage in the industry; moreover, the deployment of those resources and skills must be matched by well-honed goals that owners, managers, and company employees define and stick to as time goes along. And also, vital information must be available -- research and scholarly studies -- that can "shape the opportunities that companies perceive…" Porter continues (p. 77).

The professor goes into great detail vis-a-vis all four of his attributes, giving examples of nations that succeed in industry because they are "good at favor creation" and at working to upgrade the factors they have created. An example is Holland, a nation that created -- through intensive research -- specialized approaches to the "…cultivation, packaging, and the shipping of flowers, where it is the world's export leader" (Porter, 1990, p. 78). Another example offered by the professor is Denmark, where two hospitals concentrated research on treating diabetes and hence has become "a world-leading export position in insulin" (p. 78).

Porter also references countries that have certain deficiencies. Japan is an example of a country with few natural resources, however, "…these deficiencies have only served to spur" Japan's competitive innovation and one result is "Just-in-time production" that "economized on prohibitively expensive space" to produce viable, attractive, marketable products.

Under the diamond point called "Demand Conditions" it is as though Porter knew he would get some scholarly flack for saying that the composition and "character" of the home market is not diminished by the globalization of competition. He writes that the home market can give a company a "clearer or earlier picture of emerging buyer needs" prior to marketing the product or service internationally (p. 79).

Michael E. Porter's Macro Theory -- Scholarly Criticism

Meantime, how does Porter's diamond relate to USAID's mission in the developing world? Before addressing that issue it is instructive to briefly reference a critique of Porter's diamond. Rajneesh Narula, professor of International Business Regulation at the University of Reading and Director of the John H. Dunning Centre for International Business has some issues with Porter's Diamond model. Narula asserts that Porter's diamond has "…overlooked various essential issues that are crucial" to any analysis of global business dynamics (Narula, 1993, p. 86). Two of those neglected essentials, Narula explains, are: a) "the role of international business activity"; and b) the fact that Porter does not "fully" emphasize the "importance of technology as a dynamic and incremental process" (p. 86).

On page 105 of his peer-reviewed critique of Porter's diamond, Narula concludes that "economic growth is inextricably linked to technology accumulation… [and] is a function of the rate of innovation and the national technological advantage… [which is] affected by the international trade and investment activities of firms." In other words, Porter does not fully embrace technologic changes in calculating his four points albeit Porter's presentation was offered 21 years ago and the Narula critique was presented 19 years ago. It is worth mentioning that the late professor of economics and international relations John H. Dunning (Dunning, 1993, p. 12) that Porter "…Underestimates the quite fundamental changes which have taken place over the last decade or so of their [Canadians'] trans-border activities." Dunning adds that Porter overlooks the value of MNEs (multi-national enterprises), "…one of the main driving forces of economic integration" (p. 12).

The USAID in Kosovo -- Contrasts with Porter's Diamond Theory

Based on a report from USAID Kosovo (Dan, et al., 2006, p. 2) called "Mid-Term Evaluation of the Kosovo Cluster and Business Support Project." The USAID has a $20 million, 4-year project in Kosovo that addresses three industry "clusters" (livestock, fruit and vegetables, and construction materials). This is an appropriate project to examine in terms of how Porter's diamond could fit in to help any or all of the three clusters. The project -- at the time of the report -- was "mid-term" and hence, was still at a place where adjustments could be made based on sound evaluations of the success and failure rates found within the investigation.

The economic conditions in Kosovo appear to have been very dim when USAID went into Kosovo to help alleviate poverty and stir up business enterprises. Initially, looking at Porter's "Factor Conditions" -- the amount of skilled labor, other factors of production, the quality of the infrastructure -- the diamond suggests that in order to compete the above-mentioned factors must be taken into consideration. On the other hand, looking at the Kosovo Executive Summary (Dan, p. 2) it is clear that any attempt to bolster the Kosovo economy was an uphill, very difficult climb -- perhaps even an impossible task that should not have been attempted on the size scale that USAID had launched.

That assertion has validity because Dan writes that the "macro economic climate in Kosovo is characterized by stagnating economic growth" along with a "significant" deficit in Kosovo's trade balance. Add to that "very high unemployment" (as high as 70% unemployment) and one can see the task at hand for USAID. Moreover, on page 2 Dan continues with the litany: Kosovo had an "inadequate banking and financial sector" featuring "poor legal framework conditions for lending, no equity market, [and] an uncertain framework for foreign investment." In Kosovo at the time of the USAID $20 million investment there were "…inadequate and expensive utilities, inadequate and costly transport for exports, a delayed privatization program" and moreover the courts were said to be "ineffective" with generally "uncertain" legal dynamics.

A nation will gain competitive advantage in certain industries where the demand at home gives companies and projects "a clearer or earlier picture of emerging buyer needs" through innovation, Porter explained on page 79. And on page 80 of Porter's 1990 scholarly essay the noted business expert states that if the "…nation's values are spreading" beyond its borders then companies within that nation can expect success.

But wait. In Kosovo at the time of the mid-term evaluation -- in the Executive Summary of the report -- there was no chance that values could be expanding. Indeed, the Kosovo government was "…characterized by indecisiveness and a lack of ability to implement private sector policy in an effective and consistent manner" (Dan, p. 2).