Porter's national diamond and comparative advantage in global competition

Management

I wouldn't use a formal process to reconcile global integration and national differentiation. Each situation is unique, and you actually have to think each situation through on its merits, and with its own evidence. Some companies have a very decentralized structure, and thus place more emphasis on decision-making at the national level. Other companies have built their strategy on having a high level of product consistency around the world. But a company can approach different products in different ways, too. Pepsi is the same around the world, but a lot of that company's other products are handled at the national level. So you can't have a formalized process, you have to use evidence to make your decisions, and make them individually. Maybe I don't understand the question, but making decisions means gathering information and then making the decision that enhancing the value of the company the most.

Location is irrelevant. Information is king, and information can go anywhere. You can literally make the decision on a yacht off the Bahamas or in a Calcutta slum. It makes no difference where you are when you make a decision. You gather the information you need to make the best decision possible. If you need the input of others, that's what video conferencing is for. In 2015, location doesn't mean much. With a laptop and a smartphone, you can do just about anything remotely, including making product decisions.

Discussion Board 2

Porter's national diamond is comprised of the following four elements: firm strategy/structure/rivalry, demand conditions, factor conditions and related industries (QuickMBA, 2010). These are things that contribute to a country's level of comparative advantage. Factor conditions are things like resources, technology base, size of the labor force (and its quality). The United States, for example, has tremendous national resources, a great technology base, and a large workforce. Canada has the first two, but the market is smaller, so the U.S. would in general have an advantage. But Canada is competitive globally, because most countries are smaller, don't have its resources, and are less technologically-advanced. Factor conditions have great explanatory factors why some countries -- especially tiny, remote ones like, say, Nauru, have barely any economy at all.

Demand conditions are related to the size of the market, and its wealth. Porter notes that it is not just size -- a more demanding local market can yield advantage, because firms have to be better in order to succeed. Think of how Scotland got so good as distilling spirits, the Chinese at making noodles or the U.S. At making war machines. Countries that have trend-setting markets often also have competitive advantage in a good -- Italian and French companies still rule fashion, but Asian companies dominate consumer electronics.

Related and supporting industries are important as well. I read a while back that Apple explained why they built iPhone in China -- most of the suppliers are in China. This would naturally give China a cost advantage in getting that work. The flip side of this is why Apple still operates in Silicon Valley -- that is the best place to attract high end talent and capital. Such clusters can provide comparative advantage for countries. It can even work in nearby countries -- think of auto parts suppliers in Ontario or the boom in manufacturing in Mexico along the U.S. border -- the related and supporting industries for U.S. manufacturers are in another country, but it still illustrates the effect.

Firm strategy can also affect comparative advantage. U.S. companies are structured in a manner that allows them to innovate, but also to expand globally. They are encouraged to by the corporate structure that is focused on growth. In other countries, such large corporations are more unusual. In Japan, the government grouped large corporations together to build them into superpowers, increasing the comparative advantage of Japan as a whole.

Individual Project

Well, vertical integration was just discussed in DB3, so to summarize: the advantages are increased control over key inputs, in terms of price, quality and quantity. This control lowers risk, but it comes at a cost. The costs are that the supplier is less likely to innovate, because they do not have to, and that can be detrimental in the long run to cost and quality. Further, the supplier's business may be too different, and the owner cannot run it as well as independent management would. Furthermore, the increased control comes at the cost of reduced flexibility, as a company is committed to a single supplier that it owns, and cannot switch very easily should something go wrong.

There are a number of diversification strategies. Vertical integration is one, and horizontal diversification is another. Things like brand extensions or unrelated diversification are also diversification strategies. Vertical integration means buying down the supply chain or up the distribution chain. An example of vertical integration would be Fresenius, which is the leading maker of dialysis equipment, but also runs dialysis clinics. Coca-Cola bought its distributors a few years ago, which is another example.

Horizontal diversification is diversifying into a related product or service. PepsiCo owns a number of other beverages besides sodas, which it can distribute through the same channels as soda. It also owns Frito-Lay, which may be interpreted as horizontal or unrelated diversification. It is mostly unrelated, but targets the same customers in much the same way, so it is related in a marketing sense.

Brand extensions are a means of fragmenting a market to create new markets. Light beer is a good example of this, but so is a fast food restaurant that adds a different menu item. McDonalds added pizza in a failed attempt to diversity into the pizza market, not by buying a pizza company but by developing the product in -- house. If this had worked, it would have allowed the company to tap into another market in its industry.

Another form of diversification is unrelated diversification, which provides a different revenue stream. A company may prefer this because it hedges against changes to the conditions of one industry, by operating in two completely different industries. Boeing makes commercial aircraft, but it is also a major defense contractor. Even when the technology is roughly the same (airplanes), the markets are so completely different that the two businesses are fully diversified from each other.

There are many reasons to diversify. In most cases there is some strategic consideration, for example to buying a supplier or adding a new, related product to your portfolio. Lowering costs and gaining market share should be the motives for most diversification. Another reason is to reduce risk. Unrelated diversification can do this, but any new business acquired adds income streams that reduce a company's dependence on a single product, and provide for more income stability should a change in market conditions arise.

Diversification can also result in competitive advantage. If you own your supplier, that control can allow you to gain advantage over competitors. Adding complementary products and services can not only increase income streams, but build economies of scale. For example, when Pepsi adds other beverages to its portfolio, this allows them to install a Pepsi fridge in every store, with only their products. In big stores, this gives them a bigger presence, and it could allow them to monopolize smaller stores. Building economies of scale and scope can have significant cost and market advantages that result in competitive advantage.

The different diversification strategies create competitive advantage because they can allow a company to take advantage of skills and competencies that it has in one area, and use those to excel elsewhere. The Pepsi fridge example above shows how this can work. But there was a time when Pepsi owned several fast food chains -- that gave the company distribution exclusivity in those outlets. On the surface, this means more sales. But deeper, it also meant that Pepsi products would gain exposure to all of the customers of those chains. Using a profitable business as part of the diversification had that spin-off benefit in promoting Pepsi products, for free, that should have added value to Pepsi. The same works for owning Frito-Lay, because that allows Pepsi to offer deals such as buying a bag of chips and getting a free soda -- deals that competitors cannot match because they have not diversified in this way.

Part 2 DB

Analyzing my data is something that I am working on. I have done this for the first draft, of course, but the analysis was fairly informal in nature, and consisted mainly of my observations from the research. The research methodology I am using, a research synthesis, basically starts with this, but it does not end with this. The current approach to building on what's been done is to investigate research synthesis more, and try to identify best practices for this technique. I also want to determine if there are studies that have similar characteristics to my own that have used the technique, so see what those scholars did. So researching the technique is the next step in this process. After that, I will apply what I have learned to my research.

The challenge I worry about the most is not finding enough information about the research synthesis technique. Journals might use the technique, but that does not mean that they will describe it. So I do worry that it may be difficult to discern a specific methodology. While that could prove liberating, it might also prove frustrating. Not finding any information is definitely the biggest worry. I think the way to handle it is just to work with what I can find, but just to also make sure that I have left no stone unturned. If I have put in the work, I am sure I will have enough to work with.

Another challenge that I anticipate is that analyzing the data in a formal manner is a bit rigid for how I like to do things. I am not likely to follow any sort of step-by-step process, because I never do. However, this could weaken the paper because usually techniques are developed over time and altering those techniques is risky. So it will take some discipline on my part that once I have laid out a specific methodology for analyzing the data that I stick to that.