2A. Explain the concept of diamond of national competitive advantage and how it

Question

2A. Explain the concept of diamond of national competitive advantage and how it can help companies decide which foreign markets to enter. Think of a country other than US that you know and describe what conditions in the diamond would be like. 2B. Explain with examples the advantages and disadvantages of franchise and wholly owned subsidiary [or greenfield venture] as methods for entering a foreign country in general. Then briefly explain which method you will choose if you are entering this country and why.

Explanation / Answer

Michael Porter developed the Porter Diamond Theory of National Advantage which is used to understand the competitive advantage the nations or any group have based on certain factors that is available to them. The model also explains how the government can act as a channel to improve the company’s stand among the plethora of companies in the globally competitive market. The Porter Diamond model is a diagrammatic representation that has four points of a diamond. Each point refers to the below:

The first two factors, firm strategy and structure and rivalry refers to the basic concept that competition leads to identifying ways of increasing production to meet the demand and innovating technological advancements to combat the competition. Related supporting industries refers to upstream and downstream industries that supports the innovation process by developing and sharing innovative ideas. Demand condition refers to the customer base including the size and nature of the customers. Factor conditions are conditions that a country’s economy could create for sustainability in the competitive market. A classic example is Japan which has created a high number of engineers to support the technological innovations in the Japanese industries, thus creating an economic condition for them to face the competitive environment. Japan also has strong competition among the firms in the industry.

Advantages of Franchising-

Disadvantages of Franchising-

Advantages of wholly owned subsidiary- A company owns another company (thus called parent or holding company).

Disadvantages of wholly owned subsidiary-

Personally speaking, I would choose Joint Venture as a method of entering the foreign market in Japan because it is a culturally strong company. In order to understand the nuances of the Japanese culture, it is imperative to join with the company as a Joint Venture and operate the business there.

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