After making an intensive study on 100 industries in ten nations Porter (1990), presented a theory of international trade which explains why economies tend to gain international success within a specific industry (Davies and Ellis, 2000).
The Diamond Model of National Advantage comprises of four determinants.
The first of these is factor conditions which include capital human and physical resources along with the knowledge and physical infrastructure of the country.
The next category deals with demand conditions like the growth rate and size of the home demand, demand structure within the country as well as those procedures through which local demand conditions are internationalized.
The third category deals with related and supporting industries that work with supplier clusters, institutions of knowledge-inputs and as well as end-users within close proximity which fosters competitiveness and innovation.
The fourth factor is structure, strategy, and rivalry. This factor deals with ways through which firms are being managed and are selected to compete along with those ways through which education and employer talent is shaped by the industries.
Porter’s Diamond of National Advantage Framework
Applying Diamond Framework in the Context of China and Saudi Arabia’s Competitive Advantage
Porter (1998) indicates factor conditions to be those factors of productions that are required for competing in industries. This factor is further grouped into broad categories like physical resources, human resources, capital resources, knowledge resources, and infrastructure. In Saudi Arabia, domestic factor conditions can be explained as generalized factors. Atmospheric conditions of the country serve as its competitive advantage. The intensive summer season in Saudi Arabia facilitates the growth of dates which is also a major exporting item.
With respect to machinery and skilled labor, extensive investments made by the authorities to overcome this issue. National competitiveness is rendered to be the ability of the industries of a country to generate wealth of the nation (Zinnes, Eilat and Sachs, 2001; Kao, et al., 2008). The government is heavily investing in education however; the shortage of skilled workers still remains considerable. Knowledge resources lack the requirement of the private sector. Saudi Arabia has shown great progress in terms of resource utilization. However, there is still a lot to do for gaining national competitiveness to its highest level.
China, on the other side, has access to cheap labor. These workers are trained extensively so as to equip them with specific knowledge which is a prerequisite for obtaining competitive advantage (Lenzi 2009). With respect to capital and physical resources, China has maintained its vital competitive position by producing basic products at lower prices. China is inducting efficiency within its production process which is a determining factor for sustainable growth. The low points of the country include access to qualified labor. The country is investing in education heavily however; the knowledge resources are not sufficiently aligned with the requirements of the industries.
In the local market, companies can create their competitive advantage when buyers from the home market create more advanced products and innovate faster in comparison to its competitors; however, in the world market, demand conditions are expressed in the form of quantitative world imports by the country. Being the largest oil producer, Saudi Arabia is certainly the highest oil exporter which accounts for 76.9% of its total export bill. Other considerable exports include organic chemicals, plastics, and aluminum. In order to increase local demand, industries are heavily investing in R&D so that technology inputs can be assessed and implemented according to customer demands.
Most noteworthy, the population of China, the total $2.282 export bill roughly translates to $1,669 for every resident in the country. Furthermore, the unemployment rate in the country is 4.05%. Major exports depend on several categories. These include electronic equipment, furniture, and related items, machines and engines, medical and technical equipment, vehicles and other items. Innovation in the country fostered by yielding products that are short, small and thin and which are also acceptable globally.
Comparing the demand conditions of both the countries, you can assess that the demand conditions of China are relatively expanded to more categories as compared to Saudi Arabia. Moreover, innovations to increase local demand are also fostered more by China which is the basis of its fast-paced economic development.
Related and Supporting Industries
According to Porter (1990), related and supporting industries rendered as those with which firms share and coordinate activities within the value chain. Or those involved in products that are complimentary for the firm within a nation’s scenario. This involves suppliers’ inputs and sharing of information between consumers so as to improve the innovation and up-gradation process.
In Saudi Arabia, the presence of related and supporting industries that are internationally competitive in different industries will support their respective sectors Jasimuddin, Sajjad M. (2001). These industries are capable of producing inputs that are crucial for internationalization and innovation. The production inputs provided are very cost-effective along with playing a major role in the up-gradation process which stimulates other companies operating within the chain to innovate. Different industries relate and support to their relative companies like the dates industry uses its related and supported industry to be Dates Packaging Industry, Dates Processing Industry, Cellulosic Industry, and Logistics Industry. On the other side, home-based competitiveness in related industries is very low in Saudi Arabia. Companies are unable to benefit from the flow of information. Moreover, technical interchanges as that accelerate the rate of up-gradation and innovation.
Chinese national advantage in its related and supporting industries is somehow similar to Saudi Arabia. The country has effective resources through which it can make its production process cost-effective, rapid, and early and many times in the most preferential way. Chinese electronics appliances companies are highly competitive in the international market and other Chinese companies are supplying two-thirds of the world’s electronic appliances. Home-demand in China is higher as the citizens are demanding more products of their own country rather than those imported from other countries. The demands of local buyers provide earlier insight into customer requirements to the companies which help them in innovating faster and a sophisticated competitive advantage than other foreign firms (Liu, 2003).
On comparing this national competitive advantage of the diamond model. We got the result that both countries have the implementation of a cost-effective production inputs system. Certainly, it helps them in innovating their products faster. However, home-demand factors are superior in China than in Saudi Arabia. There are relatively less related and supporting industries in Saudi Arabia whereas, China is gaining at a fast pace in its industrialization revolution.
Company, Strategy, Structure, and Rivalry
According to Porter (1990), the presence of strong domestic rivalry is a very important factor to concern as it encourages companies to upgrade. First of all, in Saudi Arabia, the oil sector comprises of intense monopolistic overtones as it is the largest oil producer. National contexts and circumstances have a strong impact on the organization and management along with drafting the nature of the domestic rivalry. Competitiveness within a particular industry is a result of the convergence of different management practices and modes that work in favor of the country. Saudi Arabia is the largest producer of oil. It emphasizes a strategy that controls the demand, supply as well prices of oil and related products for the mutual benefit of every player within the value addition chain and which fits within the character of the Saudi Arabian management system.
In China, government intervention is at its highest point. It seems that the government strategy is to avoid internal competition so that the companies concentrate on competing with companies operating on a global basis. With respect to the Chinese management system, people are comfortable working in more engineering and technical backgrounds. Where there is a complex demand accuracy manufacturing procedure, after-sale service, careful process of development and a highly disciplined system of management.
Comparing Saudi Arabia and China
Comparing both the countries, we can sit that in Saudi Arabia, successful competitors are mostly small and medium-sized firms. They are operative privately whereas, in China, there is strict regulation for following a hierarchical management practice and managers mostly have a technical background.
In order to improve the competitive advantage of Saudi Arabia. It is very important that it works upon its labor policy. Above all, manufacturing procedures that offer cost-effectiveness. Hence, the below mentioned are some recommendations that have made China a leader in attaining national competitive advantage in comparison to other countries in BRICS.
China has managed to attain cost-leadership by delivering valuable products at lower prices. This is obtainable by continuously working upon improving operational efficiency. It exports products that are of low cost and at a reasonable quality level. This is possible because of the low standard of living which allows paying workers less. Saudi Arabia should work upon improving its labor force which will, as a result, affect its operational efficiency, thus attaining cost-leadership in different industries.
Differentiation is another factor that provided a competitive advantage to the Chinese economy. Industries in the country should differentiate in offering high quality and unique products. Moreover, firms should also focus on delivering products faster so that they can reach more customers. The best thing about this strategy is that companies can charge a premium price for their products. That results in a relatively higher profit margin.
This strategy helps in understanding and serving the target market better and effectively. Maintaining focus on a specific target market is achievable through either using the differentiation strategy or the cost-leadership strategy. For example, community banks maintain their focus on high net individuals or small businesses that are ready to pay a bit more like fees for the service.
Innovation and Value Creation
This is a very important factor for achieving national competitiveness as consumers demand innovated products that are of also high quality continuously. Saudi Arabia should work more upon innovation on its products which suit the demands of the end-users.
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