MICHAEL PORTER DIAMOND THEORY & ITS APPLICATION

MICHAEL PORTER DIAMOND THEORY & ITS APPLICATION

PRESENTED BY :-

ABHIJIT KHANDAGALE

ABHISHEK PANDEY

ADITYAVARDHAN SINGH

ANKIT VERMA

BASU BHATTAR

TRADITIONAL THEORY

Definition:

The benefit oradvantageof an economy to be able to produce a commodity at a lesser opportunity cost than other entities is referred to ascomparative advantagein international tradetheory.

Traditionally, economic theory mentions the following factors for comparative advantage for regions or countries:

1. Land2. Location3. Natural resources 4. Labour, and5. Local population size.

Because these 5 factors can hardly be influenced, this fits in a rather passive (inherited) view regarding national economic opportunity.

Important Criticism of Comparative Advantage Theory In Relation To International Trade

Unrealistic assumption of labour cost: In calculating production costs, it takes only labour costs and neglects non-labour costs involved in the production commodities which is highly unrealistic.

Neglects the role of technology: The theory neglects the role of technological innovations in international trade.

Unrealistic assumptions of full employment: Existence of underemployed economies makes this theory static.

Ignores transport costs: Transport costs play an important role in determining the pattern of world trade.

Incomplete theory:. It simply explains how two countries gain from international trade. But it fails to show how the gains from trade are distributed between the two countries.

PORTERS CONCEPT

Porter says that sustained industrial growth has hardly ever been built on the basic inherited factors. Abundance of such factors may actually undermine COMPETATIVE ADVANTAGE! Increased specialisation may lead to diseconomies of scale.He introduces a concept called "clusters" or groups of interconnected firms, suppliers, related industries, and institutions, that arise in certain locations.

WHAT IS THE DIAMOND MODEL

The Diamond Model of Michael Porter for the competitive advantage of Nations offers a model that can help understand the comparative position of a nation in global competition. The model can also be used for major geographic regions.

According to Porter, as a rule competitive advantage of nations is the outcome of 4 interlinked advanced factors and activities in and between companies in these clusters. These can be influenced in a pro-active way by government.

PORTERS DIAMOND MODEL

APPLICATION

In terms of application, we can take theexample of

IT/ITES Business in India

(ITES) is established and is on the development

stage.(IT) is on the threshold of the growth .

THE PASSIVE ANALYSIS OF

1. LandAvailable in plenty.2. LocationStrategic locations are available.3. Natural resources (minerals, energy)Apart from energy, all other resources are available4. Labor, andSkilled and unskilled labors are available in plenty.5. Local population size.Local market size has the potential to absorb any excess production.

FACTOR CONDITIONS

Cost Arbitrage.

Favorable endowments Resources.

Lower infrastructural costs boosting entrepreneurship.

MNCs imparting positive externalities.

The Presence Of Indian Diaspora.

Eg:-

India has created its own important factors such as skilledresources and technological base for expanding IT / ITESIndia is upgrading / deploying resources over time to meetthe demand.New innovations. new methods has given thelocal industry the comparative advantage.

DEMAND CONDITIONS

Industry Structure.

Size and Pattern Of Growth.

The Composition.

Eg:-

A more demanding local/ global market has given INDIAthe international / national advantage.A strong trend setting local market has helped local firms anticipateglobal trends.

DOMESTIC IT/ITES SCENARIOS

Domestic IT-ITeS scenario.FY2009Project basedIT consultingCustom application developmentOutsourcing IS outsourcingSupport & trainingTotal IT servicesDomestic BPOSoftware products469510365371501426475822619322690 Domestic IT-ITeS scenario.FY2010Project basedIT consultingCustom application developmentOutsourcing IS outsourcingSupport & trainingTotal IT servicesDomestic BPOSoftware products6320109914162052466698907023042960 Domestic IT-ITeS scenario.FY2011Project basedIT consultingCustom application developmentOutsourcing IS outsourcingSupport & trainingTotal IT servicesDomestic BPOSoftware products74661385165527255718131100427913495 Domestic IT-ITeS scenario.FY2012Project basedIT consultingCustom application developmentOutsourcing IS outsourcingSupport & trainingTotal IT servicesDomestic BPOSoftware products80081585175133036408591217030683721 Domestic IT-ITeS scenario.FY2013Project basedIT consultingCustom application developmentOutsourcing IS outsourcingSupport & trainingTotal IT servicesDomestic BPOSoftware products79061602173034966337801218232203774 Domestic IT-ITeS scenario.FY2014EProject basedIT consultingCustom application developmentOutsourcing IS outsourcingSupport & trainingTotal IT servicesDomestic BPOSoftware products77741552171335656127001203932443721

RELATING SUPPORTING INDUSTRIES

Educational Institutions.

Hardware Sector.

Eg:-

Local competition has created innovations and cost effectiveness. for the Indian IT AND ITES.

This has also put the pressure on local suppliers to lift their game.

FIRM STRATEGY, STRUCTURE & RIVALRY

Industry Structure.

Competitive Strategies:

Focus On Innovations.

Focus On tier 2 tier 3 Cities.

Mergers and acquisitions.

Adoption Of Quality certifications.

Reliance On the Domestic market.

Eg:- Local conditions have affected various firms strategy.

Local rivalry have forced firms to move beyond basic advantages.

examples INFOSYS , WIPRO AND TCS

Emerging IT hubs in India

GOVERNMENT POLICIES

The reforms have reduced licensing requirements and made foreign technology accessible, removed restrictions, process of investment easier.

The Indian government is actively promoting FDI and investments from NRIs.

In pursuance of liberalization and globalization, the Indian government has been formulating and implementing more transparent and investment friendly policies.

Another significant example of the liberal policy of the Indian government is the IT Act.

GOVERNMENT POLICIES

The Indian government has been continuously proposing amendments in the Indian Evidence Act, Indian Penal Code and the RBI Act to address the issues of jurisdiction, authentication and origination.

Recognizing the importance of Venture Capital Funding, the Ministry of Information Technology has set up a National Venture Fund for the Software and IT Industry with a corpus of Rs. 100 crore.

Nasscom (most important promoter of the IT/BPO industry) has been playing a crucial role in advertising and helping the IT industry.

References

http://www.ibef.org/industry/information-technology-india.aspx

http://dipp.nic.in/English/Publications/Annual_Reports/AnnualReport_Eng_2013-14.pdf

Investigating India's competitive edge in the IT-ITeS sector, Sankalpa Bhattacharjee, Debkumar Chakrabarti, March 2015.

Thank You!