International-Business-Dr-R-Chandran-E-book

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International Business- Dr. R. Chandran
Competition is a challenge posed by any goods or service with equal or extra
benefits, which cause the company or country to lose its share of business.
Competition may come from the home country, host country or a third
country. It may come from the same range of products or through
outstanding technology or cost effective substitutes. Many companies devote
considerable time and energy facing or managing competitors. As far as
nations are concerned, they consolidate their resources and move ahead,
withstanding competitors and prospering in international trade. To prove
such consolidating forces Michael Porter developed a model, which was
applicable during the second half of twentieth century.
He conducted a comprehensive study of ten nations to learn about the
factors that lead to success and the “five forces” influencing strategy. None
of the five forces were new and were in fact known to people around the
world. Porter advocated the conversion of these five forces in to a main
competitive force that would enable a country to succeed in world trade. By
‘success’ he means that a country should be the centre of production for a
particular item. This implies that for a given quality of goods, production
costs must be the lowest.
However, he does not believe low production costs are solely due to
comparative advantage. Sustaining comparative advantage depends on the
ability to produce more with a given level of inputs. This in turn is based on
innovation and upgrading of products, production processes and
management.
Forces influencing Competitiveness
This model determines the competitive environment as being determined by
the following forces:
1. The power of buyers, and how much leverage they have in
determining the price.
2. The power of suppliers, and the competition among suppliers which
determines the price of inputs to the firm.
3. The threat from potential new entrants in to the industry i.e. the degree
of market contestability.
4. The threat from substitute products.
5. The degree of competition (rivalry) in the industry.
Porter’s Diamond – Four Determinants of National Competitive
Advantage
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