Porter's Diamond model The Competitive Advantage of Nations (Porter's Diamond) A. Overview B. The Diamond - Four Determinants of National Competitive Advantage C. The Diamond as a System D. Implications for Governments E. Criticisms V. The Competitive Advantage of Nations A. Overview Porter is a famous Harvard business professor. He conducted a comprehensive study of 10 nations to learn what leads to success. Recently his company was commissioned to study Canada in a report called "Canada at the Crossroads". Porter believes standard classical theories on comparative advantage are inadequate (or even wrong). According to Porter, a nation attains a competitive advantage if its firms are competitive. Firms become competitive through innovation. Innovation can include technical improvements to the product or to the production process. B. The Diamond - Four Determinants of National Competitive Advantage Four attributes of a nation comprise Porter's "Diamond" of national advantage. They are: factor conditions (i.e. the nation's position in factors of production, such as skilled labour and infrastructure), demand conditions (i.e. sophisticated customers in home market), related and supporting industries, and firm strategy, structure and rivalry (i.e. conditions for organization of companies, and the nature of domestic rivalry). Factor Conditions Factor conditions refers to inputs used as factors of production - such as labour, land, natural resources, capital and infrastructure. This sounds similar to standard economic theory, but Porter argues that the "key" factors of production (or specialized factors) are created, not inherited. Specialized factors of production are skilled labour, capital and infrastructure. "Non-key" factors or general use factors, such as unskilled labour and raw materials, can be obtained by any company and, hence, do not generate sustained competitive advantage. However, specialized factors involve heavy, sustained investment. They are more difficult to duplicate. This leads to a competitive advantage, because if other firms cannot easily duplicate these factors, they are valuable. Porter argues that a lack of resources often actually helps countries to become competitive (call it selected factor disadvantage). Abundance generates waste and scarcity generates an innovative mindset. Such countries are forced to innovate to overcome their problem of scarce resources. How true is this? Switzerland was the first country to experience labour shortages. They abandoned labour-intensive watches and concentrated on innovative/high-end watches. Japan has high priced land and so its factory space is at a premium. This lead to just-in-time inventory techniques (Japanese firms can't have a lot of stock taking up space, so to cope with the potential of not have goods around when they need it, they innovated traditional inventory techniques). Sweden has a short building season and high construction costs. These two things combined created a need for pre-fabricated houses. b. Demand Conditions Porter argues that a sophisticated domestic market is an important element to producing competitiveness. Firms that face a sophisticated
Sales growth after 2000 were only 9%, which the average annual sale growth rates range from 10% to 30% in their industry. The lack of cash is explained by the current liquidity ratio
By lowering selling prices across the board, Opossumtown, Inc. reduced its inventory turnover ratio, cutting the number of days to sell inventory from 174 days to 104 days; that is a 40% improvement. Opossumtown, Inc. also cut the number of days it takes to collect its credit accounts from 68 to 44 days, again that is 35% better than the previous year. The company is able to do this while cutting its debt ratio by 10% and increasing its current ratio by 25%, making it appear more favorable in terms of liquidity. As promising as this may look, this is not the whole picture. Opossumtown, Inc. shows an 11% decline in gross profit as well as operating income ratios, and a 3% decrease on the profit margin ratio. The decline of these ratios is a result of the company’s new strategy of decreasing the selling price and increasing its marketing and selling expenses. Opossumtown, Inc. made some noteworthy advancements with the implementation of its new plan for 2014. However, based on the assessment of the balance sheet, income statement and the ratios, the corporation did not achieve its goal to increase operating income by 6% and net income by 4%. Opossumtown, Inc. was only able to grow its operating income by a little more than half of one percent and net income by
With a growth strategy based on increasing sales, expanding operating profit margins and growing store base Dollar General has seen the desired growth success. Throughout this growth, Dollar General has been committed to their relatively simple business model: providing a broad base of customers with their basic everyday and household needs, supplemented with a variety of general merchandise items, at everyday low prices in conveniently located small-box stores. This commitment has proven growth but there are many risks associated with investing, as stated in the
We could also effect this by improving our efficiency and processing further clients to increase billables. We do have pent up demand, that is as we can see by the trends, growing.
In particular, a recent Y-O-Y inventory increase belies a misread of increased demand, which means short turn times and trendier inventory that grows stale on the store shelves. This, in turn, means customers are less incented to return to the retailer to check out “what 's new”. This decreases in repeat visits in turn leads to longer inventory turn times, which in turns leads to loss of profit. In short, a revamped Kohl 's that moves inventory more quickly immediately becomes more attractive to the
Clear Lake Hospital is a not-for-profit hospital in Iowa. It operates 230 beds and provides acute care. The area, which the hospital is located, is a summer destination with vacation homes and fishing activity. The hospital carries more than 10,000 different items of inventory. These items have different price, order lead times and stockout costs. The new hired Chief Financial Officer, Julio Ruiz, believes that the system used for maintaining the inventories results carrying excess inventories. He bases his assumption on the fact that when the hospital faced occupancy rates near to 100 percent, incidents or even possibility of stockout did not occur.
Analyzing Wal-Mart's annual report provides a positive outlook on Wal-Mart's financial health. Given the specific ratios and its comparison to other companies in the same industry, Wal-Mart is leading and more than likely continue its dominance. Though Wal-Mart did not lead in all numbers, its leadership and strong presence of the market cements the ongoing success. The review of the current ratio, quick ratio, inventory turnover ratio, debt ratio, net profit margin ratio, ROI, ROE, and P/E ratio all indicate an upbeat future for the company. The current ratio, which is defined as current assets divided by current liabilities, is a measure of how much liabilities a company has compared to its assets. Wal-Mart in the year of 2007 had a current ratio of .90, and as of January 2008 it had a current ratio of .81. The quick ratio, which is defined as current assets minus inventory divided by current liabilities, is a measure of a company's ability pay short term obligations. Wal-Mart in the year of 2007 had a quick ratio of .25, and as of January 2008 it had a ratio of .21. Both the current ratio and quick ratio are a measure of liquidity. Wal-Mart is not as liquid as its competitors such as Costco or Family Dollar Stores Inc. I believe the reason why Wal-Mart is not too liquid is because they are heavily investing their profits for expansion and growth. Management claims in their financial report that holding their liquid reserves in other currencies have helped Wal-Mart hedge against inflationary pressures of the US dollar. The next ratio to look at is the inventory ratio which is defined as the cost of sales divided by average inventory. In the year of 2007, Wal-Mart’s inventory ratio was 7.68, and as of January 2008 it was 7.96. Wal-Mart has a lot of sales therefore it doesn’t have too much a problem of holding too much inventory. Its competitors have similar ratios though they don’t have as much sales as Wal-Mart. Wal-Mart’s ability to sell at lower prices for same quality, gives them the edge against its competition. As of the year 2007, Wal-Mart had a debt ratio of .58, and as of January 2008, it had a debt ratio of .59. The debt ratio is calculated by dividing the total debt by its total assets. Wal-Mart has a lot more assets than it does debt so Wal-Mart is not overleveraged.
This allows them to purchase high volume for a lower cost. Bringing over 20,000 products into one convenient location and with over 450 brands they provide a large selection.
Per Kalogeropoulos (2016), the company is better able to ensure product availability while managing their costs because of their latest logistics initiative. They have recently created a network of deployment centers that reduces the time between when the product leaves a supplier to when it hits the shelf at the Home Depot store which drives profits higher. Parnell (2014), relays that companies who use low-cost strategy seek distribution channels that minimize cost. Home Depot’s new logistics initiative provides the company with economies of scale and a market advantage because it adds to their low-cost
This essay which will identify the five approaches with health promotion. It will focus on two approaches for the sake of this essay. These approaches will be defined and show how it could be used to tackle a life style behaviour using the Beattie’s model. The Beattie’s model is one of the several models health promoters use as a guide to direct the intervention mode and strategy which is suitable for any particular problem. This model will be used to identify the location of each of the two approaches, highlighting role of the health promoter in each approach, as well as discuss policies and ethical issues which are associated with each approach. Furthermore the essay will cover the values of each approach while it emphasis the need for health promoters to consider the effectiveness of a model to ensure suitability for any presented problem.
Describe Michael Porter’s model and its components. Pick an industry and describe how the different components of the model relate to the industry.
Imagine that you have just earned your business degree and have been hired as a hospital administrator at a small hospital that, like many others, is experiencing financial problems. Having studied finance, you know that efficient cash management is important to all firms in all industries to meet the day-by-day operations of the firm. One way to ensure such efficiency is to use a carefully planned and managed inventory control system that can reduce the amount of cash an organization has tied up in inventory. Being familiar with Just-In-Time Inventory, you know it is a proven system that helps reduce the costs of managing inventory.
Reducing risk ; reducing the quantity of manufactured so that reducing burden of stock and burden of frequent discount sales
In addition, at the time, the economy was doing great, therefore, using the push system to stock pile inventory was acceptable. However, during the dot-com bust of the 2000’s, its sales and the demand for its products greatly decreased. Unfortunately, during this time, Cisco discovered that it possessed an abundance of inventory, and, wrote off more than $1 billion in inventory. Consequently, the company learned that acquiring inventory in anticipation of market demand, and not factoring in the human element of its business increased its risks of failure. Obviously, Cisco wanted to meet its customer’s demands, however, the problem was that it held more inventory than what the customers were demanding. Nevertheless, afterwards, it knew that it needed to adopt a new, more efficient approach to inventory. Therefore, Cisco had to reevaluate its supply chain system and seek input from IT, customers, suppliers, and finance. Further, by including input from these sources, Cisco adopted the more efficient pull system. The pull system, is dependent upon producing smaller repeating orders. Rather than the push system, which relies on larger less repeating orders. Effective inventory management, when administered correctly, can reduce and keep the inventory to a more desired level. In addition, Cisco discovered that inventory management can reduce inventory levels, enhance cash flow and reduce overall
Local Inventory. Another approach is to have all inventory available at the store at all times. This allows for the centralization of cooking capacity. The main risk is obsolete inventory and the need for extra space.