Analyze and Evaluate the Role of National Institutions in the Development of national industries

University Degree Business and Administrative studies

1213222

8/11/2011

1. Introduction

North (1990) claimed that "Institutions are the rules of the game in society or, more formally, are the humanly devised constrain that shape human interaction. " Institutions regulate the behaviour between individual and groups and institutions play an important role in the development of economic and political. Also, institutions are significant things to a society, as well as they make contribute to government and public service. This essay is aimed to analyze and evaluate the role of national institutions in the development of national industries. Something useful may can be discovered in it and these may useful to the IB mangers.The Porter's Diamond Model will be used in analyzing and evaluating, and this essay is divided by three parts,namely introduction, analysis basing on Porter's Diamond Model, and conclusion.

Analysis basing on Porter's Diamond Model

Factor conditions:

Porter (1991) claims that factors of production can be divided into two parts, general use factor and specialized factor. Facing different factor conditions, the institution should be different. The general use factors are the "non-key" factors, such as unskilled labor and raw materials. These factor can be meet easily, but they are still important. Institutions must ensure the supply of the general use resources is safe and rapid. For example, the water supply can not be interrupted during the production activities. When it comes to specialized factors,they are key factors of production, such as skilled labor, capital and infrastructure. The specialized factors are significantly important for an industry, and they can be created to competitive advantages, as well as to compensate disadvantages.(Porter, 1991) In order to develop the national industries, some institutions must be created and fully used to achieve competitive advantages. The governments enact legislate to ensure the basic eduction and offer more opportunities to higher eduction,and the companies can invest in training employees to upgrades skills and improve productivity. For instance,Israel spends amount of money on eduction, and every school is subsidized by the state. In 2009, expenditure on education accounts for approximately 10% in Israel.(Arar, 2011)What is more, law requires governments provide incentives to national industry, and rewards to attract high-tech worker and skilled labor from other countries. For example, the US relax its technological immigration rules to attract global talents. (Morrison,2006)Moreover, scientific research institution supported and encouraged by the government and social. Since 2000, the US government and social organizations have setted more than 60 prizes for technological breakthrough, offering more than $250 million in prize money.(Gordon-Murnane, 2010)Also, some barriers for foreign companies are setted by government increase its national industries. The last but not the least. national institutions ensure national industries can be continuously upgraded and become more specialized, only in this way can national industries achieve a powerful and continuous competitive advantages. (Porter, 1991) All in all, national institutions ensure high quality production factors and they ensure national industries can be continuously upgraded and become more specialized

Demand condition

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Demand condition

Porter(1991) argues that demand condition in the home market can help companies create a competitive advantage, and national industries are more sensitive to customers in the home market than foreign industries. National industries know the taste of customers in the home market better than other foreign industries, and national industries can meet demand of customer faster and better. This is the point that foreign companies are difficult to reach.Porter (1991)claimed that demanding buyers force companies have to innovate and improve standards. High demanding buyers motivate the development of companies' competitive advantages, because the companies are improving in meeting customers' demand as well. In short, if demand of customers is hard to meet, the company have to improve itself to meet the demand. For distance, Japanese customers in automobile consumption is picky, the Japan car industry has to build high standard of production to meet their needs. So the higher demanding buyers in an industry, the lager competitive advantages its has. When it comes to the national institutions , the national institutions influence and regulate the demand conditions. (Forsgren, 2008) The change of national tax policy may changes the demand of some specific good. For example, government increases the tax on wine while the demand of the wine decreases. What is more, some environmental regulations and rules generate the development of environmental protection product. In summary, the national institutional influence the demand conditions, and it can helps to development of national industries by changing the policies.

Related and supporting industries

If the national industries want to achieve the competitive advantage in the competition, the related and supporting industries can not be ignored. Porter(1991) states that a single industry can not exist by itself, it often require the establishment of close working-relationship with other industries. The a single industry must arise with related and supporting industries and they fading together as well. For instance, the Germany printing industry is the leader in international printing industry, similarly its papermaking industry, printing ink industry, plate making industry, and mechanical manufacturing industry are play key roles in international market as well.(Murmann,2003) When it comes to clusters, clusters consist of multiple, geographically close and interconnected industries, companies and associated institutions that have same goal or benefit. (Ietto-Gillies,2005)Letto-Gillies(2005) claims that clusters improve productivity and competitiveness, and when the clusters are competitive, the national industries will get more cost efficient and produce more innovative product. For instance, Zhengjiang province, a province in east of China, it is one of the richest provinces in China. It is lack of natural resource, but it has the largest industry cluster, and it become the key factor to the development of Zhengjiang. (Chen, 2008) In the clusters, each industry and its related and supporting industries have a close working- relationship and they can develop new technologies, new products from the cooperation. In this way, each industry can be improved and it develops the overall strength of national industries. The national institutions support the clusters with technology resource, information resource, capital resource and human resource by finance institutions and service institutions. (Chen, 2008) Moreover, universities and industry associations play a key role in development of national industries. In summary, the national institutions strengthen cooperation and coordination.between industries and provide supports.

Firm strategy, structure and rivalry

Firstly, Porter(1991) claims that the most important factor to innovate and continuously upgrade competitive advantages is competition. The firms must win the competition in the home market, then they can enter the international market to face new challenges. The fierce competition and powerful competitors force the firms to innovate and upgrade, the competition in the international market is the extend from home market. Secondly, the structure and management systems of firms in different countries can potentially affect competitiveness. These factors may help or reduce the development of the firm and they decide the development tendency sometimes. (Porter,1991) National institutions help to mange conflicts between firms in competition and they provide information to firms to guide development of strategy and structures building. (North,1990) For instance, there is vicious competition between firms, the national institutions has responsibility to intervene the competition. National institutions mange the conflicts between firms and end the vicious competition. This makes competition fairly and promotes domestic rivalry and competition.

Government

The government departments through the policy selection to enhance or weaken competitive advantages of nation. On the one hand, governments promotes competition, free trade, eduction,science and enforces safety and environmental standards. On the other hand, governments play a key role to improve capital,infrastructure and provide information.In short, governments offer the necessary resources to firm and create a good environment for development of national industries. (Porter,1991) In addition, governments improve firms to innovate and upgrade though government procurement. The governments procurement should use a strong standard and act picky customers to develop national industries. (Porter,1991) Governments support and mange national institutions.Similarly, national institutions perfect function of governments and provide information to government to policy making.(Moore,1995)

Luck & Chance

Luck and chance influences other factors in Porter's Diamond Model, and its may come from development of technology, oil crisis, war, government' decisions and so on. It can gains competitive advantages as well as it can loses its competitive advantages. The firm which meets the changing demand can get the "chance" to develop. (Porter,1991) The national institutions provide information to the firms to predict potential chances. For instance, national institutions can predict to discovery of oil by analyzing data. (Moore,1995) The national institutions help firms to catch the chance to develop itself and make contribute to development of national industries.

Conclusion

This essay is divided into three parts,namely introduction, analysis basing on Porter's Diamond Model,and conclusion. It analyzes and evaluates the role of national institutions in the development of national industries using Porter's Diamond Model. Firstly, in factor conditions, national institutions ensure high quality production factors and they ensure national industries can be continuously upgraded and become more specialized. Secondly, in demand condition, the national institutional influence the demand conditions, and it can helps to development of national industries by changing the policies. Thirdly , the national institutions strengthen cooperation and coordination.between industries and provide supports. Moreover, national institutions mange the conflicts between firms promotes domestic rivalry and competition. In addition, national institutions perfect function of governments and provide information to government to policy making. Finally, The national institutions help firms to catch the chance to develop itself and make contribute to development of national industries. In summary, national institutions play a key role of national institution. It ensures a good environment for development of national industries, and it guides the development of national industries.

Reference

North, D (1990) Structure and Change in Economic History, New York: W.W.Norton & Co.

Porter, M (1991) The Competitive Advantage of Nations, Finance & Development, 28(3), p50

Arar,K (2011) Access to higher eduction for Palestinians in Israel, Education, Business and Society: Contemporary Middle Eastern, 4(3), p207

Gordon-Murnane, L(2010) Incentive Prizes, Searcher, 18(1), p12-15

Prince, M (2002) Benefit education a growing necessity, Business insurance, 36(11), p3

Murmann,J. P(2003) Knowledge and competitive advantage: the co-evolution of Firms, Technology , and National Institutions, West Nyack: Cambridge University Press.

Chen,TJ(2008)Research on innovation network structure in manufacturing industry cluster-Experience from China,Zhengjiang: Communication Univ China press.

Morrison, J(2006) The International Business Environment: Global local marketplaces in a Changing World., London: Palgrave Macmillan

Ietto-Gillies, G (2005) Transnational Corporations and International- Production: Concepts, Theories and Effects,Northampton :Edward Elgar

Forsgren, M (2008) Theories of Multinational Firm- A Multidimensional Creature in the Global Economy, Northampton :Edward Elgar

Moore,M(1995) Promoting good government by supporting institutional development?, IDS Bulletin, 26(2),p89

Analyze and Evaluate the Role of National Institutions in the Development of national industries

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