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Michael Porters Theory Of National Competitive Advantage Economics Essay

Porters Diamond suggests that the national home base of a firm plays an important role in shaping the extent a nation can create new advanced factors such as skilled labour, advanced technology and knowledge base, government support, and culture. Government and chance are two elements are not included in the four basic ones that form the diamond but integral nonetheless as either-or can influence the entire diamond. It is with these six forces and their interactions were studied for 100 industry case studies (Porter, 1990 26-27).
The importance of this model is integral on these elements support or hinder these firms from developing advantages in the global arena, specifically from a firm-based perspective. Factor conditions pertain to the situation in a nation regarding various production factors, both man-made and inherited. These national factors directly affect the industries that subsequently develop. Demand conditions reflect the state of home market demand for products produced within the country, encompassing customer needs/wants, their scope and growth rate, and the mechanisms that transmit domestic preferences to foreign markets. Relating and supporting industries are key in determining a firms’ success, as the existence or non-existence of internationally competitive inputs reinforce and firms ability to innovate and remain competitive in the global arena. Firm Strategy, Structure, and Rivalry pertain to the conditions in a country that influence a firms establishment, its organization and management, as well as the characteristics of domestic competitors. Porter argues that domestic rivalry and subsequent quest for competitive advantage help provide the elements for repeating those same results in the global marketplace.
In applying a real-world example, Porter’s Diamond will be used to offer explanation as to why the internet market is dominated by firms from the United States of America. Factor Conditions: An industry requires an appropriate supply of factors in its home base if it is to be successful. In the United States there are many specialized factors which apply to the internet industry in addition to generalized advantages that span across domestic industries. A high national income in unison with a large population meant expensive computer hardware and monthly internet fees could be obtained by millions and millions of U.S citizens. It is not selective factor disadvantages, but rather an abundant supply of capital, entrepreneurial orientation, and world-class educational infrastructure (computer technology included) that explain the industries’ dominance.
Demand Conditions: The internet has been rapidly adopted by consumers and businesses alike. The United States has a high penetration of internet access. Virtually every major firm has a website. High disposable income means American consumers can afford to purchase a variety of goods online. This climate has created a rich environment for online only firms to develop and prosper within the U.S. Notable examples include worldwide heavyweight Google, Amazon.com, Ebay, Yahoo, Facebook, Twitter, and Netflix.
Related supporting industries: The United States benefits from local suppliers eager to help prosper by helping industries production, marketing, and distribution needs. Notable is Silicon Valley for its incredibly dense population of high-technology firms; creating an ideal climate with input suppliers closely and the human capital necessary. A culture that foster’s entrepreneurship means many individuals are not afraid to risk capital in creating a new venture
Firm Strategy, Structure, and rivalry: Following the tech-bubble of the new millennium, which saw the NASDAQ ** technology firms never truly recovered from their reputation as an industry that is volatile, ultra-competative, and ever changing. Many firms have sprung up with impressive growth only to crash-and-burn. This competitive environment however is key to understanding the nature of the industry. Obtaining and sustaining a competitive advantage can be enormously profitable for firms, but by being forced to closely monitor costs, raise productivity, boost product quality, and develop innovative products U.S based internet firms have been able to transfer these advantages – only at a costs much lower. Having already obtained the advantage in their home market, they can enter the international marketplace with additional leverage in areas such as Research and Development, quality control, human capital, and overall management.
In order to truly understand Porter’s Diamond theory, the “International” aspect is integral in forming the platform for which this trade takes place. In The Competitive Advantage of Nations, Porter’s fundamental objective from the start was to uncover why “some social groups, economic institutions and nations advance and prosper” (Porter, 1990, p. xi). In today’s business environment with Globalization playing and ever more important role, Porter suggests that the ‘competitive advantage’ of a nation’s industries is determined by the configuration of the four aforementioned elements forming the Diamond: factor conditions; related and supporting industries; and firm strategy, structure, and rivalry.
Foreign subsidiaries with strong internal capabilities and the ability to capitalize on host country opportunities may take strategic initiatives that areas important to a firm or industry as home country determinants(Morrison and Crookell. 1991). Although the domestic environment in which firms compete shapes their ability to compete in international markets, there is likely other circumstances beyond facing vigorous competition domestically in terms of continuously striving to improve their products that influence and offer insight into Firm based National Advantage. National policy and economics considerably influence firms ultimate ability to compete in the global marketplace; while Porter notes national policies may also affect firms’ international strategies and opportunities in more subtle ways, merely portraying various cultural influences, the geography, religion, climate, and political factors that greatly influence firm-based national advantage by acknowledging they affect each element of the Diamond is not adequate.
Porter’s insisted that a firms’ ability to compete depends largely upon the strength of the diamond within its home national and the assertion that national economic performance depends on this. Both of these can be critiqued for relevance at a time when the world economy has become increasingly globally oriented, and the multinational corporation increasingly important. ***Dunning (1993, pp. 9-10) points out that in the 1990’s “an increasing proportion of the assets of firms in a particular country are either acquired from or are located in, another country”. Despite this, many firms have a large proportion of their operations away from their home base and it is debatable to suggest that their competitive position rests uniquely upon the strength of diamonds in their home base. It is important not to confuse this with their initial move abroad which it may have initially been the catalyst.
In questioning the Clarity of Porter’s Diamond, Daly (1993) for instance claimed to have significant reason to reject Porter’s claim that exchange rates and wages are not integral to determining competitiveness. He was able to demostrate that export growth and export shares are impacted by variations in exchange rate as well as labour costs. Despite this, Porter’s definition of competitiveness is more focused on national productivity compared to export shares. In asserting that competitiveness cannot be meaningfully defined in terms of low labour costs and favourable exchange rates (CAN, p. 7). claim Porter’s case studies lack a homogenous analytical tool to determine the importance and precise impact of each determinant on the industries’ competitive position (Rugman, A. M.,

The impact of Union Budget on Indian Economy

The union budget is perhaps the most watched event in economic policy making in India. The core fiscal issues like taxation, expenditure and fiscal deficit are quite important for macro-economics. In addition, the government has chosen the budget speech as a mechanism for announcing new policy initiatives, and for outlining some plans for economic policy in the coming months.
Casual empiricism reveals that stock market is greatly influenced by the budget. The stock market response to a budget is considered to be an important summary statistic measure of the quality of the budget in terms of improving macro-economic prospects.
The research was carried out in the form of Event Analysis and 45 days before and after the budget, were considered to measure the volatility in the stock market.
The results may be summarised as follows:
The stock market appears to be fairly efficient at information processing
about the Union Budget.
Union Budgets add 10% to the stock index, on average, and yield elevated
volatility starting from the Budget date for the following 30 trading days or
so.
This finding is only a first examination of a wide range of questions on the interplay
between the Union Budget and the stock market. Other areas which merit further
exploration include:
The stock market receives some budgets well and others badly. It would be useful
to test whether, ex-post, it the case that the budgets which were well-received were
actually followed by strong GDP growth.
When the Finance Minister reads out the budget speech, the efficient stock market
should react within seconds to each sentence that is read out, in terms of a direct
impact on stock prices of firms and industries that are either positively or negatively
affected. Given that intra-day stock price information is now available, it should
be possible to test whether such impacts do take place, and whether there is overreaction or under-reaction in these immediate responses.
The Indian economy has seen major changes in the role of Government, and hence
the Union Budget, in the economy from 1991 onwards. The stock market has
seen major improvements in liquidity from 1995 onwards. The technologies and
institutional mechanisms for transferring and processing information, which are the
foundation of information processing by financial markets, have been transformed
over the years.
Hence, the research done shows limited relationship between the stock market and the Union Budget.( BY SUSAN THOMAS AND AJAY SHAH)
Description of Project in brief: On 28th February 2011, Mr Pranab Mukherjee, the finance minister of India, announced the Union Budget for the fiscal period 2011-2012, taking into consideration the high fiscal deficit, high inflation and rising commodity prices especially, crude oil prices are affecting India’s increasing GDP growth rate over the past 2 years after global financial crisis in 2008.
Since my project is dedicated towards analysing impact of union budget on stock market and on 5 sectors namely, infrastructure, telecom, agriculture, banking and information technology, I’ll be doing thorough analysis of how union budget, which is passed every year by the finance minister of India, plays an instrumental role in defining the growth trajectory of India and how the different proposals made my finance minister affect stock market’s performance and the above mentioned 5 sectors.
In my project I will be concentrating on the previous three years’ budgets, that is, budgets of 2008-2009, 2009-2010 and 2010-2011 and the budget passed this year for the fiscal period 2011-2012. After this I will do comparative analysis on them in order to highlight the impact that different tax rates and duties have on the growth and GDP of Indian economy, on the performance of stock market and above listed 5 sectors.
What I mean by doing analysis on 5 sectors is that I want to quantify the contribution that these sectors make to the GDP of India based on the union budgets passed for the last 3 years and whether more or less emphasis has been put on these sectors over the past 3 years.
I’ll be doing comparative analysis on the following things:
Crude oil prices in the past 3 years
Pattern of FII and FDI inflows and outflows
Wholesale price index by taking 52 weeks’ inflation average
Growth rate in imports and exports
Current account balance
Total planned and non-planned expenditure
Primary, fiscal and revenue deficits
Imposition of minimum alternative tax on the 5 sectors
Income tax exemption limits for different categories of Indian citizens
Custom and excise duty rates
Performance of BSE Sensex and NSE S

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