Porters Diamond Theory
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Porter's National Competitive Advantage Theory in Hindi
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There are many new products being launched in the market every day. To understand how these products are being adopted in the market, marketers must use the Diffusion of Innovation Theory formulated by Mr Everett Rogers back in One must understand, that this theory is as relevant today as it was back then. Diffusion of innovation is a theory which explains how innovation is adopted by the population, in how much time does the innovation spread, and finally whether the innovation actually succeeds in bringing a change or it fails in the process.
If companies do not act properly, then they are likely to lose the advantage they might have after introducing a new innovation in the market. As per this theory, the innovative products when launched in the market can be adopted by 5 different categories of customers. Each of these categories of customers involves people with different personality types. These categories can also be known as Adopter Categories. If someone is used to buying the latest in technology , they are known as geeks and are therefore early adopters. On the other hand, if someone adopts technology very late, then they are known as laggards. Like these examples, there are 5 total Adopter Categories of who help in the diffusion of innovation by Adopting the products. These are people who are the first ones to test everything and who like to take risks.
For example — Today on YouTube , many people do unboxing videos. These are the people who love playing with technology products and these are the likely people who will be the first in line to adopt a product. Innovators by personality are passionate people who love to take risks and follow industries they are very fond of. An example of such a behaviour can be gamers who are very passionate and love to fiddle with gaming software and equipment.
So if a new product is launched, a passionate gamer might be the first one to adopt. For a company, these innovators are the audience whom they should keep happy and whose feedback matters. They might or might not consume the products themselves, but they might be the ones who influence future purchases. Early adopters are the people who follow the innovators as they are the first ones to accept a change. They are comfortable with changing their traditional thoughts and beliefs but they are not as used to risk as to the innovators. They have a strong influence on people who follow them and they generally see themselves as opinion leaders. These users do not need much evidence or written materials to convince them for the purchase. They may like the concept and go for it.
In a hypothetical two-country world, if Country A could produce a good cheaper or faster or both than Country B, then Country A had the advantage and could focus on specializing on producing that good. Similarly, if Country B was better at producing another good, it could focus on specialization as well. By specialization, countries would generate efficiencies, because their labor force would become more skilled by doing the same tasks. Production would also become more efficient, because there would be an incentive to create faster and better production methods to increase the specialization.
The challenge to the absolute advantage theory was that some countries may be better at producing both goods and, therefore, have an advantage in many areas. In contrast, another country may not have any useful absolute advantages. To answer this challenge, David Ricardo, an English economist, introduced the theory of comparative advantage in Ricardo reasoned that even if Country A had the absolute advantage in the production of both products, specialization and trade could still occur between two countries. Comparative advantage The situation in which a country cannot produce a product more efficiently than another country; however, it does produce that product better and more efficiently than it does another good.
The difference between these two theories is subtle. Comparative advantage focuses on the relative productivity differences, whereas absolute advantage looks at the absolute productivity. Even though Miranda clearly has the absolute advantage in both skill sets, should she do both jobs? Her productivity and income will be highest if she specializes in the higher-paid legal services and hires the most qualified administrative assistant, who can type fast, although a little slower than Miranda.
By having both Miranda and her assistant concentrate on their respective tasks, their overall productivity as a team is higher. This is comparative advantage. A person or a country will specialize in doing what they do relatively better. In reality, the world economy is more complex and consists of more than two countries and products. Barriers to trade may exist, and goods must be transported, stored, and distributed. However, this simplistic example demonstrates the basis of the comparative advantage theory. Both theories assumed that free and open markets would lead countries and producers to determine which goods they could produce more efficiently. In the early s, two Swedish economists, Eli Heckscher and Bertil Ohlin, focused their attention on how a country could gain comparative advantage by producing products that utilized factors that were in abundance in the country.
They determined that the cost of any factor or resource was a function of supply and demand. Factors that were in great supply relative to demand would be cheaper; factors in great demand relative to supply would be more expensive. Their theory, also called the factor proportions theory Also called the Heckscher-Ohlin theory; the classical, country-based international theory states that countries would gain comparative advantage if they produced and exported goods that required resources or factors that they had in great supply and therefore were cheaper production factors.
In contrast, countries would import goods that required resources that were in short supply in their country but were in higher demand. In contrast, countries would import goods that required resources that were in short supply, but higher demand. For example, China and India are home to cheap, large pools of labor. Hence these countries have become the optimal locations for labor-intensive industries like textiles and garments. In the early s, Russian-born American economist Wassily W.
Leontief studied the US economy closely and noted that the United States was abundant in capital and, therefore, should export more capital-intensive goods. However, his research using actual data showed the opposite: the United States was importing more capital-intensive goods. According to the factor proportions theory, the United States should have been importing labor-intensive goods, but instead it was actually exporting them. Leontief that states, in the real world, the reverse of the factor proportions theory exists in some countries.
For example, even though a country may be abundant in capital, it may still import more capital-intensive goods. In subsequent years, economists have noted historically at that point in time, labor in the United States was both available in steady supply and more productive than in many other countries; hence it made sense to export labor-intensive goods. Over the decades, many economists have used theories and data to explain and minimize the impact of the paradox. However, what remains clear is that international trade is complex and is impacted by numerous and often-changing factors. Trade cannot be explained neatly by one single theory, and more importantly, our understanding of international trade theories continues to evolve.
In contrast to classical, country-based trade theories, the category of modern, firm-based theories emerged after World War II and was developed in large part by business school professors, not economists. The firm-based theories evolved with the growth of the multinational company MNC. Unlike the country-based theories, firm-based theories incorporate other product and service factors, including brand and customer loyalty, technology, and quality, into the understanding of trade flows. Swedish economist Steffan Linder developed the country similarity theory A modern, firm-based international trade theory that explains intraindustry trade by stating that countries with the most similarities in factors such as incomes, consumer habits, market preferences, stage of technology, communications, degree of industrialization, and others will be more likely to engage in trade between countries and intraindustry trade will be common.
In this firm-based theory, Linder suggested that companies first produce for domestic consumption. When they explore exporting, the companies often find that markets that look similar to their domestic one, in terms of customer preferences, offer the most potential for success. Raymond Vernon, a Harvard Business School professor, developed the product life cycle theory A modern, firm-based international trade theory that states that a product life cycle has three distinct stages: 1 new product, 2 maturing product, and 3 standardized product. The theory, originating in the field of marketing, stated that a product life cycle has three distinct stages: 1 new product, 2 maturing product, and 3 standardized product.
The theory assumed that production of the new product will occur completely in the home country of its innovation. In the s this was a useful theory to explain the manufacturing success of the United States. It has also been used to describe how the personal computer PC went through its product cycle. The PC was a new product in the s and developed into a mature product during the s and s.
Today, the PC is in the standardized product stage, and the majority of manufacturing and production process is done in low-cost countries in Asia and Mexico. In fact, the beauty of the Strategy Diamond is that it can apply whether you work for a company with , employees or 1 solo employee. By walking through the 5 questions of the Strategy Diamond, we create a better strategy. But this is more a vision statement than a strategy.
To avoid this trap, it is important to be very specific when describing arenas. You can do this by answering the following questions:. When specifying these arenas it is important to emphasize their importance. For example, suppose your strategy is to focus on a single geography. You also sell in other geographies. Now you know the arena in which you are going to compete, you must specify how you are going to get there. Here we determine what vehicle we will use to get from where we are to where we want to be. Example answers include:. Again, be as specific as you can. Suppose you identified you want to enter a new product category. Instead, look to build up a logical strategy.
How are you different from the competition? What is it about what you do that will enable you to win in the marketplace? Differentiation must be at the core of your strategy. It is important to determine your differentiators as soon as you can. If you want the best customer service you will have to spend time and money building that capability. In the first three steps, we determined what we want to do. Going back to our general for a moment. Instead, some advance first, followed by others, and then others. As in war, staging is important in business.
