What is the theory of competitive advantage?

Introduction to Porter's Diamond Theory Model "Diamond Model" was put forward by Michael Porter, a famous strategic management scientist at Harvard Business School. Use Porter's diamond model to analyze why a country's industry has strong competitiveness in the world. Porter believes that there are four factors that determine the competitiveness of an industry in a country: production factors-including human resources, natural resources, knowledge resources, capital resources and infrastructure. Demand situation-mainly domestic market demand. Performance of related industries and supporting industries ―― Whether these industries and related upstream industries are internationally competitive. Enterprise strategy, structure and performance of competitors. Porter believes that these four elements have two-way functions, and the formation of diamond system has two variables: government and opportunity. Opportunities are uncontrollable, and the influence of government policies cannot be ignored. About factors of production Porter divides factors of production into primary factors of production and advanced factors of production. Primary production factors refer to natural resources, climate, geographical location, unskilled workers, capital and so on. Advanced factors of production refer to modern infrastructure such as communication, information and transportation, highly educated manpower and research institutions. Porter believes that the importance of primary factors of production is getting lower and lower, because the demand for them is decreasing, and multinational companies can obtain them through the global market network (of course, primary factors of production are still very important for agriculture and industries dominated by natural products). Advanced production factors are undoubtedly important for gaining competitive advantage. Advanced factors of production first need a lot of continuous investment of manpower and capital, and as a research institute and education plan to cultivate advanced factors of production, it needs advanced talents. High-grade production factors are difficult to obtain from the outside, and they must be invested and created by themselves. From another perspective, factors of production are divided into general factors of production and professional factors of production. Senior professionals, professional research institutions and special software and hardware facilities are listed as professional production factors. The more exquisite the industry, the more professional production factors are needed, and enterprises with professional production factors will also have more exquisite competitive advantages. If a country wants to establish a strong and lasting industrial advantage through production factors, it must develop advanced production factors and specialized production factors. The availability and exquisiteness of these two kinds of production factors also determine the quality of competitive advantage. If a country's competitive advantage is based on primary and general production factors, it is usually unstable. Porter also pointed out that in actual competition, abundant resources or cheap cost factors often lead to inefficient allocation of resources. On the other hand, unfavorable factors such as labor shortage, insufficient resources, and poor geographical and climatic conditions will form pressure to stimulate industrial innovation and promote the lasting upgrading of enterprise competitive advantage. A country's competitive advantage can actually be formed from unfavorable factors of production. According to speculation, countries with abundant resources and cheap labor should develop labor-intensive industries, but this industry will not make a big breakthrough in greatly increasing national income, and it is impossible to gain global competitiveness only by relying on primary production factors. Domestic demand market is the driving force of industrial development. The difference between the domestic market and the international market is that enterprises can find the customer demand in the domestic market in time, which is beyond the reach of foreign competitors, so Porter believes that global competition has not reduced the importance of the domestic market. Porter pointed out that the essence of local customers is very important, especially expert and picky customers. If local customers are among the best in the world in terms of product and service requirements or picky degree, it will stimulate the competitive advantage of the country's enterprises. The reason is very simple. If the most difficult customers can meet, the requirements of other customers will not be a problem. For example, Japanese consumers are world-famous for their picky about automobile consumption, and the strict environmental protection requirements in Europe also make many European companies' automobile environmental protection performance and energy-saving performance world-class. Americans' careless consumption style spoiled the automobile industry, which led to the slow response of the American automobile industry in the face of the oil crisis for a long time. Another important aspect is the expected demand. If the demand of local customers is ahead of other countries, it can also be an advantage for local enterprises, because advanced products need avant-garde demand to support them. There is no speed limit in expressway, Germany, so the local automobile industry is trying very hard to satisfy drivers' crazy pursuit of high speed, while the speed exceeding 200 kilometers or even 300 kilometers per hour is of no practical significance in other countries. Sometimes national policies will affect the expected demand, such as environmental protection and safety regulations, energy conservation regulations, tax and fee policies, etc. Related and supporting industries are closely related to the formation of national competitive advantage. Porter's research reminds people to pay attention to the phenomenon of "industrial cluster", that is, an advantageous industry does not exist alone, and it must rise together with domestic related powerful industries. Taking the German printing press industry as an example, German printing presses dominate the world, which is inseparable from the strength of German paper industry, ink industry, plate-making industry and machinery manufacturing industry. The competitive advantages of American, German and Japanese automobile industries are also inseparable from the support of steel, machinery, chemical industry, spare parts and other industries. Some economists have pointed out that developing countries often adopt the policy of centralized allocation of resources and giving priority to the development of a certain industry. The result of going it alone is to sacrifice other industries, and their favorite industries cannot stand out. Domestic suppliers are an indispensable part in the process of industrial innovation and upgrading, which is also its greatest advantage, because if the industry wants to form a competitive advantage, it can not lack world-class suppliers, nor can it lack close cooperation between upstream and downstream industries. On the other hand, competitive domestic industries usually drive the competitiveness of related industries. Porter pointed out that even if the downstream industry does not compete internationally, as long as the upstream suppliers have international competitive advantages, the impact on the whole industry is still positive. Enterprise strategy, structure and horizontal competition Porter pointed out that it is very important to promote the motivation of enterprises to compete internationally. This force may come from the pull of international demand, or from the pressure of local competitors or the thrust of the market. The most relevant factor to create and maintain industrial competitive advantage is the strong competitors in the domestic market. Porter believes that this is contrary to many traditional ideas. For example, it is generally believed that domestic competition is too fierce and resources will be consumed excessively, thus hindering the establishment of economies of scale; The best domestic market state is that two or three enterprises dominate and compete with foreign investors with economies of scale to promote internal operation efficiency; Others think that international industries don't need rivals in the domestic market. Porter pointed out that in the ten countries he studied, strong domestic competitors generally existed in internationally competitive industries. In international competition, successful industries must first struggle in the domestic market, forcing them to improve and innovate, while overseas markets are an extension of competitiveness. However, under the protection and subsidies of the government, "superstar enterprises" without domestic competitors usually do not have international competitiveness. Opportunities can be met but not sought, and opportunities can affect four factors to change. Porter pointed out that there are several possible opportunities for the development of enterprises: the invention and creation of basic science and technology; Faults appear in traditional technology; Sudden increase in production costs due to external factors (such as oil crisis); Major changes in financial markets or exchange rates; A sharp increase in market demand; Major decisions of the government; War. Opportunities are actually two-way. It often loses the advantages of its original competitors, while new competitors gain advantages. Only the manufacturers who can meet the new demand can have the "opportunity" for development. Porter pointed out that enterprises, not the government, are engaged in industrial competition, and the creation of competitive advantage will inevitably be reflected in enterprises. Even with the best civil servants, it is impossible to decide which industry to develop and how to obtain the most suitable competitive advantage. What the government can do is to provide the resources needed by enterprises and create an environment for industrial development. Only by giving full play to its role can the government become a force to expand the diamond system and create new opportunities and pressures. The government should directly invest in the areas that enterprises can't do, that is, external costs, such as developing infrastructure, opening up capital channels, and cultivating information integration capabilities. Judging from the government's influence on the four elements, the government's influence on demand is mainly government procurement, but government procurement must have strict standards and play a picky customer (in the United States, automobile safety regulations begin with government procurement); Procurement procedures should be conducive to competition and innovation. In the formation of industrial clusters, the government can't make something out of nothing, but it can be strengthened. The most important role of the government in industrial development is to ensure that the domestic market is in an active state of competition, formulate competition norms, and avoid a state of trust. Porter believes that protection will delay the formation of industrial competitive advantage and make enterprises in a state of lack of competition.