Porter’s National Diamond Analysis

Porter’s National Diamond Analysis and Strategy – A Must Read For Business Management Students

Title: Porter’s National Diamond Analysis. Porter has undeniably enhanced understanding of competitive advantage with his published studies in The Competitive Advantage of Nations (1990) and On Competition (1998), among others. His analytical framework, called the ‘diamond’ captures the major determinates of competitive advantage of international business (Porter, 1990). Influencing the major determinates are chance and government.

Although Porter has focused his studies on developing or newly developed nations, the principles may be applied to developing nations, as demonstrated by Ainslie et al (2005). The core question was whether the principles would apply to lesser developed countries such as the island nations in the South Africa and particularly South African food retail industry. In this study we will discuss the Porter’s National Diamond analysis (PND), two key management issues and the market entry strategy in the selected county South African business environment to draw a clear conclusion and future recommendations to the top management of the food retail industry.

In this study Porter’s diamond analysis will discuss, which attempts to identify the sources of international competitive advantage, may be applied to lesser developed island nations of the South Africa. Porter (1990, 675) stated that the Porter’s National Diamond framework may be applied to lesser developed countries (LDC) where they tend to have a competitive advantage in industries. In these countries like South Africa, the basic advantage factors are cheap labour, abundant natural resources, and location advantages which increase their ability for export businesses.

Exports are sensitive to world market prices, leaving LDCs exposed to exchange rate and resource cost swings. This problem is intensified when an LDC faces the protectionist policies of the developed nations. Developed nations place trade restrictions on most of what an LDC does well: textiles and agriculture. By lifting tariff and non-tariff barriers on these sectors through the implementation of regional and multilateral trade agreements lesser developed countries may have the opportunity to develop competitive advantages in certain industries (Ezeala-Harrison 2005).

Porter (1990) has rendered a major service to the global community in identifying many of the explanatory variables of competitive advantage, which has shaped a new assumption to understand why a country’s success, but in some other industries. His analytical framework, known as the “diamond”, shoots the main determinant factors of competitive advantage. This framework includes demand conditions, factor conditions, support and related industries, corporate strategy, structure, and competition. Through a review of literature, the competitive advantage on production was evaluated by investigating the existence of clusters using Porter’s National Diamond theory.

Developing Porter’s National Diamond Framework

Porter (1990) found the answer to why a nation achieves achievement in a specific industry in the course of four broad characteristics a nation possesses. These attributes shape the home business setting by which domestic firms participate to support or obstruct the establishment of competitive advantage. The four broad attributes, or what Porter defined as the determinants of nation advantage, include: demand conditions, factor conditions, support and related industries, company strategy, firm structure, and industry rivalry.

The four determinants work both as a system and individually to create the environment in which a South Africa’s food retail firms are created and compete to gain and sustain competitive advantage. Besides the four attributes of nation advantage, Porter (1990) incorporated the functions performed by the state and probability as issues affecting the proper functioning of the nation attributes.

The complete framework developed by Porter was presented in Figure 1. Porter termed the framework the diamond due to the obvious shape of the four determinants that it is a vibrant arrangement in which all fundamentals interrelate and strengthen every other factor. These systemic surroundings make it difficult to imitate the precise arrangement of the business in a different country. In view of the fact that the diamond is a jointly strengthening scheme, the effect of single determinant is dependent on the condition of the other determinants.

Aiginger (2006) explained that having one favourable determinant in an industry it will not lead to a competitive advantage unless other determinants can be created to respond. Advantages in one determinant may create or have a positive effect on other determinants. Nations are most likely to succeed in an industry where the determinants or the diamond is the most positive. To gain a complete understanding of the functionality of the diamond, each determinant was examined, as well as the factors influencing the determinants and the functioning of the diamond as a system.

Porter’s Diamond Framework

Porter’s National Diamond
Porter’s National Diamond

Source: Wall et al (2008)

Factor conditions: Economists have termed the resources or inputs necessary to produce a product or service as factors of production, which include land, labour, capital, infrastructure, and natural resources. Porter (1990) divided factors of production into two basic distinctions, “the first involved basic and advance factors, where basic factors include natural resources, weather, position, skilled and semi-skilled labour, and capital of debt (p. 89). Porter (1990) examined that advance factors, including contemporary digital data communication infrastructure, such as a university graduate engineers and computer scientists with high academic qualifications, a complex subject and university research institutions (p. 77).

South African food retail is endowed with basic factors or they require very little investment to create. These factors tend to be insignificant to the African national competitive advantage or they prove to be unsustainable. Advanced and sophisticated features are more important for company’s economic benefits in that they are scarcer due to their creation demanding huge and continued investments in human and physical capital.

While advanced factors are often built upon basic factors, innovation requires advanced factors that are imperative to the design and creation of products and processes. The second distinction among factors of production is developed on specificity, which Porter broke down into generalized and specialized factors. Factors such as the thoroughfare system, the supply of debt capital, motivated employees with college education or pool are also included in generalized factors. These factors can be utilized in many different industries. Specialized factors occupy barely skilled workers, road and rail network with precise assets, and information basis in meticulous areas (Porter, 1990, p. 78).

Demand conditions. Porter (1990) asserted three significant characteristics of requirements, composition, the dimension and prototype of growth, and the internationalization of home demand, where the latter two are dependent upon composition of home demand. The composition of home demand dictates “how firms perceive, interpret, and respond to buyer needs” (Porter, p. 86). Home demand has important influence on economic benefit, more so than international demand as its proximity, both physical and cultural, makes it easier and quicker to monitor and recognize the buyer’s immediate needs and preferences.

The composition and quality of the domestic demand, relates to a certain extent than amount influential on competitive advantage. More complex and demanding buyers, the greater the pressure, product quality, features and services of local businesses, as well as enterprises able to anticipate the needs of the buyer, in order to meet the high standard terms and conditions. The scale and pattern of growth in domestic demand, with the ingredients, can strengthen its competitive advantage – outlined in Porter’s National Diamond.

Porter (1990) believes that several features of this property include: (a) the size of the domestic demand, it is able to take advantage of economies of scale, and (B) of the independent buyer “stimulus entry and speculation in the business reduce the apparent risk market enterprises will be shut down and limit the bargaining power of the dominant buyer, all profits (94), (c) the growth rate of domestic demand, which will lead to greater investment and technological growth, (d) anticipating buyers needs earlier than foreign rivals, and (e) saturation of the home market to create strong pressures to thrust along prices, bring in new description, develop merchandise presentation, and supply other inducements for buyers to reinstate new versions of old products.

This can happen when African domestic consumers are mobile and travel to other nations to demand the products from their home market, or when home consumers are multinational corporations with operations in other nations. Another mechanism of internationalization is “when domestic needs and desires get transmitted to or inculcated in foreign buyers” (Porter, p. 98). This can occur when foreign travellers use the domestic products or services and take the demand home.

Related and supporting industries

The presence of supplier industries and other related industries in a nation is an important determinant of creation and sustainability of competitive advantage. Porter (1998) stated that internationally competitive domestic suppliers create advantages in other industries in several ways. The competitive related and supporting industries can share common technologies, inputs, distribution channels, skills, customers, and even complementary products, to foster technological spillovers and exchange of information that can spur innovation and upgrading, and ultimately lead to competitive advantage.

According to Ketels (2006), the distribution of business knowledge would to spread between the business companies, human resources because they can be shared educational and research organisations. When internationally successful related industries are present in a nation, they can create demand for a complementary product. Porter referred to this as a “pull through effect” (1990, p. 106).

These complementary products provided by firms in the same nation may be more cost effective since the firms are used to dealing with their own rather than foreign firms. Lastly, firms from related industries may feel threatened by new firms wishing to enter the industry putting pressure on existing firms to improve their own competitive advantage.

Firm strategy, structure, and rivalry

Porter’s fourth determinant of competitive advantage included the strategies and structures in which organisations are created, planned and managed, in addition the environment of home rivalry (1990). Porter insisted that the objectives, planning, and methods of organising industries differ extensively between nations, but distinct patterns emerge within nations. The argument was made that a good fit should exist between an industry’s sources of competitive advantage and its structure, and the strategies, structures, and practices favoured by the national environment.

Government and chance

As shown in Figure 1, the government and chance are added to the diamond to complete the system. They are not determinants of national competitive advantage, but do play a vital role in influencing the four determinants. The government can influence and be influenced by each of the determinants, both positively and negatively, which is represented by the arrows pointing both ways (Porter, 1990). Each of the determinants is affected in different manners. The Government’s education policies and subsidies also affect factors conditions. Set of standards and regulations will affect demand conditions and related supporting industries.

A firm’s strategy, structure, and rivalry can be affected by the government’s involvement in capital market regulations, tax policies, and antitrust laws. Porter (1990) viewed the appropriate role of government as one of reinforcing the determinants of national advantage instead of attempting to create the advantage itself. The role of government is viewed differently as nation’s progress through successive stages of competitive development. During the early stages of development, especially relevant for developing nations, the government has the greatest direct influence on national advantage. Factor creation is a vital role for the government at this stage to encourage savings, accumulation of capital, and develop infrastructure and technology.

As a nation develops, the government must shift to an indirect role, always aware of its influence on the diamond. The tools used in the early stages of development now become counterproductive, so the government’s role is to create an environment where firms are the innovators, and the government is the “facilitator, signaller, and prodder” (Porter, p. 672).

Chance, also lying outside of Porter’s National Diamond, plays an important role in influencing competitive advantage. Some illustrations of chance events include development and innovation, oil shocks, major changes in world financial markets, and wars. Chance events may alter the diamond by creating forces that reshape an industry’s structure and allow for discontinuities that shift an industries competitive advantage.

Contemporary Management Issues

When we start talking about management issues within the South African food retail industry, there are some very basic internal as well as issues which are increasing the impacts of management at internal level. There are a large number of contemporary issues in South African food retail industry; however, here we will discuss the flowing two among them.

Crisis Management as an Internal Issue

Crisis process is a threat for the current situation and future of a business, it is very clear that administrative and organisational structure will require a significant change. During the crises, organisational stress reaches the top level. On the one hand try to find suitable solutions to resolve the crisis, on the other hand, the tension created by uncertainty and running time pressures negatively influence the management structure of enterprises.

Business managers have to try minimizing damages with precaution actions. To do this the first way is to make a series of organisational and administrative structure changes. Crisis requires rapid reactions, for this reason business structure is developed to provide quick decision. Standard decision-making methods are insufficient to resolve the crisis; these force managers for new decision-making methods. The important thing is to adapt personally to new environment (Basuroye t al 2003)

For this adoption instead of keeping current values South African food retail industry has to accept new values. Accurate collection of information, communication, which cannot be easily settled up well, and psycho-social status of employees are changing the organisations atmosphere. The atmosphere which is changed will effect significantly communication, motivation, organisational justice and moral, such as organisational trust and organisational citizenship (Stone & Ranchhod 2006).

Another issue which may increase the negative effects of crisis is an absence of proper plan for dealing with crisis, which has to include customers, competitors, vendors, partners, and credit agencies, various internal and external environmental factors. South African food retail industry must have crisis plan, in case they can face the reduction of mobility and flexibility.

Change in income of Company

There are also some external issues besides the internal issues. Biggest external issue is change in income of company and rapid price changes. The increase in costs will automatically come with preventions such as: reduce the number of employees, reduce the social benefits for employees and loading more work to the existing workers. New law and regulations can also increase effects of it. The new taxes, increasing social security contributions, to collapse of the credit facilities, the new customs legislation can also affect business dramatically (Boatwright et al 2007).

When Business managers or owners fail to follow international business changes and when they cannot keep pace with global developments or the country’s economic situation, it can increase negative impacts. If managers of South African food retail industry would not establish an early warning system by making the internal and external business environment analysis, they can face it as an another issue in their industry (Siggel 2006).

Market Entry Strategy using Porter’s National Diamond Strategy

A sound international market entry strategy is becoming gradually more important to the success of new products. The time interval between the launch of the two important issues of related to international market entry strategy are undeveloped international launch window of time (the focus of the country’s national launch of the product) and the sequence.

An important decision relating to international market entry strategy is the decision on the timing of entry into international markets. Two international entry timing strategies are commonly practiced (Chandrasekaran, Deepa, and Gerard, 2008). A waterfall or sequential release strategy is one in which the new product enters multiple countries sequentially. A sprinkler or simultaneous strategy, in contrast, involves almost simultaneous entry into multiple countries- Porter’s National Diamond.

Duan, Bin and Andrew (2008) use a competitive game theory framework to examine simultaneous and sequential strategies and show that sequential entry strategy is appropriate if (1) the product has a very long life cycle, (2) the foreign market is small, not innovative, and characterized by a slow growth rate, and (3) competitors in the foreign market are week.

However, empirical evidence for the success of each of these strategies is mixed. For example, Chandrasekaran, Deepa, and Gerard (2008) find that the takeoff of a new product category in one country increases the probability of takeoffs in other countries, suggesting a sequential release strategy is preferable to a simultaneous release strategy. Duan, Bin and Andrew, (2008) examine international market entry strategies in terms of market scope and the speed of rollout. They find that late mover brands that sequentially enter many large international markets show greater marketing spending efficacy through marketing spillover effect.

Foreign market entry is one of the most important strategic decisions for firms. Managers should consider cross-country spillover effect when they decide country sequence. Firms can increase overall performance in foreign countries, so enhance return on investment by taking advantage of these spillover effects. A firm should launch its products first into countries that are culturally closer to its home country and countries that are more open. Managers also need to consider factors such as potential adopters’ familiarity with the new product and cultural fit of the product with the country when deciding the order of country in the international launch sequence. They need to carefully consider the determinants of country sequence because they affect product performance in foreign countries (World Economic Forum, 2008).

Conclusion of Porter’s National Diamond

To conclude we can say that international business strategy is critical to the success of some products in several industries. Departing from Porter’s approach allowed focusing on the possible affects the regional trade agreement had on clustering. Porter’s (1990) viewing of international competitiveness of industries through the diamond framework seems to hold for the lesser developed nations like South African nations.

References

Aiginger, K. 2006. ‘Competitiveness: from a dangerous obsession to a welfare creating ability with positive externalities’, Journal of Industrial Trade and Competition, 6: 63–66.

Ainslie, A., Xavier D., and Fred Z., (2005), Modeling Movie Lifecycles and Market Share, Marketing Science, 24 (3), 508–517.

Basuroy, S., Chatterjee S., and S. Abraham R., (2003), How Critical Are Critical Reviews? The Box-Office Effects of Film Critics, Star Power, and Budgets, Journal of Marketing, 67 (4), 103–117.

Boatwright, P., Suman B., and Wagner K., (2007), Reviewing the Reviewers: The Impact of Individual Film Critics on Box-Office Performance, Quantitative Marketing and Economics 5 (4), 401–425.

Chandrasekaran, D., and Gerard J. T., (2008), Global Takeoff of New Products: Culture, Wealth or Vanishing Differences? Marketing Science, 27 (5), 844-860.

Duan, W., Bin Gu, and Andrew B. W., (2008), ―The Dynamics of Online Word-of-Mouth and Product Sales: An Empirical Investigation of the Movie Industry, “Journal of Retailing, 84 (2), 233-242.

Ezeala-Harrison, F. 2005. On the competing notions of international competitiveness’, Advances in Competitiveness Research, 13(1): 80.

Ketels, C.H.M. 2006. Michael Porter’s competitiveness framework: Porter’s National Diamond recent learnings and new research priorities, Journal of Industrial Trade and Competition, 6: 63–66.

Porter, M. E. (1992, June). The competitive advantage of European nations: The impact of national culture – A missing element in Porter’s analysis? A note on culture and competitive advantage: Response to van den Bosch and van Prooijen. European Management Journal, 10, 178.

Porter, M. E. (1998). Clusters and the new economics of competition. Harvard Business Review, 76, 77-90.

Porter, M. E. (2003). The economic performance of regions. Regional Studies, 37, 549-578.

Porter, M. E. (1990). The competitive advantage of nations. (Porter’s National Diamond) New York: The Free Press.

Porter, M. E. (1994). Comment on “Interaction between regional and industrial policies: Evidence from four countries,” by Markusen. The World Bank Research Observer, Cary, 303-308. Retrieved June 8, 2004, from ProQuest database.

Porter, M. E. (1998). On competition. Boston: The Harvard Business Review.

Siggel, E. (2006), International competitiveness and comparative advantage: a survey and a proposal for measurement, Journal of Industrial Trade and Competition, 6: 63–66

Stone, H.B.J. & Ranchhod, A. 2006. Competitive advantage of a nation in the global arena: a quantitative advancement to Porter’s diamond applied to the UK, USA and BRIC nations, Strategic Change, 15: 283–294.

R.S. Wall, M.J. Burger and G.A. van der Knaap, (2008), National Competitiveness as a Determinant of the Geography of Global Corporate Networks, GaWC Research Bulletin 285.

World Economic Forum, 2008. Global Competitiveness Report (2006–2007). Geneva: Switzerland.

Relevant Posts

Business Dissertations

Top 10 Business Studies Essays

Did you find any useful knowledge relating to Porter’s National Diamond in this post? What are the key facts that grabbed your attention? Let us know in the comments. Thank you.

Globalisation Patterns of Consumption

Globalisation and Diversified International Patterns of Consumption

Title: With the evolution of human communication and transportation modes over decades and centuries, this world is squeezing smaller and smaller day by day in terms of interaction among people of different regions, ethnicity, races, and obviously different mind-sets. This changing characteristic of the world is perceived as the globalisation and the world is seemed to be a global village. The globalisation of this world has changed certain patterns of its villagers in terms of their thoughts, lifestyle, communication, buying and selling trends, and also their patterns of consuming the goods and commodities. The contemporary and recent researches on the cultural issues targeted the process of cultural change among migrants and minority people within the mainstream strata of a given culture; however, limited research is conducted on the behavioural transformation as a product of globalisation (Sobol, Cleveland, and Laroche, 2014).

This research essay is purposefully written to explore the underlying scenario related to this topic by including and referring to different literature and viewpoints of the scholars and experts. The theme of this essay will be to discuss and assess the aftermaths of globalisation on transforming the behavioural patterns of the people towards consumption of goods.

Globalisation Definition

The term ‘globalisation’ not only encompasses the economic and trading practices, but also the human agents or the practitioners whose behavioural attributes can impact the globalisation phenomenon itself. In this way, the globalisation curtails the influence of cultural or societal differences related to paradigm development and also widens its scope while including the economic and financial activities regarding consumption of services and products. Another understanding of the world globalisation can be established by considering it as the international transfer or exchange of public, money, commodities, knowledge and the cultural norms, which resulted in the boosting the awareness level of people in the two last decades of the last century (Jadoon, Butt, and Hayat, 2016).

In the context of social sciences including culture, sociology, political science, and also economics, the term globalisation is treated as comprising the international classification, electronic media, and the international treaty World Trade Organisation (Cornwell and Drennan, 2004).

It is explored through researches that the globalisation directly influences the patterns of consumptions and the society. The consuming trend and style a society adapts mostly rely on the development of thoughts and their needs. The significance of technological revolution in guiding the consuming patterns is pertinent for consideration. Moreover, the online shopping system has impacted the traditional trends and patterns enormously (Jadoon, Butt, and Hayat, 2016).

As per Ruediger John (2005), globalization process does not ensure the one’s freedom and security. It also lacks the definition of nations-wise social values along with the enforcement of global law pertaining to address human psychology and behaviours. Moreover, instead of politically addressing the cultural developments, the emphasis of globalisation is more on the spread and sharing of technology and economical boom (John, 2005).

Divid Howes (1996) in his book used the term homogenization which refers to the unity in the global village. The terminology depicts the paradigm of cultural and social influences in the international markets are due to the intrusion of commodities and products in the form of imports based on the knowledge gained through globalisation. This paradigm also emphasises the need to understand and accept the rise in the cultural and social differences occurred due to the export of domestic goods and the import of goods mostly produced in the western world. One contemporary contextualisation of the consumption patterns of people in the global village is the motivation of consumers or the people to choose the goods as per their own liking and disliking instead of being a blind victim of globalisation. This is because the people of the underdeveloped countries are often influenced to purchase those products which are not only new and alienated but most of the time also serves as damaging the local culture rather replacing it with the imported culture (Howes, 1996).

There is a need to go deeply to understand that the consumers’ attitude is influenced by both internal and external factors in the form of domestic culture and the consequences of globalisation respectively. Several types of research have been continuously conducted to examine the consumers with the help of examining their lifestyle. A consumer’s lifestyle is the agent of the tendency of adapting the change in behaviour for consuming items and products of a single or multiple manufacturers. It is again the globalisation which enforced manufacturers all around the world to be indulged in an extensive competition in order to win the consumer’s satisfaction. This ultimately helped the consumers in terms of having competitive quality in products (Dunn, 2015).

Globalisation MBA Project
Globalisation MBA Project

An argument in the work of Elena Kell (2012) supports that the globalisation forms and leads to a consumption based society in which consumption has become indispensible and along with its ethical practices. Consumers are generally unaware of the supply chain and operations management involved in the availability of products imported from foreign countries. Hence the ethical aspect of consumption addresses the consumer’s responsibility to be updated of the steps involved in the processes (Kell, 2012).

McCoid (2010) differentiate the consumption in its three shapes. According to that categorisation, the consumption of goods will not remain sustainable if the resources are used more than what exactly required, and this is called overconsumption. This mechanism often leads to the lower quality of life and damages the environment. On the contrary, the under-consumption is the utilisation of resources much less than the required, hence causing poor quality to health the lifestyle. It is observed that the main cause of under-consumption in the age of globalisation is the inequality in the social distribution of resources. Both forms of consumption do not contribute to sustainability. The sustainable consuming patterns, however, do not cause the environmental damage and the human health. In order to develop the consumption pattern in a sustainable way, there is a need to accept the relationship of over and under consumption with the globalisation, because in a global village, the under-consumption of most groups causes the over consumption of few groups (McCoid, 2010).

On a critical side, the contemporary consumption patterns have negatively impacted the development of human wellbeing on the individual as well as on societal levels. This change happens in a way that it spread the social inequalities among groups and even countries through globalisation. The inequalities are spread due to the differences in the quality of products and services for all different social classes within a certain society or the region. The global consumption pattern is also promoting and supporting the flow of resources to a limited class of people and groups who have much more wealth to spend on even luxurious items instead of just the basic needs, hence the poor class of people in the world continues to suffer the lacking of even basic needs due to the lack of resources. Similarly, the globalisation has intruded the consumption of food based items which are most of the times either not synchronised with the eating habits of the people of a particular country or are much expensive than their local alternatives. The adaption of foreign goods and items also often creates environmental problems in the form of waste disposal and discharge (Khor, 1998).

The increase in the free trade between countries has also enhanced the availability and quantity of goods and services for the end users. This scenario was for sure cannot be imagined the effectiveness of various global trade pacts, agreements, and the role of unions worldwide. With the increase in the quality as well as a variety of products through globalisation, the consumption pattern among people has drastically changed. People pay due importance in conducting a preliminary survey, physical or online, regarding the particular product they are going to buy. Moreover, unlike before, the brand has been given comparatively less importance by the consumers (Scriven, 2014).

The technological advancement, globalisation and the integration of countries around the world have significantly changed the consumption pattern of people all over. The internet facility got the users of around fifty million in only five years; hence it is pertinent to accept that through internet lives of thousands and millions of people in all countries evolved positively. The comparative survey has become much easier through the internet for everyone regarding any product before its purchase. Everyone in the global village can be informed of the patterns of the lifestyle of any other person or group in other parts of the world (Kónya and Ohashi, 2004).

Globalisation Conclusion

This research essay has explored different theoretical perspectives of various authors to explore the aftermaths of globalisation on transforming the behavioural patterns of the people towards consumption of goods. It can now be concluded after a comparative analysis of various viewpoints on the topic, that the globalisation has certainly opened the door of opportunities for not only sharing of knowledge, technology, and goods, but also played and has been playing a significant role in designing and changing the behavioural patterns of consumption among consumers and end users all around the world in this global village. Some paradigms consider it as positive while the other as the negative role of globalisation because, in some perspectives, it has also led towards social and financial inequalities among societies and classes of people.

References

Cornwell, T.B. and Drennan, J., 2004. Cross-cultural consumer/consumption research: dealing with issues emerging from globalization and fragmentation. Journal of Macro marketing24(2), pp.108-121.

Dunn, K., 2015. Globalization and consumer: What marketer needs to know. The Neumann Business Review, pp.16-30.

Howes, D., 1996. Cross-cultural consumption: global markets, local realities. Taylor & Francis US.

Jadoon, A.K., Butt, A.R. and Hayat, M.A., 2016. Development of Measurement Models for Globalization, Consumption Patterns and Culture: A Case Study of Three Big Cities of Punjab, Pakistan. Pakistan Economic and Social Review54(2), p.327.

John, R., 2005. Globalized Culture, Consumption and Identity. Translated by Gunilla Zedigh. Baden,

Kell, E., 2012. Ethical consumer in a globalized world: challenges for the individual’s identity. A study on ethical consumers in Lund and Malmö.

Khor, M., 1998. Globalisation, Income Distribution, Consumption Patterns and Effects on Human and Sustainable Development (no. Hdocpa-1998-06). Human Development Report Office (HDRO), United Nations Development Programme (UNDP).

Kónya, I. and Ohashi, H., 2004. Globalization and consumption patterns among the OECD countries.

McCoid, C.H., 2010. Globalization and the Consumer Society. Global Security and International Political Economy–Volume II, p.49.

Scriven, J., 2014. The Impact of Globalization on the Consumer. The Nouman Business Review, pp.13-23.

Sobol, K., Cleveland, M. and Laroche, M., 2014. Globalization, Culture and Consumption Behavior: An Empirical Study of Dutch Consumers.

Relevant Blog Posts

Globalisation Business Dissertations

MBA Project Globalization

Did you find any useful knowledge relating to globalisation and diversified international patterns of consumption in this post? What are the key facts that grabbed your attention? Let us know in the comments. Thank you.

Cross-Border Mergers Business Strategy

Cross-Border Mergers – A Success or Not?

Title: Cross-Border Mergers – Mergers are business transactions that happen between two companies where one takes over entirely or part of the other business. Cross-border mergers are mergers that take part between companies from different countries or nationalities. Cross-border mergers can be classified as either inward or outward; the former occurs where a foreign company acquires a domestic company and the latter occurring when an international company is wholly or partly purchased. These cross-border mergers have been on the rise since the 1990s and are increasingly taking place in different industries. Typical industries that these cross-border mergers take place include the pharmaceutical, automotive as well as telecommunications sector.

Cross-border mergers are a strategy for companies to expand into markets that they think are profitable and are a vital key to the success of their products and services. But due to the international aspect of these mergers, various challenges face the companies involved for example the difference in economic, cultural and institutional aspects and these can be a major impediment to the success of these mergers.

An example of a failed cross-border merger is the merger between Daimler-Benz from Germany and Chrysler from the United States of America. This merger took place in 1998, and the result was the formation of Daimler-Chrysler Company. This merger was viewed as the union of two great automotive companies but sadly it was not a success (Rosenbloom, 2010). Looking into the reasons for the failure of this cross-border merger, several issues can be found to be the reason behind its failure. One of the key reasons behind the failure of the merger was the cultural difference between the two countries.

The German cultures were seen to be the most dominant in the company, and this led to the satisfaction of employees at Chrysler who were predominantly American to drop off. This cultural mismatch is seen to be the main reason behind the failure of this merger and nine years late Chrysler was sold off to Cerberus Capital Management after a string of losses and employee layoffs.

Another reason behind the failure of the cross-border merger between Daimler and Chrysler was the differences between the two companies’ operating styles. The organizational structure implemented at Daimler was a tiered organization that had a clear chain of command and respect for authority.  This structure was a direct contrast to the approach at Chrysler that implemented a team-oriented and open plan (Pervaiz, M., and F. Zafar, 2014).

The result was a lack of harmony as well as opposing work styles between the German and American managers at the company. It can be seen that since Daimler was the one that took over Chrysler, it tried running the American company’s operations just like it was doing in Germany (Appelbaum, Roberts, and Shapiro, 2013). If this issue was to be avoided, a focus on the different organizational culture should have been carried out so as to define the various management styles, the similarities as well as the differences and tried to come up with a common ground that could be implemented in the merger.

To summarize the key factors behind the failure of the merger between Daimler-Benz and Chrysler, it can be deduced that the following three issues were behind it all:

  • Corporate cultural differences and values
  • Lack of trust between employees
  • Different organizational structures leading to a lack of coordination between the employees.

According to Qiu (2010) the failure of the Daimler-Chrysler merger had far-reaching financial implications and was a disappointment to what would have been one of the most successful mergers of all time. If this merger had worked out, the company would have had a significant stronghold on the automotive market making it one of the largest automakers in the world and giving it super profits and access to a vast customer base. The competitive advantage that stood to be gained by this merger would be second to none, but this was never to be.

This benefit would have been achieved by the design and production of joint projects by the two companies instead of still competing in the market as separate entities, yet they were from one stable. The merger would have been handled better by focusing on the general issues facing the companies and not the cross-border problems that led to the discontent displayed by the two. Integration workshops would have also been held in a bid to ease the cultural integration between the two companies as well as orient the employees to the new corporation corporate strategy

The result of this failed merger was a lesson to other businesses that would be having the plan to take part in cross-border mergers.

Bibliography

Appelbaum, Steven H., Jessie Roberts, and Barabara T. Shapiro. “Cultural strategies in M&As: Investigating ten case studies.” Journal of Executive Education 8, no. 1 (2013): 3.

Rosenbloom, Arthur H., ed. Due diligence for global deal making: the definitive guide to cross-border mergers and acquisitions, joint ventures, financings, and strategic alliances. Vol. 8. John Wiley & Sons, 2010.

Qiu, Larry D. “Cross-border mergers and strategic alliances.” European Economic Review 54, no. 6 (2010): 818-831.

Pervaiz, M., and F. Zafar. “Strategic Management Approach to Deal with Mergers in the era of Globalization.” International Journal of Information, Business and Management 6, no. 3 (2014): 170.

Relevant Blog Posts

Management of Organisational Change

Does Merger and Acquisition Enhance Efficiency or Erode Company Wealth? A Study of the Tata Steel Acquisition of Corus

Did you find any useful knowledge relating to cross-border mergers in this post? What are the key facts that grabbed your attention? Let us know in the comments. Thank you.

Insider Trading University Essay

Insider Trading Ethical or Not?

Insider trading is malpractice that involves buying and selling stocks using information that is not available to the public. The practice gives some traders an unfair advantage over others, and it is a punishable crime. Insider trading is commonly found among the corporate officers or people who receive the non-public information. Traders are always tempted to carry out this malpractice to make more profits than others or avoid losses. This act is illegal, and the Securities and Exchange Commission usually investigates and prosecutes it. However, insider trading can be legal if the trading is done based on information that is available for public use. This papers aim is to discuss why insider trading is considered unethical and finding out if allowing insider trading would hinder the operation of the stock market in raising capital for new and existing companies.

Is Insider Trading Ethical?

Insider trading is unethical because it involves exploiting the knowledge that is only known to a few people. The insiders are usually given an unfair advantage that allows them to benefit from information of the stock market before the general public. These people get to exploit the opportunity before the rest making accumulative profits and avoid risks. Generally, insiders ought to maintain a fiduciary relationship with their companies and shareholders so when they try to benefit from the inside information puts their interest above the people they serve. The practice is unethical since the insiders are supposed to protect the interests of the entities they serve rather than using it to their advantage.

There are other times the people on the inside divulge the information to the people on the outside (Alldredge, 2015). The process involves a tipper and a whistle-blower, with the tipper being the person who divulges the information to the outsider and the tepee the receiver of the data. The whistle-blower then utilizes the information obtained to seek profits or avoid financial losses in the stock market. As much as the tippler may not benefit directly, it is still unethical since it makes some people gain unfair advantages over others.

In most cases, insiders are after personal gains at the expense of the investors and the company at large which is unethical. On moral grounds such as actions are unjust and are termed as a fraud. The investors feel unsafe and insecure to invest since they lose trust that they hold to the insiders.

Any interests in a stock market must look after the interests of all shareholders and not just favoring a few (Skaife, 2013). Generally, insider trading betrays investors’ trust; insiders act on data that is not available to shareholders for monetary gains, officers of a company are acting to satisfy their interests. The insider trading is an unethical practice and should be checked on and brought to a stop.

However, there some people who argue that insider trading is not a bad practice. Such people insinuate that insider trading allows for all the relevant data to be reflected in the shares’ price. The process makes the security it easy for investors to understand the costs before purchasing the shares (Alldredge, 2015).

In such situations, potential investors and current shareholders are able to make informed decisions on purchase and sale respectively.  Another argument is that barring the practice delays something that will eventually take place. Blocking investors from accessing the information on the price changes can subject them to buying or selling shares at losses which could have been avoided if the information had been available.

Insider Trading University Essay
Insider Trading University Essay

Insider trading hinders the operation of the stock market in raising capital for the new and existing forms. Instances when a few people benefit from the stock’s information, investors lose trust in the company hindering them from participating in the activities of the stock market. The process leaves the stock markets with nowhere to gets funds consequently affecting the market’s ability to carry out its operations. Without the services then it becomes difficult for the stock markets to finance new or existing companies (Skaife, 2013).

Additionally, when insiders reveal security’s information to some people before the sales take place, the stock markets become integrated affecting the stocks prices. The stock market fails to exploit the pricing advantage since buyers already know what to expect. The process may cause the market to suffer losses making it difficult for the market to raise cash for other firms. Generally, insider trading is allowed to continue, and it can lead to many investors being driven away and avoiding the practice.

Insider trading affects general business management and decision making. Managers may make wrong on a particular situation using the inside information which is not reliable all the time. On top of that, insider information influences investor decisions impacting the stock’s market price or valuation. For example, when the investors are aware that the price of shares is going to drop they sell their shares in advance to avoid losses consequently impacting a firm’s stock valuation.

Conclusively, insider practice is an unethical practice since it favors some people over others. The people on the side get to exploit nonpublic information for their benefits at the expense of the investors. The investors lose trust in the whole process of stock exchange and with time they get driven away. The method may leave the stock exchange market with funds that are needed to finance upcoming and existing companies. Insider trading is unfair and unethical since it involves lying to the investors and should be stopped to avoid negatively affecting the economy.

References

Alldredge, D. M., & Cicero, D. C. (2015). Attentive insider trading. Journal of Financial Economics, 115(1), 84-101.

Skaife, H. A., Veenman, D., & Wangerin, D. (2013). Internal control over financial reporting and managerial rent extraction: Evidence from the profitability of insider trading. Journal of Accounting and Economics, 55(1), 91-110.

Relevant Blog Posts

Business Management Essays

Business Management Strategies

Did you find any useful knowledge relating to Insider Trading in this post? What are the key facts that grabbed your attention? Let us know in the comments. Thank you.

Coca-Cola Principles of Management

Coca-Cola is a multinational company which has been in the market for a long period of time. For it to survive, the company has adopted proper planning and strategies to its market and customer base. The main theme has been to make Coca-Cola products a refreshing beverage to all people. This theme has been maintained because the company has more than three thousand beverage products that market and customer. t are consumed by its portfolio. In order for this drink to be available to every part of the globe, Coca-Cola has so many companies that help in product distribution (Jones and Comfort, 2018). To have such a range of the beverage products selling well globally require proper strategic plans and marketing strategies. This is because the product has to penetrate through to customers of different cultures, tastes and preferences. Moreover, a strategy which works in one country might not work in another country. For instance, there have been campaign logos like a ‘delightful winter or summer drink’ which have been growing on the media. This advert logo was indicative that Coca-Cola products can be consumed at all times, all year round.

Coca-Cola Strategy, Vision and Mission

The second theme concerns the strategy, vision and mission of this company which are always progressive to make Coca-Cola beverages the first drink of choice by the customers on all occasions any time. The vision, mission and strategy for this company combined at the moment focused on vision 2020. While in 1989 F. David had developed nine components of the mission namely: technology, products, customers, philosophy, location, self-concepts, survival, public image concerns, and employees concerns. Currently, these components have changed and reduced to five, namely: people, portfolio, planet, profits and productivity. Out of these, the company has placed more emphasis on the component of people.

In this case Coca-Cola provides a good working environment through inspiration, and by supporting customers through supporting sustainable community projects. There are links between the former and the current these because some of them have been merged to reduce them from nine to five, while maintaining the final aim. At that time (1989), the mission and vision of the Coca-Cola Company was to sustain the business, improve the public image and meet the concerns of its employees. Once the component of people is properly handled, then customer and employee loyalty increases and hence more sales and profits. Coca-Cola engages in corporate social responsibility, then customer and employee loyalty increases and hence more sales and profits. 

A priority task to provide self-interest as well as care to the people and environment (Smarandescu and Shimp, 2015). Thus, the company has been producing disposable bottles annually. Based on the strategy of making positive contributions to all stakeholders, Coca-Cola USA has partnered with the government to encourage recycling of wastes materials.

Coca-Cola Management Dissertation
Coca-Cola Management Dissertation

Coca-Cola Mission Statement

The major role of the mission statement for a large organization like Coca-Cola is to make the customers, employees and other stakeholders aware about details of what the company is all about as well as the goals of the company (Gertner and Rifkin, 2018). The three mission statements of Coca-Cola are: to refresh the world, inspire moments and happiness, and to create value and make difference. By inspiring moments and happiness, Coca-Cola offers to its customers the beverages of high quality which refreshes their world and creates inspiration via the identity of their brand. The company creates value to stakeholders by participating in sustainability practices which benefits all stakeholders.

An example is the sponsoring of community based activities that have a common good. However, there some contradiction with regards to this mission due to increased solid waste, until the company gets to a point where they can reduce a large portion of the generated wastes. To refresh the world, Coca-Cola has engaged in innovative practices to produce so many beverage brands for its customers globally. From the perspective of Coca-Cola Company, the three points of mission statement have made the company the leading beverage company for so many years.

In the 1980s, most companies were aligned to continued improvement so that a business could survive for a number of years. However, Coca-Cola aligns to the portfolio aspect vaguely, although these companies have been in the process of increasing quality of the products for the consumers through continued improvement.

Reflection

I have come to clearly understand the significance of strategy and planning in a business organization. Without plans that are geared towards the customers, a business is bound to fail. This is because the interest of the customers is the most important.

Considering a company like Pepsi, their vision statement has lid more emphasis on financial performance. However, by concentration on meeting customer expectations and creating a loyal brand, sales and profits follows suit. However, this company also has statements similar to those of Coca-Cola such as corporate social responsibility and sustainability practices.

Coca-Cola has gone a step further to involve its staff in supporting various actions, more so the charity organizations, such as the Wings and Wishes. This is because, in some instances, poor or lack of philanthropic image can damage the long term plans of an organization. This is takes especially when the customers fail to appreciate the efforts of the corporate organizations.

There are a number of advantages and disadvantages associated with teamwork. For instance it increases productivity because a task is distributed based on the teams’ individual abilities. This division of tasks in teams also avoids task duplication and saves time (Costa et al., 2014). It also increases motivation where every team member feels as part of the team. However, teamwork could be associated with some disadvantages too. For example, there might be unnecessary wastage of time, especially when making decisions. This is because each team member has their own opinions and this might take a long time before the final decision is arrived at.

In assignment, since I was not in a group, I found challenges in completing the assignment. While it was easy for me to make decisions on the materials to use for the assignment, I took a long time to compile the important materials and come up with the final output. However, I have learned to make rational decisions and to utilize time properly especially when tasked with a complex issue to solve. Moreover, since I was not in a group I have learned innovative methods when handling complex and challenging tasks so as to come up with a fine output based on the requirements.

References

Jones, P. and Comfort, D., 2018. The Coca-Cola Brand and Sustainability. Indonesian Journal of Applied Business and Economic Research, 1(1).

Smarandescu, L. and Shimp, T.A., 2015. Drink coca-cola, eat popcorn, and choose powerade: testing the limits of subliminal persuasion. Marketing Letters, 26(4), pp.715-726.

Gertner, D. and Rifkin, L., 2018. Coca‐Cola and the Fight against the Global Obesity Epidemic. Thunderbird International Business Review, 60(2), pp.161-173.

Costa, P.L., Passos, A.M. and Bakker, A.B., 2014. Team work engagement: A model of emergence. Journal of Occupational and Organizational Psychology, 87(2), pp.414-436.

Other Related Blog Posts

Can Mass Media Advertising Increase Consumer Perception To Better Brand Credibility? An Investigation into Coca-Cola’s UK Advertising Strategies

Investigation into International Human Resource Performance Management – Case Studies into Coca-Cola and Dow Chemical

The Effects of Marketing Campaigns on Product Sales – A Study of Coca-Cola

Business Management Essay Topics

Did you find any useful knowledge relating to Coca-Cola Principles of Management in this post? What are the key facts that grabbed your attention? Let us know in the comments. Thank you.