Factor endowment can be categorized into two forms: Also, resource constraints may encourage development of substitute capabilities; Japan's relative lack of raw materials has spurred miniaturization and zero-defect manufacturing.
O'Toole - Senior Sophister Porter's 'Diamond' proposes several basic elements which govern a country's trading competitiveness.
The theory propounds demand, factor and inter-firm conditions as the rudiments of a healthy open economy. Barbara O'Toole's analysis finds the theory inapplicable to the 'emerald isle' which has implemented industrial policies more like millstones than gems.
Introduction The conventional wisdom of international trade is challenged by Porter's Model.
He argues that the factor endowment theories of Heckscher and Ohlin are too simplistic to determine a nation-state's competitive advantage. Comparative advantage can no longer be seen as 'divine inheritance'. Porter states that international success in a particular industry is determined by four broad mutually reinforcing factors which create an environment which enables these firms to compete.
The four include factor conditions, demand conditions, related and supporting industries and firm structure, strategy and rivalry.
These determinants also France porter s diamond influenced by the nation's government and by chance events. In theory, to apply the model one should look at the Irish export statistics which indicate the industries in which the country has a competitive advantage and then when analysing the competitive environment using the four determinants one should find an environment which fits the industry and is conducive to its success.
The export statistics indicate that Ireland has a national competitive advantage NCA in both the manufactures of automatic data processing and office machines and in chemical and pharmaceutical products. However this paper will attempt to argue that the model fails in an Irish context because the competitive environment does not in fact 'fit' these industries.
To illustrate this argument this paper will discuss each determinant of the model in an Irish context, however, before doing so it is necessary to provide a brief background of Irish industrial policy. Irish Industrial Policy The key features of industrial policy in Ireland have, for the most part been the same for four decades.
The three key elements of direct investment incentives and tax concessions to stimulate industrial activity; the focus on foreign direct investment FDI ; and the transition to free trade were all part of the First National Plan.
The rationale behind the attraction of FDI through grant and tax concessions was first to remove the weaknesses in technology and marketing evident in the indigenous sector for decades; second to upgrade Irish industrial skills; third to supplement the lack of Irish entrepreneurial initiative and finally and most importantly to contribute to the development of the indigenous industrial sector.
It was assumed this could be achieved through the positive spillover effects from profit reinvestment and through the establishment of supply linkages between foreign and indigenous companies.
In the early 's most effort was concentrated on attracting the 'high tech' sectors which included the electronics and chemicals industries. In the 's and 's it appeared this strategy was paying off as the country witnessed a substantial growth in Irish based pharmaceutical, electronics and machinery sectors.
Also, there was a dramatic change in the sectoral composition of Irish industry as the engineering, metals, chemical and pharmaceutical sectors replaced food as the largest employer.
One may argue that the growth of modern high tech sectors is not surprising and is a positive feature of most industrial economies, however, the aggregate trade statistic figures conceal the 'dualistic nature of the Irish economy.
It is with this background in place that the author applies Porter's Diamond to Ireland's trade statistics. Factor Conditions Porter states the traditional factor endowment argument of standard trade theory is too simplistic. He argues that the factors most important to comparative advantage are not inherited, as Hecksher-Ohlin argue, but are created and that the broad categories of land, labour, and capital are too general.
He divides factors into basic and advanced, generalised and specialised. The distinction of generalised versus specialised is based on their ability to perform tasks. Generalised factors are available in most nations.
They can be sourced on global markets and their activities can be performed at a distance from the home base, whereas specialised factors are developed with considerable investment from the generalised factors. Porter argues that sustainable competitive advantage exists when a nation state possesses the factors necessary to compete in particular industry, which are both advanced and specialised.
Given that the statistics indicate that Ireland has a NCA in the 'high-tech' industries it would be logical to assume that both advanced and specialised factors were both present in Ireland and used in these industries. It can also be assumed that because these industries are dynamic that these factors must continuously be upgraded.
However, in Ireland, this is not the case as basic and generalised factors are predominantly used. Despite the fact that the products produced are increasingly 'high-tech', the tasks that Irish employees perform in these industries are predominantly low skilled and the percentage of skilled workers used in the subsidiaries of multinational companies MNC compares unfavourably with other developed countries.GET TO KNOW US.
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Porter's Diamond and its Relevance to Irish Trade Barbara J. O'Toole - Senior Sophister Porter's 'Diamond' proposes several basic elements which govern a country's trading competitiveness.
Porter's Diamond of National Advantage Classical theories of international trade propose that comparative advantage resides in the factor endowments that a country may be fortunate enough to inherit.
Factor endowments include land, natural resources, labor, and the size of the local population. A cluster’s boundaries are defined by the linkages and complementarities across industries and institutions that are most important to competition. Since the publication of Porter’s book, The Competitive Advantage of Nations in , it has attracted considerations from other scholars.
Porter used the Diamond model as a theoretical framework for analyzing the national competitiveness, explaining “Why do some social groups, economic.