Theoretical application of Porter's 'Diamond' to Sainsbury and UAE
Hill (2009) outlines four attributes Porter calls the diamond that promote or impede the creation of competitive advantage: factor endowment, demand conditions, related and supporting industries, firm strategy, structure and rivalry. The diamond represents the national playing field that the countries establish for their industries (where the four forces jointly constitute a firm's global competitiveness in a given industry). Porter argued that a nation can create new advanced factor endowments such as skilled labor, a strong technology and knowledge base, government support, and culture.
A study published in “Advances in Competitiveness Research' by Sledge (2005) provides and empirical test for the Porter's theory. In search of answers for the question “Does Porter's diamond hold in the global automotive industry” the following hypothesis was tested:
Hypothesis 1: More demanding consumers in the home market will positively impact a firm's global competitiveness.
Hypothesis 2: More advanced factor conditions in the home market will positively impact a firm's global competitiveness.
Hypothesis 3: Strong and dynamic related and supporting industries in a firm's home market will positively impact the firm's global competitiveness.
Hypothesis 4: Greater rivalry within a firm's home market will positively impact the firm's global competitiveness
The findings of this study shows very strong support for Hypotheses 1, 2, and 3, which could be theoretically applied to Sainsbury and UAE. It was concluded that:
* Strong, demanding consumers in a country will serve to increase that country's national competitiveness. . Porter's model indicates that a primary source of competition for firms in a given industry comes from domestic demand. It is noted in Austrade (2009) that, due to the large expatriate population in UAE, a diverse range of food is available. In recent years, there has been a shift in food habits from traditional to Western-style convenience foods. The retail sector in the UAE continues to grow and develop at a rapid rate, a process that began in earnest nearly 10 years ago. Annually, many new state-of-the-art stores are added to the country's retail map, creating continuous competition among the major retailers. Store sales by independent retailers account for 21 per cent, small shops/convenience stores 28 per centand wholesalers around one per cent. It is estimated that 50 per centof retail sales takes place within hypermarkets, superstores and supermarkets.
* Factor conditions: Due to limited agriculture and industrial sectors, UAEimports over 80 per centof its food products. A high percentage of imported products (approximately 50 per cent) are then re-exported to Gulf Cooperative Council (GCC)countries, former Soviet states, the Indian subcontinent and Eastern Africa (Austrade, 2009). It is noted, the rapidly growing population and affluence of theUAE has spiralled the demand for high quality and specialized foods, which could create opportunities for Sainsbury's expansion into this country.
* Also that, the finding gives support to the argument that governments can and do play a large role in their own industrial global competitiveness. The UAE Government has a keen interest in fostering the development of the food processing industry having invested some US$1.4 billion since 1994 to develop a value-added food-manufacturing sector to target local and re-export markets. The result is that there are around 150 food processing plants in the country representing a large chunk of the region's food manufacturing capability (Austrade, 2009).
* There was however, lack of evidence for Hypothesis 4, no relationship between firm strategy, structure, rivalry and national competitiveness. The indication from the study, as Sledge (2005) noted, is that high levels of domestic rivalry do not necessarily make global firms more competitive, which may be due to the fact that those firms operating in a highly competitive atmosphere spend most of their efforts fending off domestic competitors and therefore are unable to expend efforts on globalization. Or, it may be that global competitors do not waste time in highly rivalry domestic industries. Nonetheless, the market is highly competitive given the UAE's open trade policies. The food service sector is also a particular growth area given the significant expansion of the tourism sector and the large number of new hotels and resorts being opened in the UAE (Austrade, 2009).
Porter (1990) defined "competitiveness" as a proxy for "national productivity", which is the major source of national income growth and which impacts the standard of living in the long run. The model provides a bottom line way of understanding a company. It considers economic rivalry to be of central importance, and suggests how to concentrate on profit in a systematic model defined by that rivalry. There is no doubt UAE enjoys comparatively high competitiveness, and all four elements of Porter's diamond might be evident. With its well-established status as the Middle East's principal financial center, the United Arab Emirates (UAE) continues to impress global businesses.
Austrade, (July 2009). Food to the United Arab Emirates. Retrieved September 26, 2009 from: http://www.austrade.gov.au/Food-to-the-United-Arab-Emirates/default.aspx
Hill, C.W.L. (2009). Global Business Today (6th Ed.). The McGraw-Hill Companies Inc.
Sledge, S. (2005). Does Porter's diamond hold in the global automotive industry? Advances in Competitiveness Research. Retrieved September 25, 2009 from: http://www.allbusiness.com/trade-development/international-trade-import/12393772-1.html
Porter, M.E. (1990), Competitive Advantage of Nations, Free Press, New York, NY.