The Business Observations Of Michael Porter Commerce Essay

Published: Last Edited:

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

Porter very rightly quote this statement, we will analyze his observations by discussing his arguments. MICHAEL E. PORTER in the introduction to his text the competitive advantage of nations. Porters statement is very clear and it can be analysed verified very easily. There are many multinational companies which are in operation on the globe, and these companies are doing very well, but most of the people do not know even the origin of these companies. Porter's text, which also composes an important point reference for this research, actually underlines that firms, not nations, compete in international markets. With this statement the author wants to underline that the outcome of thousands of struggles in individual industries verifies the situation of a nation's economy and capacity to progress. As it highlights observation of the actors of the economy of a country (companies, citizens, institutions).

From the all above, a necessity to understand and define three key terms that will be of great importance in this work: international business, globalization and weak country. These three concepts will be vital to the analysis.

The concept of international business is used to indicate all commercial transactions that include two or more countries, with the objective of satisfying the needs of individuals and organizations. In particular 'international trade' will be used to indicate the earliest phase of international business. Where commerce was essentially based on the exchange of goods with foreign countries.

Globalization describes an ongoing process by which regional economies, societies, and cultures have become integrated through a globe-spanning network of communication and trade. With the globalization of most industries in the latter half of the twentieth century, the topics of international businesses and competitive advantage have received much attention from business executives, public policy makers and scholars in recent years. This in conjunction with the rise of global competitors from all parts of the world has led to the acknowledgement of and search for firms that are both nationally and globally competitive. Practitioners and academics alike have tried to qualify and quantify those characteristics that are present in highly competitive international businesses, with the hope of replicating them in organizations with lower profiles. The research has resulted in numerous rankings, where industries and firms are compared on a global scale to see which are the most competitive. Thus the topics of national competitiveness and global competitiveness have become new additions to the business lexicon. "The Competitive Advantage of Nations" Michael Porter developed a model to analyze the competitiveness and economic development of nations, regions, and cities, a model that is still a milestone in this field of enquiry.

Economic competitive advantages in countries with abundant resources and those that lack resources. In order to promote the development of the economic status of poor countries, we suggest that counties with abundant resources should make the best use of their resources, exploit and protect them to develop their economy, and that counties with a lack of resources should build up their intangible assets and establish a government with entrepreneurship spirit based on their actual situations.

A successful multinational company, must be good in identifying new sources of relevant

technologies, competencies, and understanding about leading-edge customers. This means

learning how to sense and process this complex knowledge into a form that the corporation can

use efficiently. Building new sources of competitive advantage requires a sensing network that

can identify innovative technologies or emerging customer needs that competitors have


MNE's face different challenges in international business. Companies with global operations face the difficult challenge. Many multinational companies have expanded their global strategies to take advantage of business opportunities from it. How ever, global market also pose particular challenges to MNE's due to uncertain political, economic environment poorly developed legal and institutional framework, and social culture barriers.These all factors will lead high transaction cost and also the low efficiency.

According to Ghauri and Holstius, a company is entering international markets there are dissimilarities in the economic, political, legal and cultural environments that pose incentives for, as well as obstacles to, successful expansion. These differences are especially large in transition economies. This section will focus on the some major challenges that facing by multinational companies in international market.>>>>>>>

The stability of political and economic environment is the key elements to influence the investors'decisions. However, in several transition economies, an ongoing problem faced by entrants into international market is their political and economic unpredictable.

The unpredictability of the political and unstable economic climate for foreign investors in international market poses a significant challenge.

The legal and institutional environment reflects the overall attitude of a host country towards foreign investment. In term of competition policy, regulatory policy, corporate taxation, and definition and enforcement of property rights.The legal framework is often subject to frequent changes, which creates great hesitation for businesses.

Here we can discuss the example of COCA COLA, which face heat in many countries.

Coca-Cola had always believed that it conducted its business with responsibility and ethics. The company's business practices were aimed at creating value at the marketplace, providing excellent working conditions, protecting the environment, and strengthening the communities in the places of operation.

In Colombia is widely considered as one of the most dangerous countries in the world for trade union activists and union leaders. It was reported that in 2000, three out of every five trade unionists killed in the world were from Colombia. In 2001, SINALTRAINAL, a Colombian labor union, charged that Coca-Cola and its bottlers Panamerican Beverages were linked to the violence against its union members in Colombia. In response around eight union leaders of Coca-Cola's plants in Colombia had been murdered since 1989, and many others had been abducted and tortured.

For survival in Columbia Coca-Cola opened an exclusive website,, to address these allegations, especially those related to Colombia and India. In an official statement featured on the website, Coca-Cola claimed that the allegations against the business practices in Colombia were false. Two different judicial enquiries in Colombia, one by a Colombian court and the other by the Colombia Attorney General, had found no evidence against Coca-Cola or its bottlers linking them to the murders of the union members. Coca-Cola also quoted a judgment in the lawsuit at Miami, Florida, wherein the judge had dismissed the charges against Coca-Cola.

A competitive advantage is an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices.

National competitiveness has become one of the central concerns of government and industry in every nation. National prosperity is created not inherited. A national's competitiveness depends on the capacity of its industry to innovate and upgrade. With the increasing involvement of industrial firms in overseas marketes, global development strategy planning and management across borders have received increasing attention for those corporations to achieve maximum performance on global basis. Many industries have observed globalization in the 20th century and such a trend of globalization in the international economics has affected violent competition in the industries. Consequently, such globalization forces many firms, multinational corporations and local companies, to reassess their competitive strategy and consciously create, renew, and sustain their competitive advantages in the global market place.(Wilkenson, I. F.; Mattson, L.G.)

In this respect, the determinants of competitive advantage are in global competition and strategic directions the firms could engage in to gain global competitive advantage are the questions to be examined from both international management and strategic management point of views. In the strategy literature, there are a number of knowledge on the characteristics and causes of competitive advantage, including the industry positioning approach, the commitment explanation, the recourse based view and the dynamic capability approach. Besides these approaches, the dynamics of competition, innovation and cooperative strategy also help to give definition on competitive advantage.

In order to face the upgrading technologies and intense global competition, firms must be innovative with respect to their product offerings and must make investments for the improvement of their innovative capability. It should be considered that without serious efforts for innovation in organization, research and development activities production, marketing, financial. And managerial approaches, firms may lose their competitiveness.

(Liao, M. ;Ma, N.)

Therefore, it can be proposed that the crucial determinants of the firms' competitiveness are highly dependent on the interaction between technological capability, managerial capability and recourse based capabilities. Resource based capabilities appear at the beginning of the innovative process, or as one of initial stages of the innovative life cycle, the technological capability allows firms to gain a competitive advantage in time, knowledge base.More recently, the dispute has expanded favour that competitiveness is determined by government policy: targeting, protection, import promotion, and subsidies have pushed Japanese and south Korean auto, steel, shipbuilding, and semiconductor industries into global pre-eminence. But a closer look reveals a spotty record. Around the world, companies that have achieved international leadership use strategies that differ from each other in every respect. But while every successful company will use its own particular strategy, the highlight mode of operation the character and path of all successful companies is fundamentally the same.(Ma,H)

Companies achieve competitive advantage through acts of innovation. They approach innovation in its broadest sense, including both new technologies and new ways of doing things. They perceive a new basis for competing or find better means for competing in old ways. Innovation can be manifested in a new product design a new production process, a new marketing approach, or a new way of conducting training. Much innovation is ordinary and incremental, depending more on a cumulating of small insights and advances than on a single, major technological breakthrough. It often involves ideas that are not even '' new'' - ideas that have been around, but never forcefully pursued. It always involves investments in skill and knowledge, as well as in physical assets and brand reputations. (Mickael E Porter, 1985)

Some innovations create competitive advantage by perceiving an entirely new market opportunity or by serving a market segment that others have ignored. When competitors are slow to respond, such innovation yields competitive advantage. For instance, In industries such as autos and home electronics, Japanese companies gained their initial advantage by emphasizing smaller, more compact, lower capacity models that foreign competitors disdained as less profitable, less important, and less attractive.

Once a company achieves competitive advantage through an innovation, it can sustain it only through ruthless improvement. Almost any advantage can be imitated. Korean companies have already matched the ability of their Japanese rival to mass-produce standard colour televisions and VCRs; Brazilian companies have assembled technology and designs comparable to Italian competitors in casual leather footwear.Competitors will eventually and inevitably over take any company that stops improving and innovating. Sometimes early-mover advantages such as customer relationships, scale economies in existing technologies, or the loyalty of distribution channels are enough to permit a stagenant company to retain its entrenched position for years or even decades. But sooner or later, more dynamic rivals will find a way to innovate around these advantages or create a better or cheaper way of doing things.(Mickael E Porter, 1990)