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To discuss Porters Diamond Theory and demonstrate a good understanding of the theory I would like to explain that four characteristic ofÂ a nationÂ embraceÂ Porter's Diamond of national advantage. They are:
Related and supporting industries,
Firm strategy, structure and rivalry firms Strategy
Factor conditions (i.e. the nation's position inÂ factors ofÂ production, such as skilled labor and infrastructure)
Factor conditions refers to efforts used asÂ factors ofÂ production - such as labor, land,Â natural resources, capital and infrastructure.
This reverberation comparable toÂ standardÂ trade and industry theory, but Porter argues that the "key"Â factors ofÂ production are twisted, not hereditary.
ParticularÂ factors ofÂ production are skilled labor, capital and infrastructure.
Factor situation refers to inputs used asÂ factors ofÂ production - such as labor, land,Â natural resources, capital and communications.
This sounds similar toÂ standardÂ profitable theory, but Porter argues that the "key"Â factors ofÂ production are created, not innate.
To discuss theory's strengths, contribution, usefulness and weaknesses I would like to explain that the Diamond Model is an economical model which was developed by Michael Porter in his own book named Competitive advantages for Nation.
This model helps in ahead understanding about the position which can be gained in the Global Competition. This model can be well utilized in major geographic regions.
This model helps in the philanthropic that ratio of these factors would actually decline the competitive improvement, due to the reason he introduced a new thought known as 'Clusters' in other words 'a group of organized firms, suppliers, connected commerce and establishments arising in other locations.'
Porter designed this diamond shape model to detail the situation ofÂ national advantage. The model would illustrate the most fitting countries demonstrate for their industries.
Criticism on Porter's national diamond model resolves around a number of hypotheses that underlie it.
The main weakness of the theory is that Porter generalized from the American case; for developing countries the model may be wrong.
APPLICATION OF THEORY IN INDIA --- IKEA:
For applying the theory to one of my home country's industries, which is competitive internationally, I select IKEA. IKEA is a home and office furnishing items vend store which has more than 175 stores worldwide. This paper discusses IKEA's strategies for the New Dehli market. Our target market in New Dehli will be the discriminating consumer, who cares about design, quality, and the look of the home or work environment. We will fulfill all the needs of our customer with a combination of functional quality products with unique furnishing ideas, at a competitive price. Our marketing strategy will focus on positioning our company as a provider of quality, well-designed functional furniture with excellent personalized services. For this differentiation of our brand we will allocate resources initially for creating awareness and then for retaining customers. Our findings indicate that emphasizing on wide range and personalized services. Our marketing programs will actively support continued growth and profitability through effective implementation of the strategy.
1. FACTOR Â Â CONDITIONS
- IKEAÂ Â Â has created Â Â its own important factors such as skilled resources and technological base.
- IKEA is Â Â upgrading / deploying resources Â Â over time to meet the demand.
- New Â Â innovations / new methods Â Â have given theÂ local industry the Â Â comparative advantage.
The Porters Diamond Theory can explain the reasons for the competitiveness of IKEA. IKEA is an international home and office furnishing store preparing to enter in the India marketÂ initially with New Dehli.Â TheÂ concept of IKEA is new for this market as there's no store providing such a wide range of quality and functional products.Â The store also is very service-oriented unlike other competitors.
2. DEMAND CONDITIONS
-a more demanding local/ global Â Â market Â Â has given IKEAÂ the Â Â international / national advantage.
-a strong trend setting local market has helped local firms anticipate global trends.
Our findings indicate that the Porters Diamond Theory can explain the reasons for the competitiveness of IKEA. IKEAÂ is providing its customers the opportunity to create a home or work environment to express who they are.
3. RELATED Â Â AND SUPPORTING INDUSTRIES.
-local competition has created innovations and cost effectiveness for the IKEA.
-this has also put theÂ pressure on local suppliers to lift their game.
The Porters Diamond Theory can elucidate the reasons for the competitiveness of IKEA. Our closest competitors in the New Dehli regionÂ are Designer's Guild and Chen One which display its products on the line of IKEA.Â Their product line is also quite similar to what we offer albeit narrower. However, there are many storesÂ Â which serve our quality-conscious target market who mainly sell furniture e.g. InterWood, Heavens, Mohkam's. Outside our niche are numerous home furnishing stores spread all over New Dehli. These general competitors are nowhere near our products in terms of quality and design but they still pose a threat. People choose lesserÂ quality, mainstream furniture mainly due to their lower price.
IKEA'sÂ HomeÂ LineÂ competitors:
1. Chen One - This retail store is quite popular among the upper class of New Dehli and is part of Chenab Group of industries. It was the first to offer IKEA-style home furnishing items in New Dehli. However, its range is not very wide. In recent months it has opened a new section in the first floor of its storeÂ whichÂ displays furniture.Â This shows that the demand of its furniture has increased.Â However, we have noted thatÂ the quality of its offerings seems to be inconsistent with its prices.Â It is more popular for itsÂ textiles such asÂ bed sets, dresses and baby sets rather than its furniture. According to its manager at the New Dehli outlet, theÂ store has experienced aÂ 50% increase in its sales in the last 5 years and projects even brighter sales in the years to come.Â This prediction presents an opportunity for our company because our range is wider than Chen One with better quality and competitive prices.
2. Designer's GuildÂ -Â This store also sells furniture and other home furnishing items and caters to the upper class of New Dehli. Its range is wider than Chen One and its prices are also lower. It has been in this industry for the last 5 years and has made very good progress. Its owner has also given bright predictions for this industry and its revenues. Although its concept differs considerably from IKEA we still consider it as a bigger threat than Chen One mainly due to its wider and better range. However, its store space and services are not comparable to IKEA.
IKEA's general competitors:
IKEA has many general competitors in the form of the numerous furniture shops, decoration items shops andÂ specialty stores selling common home furnishing items spread all over the city. It also sells rugs, textiles, table wares, toys and children's furniture and accessories.Â The quality of its products is average; however, it is consistent with the prices it's charging. In recent years it has become quite popular due to its lower prices.
IKEA's Work Line's competitors:
The office furniture sellers of New Dehli generally do not provide functional and well-designed furniture. IKEA's Work Line is significantly superior to the stores in New Dehli. The closest competitor producing high quality and ergonomically fit office furniture is InterWood . However, it only produces wood furniture and its range is not very wide. It basically produces made-to-order furniture. Its strength lies in the fact that its quality is of the highest standards and it has the confidence of its clients.
4. FIRM STRATEGY, STRUCTURE AND RIVALRY.
-local conditions have affected Â Â IKEA various strategy.
-local rivalry has forced IKEA to move beyond basic advantages.
The Porters Diamond Theory can explain the grounds for the competitiveness of IKEA. The single objective is to positionÂ IKEA as the premier source for a wide range of stylish homeÂ and office furnishing itemsÂ in theÂ New Dehli commandingÂ the largest market share within the first year. OurÂ marketing strategy will seek to create customer awareness regarding the products thatÂ we offer, develop the customer base, and work toward building customer loyalty and referrals.
Our findings indicate that the message that we will seek to communicate is that we offer the largest selection of functional and tasteful home and office furnishing items in New Dehli.Â The first method that we will use to communicate this is location. IKEA has chosen an upscale, trendy and posh area which receives a lot of customer traffic.Â This generates large amounts of visibility for IKEA.Â Our other marketing strategies will be:
Creating Awareness and Building Image
New Home Construction Promotion
Strategy # 1
CREATING AWARENESS AND BUILDING IMAGE - Informing our target market what IKEA offers through effective positioning.
Advertisements in leading newspapers.
Point-of-Purchase Demonstration of products' assembly
Discount for credit card holders
Pre-launch press release
10,000 free catalogs
Strategy # 2
NEW HOME CONSTRUCTION PROMOTION - Connecting with the people involved in the building process.
Connecting with the home builders
Connecting with prospective home buyers
Strategy # 3
RETAINING CUSTOMERS - Our best sales in the future will come from our loyal customers.
Benefits for repeat customers
Excellent Customer Service
Follow up contact
5. THE Â ROLE Â OF Â THE Â INDIA GOVERNMENT Â IN THIS Â MODEL
- INDIA Â GOVERNMENT Â Â is Â encouraging Â more Â IKEA .
- INDIA GOVERNMENT Â Â is stimulating with paperwork reforms.Â
- INDIA GOVERNMENT Â Â is Â Â helping Â Â to create more skilled labors.
- INDIAÂ GOVERNMENT is providing infrastructures to attract more industries.
Our findings indicates that various up-scale home furnishing stores in New Dehli indicates that consumer preferences are changing in the favor of more functional, stylish and sophisticated furniture. Generally too it has been observed that the average consumer is becoming more quality-conscious. The market acceptance of our kind of products which are high on quality and style is also increasing as is evident from the opening of various designer furniture shops in recent years.Â According to most shop owners the size of the market which does not mind paying a lot in return for quality goods has also increased. The Economic Survey of India 2003 indicates that urban housing construction activities have gone up by 32% over the last 20 years. OurÂ niche is expectedÂ to benefit from the construction of these housing societies asÂ these cater to the upper class and the furniture needs of this class are adequately met by our superior product line. Recent newspaper reports indicate that the number of marriages has considerably increased in recent years. This trend is expected to last as the number of peopleÂ above 18 is tremendous. ItÂ also spells good news for our niche as givingÂ home furnishing gifts is common at weddings. Also,Â theÂ newly married couples in the family life cycle stage have been proven to be big spenders on furniture.Â The urban consumers have also become more aware about the ergonomics associated with services and this presents an opportunity to our company. An important social change has been the general acceptance of the Do-It-Yourself approach in New Dehli. With the arrival of multi-national restaurants, the self-service concept has become quite popular. This is very important for our company as it encourages customers to assemble furniture themselves.
At the end of explaining the international competitiveness of an IKEA in INDIA I would like to conclude that on Porter's national diamond model strengths and weakness are accurate as I defined them above. As strength this model helps in ahead understanding about the position which can be gained in the Global Competition. This model can be well utilized in major geographic regions. The major weakness of Criticism on Porter's national diamond model resolves around a number of hypotheses that underlie it. The main weakness of the theory is that Porter generalized from the American case; for developing countries the model may be wrong.