International Business
Global Corporate Strategy:
Porter’s theory of
national competitive advantage
in industries
Global Corporate Strategy
 The key issues:
 What are the big decisions
in international business?
 How do we make them wisely for our
firms?
Value Creation
 The way to increase profitability is to
create more value

The amount of value a firm creates is measured by the difference
between its costs and the value that consumers perceive in its
products
 Michael Porter states that there are two basic
strategies for creating value


Low-cost strategy suggests that a firm has high profits when it
creates more value for its customers and does so at a lower cost
Differentiation strategy focuses primarily on increasing the
attractiveness of a product (getting customers to think it’s different
and better than competitors’)
But to create value, you must
think about who you’ll work with
 Porter’s study of national competitive
advantage provides the business
context for the big decisions
Porter says industries succeed
when they can…
 innovate,
 upgrade,
constantly offering more and better to
customers
Therefore, industries succeed
where 4 factors are favorable
Factor conditions
 Not the factors economists used to
care about (Labor, land, capital, etc.)
 Specialized factors that people create
 Labor with specialized skills
 Unique resources (phone systems built for
Strategic Air Command in Omaha, Neb.)
 Innovations to cope with a weakness
can produce long-term strength
 Dutch bringing flowers indoors to cope
with bad weather
Demand conditions
(at home)
 Demanding customers in the home
market lead to competitive industries
 If local customers need innovations,
you can often sell those innovations
in the world market
 Germans need washing machines with
powerful spin cycles due to damp
weather
 They sell them elsewhere
Related and supporting industries
 Good local suppliers repeatedly help
you innovate
Firm strategy, structure, and
rivalry
 Strategy: Ambitious firms become
world leaders
 Structure: Industries succeed where
local norms are in tune with
industry needs
 Italian shoe makers benefit from
preference for family firms in Italy
 German appliance firms gain from
preference for big, disciplined
organizations
 Rivalry: To succeed internationally,
you need strong local competition
 When local competitors do better than
you, “you get mad”
 Pressure on firms in the local
environment contributes to success
The 4 elements in the diamond
work together as a system
Each element
can contribute to
making the other
elements strong