Critique of Porter’s Diamond Model
Michael Porter uses this model to explain that nations can generate new highly- developed-factor-endowments amongst which are the strong base of knowledge. He employed a diamond-shaped diagram as the framework within which he illustrated the determinants of (state) advantage. The model has its side of advantages, but on the other side, Porter’s ideas have experienced a lot of criticism. It has been argued that the economic situations have undergone a great change; the change has greatly been influenced by the internet revolution which has re-specified the way economic activities are being carried out. The critiques of this model, have further argued that it is based on the economic conditions of the 1980s which were differentiated by tough competition, cyclic development, and relatively secure market structures. The model is not competent enough to offer an accurate explanation of the current very dynamic markets or economic activities caused by factors, especially the internet, that have the potential of transforming the whole industry.
Porter’s Diamond Model is very important in understanding international business, especially in the 21st century. It is important to understand that businesses are going international and with the globalization process, competition between business entities has taken an increasing trend; this fact necessitates that businesses allocate their resources in such a manner that gives them a competitive advantage over competitors. But, for the business entities to effectively deploy or allocate their resources, they must comprehend how the international business activities are prone to play out, this is especially important where the entities need to know how the business environment in one country varies relative to the same environments in other countries. This scenario is best explained by Porter’s Diamond Model, which examines a nation’s competitive advantage.
Regional blocs are intergovernmental organizations meant to manage and enhance trading activities within specific regions of the globe (Telò, 2007, p.21). Regional blocs have both political and economic elements and implications. For instance, the European Union, which is the largest regional bloc, has both political and economic activities that span the whole world in terms of participation and influence. It is important to note that the policymakers may come up with decisions whose effects influence how much a nation earns from its trading activities with other nations.
Trade blocs have numerous advantages that make them preferred. Most countries have import and export tariffs that are meant to protect domestic industries, especially import tariffs. These tariffs make it difficult for goods and services from other countries to penetrate the domestic market. One of the advantages of these tariffs is that they promote the local industries, particularly the infant industries whose goods and services are not yet fully developed. However, when countries come together to form a common regional bloc, they stand a chance to gain tremendously from trading activities amongst them.
The removal of tariffs allows goods and services to circulate freely amongst the member states hence enhancing trade. The advantage countries coming together to form regional blocs always have common interests to pursue. For instance, the GCC bloc which is constituted by oil-producing nations has brought together countries in the gulf involved in oil extraction. The blocs, therefore, help member states to increase their bargaining power to buy or sell at reasonable prices in the world market. This reduces exploitation by other blocs or more powerful nations. However, some policymakers have argued against regionalism stating that it discriminates against non-member states and makes it difficult for such states to enter into business transactions with the bloc. The formation of the blocs is seen as a protectionist measure that shields the members from the forces of free trade. So the blocs are likely to hinder international trade since non-member states are not able to enjoy the benefits of the tariff enjoyed by the member states of the blocs.
Value of Comparative Culture to International Trade
Globalization is one major factor that has facilitated the growth of international trade. Many companies and corporations operate in many countries where people have varied cultures. The importance of studying comparative culture is therefore appropriate in determining how to design market communication techniques. This implies that in the process of designing marketing strategies, it is important to understand the varied cultures of the international community and hence come up with adverts and marketing techniques that are not offensive to other cultures; the international business entities may use the knowledge of comparative culture in knowing what is not likely to offend the consumers of another country.
Moreover, the value of comparative culture is seen in terms of supplying goods and services. It is always important that international business organizations are knowledgeable in a variety of cultures found in various states. There are some goods and services that are not allowed in other countries. For instance, knowing the Muslim culture will prevent pork suppliers from supplying their products to Muslim nations. When an international business entity understands the cultural diversity of the world, it can make informed business decisions that will drive its profit margins up the scale.
Besides, with globalization, it is increasingly becoming very common to find different nationals working together; in such cases, conflicts can arise due to different cultural backgrounds. So by studying and understanding cultural diversity, people with different national cultural traits may find it easy to work together with deep tolerance to one another. For instance, some cultures emphasize individualism while others lay their emphases on collectivism. Such cases require tolerance and can only be realized when armed with the knowledge of comparative cultures.
CounterTrade and its Application
This is a barter system-like trade in which international transactions take place in such a way that a country uses its goods in exchange for other goods from a trading partner. In this case, a country may opt to pay part of its transactions with hard currency or decide to pay using a hundred percent goods in its purchasing process. Countertrade is applicable in the process of import and export; a country that exports may accept its products to be paid by import goods from trading partners. Countertrade developed dramatically in the global economy in the period beginning from the 1970s to the 1980s. It has been used as a strategic way of conducting business transactions with a view of getting into new markets (Cho, 1995, p. 101).
Countertrade has both its good and bad sides. On one hand, it has the element of creating trade between nations and hence its ability to enhance the welfare of the trading partners. However, on the other hand, countertrade is trade-diverting, especially in cases where a potential trading partner would like its goods to be paid in hard cash. In this case, it reduces the welfare of the state that uses the counter-trade system. For this trading system to succeed, the trading partners must share certain characteristics.
There are several reasons counter trade is still in use today despite it being economically inefficient. First, it is the most appropriate system where a nation does not have enough foreign currency reserves to pay for its imports. This is mostly the case with poor nations whose economies are not doing well. Second, average trade financing has become riskier than ever due to the global debt crisis. Thus, many nations are resorting to counter-trade to avoid this kind of financial disaster. Lastly, to reduce the adverse trade imbalances, countries are increasingly going back to the system of bilateral trade, which in many cases makes counter trade to be highly possible.
Ethical Theory and International Business
With the current rapid globalization, corporations and international business organizations are expanding their operations beyond their national boundaries and therefore deal with diverse customers from diverse cultural backgrounds. The markets have become globalized and several economies, which were formerly planned and closed, are now becoming open and liberalized. This has made it possible for different nations to interact more efficiently and effectively in the international market. However, this could not go on without bringing to the surface certain ethical issues; it is, therefore, important that the world has recognized the need to have some set standards in the way international business is conducted.
The rising growth of international business activities has necessitated the formation of an ethical framework within which ethics in international business is evaluated. There is an upward trend in the operations and international responsibilities that international business entities are forced to engage in; this has led to increased attention towards ethical theory, especially by the United States of America. The ethical theories lend a lot to the approaches taken to establish a core ethical foundation for international marketing exchanges and broaden it to conceptualize ethical issues in the strategies of international marketing. The established ethical framework is examined against the reality of cross-cultural differences and international business operations.
The ideas on ethics within international business wrestle around three main dimensions which include the units that are responsible for international actions, the scope of ethical conduct, and the nature of ethical judgment. Within these dimensions, the debate on ethics as applicable to international business has revolved around the corporate level. This debate is informed by the ethical theories which cultural dimensions are some of the most important themes as they apply to the international business environment.
How a Country Can Create Comparative Advantage
In terms of economics, comparative advantage refers to the ability of a nation or corporate organization to produce a given product at a lower cost than other nations or corporate organizations. In other words, comparative advantage is what a country can produce more effectively and most efficiently at the lowest cost possible. A country may focus on producing all the goods and services it needs in its economy, however, this may result in inefficient resource allocation.
An economy can therefore create comparative advantage through specialization in producing what it can produce best at the lowest cost possible and get what it cannot produce efficiently from other economies. This implies that a nation can focus on producing a particular product in surplus and sell the surplus to another economy which finds it costly to produce the products; in return, the economy can then use the proceeds to purchase from another economy the products it is not able to produce at low cost. Alternatively, the economy can use its produces in exchange for what it needs.
For example, let us assume that there are only two countries and there are two types of goods needed by both of these countries, that is, wheat and computers. Now, country A has favorable conditions for wheat farming and has an efficient technology to produce computers, but lacks the necessary raw materials. Then, country B has abundant raw materials that can be used in producing computers but have unfavorable conditions for wheat farming. In this scenario, country A can concentrate on producing wheat which it can exchange for raw materials with country B; and country B can also specialize in producing raw materials and selling to country B in exchange for wheat. Both countries can even use a counter-trade system of trade since they virtually produce for each other. In this case, country A has a comparative advantage in wheat production, which is needed by country B, while B has a comparative advantage in producing raw materials for computers needed by country A.
Extra Issues in HRM in a Multinational Company
One of the extra issues that arise in such a context is cultural diversity. Multinational companies are found within the context of international business. When companies expand beyond their national boundaries, then the Human Resource Management process expands its scope to cover the diversities of culture which are brought about by the integration of workers from other nations.
It is also important to note that different nations have different business policies and laws which govern the way businesses are conducted in those nations. So the Human Resource Management is faced with the task of ensuring that it is compliant with the policies, especially employment policies, of the states in which the multinational company operates. In most multinational companies, human resources are centrally managed from the home countries; this makes the human resource management grapple with the effects of different currency values of the states in which the companies operate. The HRM departments have to decide the appropriate international currency in which salaries are paid.
This is a progression in which diverse world economies and cultures have been put together (via the global transport, communication, and trade networks). In some cases, globalization is used to specifically refer to economic globalization in which the unitary world economies are integrated to form one whole global or world economy. Globalization is said to be facilitated by factors that are political, cultural, social, and economic (Lynch, 2003, p. 17).
One of the issues raised by globalization is economic. This process has enabled the free flow of technology that has made production in other parts of the world to be more effective and efficient than ever before. Human labor has been replaced by the use of machines of high technology in the production process. Other positive issues have come with globalization: countries can easily produce and sell their products in the global market, the technological transfer has been enhanced and mobility is also facilitated. However, it has some negative issues: the use of technology in other parts of the world has led to increased unemployment since human labor is replaced by the use of machines and there is also economic vulnerability due to specialization which has led to interdependence amongst world economies. This implies that should a major economy suffer, then other economies are likely to suffer.
Cho, G 1995, Trade, aid and global interdependence, Routledge, United States.
Lynch, LK 2003, The forces of economic globalization: challenges to the regime of international commercial arbitration, Kluwer Law International, United States.
Telò, M 2007, European Union and new regionalism: regional actors and global governance in a post-hegemonic era, Ashgate Publishing, Burlington.