Porter’s Diamond Model and Export Competitiveness of Mozambique’s Cashew Nut

135 trade balance deficits, help generate foreign currency earnings that help improve the Balance of Payment (BOP) surplus, increase employment and expand the production base of any country. The concept of export competitiveness plays a pivotal role in the international trading system, as result of rapidly expanding size of international trade. For many years, export competitiveness has been paid more attention in order to develop export portfolio of nations. To promote economic development and survival in the global competitive market, export competitiveness is an essential component of a country’s economy. This is the strong reason for the election of this topic for the DBA Thesis.

4.2. Porter’s Diamond Model and Export Competitiveness of Mozambique’s Cashew Nut

136

theory where competition is founded in segmented markets, differentiated products, technological differences and economies of scale, a theory able to define why firms from certain countries implement better strategies than others competing in certain sectors (Watchraverskingkan et al., 2010);

why some regions are more competitive than others, and tried to clarify how firms gain prominent positions in sectors of the country on global competitiveness (Smith, 2010; Naserbakht, 2008; Bulu, 2006). Porter came up with the Diamond Model to identify factors of competitive advantage of countries and sectors (Barragan, 2005), and to create a structure that determines the rules of competition in a sector towards achieving a long-term competitiveness (Sun et al., 2010), associating the determinants of sectors that have competitive advantage with values of the four corners of the diamond, as indicated earlier, described as factors affecting competitiveness (Civi, 2001).

Figure 4. 1: The Determinants of National Competitive Advantage

4.2.2. Factor Conditions

Factor conditions are natural, capital and human resources available, including firm’s skill to supply those factors (Curran, 2001), the factors of production and infrastructure necessary to compete in a particular industry (Barragan, 2005). In addition to land, labour and capital, Porter (1990a) extends the

137 definition to cover other resources such as human, physical, knowledge, capital, and infrastructure, and subdividing them into basic factors (unskilled labour, raw materials, climatic conditions and water resources), which are inherited, and advanced factors which are created and upgraded through reinvestment and innovation. These resources can be grouped into human (quantity, abilities and cost of staff), material (physical), natural (abundance, quality, approachability and cost of the country’s land, water), knowledge (scientific, technical and market abilities), bearing on goods and services, information resources (universities, government research institutes, government statistical agencies, business and scientific literature, market research reports, databases), capital resources (the quantity and costs of capital available to fund the sector) and infrastructure (type, quality and user cost of infrastructure that are one way or another affecting the competition, including the transportation system, the communication system, mail and parcel delivery) (Tuna, 2006; Naserbakht et al., 2008).

4.2.3. Demand Conditions

Porter (1990) focuses more on demand differences than on similarities to explain the international competitiveness. Composition of the home demand together with the size of the home demand that matters, as well as the sophistication of home country consumers that shape how firms perceive, interpret and respond to buyers’ needs, which forces home country firms to continually innovate and upgrade their competitive positions. According to Porter (1990a, 1998a), the critical conditions of demand consist of how home demand that foresees, anticipates and leads international demand, industry segments with a significant share of home demand, and sophisticated and demanding buyers.

Demand conditions are the requisites based on buyers’ requirements about quality, price, and services in a particular industry (Barragan, 2005). The presence of sophisticated demand requirements from local customers also pushes companies to grow, innovate and improve quality. In terms of home demand, countries achieve competitive advantage in sectors where the home demand takes the lead in providing native firms with a clearer or earlier picture of buyer demands than foreign competitors can have (Tuna, 2006: 8), which makes the industry ready to compete internationally (Barragan, 2005), and the sophistication of demand is much more significant than the size of demand (Porter, 1990).

With regard to pattern, it is of crucial importance to note that the home market size stimulates investment and reinvestment or dynamism (Tasevska, 2006), the existence of several individual buyers in a country produces better surroundings for innovation (Tuna, 2006), the rate of growth of investments in a sector shows how quickly the home market is developing (Nilsson and Peterson, 2002). Mobile and transnational local consumers and influences of foreign need are also important, since buyers for goods or services are mobile or transnational firm, an advantage occurs for the country’s companies as the home buyers also trade internationally (Tuna, 2006).

138

4.2.4. The Supporting and Related Industries

The existence of supporting or supplier and related industries in a country is argued as the third dimension of the Diamond Model (Nilsson and Peterson, 2002). The presence or absence in the country of supporting, related industries which interact with the specific and target sector is a basic factor (Tuna, 2006; Mehrizi and Pakneiat, 2008). Highly competitive supplier or related industries provide benefits such as innovation, technology upgrading, which would be unthinkable without strong and challenging supporting and related industries (Mehrizi and Pakneiat, 2008). To achieve success, it is crucial to have the relationships among these clusters of industries and a particular sector within a country as they operationalise learning, innovation and competitiveness, and they are believed to maximise synergies when all requisite institutions necessary are linked up (Rasiah, 2009;

Watchravesringkan et al., 2010)

Those industries in which organisations can allocate activities in the value chain when competing, or those that produce complement goods are the related industries (Porter, 1998; Tasevska, 2006). The supplier industries create potentials for comparative advantage by producing inputs, providing new methodologies and opportunities to utilise new technology, knowledge transfer, and innovations (Tasevska, 2006). Competitive advantage takes place as result of close working relations among supplier and buyer industries (Porter, 1998; Nilsson and Peterson, 2002). Firms take advantage of more cost-efficient and innovative inputs when native supporting industries are competitive. In the case where the suppliers themselves are powerful and important global rivals, this effect (result) becomes more reinforced (Naserbakht et al., 2008).

A group of industries directly or indirectly related to a variety of many different sectors and a sector which encompasses all the players and are a clustering of the industry are called the Supporting and Related Industries. Clusters are interconnected companies and other firms that handle the competitiveness of a certain sector (private, associations, suppliers, customers, universities, banks, training and other business service providers, and other groups). Industries or sectors that are successful in a country are usually interconnected by vertical or horizontal ties. Vertically tied clusters create high quality, while the horizontal clusters create highly competitive firms. In Porter's (1990) view, the advantage of both supporting and related industries has a crucial importance on the remaining “Diamond”, and its systematic character (Barragan, 2005).

4.2.5. Firm Strategy, Structure and Rivalry

Strategies and structures of firms depend heavily the national environment, according to Porter (1990a). He further argues that systematic differences in a variety of business sectors in various countries that determine how firms compete in each country and ultimately their competitive advantage can be easily identified. Porter points to rivalry as the most critical driver of competitive

139 advantage of a country’s firms, because it forces firms to be cost competitive, to improve quality and to be innovative, since it is firms' goal to compete internationally, but it is ultimately the competitiveness of a country at international level that shapes the international competitive advantage of firms.

Situations like how a sector is originated, systematisation, management, and the nature of domestic competition that could support a country to achieve a sustainable competitive advantage are measured through the firms' strategy, structure and rivalry (Kuah and ve Dya; Coskun and Ve Geyik, 2002; Nilsson and Peterson, 2002; Tuna, 2006). According to Mehrizi and Paneat (2008), that measure includes some of the non-economic factors that such as culture, traditions and values that affect the motivation of company managers for getting into the sector and the impact of geographical and spatial proximity in this dimension. The aims, strategies, politics and methods of organising companies in sectors vary widely among countries. Advantages at the national level emerges from a good harmony between these selections and the sources of competitive advantage in a specific sector (Tuna, 2006). It is Porter's suggestion that domestic competition and the look for competitive advantage within a region can help supply organisations with bases for succeeding such advantage on a more global scale (Naserbakht et al., 2008).

If successful companies compete energetically companies compete energetically at home and force each other to develop and innovate (Porter, 1990; Tuna, 2006), they will find out that rivalry is crucial for their success. The pattern of rivalry has an effect on the process of innovation and the final plans for international achievement (Tasevska, 2006).

National conditions have a tremendous influence on the way in which firms are managed and prefer to compete and innovate. here we also see cultural aspects playing a critical role. Diversities in business practices and approaches can summarised into training, backstage and guidance by managers and leaders, following a certain hierarchic modus operandi, a decision-making process that will shape the relationship between workers and management, working morale, relationship with the consumers or interactions between companies. These national diversities create advantages and disadvantages in competing in different categories of sectors (Naserbakht et al., 2008; Tasevska, 2006). Typical aims and goals in corporate organisations regarding the relation to commitment models among employees and employers are of special unique character and importance, hardly affected by systems of ownership and control. Family-based business that is controlled and managed by owner-managers will act differently than publicly quoted ones (Naserbakht et al., 2008).

4.2.6. Government Role

Government role in Porter’s Diamond Model is two-fold: "a facilitator and a contestant". Porter refuses to see a free market where the government leaves everything in the economy up to “the invisible hand”, and he doesn’t see the government as an essential helper and supporter of industries

140

either, because governments cannot create competitive industries; only companies can do that. Rather, governments encourage and push companies to raise their aspirations and move to even higher levels of competitiveness, by stimulating early demand for advanced products. Putting an emphasis on factors like infrastructure, education health services (factor conditions); promoting domestic rivalry by enforcing anti-trust laws; and encouraging change, thus assisting the development of the four aforementioned factors in the way that should benefit the industries in a certain country.

Paraphrasing Barragan (2005), all government's and policy makers' actions like regulations can benefit or adversely affect the competitiveness of an entire country or a whole industry. It is, therefore, very logical that the government improves or damages the national competitive advantage and affects the competitiveness (Nilsson and Peterson, 2002). There a substantial number of policies that can impact each of the determinants in different ways, namely: subsidies, taxes, financial incentives, education policies, public procurement, antitrust laws, quality standards, capital market regulations etc. (Mehrizi and Pakneiat, 2008). Even antitrust policies and laws (meant to prevent companies' unfair business practices) have a damaging effect on domestic competition by changing demand conditions; investments in education can alter the factor condition; government acquisitions can encourage related and supporting industries (Tuna, 2006). A government that is working to eradicate bureaucracy and help the process of opening new businesses will be stimulating entrepreneurship, and needs to be supported and encouraged. Similarly, government support and stimulation to the establishment of joint ventures with foreign firms will help the transfer of technology (Barragan, 2005). It is absolutely obvious that the impact of the underlying determinants of national competitive advantage can be either positive or negative, and the national competitive advantage will fail if government policies remain the only source of competitiveness (Tuna, 2006). In this model, government has to avoid any direct treatment in the market system, but should seek to develop a competitive environment, and encourage companies to innovate (Mehrizi and Pakneiat, 2008).

4.2.7. Chance

The role of chance is the likelihood that external events such as war and natural disasters can negatively affect or benefit a country or industry, beyond the control of the government or individual companies. The discontinuities created by chance may lead to advantages for some and disadvantages for other companies. Some firms may gain competitive positions, while others may lose. Porter regards the chance events as matters that have little to do with situations in the country (Tasevska, 2006). Chance events are usually improvements outside the control of the companies (Nilsson and Peterson, 2002). Chance events are regarded by definition as beyond the control of firms (companies) but they may turn into forces that remould the sector structure, allowing shifts in competitive position.

141