Porter Diamond Model Of National Advantage: A Study Of Kuwait's Competitiveness

The fundamental of competition has shifted significantly to the creation and assimilation of knowledge hence, role of the nation has grown.

1. Assuming you are strategy and policy expert for your country, you are required to apply Diamond of National Advantage and critically discuss how your country can attract and retain Foreign Direct Investments (FDI). 

2. As a policy and strategy advisor in your country, critically discuss four basic policies that government should adopt to enhance the capacity of its industries to innovate and upgrade.  

Factors of Production

Porter diamond model of national advantage is one of the most popular and widely used theories for determining the factors in gaining national advantages by the countries. In the recent time, it is gaining more importance due to the reason that all the major economies around the world are initiating different initiatives in gaining competitiveness to attract foreign direct advantages in the country (Contractor 2013). It is also reported that Kuwait is gaining good amount of global visibility for attracting the multinational organizations for investments. However, there are still number of gap areas evident if compared to some other major countries and porter diamond theory of national advantage will be beneficial in determining the ways about Kuwait will be able to attract and retain foreign direct investments.

According to this theory, there are majorly four factors that should be considered by the countries in gaining national advantages over others. The first factor is the factors of production. This defines the availability of the different inputs required for production process. According to Huggins and Izushi (2015), wide availability of factors of production will help the countries in reducing the cost of operation for the business organizations and attract new foreign firms. The authors have also stated that factors of production include both the natural and secondary resources. Natural resources include the energy sources and other natural minerals that would be critical for gaining organizational excellence. On the other hand, secondary resources include the access to technology and human resources in the country. Thus, the effective and proper coordination among the natural and secondary resources will help the countries in gaining competitive advantages. 

Kordalska and Olczyk (2016) stated that Kuwait in the recent time is growing rapidly mainly due to their huge access to the natural resources including oil reserves. They are having access to huge amount of amount reserves, which is further attracting the oil and gas companies to invest in the country. In addition, having access to huge oil reserves is also benefitting the investing oil and gas companies to have lower cost of production. However, on the other hand, the authors have also stated that Kuwait is lacking behind the other countries in terms of the secondary resources. This is due to the reason that Kuwait is mainly depended on the skilled immigrant labors in their oil and gas industries and overall access to latest technology is also at par to other oil major countries. This is restricting the foreign investors in other business sectors to invest in the country. Alzayed and Alraggas (2014) stated that Kuwait should focus more on developing their secondary resources by means of enhancing the skill sets of the employees and gaining access to latest technologies. This will enable the investing countries in Kuwait to have the access to skilled human resources and technologies for their competitiveness. The authors have also stated that proper coordination of the skilled employees and technologies with that of the available natural resources of Kuwait will help them to gain competiveness and retain the foreign direct investments.  

Demand Conditions

The second factor of the diamond theory of national advantage is demand conditions, which denotes market size and forces in the country. This is also important in gaining the foreign investment due to the reason that the extent of profitability for the foreign companies will be determined the demand in the home country. According to Solvell (2015), strong demand conditions in the home country will convince the foreign investors in gaining up their operations and initiate further development process. In the case of Kuwait, the major challenge that they are facing is low level of population in the country. Thus, the demand is also on the lower side for the foreign investors to invest in the country. The authors have also stated that in order to have the favorable demand condition in the country, it is important for the government of Kuwait to increase the purchasing power of the customers, which will further increase the demand in the market. This will help in attracting new players in the country. 

The third factor of the diamond theory of national advantage is the presence of related and supporting industries. This denotes that if the complementary industries are having favorable presence in the country, then the foreign industries will get the required support in doing business in the country. According to Fainshmidt, Smith and Judge (2016), Kuwait is having favorable supporting industries mainly in the oil and gas sector due to the huge investments along with the major focus of the government. However, as per the authors, it is important for Kuwait to develop the supporting domestic industries in other sectors also in order to have foreign investments in different sectors. In addition, it is also being stated that the more support foreign players will gain from the domestic industries, the more will be their probability of further developing in the country.

The last factor of the diamond model of national advantage is organizational strategy and structure. This denotes that effectiveness of the organizational strategy will determine the success factor of the foreign investors in country. This factor is mainly a micro factor and is more depended on the specific organization. However, it is stated by Coeurderoy and Verbeke (2016) that Kuwaiti government should have the proper and effective regulations for the operating business organizations, which will guide them to have proper strategic intent in place. This will further increase the efficiency of the entire business sector of Kuwait and will help in retaining the foreign business in the country. On the other hand, it is also stated by Farinha, Ferreira and Nunes (2018) that Kuwait should also have proper mechanism and space for generating innovative ideas by the business organizations. This will further help the foreign investors have more access to the innovative ideas retain their business in Kuwait. Thus, it can be concluded that these four dimensions of the porter diamond model of national advantage will help Kuwait to have more attraction and retention of the foreign direct investments. 

Related and Supporting Industries

One of the major policies that should be initiated by the Kuwaiti government in enhancing the innovation and up gradation capability of the industries is opening up the economy. According to Chu et al. (2015), initiation of the open economy will help the domestic companies to face the competition from the foreign market entrants. This will act as market force in continuously developing their products to withstand with the competition. On the other hand, it is also beings stated by the authors that initiation of the open economy will also enable the domestic industries to have the access to the foreign technologies, which will further help in innovation and up gradation. Thus, it is recommended that Kuwaiti government should open up their economy and enable the domestic industries to have more access to global technological advancement and competition.

Most of the innovative ideas are being generated from the new startups rather than the established firms. Thus, it is important for the Kuwaiti government to simple and easy policy for staring new business in the country. This will enable more new startups to come up and enhance the rivalry and competition in the domestic industry. The more will be the competition in the industry, the more will be the pressure on the existing players to innovate in developing new competitiveness. According to Weiblen and Chesbrough (2015), more engagement with the startups will also help in escalating the innovation in the industry and helps in enhancing the overall competitiveness of the industry. 

It is also recommended that government should invest more on developing infrastructure over consumption. This is due to the reason that industries will further develop and innovate if they are having the access to better infrastructure at par to the global standard. According to Wu et al. (2016), development of infrastructure by the Kuwaiti government will help the domestic industries to have the required competitiveness to compete with the global firms. Thus, it can be concluded that the fiscal policy of the government will determine the level of innovation and up gradation for the domestic industries. The government of Kuwait should change their existing fiscal policy towards more development of infrastructure.

Generation of innovation is related with the access to financial resources and thus it is important for the government of Kuwait to initiate the policy of simpler process of getting loans by the small and medium size organizations. According to Chemmanur and Fulghieri (2013), providing loans will help the domestic business organizations to have the financial capability to develop and innovate further. In addition, the authors have also stated that if the domestic industries are having the access to larger financial resources, then they will further invest in research and development process. Hence, it can be concluded that these major four policies to be initiated by the government will help the domestic industries to innovate and upgrade in the long term. 

References

Alzayed, A. and Alraggas, B., 2014. The alignment of information technology and business strategy in the Kuwaiti companies. International Journal of Computer Applications, 101(7).

Chemmanur, T.J. and Fulghieri, P., 2013. Entrepreneurial finance and innovation: An introduction and agenda for future research. The Review of Financial Studies, 27(1), pp.1-19.

Chu, A.C., Cozzi, G., Lai, C.C. and Liao, C.H., 2015. Inflation, R&D and growth in an open economy. Journal of International Economics, 96(2), pp.360-374.

Coeurderoy, R. and Verbeke, A., 2016. The unbalanced geography of the world's largest MNEs: institutional quality and head office distribution across countries. Global Strategy Journal, 6(2), pp.127-148.

Fainshmidt, S., Smith, A. and Judge, W.Q., 2016. National Competitiveness and Porter's Diamond Model: The Role of MNE Penetration and Governance Quality. Global Strategy Journal, 6(2), pp.81-104.

Farinha, L., Ferreira, J.J. and Nunes, S., 2018. Linking innovation and entrepreneurship to economic growth. Competitiveness Review: An International Business Journal, (just-accepted), pp.00-00.

Huggins, R. and Izushi, H., 2015. The Competitive Advantage of Nations: origins and journey. Competitiveness Review, 25(5), pp.458-470.Contractor, F., 2013. “Punching above their weight” The sources of competitive advantage for emerging market multinationals. International Journal of Emerging Markets, 8(4), pp.304-328.

Kordalska, A. and Olczyk, M., 2016. Global Competitiveness and Economic Growth: A One-Way or Two-Way Relationship?. Equilibrium. Equilibrium. Quarterly Journal of Economics and Economic Policy, 11(1), pp.121-142.

Sölvell, Ö., 2015. The Competitive Advantage of Nations 25 years–opening up new perspectives on competitiveness. Competitiveness Review, 25(5), pp.471-481.

Weiblen, T. and Chesbrough, H.W., 2015. Engaging with startups to enhance corporate innovation. California Management Review, 57(2), pp.66-90.

Wu, J., Wang, C., Hong, J., Piperopoulos, P. and Zhuo, S., 2016. Internationalization and innovation performance of emerging market enterprises: The role of host-country institutional development. Journal of World Business, 51(2), pp.251-263.