Question

For this unit's exercise take a look at one industry in a specific country and discuss the extent to which this industry has a competitive advantage as a consequence of being based in that particular country (e.g. South Korea in shipping, Denmark in hearing aids, Holland in tulips, Germany in high level engineering.)

Use Porter's four determinants of national competitive advantage:

i) factor conditions

ii) demand conditions

iii) related and supporting industries

iv) firm strategy, structure and rivals

Answer 1

In this exercise, we will consider the automobile industry in Germany for our analysis. The automobile industry in Germany is one of the top four industries in the country and has acheived unique competitive advantage over other countries in this industry. We will analyse in depth on the four determinants of national competitive advantage using Porter's model:

1) Factor Conditions:

Germany has a lot of rich natural resources such as building materials, wood, natural gas and other strategic natural resources. This gives Germany a unique competitive advantage in this industry. It also has wide space which is perfect to set up large state of the art automobile manufacturing plants. Germany also has a considerable advantage on human capital, as there is much focus on professional training from an early age. This provides them with highest skilled workers for the main sectors in the country such as automotive and machinery.

2) Demand Conditions:

German cars are known for its innovation, engineering, safety and design. This creates a considerable demand for German cars globally, while their domestic demand is also increasing annually. Brands like Volkswagen, Mercedes-Benz, BMW, Audi and Porsche have carved a unique niche in the luxury car segment globally. Due to this there is ever increasing demand of these cars across the world, making them world leaders in automotive exports.

3) Related and Supporting Industries:

A sizeable number of important lcoal suppliers supported by German scientific infrastructures, provide unique value addition and competitive advantage to their automotive industry. Various research universities, laboratories, research and development facilities and technology companies provide cutting edge support. Technology companies like SAP which are at the forefront of technological advancements in manufacturing and industry are also headquartered in Germany, which gives us an understanding of the technological advancements and the ecosystem for technology in Germany. This gives them a unique advantage over other countries.

4) Firm Strategy, Structure and Rivals:

Germany is positioned strategically and is considered to be at the center of Europe due to its unique geographical and political position. This helps them lead the European market, while also diversifying their manufacturing and supply chain capabilties to lead exports throught the world. Their strategy is to acheive unique competitive advantage, primarily by brand perception and positioning themselves as that of cutting edge engineering, innovation and technology. Their major rivals are automotive companies from Japan and South Korea. German cars are generally more expensive and positioned in the luxury cars segment while Japanese cars are perceived to be more budget friendly. Some of their major rivals are companies like Honda, Toyota and Hyundai.