Michael Porter and his theory of competitive advantages. Model of the five forces of competition Michael Porter

Today, international economic relations are developing quite actively. Virtually all countries in the world participate in them to one degree or another. At the same time, some states receive a large profit from foreign economic activity, constantly expand production, while others can barely contain the available capacity. This situation is determined by the level of competitiveness of the economy.

Relevance of the problem

The concept of competitiveness is the subject of numerous discussions in the circles of people who take corporate and public management decisions. Increasing interest in the problem is due to various reasons. One of the key is the desire of countries to take into account economic requirements that are changing within the framework of globalization. A major contribution to the development of the concept of the competitiveness of the state was made by Michael Porter. Let's consider his ideas in more detail.

General concept

The standard of living in a particular state is measured by the national income indicator per person. It increases with the improvement of the economic system in the country. The analysis of Michael Porter showed that the stability of the state in the external market should be viewed not as a macroeconomic category, which is achieved by the methods of fiscal and monetary policy. It should be defined as productivity, effective use of capital and labor. National income is formed at the enterprise level. In this regard, the well-being of the state's economy must be considered separately for each company.

The theory of competitive advantages of Michael Porter (briefly)

For successful operation, enterprises should have low costs or endow differentiated quality products with higher costs. To keep positions in the market, companies need to constantly improve products and services, reduce production costs, thereby increasing productivity. As a special catalyst, foreign investment and international competition. They form a strong motivation for businesses. At the same time, competition at the international level can not only have a beneficial effect on the activities of companies, but also make certain industries completely unprofitable. This position, meanwhile, can not be considered absolutely negative. Michael Porter points out that the state can specialize in those segments in which its enterprises are most productive. Accordingly, you need to import those products, in the release of which companies show a worse result than foreign firms. As a result, the overall performance level will increase. One of the key components in it will be import. Increase productivity is possible through the establishment of affiliated enterprises abroad. They are transferred part of the production - less efficient, but more adapted to the new conditions. Profits received from production are sent back to the state, thus increasing the national income.

Export

No state can be competitive in all production spheres. When exporting in one industry, labor and material costs are increased. This, accordingly, negatively affects the less competitive segments. Constantly increasing exports cause an appreciation of the national currency. The strategy of Michael Porter suggests that the normal expansion of exports will contribute to the transfer of production abroad. In some industries, positions will undoubtedly be lost, but in others they will grow stronger. Michael Porter believes that protectionist measures will limit the state's opportunities in foreign markets, slow the rise in the living standards of citizens in the long run.

The problem of attracting resources

International trade and foreign investment, of course, can significantly increase the national productivity. However, they can also have a negative impact on it. This is due to the fact that in each industry there is a level of absolute and relative productivity. For example, a segment can attract resources, but export from it is impossible. The industry is not able to resist competition in the import sphere, if the level of competitiveness is not absolute.

Five forces of competition for Michael Porter

If the industrial sectors of the country that are losing ground to foreign enterprises are more productive in the state, then its overall ability to provide increased productivity is reduced. The same is true for firms that transfer more profitable activity abroad, because there costs and earnings are less. The theory of Michael Porter, briefly, links several indicators that determine the country's stability in the external market. In each state there are several methods for increasing competitiveness. Cooperating with scientists from ten countries, Michael Porter formed a system of the following indicators:

1. Factor conditions.
2. Service and related industries.
3. Factors of domestic demand.
4. Strategy and structure of companies, competition within industries.
5. The role of public policy and randomness.

The factor conditions

The Michael Porter model assumes that this category includes:

1. Human resources. They are characterized by qualifications, cost, labor force, duration of shifts and work ethics. Human resources are divided into a variety of categories, as each industry has its own needs for particular employees.
2. Scientific and information potential. It is a complex of data that affects services and goods. This potential is concentrated in research centers, literature, information bases, universities, etc.
3. Natural and physical resources. They are determined by quality, cost, availability, the amount of land, water sources, minerals, forests and so on. This category is also referred to as climatic and geographical conditions.
4. Capital is money that can be channeled into investing. This category also includes the level of accumulation, the structure of national financial markets.
5. Infrastructure. It includes a transport network, a communication and healthcare system, postal services, transfers of payments between banking organizations, etc.

Explained

Michael Porter points out that the key factor conditions are not inherited, but are created by the country itself. In this case, the importance is not their presence, but the pace of their formation and the mechanism of improvement. Another important point is the classification of factors into developed and basic, specialized and general. It follows that the stability of the state on the external market, based on the above conditions, is strong enough, albeit fragile and short-lived. In practice, there is a lot of evidence supporting the model of Michael Porter. An example is Sweden. It profitably used its largest deposits of low-sulfur iron until the metallurgical process in the main market of Western Europe changed. As a result, the quality of the ore has ceased to cover the high costs of its extraction. In a number of knowledge-intensive industries, certain basic conditions (for example, cheap labor resources and a wealth of natural resources) may not give any advantages at all. To improve productivity, they must be adapted to specific industries. It can be specialized personnel in manufacturing industries, which are problematic to form elsewhere.

Compensation

The model of Michael Porter admits that the lack of certain basic conditions can act as a strong side, motivating the company to improve and develop. So, in Japan there is a shortage of land. The absence of this important factor began to act as a basis for the development and implementation of compact technological operations and processes, which, in turn, became very popular on the world market. The lack of individual conditions must be compensated by the advantages of others. So, for innovations, appropriate qualified personnel are needed.

The state in the system

The theory of Michael Porter does not classify him as one of the basic factors. However, in describing the factors that affect the degree of stability of the country in foreign markets, the state has a special role. Michael Porter believes that it should act as a kind of catalyst. Through its policy, the state can influence all elements of the system. At the same time, influence can be both beneficial and negative. In this regard, it is important to clearly formulate the priorities of the state policy. The general recommendations are the promotion of development, the stimulation of innovation, the increase of competition in domestic markets.

Spheres of state influence

The indicators of production factors are affected by subsidies, educational policies, financial markets, etc. The government determines the internal standards and norms for the production of certain products, approves instructions that affect consumer behavior. The state often acts as a major buyer of a variety of products (goods for transport, the army, education, communications, health care and so on). The government can create conditions for the development of industries through the establishment of control over advertising means, the regulation of the operation of infrastructure facilities. The policy of the state is able to influence the structure, strategy, features of the competition of enterprises through tax mechanisms, legislative provisions. The government's impact on the level of the country's competitiveness is large enough, but in any case it is only partial.

Conclusion

Analysis of the system of elements that ensure the stability of any state, allows you to determine the level of its development, the structure of the economy. The classification of individual countries in a specific time interval was carried out. As a result, 4 stages of development were identified in accordance with four key forces: production factors, wealth, innovations, investments. Each stage is characterized by its own set of industries and its own areas of activity. Separation of stages allows to illustrate the process of economic development, identify problems that arise in companies.