Services Industry in Canada and Porters Diamond Theory - Essay Example

? Management Introduction ‘Porter’s Diamond theory’, formulated by Michael Porter, intends to recognise the competitive positioning of firms in a specific industry taking into concern, the various micro as well as macro elements identifiable within the external business environment of any company at the industry level. This model was framed to assist organisations in devising effective strategies facilitated with the identification of industrial trends and therefore build sustainability irrespective of the increasing competition in the global market conditions due to the development of advanced technology and the effects of globalisation. To be precise, the model measures the extent of competitive advantages that a firm possesses within a particular industry setting (Pascal, Widiantoro, Nguyen & Sharief, 2011). Emphasising on this understanding, the discussion henceforth will intend to discuss about the competitive positions of services industry in Canada. The extent of competitiveness of this industrial sector will be ascertained with the assistance of Porter’s Diamond Theory. Determination of Competitive Position of Services Industry in Canada by Porter’s Diamond Theory ‘Porter’s Diamond theory’ has been devised with the motive of determining the conditions of local environment where a firm is operational. This model identifies both internal as well as external capabilities of a firm in order to determine its competitiveness. The theory has been devised with the intention of ascertaining the competitive position of a firm with the advancement of technological factors. Barragan (2005) also noted that companies improve competitiveness with increased productivity and acquiring innovation through the use of advanced technologies. Indigenous firms are identified to be the major contributor towards the development of the economic conditions of a country which mostly represent the service organisations (Barragan, 2005). Notably, there are six variables which are included in the model. Among the six variables, four factors are identified as the determinants of the level of competitiveness a firm possesses which include ‘the related and supplier industries’, demand conditions and ‘firm strategy, structure and rivalry’. The other two factors are considered as indirect factors or outside sources such as government and chance which are determined to be influencing the competitiveness as well as performance of a firm (Karacsony, 2008). The six variables of the model can be precisely identified from the graphical representation below. Porter's Diamond model framework Source: (Markus, 2008) Factor Conditions Factor conditions comprise of numerous factors which include skilful labour forces, availability of natural resources and adopting advanced technologies. These factors are recognised to be necessary to drive enhanced performances as well as to compete effectively in the global market segments. In this regard, companies performing business operations with greater accessibility of natural resources as well as with ample labour forces at economically profitable rate will assist a company to attain competitive advantages. Moreover, companies adopt advanced technologies and Research and Development (R&D) facilities with the intention of creating better innovative and differential products for better competitiveness. The availability of these factors at a low rate is quite likely to aid the companies towards performing their business activities successfully within a competitive market environment (Bakan & Dogan, 2012; Cini & Nater, 2010). Canada is demonstrated to excel in relation to services industry which has been currently reported to be accountable for a growth of over 70% in relation to Gross Domestic Product (GDP). Moreover, this industrial sector is also responsible for providing employment opportunities to around three quarter of the population of Canada. This business sector comprises of industries which offers intangible products as well as services. Furthermore, the companies which operate within the services industry are transport companies, food services organisations, retail organisations, distribution companies as well as self-employed professionals among others (Rao, Sharpe & Tang, 2004). In this respect, it has been observed that the services industry in Canada is growing rapidly. The growth of this industrial sector is due to the fact that this sector employs a large number of skilful labour or employees. Moreover, the services industry is also facilitated with better financial support from banking sectors. Canada is also technologically developed which assist firms to adopt innovative as well as creative knowledge with the aim of improving competitive positions (Industry Canada, 2011). Demand Conditions In the Porter’s diamond model, demand conditions are determined to be the forces which attempt to motivate companies to enhance their product quality and services and to offer these products at a competitive price with greater efficiency. The pressure is mainly created by the buyers or consumers in the market segments. These demands by consumers are perceived to be the determinant of competitiveness of a firm. There are three characteristics of demand conditions which are deemed to be responsible for acquiring better competitive positions. The three characteristics include demand conditions at the local market, size of the demand and progress towards foreign markets. The conditions of demand in the local market are determined with the needs as well as requirements of local consumers which have further been argued to be immensely significant for service organisations. Furthermore, companies can determine their competitive positions in the local market segments with respect to the size as well as growth level of demand for its services. It is in this context that companies with increased demand for their products or services in the local market will be facilitated with the opportunity of competing with foreign products due to creative and differentiated products (Eickelpasch, Lejpras & Stephan, 2010; Smit, 2010). The Canadian market segments are demonstrated to be increasing in an enhanced manner due to a large number of foreign populations. Canada consists of a greater proportion of foreign people as compared to local people. In this respect, these diversely cultured people decipher more demand for innovative as well as quality assured consumer services. The market segments of Canada are observed to be differentiated with diverse cultural aspects. In order to meet the demand of such diverse consumers, service companies are required to produce better quality and standard services with the intention of performing business operations effectively in the market segments from a long-run perspective (Industry Canada, 2004). The Related and Supporting Industries This factor of the diamond theory implies that there should be an effective relationship amid companies and suppliers. The relationship between these two parties will enable in making better decisions in relation to value chain. In this respect, firms with proficient supply chain will be able to acquire technological changes in an appropriate manner for better growth and improvement of the offered services. Moreover, companies should also work in a collaborative manner with local suppliers with the motive of performing business operations competitively. It has often been argued in this context that companies conducting business activities in a cluster with other industries or suppliers will aid in obtaining better competitive advantages within the targeted market segments (Eickelpasch, Lejpras & Stephan, 2010). According to Leech (2011), ‘related and supporting industries’ signifies that companies with the availability of quality infrastructure as well as with the assistance of supporting industries, are able to perform their business operations in a successful manner. In other words, companies are required to acquire local suppliers with the aim of conducting business operations competitively in the market segments (Leech, 2011). Leech (2011) also stated that firms on with the availability of these factors are facilitated with the opportunity of conducting business operations in a cost effective manner. From an in-depth perspective, it has been observed that the services industry in Canada is developing in a rapid way. It is in this context that in industry structures where the related and supporting industries to the service industry prevails such as that observed within Canada, companies are able to perform their business activities effectively with respect to diverse cultural aspects. The companies are also able to operate efficiently as well as innovatively with the support as well as the assistance from related companies with better R&D facilities and financial support. The services industry with the virtues of its innovative assistance from their related and supporting industries have been able to obtain competitive growth prospects deciphering greater efficiencies. This industry is also assisted with proficient suppliers who offer support to this sector in various aspects such as products and efficient communications among others (Royal Bank of Canada Website, 2008). Firm Strategy, Structure and Rivalry ‘Firm strategy, structure and rivalry’ of the diamond theory signifies the factors which tend to assist in recognising the policies as well as the processes in accordance with which companies perform their business operations. Strategies of a firm are actions which are planned to be implemented by companies in order to accomplish their objectives successfully. The structure of a firm denotes its management or administration construction. Inclusively, the rivalry factor implies to the competitors which are performing business operations in the market segments. A firm with better strategies as well as structure will therefore be effective in its operations. Furthermore, with improved market competitions, a firm is required to adopt innovative as well as flexible structure, through which it will be able to perform competitively in global market segments (Smit, 2010). The report published by JNCO (2009) signifies that companies are required to formulate strategies as well as policies which are again observed to be directly related to its organisational structure and rivalry aspects. To be precise, as per the requirements of the organisation, the structure of a firm is required to be appropriate with the intention of ensuring that there is a free flow of information (JNCO, 2009). Moreover, JNCO (2009) also revealed that rivalry aspects play an important role among companies to develop better products and/or services in order to compete effectively in the market segments. Notably, all these factors are perceived to be contributory towards the competitive position of a company (JNCO, 2009). In its recent trends, the services industry in Canada is observed to be formulating strategies with better R&D facilities with the objective of conducting business operations efficiently. A managerial inclination can also be observed within this industry which seeks that the structure of the firms is appropriate in order to ensure profitable, quality assured and green or ethically responsible services are delivered to the targeted customers. However, in terms of rivalry, the services industry is observed to be facing intense competitions in the market segments which have encouraged the industry in improving its service quality. This industrial sector is seemed to be adopting an ownership structure and greater inclination towards cost leadership strategy with the objective of performing business operations competitively (Government of Canada, 2011). Role of Government and Chance The policies as well as the rules which are formulated by the government are determined to be affecting the performance of a company in the market segments. The favourable trade policies are also seemed to be positively improving firm’s competiveness as well as performances. On the other hand, chance is referred to any sort of provision which is deemed to be uncontrollable by a firm. Apparently, these factors may directly or indirectly affect the performance of a company (Smit, 2010). According to Barbe & Triay (2011), government is recognised to be playing a significant role in providing better trade policies and regulations for the development of industrial sectors which can also ob observed in the context of Canadian service industry. Moreover, these policies facilitate companies to conduct their business operations effectively and proficiently towards improving competitiveness and profitability (Barbe & Triay, 2011). The government of Canada can be observed to be adopting various innovation policies with the intention towards facilitating technological progress of the country. The Canadian government has also been offering a viable scope for service firms within the national context with international trade opportunities which has further imposed significant influences on the industry structure (Department of finance Canada, 2009). Contextually, the relationship amid Canada and European Union in relation to trade as well as investment is seemed to be improving the performance of services industry with reduction in tariffs by a significant extent (CTRC, 2001). Conclusion Porter’s diamond theory has been formulated with the intention of determining the competitive position of firms in the worldwide market segments. This theory was formulated being motivated by the increased competition in markets in terms of technology advancements and strong effects of globalisation. The diamond model comprises of six variables which include factor conditions, ‘related and supporting industries’, demand conditions, ‘firm strategy, structure and rivalry’ and ‘role of government and chance’. Analysis of these factors for determining the competitive position of services industries in Canada revealed that the organisations operating in this particular industry sector has gained ample growth opportunities which has further widened the possibilities of greater contribution from these organisations towards the economic prosperity. References Bakan, I. & Dogan, I. F. (2012). Competitiveness of the industries based on the porter's diamond model: an empirical study. IJRRAS 11(3), pp. 441-455. Barbe, F. G. T. & Triay, M. M. G. (2011). Is Porter’s diamond applicable to developing countries? A case study of the broiler industry in Uruguay. International journal of business and social science 2(6), pp. 17-28. Barragan, S. (2005). 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